Pramer S.C.A. v. Abaplus Intern. Corp.

• Citation: 76 A.D.3d 89,907 N.Y.S.2d 154
• Parties: PRAMER S.C.A., Plaintiff-Appellant, v. ABAPLUS INTERNATIONAL CORPORATION, et al., Defendants-Respondents.
• Decision Date: 10 June 2010
• Court: New York Supreme Court Appellate Division

907 N.Y.S.2d 154

76 A.D.3d 89

PRAMER S.C.A., Plaintiff-Appellant,

v.ABAPLUS INTERNATIONAL CORPORATION, et al., Defendants-Respondents.

Supreme Court, Appellate Division, First Department, New York.

June 10, 2010.

Baker Botts, LLP, New York City (Richard B. Harper and Kristin Flood of counsel), for appellant.

Haynes and Boone, LLP, New York City (Kenneth J. Rubinstein and Carmen Seto of counsel), for respondents.

RICHARD T. ANDRIAS, J.P., DAVID FRIEDMAN, ROLANDO T. ACOSTA, LELAND G. DeGRASSE, NELSON S. ROMÁN, JJ.

ACOSTA, J.

In this appeal we are called on to revisit New York's long-arm jurisdiction statute and to determine whether a plaintiff can plead a cause of action for unjust enrichment when it has adequately pleaded that an alleged bribery induced a fraudulent agreement. We modify the order of Supreme Court to the extent of reinstating the claims against defendant Abaplus sounding in fraud and unjust enrichment.

Plaintiff, which provides television services to cable and satellite distributors primarily in Spain and Latin America, has its principal place of business in Argentina. Abaplus, which offers programming for television services such as those provided by plaintiff, is incorporated in the British Virgin Islands, and maintains offices and places of business in Miami, Buenos Aires, and Montevideo, Uruguay. Defendant Vargas Distribution (VDI), which was dissolved in August 2006, was a Panamaniancorporation, also with offices and its principal place of business in Montevideo. Defendant Arturo Vargas, who owned VDI as well as Abaplus, is a citizen of Uruguay.

On January 29, 2001, plaintiff entered into an agreement with VDI whereby the latter would supply cable programmingto plaintiff for the South American market for the years 2001 through 2003. That agreement is not presently litigated, although plaintiff argues that it was linked with a 2002 replacement contract with Abaplus in a manner that demonstrates an ongoing bribery scheme carried out by Abaplus's principal (Vargas) and plaintiff's former CEO, Claudio Bevilacqua.

On December 16, 2002, plaintiff and Abaplus entered into an agreement replacing the VDI agreement. This agreement is the basis of the Supreme Court ruling and the present appeal. Plaintiff alleged in its complaint that Abaplus was actually part of the Vargas programming sales group, so Vargas remained the party in interest. Plaintiff further alleged that VDI provided the programming until December 31, 2002, which Abaplus continued thereafter, so in plaintiff's view, the entities are obviously related.

The 2002 agreement is written in Spanish; there is no allegation that it was entered into in New York. The parties agreed, however, to submit to the jurisdiction of New York courts to resolve any disputes arising under the agreement, and that New York law would govern any litigation.

Plaintiff alleged that Vargas and the corporate defendants engaged in a fraudulent scheme involving plaintiff's CEO whereby defendants bribed Bevilacqua to commit plaintiff to paying inflated prices for "inferior programming," a scheme that was continued under the 2002 agreement. Additionally, Abaplus was alleged to have breached the 2002 agreement by failing to provide plaintiff with the promised programming per year, and also tried to supply plaintiff programming to which Abaplus did not own the distribution rights.

After it terminated Bevilacqua's employment on January 14, 2004, plaintiff continued an investigation that had been ongoing with respect to certain of Bevilacqua's activities during his employment. In 2006, plaintiff discovered that its contractual relationships with entities controlled by Vargas, including the present one, which had been negotiated by Bevilacqua and Vargas, had resulted from a kickback scheme.

Specifically, starting in January 2001 (i.e., during the term of the VDI contract), Bevilacqua committed plaintiff to pay for programming at highly inflated prices, and kickbacks were paid into personal bank accounts controlled by Bevilacqua. Bevilacqua utilized a Citibank account in New York, which he had opened in his niece's name but to which he retained signatory rights, to accept the kickbacks. The niece used that accountwhile she resided in Bevilacqua's New York apartment, but stopped doing so when she left New York and returned to Argentina in early 2001.

According to plaintiff, it wired $300,000 to VDI's account at Dresdner Bank Lateinamerika AG, pursuant to the agreement, on July 25, 2001. Plaintiff's investigation uncovered that three weeks later, VDI wired $150,000 from that same account to Bevilacqua's niece's Citibank account in New York. On November 13, 2001, plaintiff wired $100,733.11 to VDI's account at Northern Trust International, which then was credited to a Merrill Lynch account. The next day, VDI wired $50,000 to the Citibank account.

Plaintiff claimed that Bevilacqua maintained total control over negotiations and executed both agreements without involving any of plaintiff's other corporate officers,and that defendants failed to disclose to plaintiff or its shareholders that Bevilacqua had been disloyal to it and had accepted payments to his personal benefit in exchange to binding plaintiff to a commercially unreasonable agreement, and that defendants were part of the fraudulent scheme.

Plaintiff asserted five causes of action against the corporate defendants and Vargas personally: common law fraud, breach of the implied covenant of good faith and fair dealing (against only Abaplus), unjust enrichment, breach of contract (against only Abaplus) and declaratory judgement (against only Abaplus).

Motions were made by Abaplus and Vargas in November 2007, and by VDI in January 2008, to dismiss the complaint for lack of jurisdiction and, alternatively, for failure to state a cause of action.

They averred that Vargas, a foreign citizen, transacted no business in New York, as manifested by the absence of any purposeful activity in New York bearing a substantial relationship with the transaction underlying the dispute. They further argued that Vargas did not commit a tort within New York State, or a tort outside of New York causing injury in New York. With respect to the fraud claim, defendants argued the alleged wire transfers were made by VDI and not Abaplus, and took place prior to when Abaplus signed the agreement with plaintiff.

The Special Referee's report, dated August 15, 2008, concluded that neither VDI nor Vargas individually had any contacts with New York that would provide a basis for New York long-arm jurisdiction. The report concluded that just asmailing documents or funds to New York does not rise to the level of activity contemplated as a basis for personal jurisdiction, so too, merely wiring funds into a bank account in New York fails to provide a basis for New York jurisdiction. Nor was there a basis for jurisdiction predicated on tortious conduct on the theory that Bevilacqua's niece, when she resided in New York, was a conspirator, since there was no allegation that she knew of let alone intentionally participated in any scheme involving kickbacks that funded the Citibank account. Moreover, since defendants did not own or control that bank account, payments into the account did not invoke New York jurisdiction.

With respect to the tort and contract theories asserted in the complaint, the report concluded that allegedly improper wire transfers underlying the fraud claim were made by VDI and not Abaplus, and took place a year before Abaplus entered the subject agreement, and the complaint thus failed to state a cause of action against Abaplus. The report also noted that the implied covenant of good faith and fair dealing is not an independent claim and was encompassed within the breach of contract (and fraud) claims, which also precluded the unjust enrichment claim against Abaplus. In March 2009, Supreme Court adopted the special referee's findings and recommendations. Specifically, the court rejected plaintiff's contention at oral argument that by wiring the funds to the New York account, Vargas and VDI "directed" tortious activities in New York, and that Bevilacqua acted as a coconspirator with Vargas and VDI by receiving those funds in New York. The court further found that plaintiff failed to connect those funds with the subsequent contract with Abaplus. The court also noted that regardless of the prior contractual relations between plaintiff and VDI, the contract presently in litigation was the 2002 agreement between plaintiff and Abaplus, particularly given the timing of the kickback payments to Bevilacqua.

The court dismissed the fraud claim against Abaplus because the complaint failed to connect the alleged bribes involving VDI and Vargas to the Abaplus contract. The court also dismissed the unjust enrichment claim against Abaplus, since there was a valid contract between plaintiff and Abaplus; moreover, the court held that the breach of contract claim subsumed the implied covenant claim against Abaplus.

Claims against Arturo Vargas and VDI

Supreme Court properly dismissed all the claims against VDI and Vargas on jurisdictional grounds. It has long been established that in order to satisfy due process, a defendant who is not physically present in a state must have minimum contacts with the state, thereby availing itself of the protections and benefits of the laws of that state, before the state may exercise in personam jurisdiction over it and thereby subject it to legal process ( International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 [1945] ). Plaintiff has failed to carry its burden of establishing personal jurisdiction over VDI and Vargas under New York's long-arm statute ( see O'Brien v. Hackensack Univ. Med. Center, 305 A.D.2d 199, 760 N.Y.S.2d 425 [2003] ).

CPLR 302 codifies the basis for in personam jurisdiction in New York against nondomiciliaries. The salient consideration, again, is whether the assertion of...