Sole Resort v. Allure Resorts Management, LLC

Decision Date13 June 2006
Docket NumberDocket No. 05-5786-CV.
Citation450 F.3d 100
PartiesSOLE RESORT, S.A. DE C.V., Petitioner-Appellant, v. ALLURE RESORTS MANAGEMENT, LLC, Respondent-Appellee.
CourtU.S. Court of Appeals — Second Circuit

Kenneth I. Schacter, Bingham McCutchen LLP (Susan Kim and Brian R. Hole, on the brief), New York, NY, for Petitioner-Appellant.

Jeffrey Daichman, Kane Kessler, P.C., New York, NY, (Alan S. Loewinsohn and Carol E. Farquhar, Loewinsohn & Flegle, LLP, Dallas, TX, on the brief), for Respondent-Appellee.

Before WALKER, Chief Judge, CALABRESI and CABRANES, Circuit Judges.

JOHN M. WALKER, JR., Chief Judge.

In this appeal, Solé Resort, S.A. de C.V. ("Solé") challenges an order of the United States District Court for the Southern District of New York (Jed S. Rakoff, Judge) dismissing for lack of personal jurisdiction a petition to vacate an arbitration award against Solé. Both Solé and Appellee Allure Resorts Management, L.L.C. ("Allure") are non-U.S. corporations. The dispute involves a property located in Mexico, and the arbitration took place in Miami, Florida. Solé argues that New York courts have jurisdiction over its petition pursuant to New York Civil Practice Law and Rules section 302(a) because the contract giving rise to the arbitrated dispute involved sufficient activity in New York to justify jurisdiction, see N.Y. C.P.L.R. § 302(a)(1), and because Allure committed a tortious act whose effect was felt in New York, see id. § 302(a)(3). Allure, on the other hand, contends that section 302(a)(1) permits a court to look only to the actions of the arbitrators when determining whether jurisdiction is proper in a petition to vacate an arbitration award and that, in any case, the New York contacts related to the underlying contract are insufficient. Allure also denies that it committed a tortious act. For the reasons that follow, we think the jurisdictional inquiry properly includes an examination of the parties' activities related to the contract underlying the arbitrated dispute, we express no opinion as to the sufficiency of the New York contacts in the instant case, and we remand the case to the district court to perform this analysis in the first instance.

BACKGROUND

Solé, a company organized under the laws of Mexico, and Allure, a limited liability company organized under the law of the Turks & Caicos with its principal offices in the Dominican Republic, entered into an agreement whereby Allure would manage a hotel owned by Solé and located in Tulum, Mexico. The agreement provided that it would be governed by Delaware law and that any disputes would be resolved by arbitration in Miami. Allure failed to generate the business for Solé's hotel that the parties had anticipated when they entered into the agreement, and the relationship between Solé and Allure soured. After ten months of disappointing performance by Allure, Solé terminated the contract.

Accepting, as we must for purposes of this appeal, Solé's account of the facts as true, see CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986), the formation, performance, and termination of the contract between Allure and Solé involved several contacts with New York. First, Solé's decision to enter into the management agreement was based, in part, on a business plan that Allure sent to Gilberto Sandretto, Solé's principal owner, at his home in New York. Second, the negotiation of the management agreement included the exchange of numerous drafts sent by email to and from Solé's counsel in New York, as well as several conference calls in which Solé's counsel participated from New York. Third, one of Allure's principals traveled to New York to meet with local tour operators and developed plans to promote the hotel in New York. Finally, at a meeting in New York's JFK airport, Sandretto informed an Allure representative that he was considering terminating the agreement, which he did several days later by a letter mailed from New York.

Alleging that Solé had breached their agreement, Allure commenced an arbitration proceeding against Solé. As provided for in the contract, the arbitration took place in Miami, Florida. The arbitrators found in favor of Allure and awarded $2,157,653.08 in lost future profits. Solé then brought this action in the Southern District of New York to vacate the award on the ground that the arbitrators "manifestly disregarded the applicable law in awarding damages and the amount of its award is arbitrary and capricious."

Allure moved to dismiss the petition for lack of personal jurisdiction, and the district court granted the motion. Solé Resorts, S.A., de C.V. v. Allure Resorts Mgmt., LLC, 397 F.Supp.2d 426 (S.D.N.Y. 2005). Applying New York's long-arm statute, the district court first concluded that the parties' contacts with New York were insufficient to support an exercise of jurisdiction because Solé's complaint is based solely on the actions of the arbitrators, all of which took place in Florida. Thus the cause of action arises from business transacted within Florida, not New York. Id. at 429. Next, the district court reasoned that, because the arbitration panel determined that Allure did not commit the tort about which Solé complains and Solé has not challenged that determination in its petition, Solé has no colorable claim that Allure committed a tort that caused injury in New York and, consequently, jurisdiction cannot be exercised on that basis. Id. at 429-30. This appeal followed.

DISCUSSION

We review dismissals for lack of personal jurisdiction de novo. Grand River Enters. Six Nations, Ltd. v. Pryor, 425 F.3d 158, 165 (2d Cir.2005). The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38 ("New York Convention"), governs this dispute1 and provides federal subject matter jurisdiction. 9 U.S.C. § 203. The amenability of an out-of-state corporation to suit in a federal district court is determined by the law of the state in which the district court sits. See Fed. R.Civ.P. 4(k)(1)(A); Sunward Elecs., Inc. v. McDonald, 362 F.3d 17, 23 (2d Cir. 2004); United States v. First Nat. City Bank, 379 U.S. 378,381, 85 S.Ct. 528, 13 L.Ed.2d 365 (1965). The question before us is thus whether New York law provides for jurisdiction over the parties.

Solé does not contend that Allure's contacts with New York are so "continuous and systematic," Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 415, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984) (internal quotation marks omitted), that it is subject to the jurisdiction of courts in New York on a general jurisdiction theory. Instead, it asserts that jurisdiction is premised on New York's long-arm statute, which provides for specific jurisdiction over non-domiciliaries under certain circumstances. See N.Y. C.P.L.R. § 302. Specifically, Solé argues that section 302(a) subsections (1) and (3) provide for jurisdiction over Allure in New York courts. In relevant part, section 302(a) provides:

As to a cause of action arising from [the actions listed in this section], a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent:

1. transacts any business within the state or contracts anywhere to supply goods or services in the state; or . . .

3. commits a tortious act without the state causing injury to person or property within the state . . . if he . . . (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.

Id. § 302(a).

I. N.Y. C.P.L.R. § 302(a)(1)

To establish personal jurisdiction under section 302(a)(1), two requirements must be met: (1) The defendant must have transacted business within the state; and (2) the claim asserted must arise from that business activity. McGowan v. Smith, 52 N.Y.2d 268, 273, 437 N.Y.S.2d 643, 419 N.E.2d 321 (1981). The district court reasoned that, regardless of any business the parties may have transacted within New York, Solé's claim sprang solely from the actions of the arbitrators, which took place in Miami, Florida. Thus, the asserted claim could not arise from any New York-based activity, and the court could not assert jurisdiction pursuant to section 302(a)(1). Because the district court held that the "arising from" requirement proved dispositive to the jurisdictional question, we begin our analysis there.

New York courts have held that a claim "aris[es] from" a particular transaction when there is "some articulable nexus between the business transacted and the cause of action sued upon," McGowan, 52 N.Y.2d at 272, 437 N.Y.S.2d 643, 419 N.E.2d 321, or when "there is a substantial relationship between the transaction and the claim asserted," Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467, 527 N.Y.S.2d 195, 522 N.E.2d 40 (1988). A connection that is "merely coincidental" is insufficient to support jurisdiction. Johnson v. Ward, 4 N.Y.3d 516, 520, 797 N.Y.S.2d 33, 829 N.E.2d 1201 (2005). This inquiry is a fact-specific one, and when the connection between the parties' activities in New York and the claim crosses the line from "substantially related" to "mere coincidence" is not always self-evident. In fact, "[w]hile there has been much discussion of what amounts to transacting business under section 302(a)(1), there has been little analysis of when a cause of action `arises' out of business so transacted." Fontanetta v. Am. Bd. of Internal Med., 421 F.2d 355, 357 (2d Cir.1970) (footnote omitted). In this appeal, we must decide whether the New York contacts underlying a contract that gives rise to an arbitration have an articulable nexus with or a substantial relationship to a challenge to the arbitrators' award. This is a novel question, both in this court and in the New York courts, but we think that they do.

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