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Statek Corp. v. Coudert Bros. LLP

United States District Court, D. Connecticut

February 12, 2018

STATEK CORP., Plaintiff,


          Stefan R. Underhill United States District Judge.

         Plaintiff Statek Corp. (“Statek”)-a California corporation with principal place of business in Orange, California-sued its erstwhile law firm, Coudert Bros. LLP (“Coudert”)-a New York limited liability partnership-for malpractice under English law. Statek's claim arises out of Coudert's alleged failure to transfer certain files from Coudert's London office to Statek in 1996. Coudert has moved to dismiss for lack of personal jurisdiction. Because jurisdiction over Coudert is not authorized by Connecticut's long-arm statute and would not comport with the requirements of due process, I grant Coudert's motion to dismiss.

         I. Standard of Review

         For a federal court to exercise personal jurisdiction over a defendant, “three requirements must be met.” Waldman v. Palestine Liberation Org., 835 F.3d 317, 327 (2d Cir. 2016). First, “the plaintiff's service of process upon the defendant must have been procedurally proper.” Id. Second, “there must be a statutory basis for personal jurisdiction.” Id. And third, “the exercise of personal jurisdiction must comport with constitutional due process principles.” Id. The due process test, in turn, has two components: the “minimum contacts” element “requires that the court determine whether a defendant has sufficient minimum contacts with the forum to justify the court's exercise of personal jurisdiction over the defendant.” Id. (citing Daimler AG v. Bauman, 571 U.S. ___, 134 S.Ct. 746, 754 (2014)), and the “reasonableness” element “requires the court to determine whether the assertion of personal jurisdiction over the defendant comports with ‘traditional notions of fair play and substantial justice' under the circumstances of the particular case.” Id. (quoting Daimler, 134 S.Ct. at 754).

         Because Federal Rule of Civil Procedure 4(k) provides for “personal jurisdiction over a defendant . . . who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located, ” personal jurisdiction typically is “determined in accordance with the law of the state where the court sits.” Arrowsmith v. United Press Int'l, 320 F.2d 219, 223 (2d Cir. 1963) (en banc). Hence, the district court “look[s] first to the long-arm statute of the forum state.” Friedman v. Bloomberg LP, 871 F.3d 185, 191 (2d Cir. 2017). In Connecticut, jurisdiction over foreign limited liability partnerships is authorized by Conn. Gen. Stat. § 52-59b(a), Friedman v. Bloomberg LP, 180 F.Supp.3d 137, 144 n.3 (D. Conn. 2016), aff'd in part, rev'd in part on other grounds, 871 F.3d 185, which provides in relevant part:

[A] court may exercise personal jurisdiction over any nonresident individual, foreign partnership or foreign voluntary association, . . . who in person or through an agent:
(1) Transacts any business within the state;
(2) commits a tortious act within the state . . .; [or]
(3) commits a tortious act outside the state causing injury to person or property within the state . . ., if such person or agent
(A) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
(B) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.

         “[T]he plaintiff bears the burden of showing that the court has jurisdiction over the defendant.” Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 566 (2d Cir. 1996). “[W]hen a motion to dismiss . . . is decided on the basis of affidavits and other written materials, ” the plaintiff may carry its burden “by pleading in good faith . . . legally sufficient allegations of jurisdiction, i.e., by making a ‘prima facie showing' of jurisdiction.” MacDermid, Inc. v. Deiter, 702 F.3d 725, 727 (2d Cir. 2012); Whitaker v. Am. Telecasting, 261 F.3d 196, 208 (2d Cir. 2001). In assessing whether such a showing has been made, the complaint's factual allegations are “assumed to be true” and “construed in the light most favorable to the plaintiff.” Deiter, 702 F.3d at 728; Whitaker, 261 F.3d at 208. The court need “not draw argumentative inferences in the plaintiff's favor, ” however, nor is it “required to accept as true a legal conclusion couched as a factual allegation.” Licci ex rel. Licci v. Leb. Can. Bank, 673 F.3d 50, 59 (2d Cir. 2012). At the pleading stage, the plaintiff must plausibly allege “facts that, if credited by the ultimate trier of fact, would suffice to establish jurisdiction over the defendant.” Id.

         II. Background

         The procedural background to this case is quite complicated (aptly deemed “tortured” by Statek). See Mem. Opp'n Mot. Dismiss, Doc. No. 90, at 8 (“Mem. Opp'n”). On October 28, 2005, Statek and its parent company, Technicorp International II (“TCI II”), filed suit in Connecticut Superior Court against Coudert, Coudert partner Steven Beharrell, and others.[1] See Compl., Doc. No. 1-2, at 3, Statek Corp. v. Coudert Bros. LLP, No. 3:05-cv-01889 (JBA) (“Statek I”). Statek alleged the defendants had aided a global money laundering, fraud, and tax evasion scheme perpetrated by Statek's former directors, Hans Frederick Johnston and Sandra Spillane.[2] See Id. Johnston and Spillane wrongfully diverted over $30 million from Statek and TCI II and concealed it around the world. See Am. Compl., Doc. No. 65, at 5. Beharrell, based in Coudert's London office, served as Statek's outside counsel during the period of the conspiracy.

         In 1996, after Johnston and Spillane had been removed, Statek's new directors “asked Coudert to provide information and a complete copy of the files arising out of and relating to the services Coudert had rendered.” Id. Coudert sent some of its files to Statek but withheld (and denied the existence of) others. See Id. The missing files were subsequently discovered in 2004, after Coudert and Beharrell were subpoenaed by a Bankruptcy Trustee appointed in connection with Johnston's bankruptcy proceedings in England.[3] See Id. at 7-9. Statek alleges that Coudert's wrongful concealment of the files “breached . . . its professional and fiduciary duties to its client Statek” and “hindered, delayed, and frustrated [Statek] in its ability to discover and recover assets that Johnston and Spillane had misappropriated.” Id. at 11.

         A. The first removal and remand

         On December 12, 2005, [4] twenty days after return date on the summons, Beharrell removed the case to this court pursuant to 28 U.S.C. § 1441. Beharrell predicated jurisdiction on diversity of citizenship, arguing that the defendants, Coudert (a New York limited liability partnership) and Beharrell (an English subject resident in England), were completely diverse from the plaintiffs, Statek (a California corporation with principal place of business in Connecticut) and TCI II (a Delaware corporation). The amount in controversy also exceeded $75, 000. See Notice of Removal, Doc. No. 1, Statek I.

         Statek moved to remand on December 23, 2005, pointing out that the citizenship of Coudert-a limited liability partnership-was “based upon the citizenship of the individual partners.” See Conntech Dev. Co. v. Univ. of Conn. Educ. Props., 102 F.3d 677, 681 (2d Cir. 1996). Because some of Coudert's partners resided in California, Coudert was (like Statek) a citizen of California. Therefore, the parties were not completely diverse, and jurisdiction was lacking under 28 U.S.C. § 1332. See Mot. Remand, Doc. No. 8, Statek I; cf. Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267 (1806).

         Beharrell consented to remand on January 20, 2006. Doc. No. 18, Statek I. On January 25, 2006, Judge Arterton granted the motion to remand on consent. Doc. No. 19, Statek I. The case was remanded to Connecticut Superior Court on February 6, 2006.

         B. The first removal and remand

         Back in state court, Coudert and Beharrell moved to dismiss on grounds of lack of personal jurisdiction and forum non conveniens. See Notice of Removal, Doc. No. 1, at 2. The Superior Court directed the parties to conduct limited jurisdictional discovery in order to establish whether Connecticut was a proper forum. See id.

         On September 22, 2006, before the state court ruled on the motions to dismiss, Coudert filed a Chapter 11 bankruptcy petition in the Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”), which triggered an automatic stay of Statek's lawsuit in Connecticut. See 11 U.S.C. § 362. Statek filed a proof of claim in Coudert's bankruptcy case, in which it sought the same relief as it did in the state court action. See Notice of Removal, Doc. No. 1, at 2. On March 23, 2007, Coudert removed the state court action to this court pursuant to the bankruptcy removal statute, 28 U.S.C. § 1452. See id.

         After the second removal, the Bankruptcy Court granted relief from the automatic stay in the bankruptcy proceedings “to allow the parties to proceed to a final determination/resolution of the pending Motions to Dismiss” in this court. See Mem. Opp'n, Doc. No. 90, at 9. I heard argument on the motions to dismiss on February 21, 2008. See Minute Entry, Doc. No. 40. At the close of the hearing, I granted the motions to dismiss on the basis of forum non conveniens, without prejudice to Statek refiling in another forum within 45 days. See Mot. Hr'g Tr. (Feb. 21, 2008), Ex. D to Mot. Dismiss, Doc. No. 86-5, at 17.

         Although I granted the motions to dismiss solely on the basis of forum non conveniens, I made a number of comments during the hearing to indicate that I doubted that this court had “personal jurisdiction over either the firm, ” Coudert, or the “individual partner, ” Beharrell. See Id. at 6. I noted that there was “a fairly strong showing that the matter r[ose] out of activities that occurred principally abroad, ” and that it was “not apparent . . . why Connecticut ha[d] much, if any, connection to th[e] dispute.” Id. The alleged misconduct by Coudert and Beharrell “occurred almost exclusively, if not exclusively[, ] in England, ” I observed, id. at 8, and “Connecticut ha[d] very little connection to the claims raised in the . . . complaint.” Id. at 13. Even though Connecticut “obviously ha[d] a greater connection to the underlying fraud” committed by Johnston and Spillane, “[t]he parties, witnesses[, ] and center of the activities” in the present case were located in “England[, ] and that would appear to be a natural place for this claim to have been brought.” Id. at 13, 15. As a result, I concluded that “[t]he defendants' amenability to suit here [was] called into question.” Id. at 15.

         In part because of the “significant issues regarding personal jurisdiction of the defendants . . . in Connecticut, ” I determined that Connecticut was an inconvenient forum and granted the motions to dismiss “without prejudice to refiling in any forum within the next 45 days.” Id. at 14, 17. “[I]f no refiling [were] made or if the case [were] not brought to the Bankruptcy Court for resolution within the next 45 days, ” I stated, “then the dismissal would be with prejudice.” Id. at 17. I denied as moot the Coudert's and Beharrell's motions to dismiss on grounds of lack of personal jurisdiction. Id. at 17-18. Five days later, on February 26, 2008, the Clerk entered judgment in favor of the defendants and closed the case. See Doc. No. 41.

         Statek quickly moved to modify the dismissal order to ensure that “the statute of limitations [did not] prevent [it] from litigating [its] claims in another forum.” See Ruling & Order, Doc. No. 49, at 1. Because “it was not my intention, in dismissing the case, to prejudice Statek with respect to the statute of limitations, ” I granted Statek's motion, and modified the order of dismissal to add that:

The dismissal is also contingent upon the defendants: (1) waiving any statute-of-limitations defense based upon the running of the statute of limitations during the period from the commencement of the original case in Connecticut to the date on which the plaintiffs re-file the case in the alternate forum; and (2) stipulating to relief from the automatic stay in the Coudert Bankruptcy to allow the plaintiffs to re-file the case in accordance with this order. Should the defendants fail to waive those defenses in writing within the next 15 days, judgment will not enter in this case.

Id. at 2.

         Coudert filed a response on March 20, 2008, in which it stated that it “w[ould] not agree, for purposes of the statute of limitations, to treat the commencement of a subsequently filed action as though such action was commenced on the date Plaintiffs commenced this action in the Connecticut Superior Court, ” and would “not stipulate to relief from the automatic stay in its bankruptcy case.” Resp., Doc. No. 53, at 1. Coudert instead asked that I “enter judgment of dismissal on the grounds of forum non-conveniens or . . . based on the lack of personal jurisdiction over Coudert.” Id. at 2. Because Coudert would not agree to the conditions for dismissal, I directed the Clerk to reopen the case. See Conf. Mem. & Order, Doc. No. 59. Beharrell did agree to the conditions, and I dismissed the claims against him “without prejudice to Statek's refiling those claims in London, England.” Order, Doc. No. 64, at 2.

         Statek moved the Bankruptcy Court for supplemental relief from the stay so that Statek could amend its complaint against Coudert. See Status Rep., Doc. No. 68, at 2. The Bankruptcy Court granted the requested relief solely for the purpose of amending Statek's complaint. See Id. Statek then filed an Amended Complaint against Coudert in this court on August 29, 2008, alleging that Coudert had breached professional and fiduciary duties to Statek. See Am. Compl., Doc. No. 65, at 11. The Amended Complaint does not identify the jurisdiction under whose laws the claims arise, but Coudert asserts-and Statek appears not to contest-that the claims arise under English law. See Mem. Supp. Mot. Dismiss, Doc. No. 86-25, at 8 (“Mem. Supp.”).

         Besides the filing of the Amended Complaint-which was incorporated into Statek's proof of claim in the Bankruptcy Court-no other proceedings occurred in this court as a result of the automatic stay in bankruptcy. See Status Rep., Doc. No. 76, at 4. Due to that inactivity, on August 31, 2009, I ordered the case administratively closed “without prejudice to its pursuit in the United States Bankruptcy Court and without prejudice to re-opening of th[e] case upon motion.” Order, Doc. No. 77, at 1.

         C. The bankruptcy proceedings

         For nearly a decade, Statek's case meandered through bankruptcy court proceedings. The primary issue during that time was which jurisdiction's choice-of-law rules governed Statek's claim. Coudert argued that New York's choice-of-law rules applied under In re Gaston & Snow, 243 F.3d 599 (2d Cir. 2001), which held that “bankruptcy courts confronting state law claims that do not implicate federal policy concerns should apply the choice of law rules of the forum state.” Id. at 601-02 (citing Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487 (1941)). If New York's choice-of-law rules applied, Coudert asserted, then Statek's claim was barred under the applicable statute of limitations.

         Statek originally contended that the Bankruptcy Court should apply federal choice-of-law rules. See In re Coudert Bros. LLP, 2009 WL 2928911 (Bankr. S.D.N.Y. Sept. 8, 2009) (“Coudert I”), aff'd, 2010 WL 2382397, at *2 (S.D.N.Y. June 14, 2010) (“Coudert II”), rev'd in part, vacated in part, and remanded sub nom. Statek Corp. v. Dev. Plan Specialists (In re Coudert Bros. LLP), 673 F.3d 180 (2d Cir. 2012) (“Coudert III”). After the Bankruptcy Court rejected that position, Statek argued for the first time on reconsideration that Connecticut's choice of law rules applied under Van Dusen v. Barrack, 376 U.S. 612 (1964), because “Connecticut was the transferor forum to the Bankruptcy Court for the Southern District of New York.” Coudert II, 2010 WL 2382397, at *2; see Van Dusen, 376 U.S. at 642 (when a civil action is transferred “for the convenience of parties and witnesses, ” 28 U.S.C. § 1404(a), “the transferee district court must . . . apply the laws of the State of the transferor district court”). If Connecticut's choice-of-law rules controlled, Statek argued, then the claim was not time-barred.

         The choice-of-law dispute resulted in nine years of litigation and two appeals to the Second Circuit; it has now led the parties back to this court. The Bankruptcy Court initially declined Statek's invitation to apply Connecticut's choice-of-law rules, reasoning that Statek's Connecticut lawsuit “was not subsequently transferred” to the Bankruptcy Court, but rather was dismissed and refiled as a proof of claim. Coudert I, 2009 WL 2928911, at *3. On appeal, the District Court for the Southern District of New York affirmed, Coudert II, 2010 WL 2382397, but the Second Circuit reversed in part, vacated in part, and remanded. Coudert III, 673 F.3d at 182-83. The Second Circuit reasoned that “the practical effect of filing a proof of claim in the bankruptcy court was to transfer the case from Connecticut federal court to New York federal court.” Id. at 182. Statek “did not choose to litigate in New York, ” the Court noted, but rather “exercised its venue privilege in favor of Connecticut.” Id. at 190. “[T]o allow the defendant Coudert to use a device of federal law (the bankruptcy code) to choose the forum and accompanying choice of law” would not only “be fundamentally unfair” but also would conflict with the Supreme Court's decision in Klaxon, 313 U.S. 487, which aimed to “ensure[] that a plaintiff's choice of forum within a given state w[ould] not be influenced by choice of law considerations.” Coudert III, 673 F.3d at 189, 190-91. Therefore, the Second Circuit held that the Bankruptcy Court should “apply the choice of law rules of Connecticut, ” the state “where [Statek's] underlying prepetition claim was filed.” Id. at 182-83.

         On remand, the Bankruptcy Court adhered to its decision to disallow Statek's claim. The Bankruptcy Court reasoned that “Statek's reconsideration motion was the first time Statek contended that Connecticut's choice of law rules should apply, ” and that “well established precedent strictly constru[ed] reconsideration motions to prohibit a litigant from raising new legal theories that it could have raised but did not until after it lost on its original theories.” In re Coudert Bros. LLP, 2013 WL 4478824, at *1-*2 (Bankr. S.D.N.Y. Aug. 19, 2013) (“Coudert IV”). The district court affirmed, but the Second Circuit again reversed. Statek Corp. v. Dev. Specialists (In re Coudert Bros. LLP), 809 F.3d 94, 98 (2d Cir. 2015) (“Coudert V”). “In relying on a prior alternative holding, ” the Second Circuit held, “the bankruptcy court failed to effectuate Coudert [III]'s mandate.” Id. at 100. Because the Second Circuit was “fully aware of the bankruptcy court's alternative holding” and “did not” adopt it, the Court concluded that the Bankruptcy Court's “‘new argument' holding . . . was implicitly foreclosed by . . . Coudert [III].” Id. at 101. The Second Circuit reversed and remanded “with instructions to: (1) reverse [the Bankruptcy Court's] orders denying reconsideration, (2) vacate the Claim Disallowance Order, (3) reinstate Statek's claim, and (4) permit further proceedings.” Id. at 102-03.

         D. The reopened proceedings

         After the second remand, the Bankruptcy Court lifted the Bankruptcy Plan Injunction “to the extent necessary to allow [the parties] to proceed to a final determination/resolution” of this action, “and the liquidation of Statek's Claim therein.” See Order (June 1, 2017), Ex. I to Cohen Decl., Doc. No. 90-1 at 139, 142-43. Statek then moved to reopen this case on June 12, 2017. See Doc. No. 78. I granted Statek's motion on June 15, 2017. Doc. No. 79.

         III. Discussion

         The case has belatedly returned to this court because the parties' choice-of-law dispute appears to turn on whether Coudert is subject to personal jurisdiction in Connecticut, a matter that I declined to decide nine years ago. Under Van Dusen, “when a case is transferred for convenience under 28 U.S.C. § 1404(a), the law of the transferor state is to be applied so long as the transferor state could properly have exercised jurisdiction.” Gerena v. Korb, 617 F.3d 197, 204 (2d Cir. 2010) (citing Van Dusen, 376 U.S. at 635-39). Conversely, “[i]f a district court receives a case pursuant to a transfer under 28 U.S.C. § 1406(a), for improper venue, or 28 U.S.C. § 1631, for want of jurisdiction, it logically applies the law of the state in which it sits, since the original venue, with its governing laws, was never a proper option.”[5]Id. (citing Levy v. Pyramid Co. of Ithaca, 871 F.2d 9, 10 (2d Cir. 1989)); see SongByrd, Inc. v. Estate of Grossman, 206 F.3d 172, 181 (2d Cir. 2000) (Newman, J.) (“[I]n a transferred action the law of the transferor jurisdiction applies only if the transferor court has personal jurisdiction.”) (internal citation omitted). Just as a party cannot transfer a properly filed civil action to a court that lacks personal jurisdiction, see Hoffman v. Blaski, 363 U.S. 335, 343 (1960), a plaintiff cannot file suit in a court without personal jurisdiction over the defendant and then use “the ‘accident' of federal diversity jurisdiction . . . to achieve a result in federal court which could not have been achieved in the courts of the State where the action was filed.” See Van Dusen, 376 U.S. at 638. Were it otherwise, “[p]laintiffs would . . . be encouraged to file their actions in the federal district court where the state law was the most advantageous, regardless of whether that district court was a proper forum.” Martin v. Stokes, 623 F.2d 469, 472 (6th Cir. 1980); see also, e.g., Trierweiler v. Croxton & Trench Holding Corp., 90 F.3d 1523, 1532 (10th Cir. 1996) (applying law of transferee jurisdiction in such cases ...

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