North Fork Partners Investment Holdings, LLC v. Bracken

Background

North Fork Partners Investment Holdings, LLC brought the action after making a $650,000 mezzanine loan to Patriot Finance, LLC in August 2018. The loan made North Fork a secured creditor of Patriot Finance and a subordinated lender to Congressional Bank, which had previously made a senior loan to Patriot Finance.

The complaint alleged that Christopher Erb and Kenneth F. Elias, described as corporate officers of Congressional Bank, made a false representation and omission in March 2018 about Patriot Finance’s financial condition and its portfolio of consumer loans. North Fork alleged that Erb and Elias knew Patriot Finance was in financial trouble and concealed information about the company’s condition and allegedly fraudulent reports. The complaint asserted fraud claims against Erb and Elias; fraud and fraudulent-transfer claims against W. Christopher Bracken, William Henegan, and Richard Spencer; and a breach-of-contract claim against Patriot Finance.

The loan documents included a provision consenting to New York law and to the jurisdiction of state or federal courts in New York County. The opinion states, however, that neither Congressional Bank nor its officers, including Erb and Elias, were parties to an agreement with North Fork.

Motions and jurisdictional standards

Erb and Elias moved under Federal Rule of Civil Procedure 12(b)(2) to dismiss for lack of personal jurisdiction, meaning the court’s legal authority over them. They also moved under Rule 12(b)(6) and Rule 9(b), arguing that the complaint failed to state a claim and did not plead fraud with the required specificity.

Because the case was in federal court based on diversity jurisdiction, the court applied a two-part analysis: whether New York law provided a basis for jurisdiction and whether exercising jurisdiction complied with constitutional due process. North Fork had to make an initial showing, through its pleadings and supporting materials, of facts that would establish jurisdiction if credited.

The court stated that the parties did not dispute that Erb and Elias were not subject to general jurisdiction in New York. North Fork instead relied on New York’s long-arm statute, particularly provisions concerning conducting business in New York and committing a tort outside New York that causes an injury in New York.

Court’s analysis

The court held that the complaint did not adequately allege jurisdiction under either provision. For the business-activity provision, the complaint did not properly allege that Erb or Elias conducted business in New York or that North Fork’s claims arose from business activity there.

For the out-of-state-tort provision, the court assumed for purposes of its analysis that an injury in New York might have occurred, although the complaint did not allege one. Even with that assumption, the complaint did not allege that Erb or Elias regularly conducted business in New York, expected their actions to have consequences there, or derived substantial revenue from interstate or international commerce.

The complaint’s only identified New York allegation was a general statement that all acts leading to the claims occurred in New York through electronic communication or conduct by North Fork’s representatives and the defendants. The court held that this conclusory statement could not establish personal jurisdiction. It also found that new, vague assertions in North Fork’s opposition brief about New York contacts and an unspecified injury to North Fork’s funds were unsupported by factual material and did not cure the complaint’s deficiencies.

Disposition

Judge Lewis J. Liman granted Erb and Elias’s motion to dismiss the complaint for lack of personal jurisdiction. The complaint against those two defendants was dismissed without prejudice to North Fork filing an amended complaint by June 15, 2020. The court denied as moot the motion to dismiss for failure to state a claim. The clerk was directed to close the docket entry for the motion. The opinion does not state a disposition of the claims against the other defendants.