Rudersdal, EOOD v. Harris

Background

The plaintiffs alleged two related but distinct courses of conduct. First, they alleged that proceeds from three loans issued by FIB for the Silver Beach Project in Bulgaria were diverted and used, in part, to purchase Mexican bonds for the personal benefit of certain defendants. The alleged diversion contributed to the bankruptcy of APD, the project's owner, and the project's land was later sold through a Bulgarian bankruptcy proceeding.

Second, the plaintiffs alleged that FIB forged a signature and caused approximately $65 million from that sale to be transferred from a Bulgarian bank account to pay debts owed by five Bulgarian companies. The plaintiffs alleged that other defendants directed or benefited from that transfer and that additional defendants failed to protect the money.

Several defendants moved to dismiss for lack of personal jurisdiction and because Bulgaria was the more appropriate forum. The court had previously granted some motions, dismissed some defendants for lack of personal jurisdiction, and required further briefing concerning personal jurisdiction based on an alleged conspiracy under Federal Rule of Civil Procedure 4(k)(2). Magistrate Judge Robert Lehrburger later recommended allowing an amended complaint, dismissing claims against certain defendants for lack of personal jurisdiction, and severing claims to facilitate dismissal based on the more appropriate forum.

Order to Show Cause and Severance

The court declined to dismiss All Seas Management, Grant Capital Investments, Blue Finance, Angelov, or Harriott for the more appropriate forum because those defendants did not consent to jurisdiction in Bulgaria. The court treated the claims as involving two separate courses of conduct rather than one unified transaction. It found that the conduct involved different legal and factual questions, different witnesses and documents, and only limited factual overlap. The court also found that severance would promote efficient litigation and would not cause significant prejudice.

The court therefore severed the claims against the Group One defendants—Harris, Ayr, Angelov, All Seas Management, Blue Finance, Harriot, Grant Capital, and BNYM—from the claims against the Group Two defendants—the FIB Defendants, the Peevski Defendants, the Five Bulgarian Companies, Bulgartabac, BNB, the BNB Conservators, the Eaton Vance Defendants, and VTB. The claims against the remaining Group Two defendants were dismissed for forum non conveniens, meaning that the court concluded the case should not proceed in this forum, subject to the conditions described in the court's earlier order. The court stated that the Second Report and Recommendation was adopted in part and modified in part.

Personal Jurisdiction Under Rule 4(k)(2)

The court stated, as dicta—that is, a statement not necessary to the outcome—that a plaintiff may use a conspiracy theory of jurisdiction under Rule 4(k)(2). Under that theory, contacts with the United States by one alleged conspirator may, in appropriate circumstances, be attributed to another alleged conspirator for jurisdictional purposes. The court relied on Second Circuit precedent requiring allegations that a conspiracy existed, that the defendant participated in it, and that a co-conspirator committed acts advancing it that created sufficient contacts with the relevant jurisdiction.

The court nevertheless found that the plaintiffs had not adequately pleaded personal jurisdiction over the FIB Defendants, the Peevski Defendants, the Five Bulgarian Companies, or Bulgartabac. It concluded that the complaint described separate conspiracies or courses of conduct, that the second course occurred outside the United States, and that the alleged New York and Texas contacts did not sufficiently show acts advancing the alleged conspiracy. The court identified this deficient jurisdictional pleading as an alternative basis for dismissing the claims against those defendants.

Effect of the Ruling

The ruling did not decide whether the alleged fraud or other underlying claims were legally valid. The court expressly said that its forum analysis was not an assessment of the claims' merits. It severed the claims against the Group Two defendants and dismissed those claims for forum non conveniens, while declining to dismiss several other defendants on that ground.