Starostenko v. UBS AG

Background

Yuri Starostenko and Irina Tsareva-Starostenko maintained an investment account at UBS Bahamas and directed day trades through that account in 2013. They alleged that UBS AG and UBS Bahamas accepted their money but did not execute the requested trades on U.S. stock exchanges, instead keeping the money and creating false trade reports. The remaining claims were under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Section 1 of the Sherman Antitrust Act.

The plaintiffs lived in the Bahamas, the account was maintained there, and the alleged fraud was said to have occurred in the Bahamas and Switzerland. UBS AG was incorporated in Switzerland, and UBS Bahamas was incorporated and based in the Bahamas. The plaintiffs had also litigated related matters in a Bahamian court.

Personal Jurisdiction

The defendants moved to dismiss. Although they cited several dismissal rules, the court treated their challenge to personal jurisdiction—the court’s authority over the defendants—as a motion under Federal Rule of Civil Procedure 12(b)(2).

The court held that it had neither general nor specific personal jurisdiction. General jurisdiction allows a court to hear all claims against a defendant when the defendant is essentially at home in the forum. The court found that neither defendant was at home in New York: UBS AG was incorporated and principally based in Switzerland, while UBS Bahamas was incorporated and based in the Bahamas. The defendants’ connections to New York and the United States, including relationships with U.S.-based firms and effects on the U.S. economy, were not enough.

Specific jurisdiction concerns claims connected to a defendant’s conduct directed at the forum. The court found that none of the events underlying the plaintiffs’ claims occurred in the United States. The fact that the plaintiffs intended to trade on U.S. exchanges reflected the plaintiffs’ actions, not conduct by the defendants directed at New York. The court also found that the alleged relationships with U.S.-based carrying firms did not establish jurisdiction because the plaintiffs alleged that their trades were never executed. Effects of the alleged conduct on the U.S. economy were likewise insufficient.

Amendment and Disposition

The plaintiffs asked for leave to amend their complaint again and for appointment of free legal assistance. The court found further amendment futile because the plaintiffs had already amended three times, identified no new facts that would cure the jurisdictional defects, and did not address those defects in their amendment request. The court denied leave to amend and denied the request for free legal assistance as moot.

Because the court lacked personal jurisdiction over the defendants, Judge Katherine Polk Failla granted the defendants’ motion to dismiss and dismissed the case without prejudice. The clerk was directed to terminate pending motions, adjourn remaining dates, and close the case.