Seiden v. Baker Tilly Hong Kong Limited

Background

Robert W. Seiden, acting as receiver for China North East Petroleum Holdings Limited (CNEP), brought state-law claims against Baker Tilly Hong Kong Limited (BTHK). The claims alleged breach of contract, negligence and gross negligence, breach of fiduciary duty, participation in a fraudulent scheme, constructive fraud, and unjust enrichment arising from BTHK’s alleged misconduct in auditing CNEP and issuing a 2010 audit report.

BTHK did not initially appear or respond. On March 22, 2019, the court granted Seiden’s motion for default judgment as to the negligence and gross-negligence claims and referred damages for an inquest. After receiving the magistrate judge’s report and recommendation, BTHK appeared and moved to dismiss under Federal Rule of Civil Procedure 12(b)(2), which permits dismissal for lack of personal jurisdiction. The court first denied that motion without prejudice and ordered jurisdictional discovery. BTHK then renewed its motion.

Personal-Jurisdiction Analysis

Personal jurisdiction is a court’s legal power to require a defendant to litigate in that court. Seiden relied on specific personal jurisdiction under New York Civil Practice Law and Rules section 302(a)(1). Specific personal jurisdiction applies only when the claims arise from or relate to the defendant’s purposeful business activity in the forum. Under section 302(a)(1), Seiden had to show both that BTHK transacted business in New York and that the claims arose from that New York activity.

The court evaluated the circumstances using five relevant considerations:

1. Relationship with a New York corporation. Although the court found an ongoing contractual relationship between CNEP and BTHK, CNEP was incorporated in Nevada rather than New York. The court therefore found that this factor favored BTHK.

2. Negotiation and execution of the agreement. The engagement agreement was negotiated by email among people located in China or Hong Kong and was executed in Portland, Maine. The court found that Seiden had not shown that BTHK negotiated the agreement in New York. This factor favored BTHK.

3. Choice of law. The agreement contained no provision requiring the application of New York law. This factor did not support jurisdiction.

4. Notices and payments. The agreement did not require notices or payments to be sent to New York. Although BTHK initially sent an invoice to CNEP’s New York address, subsequent invoices and a final billing notice were sent to China at CNEP’s direction. The court found that this factor favored BTHK.

5. Location of performance. BTHK personnel performed fieldwork at CNEP’s offices in Harbin, China, and performed its other audit work in China or Hong Kong. No BTHK personnel traveled to New York for the audit. The court found that Seiden had not shown that the agreement was performed in New York, so this factor also favored BTHK.

Considering the factors together, the court concluded that Seiden had not provided facts supporting personal jurisdiction over BTHK under New York’s long-arm statute. The court did not reach the merits of Seiden’s underlying claims.

Disposition

The court vacated its March 22, 2019 decision granting default judgment against BTHK and granted BTHK’s motion to dismiss for lack of personal jurisdiction. The clerk was directed to enter judgment dismissing the First Amended Complaint and to close the case.