The New York Court of Appeals has unanimously ruled that a non–New York entity’s use of an instant messaging system to conduct business transactions in New York subjects it to the jurisdiction of New York courts under the state’s long-arm statute.
Deutsche Bank Securities, Inc. v. Montana Board of Investments arose out of a bond trade between Deutsche Bank Securities, Inc. based in New York, and the Montana Board of Investments, based wholly outside New York. The bond trade was negotiated over the Bloomberg Messaging System, an instant messaging service provided to Bloomberg subscribers. The parties agreed that Montana would sell its Pennzoil-Quaker State Company bonds to Deutsche Bank for $15 million. Hours after the parties agreed to the trade, but before it was consummated, Shell Oil announced publicly that it had agreed to acquire Pennzoil-Quaker State, which would likely increase the value of the bonds. The following day, Montana informed Deutsche Bank that it would not consummate the trade because it believed Deutsche Bank had had inside information regarding the Shell-Pennzoil deal and, thus, the trade was "unethical and probably illegal." Deutsche Bank ultimately purchased the Pennzoil bonds elsewhere for $16.6 million and brought an action against Montana in a New York State court seeking to recover the additional $1.6 million it paid to acquire the replacement bonds.
On cross-motions for summary judgment, the trial court dismissed Deutsche Bank’s claims, citing a lack of personal jurisdiction over Montana. The Appellate Division, First Department, reversed the trial court, but granted Montana leave to appeal to the Court of Appeals, New York’s highest court. In affirming the Appellate Division’s reversal, the Court noted that Montana "entered" New York to transact business by knowingly initiating and pursuing negotiation electronically with Deutsche Bank—a New York domiciliary. In addition, the Court pointed out that Montana had in the past conducted a number of similar transactions (eight in the previous 13 months) with Deutsche Bank by the same method. In sum, the court held that when a sophisticated institutional trader such as Montana knowingly enters New York—whether electronically or otherwise—to conduct business, it should reasonably expect to defend its actions there.
Although not surprising, given New York courts’ historic tendency to interpret the long-arm statute broadly, this decision marks the first time that the Court of Appeals has enforced long-arm jurisdiction solely on the basis of electronic communications. Moreover, this ruling is not likely to be limited to the specific context in Deutsche Bank (institutional investors trading securities in New York electronically). Rather, it is more likely that long-arm jurisdiction will extend at least to any party that regularly conducts business in New York electronically.
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