Credit Lyonnais Securities (Usa), Inc. v. Rafael Alcantara and Cavelba, S.A., Doing Business As Casa de Bolsa Rafael Alcantara V., 183 F.3d 151, 2d Cir. (1999)
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Scribd Government DocsCredit Lyonnais Securities (Usa), Inc. v. Rafael Alcantara and Cavelba, S.A., Doing Business As Casa de Bolsa Rafael Alcantara V., 183 F.3d 151, 2d Cir. (1999)
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Scribd Government Docs183 F.3d 151 (2nd Cir.
1999)
CREDIT LYONNAIS SECURITIES (USA), INC., PlaintiffAppellee,
v.
RAFAEL ALCANTARA and CAVELBA, S.A., doing business
as Casa De Bolsa RAFAEL ALCANTARA V., DefendantsAppellants.
Docket No. 98-7783
August Term, 1998
UNITED STATES COURT OF APPEALS
SECOND CIRCUIT
Argued February 24, 1999.
Decided July 09, 1999.
Defendants, a Venezuelan securities firm and its chief executive officer,
appeal from a default judgment entered in the United States District Court
for the Southern District of New York (Schwartz, J.) in favor of plaintiff,
a New York-based securities broker, ordering defendants to pay funds
allegedly due plaintiff upon certain securities transactions. The district
court denied defendants' motion to dismiss the action for lack of personal
jurisdiction under Fed. R. Civ. P. 12(b)(2). The Court of Appeals, Leval,
J., vacates and remands because the district court failed to make the
required factual inquiry as to whether defendants were subject to the
court's jurisdiction.
CLINTON B. FISHER, New York, N.Y. (Todd L. Schleifstein, Haythe &
Curley, New York, N.Y., Of Counsel), for Plaintiff-Appellee.
WALTER DROBENKO, Drobenko & Piddoubny, Astoria, N.Y., for
Defendants- Appellants.
Before: LEVAL, POOLER and HEANEY,* . Circuit Judges,
LEVAL, Circuit Judge:
Defendants appeal from a default judgment of the United States District Court
for the Southern District of New York (Schwartz, J. ), sitting in diversity and
applying New York law, in an action to recover amounts allegedly owed by
defendants as a result of certain securities transactions. The district court denied
defendants' motion to dismiss for lack of personal jurisdiction under Fed. R.
Civ. P. 12(b)(2), finding that the facts alleged in the complaint, if true, were
sufficient to confer personal jurisdiction over the Venezuelan defendants under
New York's long-arm statute. Without making findings as to the truth or falsity
of plaintiff's jurisdictional allegations, the district court went on to grant
plaintiff's motion for a default judgment in the amount of $378,993 pursuant to
Fed. R. Civ. P. 55(a). Because the court failed to determine whether the
defendants had in fact done what was alleged in the complaint - thereby
subjecting themselves to the jurisdiction of the New York courts - we vacate
the judgment and remand.
BACKGROUND
2
Plaintiff Credit Lyonnais Securities USA, Inc., is a New York-based securities
and investment banking firm. Defendant Cavelba S.A. is a Venezuelan
securities firm based in Caracas, Venezuela. Defendant Rafael Alcantara, a
resident of Caracas and a Venezuelan national, is Cavelba's Chief Executive
Officer and principal stockholder.
On August 9, 1996, plaintiff filed the instant suit in the district court. The
complaint alleged the following. Since 1991 the defendants had engaged in
numerous securities and arbitrage transactions with plaintiff, and had
maintained an account with plaintiff for that purpose. Between approximately
December 14, 1993 and February 4, 1994, defendants contracted to sell
plaintiff specified shares of stock at an aggregate price of $449,656.50. Plaintiff
then contracted to sell these securities to third parties. Defendants failed to
deliver the securities.
The market for the securities defendants had failed to deliver increased. To
cover the short positions in defendants' account, plaintiff paid $714,072.29. It
debited defendants' account in the amount of $264,415.79 - the difference
between the buy-in price and the contract price. After defendants failed to
comply with plaintiff's numerous demands for payment, plaintiff brought suit.
When defendants failed to file an answer, plaintiff moved for a default
judgment pursuant to Fed. R. Civ. P. 55, and the court signed an order to show
cause as to why default should not be entered. Defendants opposed the motion
for a default judgment and cross-moved to dismiss for lack of personal
jurisdiction under Fed. R. Civ. P. 12(b)(2). In their moving papers, defendants
asserted that for the entire time period during which plaintiff claimed the
transactions took place, beginning on November 5, 1993, Cavelba was enjoined
by the Venezuelan courts from doing business, its offices were closed, its
membership on the Caracas stock exchange suspended, and its assets frozen.
Alcantara asserted that he was in jail from December 17, 1993 until May 2,
1994, when the charges against him were found to be without merit and his
assets returned to him. An affidavit of defense counsel asserted that while
defendants had sold securities to plaintiff in the preceding years, between
November 5, 1993 and June 22, 1994, defendants "did not sell any securities to
the plaintiffs or any other person or entity anywhere in the world."
6
By written opinion dated April 28, 1998, the court denied defendants' motion to
dismiss and granted plaintiff's motion for a default judgment. The court
awarded damages in the amount of $378,993 - the amount of plaintiff's claim
plus interest and costs. This appeal followed.
DISCUSSION
7
Because the court failed to conduct the necessary factual inquiry as to whether
it had personal jurisdiction over defendants, we vacate the judgment and
remand for further proceedings.
Motions to dismiss under Rule 12(b)(2) may, in part, test plaintiff's theory of
jurisdiction and, in part, test the facts supporting the jurisdictional theory.
District courts are afforded "considerable procedural leeway" in deciding them.
Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). In
ruling on the theory of jurisdictional allegations, the court may provisionally
accept disputed factual allegations as true. In making such a ruling, the court
need only determine whether the facts alleged by the plaintiff, if true, are
sufficient to establish jurisdiction; no evidentiary hearing or factual
determination is necessary for that purpose. See id.
We find no error in Judge Schwartz's conclusion that plaintiff's allegations, if
true, satisfy the jurisdictional requirements of New York's long-arm statute,
N.Y.C.P.L.R. 302(a)(1). The statute permits a court to exercise jurisdiction
over a non-domiciliary defendant if 1) the defendant "transact[s] business" in
New York, and 2) the cause of action arises out of that business activity, such
that an "articulable nexus" exists between them. See CutCo Indus., Inc. v.
McNaughton, 806 F.2d 361, 365 (2d Cir. 1986) (citing McGowan v. Smith, 52
N.Y.2d 268, 272 (1981)). A defendant transacts business in New York when he
"purposefully avails" himself of the privilege of conducting business there, thus
invoking the benefits and protections of New York law. See McKee Elec. Co.
v. Rauland-Borg. Corp., 20 N.Y.2d 377, 382 (1967). Plaintiff alleged that
defendants held an "active account" with plaintiff's firm in New York
beginning in 1991, and that they agreed to sell plaintiff various securities
through that account in a series of transactions in 1993 and 1994 that are the
basis of the suit. We agree with the district court that these facts, if true, would
be sufficient to establish personal jurisdiction over defendants under 302(a)
(1). See Picard v. Elbaum, 707 F. Supp. 144, 147 (S.D.N.Y. 1989) (citing
Ehrlich-Bober & Co. v. Univ. of Houston, 49 N.Y.2d 574 (1980)); L.F.
Rothschild v. Thompson, 433 N.Y.S.2d 6 (1st Dep't 1980).
10
Although the allegations of the complaint may be deemed true to test the
jurisdictional theory of the complaint, defendants here challenged not only the
theory but also the facts on which jurisdiction was predicated. While a court
may initially deny such a motion to the extent it attacks the plaintiff's theory of
jurisdiction without conducting inquiry into the disputed jurisdictional facts,
eventually it must determine whether the defendant in fact subjected itself to
the court's jurisdiction. The plaintiff still must prove the jurisdictional facts by a
preponderance of the evidence, either at an evidentiary hearing or at trial. See
CutCo, 806 F.2d at 366; Marine Midland, 664 F.2d at 904. Because the court
never determined whether plaintiff could establish the facts upon which
jurisdiction depended, judgment should not have been entered.
11
Defendants further contend that the district court lacked personal jurisdiction
over them because the summons and complaint were not served in accordance
with the requirements of Fed. R. Civ. P. 4, New York's Civil Practice Law and
Rules, and the Venezuelan Civil Code. Defendants did not, however, provide
the district court with the specific allegations they now raise as to why service
was defective; in their pleadings below, defendants made only conclusory
assertions that service did not comply with the applicable rules. The claim is
therefore waived.
12
Defendants also contend that the district court abused its discretion in refusing
to relieve them of their default. Because we are remanding for further
proceedings on the issue of personal jurisdiction, we need not rule on this
question. Defendants will have the opportunity to renew their application for
relief from the default. We note, however, that where, as here, a defendant
opposes a plaintiff's motion for a default judgment (or moves to set aside a
default judgment under Fed. R. Civ. P. 55(c)), the district court should consider
three factors: 1) whether, and to what extent, the default was willful; 2) whether
defendants have a meritorious defense; and 3) whether vacating the judgment
would cause prejudice to the plaintiff. See SEC v. McNulty, 137 F.3d 732, 738
(2d Cir. 1998); Commercial Bank of Kuwait v. Rafidain Bank, 15 F.3d 238,
243 (2d Cir. 1994).
13
Finally, defendants claim the district court erred in awarding damages in the
amount demanded by plaintiff without conducting an inquest into the proper
measure of damages. We agree that the court did not have sufficient evidence to
make a damages award. Rule 55(b)(2) provides that when granting a default
judgment, if "it is necessary to take account or to determine the amount of
damages or to establish the truth of any averment by evidence . . . the court may
conduct such hearings or order such references as it deems necessary and
proper." At the time judgment was entered, the court had before it only the
allegations in the complaint and the affidavit of plaintiff's counsel, who did not
purport to have personal knowledge of the facts, asserting an amount of
damages sustained by plaintiff as a result of defendant's failure to deliver the
securities. This was insufficient evidence upon which to enter the amount of the
judgment. Even when a default judgment is warranted based on a party's failure
to defend, the allegations in the complaint with respect to the amount of the
damages are not deemed true. See Au Bon Pain Corp. v. Artect, Inc., 653 F.2d
61, 65 (2d Cir. 1981); Geddes v. United Financial Corp., 559 F.2d 557, 560
(9th Cir. 1977). The district court must instead conduct an inquiry in order to
ascertain the amount of damages with reasonable certainty. See Transatlantic
Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir.
1997).
14
If the district court finds on remand both that it has jurisdiction over the
defendants and that judgement should be entered against them, it nevertheless
must determine the appropriate amount of damages, which involves two tasks:
determining the proper rule for calculating damages on such a claim, and
assessing plaintiff's evidence supporting the damages to be determined under
this rule. Depending on the state of the record on remand, the latter task may
require a hearing. See id. Plaintiff contends that no further inquiry was required
because the amount defendants owe is "readily ascertainable through simple
arithmetic." We reject plaintiff's argument because it assumes both the
appropriateness of its theory or rule for calculating damages and the correctness
of the figures upon which the calculations were made.
CONCLUSION
15
The judgment is vacated. The case is remanded for further proceedings, as
outlined above.
Notes:
Notes:
*
The Honorable Gerald W. Heaney, Senior Circuit Judge of the United States
Court of Appeals for the Eighth Circuit, sitting by designation.
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