A Single Instant Message Can Land Your
Company in a New York Court: The
Deutsche Bank Case
By KENNETH N. RASHBAUM
A new decision by New York’s highest court may affect a plaintiff’s ability to sue out-of-state businesses in New York.
N
ot very long ago (though a light year by the standard of technol-ogy advancement), instant messaging was the province of teenag-ers and those who preferred text communication to old-fashioned verbal exchange. The financial community has acceded to the benefits of online give-and-take and adopted the technology quickly, though it recently experienced the downside of this advance in communications technology.New York’s highest court, the Court of Appeals, in a case of appar-ent first impression, unanimously ruled in the matter of Deutsche Bank Securities, Inc. v. Montana Board of Investments1 that an investor’s trans-mission of an instant message into New York subjected it to New York’s long-arm jurisdiction. The question is whether this seemingly ground-breaking opinion is, in fact, an adroit adaptation to technology or merely a follower of established principles of in personam jurisdiction.
THe FACTS
Deutsche Bank Securities, Inc. (DBSI) claimed that the Montana
Kenneth N. Rashbaum is a partner in the New york office of Sedgwick, Detert, Moran & Arnold LLP. He concentrates his practice in the areas of compliance, electronic data management, e-discovery and healthcare. The author grate-fully acknowledges the research and editorial assistance of Stephanie Coste. Mr. Rashbaum can be reached at [email protected].
Board of Investments (Montana Board) canceled a contract to sell Pennzoil-Quaker State bonds following an announcement by Shell Oil that it had agreed to acquire Pennzoil-Quaker State, thereby increasing the bonds’ value.2 The purchase had been negotiated on the Bloomberg Messaging system, and its cancellation took the form of an instant mes-sage using the same medium.3 DBSI, alleging breach of contract, brought suit in New York State Supreme Court.4 After limited discovery, DBSI moved for summary judgment and dismissal of the Montana Board’s defense of lack of personal jurisdiction.5 The Montana Board cross-moved to dismiss the complaint for lack of personal jurisdiction.6 The trial court granted the Montana Board’s motion, holding that one instant message was insufficient contact with New York to subject the Montana Board to jurisdiction.7 The Appellate Division reversed, and the Court of Appeals affirmed the reversal.8
Chief Judge Judith Kaye, citing three cases, observed that New York had “recognized … long-arm jurisdiction over commercial investors using electronic and telephone means to project themselves into New York to conduct business.”9 The defendant was a “sophisticated insti-tutional trader,” Chief Judge Kaye continued, and used electronic means to transact its business in New York, “knowingly initiating and pursing a negotiation with a DBSI employee that culminated in the sale of $15 mil-lion in bonds.”10 Clearly, then, the Court considered the Montana Board’s use of the instant message technology just another vehicle for transact-ing its business, analogous to the telephone, and accordtransact-ingly jurisdiction would attach if that technology were used to improperly cancel a contract. Further, there was not just a single instant message between these “sophis-ticated parties” but, instead, a course of dealing in which the instant mes-sage canceling the deal was simply a part of the commercial course.
A NOveL PROPOSITION?
This case has already received press from as far away as California for the ostensibly novel proposition that a single instant message between commercially equal parties can result in the receiving state obtaining jurisdiction.11 And much has been written about “notorious e-mails” that have resulted in civil and criminal litigation. Instant messaging may
exac-erbate the problem of ill-advised electronic communications as it embod-ies the spontaneity of conversation: there is no opportunity to edit one’s remarks, and thus actionable words may be conveyed. Many companies have instituted “e-communication risk management” training to avoid these “smoking guns.”
In this context, then, it is worthwhile to explore whether the concept that a single electronic communication can give rise to in personam juris-diction, as articulated by the Court in DBSI, breaks any new ground.
The question of whether jurisdiction may be conferred by virtue of an electronic communication has been considered by courts in a number of states. The results in these cases often turn, as one might expect, upon the peculiarities of the forum state’s long-arm statute. But there are also four critical questions considered in the inquiries of the courts that have wrestled with this issue—questions comprising an analysis not all that dif-ferent from that which would be employed were the communication made over the telephone or “snail” (postal) mail:
1. was the electronic communication the “operative act” of the cause of action?12
2. was the communication transmitted by a party to a commercial transaction or in furtherance of such a transaction?13
3. Did the defendant regularly conduct business activities in the forum state?14
4. would the exercise of jurisdiction be fundamentally fair and reasonable?15
Courts at the state and federal level, professing to adapt to rapidly changing business technology, nevertheless have fallen back upon tradi-tional notions of in personam jurisdiction in these cases while acknowledg-ing that it may well fall to the legislatures to craft rules that more closely comport with the speed and ubiquity of evolving modes of communica-tion.16 It is also evident that courts are loath to impose blanket rules, par-ticularly with regard to the exercise of jurisdiction. The Supreme Court of Utah eloquently set forth the quandary in Fenn v. MLEADS Enterprises
Inc. by holding that “[a]dopting a blanket ‘one-e-mail rule’ imposes a sub-stantial burden on corporations. Practically speaking, companies would be required to know the laws of each state and to be prepared to litigate in all fifty of them.”17
Given the ubiquity of electronic communications, this concept drives the principle that the electronic communication at issue must be the piv-otal act upon which the claim is based, as it was in the instant message that breached the contract in DBSI,18or as it would be ina defamation action19 or an electronic misappropriation of trade secrets suit alleging violation of a covenant not to compete.20
A COmmeRCIAL CONTexT
As the Court stated in DBSI when it qualified its holding by stating that that the defendant was a “sophisticated institutional trader,” a basic requirement of jurisdiction is that the communication be transmitted in a commercial context by parties of relatively equal bargaining positions.21 As a consequence, courts considering defamation actions in which a defamatory electronic communication is at issue have declined jurisdic-tion, even where the allegedly defamatory statement is sent to hundreds or thousands of recipients.22
Even when the transmission is in furtherance of a commercial trans-action, however, courts have still proceeded cautiously by examining the entirety of the business relationship in the context of electronic commerce and communications and largely adopting a case-by-case approach. Chief Judge Kaye, writing for the Court in DBSI, took pains to note that “over the proceeding 13 months, . . . [the Montana Board of Investment] . . . had engaged in approximately eight other bond transactions with DBSI’s employee in New York, availing itself of the benefits of conducting busi-ness here, and thus had sufficient contacts with New York to authorize our courts to exercise jurisdiction over its person.”23 Extending this “minimum contacts” criterion laid down by the U.S. Supreme Court in the seminal International Shoe case24 to the world of e-commerce, the Appellate Court of Illinois affirmed the exercise of jurisdiction over an interactive web site that advertised pedigreed dogs and “encouraged visi-tors to communicate with them about potential purposes of puppies via a
direct link to defendants’ e-mail address.”25 The court, while acknowledg-ing that “the type of Internet activity that is sufficient to establish personal jurisdiction remains an emerging area of jurisprudence,” found that “the totality of defendant’s activities in Illinois … were of sufficient quality and quantity to constitute minimum contacts in Illinois under federal due process.”26
THe UTAH RULINg
The Supreme Court of Utah, citing a number of approaches to this problem, observed in Fenn v. MLEADS Enterprises, Inc. that a “certain type of e-mails, merely through their nature and quality, may rise to a level that creates a substantial connection between the defendant and Utah,” and that therefore “the proper inquiry must not focus on the mere quantity of contacts, but rather the quality and nature of those contacts as they relate to the claims asserted.”27 In this case, the court declined to extend jurisdiction over an out-of-state corporation that sent plaintiff an unsolicited e-mail without identifying it as an advertisement, in viola-tion of a statute regarding unsolicited commercial e-mail.28 In contrast, the Superior Court of Connecticut extended jurisdiction in the case of
Meta Group, Inc. v. IDC Research, Inc. over out-of-state defendants who, as part of their employment, “utilized plaintiff’s computer operation in Connecticut and received all their remuneration in Connecticut” and allegedly used the computer system to misappropriate trade secrets. 29
FUNdAmeNTAL FAIRNeSS
The concept of fundamental fairness in extending in personam juris-diction with regard to matters arising out of electronic communications, however, is a clear backdrop to all these decisions. In Hanks v. Kinetics Group, Inc., plaintiff received an e-mail in his home in Louisiana with a relocation agreement concerning work to be performed in Puerto Rico.30 Plaintiff was later injured while on the job in Puerto Rico.31 The court held that the contract of hire was made in Louisiana but that it would be a violation of the “minimum contacts/fair-play” factors analysis set forth in International Shoe to force Kinetics, a corporation that did not have
offices in Louisiana, to defend itself in that state.32 Similarly, in Asser v. Rea, the court declined to extend jurisdiction to the proprietor of a securi-ties online chat web site on grounds that the proprietor owned no shares on the web site (which the court stated was essentially a chat room), and that there was no evidence that he had taken any business action in this regard in California.33 The assertion of jurisdiction, the court held, would not “comport with fair play and substantial justice.”34
In contrast, the course of the parties’ business dealings, as in DBSI,
or the defendant’s purposeful activity in the forum state and reasonable anticipation of consequences of that activity, may well give rise to holding that minimum contacts and fundamental fairness criteria would be met by asserting jurisdiction.35
CONCLUSION
DBSI is a case of apparent first impression with regard to the assertion of jurisdiction by virtue of an instant message. The decision nonetheless follows well-established criteria for asserting in personam jurisdiction based on a communication sent to the forum state, regardless of medium. However, some courts have astutely observed that jurisdiction in the Internet and e-commerce context is evolving and that decisions on juris-diction may turn upon the nature and quality of the electronic commerce involved as well as the significance of the communications to the com-merce in question.
NOTeS
1 No. 71, 2006 N.Y. Lexis 1366 (Ct. App. June 6, 2006). 2 Id. at *3. 3 Id. at *2. 4 Id. at *4. 5 Id. 6 Id. 7 Id.
8 Id. The Court also discussed issues of sovereign immunity and comity, but they are beyond the scope of this article and will not be
discussed here. 9 Id. at *3. 10 Id. at *6.
11 John Caher, N.Y. Court Says Long-Arm Jurisdiction Extends To
E-Mail, the recorDer, June 9, 2006 at 2.
12 Id.; Northwest Airlines, Inc. v. Friday, 617 N.w.2d 590, 593 (Minn. Ct. App. 2000).
13 Id; See e.g., DBSI, 2006 N.Y. Lexis 1366; Fenn v. MLEADS
Enterprises, Inc., No. 20041072, 2006 wL 306645 (Utah Feb. 10, 2006).
14 Becker v. Hooshmand, 841 So.2d 561, 562 (Fla. Dist. Ct. App., 4th Dist. 2003); See generally Asser v. Rea No. A102812,, 2004 wL 171598 (Cal. Ct. App. 1st Dist. Jan. 29, 2004).
15 Fenn, 2006 wL 306645; Bombliss v. Cornelsen, 824 N.E.2d, 1175, 1191 (App. Ct. Ill., 3rd Dist., 2005), citingInternational Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).
16 Northwest Airlines, Inc., 617 N.w.2d at 594-95. 17 Fenn, 2006 wL 306645 at *24.
18 2006 N.Y. Lexis 1366.
19 Dring v. Sullivan 423 F.Supp.2d 540, 540 (D. Md. 2006); See
gen-erally Becker, 841 So.2d 561.
20 See generally Meta Group, Inc. v. IDC Research, Inc., No. (X10)N NHHCV054016768S(CLD), 2006 wL 1230532 (Conn. Super. Ct. Apr. 20, 2006).
21 2006 N.Y. Lexis 1366 at *8.
22 See e.g., Dring, 423 F.Supp.2d 540 (statement transmitted on a list-serv); Becker, 841 So.2d 561 (chat room); Northwest Airlines, 617 N.w.2d 590.
23 DBSI,2006 N.Y. Lexis 1366at *4. 24 326 U.S. 310. 25 Bombliss, 824 N.E.2d at 1180-81. 26 Id. 27 2006 wL 306645 at *18. 28 Id. at *26. 29 2006 wL 1230532 at *4.
30 878 So.2d 782, 784 (La. App. 3 Cir. 2004). 31 Id.
32 Id. at 785.
33 2004 wL 171598 at *6. 34 Id. at *3.
35 See e.g., Bombliss, 824 N.E.2d 1175 ; Amyx v. Players Vacation
Club, Inc., No. 20040252-CA,2005 wL 120838 (Utah Ct. App. Jan. 12, 2005) (unsolicited and sexually explicit e-mail).
