Appellate Division Finds No Jurisdiction Over Defendant Company After Sale of Its New York Assets: Be Sure to Sue Before Your Defendant Moves
In Matter of CDR Créances S.A.S. v First Hotels & Resorts Invs., Inc., 2016 Slip Op. 04888 (1st Dep’t June 21, 2016), the Appellate Division reversed a December 11, 2014 Order by New York County Commercial Division Justice Lawrence K. Marks, which denied respondent First Hotels & Resorts Investments, Inc.’s (“First Hotels’”) motion to dismiss the action for lack of personal jurisdiction. The action related to an $82 million loan made in 1991 by a predecessor in interest of petitioner CDR Créances S.A.S. (“CDR”) to Euro-American Lodging Corp. (“Euro-American”). The loan was made to enable Euro-American to acquire Manhattan real estate and convert it into a hotel. After Euro-American defaulted on that loan, CDR obtained a foreign judgment against Euro-American that CDR domesticated in New York. CDR subsequently commenced an action and obtained a New York judgment against a handful of individuals affiliated with Euro-American based upon allegations that those individuals engaged in a conspiracy to convert the proceeds of the loan for their own benefit. One of those individual judgment debtors was Maurice Cohen, one of the principals of Euro-American.
In connection with CRD’s judgment enforcement efforts against Euro-American and Mr. Cohen, CDR initiated a 2009 action against First Hotels, a Quebec corporation that Mr. Cohen created to purchase a condominium in Manhattan. Through that action, CDR was able to obtain a 2009 order that required that the proceeds from the sale of the condominium be deposited in escrow. Years later, in 2012, CDR obtained discovery in a separate federal court action that formed the basis for CDR to assert new allegations that First Hotels participated in the conspiracy to convert the Euro-American loan proceeds. CDR sought to amend its complaint in the 2009 action to assert those claims, but its motion to amend was denied.
CDR subsequently commenced this separate CPLR 5225(b) turnover proceeding against First Hotels. First Hotels moved to dismiss the action for lack of personal jurisdiction, arguing that it had no assets in New York, owned no property in New York, had no offices or employees in New York, and had no bank accounts in New York. First Hotels acknowledged that it had owned the condominium in New York, but noted that the property was sold in 2009. Justice Marks denied First Hotels’ motion to dismiss and found that the court had long-arm jurisdiction under CPLR 302 based on First Hotels’ ownership of the condominium and deposit of the funds into an escrow account that was still being maintained.
In its recent decision, the Appellate Division reversed Justice Marks’ ruling, finding that after the 2009 sale of the condominium there was no basis for general jurisdiction over First Hotels, and no nexus between the conspiracy claims alleged against First Hotels and its ownership of the condominium. As First Hotels’ ownership of the condominium was unrelated to the judgment against Euro-American and Mr. Cohen, or the wrongdoing that resulted in that judgment, the Appellate Division dismissed the claims against First Hotels. The Appellate Division also ruled that the continued maintenance of the escrow account that contained the proceeds from the 2009 condominium sale was insufficient to confer jurisdiction.
This ruling illustrates the importance of securing jurisdiction over a potential defendant or judgment debtor while they maintain a presence in New York. In the dynamic New York marketplace, one never knows when a potential litigation target may liquidate its assets and leave the jurisdiction. Under the Appellate Division’s ruling in this action, jurisdiction may disappear along with your potential defendant.