BURTON R. LIFLAND, Bankruptcy Judge.
Before the Court is the motion (the "Motion") of Kurt Brunner ("Brunner" or the "Defendant")
The instant Motion addresses whether Brunner, an attorney in Switzerland who has never set foot in the United States, is nevertheless subject to the personal jurisdiction of this Court, as he allegedly founded, controlled, and profited mightily from entities created for the sole purpose of investing with BLMIS in New York. Upon review of the papers and after oral argument, the Motion is denied without prejudice to refile after limited jurisdictional discovery.
Only those facts pertinent to the instant Motion are addressed below.
On December 6, 2010, the Trustee filed a complaint, subsequently amended on September 21, 2011 (the "Complaint"), against Magnify Inc. ("Magnify"), Premero Investments Ltd. ("Premero"), Strand International Investments Ltd. ("Strand"), The Yeshaya Horowitz Association ("Yeshaya"), Yair Green ("Green"), Brunner, Dodelson, Special Situations Cayman Fund LP, Express Enterprises, Inc. ("Express"), Robert H. Book and R.H. Book LLC, individuals and entities that allegedly collectively received over $154 million in avoidable transfers from BLMIS, approximately $149 million of which consists of fictitious profits. See Compl., ¶ 3.
The Complaint centers around six BLMIS accounts held by Magnify, Premero, Strand and Yeshaya
Compl., ¶¶ 4(a)-(d). These accounts were purportedly accorded special treatment by Madoff, as evidenced by (i) returns as great as 175% per year, (ii) trades backdated to years before the opening of the accounts themselves, and (iii) millions of dollars in withdrawals made before the accounts were even funded or opened. See also Compl., ¶ 2 ("The volume and timing of the `profits' reflected in the accounts were dictated by Madoff and certain of the defendants herein, sometimes without even a pretense of a connection with securities trading activity."). The Accountholder Defendants nevertheless claim the BLMIS estate owes them more than 800 million dollars over and above the funds they have already withdrawn.
According to the Trustee, "Green and/or Brunner exercised control" over the Accountholder Defendants' accounts. See Compl., ¶ 12. Further, "Green and Brunner had virtually unfettered discretion to manipulate the Accountholder Defendants' accounts," Compl. ¶ 6, and they "exploited their relationships with Madoff" to do so, Compl., ¶ 5. Allegedly taking advantage of that power, "Green and Brunner . . . funneled millions of dollars of other people's money . . . to themselves, their families, Yeshaya, other charitable institutions throughout Israel, and other individuals and entities being investigated by the Trustee around the world." Compl., ¶ 5.
While the jurisdictional nexus between a Swiss attorney, a Panamanian and two BVI companies, and the United States is not readily apparent, the Trustee has set forth a number of specific allegations against Brunner that make it more so.
With respect to Magnify, the Trustee alleges that in 1983, Brunner co-founded this Panamanian company at the behest of his client, Albert Igoin ("Igoin")
In addition, Magnify's articles of incorporation list Brunner as the President of the Board of Directors and his wife and son, Gertrude and Phillip Brunner, as the only other directors, although Brunner claims to be Magnify's "Sole Director."
With respect to Premero and Strand, the Trustee alleges that they were founded by Brunner and Green in December 1992 and in September 1998 respectively, under British Virgin Islands ("BVI") law, for the purpose of funneling money out of BLMIS for their benefit, as well as the benefit of their family members and various offshore investment interests. See Compl., ¶¶ 40, 72, 73. Brunner served as the Sole Director of Premero and Strand. See Compl., ¶¶ 40, 41. In this capacity, Brunner authorized Green to open bank accounts in the United States in Strand's name. See Compl., ¶ 51(e). In addition, Brunner signed, and Green filed, two customer claims on behalf of Premero (accounts 1FN073 and 1FN097) and one customer claim on behalf of Strand (account 1FR051). See Compl., ¶¶ 118, 119.
The Trustee argues that "at all relevant times, [Green and/or Brunner] directed the deposit and/or transfer of funds into and/or out of" the Entities' accounts. Compl., ¶ 45; see also Compl., ¶ 90 ("Green and/or Brunner not only directed and controlled Magnify, Strand, Premero, and Express, they also retained the beneficial use over all funds and assets of those entities, including their BLMIS Accounts."). Accordingly, the Trustee alleges that "Green and Brunner were aware or should have been aware that the activity in the BLMIS accounts of Magnify, Strand [and] Premero . . . was inconsistent with legitimate trading activity," as these accounts were rife with "indicia of irregularity." Compl., ¶ 74. These indicia included portfolio evaluations ("Portfolio Evaluations")
Specifically, with respect to Magnify, even though Magnify's second account was opened without any initial deposit, its initial account statement, addressed to Brunner, reflected gains of more than $100 million based on a sale of MCI Communications stock purportedly occurring nearly four years before the account even existed. See Compl., ¶¶ 74, 75(a). In addition, Magnify's July 31, 1993 "re-created" account statement "contain[ed] backdated trades all the way back to January of 1993. Because these trades should have been included on the previous six monthly BLMIS statements . . . it is likely that . . . Brunner received the original statements reflecting no such transactions." Compl., ¶ 77; see also Compl., ¶ 76 ("Statements for Magnify's 1FN025 account are riddled with fictitious and backdated trading activity, of which Green and Brunner knew or should have known.").
Further, with respect to Premero, nearly $200,000 was withdrawn from one of its accounts three weeks before it received its initial funding of $99,980. See Compl., ¶ 75(c). Similarly, with respect to Strand, a transfer of $120,000 was made from the Strand account more than half a year prior to its receiving its initial funding of $10 million from Magnify's 1FN024 account. See Compl., ¶ 74(b).
Allegedly ignoring these indicia of irregularity, Brunner and Green exercised control over the Entities' accounts "to siphon money from BLMIS for the benefit of the Defendants, particularly Yeshaya, as well as their family members and various Israeli institutions." Compl., ¶¶ 90, 45.
In light of the above, the Trustee argues that Brunner should readily have expected to be subject to litigation in the United States involving Magnify, Premero and Strand's activities, particularly given that these activities were riddled with indicia of fraud over a period of decades.
Brunner attempts to undermine the Trustee's allegations through his declarations, as well as those of Green, on at least two key fronts.
Brunner Decl., ¶ 19; see also Brunner Suppl. Decl., ¶ 12 ("My serving as the `Sole Director' of [the Entities] is part and parcel of, and pursuant to, my services as legal counsel to those entities."). Furthermore, Brunner denies that he played any role "in the decision making with respect to the alleged fraudulent transfers that are the subject of this proceeding." Reply Memorandum of Law In Support of Motion to Dismiss Adversary Complaint (Dkt. No. 57), pp. 6-7; see also Brunner Decl., ¶ 37(B) ("I had absolutely nothing to do with, and had no control over, the accounts with BLMIS maintained by [Premero and Strand].") Specifically, Brunner contends he "did not authorize or direct any of the withdrawals or transfers from the BLMIS accounts at issue . . . ." Brunner Decl., ¶ 7; Brunner Suppl. Decl., ¶ 13 ("I never gave or issued any direct or indirect instructions to make any payments whatsoever from the accounts maintained with BLMIS.").
Given these contra-allegations, Brunner contends that he lacks minimum contacts with New York and subjecting him to litigation there would offend traditional notions of fair play and substantial justice.
In considering a motion to dismiss for lack of personal jurisdiction under Rule 12(b)(2), the court "accept[s] as true the factual allegations in the complaint and draw[s] all inferences in the plaintiff's favor." Thomas v. Ashcroft, 470 F.3d 491, 495 (2d Cir. 2006); DiStefano v. Carozzi N. Am., Inc., 286 F.3d 81, 84 (2d Cir. 2001); CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir. 1986). To survive such a motion, a plaintiff must make a prima facie showing that personal jurisdiction exists, see Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981), which can be accomplished through "`legally sufficient allegations of jurisdiction,' including `an averment of facts that, if credited[,] would suffice to establish jurisdiction over the defendant.'" Penguin Group (USA) Inc. v. Am. Buddha, 609 F.3d 30, 35 (2d Cir. 2010) (quoting In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 206 (2d Cir. 2003)).
A plaintiff seeking jurisdiction over a foreign defendant must demonstrate the defendant "has the requisite minimum contacts with the United States at large" to satisfy Fifth Amendment due process. Cruisephone, Inc. v. Cruise Ships Catering & Servs., N.V. (In re Cruisephone, Inc.), 278 B.R. 325, 331 (Bankr. E.D.N.Y. 2002); see also Savage & Assocs., P.C. v. Banda 26, S.A. (In re Teligent, Inc.), Nos. 01-12974, et al., 2004 WL 724945, at *4 n.11 (Bankr. S.D.N.Y. Mar. 30, 2004); North v. Winterthur Assurances (In re North), 279 B.R. 845, 852-53 (Bankr. D. Ariz. 2002) ("[T]he Bankruptcy Rules effectively provide for worldwide service of process, limited only by the due process clause of the Fifth Amendment . . . which requires only that the defendant have the requisite minimum contacts with the United States, rather than with the forum state.") (internal quotations omitted). A reviewing court not only evaluates the "minimum contacts" of the foreign defendant, but also assures an exercise of jurisdiction will not offend "traditional notions of fair play and substantial justice." Asahi Metal Indus. Co., v. Super. Ct. Cal., 480 U.S. 102, 113 (1987) (internal quotations omitted); Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996).
The court can also take into consideration the contraveiling allegations of the defendant, who can rebut the "unsupported allegations" of the plaintiff, but only "with direct, highly specific testimonial evidence" that the plaintiff does not counter. Schenker v. Assicurazioni Genereali S.p.A., Consol., No. 98-CIV-9186, 2002 WL 1560788, at *3 (S.D.N.Y. July 15, 2002); see also Bluestone Capital Partners, L.P. v. MGR Funds Ltd., No. 98-CIV-3128, 1999 WL 322658, at *1 (S.D.N.Y. May 20, 1999) (finding plaintiff can make a prima facie showing of personal jurisdiction "even when the moving party makes contrary allegations that place in dispute the factual basis of plaintiff's prima facie case"); Kulas v. Adachi, No. 96-CIV-6674, 1997 WL 256957, at *2 (S.D.N.Y. May 16, 1997) ("[O]nce a plaintiff has alleged facts, which if proved would support jurisdiction, a defendant cannot win a Rule 12(b)(2) motion merely by denying plaintiff's allegations. Rather, the defendant's moving papers must `entirely refute the plaintiff's allegations.'").
The Trustee argues that the Complaint supports a finding of specific personal jurisdiction over Brunner. Specific jurisdiction exists where a foreign defendant "purposefully direct[s] his activities at residents of the forum," and the underlying cause of action "arise[s] out of or relate[s] to those activities." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (internal quotations omitted). The defendant need not have physically entered the forum, Burger King, 471 U.S. at 476, but "it is essential . . . that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum . . . thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253 (1958).
In addition, the Trustee relies on New York's long-arm statute to support a finding of personal jurisdiction over Brunner. NEW YORK CIVIL PROCEDURE LAW AND RULES § 302(a)(1). This statute permits a finding where the defendant "`purposely availed' himself of the benefits and protections of New York law, through business contacts with New York that are neither `random' nor `fortuitous'" and which "bear a `substantial nexus' to [the plaintiff's] claims." Ayyash v. Bank Al-Madina, No. 04-CIV-9201, 2006 WL 587342, at *4 (S.D.N.Y. Mar. 9, 2006). And, "[t]o determine whether a party has `transacted business' in New York, courts must look at the totality of circumstances concerning the party's interactions with, and activities within, the state." Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 787 (2d Cir. 1999); see also Picard v. Elbaum, 707 F.Supp. 144, 145 (S.D.N.Y. 1989) ("The fact that the non-domiciliary was never physically present in New York is not controlling.").
The Trustee has made a sufficient start toward establishing jurisdiction. Although Brunner has set forth allegations to the contrary, the Court is left with a number of factual questions that must be resolved in order to determine whether personal jurisdiction exists over Brunner. Accordingly, the Court finds that limited jurisdictional discovery is appropriate at this stage of the proceeding.
This Court has "considerable discretion in determining how best to handle jurisdictional questions," Best Van Lines, Inc. v. Walker, No. 03-CIV-6585, 2004 WL 964009, at *3 (S.D.N.Y. May 5, 2004), and may permit a plaintiff to conduct "limited discovery with respect to the jurisdictional issue," Filus v. Lot Polish Airlines, 907 F.2d 1328, 1332 (2d Cir. 1990); see also APWU v. Potter, 343 F.3d 619, 627 (2d Cir. 2003) (warning that "a court should take care to give the plaintiff ample opportunity to secure and present evidence relevant to the existence of jurisdiction") (internal quotations omitted). Such discovery "is appropriate where the plaintiff has made a sufficient start toward establishing jurisdiction and where it would not be a `fishing expedition when little more exists than plaintiff's bare assertions that jurisdiction is proper.'" Ivoclar Vivadent, Inc. v. Ultident, Inc., No. 04-CIV-0984, 2005 WL 1421805, at *5 (W.D.N.Y. June 15, 2005) (citations omitted) (emphasis added); Alicea v. Lasar Mfg. Co., No. 91-CIV-3929, 1992 WL 230203, at *2, (S.D.N.Y. Aug. 31, 1992); see also Stratagem Dev. Corp. v. Heron Int'l N.V., 153 F.R.D. 535, 547-48 (S.D.N.Y. 1994) (indicating plaintiff must "make a threshold showing of jurisdiction and establish that their position is not frivolous"). This discovery is typically "permitted where the facts necessary to establish personal jurisdiction . . . lie exclusively within the defendant's knowledge." Winston & Strawn v. Dong Won Secs. Co., No. 02-CIV-0183, 2002 WL 31444625, at *5 (S.D.N.Y. Nov. 1, 2002) (citing Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 430 n.4 (2d Cir. 1977)).
This Court, in its "considerable discretion," finds that the Trustee has made a sufficient start toward establishing that personal jurisdiction exists over Brunner. Although courts have deemed certain facts relevant in determining whether personal jurisdiction exists, these facts "should not be examined separately or in isolation." Nelson v. Mass. Gen. Hosp., No. 04-CIV-5382, 2007 WL 2781241, at *15 (S.D.N.Y. Sept. 20, 2007) (quoting Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 570 (2d Cir. 1996)). Rather, "courts should assess the defendant's contacts as a whole," as "[t]here is no talismanic significance to any one contact or set of contacts that a defendant may have with a forum state." Id.
Here, the Trustee has set forth an array of allegations against Brunner in the Complaint to show that he greatly profited from entities that he founded and controlled for the sole purpose of investing with BLMIS in New York. Specifically, the Trustee has alleged that in order to "funnel millions of dollars" to himself and others, Brunner created, maintained and controlled the Entities whose sole purpose was to invest in BLMIS in New York. See Compl., ¶¶ 5, 8, 40, 51(c), 72, 73, 75(a)-(b). These Entities had ongoing accounts with BLMIS since the 1990s. See Compl., ¶¶ 75(a)-(c). Brunner served as the Sole Director of the Entities and signed customer claims for each of them in this New York-based SIPA proceeding. See Compl., ¶¶ 39-41, 56, 57, 117, 118, 119. With respect to Magnify, Brunner also served as its President, while his wife and son acted as the other directors. See Compl., ¶ 39. Further, he executed the initial transfer of $3,136,150 to fund Magnify's first BLMIS account, see Compl., ¶ 56, which was titled "Magnify, Inc., Kurt Brunner Atty at Law." Compl., ¶ 39 (emphasis added). In addition, Brunner formally appointed Green as Magnify's "Managing Director" to permit him "to continue to manage and supervise Magnify's BLMIS accounts." Compl., ¶ 69. Finally, he served as Magnify's BLMIS account contact for over a decade. See Compl., ¶¶ 39-41, 56, 57. In that capacity, he received BLMIS account statements that reflected improbably high rates of return, inaccurate trade prices, and backdated trades, see Compl., ¶ 74, and eventually received only Portfolio Evaluations without the most basic account information regarding trades and cash activity, see Compl., ¶¶ 74, 80.
In light of the above, the Court finds that the Trustee's allegations are not merely a "fishing expedition" but rather constitute a sufficient start towards establishing personal jurisdiction over Brunner.
The declarations submitted to the Court on behalf of Brunner to rebut the Trustee's allegations contain a number of discrepancies, leaving questions that must be resolved in order to determine whether personal jurisdiction exists over Brunner. See Wafios Mach. Corp. v. Nucoil Indus. Co., No. 03-CIV-9865, 2004 WL 1627168, at *5 (S.D.N.Y. July 21, 2004) (granting jurisdictional discovery over a defendant because the defendant's affidavit left "further questions . . . which may be necessary to establish . . . personal jurisdiction"); Hollins v. U.S. Tennis Ass'n., 469 F.Supp.2d 67, 73 (E.D.N.Y. 2006) (granting jurisdictional discovery in part because, "rather than conclusively refuting plaintiffs' allegations, many of [the defendant's] assertions merely raise more questions regarding the significance of [the defendant's] activities in New York."). For example, compare Brunner's claims that he acted exclusively in a legal capacity with respect to the Entities, see Brunner Decl., ¶ 19, with his statements that suggest that he had corporate authority and control over the Entities and their BLMIS accounts, such as: (i) neither of Magnify's other Directors had the power to act as its signatory, see Brunner Suppl. Decl., ¶ 11(A); (ii) he appointed Green as Magnify's Managing Director, see Brunner Decl., ¶ 35; (iii) he "was required to provide Board decisions according to which Strand could operate, among which was the authority to utilize banking institutions in the United States"; (iv) he "expressly authorized Green to open bank accounts in the United States in [Strand's] name," Brunner Suppl. Decl., ¶ 11(C); and (v) he implemented the transfer to fund Magnify's initial BLMIS account, see Brunner Decl., ¶ 25. Further, compare Brunner's assertion that the "allegation [that I co-founded Magnify] is patently untrue," Brunner Suppl. Decl., ¶ 9, with his averring that "[t]he Panama entity that I founded for Mr. Igoin was the Defendant Magnify Inc," Brunner Decl., ¶ 22 (emphasis added). Finally, given that Brunner acknowledges that Magnify was funded by a direct deposit into BLMIS and formed solely for the purpose of investing in BLMIS, see Brunner Decl., ¶¶ 22, 25, compare Brunner's admission that he received "contractually agreed annual director's fees" from Magnify with his claim that he never received any payments "either directly or indirectly" from Magnify, see Brunner Suppl. Decl., ¶ 7.
These discrepancies render unclear the degree to which Brunner controlled and profited from the Entities and their accounts—issues the resolution of which will inform this Court's jurisdictional calculus regarding Brunner. See Kinetic Instruments, 802 F. Supp. at 988 (denying motion to dismiss and granting jurisdictional discovery since it would "shed light on such issues as the defendant's control over the corporation and his alleged manipulation of corporate assets"); Stratagem, 153 F.R.D. at 547-48 ("Further discovery may elucidate the degree of control WGS exercised over WGS-NY during the relevant time period."); see also Uebler v. Boss Media, AB, 363 F.Supp.2d 499, 506 (E.D.N.Y. 2005) (finding the plaintiff had made a sufficient start toward establishing personal jurisdiction even though, "[b]ased on the documents before the court, the precise nature of the relationship" between the defendant and two of its subsidiaries was "unclear"); Ayyash, 2006 WL 587342 at *6 (jurisdictional discovery warranted where it could identify additional U.S. transactions in which the defendant was involved).
Accordingly, jurisdictional discovery is warranted, as it would elucidate these issues and likely provide the Trustee with documents to review that are currently exclusively within Brunner's control. See Uebler v. Boss Media, 363 F.Supp.2d 499, 506 (E.D.N.Y. 2005) ("To permit discovery in this case is bolstered by the fact that the facts necessary to establish personal jurisdiction lie within [defendant's] exclusive knowledge."); Wafios, 2004 WL 1627168 at *5.
For the reasons stated above, the Trustee's request for jurisdictional discovery is granted, limited to development and illumination of the Trustee's allegations regarding the degree to which Brunner controlled and profited from Magnify, Premero and Strand. This discovery is to be completed no later than 60 days from the entry of this memorandum decision and order. Failure to submit to such discovery will result in the denial of the Motion with prejudice. Accordingly, the Motion is DENIED with leave to renew following limited jurisdictional discovery.
