Foreign cities, thieves, and millions of dollars’ worth of missing diamonds. This may sound like the trailer for this summer’s blockbuster action film, but this story of hustling and heisting comes straight from Swissgem S.A and Genevagem S.A. v M&B Limited, a New York case recently decided by Commercial Division Justice Peter O. Sherwood.
In Swissgem, Justice Sherwood granted a motion to dismiss brought by Defendant M&B Limited (“M&B”), on the grounds of forum non conveniens, finding Hong Kong, instead of New York, was a more convenient forum to litigate this international suit for ownership over a 20 carat diamond.
On September 28, 2018, in Geneva, Switzerland, a thief stole 24 round brilliant cut diamonds from Plaintiffs Swissgem S.A. and GenevaGem S.A.. The missing diamonds were valued at approximately $18 million. Amongst the two dozen stolen gems was one particularly spectacular 21.14 carat diamond (the “Diamond”). Plaintiff’s notified the police of the diamond heist, as well as the Gemological Institute of America, Inc. (“GIA”), advising GIA that the thieves may try to “re-cut” the diamonds into smaller diamonds, and resubmit them for grading.
Nearly 6,000 miles away in Hong Kong, M&B, a jewelry wholesaler and retailer, unknowingly purchased a 20.33 carat diamond and submitted the gem to GIA in New York for grading and certification. GIA’s analysis revealed that the submitted diamond was, in fact, the same diamond stolen from the Plaintiffs. Plaintiffs demanded return of the Diamond but M&B refused. M&B initiated a suit in Hong Kong asserting ownership over the Diamond and GIA secured the Diamond at its lab in New York, awaiting the resolution of the ownership dispute.
Plaintiffs later filed the subject action in New York Supreme Court, asserting claims of declaratory judgment, failure to purchase in good faith, and replevin. M&B responded by seeking to dismiss on the grounds of lack of personal jurisdiction, and forum non conveniens.
On the issue of personal jurisdiction, M&B argued that Plaintiffs’ reliance on New York’s long arm statute, CPLR § 302(a), was misplaced. Put simply, CPLR § 302(a) gives New York courts the power to exercise personal jurisdiction over non-New York residents who: (1) transact business within New York; (2) commit a tortious act within New York; (3) commit a tortious act outside of New York where the injured persons or property are located within New York; or (4) own, use, or possess real property in New York.
M&B argued that CPLR § 302(a)(1) is only applicable if M&B engaged in “purposeful business activities” within the state and if there was a “substantial relationship” between those activities and the Plaintiffs’ causes of action (see Talbot v. Johnson Newspaper Corp.; O’Brien v Hackensack Univ. Med. Ctr.; Golden Gulf Corp. v Jordache Enter. Inc.). In support of its motion to dismiss, M&B relied on the fact that (i) Plaintiffs’ claims arise from events taking place outside of the U.S., namely Switzerland and Hong Kong; (ii) M&B did not have “purposeful business activities” within New York; and (ii) merely sending the Diamond to GIA in New York for grading is too attenuated and insufficient to establish the necessary nexus.
Plaintiffs, on the other hand, urged the Court that “proof of just one transaction in New York is sufficient” provided the activities were purposeful and that a substantial relationship between the transaction and the claim existed (see Deutsche Bank Sec., Inc. v Montana Bd of Invs.; Kreutter v McFadden Oil Corp.). Plaintiffs relied on the fact that: (i) M&B transacts business by “regularly” sending diamonds to GIA in New York to be graded; (ii) M&B markets themselves as a “global presence,” acting as an admission that M&B is a participant in New York’s diamond market; (iii) the exercise of personal jurisdiction comports with due process because there is a substantial relationship between the lawsuit and M&B’s sending the Diamond to GIA, which allowed GIA to flag the diamond as stolen and notify the Plaintiffs; and (iv) M&B purposefully availed itself of the forum by sending the diamond from Hong Kong to New York. Plaintiffs thus argue that M&B should reasonably expect to defend its actions in New York.
While both parties’ arguments would make any law school civil procedure professor proud, the Court ultimately denied M&B’s motion to dismiss on the basis of lack of personal jurisdiction, finding Plaintiffs were successful in showing M&B “transacts business within New York, purposefully availing itself of the benefits and protections of transacting in the state.”
On the issue of forum non conveniens, however, the Plaintiffs were not so successful. M&B asserted in its moving papers that should the Court find personal jurisdiction, there were two other forums, Switzerland and Hong Kong, that were more appropriate. The supporting reasons included that the theft occurred in Switzerland, the Diamond was purchased in Hong Kong, documents and witnesses were located in Switzerland and Hong Kong (making production in New York burdensome for M&B), and New York had no interest in adjudicating the matter as neither the Plaintiffs nor M&B are residents of New York.
Plaintiffs argued the primary factor in proceeding in New York was the fact that the property in dispute, the Diamond, was currently located in New York. Further, there would be no undue hardship on M&B because it chose to direct business activity towards New York, and because GIA is in New York it would not be impossible to obtain GIA’s documents and witnesses. As for New York’s interest in the matter, Plaintiff’s argued that because New York has a reputation as a “world-renown center for art and culture,” New York has a vested interest in protecting its stream of commerce from stolen goods.
The Court explained that on a motion to dismiss on the basis of forum non conveniens, the challenging defendant bears the burden of “demonstrating relevant private or public interest factors which militate against accepting the litigation” (see Islamic Republic of Iran; Stravalle v Land Cargo Inc.). The Court also listed factors, with no one factor controlling, that should be considered: (a) the residency of the parties; (b) the potential hardship to proposed witnesses; (c) the availability of an alternative forum; (d) the sits of the underlying action; and (e) the burden which will be imposed upon New York Courts. The Court qualified this burden as a “heavy” one, but one that was ultimately met by M&B.
The Court dismissed the case on forum non conveniens grounds because Plaintiffs, a Swiss corporation, brought suit based on acts that occurred outside of New York, finding that a substantial nexus was not formed by simply sending the Diamond to GIA in New York. The Court found that documents and witnesses are primarily located in Switzerland and Hong Kong and that Hong Kong, a forum in which M&B has already begun an action for the same remedies, is a satisfactory alternative. However, the Court did condition dismissal upon the parties stipulating that the Diamond would remain in the possession of the GIA pending the court in Hong Kong giving directive that it had jurisdiction.
Upshot: The same set of circumstances may provide enough for a court to find personal jurisdiction, but may not be enough for a court to determine that the case was brought in the most appropriate forum.