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United States District Court, S.D. New York

April 28, 2004.

ATSI COMMUNICATIONS, INC., Plaintiff; -against- THE SHAAR FUND, LTD., et al., Defendants

The opinion of the court was delivered by: LEWIS KAPLAN, District Judge


Pending before the Court are three motions to dismiss a securities fraud action for lack of personal jurisdiction or, in the alternative, for failure to plead fraud with particularity. The motions were filed on behalf of defendants (1) Wim Langeveld, (2) Hugo Van Neutegem, (3) InterCaribbean Services, Ltd. ("InterCaribbean"), and (4) Citco. Fund Services (Curacao) N.V. ("Citco").*fn1

According to the amended complaint (the "Complaint"), plaintiff ATSI Communications, Inc. ("ATSI") is a Delaware corporation traded on the NASDAQ. Cpt. ¶¶ 1, 79. The Complaint alleges that defendant Samuel Levinson defrauded ATSI into selling convertible preferred securities to The Shaar Fund, Ltd. ("Shaar"), a British Virgin Islands corporation that Levinson supposedly controlled. Id. ¶¶ 2, 44-45, 105. Levinson allegedly induced ATSI to sell the preferred at meetings in New York. Id. ¶ 44. The Complaint alleges that Levinson and the other defendants then manipulated the price of ATSI common stock downward in order to benefit from more favorable rates of conversion of the preferred. Id. ¶¶ 35, 69.

  The defendants whose motions are the subject of this order are foreign entities and individuals against whom ATSI has alleged, inter alia, control person liability under Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"). Defendants Neutegem and Langeveld are, according to their affidavits, citizens and residents of the Netherlands Antilles. Neutegem Aff. ¶ 2; Langeveld Aff. ¶ 2. It is uncontested that Neutegem and Langeveld worked as managing directors of Shaar Advisory Services N.V. ("Shaar Advisory"), which is a Netherlands Antilles company. See Neutegem Aff. ¶ 3; Langeveld Aff, ¶ 3; Cpt. ¶ 105. The Complaint alleges that Shaar Advisory served both as a signatory for and the "principal advisor" to The Shaar Fund. Cpt. ¶¶ 4, 105. Plaintiff has submitted public filings containing documents that Shaar Advisory signed on behalf of Shaar. Koerner Aff. Exs. B, C, D; Peronti Aff. Ex. 2.

  InterCaribbean is a British Virgin Islands company that was either the director or the sole director of Shaar. Fenlon Aff. ¶¶ 2, 6; Cpt. ¶¶ 12, 105. Plaintiff has submitted public filings containing documents that InterCaribbean signed on Shaar's behalf. Peronti Aff. Exs. 3, 5. InterCaribbean asserts that it does not have offices or conduct business in the United States. Fenlon Aff. ¶ 4.

  Citco. is a Netherlands Antilles company and is the parent of InterCaribbean. Quilligan Aff. ¶¶ 2, 5; Cpt. ¶ 105. Citco concedes that a "small percentage" of its clients are U.S. entities, but maintains that all of its services are performed in the Netherlands Antilles. Citco Mem. 7-8.*fn2

 Personal Jurisdiction

  On a motion to dismiss under Rule 12(b)(2) for lack of personal jurisdiction, the plaintiff bears the burden of showing jurisdiction. The standard applicable to plaintiff's burden depends upon the procedural context in which the jurisdictional challenge is raised. Ball v. Metallurgie Hoboken — Overpelt, S.A., 902 F.2d 194, 197 (2d Cir.), cert. denied, 498 U.S. 854 (1990).

  A district court deciding a Rule 12(b)(2) motion has "considerable procedural leeway." Marine Midland Bank, N. A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). The court "may determine the motion on the basis of affidavits alone; or it may permit discovery in aid of the motion; or it may conduct an evidentiary hearing on the merits of the motion." Id. (citing cases). Where, as here, no discovery has taken place, the plaintiff need only make a prima facie showing of jurisdiction "by pleading in good faith, see Fed.R.Civ.P. 11, legally sufficient allegations of jurisdiction." Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d Cir. 1998) (quoting Ball, 902 F.2d at 197).

  The Exchange Act allows the exercise of personal jurisdiction to the limits of the Due Process Clause of the Fifth Amendment. S.E.C. v. Unifund SAL, 910 F.2d 1028, 1033 (2d Cir. 1990) (citing Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 998 (2d Cir.), cert. denied, 423 U.S. 1018 (1975)). The due process analysis under the Fifth Amendment looks at the defendant's minimum contacts with the United States as a whole. In re Magnetic Audiotape Antitrust Litig., 334 F.3d 204, 207 (2d Cir. 2003) (citing Go — Video Inc. v. Akai Elec. Co., 885 F.2d 1406, 1414-15 (9th Cir. 1989)).

  Under the minimum contacts analysis, contacts with the forum may confer two types of jurisdiction — specific and general. Metropolitan Life Ins. Co. v. Roberts on — Ceco. Corp., 84 F.3d 560, 567-68 (2d Cir.), cert denied, 519 U.S. 1006(1996). Specific jurisdiction exists when a forum "exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum." Id. (quoting Helicopteros Nationales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16 & nn.8-9 (1984)). By comparison, a court's general jurisdiction "is based on the defendant's general business contacts with the forum state and permits a court to exercise its power in a case where the subject matter of the suit is unrelated to those contacts." Metropolitan Life, 84 F.3d at 568 (citing Helicopteros, 466 U.S. at 414-16 & nn. 8-9). To establish general jurisdiction, the plaintiff must show that the defendant has "continuous and systematic" contacts within the forum. Id. (quoting Helicopteros, 466 U.S. at 416).*fn3

  1. Langeveld and Neutegem

  To show specific jurisdiction, plaintiff relies almost entirely on allegations that Langeveld and Neutegem were managing directors of Shaar Advisory and that, in this capacity, they signed documents on behalf of Shaar. See Opp. to Langeveld Motion 8-9; Opp. to Citco. Motion 9-11. It relies upon two public filings, each of which contains a document that either Neutegem or Langeveld signed on behalf of Shaar. Koerner Aff. Ex. C; Peronti Aff. Ex. 2. These documents, however, do not establish specific jurisdiction because they relate to companies and events that are unconnected to this litigation. Nor do they constitute the continuous and systematic contacts that are required to support general jurisdiction.

  Failing to show that Langeveld and Neutegem committed acts or caused effects in the United States, plaintiff charges that Langeveld and Neutegem controlled Shaar and that the contacts of Shaar should therefore be imputed to them. See Opp. to Langeveld Motion 6; Opp to Citco. Motion 6. But the allegation that Langeveld and Neutegem controlled Shaar has no factual support. It is based on the flawed assumption that an advisory firm and its directors necessarily control the clients of the firm.*fn4 Plaintiff's allegation is too conclusory and speculative, even at this preliminary stage, to permit this Court to attribute the contacts of Shaar to Langeveld and Neutegem. See Jazini, 148 F.3d at 185 ("conclusory non — fact — specific jurisdictional allegations" are insufficient to establish a prima facie case that would subject a defendant to jurisdictional discovery). Otherwise, any foreign entity that provides advisory services would be subject to the jurisdiction of the United States based on the contacts of its clients.

  Plaintiff has failed also to make any good faith allegations warranting the exercise of general jurisdiction. According to their affidavits, Langeveld and Neutegem are citizens and residents of the Netherlands Antilles who do not conduct business or own property in the United States. See Neutegem Aff. ¶ 2; Langeveld Aff. ¶ 2. Plaintiff does not contest this, but instead reiterates its argument that the Court should use the contacts of Shaar when analyzing the minimum contacts of Langeveld and Neutegem. See Opp. to Langeveld Motion 6, 9-10; Opp. to Citco. Motion 6, 10-11. This allegation fails for the reasons noted above.

  2. InterCaribbean

  The jurisdictional allegations against InterCaribbean are equally deficient. Plaintiff relies primarily on allegations that InterCaribbean, a British Virgin Islands company, was either a director or the sole director of Shaar and signed certain documents on its behalf; that InterCaribbean controlled Shaar and, through Shaar, invested in other U.S. companies; and that schemes such as that alleged in the Complaint typically involve the use of offshore accounts. See Cpt. ¶ 105; Opp. to InterCaribbean Motion 7-8, 19-22.*fn5

  These allegations, however, are too sparse to establish a prima facie case of jurisdiction. InterCaribbean's status as the director of a primary violator is not, by itself, sufficient to confer jurisdiction. Cf. Calder v. Jones, 465 U.S. 783, 790 (1984) ("Each defendant's contacts with the forum State must be assessed individually."); Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781 n. 13 (1984) ("[J]urisdiction over an employee does not automatically follow from jurisdiction over the corporation which employs him. . . .") (citing cases). Moreover, the allegation that InterCaribbean controlled Shaar is nothing more than a restatement of a legal conclusion, which this Court is not bound to accept as true. See Jazini, 148 F.3d at 185 (courts are "not bound to accept as true a legal conclusion couched as a factual allegation") (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)).

  3. Citco

  The jurisdictional case against Citco. is even more tenuous than that against InterCaribbean. Plaintiff alleges that jurisdiction exists because Citco. controlled InterCaribbean, which in turn controlled Shaar. See Opp. to Citco. Motion 8-9. This argument fails. Plaintiff not only has failed to establish jurisdiction against InterCaribbean, it has failed to provide facts to support the conclusory allegation that Citco controlled InterCaribbean.*fn6


  For the foregoing reasons, the motions to dismiss [docket items 52, 76, 82] are granted for lack of personal jurisdiction pursuant to Rule 12(b)(2), albeit with leave to replead no later than May 17, 2004. Accordingly, the remaining arguments for dismissal of the Complaint are moot. As plaintiff has failed to make a prima facie case of personal jurisdiction, plaintiffs request for jurisdictional discovery is denied. See Jazini, 148 F.3d at 186 (plaintiffs not entitled to jurisdictional discovery unless they make a prima facie case of jurisdiction).


  It is ORDERED that counsel to whom this Order is sent is responsible for faxing a copy to all counsel and retaining verification of such in the case file. Do not fax such verification to Chambers.

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