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ATSI COMMUNICATIONS INC. v. SHAAR FUND LTD.

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

ORDER

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 ...


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