United States District Court, S.D. New York
December 8, 2004.
NUEVO MUNDO HOLDINGS, et al., Plaintiff,
PRICEWATERHOUSE COOPERS LLP, et al., Defendant.
The opinion of the court was delivered by: GEORGE DANIELS, District Judge
MEMORANDUM OPINION & ORDER
Plaintiffs bring suit alleging several claims under common law,
breach of contract and a violation of the Racketeer Influenced
and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964 et. seq.
This Court previously dismissed the suit against defendants
Pricewaterhouse Coopers LLP ("PWC") and Arthur Andersen LLP
("Andersen") pursuant to Federal Rule of Civil Procedure 12(b)(6)
and 12(b)(7). Nuevo Mundo Holdings v. Pricewaterhouse Coopers
LLP, 2004 U.S. Dist. LEXIS 780 (S.D.N.Y. Jan. 22, 2004). The
remaining defendant Luis Cortavarria Checkley ("Checkley") now
moves to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(1), 12(b)(2), 12(b)(6), 12(b)(7), and 19. For the reasons
stated below, the action is dismissed for lack of subject matter
jurisdiction and lack of personal jurisdiction.
Plaintiffs Nuevo Mundo Holdings S.A., et al. are the foreign
shareholders and directors of Banco Neuvo Mundo S.A. ("Nuevo
Mundo"). Defendant Checkley is the former Superintendent of
Banking and Insurance ("SBS") of Peru. The facts of the case are
as stated by this Court in Nuevo Mundo Holdings v.
Pricewaterhouse Coopers LLP, 2004 U.S. Dist. LEXIS 780, *2-5
(S.D.N.Y. Jan. 22, 2004). Plaintiffs allege that Checkley in his role as the superintendent of SBS conspired with
the Peruvian affiliates of defendants PWC and Andersen to seize
control of Neuvo Mundo. Based upon these allegations, plaintiffs
assert claims against Checkley for violations of RICO, fraud,
tortious interference, prima facie tort, and punitive damages.
Plaintiffs allege that Nuevo Mundo Holdings, S.A. is a
corporation organized under the laws of Panama. (Compl. ¶ 1.) The
remaining plaintiffs are Peruvian directors and investors of
Nuevo Mundo. Id. ¶¶ 2-10. There is no allegation that any of
the plaintiffs are United States citizens or reside in the United
States. Defendant Checkley was the Peruvian Superintendent of
Banking and Insurance from July 28, 2000 to June 23, 2002. Id.
¶ 13. He now resides in Maryland and works in Washington D.C.
(Checkley Decl. ¶ 2.)
A. Plaintiffs Have Failed to Establish Subject Matter
Defendant Checkley argues that this Court lacks subject matter
jurisdiction over this case. There are no longer any U.S.
entities in the case. The sole basis for subject matter
jurisdiction is founded upon the federal claim of RICO. Checkley
argues that because the complaint alleges that a foreign
defendant engaged in conduct violating RICO on foreign soil
against foreign victims, RICO does not apply. (Mot. to Dismiss
at 8-9.) Plaintiffs maintain that the application of the RICO
statute is appropriate because the actions of the defendant, as
Superintendent of SBS, had effects in New York since "New York
investors lost their investment, their notes payable in New
York." (Opp'n at 8.) Plaintiffs' sole allegation upon which they base federal
jurisdiction is their RICO claim against remaining defendant
Checkley. Plaintiffs allege that Checkley, working in concert
with dismissed defendants PWC and Andersen participated in a
pattern of racketeering activities and corrupt practices. (Mot.
to Dismiss at 8-9.) Plaintiffs' claims, however, involve foreign
acts by foreign parties in violation of foreign law and to the
detriment of foreign victims. Federal jurisdiction on this matter
is dependent, therefore, on finding that the United States civil
RICO statute should be applied in this case.
Plaintiffs, as parties "seeking to invoke the subject matter
jurisdiction of the district court," bears the burden of
demonstrating that there is subject matter jurisdiction in the
case. Scelsa v. City Univ. of New York, 76 F.3d 37, 40 (2d Cir.
1996). Federal courts "need not accept as true contested
jurisdictional allegations" in considering a motion to dismiss
for lack of subject matter jurisdiction under Federal Rule of
Civil Procedure 12(b)(1). Jarvis v. Cardillo, 1999 U.S. Dist.
LEXIS 4310, at *7 (S.D.N.Y. Apr. 5, 1999). A court may resolve
disputed jurisdictional facts by referring to evidence outside
the pleadings, including affidavits. See Zappai Middle E.
Constr. Co. v. Emerate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir.
The RICO statute is silent as to any extraterritorial
application. See North South Fin. Corp. v. Al-Turki,
100 F.3d 1046, 1051 (2d Cir. 1996). Although "a corporate defendant that
is a foreign entity is not for that reason alone shielded from
the reach of RICO," the Second Circuit has acknowledged the
ambiguity as to the "character and amount of activity in the
United States that will justify RICO subject matter jurisdiction
over a foreign entity." Id. at 1052 (citing Alfadda v. Fenn,
935 F.2d 475, 479 (2d Cir. 1991)). While the Second Circuit has
not expressed a specific test for determining the extraterritorial applications of RICO, the court in North South
Fin. stated that the "ultimate inquiry is . . . whether
`Congress would have wished the precious resources of the United
States courts and law enforcement agencies to be devoted to
[foreign transactions] rather than leave the problem to foreign
countries.'" Id. (quoting Bersch v. Drexel Firestone, Inc.,
519 F.2d 974, 985 (2d Cir. 1975)). The Second Circuit has further
noted that "guidance [regarding the extraterritorial application
of RICO] is furnished by precedents concerning subject matter
jurisdiction for international securities transactions and
antitrust matters." Id.
The courts in this circuit have applied two alternative tests
derived from transnational and antitrust cases the "conduct"
and "effects" tests to determine the applicability of RICO in
extraterritorial cases. Id. at 1051-52 (affirming the district
court's dismissal of RICO action for lack of subject matter
jurisdiction for absence of U.S. conduct material to fraud.);
see also Nasser v. Andersen Worldwide Societe Coop., 2003
U.S. Dist. LEXIS 16710 (S.D.N.Y. Sept. 23, 2003); See also
Wiwa v. Royal Dutch Petroleum Co., 2002 U.S. Dist. LEXIS 3293
(S.D.N.Y. Feb. 28, 2002). Under the conduct test:
We entertain suits by aliens only where conduct
material to the completion of the fraud occurred in
the United States. Mere preparatory activities, and
conduct far removed from the consummation of the
fraud, will not suffice to establish jurisdiction.
Only where conduct "within the United States directly
caused" the loss will a district court have
jurisdiction over suits by foreigners who have lost
money through sales abroad.
North South Fin., 100 F.3d at 1052 (citing Psimenos v. E.F.
Hutton & Co., 722 F.2d 1041
, 1046 (2d Cir. 1983) (internal
The alternative effects test is applied in two distinct ways.
The first, derived from securities cases, finds that jurisdiction
over a predominantly foreign entity exists when the entity's activities have "substantial effects within the
United States." Id. at 1052. "Transactions with only remote and
indirect effects in the United States do not qualify as
substantial." Id. The "effect" must be a "direct and
foreseeable result" of the conduct alleged. Consol. Gold Fields
PLC v. Minorco, S.A., 871 F.2d 252, 261-62 (2d Cir. 1989). The
second version of the effects test borrowed from antitrust cases
finds that liability attaches when the extraterritorial conduct
is "intended to and actually does have an effect on United States
imports or exports which the state reprehends." North South
Fin., 100 F.3d at 1052 (citing United States v. Aluminum Co. of
America, 148 F.2d 416, 443-44 (2d Cir. 1945)).
In order to apply RICO extraterritorially, plaintiffs must
satisfy the conducts test or either of the effects
tests.*fn1 Plaintiffs do not allege any fact of U.S. conduct
"material to the completion of the fraud." The complaint contains
allegations about defendant's actions in Peru as the
Superintendent of SBS charging that defendant Checkley ordered
unscheduled, irregular, and unprecedented inspections of Nuevo
Mundo which were aimed "intentionally to negatively affect Nuevo
Mundo's reputation and viability in the banking community in
Peru, for the ultimate purpose of taking over the operations of
[Nuevo Mundo] and selling its assets while depriving its
shareholders of their interest." (Compl. ¶ 34.) Further,
plaintiffs allege that this irregular inspection was just one "of
many actions taken by SBS and other departments, commissions and
officials of the Peruvian Government" in its pursuit of the
control of the bank. Id. Additionally, plaintiffs argue that
the SBS, under defendant Checkley's direction, placed Nuevo Mundo under its administration prematurely, and not "based upon
objective criteria, but . . . as part of a fraudulent and
malevolent scheme perpetrated by SBS, and other officials of the
Peruvian Government then in power, in concert and conspiracy with
and aided and abetted by the defendants." (Compl. ¶ 38.)
Plaintiffs allege that the SBS issued rules regarding the selling
and liquidation of Nuevo Mundo that were in violation of the
rights of shareholders. (Compl. ¶¶ 45-6.) Plaintiffs also allege
abuse of power and fraudulent reporting of Nuevo Mundo's
financial situation, including directing "Andersen-Peru" to
revise audit reports on the bank that led to the "wrongful
takeover and sale or liquidation" of Nuevo Mundo. (Compl. ¶¶ 46,
49, 53, 55, 59, 62.)
The only allegations of any actions in the United States are
those alleged against the original defendants PWC and Andersen.
Plaintiffs allege that defendants PWC and Andersen, accounting
firms that operate in the United States, were "responsible and
liable for the wrongful and corrupt practices of their respective
Peruvian affiliates . . . in complicity with the wrongful and
illegal acts of certain officials and/or administrators of the
Peruvian government." (Compl. ¶¶ 11, 12, 14, 130.) Defendants PWC
and Andersen have been dismissed from the action. See Nuevo
Mundo Holdings v. Pricewaterhouse Coopers LLP, 2004 U.S. Dist.
LEXIS 780 (S.D.N.Y. Jan. 22, 2004). Plaintiffs' allegations, even
with the inclusion of the charges against the dismissed
defendants, are devoid of any specific, supporting facts that can
identify what conduct material to the fraud occurred in the
United States. In fact, all material conduct is alleged to have
occurred in Peru. These allegations are insufficient to justify
extraterritorial application of RICO. Plaintiffs also fail to sufficiently allege effects in the
United States resulting from defendant's conduct. Plaintiffs
allege that U.S. effects arose in only one manner: "the corrupt
activities . . . affected foreign and U.S. Commerce because . . .
many investors . . . were U.S. citizens and/or residents, and
some . . . promissory notes payable to such U.S. citizens and/or
residents were payable in New York." (Compl. ¶ 131.) Plaintiffs
argue that New York investors lost their investments as a result
of the violation of the RICO Act because "their notes payable in
New York . . . lost their value," and therefore, extraterritorial
application of RICO is appropriate. (Opp'n at 8.)
These allegations fail both applications of the effects test.
The loss allegedly suffered by U.S. investors is vague and
conclusory and fails to meet the securities-based requirement for
"substantial effects." Plaintiffs' sole allegation is that there
were "some" notes payable to "U.S. citizens and/or residents."
(Compl. ¶ 131.) Plaintiffs provide no specific factual
allegations regarding the number of U.S. investors or the amount
of monetary loss incurred. Plaintiffs' vague allegations also
fall short of the anti-trust based effects test. This test
requires that the defendant's conduct be intended to and actually
have an effect in the United States. See North South Fin.,
100 F.3d at 1052. Plaintiffs fail to allege that defendant
intended to cause harm in the United States. Plaintiffs only
charge that defendant intended to take over Nuevo Mundo in Peru.
There are no allegations that defendant intended to harm U.S.
investors. Moreover, plaintiffs do not sufficiently allege or
show any actual material effects in the United States.
Furthermore, given the exclusive foreign nature of the
transactions in question, this matter is not one to which U.S.
resources should be devoted. Subject matter jurisdiction should
not be invoked. See Nasser 2003 U.S. Dist. LEXIS 16710 at
*18-19. In Nasser, plaintiffs were controlling holding companies and
shareholders of a Brazilian bank who eventually sold their
ownership stake to a Spanish bank. Defendants were "Andersen
Worldwide" and its member firms. Nasser 2003 U.S. Dist. LEXIS
16710 at *2-6. Defendants allegedly forced the undervalued sale
of the interest by artificially depressing the sale price via the
creation of false financial reports on behalf of the Spanish
bank. Id. In addition to dismissing the case for plaintiffs'
failure to satisfy either the conducts or effects test, the court
in Nasser stated that for policy reasons there is no doubt that
the court is "without jurisdiction over a controversy involving
foreign defrauders in a foreign transaction lacking significant
and material contact with the United States." Nasser, 2003 U.S.
Dist. LEXIS 16710 at *20-21 (quoting North South Fin.,
100 F.3d at 1052). Plaintiffs here fail to sufficiently allege U.S.
conduct or effects to justify extraterritorial application.
Defendant's motion to dismiss for lack of subject matter
jurisdiction is therefore granted.
B. Personal Jurisdiction
Defendant Checkley further argues that plaintiffs fail to
sufficiently allege the basis for asserting personal jurisdiction
over him. Defendant, the former Superintendent of Banking and
Insurance in Peru, current resides in Maryland and works in
On a Rule 12(b)(2) motion to dismiss for lack of personal
jurisdiction, a plaintiff bears the ultimate burden of
establishing that the court has jurisdiction over the defendant.
See Metropolitan Life Ins. Co. v. Robertson-Ceco Corp.,
84 F.3d 560, 566 (2d Cir. 1996). Prior to discovery, a plaintiff
challenged by a jurisdiction testing motion may defeat the motion
by pleading in good faith legally sufficient allegations of jurisdiction, i.e. by demonstrating a prima facie case that
personal jurisdiction exists. Id. at 566-67. Conclusory
allegations are insufficient to meet that burden. See Galerie
Gmurzynska v. Hutton, 257 F.Supp.2d 621, 625 (S.D.N.Y. 2003),
aff'd, 355 F.3d 206 (2d Cir. 2004).
Plaintiffs, in this case, argue that personal jurisdiction
exists on two grounds: the New York Long Arm Statute and the
civil RICO statute. The New York long arm statute provides for
jurisdiction over a non-domiciliary who:
(1) transacts business within the state . . .; (2)
commits a tortious act . . . within the state; (3)
commits a tortuous act without the state causing
injury to person or property within the state . . .
if he (i) regularly does or solicits business, or
engages in any other persistent course of conduct, or
derives substantial revenue from goods used or
consumed or services rendered, in the state or (ii)
expects or should reasonably expect the act to have
consequences in the state and derives substantial
revenue from interstate or international commerce; or
(4) owns, uses, or possesses real property within the
N.Y.C.P.L.R. § 302(a). "A nondomiciliary `transacts business'
under CPLR 302(a)(1) only if he `purposefully avails [himself] of
the privilege of conducting activities within [New York], thus
invoking the benefits and protections of its laws.'" CutCo
Indus., Inc. v. Naughton, 806 F.2d 361
, 365 (2d Cir. 1986)
(citing McKee Electric Co. v. Rauland-Borg Corp., 20 N.Y.2d 604
(1967) (quoting Hanson v. Denckla, 357 U.S. 235
, 253 (1958))).
Plaintiffs fail to satisfy the burden of establishing that
personal jurisdiction is proper over defendant Checkley under the
New York long arm statute. Defendant Checkley did not transact
business within New York under § 302(a)(1). Plaintiffs have
failed to make any allegations that Checkley transacted any
business or entered into any contract in New York. There is no
allegation that links Checkley to New York. There is no allegation that Checkley transacted business in New York on
his own behalf or for others, or that he sought to take advantage
of the benefits and protections of New York law.
Checkley is furthermore not subject to personal jurisdiction
under sections 302(a)(2), 302(a)(3), or 302(a)(4). He has not
committed a tortious act within New York. Plaintiffs allege no
regular course of business dealings by Checkley sufficient to
confer jurisdiction over him under § 302(a)(3). Finally,
plaintiffs do not allege that Checkley owns or uses any real
property in New York for jurisdiction under § 302(a)(4).
Even if the New York long arm statute grants personal
jurisdiction over defendant Checkley, asserting jurisdiction over
him violates due process considerations. The Second Circuit
summarizes the due process requirements for exercising personal
jurisdiction over a foreign defendant as follows:
The due process clause of the Fourteenth Amendment
permits a state to exercise personal jurisdiction
over a non-resident defendant with whom it has
certain minimum contacts such that the maintenance of
the suit does not offend traditional notions of fair
play and substantial justice. In determining whether
minimum contacts exist, the court considers the
relationship among the defendant, the forum, and the
litigation. To establish the minimum contacts
necessary to justify specific jurisdiction, the
plaintiff first must show that his claim arises out
of or arises out of or relates to defendant's
contacts with the forum state. The plaintiff must
also show that the defendant purposefully availed
himself of the privilege of doing business in the
forum state and that the defendant could foresee
being haled into court there. If the plaintiff
satisfies these requirements, the court also
considers whether the assertion of jurisdiction
comports with traditional notions of fair play and
substantial justice that is, whether it is
reasonable under the circumstances of a particular
Chew v. Dietrich, 143 F.3d 24
, 28 (2d Cir. 1998) (alterations,
citations, and quotation marks omitted). First, it must be
determined whether the defendant has sufficient contacts with the
forum to justify the court's exercise of personal jurisdiction,
and second, whether the assertion of personal jurisdiction is
reasonable under the circumstances of the particular case. See
Metropolitan Life Ins., 84 F.2d at 567-68 (citing
International Shoe Co. v. Washington, 326 U.S. 310
After plaintiff has established the requisite minimum contacts
between the defendant and the forum state, a five-factor test to
determine reasonableness of the assertion of personal
jurisdiction must be applied. See Asahi Metal Indus. Co. v.
Superior Court, 480 U.S. 102, 112 (1987). These factors are: (1)
the burden that the exercise of the jurisdiction will impose on
the defendant; (2) the interests of the forum state in
adjudicating the case; (3) the plaintiff's interest in obtaining
convenient and effective relief; (4) the most efficient
resolution of the controversy; and (5) the interests of the state
in furthering substantive social policies. See Asahi,
480 U.S. at 112; see also Burger King Corp. v. Rudzewicz,
471 U.S. 462, 476-77 (1985).
Plaintiffs fail to allege jurisdictional facts that would
satisfy the minimum contacts requirement of due process.
Moveover, even if plaintiffs could establish minimum contacts, it
would be unreasonable to assert jurisdiction over Checkley in
light of the five-factor test. First, it would be a burden for
him to have to defend his case in New York as he has no other
contacts with the forum. Second, based on plaintiffs' pleadings,
it is unclear that New York would have a substantial interest in
adjudicating the case. The claims of injury in the state are
vague and conclusory. Because none of the plaintiffs are New York
residents and because all of the alleged conduct took place in
Peru, plaintiffs' interest in obtaining convenient and effective
relief and general efficiency arguments do not weigh in favor of
litigation in this forum. Furthermore, plaintiffs have not
identified any witnesses or other evidence more convenient to
this forum. Lastly, plaintiffs have not presented any reason why
adjudicating this case in New York would further the substantive
policy concerns of the state. In sum, the five factors disfavors
assertion of jurisdiction in New York.
Plaintiffs also assert that the statutory service provision of
RICO, specifically the nationwide service provision, is
sufficient to confer personal jurisdiction over Checkley. (Opp'n
at 8.) Section 1965 of RICO provides that:
(a) Any civil action . . . under this chapter . . .
may be instituted in the district court . . . for any
district in which such person resides, is found, has
an agent, or transacts his affairs.
(b) In any action under § 1964 of this chapter . . .
in any district court . . . in which it is shown that
the ends of justice require that other parties
residing in any other district be brought before this
court, the court may cause such parities to be
summoned . . . and process . . . may be served in any
judicial district. . . .
18 U.S.C. §§ 1965(a), (b). Checkley is not subject to suit under
§ 1965(a) because he does not reside and does not transact his
affairs in New York.
Section 1965(b) provides for nationwide service of process and
authorizes an assertion of jurisdiction over co-defendants of §
1965(a) defendants who are subject to the jurisdiction of the
United States, even if they do not satisfy § 1965(a). The Second
Circuit in PT United Can Co. Ltd. v. Crown Cork & Seal Co.,
Inc., explained that "a civil RICO action can only be brought in
a district court where personal jurisdiction based on minimum
contacts is established as to at least one defendant."
138 F.3d 65, 71 (2d Cir. 1998). Defendants PWC and Andersen have both been
dismissed from this action. Therefore, § 1965(b) does not apply
to assert personal jurisdiction over Checkley since there are no
co-defendants that do satisfy the minimum contacts requirement.
In fact, there are no longer any co-defendants. The court in PT United Can explains that the RICO statute
"does not provide for nationwide personal jurisdiction over every
defendant in every civil RICO case, no matter where the defendant
is found." Id. Rather, this section provides for national
service of process only if the "ends of justice [so] require."
See PT United Can, 138 F.3d at 71; 18 U.S.C. § 1965(b). The
phrase "ends of justice require" has been interpreted to mean
that the statute authorizes an assertion of personal jurisdiction
if, otherwise, the entire RICO claim could not be tried in one
civil action. See PT United Can Co. v. Crown Cork & Seal Co.,
1997 U.S. Dist. LEXIS 692 at *8 (S.D.N.Y. Jan. 28, 1997) (relying
on Butcher's Union Local No. 498, United Food and Commercial
Workers v. SDC Invest., Inc., 788 F.2d 535, 538-39 (9th Cir.
1986)). This impossibility of trial in one action does not apply
here. The statutory service of process provision of RICO
therefore does not confer personal jurisdiction over defendant
For the foregoing reasons, defendant Checkley's motions to
dismiss for lack of subject matter jurisdiction and for lack of
personal jurisdiction are granted.*fn2