By: Gartner + Bloom, P.C.
Date: December
21, 2018
Partner
Alexander D. Fisher and Associate Kenneth M. O’Donohue of the firm’s New Jersey
office recently represented a Connecticut woman in an effort by her former
stock brokerage company to obtain a pre-arbitration attachment of her brokerage
accounts. In fact, the brokerage company seized these accounts and restrained
our client from accessing her funds, all without prior notice to her and the
arbitrator to which both parties agreed or the arbitration hearing taking
place, let alone having been decided on the merits. Prejudgment attachment is
extremely rare and is customarily sought when a party is removing funds or
engaging in fraudulent conduct before a matter is determined.
There
was no serious dispute that the disagreement between our client and the
brokerage firm, was subject to FINRA arbitration in New York. Our client had no
ties whatsoever to New Jersey. She did not live in the state, own property in
New Jersey, or conduct business in New Jersey. The brokerage company
acknowledged this fact, but claimed the basis for the prejudgment ex parte
seizure was because the brokerage company’s “headquarters” was located in New
Jersey. With this rationale, the brokerage company claimed it could seize our
client’s funds at any national bank where our client had an account, even if
there was no actual account in New Jersey.
This
rationale clearly violated the minimum contacts test under the United States
Constitution for obtaining personal jurisdiction over a defendant. We also
moved on the grounds that the bank failed to comply with the requirements of
the New Jersey statutes governing pre-judgment attachment, specifically N.J.
Court Rules 4-60 and N.J. Rev. Stat. § 2A:15-41 and 42 (2016). We further moved
because the brokerage agreement between the bank and our client required that
any disputes arising out of the agreement be governed by New York law, and
further stated that out client would accept service of process from the bank.
Since a requirement of the attachment statutes is that the party against whom
attachment is sought cannot be served within the state, we argued that the
service provision in the brokerage agreement meant that prong of the statutory
requirement could not be met.
After
extensive oral argument before the Hon. Francis B. Schultz, the Court ruled
that there was no jurisdiction over our client in the State of New Jersey. The
Court further ruled that merely the presence of a bank branch in the state did
not mean that a party could seek to attach any assets of a bank customer,
regardless of that customer’s connection to New Jersey. Additionally, Judge
Schultz ruled that the service provision in the brokerage agreement meant that
the bank could not meet the requirements of the relevant pre-judgment
attachment statutes. Accordingly, the Court permanently vacated the writs of
attachment and ordered our client’s funds released immediately.
This
case highlights the limits of jurisdiction. While the State of New Jersey (like
many other states) has a “long-arm statute” to ensure that parties that avail
themselves of the protection of New Jersey law cannot evade jurisdiction, the
Court’s decision shows that there are limits to how far jurisdiction extends.
Specifically, the Court’s decision indicated that a party cannot seek to attach
a foreign bank account merely because the bank where the account is maintained
has a separate branch office in New Jersey. Rather, the Court found that the
State of New Jersey had to have some minimum contacts with the person against
whom attachment was sought in order to exercise jurisdiction over that party.
It further shows that a choice of law clause and/or a service provision in a
contract should be carefully considered by the drafter, as merely selecting a
venue of convenience for your client may foreclose them from seeking to bring a
claim in a venue with more advantageous statutes.