Professional Negligence Law Reporter

The Second Circuit held that New York did not have personal jurisdiction over a Hong Kong accounting firm retained by a petroleum holding company that maintained its principal executive office in New York City.

China North East Petroleum Holdings Limited (CNEP), a petroleum holding company with operations exclusively in the People’s Republic of China, was formally incorporated in Nevada and had its principal executive office in New York City. Hong Kong accounting firm Baker Tilly Hong Kong Limited (BTHK) was absorbed into the U.S. audit practice of CNEP’s former auditor.

Several years later, the court-appointed receiver for CNEP sued BTHK in New York for breach of contract, negligence, breach of fiduciary duty, fraud, and unjust enrichment, claiming the defendant had conducted an improper audit of CNEP’s 2009 financial statements. The district court dismissed the claims, finding that it lacked personal jurisdiction over BTHK under New York’s long-arm statute.

Affirming, the Second Circuit found that under New York’s long-arm statute, a court may exercise personal jurisdiction over any nondomiciliary who transacts business within the state so long as the claim arises from that business activity. The court agreed with the district court that the plaintiff had failed to meet his burden of showing BTHK had transacted business in New York within the meaning of the statute.

The court found that BTHK’s desire to acquire clients in New York is not enough to demonstrate that it actually transacted business there with CNEP. Citing case law, the court added that the plaintiff was obligated to show that BTHK directly participated in a client relationship by, for example, making calls, sending faxes, and emailing into New York state over the course of many months. The court concluded that the plaintiff had offered no evidence that BTHK had solicited CNEP’s business in New York. Merely entering into a contractual relationship with a New York company and sending invoices there is not enough to establish jurisdiction, the court said, noting that the plaintiff presented no facts regarding the performance of an actual audit. 

Citation: Seiden v. Baker Tilly Hong Kong Ltd., 2024 WL 4441592 (2d Cir. Oct. 8, 2024).