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Deutsche Bank Securities, Inc. v. Montana Bd. of Investments, 7 N.Y.3d 65, 850 N.E.2d 1140, 818 N.Y.S.2d 164 (full-text), cert. denied, 549 U.S. 1095 (2006).

Factual Background[]

This case arose from a bond trade between Deutsche Bank Securities (“DBS”) and an investment fund operated by the State of Montana. The trade, which involved Montana’s agreement to sell DBS $15 million of Pennzoil-Quaker State bonds, was negotiated exclusively through a series of messages transmitted over the Bloomberg Messaging System, an instant messaging service provided to Bloomberg subscribers.

Hours after the parties agreed on the terms of the trade, Shell Oil publicly announced that it was acquiring Pennzoil-Quaker State, which presumably would trigger an increase in the value of the Pennzoil bonds to be sold to DBS. The following day, Montana advised DBS that it would not transfer the bonds because it suspected DBS had material non-public information about the acquisition at the time it negotiated the trade. DBS thus purchased the bonds elsewhere, paying an additional $1.6 million. DBS filed suit in New York State court seeking to recover the additional $1.6 million it paid to acquire the replacement bonds.

Trial Court Proceedings[]

The trial court dismissed DBS’s claims on the ground that there was no personal jurisdiction over Montana.

Appellate Court Proceedings[]

After observing that Montana had engaged in a series of prior trades with DBS consummated over the Bloomberg system, the Court of Appeals ruled that Montana had purposefully “entered” New York by pursuing a business transaction with DBS, a New York domiciliary, and affirmed the intermediate court’s finding of jurisdiction.

As the Court of Appeals recognized, “the growth of national markets for commercial trade, as well as technological advances in communication, enable a party to transact enormous volumes of business within a state without physically entering it.” Accordingly, by expanding long-arm jurisdiction to include even seemingly informal electronic communications, the Court of Appeals indicated that any party that transacts business in New York electronically should be prepared to submit to jurisdiction should litigation ensue.

The Court of Appeals did not view its ruling as a significant leap, noting that it had previously upheld long-arm jurisdiction “over commercial actors and investors using electronic and telephonic means to project themselves into New York to conduct business transactions, and we do so again here.” That said, the Court viewed it as significant that Montana was a sophisticated institutional trader rather than an individual investor.