Jurisdiction – Personal – Audit reports

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Where plaintiff investors in a hedge fund have brought suit against the defendant outside auditor and accountant for the fund, the defendant is entitled to dismissal for lack of personal jurisdiction, as (1) the plaintiffs’ claims do not arise from the defendant transacting business in Massachusetts and (2) under Daimler AG v. Bauman, 571 U.S. 117 (2014), and BNSF Ry. Co . v. Tyrrell, 137 S. Ct. 1549, 1559 (2017), the activities of the defendant in Massachusetts do not make the defendant “at home” in the commonwealth.

“[Defendant] CohnReznick is a New Jersey limited liability partnership. Its headquarters is in New York. It has had an office in Boston, Massachusetts, since 2008. After a merger in 2014, CohnReznick had 15 partners and almost 100 employees working out of its Boston office. It appears to be undisputed that after that merger CohnReznick also had (and has) another office in or near Springfield, Massachusetts, and that it employed 55 to 60 certified public accounts in Massachusetts. At that time CohnReznick had 26 offices and 2,500 employees nationwide, so its Massachusetts business activities were and apparently are a fairly small part of the company’s overall operations. …

“Plaintiffs’ claims are based primarily on the audit reports concerning the [Platinum Partners Credit Opportunities] Fund’s financial statements and tax forms concerning the income that CohnReznick prepared and that Platinum sent to Plaintiffs through their registered investment advisor in Boston.

“Those audit reports and tax forms do not give rise to personal jurisdiction under section3(a) because they did not involve the transaction of any business in Massachusetts by CohnReznick. It is undisputed, and the Court has found, that CohnReznick did all of that audit and tax work in New York or New Jersey, not in Boston. Furthermore, CohnReznick never sent any audit reports or tax forms to any of the Plaintiffs or to their Boston advisor. Instead, CohnReznick sent those materials to Platinum, which in turn sent them on to Plaintiffs’ registered investment advisor. Even assuming that CohnReznick knew or should have known that Platinum would send the audit reports and tax forms to a Massachusetts entity, that still does not constitute the transaction of any business in Massachusetts by CohnReznick. …

“The fact that CohnReznick responded to several communications initiated in Boston by Plaintiffs’ registered investment advisor does not suffice to establish personal jurisdiction either. CohnReznick’s limited contacts with Shepherd Kaplan [LLC], all of which were initiated by SK, are ‘insufficient to constitute the transaction of business in the Commonwealth so as to come within the reach of s 3(a).’ …

“Finally, even assuming that CohnReznick’s limited communications to confirm Plaintiffs’ investments in the found constitute the transaction of business in Massachusetts, which is not at all clear, there would still be no personal jurisdiction under section3(a) because Plaintiffs’ claims do not arise from those contacts. The ‘arising from’ language in this statute creates a ‘but for’ test. … As explained above, CohnReznick sent emails in connection with its 2014 audit of the Fund to confirm the timing and amount of each Plaintiffs’ investment. Nothing in Plaintiffs’ complaint alleges or suggests that they would not have suffered their alleged injuries but for CohnReznick’s email inquiries to confirm Plaintiffs’ prior investments. Plaintiffs’ claims do not ‘arise from’ these contacts with Massachusetts because the fact that Plaintiffs’ subsequently lost their investments was not the result of CohnReznick’s action in sending the emails seeking confirmation of those investments. …

“If there were no constitutional limits on the exercise of personal jurisdiction, then CohnReznick may well be subject to suit in Massachusetts under section3(d). As the Court has found, the record evidence shows that throughout the relevant time period CohnReznick regularly did business in Massachusetts and appears to have derived substantial revenue from services that it rendered in Massachusetts. But as a matter of constitutional due process a court may only exercise general jurisdiction over a defendant whose contacts with the forum ‘are so ‘continuous and systematic’ as to render them essentially at home in the forum state.’ …

“As the Court found above, the activities of CohnReznick in Massachusetts are a small part of its nationwide business and operations. As a result, under Daimler and BNSF those activities do not make CohnReznick ‘at home’ here, and it would be unconstitutional to subject CohnReznick to general jurisdiction. …

“… Doing audit and tax work in New York and New Jersey, and sending that work product to the Fund in New York which in turn forwarded it to SK in Massachusetts, does not constitute ‘purposeful availment’ of the privilege of doing business in Massachusetts. The same is true of the few times when CohnReznick responded to telephonic or email inquiries by Shepherd Kaplan. … Plaintiffs’ claims do not relate at all to CohnReznick’s emails, as part of its 2014 audit work, asking Plaintiffs to confirm their investments in the Fund. In any case, the acts of an auditor in sending confirmation requests to a particular forum and relying on the responses in conducting its audit does not constitute a purposeful availment of the privilege of conducting business in that forum. … Since the claims against CohnReznick are based on conduct outside of Massachusetts, it would violate traditional notions of fair play and substantial justice to allow Plaintiffs to haul CohnReznick into a Massachusetts court. In sum, the Court concludes that it would violate due process to exercise personal jurisdiction over CohnReznick with respect to the Securities Act claim.”

Bullen, et al. v. CohnReznick LLP (Lawyers Weekly No. 09-064-19) (13 pages) (Salinger, J.) (Suffolk Superior Court) (Docket No. 1884CV03802-BLS2) (June 17, 2019).

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