January 04, 2017 Practice Points

$500 Million Fraud Case Against UBS Dismissed Due to Lack of Jurisdiction

It is critical that counsel consider a jurisdictional challenge, even in complex and sophisticated disputes.

By Kerry Gabrielson

It is critical that counsel consider a jurisdictional challenge, even in complex and sophisticated disputes. For defendant UBS, AG, a Swiss banking and financial services company, a successful dismissal motion on the grounds that the New York court lacks personal jurisdiction, and that New York is an inconvenient forum resulted in the December 8, 2016 dismissal of a lawsuit alleging more than $500 million in losses.

Claims Asserted
Plaintiff Ace Decade Holdings Limited, a limited liability investment holding vehicle incorporated in the British Virgin Islands, bought shares of a Chinese company with money borrowed from UBS and alleges that it lost nearly its entire investment when UBS issued a margin call and sold all of the shares at a significant discount. Ace asserted claims for common law fraud, constructive fraud, breach of fiduciary duty, negligent misrepresentation, and unjust enrichment.

Summary of Dismissal Decision
The New York Court granted UBS’s motion to dismiss, finding that it lacks jurisdiction over UBS and that, even if the court could exercise jurisdiction, the suit should be dismissed on forum non conveniens grounds.

In granting the motion, the court rejected Ace’s arguments that UBS’s telephone calls and electronic communications were sufficient to subject UBS to jurisdiction under New York’s long arm statute, and that, even if UBS agents were in Hong Kong, jurisdiction could be exercised over commercial actors and investors who project themselves into New York to conduct a business transaction. Persuasive to the court was that the contracts structuring the transaction were signed while Ace resided in Hong Kong, there was no allegation that UBS’s Hong Kong employees specifically sought out Ace in New York, or attempted to conduct the transaction with Ace in New York. Instead, Ace, a British Virgin Islands company, made a purchase through a Chinese investment fund, of shares regulated by Chinese law, denominated in Hong Kong dollars, and listed on the Hong Kong Stock exchange. There was no “substantial relationship” to New York. This was the case regardless of Ace moving its operations to New York. The relationship did not begin in New York and, as such, Ace could not “manufacture” jurisdiction over UBS by its move. None of UBS’s alleged acts regarding the investment took place in New York, and correspondence with Ace after it had moved did not amount to UBS transacting business within New York. The claims arouse out of an entirely foreign transaction.

Further, the court held that Ace could not “manufacture” jurisdiction by alleging UBS executives globally participated in the deal, as there were no specific allegations that any executive was in New York and no allegation that Ace received misrepresentations from any UBS executive other than one based in Hong Kong.

Moreover, UBS did not commit any tortious act within New York. Even if UBS continued to direct misrepresentations to New York, UBS would have had to have been present in New York at the time of the tort in order to satisfy jurisdictional requirements. A fraudulent misrepresentation received in New York is insufficient.

Finally, there was no injury within New York for purposes of the long-arm statute because residence or domicile of the injured party within the state is an insufficient predicate for jurisdiction. The situs of the injury is where the events giving rise to the injury occurred (not New York), not where the damages occurred. The original critical events associated with Ace’s investment occurred in Hong Kong. The only connection to New York was that Ace moved to the state after entering into the transaction in dispute.

For similar reasons, the court held that dismissal based on forum non conveniens was warranted, as Ace’s location in New York alone did not create a substantial nexus to the forum. Investment advisors operated from Hong Kong and China, and all relevant documents and virtually all witnesses (other than two) were located in Hong Kong.

The case is Ace Decade Holdings Limited v. UBS AG, New York County Case No. 653316/2015.

Kerry Gabrielson is an associate with Godfrey & Kahn S.C. in Madison, Wisconsin.


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Kerry Gabrielson – January 4, 2017