Out-of-Staters Beware: An In-Person Contract Discussion May Subject You to Suit in New York

March 22, 2023 | Benjamin J. Wisher | Commercial Litigation

Think before you book your next business trip to the Empire State. Perhaps that important contract discussion with your counterpart can be accomplished remotely. Although you may miss out on Long Island’s Gatsbyesque mansions, that City “feeling,” or Upstate’s natural grandeur, staying put may just save yourself or your company from being on the wrong side of a New York lawsuit, if a recent decision is any indication.

On February 14, 2023, New York’s highest court issued its latest decision regarding the doctrine of personal jurisdiction, holding that an out-of-state entity’s modification of a contract during an in-person meeting in New York subjected the entity to suit in New York. See State v. Vayu, Inc., 2023 WL 1973001 (N.Y. 2023) ( the “Vayu Decision”).[1] The Vayu Decision is particularly interesting because, aside from the in-person meeting modifying the contract at issue, the out-of-state entity, Vayu, Inc. (“Vayu”), had minimal contacts with New York related to the suit.

The Vayu Decision stems from a contract between Vayu, an out-of-state business that designs and manufactures drones, and the State University of New York at Stony Brook (“SBU”). Pursuant to the contract, SBU purchased from Vayu two drones to be delivered to Madagascar for use in SBU’s initiative to provide medical supplies to remote areas in underdeveloped countries. The contract was formed by Vayu’s issuance of an invoice to SBU for the drones to a New York post office box and accepting payment from SBU for same via a New York originating wire.

Thereafter, the drones were shipped by Vayu directly to Madagascar from Vayu’s Michigan location. After delivery in Madagascar, problems arose with drones. In an attempt to resolve the issues, SBU and Vayu held telephonic calls and exchanged electronic correspondence. To this point, Vayu had never physically entered New York with respect to its contract with SBU.

That changed when Vayu agreed to meet SBU in New York to discuss a resolution to the drone issues. At that meeting, Vayu and SBU agreed that SBU would be responsible for returning the drones to Vayu in Michigan and Vayu would replace the drones. After the meeting, the terms were memorialized by electronic mail.

SBU abided by the resolution and returned the drones to Vayu’s Michigan location. However, Vayu failed to replace the drones or provide SBU a refund.

Litigation ensued based on, among other things, a breach of contract theory by SBU against Vayu. Vayu moved to dismiss the litigation, arguing that the New York trial court lacked personal jurisdiction over Vayu. The trial court agreed and, on appeal so did the Appellate Division, albeit in a 3-2 decision.

However, as foreshadowed, the majority of the New York Court of Appeals held the opposite, with only one judge agreeing with the trial court and Appellate Division’s decisions. Although there were many differences between the majority and dissent’s analysis, the critical contrast appears to be each’s interpretation of the significance of the in-person meeting between Vayu and SBU regarding the drone issues.

The dissent asserted that the meeting was “primarily ‘responsive in nature,’” as it was a mere attempt to “smooth out difficulties” under the already existing contract, and that such contacts with New York were insufficient to confer personal jurisdiction over Vayu.

The majority held that the meeting was not “predominately responsive in nature,” but resulted in formal modification of the contract. Therefore, according to the majority, the meeting was not merely to “smooth out difficulties” in an already formed contract, but “designedly and materially forwarded the negotiation and performance of the contract” sufficient to confer personal jurisdiction over Vayu.

Regardless of whether it was the majority or dissent that was actually “right,” the Vayu Decision, as penned by the majority, is now the controlling law for the time being, and SBU and Vayu will have to litigate their dispute before a New York court.

The Vayu Decision does leaves one to wonder: If Vayu never physically attended that meeting in New York, would the Vayu Decision be different? Likely, that question will be unanswered until such a case arises, which may not take too long as the New York Court of Appeals generally opines on the doctrine of personal jurisdiction at least once a year.

In the meantime, out-of-staters should pause before booking their flights to New York and first analyze the implications of their potential travel in light of the Vayu Decision. In the grand scheme of things, perhaps that attempt to “smooth out” a contract issue with your counterpart in person is better left to remote means.

[1] For a basic discussion of the doctrine of personal jurisdiction, please see https://www.rivkinradler.com/publications/foreign-corporations-dont-consent-to-general-jurisdiction-by-registering-in-ny/.

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