Commercial Division Rules that Personal Jurisdiction Over Defendant Is Relevant to Determining Whether to Grant Preliminary Injunction

Recently, in Setter Capital, Inc. v. Chateauvert,[1] Justice Andrea Masley of the Commercial Division ruled that the issue of whether a court has personal jurisdiction over a defendant is relevant to determining whether to grant a motion for a preliminary injunction.

In Setter, plaintiff Setter Capital, Inc. (“Setter”), a financial services firm, moved pursuant to CPLR § 6301 for a preliminary injunction against defendant Maria Chateauvert, Setter’s former employee.   The motion sought to restrain her from soliciting or recruiting Setter’s customers or otherwise interfering with its business relationships.  Chateauvert’s job had involved calling potential clients to identify buyers and sellers of securities. A resident of Canada, Chateauvert had previously signed an agreement with Setter which contained confidentiality and non-compete clauses.  The agreement also contained a choice-of-law clause providing it was governed by the law of New York, and a forum-selection clause in which the parties agreed to submit to the jurisdiction of the Division.

Under New York law, a plaintiff moving for a preliminary injunction bears the burden of establishing: 1) a likelihood of success on the merits; 2) the danger of irreparable injury in the absence of preliminary injunctive relief; and 3) the balance of equities favors the plaintiff.  However, as the Commercial Division explained, whether the court has jurisdiction over the defendant is a “threshold issue” that is relevant to determining the plaintiff’s likelihood of success on the merits.[2]

Here, it was unclear whether the Commercial Division could exercise jurisdiction over Chateauvert pursuant to the agreement, because under N.Y. Gen. Oblig. Law §§ 5-1401 and 5-1402,[3] choice-of-law and forum-selection provisions in contracts for labor or personal services are not enforceable against non-residents, and Chateauvert’s agreement with Setter specified that it was a “personal service” agreement.  Additionally, the Commercial Division questioned whether Chateauvert, who was only two years out of college when she signed the agreement, “was the sophisticated business person the legislature envisioned in 1985 when GOL §5-1401 and §5-1402 were enacted.”[4]  Setter therefore bore the burden of establishing jurisdiction over Chateauvert without reference to the agreement.  Justice Masley ruled that “this was an issue of fact that undermines plaintiff's likelihood of success.”[5]

The Commercial Division concluded that Setter had otherwise failed to show likely success on the merits, given that there was no showing of protected trade secrets and Setter’s rating system was available online. The court also ruled that Setter had not shown irreparable harm, and that the balance of equities favored Chateauvert.  Accordingly, the Commercial Division denied Setter’s motion for a preliminary injunction.

Setter illustrates that on a preliminary injunction motion, the issue of whether the court has jurisdiction over the defendant may be a threshold issue of fact that must be satisfied in determining the plaintiff’s likelihood of success on the merits.