Communications were Insufficient Contacts to Exercise Personal Jurisdiction Over Out-of-State Auditors

In B. Bullen et al. v. CohnReznick LLP, investors in a defunct hedge fund sued CohnReznick, the outside auditor and accountant of the fund. The investors claimed, among other things, that CohnReznick had conspired with the fund to defraud its investors. Judge Salinger dismissed the case, ruling that CohnReznick, a New Jersey LLP headquartered in New York, was not subject to personal jurisdiction in Massachusetts.

First, Judge Salinger analyzed the specific-jurisdiction question and ruled that the court did not have specific jurisdiction because the audit reports and tax forms upon which the investors based their claims did not involve the transaction of any business in Massachusetts. Although CohnReznick communicated with Boston based investors in Massachusetts on a limited basis, this conduct did not give rise to jurisdiction because the plaintiffs’ claims did not “arise from” those communications. Judge Salinger reasoned that “the fact that the Plaintiffs subsequently lost their investments was not the result of CohnReznick’s action in sending emails seeking confirmation of those investments.”

Judge Salinger next examined the general-jurisdiction question. Judge Salinger noted that “if there were no constitutional limits on the exercise of personal jurisdiction, then CohnReznick may well be subject to suit in Massachusetts …” because the record indicated that CohnReznick “did business in Massachusetts and appears to have derived substantial revenue from services that it rendered in Massachusetts.” However, relying on Daimler AG v. Bauman, 571 U.S. 117, 127 (2014), Judge Salinger confirmed that 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.” By doing so, Judge Salinger ruled that “the activities of CohnReznick in Massachusetts are a small part of its nationwide business and operations. As a result … those activities do not make CohnReznick ‘at home’ here, and it would be unconstitutional to subject CohnReznick to general jurisdiction.”

Finally, Judge Salinger assessed whether CohnReznick was subject to jurisdiction under the Massachusetts Uniform Securities Act, G.L. c. 110A, § 410 et seq. (MUSA). MUSA “authorizes the exercise of specific jurisdiction over any defendant that is accused of violating the statute,” and therefore, “the Court may exercise personal jurisdiction over CohnReznick with respect to that claim if doing so were Constitutional.” To comply with the Constitutional due process requirements, the defendant must have established minimum contacts in the forum state by which it “purposefully availed itself of the privilege of conducting business in Massachusetts.” Judge Salinger found that CohnReznick’s activities of conducting audit and tax work in New Jersey and New York and sending that work to a fund in New York, which in turn forwarded the work to Massachusetts, could not establish personal jurisdiction. Nor could plaintiffs rely on the communications with CohnReznick in which they were asked to confirm their investments in the fund because “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 conducting business in that forum.” Thus, it would have violated due process for the court to exercise personal jurisdiction over CohnReznick under MUSA.

Bullen et al. v. CohnReznick LLP (June 17, 2019)

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