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ALBANY � New York’s traditionally elastic interpretation of its long-arm jurisdiction in commercial disputes was extended yesterday to e-mails and instant messages for the first time in a bellwether opinion by the Court of Appeals. In a unanimous decision, the Court said that commercial entities’ use of e-mail and instant messaging to “project themselves into New York to conduct business transactions” is covered by the long-arm provisions in the Civil Practice Law and Rules in the same way and for the same reasons that telephonic negotiations are covered. “[W]hen the requirements of due process are met . . . a sophisticated institutional trader knowingly entering our state � whether electronically or otherwise � to negotiate and conclude a substantial transaction is within the embrace of the New York long-arm statute,” Chief Judge Judith S. Kaye wrote in Deutsche Bank Securities Inc. v. Montana Board of Investments, 71. The Deutsche Bank case is essentially a breach of contract case involving a bond transaction between a Manhattan-based bank and a Montana state agency that manages its state’s public retirement system and other assets. Court records show that on the morning of March 25, 2002, an official with Deutsche Bank contacted an official in Montana about a possible bond swap. The banker contacted the Montana Board of Investments through the Bloomberg Messaging System, an instant-messaging service, and asked whether the government agency was interested in swapping its Pennzoil-Quaker State 2009 bonds for Deutsche Bank’s Toys R Us bonds, or selling the Pennzoil bonds for a stated price. The official in Montana said he was not interested, and the banker in New York signed off with a simple “THX” (thanks). About 10 minutes later, the Montana official reconsidered and sent the banker a new instant message and negotiated a trade. That evening, Shell Oil announced that it had agreed to acquire Pennzoil-Quaker State, potentially increasing the value of the bonds. The next day, the Montana Board advised Deutsche Bank that it would not honor the agreement because it suspected it was predicated on “unethical and probably illegal” inside information. Deutsche Bank then bought the Pennzoil bonds elsewhere, but paid $1.6 million more than it would have paid Montana. It then brought an action in Manhattan Supreme Court for breach of contract. Supreme Court dismissed the complaint, holding that Deutsche Bank could not establish that New York retained jurisdiction. The Appellate Division, First Department, reversed in an opinion affirmed yesterday. New York Jurisdiction All seven judges of the Court of Appeals agreed that the electronic communication established long-arm jurisdiction, and that New York had no need to yield to a Montana statute that would vest exclusive jurisdiction in that state’s district courts. “We continue to hold that where, as here, a lawsuit arises from a commercial transaction in which another state, or its agent, has knowingly projected itself into New York to take advantage of our financial markets, New York courts should not dismiss the action as a matter of comity,” Chief Judge Kaye wrote. The majority also said that the Montana Board of Investments offered “no evidence to support its claim of insider trading,” short of the timing of the transaction. On that point alone, Judge Read dissented, arguing that the Montana board should be afforded “an adequate opportunity to investigate its legitimate suspicions through discovery.” Judge Read said the Montana agency was denied that opportunity because Deutsche Bank never fully responded to its interrogatories and moved for summary judgment while the plaintiff’s request for depositions was pending. “While comity does not require us to dismiss this claim, comity does call upon us to afford the benefit of the doubt to [the Montana Board of Investments], a sister state’s agency charged with oversight over state pension and other funds,” Judge Read said. Herbert C. Ross of Olshan Grundman Frome Rosenzweig & Wolosky in Manhattan and Chris D. Tweeten of Helena, Mont., argued for the Montana Board. Larry H. Krantz of Krantz & Berman in Manhattan appeared for Deutsche Bank. Mr. Krantz said the ruling makes clear that long-arm jurisdiction will be broadly interpreted consistent with new technology. “I think it was implicit in the law, but this makes it express that when an institutional investor engaged in an electronic trade it will in most cases be sufficient for long-arm jurisdiction as long as the party can reasonable expect to be sued here,” he said. Mr. Ross declined to comment.

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