The Bankruptcy Court for the Southern District of New York recently held that a foreign counsel cannot be sanctioned for an attempt to assist its client in avoiding discovery orders issued by the court, when personal jurisdiction over the foreign counsel has not been established. Merhav Ampal Group, Ltd. V. Merhav (M.N.F.) Limited (In re Ampal American Israel Corp.), 2017 WL 5158627 (Bankr. S.D.N.Y. Nov. 6, 2017).

Background

In earlier stages of the case, the Plaintiff obtained a monetary judgment against the Defendants, a company incorporated under the laws of Israel and an individual who is an Israeli resident. Following the judgement, the Plaintiff sought post-judgement discovery from the Defendants. The Defendants, however, failed to comply with the discovery requests and the Plaintiff moved to compel them to do so. The motion to compel was granted. But the Defendants still failed to comply and retained an Israeli law firm (the “Firm”) to file an action in Israel seeking to enjoin compliance with the Court’s discovery orders. The Defendants’ argument in the Israeli action was that compliance with the Court’s discovery orders will violate Israeli privacy law, because some of the materials sought contained employees’ confidential information. The Plaintiff, in turn, filed a motion with the Bankruptcy Court seeking, as is relevant in New York, to hold the Firm in contempt for failing to comply with the discovery orders.

Jurisdiction over foreign counsel

The Plaintiff argued that the Firm “interjected itself” into the proceedings and thereby submitted itself to the Court’s personal jurisdiction. The Plaintiff further contended that the Firm took actions which had an effect in New York, and cited the Firm’s website where the Firm advertises that it is continuously active in legal matters that affect U.S. entities.

The Court denied the Plaintiff’s contempt motion, holding that it failed to demonstrate the existence of personal jurisdiction over the Firm. Because the Plaintiff did not contend that the Firm was subject to general personal jurisdiction, the Court’s analysis turned to the controlling test for specific personal jurisdiction. This test requires that: (1) the defendant have minimum contacts with the jurisdiction; and that (2) the exercise of personal jurisdiction comport with notions of fair play and substantial justice. Here, both parties relied on New York’s “long arm” provisions of CPLR 302(a)(1),(3). In short, these provisions provide that a court may exercise personal jurisdiction over any non-domiciliary who either “transacts any business within the state or contracts anywhere to supply goods or services in the state”; or “commits a tortious act without the state causing injury to person or property within the state, ... if [it] regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce…” 

The Court found the Plaintiff’s arguments insufficient to establish specific personal jurisdiction over the Firm under New York law. First, it was not established that the Firm conducted any business or supplied goods or services within New York, and the Plaintiff in fact “concede[d] that the relevant acts took place in Israel.” Second, the Plaintiff did not allege that the Firm’s conduct caused injury to a person or property within New York. The Court reasoned that the relevant question under the “situs-of-injury test” is where the original event which caused the injury took place, and not the location of the resulting damages. Here, the Court found, any injury resulted from the filing of the action in Israel. Finally, the Court found that the Plaintiff did not establish that the Firm regularly does business in New York or the U.S. or derives substantial revenue from commerce there. The Court therefore denied the motion, concluding that under Second Circuit precedent “a court cannot assert personal jurisdiction over a foreign nonparty for aiding and abetting a party’s violation of an order issued by the court absent specific personal jurisdiction over the foreign nonparty.”

Implications

The reach of U.S. courts’ orders is limited by the extent of their jurisdiction. When asking a U.S. court to exercise jurisdiction over a foreign person, the moving party must establish by detailed evidence that the foreign person is subject to either general or specific personal jurisdiction.