The United States Bankruptcy Court for the Northern District of California recently held that a resident of Hong Kong who purchased goods over the internet from a company in California was subject to personal jurisdiction in a fraudulent transfer suit in the United States.  See Kasolas v. Yau (In re Fox Ortega Enterprises Inc.), No. 18-04012, 2018 WL 2191597 (Bankr. N.D. Cal. May 11, 2018).

Without addressing the merits of the fraudulent transfer allegations, a defendant who lived in Hong Kong filed a motion to dismiss under Rule 12(b)(2), contending the bankruptcy court in California lacked personal jurisdiction over him. The bankruptcy court denied the motion in an opinion issued on May 11, 2018, that thoroughly analyzes law from the Supreme Court and Ninth Circuit on specific personal jurisdiction.

A company based in California sold wine over the internet at prices below market in a business that resembled a Ponzi scheme. When the business ultimately failed, the chapter 7 trustee filed more than 100 fraudulent transfer suits, alleging in substance that customers who succeeded in receiving wine in reality got property stolen from those who didn’t. In addition to purchasing and receiving several hundred thousand dollars in wine over the internet, the complaint alleged that the defendant on one occasion made a purchase at the California store and at other time appeared at the store to complain about poor service.

In analyzing the defendant’s motion to dismiss, the bankruptcy court said the case did not involve general personal jurisdiction, which results when the “defendant engages in substantial, systematic, or continuous activity within the jurisdiction.” Instead, the case turned on the existence, or lack thereof, of specific personal jurisdiction.

The Ninth Circuit employs a three-part test in deciding whether the court has specific personal jurisdiction: (1) The defendant must do some act or consummate a transaction in the forum “by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protection of its laws;” (2) the claim must arise out of or result from the defendant’s forum-related activities; and (3) the exercise of jurisdiction must be “reasonable.” 

In the Ninth Circuit, a showing of minimum contacts creates a presumption that the exercise of personal jurisdiction is reasonable. To overcome the presumption, the defendant must show that the exercise of jurisdiction would be unreasonable.

The bankruptcy court found that the defendant met the first test by having consummated many transactions where “he purposefully availed himself of the privilege of conducting activities in this forum.”

The second factor was not seriously contested because the claim arose out of the defendant’s activities in California.

With regard to the third factor, the “reasonableness” of the exercise of personal jurisdiction, the defendant argued it would be burdensome for him to be sued in California.

The bankruptcy court rejected the argument on several grounds: The defendant had already shown himself capable of hiring California counsel; he traveled to California several times a year to visit family; and it was “unlikely” although “possible” that the defendant might be required to appear in court.

The trustee argued that the burden on him to sue in Hong Kong would be “manifestly greater.” The bankruptcy court agreed.

If there were no personal jurisdiction, according to the bankruptcy court, the trustee would be compelled “to bring separate lawsuits in jurisdictions all over the world (and indeed all over the U.S.). Especially in the context of bankruptcy proceedings, this theory is clearly unreasonable.”

Ultimately, the bankruptcy court found personal jurisdiction, saying this “is simply not a close case” because the defendant had purchased thousands of bottles of wine over several years. The fact that the defendant purchased wine over the internet “does not defeat this court’s exercise of personal jurisdiction.”