The World In U.S. Courts - Summer 2017

by Orrick, Herrington & Sutcliffe LLP
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Foreign Sovereign Immunity Act (FSIA)/Political Question Doctrine

US Supreme Court Holds That the Existence of Property and its Expropriation “in Violation of International Law” Must be Established at the Outset of Litigation for the FSIA’s “Expropriation Exception” to Apply

Bolivarian Republic of Venezuela v. Helmerich & Payne International Drilling Co., US Supreme Court, May 1, 2007

Plaintiff Helmerich & Payne (H&P), a supplier of drilling equipment, sued Venezuela to obtain compensation for the alleged expropriation of oil rigs owned by H&P’s Venezuelan subsidiary that had been used by Venezuelan governmental entities. H&P argued that the suit could proceed under the “expropriation” exception to the FSIA, which provides that the sovereign immunity conferred by the FSIA does not apply where “rights in property taken in violation of international law are in issue and that property . . . is owned or operated by an agency or instrumentality of the foreign state . . . engaged in a commercial activity in the United States.”

In this case, the US Supreme Court determined that courts applying the Expropriation Exception must make a threshold determination “as near to the outset of the case as is reasonably possible” that (i) property rights were taken and (ii) the manner in which they have been taken violates international law. Notably, the question whether a party “actually” held rights in that property may be left for adjudication of the case on the merits. The Court stated, however, that where questions of fact exist as to whether the Expropriation Exception applies, they must be resolved even if extending into the merits of a dispute.

 

US Personal Injury Litigation Arising from Fukushima Nuclear Power Accident Found not Subject to Dismissal Under the Political Question Doctrine

Cooper v. Tokyo Electric Power Co., Inc., US Court of Appeals for the Ninth Circuit, June 22, 2017

US military personnel were deployed to assist Japanese forces in the wake of the 2011 earthquake and tsunami that hit Northern Japan and resulted in catastrophic damage to the Fukushima Daiichi Nuclear Power Plant, operated by Tokyo Electric Power Company (TEPCO). The plaintiffs alleged they suffered serious medical injuries as a result of exposure to radiation, and that their injuries were occasioned by TEPCO’s misstatements incorrectly minimizing the extent of the radiation leak. Although a comprehensive plan for adjudicating claims of injury was established in Japan, the plaintiffs filed suit against TEPCO in Los Angeles. The District Court denied TEPCO’s efforts to dismiss the case on various grounds and an immediate appeal followed. The Court of Appeals affirmed the District Court’s decisions—albeit with recognition that the case presented a number of close questions, and an invitation for the District Court to reconsider its conclusions as the case proceeded.

As relevant here, the Court of Appeals declined to dismiss the case on grounds of the Political Question Doctrine. TEPCO argued that the plaintiffs’ injuries stemmed from the independent decision of the US military to deploy forces where and when it did, and that this decision was not subject to judicial review in the context of a suit for personal injuries. The Court of Appeals explained that, as applicable to the present case, the Political Question doctrine would require dismissal if resolving the claim would involve a court in second-guessing a “military” decision that had been committed to the Executive Branch of the US government. However, the Court of Appeals could not say “at this stage of the litigation” whether resolution of the case would implicate the question. That would require a decision as to what law to apply and the impact addressing the military decision would have on claims or defenses. The Court of Appeals thus concluded that the Political Question doctrine did not yet require dismissal of the case, but advised that the issue should be reconsidered as litigation progressed.

[Editor’s note: The Cooper case is also discussed in the Personal Jurisdiction/Forum non Conveniens section of this report.]

 

Venezuela’s Repatriation of Assets From its US Subsidiary to Avoid Potential Enforcement of Arbitration Award in the US Does not Satisfy the FSIA’s “Commercial Activity” Exception

Crystallex International Corp. v. Petróleos de Venezuela, S.A., US District Court for the District of Delaware, May 1, 2017

Crystallex, a Canadian company, won a USD 1 billion+ arbitration award against Venezuela’s state-owned oil company, PDVSA, for illegally expropriating certain of its mining rights and investments. In this action in federal court in Delaware, Crystallex sued PDVSA and its US subsidiaries for allegedly orchestrating a scheme to transfer Venezuelan assets from the US to Venezuela to frustrate efforts to collect on the award. The present opinion considers whether the suit should be dismissed on FSIA grounds.

The parties agreed that PDVSA is a sovereign within the meaning of the FSIA, and the principal issue to be addressed was whether the statute’s “commercial activities” exception applied. The Court observed that the exception could apply in any one of three circumstances: “[i] upon a commercial activity carried on in the United States by the foreign state; or [ii] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [iii] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” As a preliminary matter, the Court stated that a “commercial activity” is one of a type undertaken by a “private player” in a market, irrespective of the sovereign’s motives. The activity in question was PDVSA’s direction that its US subsidiary take on debt and cause a USD 2.8 billion dividend to be paid to PDVSA in Venezuela.

The Court found this conduct to be “commercial activity.” With respect to the first alternative test—a commercial act “carried on” in the US—the Court observed that the geographic location of conduct on which a claim is based must be determined with respect to the “gravamen,” “core,” and “foundation” of the claim as a whole. While activities relating to PDVSA’s subsidiaries occurred in the US, the Court found that PDVSA’s allegedly fraudulent intent constituted this “core,” and that could only have manifested itself in Venezuela. The Court noted that in prior cases the first test has also been satisfied where a sovereign has carried on commercial activity with a “substantial connection” to the US. While acknowledging a disagreement among other courts on the question, the Court concluded that this requirement could only be met if the commercial activity by PDVSA had itself occurred in the US, which the Court found had not been adequately alleged.

Having concluded that PDVSA conducted no activity in the US, the Court found that the second alternative test by its own terms did not apply.

Finally, the Court considered the third alternative test, which applies to commercial activity outside the US that “causes a direct effect” in the US. Crystallex argued that the “direct effect” in this case was that the transfer directed by PDVSA rendered its US subsidiary insolvent, thus hindering Crystallex’s efforts to collect on its arbitration award. But the Court observed that the transfer occurred before the judgment in arbitration was entered, and it characterized Crystallex’s claim to be that Venezuela had hindered collection of a “potential future judgment” in the US. The subsequent effect that the action had in the US once the arbitral award had been entered was different, and not the “direct” effect of PDVSA’s commercial activity outside the US.

Finding no basis for application of the FSIA’s “commercial activities” exception, the Court dismissed Crystallex’s claim.

 

Alleged Fraud by Petrobas Inducing American Funds to Invest in Failed Project Satisfies “Commercial Activity” Exception to FSIA

EIG Energy Fund XIV v. Petroleo Brasileiro, US District Court for the District of Columbia, March 30, 2017

This case arose in the wake of the bribery scandal that has engulfed Petrobras, the Brazilian state-owned petroleum company. The plaintiffs are eight related US-based and Cayman Islands-based investment funds, plus their investment adviser, that provided more than USD 2 million in financing to an entity organized to pay for the construction of a large fleet of drillships that Petrobras planned to use in developing large, newly discovered oil reserves located off the coast of Brazil. The entity collapsed after the bribery scheme was uncovered, and the plaintiffs lost their investments.

As relevant here, the parties agreed that Petrobras is a “qualifying foreign entity” for purposes of the FSIA, but disagreed about whether jurisdiction could nonetheless be asserted under the FSIA’s “commercial activity” exception. The plaintiffs argued that the facts satisfied the exception’s alternative requirement that there was “an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere [that] causes a direct effect on the United States.” The Court explained that for an injury to be “direct” it had to “follow as an immediate consequence” of the defendant’s act. Petrobras argued that the alleged injury was indirect and thus outside the scope of the exception, because the plaintiffs provided funding through multiple entities in Luxembourg, Brazil, and elsewhere. The Court disagreed, noting that six of the eight plaintiff funds were organized in the US and that they were injured “at the time Petrobras successfully induced them to invest,” i.e., immediately in connection with an act alleged to be part of the fraud. The Court thus found Petrobras to be amenable to suit in the US.

[Editor’s note: The EIG Energy Fund XIV case is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]

 

 

Antitrust/Competition/Foreign Trade Antitrust Improvements Act (FTAIA)

“Import Commerce” and Effect on US Competition Exceptions to FTAIA Satisfied Where US was a Significant Direct and Indirect Target for Sales of Price-Fixed Components

In re Lithium Ion Batteries Antitrust Litigation, US District Court for the Northern District of California, May 12, 2017

The defendants in this multi-party class action moved to dismiss an amended complaint on multiple grounds, including that the plaintiffs’ failure to allege the “location” of their purchases required dismissal under the FTAIA. In assessing the importance of this location to an FTAIA analysis, the Court first rejected the contention that a per se rule removed from US antitrust jurisdiction all claims arising from purchases made outside the US. Rather, it said that courts must look directly to the relevant exceptions to the FTAIA’s general bar against claims involving conduct outside the US: whether claims involve “import commerce” or transactions having a “direct, substantial, and reasonably foreseeable” effect on US commerce that gave rise to the plaintiff’s claims.

The Court first found that a “plausible” claim of an effect on “import commerce” had been made, principally because of the complaint’s allegations that (i) the defendants understood it was “reasonably foreseeable” that their alleged scheme would “artificially increase” prices for batteries sold in the US, one of the world’s largest markets, (ii) a “substantial portion” of the batteries purchased by the plaintiff were shipped to the US, purchased by US-based customers, incorporated into finished goods sold to US customers, and purchased for the purpose of manufacturing goods for its US customers, and (iii) the defendants “knew or should have known” that a “substantial portion” of the products they sold to the plaintiff’s affiliates “targeted the plaintiff’s imports,” and would be manufactured into goods sold to US customers.

The Court also found that these allegations established a “plausible claim” that the alleged conduct had the requisite “direct, substantial, and reasonably foreseeable” effect on US commerce. It focused on the claim that battery pricing was either negotiated in the US or referenced pricing negotiated in the US, and that the pricing was set or approved by the defendants’ US managements. In so ruling the Court distinguished a prior decision in which the same “global pricing theory” had been rejected, noting that the other case was decided after discovery in the context of a motion for summary judgment, based on a finding that no evidence supported the claim that increased US pricing caused any injury to non-US purchasers.

 

Evidence That Non-US Transactions Were Initiated During Business Hours in New York by Traders Following New York Holiday Schedule Supported “Plausible” Claim That Securities Transactions Occurred on US Exchange

Wah v. HSBC North America Holdings Inc., US District Court for the Southern District of New York, June 7, 2017

The plaintiffs are individuals who claim to have been overcharged as a result of a conspiracy among the 17 global banks named as defendants to manipulate foreign exchange rates. In August 2016, the District Court in New York dismissed the plaintiffs’ antitrust claim, concluding the complaint alleged that the relevant transactions took place in Malaysia and Singapore, at a time when the plaintiffs resided in Malaysia, and therefore did not have an effect on US commerce sufficient to satisfy the requirements of the FTAIA. (The prior decision was discussed in the Summer-Fall Issue of The World in US Courts).

The plaintiffs attempted to amend their claim to escape the problems previously cited by the Court. Specifically, they added new allegations that they arranged the relevant transactions “by telephone directly [with] HSBC traders in the United States.” The plaintiffs believed that was the case because the phone calls were conducted very late at night in Singapore or Malaysia, but during trading hours in New York, and because of statements the HSBC traders allegedly made as to their trading day and the applicability of New York holidays.

The Court found the allegations of fact adequate to support a “reasonable inference” that the transactions were executed on a US exchange or with a US trading desk, especially in light of the rule that amendments to pleadings—in the absence of prejudice or other factors—should be “liberally granted.”

[Editor’s note: the Wah case is also addressed in the Securities Law/Commodities Exchange Act (CEA) section of this report.]

 

 

Arbitration

Three-Year Delay in Invoking Arbitration Clause in Contract and Active Pursuit of Litigation Leads to Waiver of Right to Arbitrate and to Invoke English Law

NV Petrus SA v. LPG Trading corp., US District Court for the Eastern District of New York, May 4, 2007

The parties in this breach of contract action entered into agreements that provided for disputes to be resolved by arbitration in the London Court of International Arbitration under English law. The plaintiffs, ignoring the arbitration clause, filed suit in District Court in Brooklyn. The case proceeded through discovery and mediation for almost three years, and on the eve of trial the defendants, citing the arbitration clause, sought a dismissal on forum non conveniens grounds.

The Court concluded that the defendants waived their right to take the issue to arbitration. It stated that an analysis of potential waiver required consideration of three factors: “(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of litigation to date, including motion practice and discovery; and (3) proof of prejudice.” Each of these factors pointed to waiver, with the most important fact being the defendants’ own active pursuit of the litigation in a manner inconsistent with a later claim that litigation was inappropriate. Prejudice was shown by the defendants having “engaged in discovery procedures not available in arbitration,” made motions going to the merits of the claims, and delayed invoking arbitration rights while the plaintiff incurred needless delay and expense. The Court found that the defendants’ conduct—including their reliance on New York law—also had the effect of waiving the applicability of English law, which would have governed had the dispute resolution clause applied.

 

 

Intellectual Property – Patent

Personal Jurisdiction Over Non-US Defendant Does not Exist in Patent Infringement Case Where Title to Goods Transferred Outside US and Defendant’s Website is Merely “Semi-Interactive”

Kraemer v. Whizcut America Inc., US District Court for the Northern District of Ohio, May 16, 2017

Rolf Kraemer sued Whizcut America, Inc.—a US company—and its Swedish parent Whizcut AB for patent infringement. Personal jurisdiction was based on an allegation that Whizcut-AB sold the allegedly infringing goods to its US subsidiary, and that the parent’s Internet presence was so significant as to be an independent basis for jurisdiction.

The District Court in Ohio observed that Kraemer was required to satisfy the different jurisdictional tests of the Ohio “long-arm” statute and the Due Process Clause of the US Constitution, but concluded that neither test had to be examined in detail because no relevant US contacts by Whizcut-AB had been alleged at all. Specifically, the Court found that Whizcut-AB delivered its products to its US subsidiary in Sweden for importation into the US, and so Whizcut-AB could not be seen as selling the allegedly infringing product in the US. In the course of its discussion, the Court sided with the line of authority finding that provisions in shipping documents describing when the risk of loss transferred (e.g., “FOB” or “Free Carrier”) were not themselves probative of the question when title transferred.

The Court also considered whether Whizcut-AB’s website satisfied the “sliding scale” test of the Zippo case to establish jurisdiction based on a defendant’s “purposeful availment’ of the protections of the law of the forum State. This test “distinguishes between interactive websites, where the defendant establishes repeated online contacts with residents of the forum state, and passive websites, where the defendant merely posts information on the site.” Jurisdiction will much more likely be found in the case of the interactive website than the passive one. Here, the Court found Kraemer had not made a strong showing because the Whizcut-AB website was only “semi-interactive,” permitting viewers to send messages and respond to job postings but not purchase products. Nor had Kraemer affirmatively alleged that any Ohio resident had used any of the website’s interactive features. This fact, combined with the website’s inability to support purchases, persuaded the Court that the website’s connection with the forum was inadequate to support jurisdiction.

The Court also rejected Kraemer’s argument that jurisdiction over Whizcut-AB could be based on its 51% ownership of its US subsidiary and the overlap of one corporate employee. It found this showing insufficient to overcome the presumption that distinct corporations, even if in a parent-subsidiary relationship, should be treated independently for jurisdictional purposes.

[Editor’s note: The Kraemer case also appears in the Personal Jurisdiction/Forum Non Conveniens section of this report.]

 

US Supreme Court Holds That Sale of Patented Product Anywhere in the World “Exhausts” US Patent

Impression Products, Inc. v. Lexmark International, Inc., Supreme Court of the United States, May 30, 2017

Plaintiff Lexmark designs, manufactures, and sells patented toner cartridges for use in laser printers. In an effort to discourage third parties from refilling and reselling used cartridges, Lexmark installed a microchip disabling the cartridges after one use, and offered customers a discount in exchange for returning used cartridges to the company. Defendant Impression Products developed a means to counteract the microchip’s intended effect, and continued selling refilled used cartridges. Lexmark sued Impression Products for patent infringement, with respect to cartridges that Lexmark had first sold both in the US and elsewhere.

The US Supreme Court concluded that all such sales by Lexmark “exhausted” Lexmark’s US patent protection. To the extent Lexmark customers in the US resold their used cartridges to Impression Products in violation of the terms of their agreement with Lexmark, the Court stated that Lexmark would retain potential contractual claims but not ones for patent infringement. The Court found the same result to attach even where the original sale had been made outside the US, as to which Lexmark arguably was not being compensated for its US patent rights.

Notably, the Court also concluded that, where a third party anywhere in the world had licensed the US patent, the licensee’s subsequent sale was tantamount to a sale by the patentholder for purposes of implicating the exhaustion doctrine, at least where that sale was consistent with the license terms. By contrast, a licensee’s sale outside the scope of its license would not trigger the doctrine and the patentholder would retain its right to enforce its patent.

 

 

Intellectual Property – Trademarks/Lanham Act

Injunction Prohibiting Use of Allegedly Infringing Marks in China Based Solely on Potential Injury to US Plaintiff in US

A.O. Smith Corp. v. USA Smith Industry Dev. Inc., US District Court for the District of Colorado, May 22, 2017

The plaintiff, A.O. Smith, is a US-based global seller of hot water heaters that owns many trademarks in the US, China, and other countries. The defendant, USA Smith Industry Dev. Inc., is ostensibly a Colorado corporation owned by a Chinese parent or affiliate that also sells water heaters in China, using trade names that allegedly resemble those of the plaintiff. A.O. Smith sued the defendant in Colorado, claiming Lanham Act violations of trademark infringement, trademark dilution, and unfair competition, as well as claims under Colorado law. The defendant did not appear, and A.O. Smith moved for entry of a default judgment, damages, and an injunction. The claims were based solely on alleged activities in China that caused A.O. Smith in the US to lose sales and suffer other injuries and expenses. Based on an allegation that the Colorado corporation’s “principal office” was in China, the Court apparently assumed that the US defendant was responsible for all of the relevant activities that occurred in China.

The Court found that it had personal jurisdiction over the Colorado defendant and that the applicability of the Lanham Act claims to alleged conduct in China went only to the merits of the Lanham Act claim, not the Court’s jurisdiction to hear the case. As to the merits, the Court concluded that A.O. Smith had alleged that the defendant’s actions would “likely cause confusion and mistake and deceive customers [apparently in China] into concluding that Defendant’s water heaters are somehow affiliated with or approved by Plaintiff.” The complaint satisfied the requirement that extraterritorial conduct have a “substantial effect on United States commerce” with allegations that that A.O. Smith in the US lost revenue through the diversion of sales and otherwise suffered unidentified “increased costs, reduced employment, and reputational harm . . . in the United States and China.”

The Court enjoined certain activities of the defendant, both in the US and China.

 

 

Intellectual Property – Copyright

Forwarding of Publications From Subscriber in Canada to Nonsubscribers in the UK and Canada Outside the Scope of the Copyright Act

Energy Intelligence Group, Inc. v. Canaccord Genuity, Inc., US District Court for the Southern District of New York, May 11, 2017

The plaintiffs publish daily and weekly newsletters covering developments in the global energy industry. They alleged that an employee of the defendant located in Calgary, Canada had an individual subscription to the publications and auto-forwarded them to other employees of the defendant located elsewhere in Canada, in the United Kingdom, and in the US cities of New York and Houston. Plaintiffs alleged that this conduct infringed their US copyrights. The defendants argued that the Copyright Act had no extraterritorial application and therefore the forwarding of publications from Canada to recipients outside the US could not support a US copyright action. The defendants did not seek to dismiss claims based on the forwarding of publications to US recipients.

The District Court in New York agreed with the defendant that the Copyright Act has no extraterritorial application, and that some US act of infringement is necessary for jurisdiction to exist. It also agreed that the act of forwarding publications from Calgary to recipients outside the US could not support a US copyright claim.

 

 

Racketeer Influenced and Corrupt Organizations Act (RICO)

District Court Certifies for Immediate Appeal its Holding That Economic Injury Suffered by the Plaintiff at its Headquarters Outside the US was not a “US Domestic Injury” and Therefore Could not Support a Private RICO Claim

Armada (Singapore) Pte Limited v. Amcol International Corp., US District Court for the Northern District of Illinois, May 9, 2017

In this opinion, the District Court in Chicago authorizes immediate appellate review of a prior decision dismissing Armada’s RICO claims as having failed to allege the requirement of a “US domestic injury,” as first announced by the US Supreme Court in the RJR Nabisco v. European Community case in 2016. (The Court’s prior decision was addressed in the Spring 2017 issue of The World in US Courts.) In the course of its ruling, however, the Court clarified its analysis of the extraterritoriality inquiry required by RJR Nabisco.

Armada’s RICO claim was based, among other things, on the defendants’ alleged interference with Armada’s ability to collect a debt owed by one of the defendant’s subsidiaries. The Court originally held that an economic injury is suffered at the plaintiff’s location, and since Armada is a non-US corporation, it could not allege a US domestic injury. The Court acknowledged that district courts had not consistently analyzed where an injury occurs for purposes of RICO since RJR Nabisco was decided, and noted a line of cases that focused on where conduct giving rise to the RICO violation occurred. Admitting that Armada’s interpretation of the “domestic injury” requirement was “not implausible,” the Court agreed that interlocutory review of the question by the Court of Appeals was appropriate.

 

 

Shipment of Allegedly Infringing Publications From New York Capable of Supporting Claim of US “Domestic Injury”

Elsevier Inc. v. Grossmann, US District Court for the Southern District of New York, May 8, 2017

In our Fall 2016 Issue, we reported on a decision by the District Court in New York in this case which considered whether the defendants violated the civil RICO statute and other provisions of law through a fraudulent scheme to resell publications that had been obtained at a substantial discount at retail rates. Following a jury verdict for plaintiff Elsevier, the Court entered judgment for the defendants on the RICO claim, concluding that the facts did not show that Elsevier had suffered a US “domestic injury,” as required by the US Supreme Court’s 2016 decision in the RJR Nabisco case. But because the RJR Nabisco decision changed the law after the jury had reached its verdict, the Court permitted Elsevier to ask to amend its complaint and retry the issue of a “domestic injury.” In this opinion, the Court in New York grants that request.

The Court first recites that RJR Nabisco found RICO’s private right of action not to have extraterritorial effect. Then, for the first time in its published opinions, it observes that its task in such case is to determine the “focus” of the private right of action, and with that focus in mind to determine whether the facts established a US domestic injury. Rather than undertaking this analysis on its own, however, the Court identified in the case law two “lines of reasoning” that had been used to determine where an alleged RICO injury had taken place: where the alleged injury “was suffered,” and where the conduct occurred that caused the alleged injury. In its prior opinion, the Court promoted what it called a “flexible” approach in which an injury to a plaintiff’s “business” would be deemed to have occurred “where substantial negative business consequences occurred,” and an injury to “property” would be deemed to have occurred “where the plaintiff parted with the property.” The Court surveyed decisions of other district courts addressing the location of a RICO “domestic injury,” concluding that the majority also focused on the “injury,” although taking very different approaches.

Elsevier alleged both an injury to its business and the loss of specific property, and the Court earlier had found neither to be US “domestic.” In support of its request for a new trial, Elsevier now argued that most of the publications subject to fraud were, or were authorized to be, physically shipped from the US. The Court found this proffer sufficient to warrant a new trial, but did not provide further analysis of why the proffer would satisfy the legal standard described above.

 

 

Securities Law/Commodities Exchange Act (CEA)

Court Discusses but Does not Resolve Question Whether US Federal Agencies may Apply Securities Laws Extraterritorially

US Securities and Exchange Commission v. Sabrdaran, US District Court for the Northern District of California, May 15, 2017

The defendants were found liable for insider trading in a civil proceeding brought by the SEC. Certain of the transactions in question themselves generated secondary “hedging” transactions in US securities by entities in the United Kingdom, as to which the SEC also sought disgorgement of profits. The defendants argued that these transactions did not meet the requirements of a US “domestic” transaction so as to be within the scope of the securities fraud laws as defined by the US Supreme Court in the Morrison case, which held that the securities laws do not have extraterritorial application.

A Magistrate Judge in California addressed but did not resolve the question whether 2010 “Dodd-Frank” amendments to the securities laws overruled Morrison so far as cases brought by the United States were concerned, expanding federal jurisdiction to include the so-called “conducts and effects” test that applied pre-Morrison.  Under that test, US jurisdiction would attach to wrongful cross-border activities if (1) the conduct that occurred in the US is "more than merely preparatory to the fraud," and (2) the conduct had a substantial effect in the US or upon US citizens. The Court noted that a few decisions supported the idea that Dodd-Frank expanded jurisdiction for securities fraud cases brought by the US Government, but concluded that it did not need to resolve the question itself because the transactions generated purchases of US securities in the US. The Court likewise declined to address the similar question whether the Morrison decision by its own terms was never meant to apply to actions by the US Government agencies.

 

Orchestration of Bribery Scheme Outside the US That Allegedly Made US Securities Filings Fraudulent Does not Support Assertion of Personal Jurisdiction Where the Defendant was not Involved in Preparing or Making the Filings

In re Braskem S.A. Securities Litigation, US District Court for the Southern District of New York, March 30, 2017

The plaintiffs in this class action allege that the defendant Brazilian petrochemical company, Braskem, failed to disclose a bribery scheme allowing it to purchase an important raw material at below-market prices, allegedly having the effect of materially inflating the company’s reported profits. When the scheme was revealed, Braskem ADRs that were traded on the New York Stock Exchange declined 20%, allegedly resulting in injury to the plaintiff class members. They sued Braskem, two of its former officers, and a major stockholder, Odebrecht S.A., a Brazilian Company, claiming violations of Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5.

After concluding that the complaint adequately alleged certain securities law violations, the Court considered Odebrecht’s argument that it was not subject to personal jurisdiction in New York. The Court explained that specific provisions of the securities laws permitted worldwide service of process, and allowed for the assertion of jurisdiction where the defendant “does business in the forum, does an act in the forum,” or “causes an effect in the forum by an act done elsewhere.” Odebrecht’s conduct in Brazil satisfied this standard, the Court found, because it was alleged to have caused Braskem to have engaged in the scheme.

Next, the Court examined the question whether asserting jurisdiction over Odebrecht was consistent with the Due Process Clause of the US Constitution, which requires that a defendant have a “substantial connection” with the forum and that requiring it to defend itself would not violate “traditional notions of fair play and substantial justice.” As to the first part of the test, the Court stated that it was required to evaluate the defendant’s contacts with the forum “in totality, with the crucial question being whether the defendant has purposefully availed itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” The Court noted other cases that had found a basis for personal jurisdiction where a non-US defendant had orchestrated a violation of US securities law. But while it found that Odebrecht may have been responsible for the underlying bribery scheme, the complaint did not adequately allege that Odebrecht played any role in the preparation or approval of the US securities filings that were alleged to have been false and misleading. Odebrecht had no other contacts with the US, and the Court thus found that Due Process requirements were not satisfied.

 

CEA Claim Involving Domestic Securities Transactions Deemed Impermissibly Extraterritorial Because of Potential Conflict With Securities Laws of Other Countries

In re: North Sea Brent Crude Oil Futures Litigation, US District Court for the Southern District of New York, June 8, 2017

Putative classes of futures and derivatives traders and of the owners of landholding and lease-holding interests asserted claims against a number of Brent crude oil producers, traders, and their selected affiliates. Among other things, the complaint alleged that the defendants conspired to manipulate Brent crude oil prices and the prices of Brent crude oil futures and derivatives contracts traded on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE Futures Europe”), in violation of the CEA. The defendants moved to dismiss the case, arguing that the claims amounted to an impermissible extraterritorial application of the statute.

The District Court in New York began by observing that neither the substantive provisions of the CEA nor the statute’s private right of action contains the clear statement of congressional intent necessary for the CEA to be given extraterritorial effect in connection with the claims made. The Court added that its task was thus to determine the “focus” of the statute, and with that focus in mind to determine whether the complaint was based on US domestic conduct that the CEA would cover. Reviewing relevant precedent, the Court concluded that the “focus” of the CEA was “transactional,” and that transactions could be deemed domestic (and within the scope of the CEA) if they either were executed on a US exchange or themselves reflected agreements deemed to have been made in the US. The Court noted that the existence of a US transaction was a necessary but not sufficient condition to application of the CEA, as prior appellate case law (the Parkcentral case) had declined to apply the CEA to a concededly “domestic” claim where the underlying conduct involved non-US defendants making misrepresentations that affected share prices outside the US. In that case, application of the US law was found to be inappropriate because the facts “were so predominantly foreign,” and imposing liability under US law might create a conflict with rules under the other country’s securities law regime.

Whatever the relevance of the underlying transactions, the parties disagreed about which transactions should even be addressed. Certain plaintiffs contended that the Court’s focus should be on their commodities transactions on NYMEX and ICE Futures Europe, while the Defendants drew the Court’s attention to the underlying transactions alleged to be manipulative—that is, their physical crude oil transactions in the North Sea and European loading ports, which could not be considered US domestic. The Court examined the CEA’s private right of action and concluded—as other courts had found as to the general US anti-fraud securities laws—that it appeared to be concerned with the integrity of securities transactions, not of underlying commodities transactions on which securities transactions might be based. Thus, siding with the plaintiffs on this issue, the Court concluded that the relevant transactions were US domestic.

But the Court nonetheless decided to dismiss the claims. Acknowledging that the plaintiffs’ transactions were not as tightly linked to transactions outside the US as was the case in the precedent earlier cited, the Court nonetheless found both cases to present the situation in which applying us law would subject the defendants to the potentially different requirements of different countries’ securities laws.

[Editor’s note: In re: North Sea Brent Crude Oil Futures Litigation is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]

 

CEA Applies to US Derivatives Transactions Initiated by Non-US Persons and Involving Non-US Underlying Assets

In re Platinum And Palladium Antitrust Litigation, US District Court for the Southern District of New York, March 28, 2017

The plaintiffs were sellers of physical platinum and palladium and related financial instruments all priced with reference to the daily benchmark prices for those metals set in London. They alleged they were injured because the benchmark prices were unlawfully depressed by the defendants. Antitrust claims were dismissed on prudential grounds, and the District Court in New York focused on claims brought under the CEA. The defendants argued that the CEA claims should be dismissed because the statute does not reach extraterritorially to cover the alleged manipulation of benchmark prices on a London exchange.

The Court first observed that, like the principal US securities fraud statutes, the CEA does not apply extraterritorially. “[T]he CEA creates a private right of action for persons anywhere in the world who transact business in the United States, and does not open our courts to people who choose to do business elsewhere.” A US domestic transaction is required, and the Court used the same test applied where other US securities laws are at issue: The relevant transactions must have occurred on a US exchange, or “irrevocable liability” for a transaction must have arisen in the US.

The plaintiffs limited their claims to futures contracts traded on the New York NYMEX exchange and to contracts traded over-the-counter where “irrevocable liability” arose in the US. But the defendants argued that the CEA nevertheless should be found inapplicable because the transactions principally involved “bids, asks, and trades made by foreign employees of mostly foreign corporations in a foreign auction for a foreign physical commodity.” The Court rejected this argument, finding the nationality of the party engaging in the transaction irrelevant and the requirements for jurisdiction otherwise to be satisfied. The Court noted prior appellate precedent in the Parkcentral case in which a securities claim was dismissed even though it met the same jurisdictional requirements, declining to apply the rule of that case beyond the unusual security at issue there.

[Editor’s note: The In re Platinum and Palladium Antitrust Litigation case is also discussed in the Personal Jurisdiction/Forum Non Conveniens section of this report.]

 

Circumstantial Evidence That Securities Transactions Were Implemented in New York Sufficient to Support Amendment of Complaint to Allege US “Domestic”

Wah v. HSBC North America Holdings Inc., US District Court for the Southern District of New York, June 7, 2017

The plaintiffs are individuals who claim to have been overcharged as a result of a conspiracy among the 17 global banks named as defendants to manipulate foreign exchange rates. In August 2016, the District Court in New York dismissed the plaintiffs’ antitrust and CEA claims, concluding the complaint alleged that the relevant transactions took place in Malaysia and Singapore, at a time when the plaintiffs resided in Malaysia, and therefore did not have a sufficient connection with the US to support claims under either statute. (The prior decision was discussed in the Summer-Fall Issue of The World in US Courts).

The plaintiffs attempted to amend their claim to escape the problems previously cited by the Court. Specifically, they added new allegations that they arranged the relevant transactions “by telephone directly [with] HSBC traders in the United States.” The plaintiffs believed that was the case because the phone calls were conducted very late at night in Singapore or Malaysia, but during trading hours in New York, and because of statements the HSBC traders allegedly made as to their trading day and the applicability of New York holidays.

The Court found the allegations of fact adequate to support a “reasonable inference” that the transactions were executed on a US exchange or with a US trading desk, facts that if proved might establish that the transactions were US “domestic,” and thus within the CEA. Especially in light of the rule that amendments to pleadings should be “liberally granted” in the absence of prejudice or other factors, the Court allowed the case to proceed on the new allegations.

[Editor’s note: the Wah case is also addressed in the Antitrust/FTAIA section of this report.]

 

 

White Collar Criminal Law/Money Laundering

Criminal Forfeiture Upheld in Connection With Global Crimes Despite Underlying Violations not Having Extraterritorial Application

US v. All Assets Held at Bank Julius, US District Court for the District of Columbia, April 27, 2017

This is a civil action brought by the US Government for the forfeiture of more than USD 250 million held in bank accounts worldwide that were the proceeds of violations of various criminal statutes. The criminal violations all arose in connection with the activities of Pavel Lazarenko, a former Ukrainian politician who was found to have amassed the money through fraud, extortion, bribery, and misappropriation and/or embezzlement in the 1990s. The District Court in Washington, D.C. considered whether recent changes in the law of extraterritoriality prevented the US from seeking forfeiture of funds generated through conduct occurring largely outside the US. Among many issues addressed, the following are most relevant for present purposes:

The Court first considered the extraterritoriality of forfeiture claims under 18 USC 981, which applies to certain specifically-enumerated crimes. It analogized the legal issue to the extraterritoriality of the RICO statute, which was addressed in the US Supreme Court’s 2016 decision in the RJR Nabisco case. The RICO statute, like the forfeiture statute, is based on violations of enumerated criminal prohibitions. In RJR Nabisco, the Supreme Court held that substantive RICO violations would have extraterritorial effect to the extent the criminal violations allegedly forming the “pattern of racketeering activity” themselves provided for extraterritorial application. But a separate statute created a private right of action for damages caused by RICO violations, and the Supreme Court held that this statute had no extraterritorial effect—i.e., that no matter the RICO violation at issue, a private plaintiff could only recover for US “domestic injuries.”

Following RJR Nabisco, the Court determined in the forfeiture case that extraterritoriality must first be judged with reference to the Section 981, the forfeiture statute, and not the underlying criminal violations on which application of the statute was based. It then analogized Section 981 to the underlying RICO violation, concluding that forfeiture would be appropriate to the extent it was based on underlying criminal violations that had extraterritorial effect.

That left an analysis of the geographic scope of the criminal violations on which forfeiture was based. The Court first concluded that the money laundering statutes applied extraterritorially, rejecting Lazarenko’s argument that the statutes' requirement that transactions occur “in part” in the US was not satisfied by Electronic Funds Transfers (EFTs) in US dollars that passed through US banks because the EFTs flowed from one non-US bank to another. At least where the US banks were used “as a clearinghouse” for conduct illegal under US law, the Court found the forfeiture statute properly applicable.

The Court then considered the underlying violation of 18 USC 2314, which as relevant here prohibits certain transfers of funds obtained through fraud, and concluded that the provision gave no intent that it should be applied extraterritorially. That said, the second question under the RJR Nabisco analysis is whether sufficient US conduct occurred in connection with the “focus” of the statute that the alleged violation should be considered US “domestic.” The Court found the “focus” Section 2314 to be the “transportation or transfer of property,” and the numerous EFTs and alleged wire transfers into and out of the US to satisfy the requirement. The Court likewise found that the transfers violated Section 2315, which among other things prohibits certain transfers of illegally-obtained funds across a US “boundary.”

Forfeiture was also based on alleged violations of 18 USC 1951, which prohibits “robbery or extortion” that affects “all commerce over which the US has jurisdiction.” The Court found this expansive reference to jurisdiction inadequate to displace the presumption against extraterritoriality. It then determined that the “focus” of Section 1951 was the alleged act of extortion, and that no such domestic act had been pled.

The Court likewise found that the Wire Fraud Statute, 18 USC 1343, did not have extraterritorial application, and that the focus of the statute was the “scheme to defraud.” Thus, a US domestic violation could be found where the defendant committed in the US a “substantial” amount of conduct that was “integral” to the commission of the fraud, and at least “some” of the conduct involved use of US electronic communications. Because the US failed to allege conduct by Lazarenko that satisfied these requirements, judgment for Lazarenko was entered on the forfeiture claim to the extent based on a violation of Section 1343.

 

Criminal Violation of Wire Fraud and “Computer Intrusion” Statutes Based on Conduct Occurring Only in Italy

US v. Gasperini, US District Court for the Eastern District of New York, June 1, 2017

The defendant, an Italian citizen resident in Rome, was alleged to have created a “botnet” to further a “click fraud” perpetrated against advertising companies. He was charged with criminal violations of US “computer intrusion” statutes, wire fraud, and money laundering. The scheme allegedly involved the development of software that infiltrated thousands of computers worldwide, including in the US, which were then commanded to “click” on advertisements for which defrauded advertising companies made payments based on the number of “clicks” an advertisement received.

As relevant here, Gasperini sought to dismiss the indictment on grounds that the Wire Fraud Statute could not be applied extraterritorially to reach conduct allegedly occurring only in Italy. (No similar argument was made regarding the computer intrusion statutes, which the Court found had extraterritorial reach.) The Court agreed that the Wire Fraud Statute applied only US domestically, but found the alleged scheme to satisfy that requirement. To determine the geographic location of an alleged fraud, the Court stated it must determine the “focus” of the wire fraud statute, and then consider whether the “territorial events or relationships” implicated by that focus “were located domestically” and were” substantial” and “integral to the fraud.” Choosing the more conservative of tests articulated in prior cases, the Court first concluded that the “focus” of the wire fraud statute was the alleged scheme. It then noted that Gasperini was alleged to have leased a server in the US that had infected more than 800 US computers as part of the scheme, and concluded these US contacts were sufficient to create a US fraud for purposes of the Wire Fraud Statute.

 

Use of US Banks as Clearinghouses for Dollar-Denominated Wire Transfers Between Non-US Companies and Non-US Accounts Supported Prosecution Based on Money Laundering and Transportation of Stolen Property Even Though Defendant Claimed to be Unaware of The US Connection

United States v. Prevezon Holdings, Ltd., US District Court for the Southern District of New York, May 10, 2017

The defendants in this criminal case were charged with money laundering arising from a US$230 million fraud in Russia that allegedly financed the purchase of property in Manhattan. Money laundering requires, among other things, proof that the defendant committed a statutorily-defined “Specified Unlawful Activity” (SUA), which in this case was transportation of stolen property in violation of 18 U.S.C. 2314. The relevant SUAs involved dollar-denominated money transfers between non-US companies and non-US bank accounts that passed through US banks. The defendants argued that Section 2314 should not be given extraterritorial effect and therefore does not reach the transactions whose only contact with the US was “incidental” and outside their knowledge.

As an initial matter, the District Court in New York agreed that Section 2314 should not be given extraterritorial effect—the statute’s simple reference to transactions in “foreign commerce” failing to be the kind of clear indication of intent to apply extraterritorially that is required under current law. But the Court observed further that international transactions might still “touch and concern” the US sufficiently to be considered US domestic, an inquiry it also described as asking whether “the conduct relevant to the statute’s focus occurred” in the US. Consistent with prior precedent, the Court concluded that the “use of correspondent banks in foreign transactions between foreign parties,” “especially where bank accounts are the principal means through which the relevant conduct arises,” satisfied the test. The Court considered it irrelevant that “no wrongdoer purposefully availed himself of the services of a U.S. bank—or knew that such banks were being used,” as a contrary ruling would undermine the remedial purposes of the statute.

 

 

Personal Jurisdiction/Forum Non Conveniens

Personal Jurisdiction Exists over Non-US Non-Parties to Litigation That Have “Actual Notice” of Court’s Order

Advanced Access Content System Licensing Administrator, LLC v. Feng Tao, US Court of Appeals for the Second Circuit, May 3, 2017

The defendant operated a business whose software allowed users to “circumvent” the plaintiff’s encryption technology, thereby giving rise to a claim that was not described further. The District Court issued an injunction prohibiting the defendant from carrying on his business, and directing certain non-US domain registrars and payment processors that are not parties to the litigation not to assist the defendant’s operations. The defendant argued that the injunction improperly extended to the non-parties located outside the US. Although the basis for the argument was not stated, presumably it was that the Court lacked personal jurisdiction over the non-parties.

The Court of Appeals disagreed and affirmed issuance of the injunction. It found that parties having actual notice of the injunction could be precluded from assisting the defendant in violating the orders, and observed broadly that “[F]ederal courts can enjoin conduct that has or is intended to have a substantial effect within the United States.”

 

Jurisdiction Over Belgian Company Based on Dispute Resolution Provision in Bill of Lading That was Applied Even to Non-Parties to Shipment, and on Company’s Contacts With the US as a Whole

BMW of North America LLC v. M/V Courage, US District Court for the Southern District of New York, May 17, 2017

Owners and insurers of millions of dollars of motor vehicles damaged by a fire aboard a US-bound cargo ship sued various defendants allegedly responsible for the accident. Many of the defendants in turn filed cross-claims against other defendants. One defendant, GovLog, had won a contract from the US Government for the transportation of Government employees’ vehicles back to the US, and pursuant to this contract GovLog had contracted for shipment of the vehicle that allegedly caused the fire giving rise to the damage and litigation. This link to the cause of the fire prompted many parties, both plaintiffs and defendants, to file claims against GovLog.

The Bill of Lading governing shipment of the vehicle that caused the fire provided that “[a]ny dispute arising under this [Bill of Lading] shall be decided in the U.S. Federal Court in the City of New York to the exclusive jurisdiction of which [parties including GovLog] submit themselves.” GovLog is a Belgian corporation whose principal place of business is Antwerp. It sought dismissal of the claims filed against it by the plaintiffs as well as the other defendants on grounds of a lack of personal jurisdiction and the doctrine of forum non conveniens.

The Court first found that the Bill of Lading was enforceable and applied to the defendants’ contract claims against GovLog. It then observed that the forum selection clause was “broad,” referring as it does to “any dispute” arising under the Bill of Lading. This being the case, the Court concluded that the clause would also be applied to the other defendants’ tort claims so long as they “involve the same operative facts as a parallel claim for breach of contract.” Indeed, the Court found that the agreement could be enforced against non-parties to the Bill of Lading, so long as the non-party was “closely related” to the dispute such that it becomes “foreseeable” that it would be bound.”

The Court separately considered the applicability of the clause to the plaintiffs’ claims, and found it to be a “closer question.” But it did not reach the question because it concluded that jurisdiction over GovLog could be based on Rule 4(k)(2) of the Federal Rules of Civil Procedure. That rule, known as the “federal long-arm statute,” confers jurisdiction over non-US defendants where federal claims have been alleged and the defendant lacks sufficient contacts with any single US State to be sued there but maintains sufficient contacts with the US as a whole to satisfy the requirements of the Due Process Clause of the US Constitution.

The first part of the test was satisfied by the presence of claims brought under US maritime law. The second part of the test was satisfied by GovLog’s own denial that it had sufficient contacts with any US State to support jurisdiction. That left the third requirement, which the Court found had been satisfied by ample connections between GovLog’s actions and the dispute more generally and the US: “These cases arise out of a fire allegedly caused by a vehicle belonging to an American citizen and manufactured by an American company that GovLog agreed to ship, pursuant to a contact with the U.S. Government, to the United States on a U.S.-flagged vessel, using a Bill of Lading in which GovLog agreed to the exclusive jurisdiction of a U.S. court.”

The Due Process Clause also requires that the exercise of jurisdiction over a party be “reasonable,” and the Court noted that a defendant must make a “compelling case” of unreasonableness to prevail once minimum contacts necessary to support jurisdiction had been shown. It concluded that GovLog had not met this heavy burden, citing GovLog’s consent to US jurisdiction in the Bill of Lading’s forum selection clause, the efficiency of resolving all of the claims in one forum, and the interest of the US in providing a forum for a case involving “a U.S.-flagged vessel bound for the United States that was the result of a tender process involving the United States Government.”

Finally, the Court rejected GovLog’s motion to dismiss the case on forum non conveniens grounds. It noted that GovLog’s agreement to US jurisdiction limited analysis of the doctrine to its “public interest” factors, including court congestion and local interests in the litigation. The Court found that these factors if anything supported the maintenance of jurisdiction, in part because of the significant US interests involved and the fact that the forum selection clause required at least certain of the claims to be litigated in New York.

 

US Supreme Court Limits Jurisdictions Where Non-US Businesses May Be Sued

Bristol-Myers Squibb Co. v. Superior Court of California, US Supreme Court,  June 19, 2017

In a decision having potential importance to non-US businesses involved in product liability and other national US litigation, the US Supreme Court limited the ability of plaintiffs to consolidate different State-law claims in the State of their choosing, potentially requiring that multiple smaller cases be brought in jurisdictions having a relationship to the case.  The applicability of the decision to class actions and certain federal claims is less clear, and certain to be litigated in the months and years to come.

A discussion of the case and its implications was the subject of an article on Orrick’s AntitrustWatch blog, and may be found here.

 

US Personal Injury Litigation Arising from Fukushima Nuclear Power Accident Continues—For the Time Being

Cooper v. Tokyo Electric Power Co., Inc., US Court of Appeals for the Ninth Circuit, June 22, 2017

US military personnel were deployed to assist Japanese forces in the wake of the 2011 earthquake and tsunami that hit Northern Japan and resulted in catastrophic damage to the Fukushima Daiichi Nuclear Power Plant, operated by Tokyo Electric Power Company (TEPCO). The plaintiffs alleged they suffered serious medical injuries as a result of exposure to radiation, and that their injuries were occasioned by TEPCO’s misstatements incorrectly minimizing the extent of the radiation leak. Although a comprehensive plan for adjudicating claims of injury was established in Japan, the plaintiffs filed suit against TEPCO in Los Angeles. The District Court denied TEPCO’s efforts to dismiss the case on various grounds and an immediate appeal followed. The Court of Appeals affirmed the District Court’s decisions—albeit with recognition that the case presented a number of close questions, and an invitation for the District Court to reconsider its conclusions as the case proceeded.

Of note, the district court had rejected an argument by TEPCO that the case should be dismissed because an international treaty (referred to as the “CSC”) governing compensation in the event of nuclear disasters required that all litigation regarding a disaster be brought in the country where it occurred. The US was an early signatory of the CSC, but Japan only ratified the treaty after the Fukushima tragedy, and the Court of Appeals thus held it inapplicable to claims arising out of the Fukushima incident. The Court of Appeals also gave weight to questions of international comity, and received briefs from the Governments of Japan and the US. Japan argued that the case should proceed under the Japanese compensation framework, citing its substantial interest in hosting resolution of claims arising from the disaster. The US argued that keeping the case in the US would serve as an incentive for countries to join the CSC, sending a message that maintaining exclusive jurisdiction over nuclear accidents could only be obtained through ratification of the CSC. The Court of Appeals acknowledged Japan’s very strong interest in retaining jurisdiction over all claims arising from the tragedy, but concluded that the District Court exercised reasonable discretion in finding that interest counterbalanced by the US desire to promote ratification of the CSC by as many countries having nuclear power plants as possible. But the Court of Appeals also recognized that “comity” is a “fluid doctrine,” and that the District Court might have reason to change its mind regarding relative national interests as the litigation progressed.

As relevant here, the Court of Appeals also declined to dismiss the case on forum non conveniens grounds, largely for the reasons it declined to dismiss the case on ground of international comity. Added to the analysis, however, was the deference US courts give to the choice of US citizens to litigate in their home countries.

[Editor’s note: The Cooper case is also discussed in the Foreign Sovereign Immunity Act (FSIA)/Political Question section of this report.]

 

Claim by Allegedly Defrauded US Funds Arising out of Petrobras Scandal Survives Motion to Dismiss on Forum Non Conveniens Grounds

EIG Energy Fund XIV v. Petroleo Brasileiro, US District Court for the District of Columbia, March 30, 2017

This cases arose in the wake of the bribery scandal that has engulfed Petrobras, the Brazilian state-owned petroleum company. The plaintiffs are eight related US- and Cayman Islands-based investment funds, plus their investment adviser, that provided more than USD 2 million in financing to an entity organized to pay for the construction of a large fleet of drillships that Petrobras planned to use in developing oil reserves located off the coast of Brazil. The entity collapsed after the bribery scheme was uncovered, and the plaintiffs lost their investments.

After determining that certain plaintiffs had standing to sue and that the “commercial activity” exception to the FSIA applied, the Court addressed whether the case should be dismissed on forum non conveniens grounds. It explained that the defendants bear the “heavy burden” of establishing that retention of the case would impose an unfair and disproportionate burden, and that the factors to be considered included the following:

  • Does an adequate alternative forum exist? Here the Court addressed a disagreement between the parties’ experts as to whether suit in Brazil would be barred by a statute of limitations, and concluded that uncertainty about the law meant that Petrobras could not satisfy its burden to show that suit might proceed in its home country.
  • Does the existence of an arbitration and forum selection clause in certain investment agreements mean that the deference typically accorded US plaintiffs in their choice of forum, and that a weighing of “private” convenience factors, should be ignored? The Court concluded that the agreements should not displace the usual forum non conveniens analysis because it would not apply to certain of the defendants and even to plaintiffs that were not signatories to contracts containing the clause. In so ruling, the Court emphasized the questions about the scope of a forum selection clause must be governed by the law chosen by the parties—here that of Brazil, which (unlike District of Columbia law) would only allow the clause to apply to signatory parties.
  • The Court nevertheless concluded that the plaintiffs were entitled to less deference because their claims were based on decisions to invest outside the US, in connection with which they should have been on notice they might be required to litigate disputes in other countries. This meant that Petrobras faced a reduced burden in showing that private and public interest factors favored dismissal.
  • The relevant “private interest” factors are “(1) the relative ease of access to sources of proof; (2) the availability of process for compelling unwilling witnesses; (3) the cost for obtaining attendance of willing witnesses; (4) the possibility of inspecting the premises, if appropriate; and (5) all other practical problems that make trial of a case easy, expeditious, and inexpensive.” The Court concluded that these factors favored dismissal only slightly. Although most of the relevant evidence was located in Brazil, and many Brazilian witnesses could not be compelled to testify at trial, the plaintiffs argued that they could adequately rely on other materials in the public record. Petrobras responded that it needed evidence from Brazil to defend itself. The Court was sympathetic to this argument, but noted that Petrobras had been in litigation relating to the fraud in New York for more than two years, and that the company had not identified evidence relevant to the present case that would have been outside the scope of discovery in the New York action. The Court also noted the likelihood that a US law firm would already have investigated the facts thoroughly in connection with a US criminal probe.
  • The relevant “public interest” factors include “(1) administrative difficulties caused by foreign litigation congesting local court dockets; (2) local interest in having regional controversies decided at home; (3) avoiding imposing jury duty on residents of a jurisdiction having little relation to the case; and (4) avoiding unnecessary problems in choice of law and the application of foreign law.” The Court focused mainly on the second factor, noting Brazil’s strong interest in addressing the Petrobras scandal, but concluding that a substantial US interest also existed because the plaintiffs were mainly US funds that alleged misrepresentations made to them in the US, and that Petrobras had targeted the US for its fundraising activities. The Court also observed that the facts of this commercial dispute were one step removed from the underlying scandal that was at the core of Brazilian interests. As to the fourth factor, the Court concluded that District of Columbia law, not the law of Brazil, would apply to the underlying claims because the US venue had “the most significant relationship to the parties’ dispute.”

    Finding a balance of interests favoring dismissal only slightly, the Court denied Petrobras’s motion to dismiss on forum non conveniens grounds.

[Editor’s Note: note: The EIG Energy Fund XIV case is also discussed in the Foreign Sovereign Immunity Act (FSIA) section of this report.]

 

Employment Agreement Governed by New York Law Inadequate to Obtain Jurisdiction Over Omani Defendants Alleged to Have Breached Contract Performed in Oman

Hood v. Ascent Med. Corp, US Court of Appeals for the Second Circuit, May 24, 2017

Plaintiff Hood, a resident of Northern Ireland, brought this action against his former employers and related entities, asserting contract, tort, and State statutory claims. They failed to appear, but the trial court concluded that it lacked personal jurisdiction over them and dismissed the case.

As relevant here, the Court of Appeals affirmed this decision. Hood argued that general personal jurisdiction existed over the two foreign defendants registered in the Sultanate of Oman based on the incorporation of their alleged agents (and co-defendants) in Delaware. The Court of Appeals rejected this expansive concept of general jurisdiction based on agency, noting that the Delaware entities’ product sales in New York were legally insufficient in any event to trigger jurisdiction. The Court of Appeals also rejected Hood’s argument that specific personal jurisdiction existed, observing that his claims were wholly unrelated to the defendants’ alleged activities in New York. The fact that the relevant employment agreement was to be governed by New York law was essentially irrelevant to the inquiry, as Hood’s employment was in Oman, and he alleged that the defendants breached the agreement based on performance requirements in that country.

 

Personal Jurisdiction Defeated Where US Contacts Were Made Principally by Defendant’s Affiliates, and Allegations Failed to Establish Jurisdiction Under “Agency” or “Conspiracy” Theories

In re: North Sea Brent Crude Oil Futures Litigation, US District Court for the Southern District of New York, June 8, 2017

Putative classes of futures and derivatives traders and of the owners of landholding and lease-holding interests asserted claims against a number of Brent crude oil producers, traders, and their selected affiliates. Among other things, the complaint alleged that the defendants conspired to manipulate Brent crude oil prices and the prices of Brent crude oil futures and derivatives contracts traded on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE Futures Europe”), in violation of the Commodities Exchange Act and the Sherman Antitrust Act.

Two non-US defendants, described below, moved to dismiss the complaint, arguing that the Court in New York had no basis on which to assert jurisdiction over them. The Court focused on the assertion of specific personal jurisdiction, which it explained required that a defendant have “personally directed” its activities toward the forum and that the litigation must have “arisen out of or relate to those activities.” Under the alternative “effects” test, jurisdiction exists over a defendant that (i) committed intentional, tortious actions outside the forum (ii) that were expressly aimed at the forum and (iii) caused harm, the brunt of which was suffered (and which the defendant knew was likely to be suffered) in the forum, and (iv) where the plaintiffs’ claims arise from or are related to those actions. Notably, the Court observed, jurisdiction may not be based only upon an injury in a forum being “foreseeable.” In this case the relevant “forum” was the US as a whole, because the case arose under two federal statutes that authorize suit anywhere in the country.

Requiring the defendant to participate in the case must also be “reasonable,” judged against the requirements of the Due Process Clause of the US Constitution. Where, as in the case at bar, the parties had participated in limited discovery directed toward the jurisdictional issues but there had been no hearing in which evidence was taken, the Court stated that the plaintiff must come forward with facts which, if believed, would meet its burden of establishing the court’s authority over the defendant.

The first moving defendant, Shell International Trading and Shipping Co. Ltd. (“STASCO”), is a UK-based trader in crude oil. The plaintiffs alleged that a STASCO executive oversaw US trading in oil by STASCO and its affiliated companies, acting as part of a “Vice Presidential Leadership Team” with responsibility for the trading of multiple entities, including entities not named as defendants. The Court observed that the plaintiffs had not shown the STASCO executive’s work was for the benefit of STASCO itself as opposed to non-party companies that were managed by the “Vice Presidential Leadership Team,” and thus found the evidence insufficient to support jurisdiction. The Court also gave credence to disputed evidence that STASCO imported Brent crude oil into the US, but it concluded nonetheless that these allegations did not satisfy the requirement that a plaintiff’s claims be sufficiently related to a defendant’s contacts with the US for specific personal jurisdiction to apply. Especially where, as in the case at bar, the contacts are small, the Court stated that it would require the contacts to have caused the plaintiffs’ alleged injury for the test to be met. Here, by contrast, “importing oil is not related to the suit.” Finally, the Court found the plaintiffs’ trades in West Texas Intermediate Crude irrelevant because that commodity’s pricing was not dependent on the pricing of Brent crude.

The Court also rejected the plaintiffs’ claim that jurisdiction was appropriate under the “effects” test, concluding most importantly that the possibility that STASCO affiliates in the US would benefit from the alleged conspiracy did not show that the US had been targeted.

Finally, the Court rejected two additional arguments for jurisdiction. First, it rejected the plaintiffs’ argument that STASCO should be deemed to have acted in the US through its US affiliates, which were alleged to be merely “agents” of STASCO itself. The Court found no evidence that STASCO “controlled” the affiliates, which was one of a number of preconditions to the argument even to be considered. The plaintiffs also advanced a “conspiracy” theory, under which a party would be deemed to have committed acts in a jurisdiction based on the acts of a party found to be its “co-conspirator.” The Court questioned the validity of the theory in general, but concluded it would require in any event the allegation of an agency relationship of the kind it had just rejected.

A second defendant, Philbro Commodities, admitted that it directed certain of its activities toward the US but argued these contacts could not support jurisdiction because they were limited and unrelated to the subject of the case. The Court disagreed, finding that Philbro Commodities was alleged to have engaged in illegal activities in the North Sea intended in part to affect the company’s own trading activities on the NYMEX exchange in New York. Moreover, because the same traders alleged to have engaged in unlawful activities also directed US trades, the Court found the contacts “substantially connected” to the claims in the case even though specific transactions in the US allegedly affected by the scheme had not been identified. Finally, the Court found the assertion of jurisdiction over Philbro Commodities to be reasonable, noting that the defendant had not made the “compelling case” necessary to defeat jurisdiction where minimum contacts existed.

[Editor’s note: In re: North Sea Brent Crude Oil Futures Litigation is also discussed in the Securities Law/Commodities Exchange Act (“CEA”) section of this report.]

 

No Personal Jurisdiction over Non-US Bank, Trader, and Exchange in Antitrust and Commodities Exchange Act Case because Price-Fixing Activity was Alleged to Have Occurred Exclusively in the UK

In re Platinum And Palladium Antitrust Litigation, US District Court for the Southern District of New York, March 28, 2017

Plaintiffs were sellers of physical platinum and palladium and related financial instruments, all priced with reference to the daily benchmark prices set in London for those metals. They alleged that the benchmark prices were unlawfully depressed by the defendants and that their sales thus occurred at prices lower than would have existed in a competitive market. Antitrust claims were dismissed on prudential grounds, and the District Court in New York concluded that claims brought under the Commodities Exchange Act properly applied to the cross-border activity at issue.

The Court then addressed the question whether personal jurisdiction existed over three UK defendants alleged to have participated in the illegal scheme. The Court noted that the plaintiffs did not assert the availability of general personal jurisdiction—typically limited to corporations incorporated or having their principal places of business in the forum—but instead limited their arguments to specific personal jurisdiction based on the defendants’ alleged case-related contacts with the forum. Because the claims at issue arose under federal statutes providing for “nationwide service of process,” the Court concluded that the preliminary jurisdictional inquiry would focus on a defendant’s contacts with the US as a whole, and not its contacts with New York. The Court analyzed jurisdiction over each of the defendants as follows:

  • BASF Metals was alleged to have participated in the manipulation of metals prices, accomplished in part through the use of international Internet chat rooms and messaging passing through the US, and to have affiliates with substantial US presences. The Court rejected all of these grounds, noting that the alleged presence of BASF affiliates in the US did not involve actions alleged to have given rise to the claims at issue, and that the mere transmittal through the US, or storage of electronic messages in the US, “generally” was inadequate to establish the required “purposeful direction” of activities towards the country. The Court further noted that merely “foreseeable” effects of non-US activity on US exchanges were inadequate to establish jurisdiction, and that necessary allegations that BASF Metals had “expressly aimed its conduct at the U.S.” had not been made.
  • The ICBC Bank was similarly alleged to have participated in the manipulation of metals prices, to have entities incorporated in the US, and to have engaged in US transactions at the allegedly fixed prices. But the Court found no US activities in these allegations that gave rise to the plaintiffs’ claims, which centered on the illegal fixing of prices during periodic calls outside the US. Again, the mere likelihood that illegal activity undertaken outside the US would cause injury in New York did not meet the requirement that a defendant have the “express aim” of causing injury in the State.
  • LPPFC, the organization under whose auspices the price fixing allegedly occurred, was described by the plaintiffs as the vehicle by which the conspiracy was implemented. Again, however, the Court found non-US conduct whose effect on the US was merely “foreseeable” to be inadequate to support the assertion of jurisdiction. The Court also rejected the plaintiffs’ argument that LPPFC was the “alter ego” of its members, some of which were subject to personal jurisdiction in the US. While noting substantial disagreement over the standards to employ in making an “alter ego” determination in the jurisdictional context, the Court found no allegations that LPPFC’s status as an independent corporate entity was not respected, which it found to be a minimum requirement for the doctrine to apply.

    The final issue was whether personal jurisdiction could be asserted over the non-US defendants on a theory that they conspired with other entities over which jurisdiction was conceded. The Court expressed skepticism over the theory, but recognized that, at least in New York, it had been found to apply where “(a) the defendant had an awareness of the effects in New York of its activity; (b) the activity of the co-conspirators in New York was to the benefit of the out-of-state conspirators; and (c) the co-conspirators acting in New York acted at the direction or under the control or at the request of or on behalf of the out-of-state defendant.” For the same reasons identified above, the Court rejected applicability of the doctrine because the complaint did not allege that any of the alleged price-fixing activity occurred in New York.

[Editor’s Note: The In re Platinum and Palladium Antitrust Litigation case is also discussed in the Securities Law section of this report.]

 

Personal Jurisdiction Over Non-US Defendant Does not Exist in Patent Infringement Case Where Title to Goods Transferred Outside US and Defendant’s Website is Merely “Semi-Interactive”

Kraemer v. Whizcut America Inc., US District Court for the Northern District of Ohio, May 16, 2017

Rolf Kraemer sued Whizcut America, Inc.—a US company—and its Swedish parent Whizcut AB for patent infringement. Personal jurisdiction was based on an allegation that Whizcut-AB sold the allegedly infringing goods to its US subsidiary, and that the parent’s Internet presence was so significant as to be an independent basis for jurisdiction.

The District Court in Ohio observed that Kraemer was required to satisfy the different jurisdictional tests of the Ohio “long-arm” statute and the Due Process Clause of the US Constitution, but concluded that neither test had to be examined in detail because no relevant US contacts by Whizcut-AB had been alleged at all. Specifically, the Court found that Whizcut-AB delivered its products to its US subsidiary in Sweden for importation into the US, and so Whizcut-AB could not be seen as selling the allegedly infringing product in the US. In the course of its discussion, the Court sided with the line of authority finding that provisions in shipping documents describing when the risk of loss transferred (e.g., “FOB” or “Free Carrier”) were not themselves probative of the question when title transferred.

The Court also considered whether Whizcut-AB’s website satisfied the “sliding scale” test of the Zippo case to establish jurisdiction based on a defendant’s “purposeful availment’ of the protections of the law of the forum State. This test “distinguishes between interactive websites, where the defendant establishes repeated online contacts with residents of the forum state, and passive websites, where the defendant merely posts information on the site.” Jurisdiction will much more likely be found in the case of the interactive website than the passive one. Here, the Court found Kraemer had not made a strong showing because the Whizcut-AB website was only “semi-interactive,” permitting viewers to send messages and respond to job postings but not purchase products. Nor had Kraemer affirmatively alleged that any Ohio resident had used any of the website’s interactive features. This fact, combined with the website’s inability to support a purchases, persuaded the Court that the website’s connection with the forum was inadequate to support jurisdiction.

The Court also rejected Kraemer’s argument that jurisdiction over Whizcut-AB could be based on its 51% ownership of its US subsidiary and the overlap of one corporate employee. It found this showing insufficient to overcome the presumption that distinct corporations, even if in a parent-subsidiary relationship, should be treated independently for jurisdictional purposes.

[Editor’s note: The Kraemer case also appears in the Intellectual Property – Patent section of this report.]

 

Encounter in the Dominican Republic Leading to Sexually-Transmitted Diseases Suffered by New York Resident Does not Establish Personal Jurisdiction in New York

Lebron v. Encarnacion, U.S. District Court for the Eastern District of New York, May 31, 2017

The plaintiff, Ashley Lebron, is a resident of New York State. The Defendant, Edwin Encarnacion, is a resident of the Dominican Republic and employed as a baseball player by the Toronto Blue Jays, a Canadian Major League Baseball team. Encarnacion took occasional trips to New York to play in professional baseball games against the Yankees and Mets. In February of 2016, Lebron and Encarnacion had an affair in the Dominican Republic that Lebron alleged infected her with sexually transmitted diseases (STDs). Lebron sued Encarnacion in federal court in New York, claiming jurisdiction over him based on her continuing injuries in New York and Encarnacion’s contacts with the State.

Lebron asserted that the District Court had personal jurisdiction over Encarnacion under New York State’s “long-arm” statute, which governs personal jurisdiction over non-residents of New York and applies even in federal court where the case is not based on a violation of a federal statute having its own jurisdictional provision. New York’s long-arm statute allows two types of personal jurisdiction – “all-purpose” (usually referred to as “general”) and “case-linked” (usually referred to as “specific”). In both situations, the requirements of the Due Process Clause of the US Constitution must also be satisfied.

The Court stated that all-purpose jurisdiction exists where a party, based on its connections to New York, is “essentially at home” in the State. Courts can exercise all-purpose jurisdiction regardless of the suit’s subject matter. By contrast, the Court noted that case-linked jurisdiction exists only where a party’s conduct in New York gives rise to the violations alleged. Lebron claimed that the court had both all-purpose and case-linked personal jurisdiction over Encarnacion.

The Court found that all-purpose (or general) jurisdiction could not be asserted against Encarnacion; he appeared in New York only as a visitor and could not be considered “at home” in the State. The Court added that, subject to “truly exceptional” exclusions, all-purpose jurisdiction requires an individual to live permanently within the State, not in another country, as did Encarnacion. The exceptions to this rule required in part, (1) “continuous and systematic contacts” within New York, or (2) a party’s full-time employee acting solely on its behalf within New York. Encarnacion’s professional baseball trips to New York over the years, by contrast, were indistinguishable from his equally numerous trips to sixteen other states. The schedule rendered Encarnacion’s trips insufficiently continuous and systematic to consider him at home in New York. Lebron also argued that all-purpose jurisdiction could be based on Encarnacion’s representation by a New York players’ union and his retention of a New York publicity firm, but the Court found these contacts insubstantial, noting that many professional baseball players had the same associations with the union and the agency. Those entities did not act specifically on Encarnacion’s behalf. As a result, there was no all-purpose jurisdiction.

The District Court also ruled that Encarnacion was not subject to case-linked jurisdiction. Case-linked jurisdiction requires that the “original event which caused the injury” take place within New York. Here, the event that allegedly caused the injury took place in the Dominican Republic. The Court distinguished other cases that had found case-linked jurisdiction based on the location where the plaintiff suffered injury (for example, people who contracted lung cancer from inhalation of asbestos) as involving injuries that were not caused by discrete events, as was alleged here. Finding no personal jurisdiction, the Court dismissed the case.

 

District Court Finds German Choice-of-Law Contract Provision Enforceable and Dismisses Claim Forum non Conveniens Grounds

Laspata Decaro Studio Corp. v. Rimowa GMBH, U.S. District Court for the Southern District of New York, May 8, 2017

Rimowa, the German luggage manufacturer, had a contracted with Meiré, a German advertising agency, for the production of certain advertising images. After a third party sued both Rimowa (and two of its subsidiaries) and Meiré in federal court in the US for copyright infringement, the Rimowa entities filed a cross-claim against Meiré, claiming that Meiré misrepresented ownership of the copyrighted images used in the advertisements. Meiré moved to dismiss the Rimowa claim, in relevant part based on a provision in the parties’ contract that established Germany as the forum for disputes.

The Court began its analysis by noting that contractual choice-of-forum provisions were to be analyzed under the forum non conveniens doctrine, and that the questions for decision were whether the forum selection clause existed, whether it was valid, and whether it was enforceable in US Courts.

The Court concluded that these questions should be answered under German law, and to this end evaluated affidavits on German law submitted by the parties. Rimowa and Meiré were both sophisticated entities that had a long-standing business relationship and previously entered into numerous contracts with one another. Those contracts all expressly referred to a “general terms of service” agreement that was also entered into by both parties. The agreement unambiguously stated that “the law” and “the place of jurisdiction” (indicating no alternatives) was Germany, making Germany the proper forum for disputes. Rimowa knowingly accepted these terms, without objection, in every contract, and the Court found that, under German law, the provision was valid and would be applicable to the present dispute.

The Court then turned to the enforceability of the provision, to which it found US law would apply. Dismissal would be presumptively appropriate where (i) the clause was “reasonably communicated to the party resisting enforcement,” (ii) the clause was mandatory rather than permissive, and (iii) the claims and the parties involved in the suit are subject to the clause. Where those conditions are satisfied, a plaintiff could only defeat the effort to dismiss the case by making a “sufficiently strong showing” that enforcement of the provision would otherwise be “unreasonable or unjust," or that the clause was invalid for such reasons as “fraud or overreaching.” The Court enforced the provision, notably holding Rimowa’s subsidiaries were third-party beneficiaries of the contract containing the choice-of-forum provision, and thus were bound by the provision even though they were not parties to the contract. The Rimowa entities argued that the case nevertheless should not be permitted to proceed in Germany because litigation there would be “unpredictable and unsatisfactory” as a result of the local court’s unfamiliarity with US copyright law. The Court rejected this argument, finding that a forum non conveniens dismissal based on a claim of inadequacy of remedy in a non-US court required that the plaintiff show that it have no remedy at all outside the US, or would be treated unfairly. As no such showing had been made, the case was dismissed.

 

Employment Contract Providing That Disputes Should be Resolved in Germany Does not Divest US Court of Personal Jurisdiction Over German Executive

MAG IAS Holdings, Inc. v. Schmückle, US Court of Appeals for the Sixth Circuit, April 21, 2017

Plaintiff MAG Holdings (MAG) is a US member of the “MAG Group,” an international affiliation of companies that make automotive components.  Defendant Schmückle, a citizen and current resident of Germany, was MAG Group’s CEO.  Schmückle’s employment agreement with MAG Group stated that legal claims regarding his employment would be heard in Germany.  MAG subsequently alleged that Schmückle violated his corporate fiduciary duty to the US entity and sued him in federal court in its home State of Michigan.  The lower court dismissed the case, holding (without a hearing) that MAG had not made a sufficient initial showing that the court had specific personal jurisdiction over Schmückle.  MAG had based its jurisdictional argument on allegations that Schmückle:

  • Had global authority over all MAG entities, directed and controlled MAG operations in Michigan, and received a portion of his salary from that State;
  • As CEO, visited Michigan from Germany and had regular contact with MAG’s American management team;
  • Dealt personally with MAG’s Michigan-based customers and business, transferring a portion of it to Germany; and
  • Owned a vacation home in the United States.

The Court of Appeals found these allegations sufficient to establish specific personal jurisdiction.  It noted that personal jurisdiction in connection with the State-law claims presented would be based on Michigan’s “long-arm” statute, which is as expansive as permitted under the Due Process Clause of the US Constitution.  In such case, jurisdiction could only exit (i) if Schmückle “purposefully availed” himself of the duties and protections of Michigan law, (ii) his conduct within Michigan led to the claims alleged, and (iii) those connections were significant enough that the exercise of jurisdiction would be reasonable.  The Court found that Schmückle’s significant control and activities directly related to MAG in the US, as well as his “close working relationship with MAG entities and Employees in Michigan” were sufficient to constitute the “purposeful availment” of the protections of Michigan law.  As relevant here, moreover, MAG alleged that Schmückle’s Michigan activities violated his fiduciary duty, giving rise to its claims.  And the exercise of jurisdiction was reasonable, in the Court’s view, because of Schmückle’s frequent travel to the United States, his ownership of a US vacation home, and the nature and extent of his contacts.

The Court acknowledged that the provision in Schmückle’s employment contract calling for disputes to be resolved in Germany might ultimately preclude the litigation of contract-related claims.  But it said its inquiry at this early stage of the case was merely whether jurisdiction could be asserted, and the provision was not yet relevant to that inquiry.

 

Failure to Allege US-Based Contacts Giving Rise to Claims Dooms Negligence Action Against non-US Airline and Airline-Parts Manufacturer

Sia v. AirAsia Berhad, United States District for the Western District of Washington, April 20, 2017

The children of passengers on board a flight that crashed in Indonesian waters filed actions against multiple defendants pursuant to the Multiparty, Multiforum Trial Jurisdiction Act. The plaintiffs alleged that the cause of the crash was a defective component of the aircraft designed, manufactured, assembled, and sold by Defendant Artus S.A.S., a French company. Additionally, Plaintiffs alleged that the defendant, AirAisa Berhad, was negligent in failing to monitor and repair the aircraft operated by its Indonesian affiliate.

The District Court concluded that it lacked both general and specific personal jurisdiction over the defendants. General jurisdiction requires that the defendant’s contacts with a forum be “continuous and systematic,” and substantial enough that the defendant essentially be “at home” in the forum. Artus is organized under the laws of France with its headquarters and principal place of business in France. It does not have offices, real property, bank accounts, or any other assets in the US, and does not pay taxes, manufacture products, or do business in the US. Similarly, both AirAsia Berhad and its Indonesian affiliate are organized and have principal places of business outside of the US. Neither airline company operated flights to the US during the time period relevant to the litigation. Accordingly, the Court found no basis for the assertion of general personal jurisdiction, noting that any small fraction of their global revenue derived from US customers, as alleged by Plaintiffs, did not in any event arise from contacts that were continuous or systematic.

Specific jurisdiction requires a smaller showing of contacts, but these contacts must form the basis for the plaintiffs’ claims. Notably, the allegedly defective component was manufactured and sold by Artus in France. Similarly, the plaintiffs failed to demonstrate how their negligence claims directed at AirAsia Berhad, including duties to maintain, repair, and supervise its Indonesian affiliate’s operation of the aircraft involved in the crash, had any nexus with AirAsia Berhad’s contacts with the US.

 

Ecuadorian Doctor for Florida Cruise Line has Insufficient Connections to Florida to Support Assertion of General Personal Jurisdiction

Ure v. Oceania Cruises, Inc., U.S. District Court for the Southern District of Florida, June 1, 2017

The plaintiffs, Diane and Thomas Ure, were passengers on board a cruise ship operated by defendant Ocaeana. The Ures’ sued one of the ship’s doctors, Fabian Bonilla, in US District Court in Florida, claiming malpractice in connection with treatment administered in international waters. Bonilla was a citizen and resident of Ecuador who never lived in Florida or owned or rented property there.

The Ures’ based personal jurisdiction on the allegations that Bonilla:

  • Was employed by Oceania, a Florida cruise line.
  • Attended occasional training within Florida
  • Consulted with Florida medical professionals while at sea
  • Used his friend’s Florida address as his mailing address and to obtain a Wells Fargo Bank account using that address
  • Had an both an employment contract with Oceania and a Wells Fargo account stipulating that disputes arising from those contracts were to be resolved in Florida courts.

The Ures asserted that the District Court had general or “all-purpose” jurisdiction over Bonilla under Florida’s “long-arm” statute, which is construed to be as expansive as permitted under the Due Process Clause of the US Constitution. A defendant is subject to general personal jurisdiction under this rule if he is “essentially at home” in the state—a standard that typically looks to a person’s permanent home, which in Bonilla’s case is Ecuador. Absent permanent residence in Florida, general jurisdiction requires wide ranging contacts with Florida that must be so “continuous and systematic” that the State is the equivalent of the person’s home. The Court found Bonilla’s contacts with Florida insufficient to meet this demanding test, and declined to exercise personal jurisdiction over him.

 

Eleventh Circuit Affirms Dismissal of Tort and Breach of Contract Claims Against Foreign Tour and Excursion Operator for Lack of Personal Jurisdiction

Wolf v. Celebrity Cruises, Inc., US Court of Appeals for the Eleventh Circuit, March 28, 2017

The plaintiff brought tort and breach of contract claims against non-US resident tour and excursion operator “The Original Canopy Tour” (OCT) and Celebrity Cruises after being injured during an offshore zip-lining activity in Costa Rica. The District Court in Florida found no personal jurisdiction over the defendants, and in this decision the Court of Appeals affirmed.

The Court of Appeals noted that Florida’s long-arm statute permitted the assertion of personal jurisdiction over a defendant in two ways: 1) through specific personal jurisdiction, where suits arise out of or relate to a defendant’s contact with Florida; or 2) through general personal jurisdiction, where the defendant has engaged in “substantial and not isolated activity” in the State.

As relevant here, the Court of Appeals found no basis for the assertion of specific jurisdiction because the plaintiff alleged that OCT’s tortious act was committed in Costa Rica and so his claim could not have arisen out of the defendants’ contacts with the State.

The Court of Appeals likewise found no basis for the assertion of general personal jurisdiction over OCT. General jurisdiction requires “continuous and systematic” affiliations with the State such that a defendant is “essentially at home in the forum State.” Moreover, outside of having a corporation’s place of incorporation or principal place of business in the forum State (which was not the case as to either defendant), general jurisdiction extends over a corporation’s operations in that forum only in the “exceptional case.” The Court of Appeals found no basis for applying such an exception.

The plaintiff asked in the alternative for “jurisdictional discovery,” but the Court of Appeals agreed that the trial court had reasonably denied this request, which had been made over four months after he filed his complaint and had not specified the information he sought or how that information would bolster his allegations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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