The World in US Courts - Orrick's Quarterly Review of Decisions Applying US Law to Global Business and Cross-Border Activities

by Orrick, Herrington & Sutcliffe LLP

Fall 2014

The Global law firm Orrick, Herrington & Sutcliffe LLP takes great pride in announcing the Summer 2014 edition of The World in US Courts: Orrick’s Quarterly Review of Decisions Applying US Law To Global Business and Cross-Border Activities. This issue contains our summaries of 29 new US federal court decisions, in areas of the law including Intellectual Property, Antitrust, Securities, and RICO.

We are also announcing the scheduling of a series of World in US Courts webinars. Each webinar will last one hour and will provide practical guidance to companies seeking to structure their affairs to avoid litigation in the US, or finding themselves in litigation that they do not believe should involve them. The webinar will cover the subjects discussed in our publication. There is no charge or obligation. If you would like to pre-register and receive special follow-up notices regarding the webinar, please click here. Those who have already pre-registered need not do so again.

Thank you for your interest in The World in US Courts. We hope you will be able to join us for the webinar.

Please take a moment to review the members of our Editorial Board, who are drawn from Orrick’s 25 offices in North America, Europe, and Asia. From this page, you may also go directly to the list of decisions discussed in this issue and the summaries of the cases and authorities. We have also provided a very brief summary description of the statutes that plaintiffs have sought to apply to conduct outside the US. To do any of these things, please click the appropriate link below.

Editorial Board

Decisions Discussed in This Issue: Fall 2014

Copies of any case discussed in this issue are available upon request.

Please note that Orrick may be representing parties in the cases discussed below.  Nothing in the informal summaries contained in this publication should be taken as commenting on the merits of cases, or as a binding constructions of court opinions that are discussed.

Alien Tort Statute (ATS)/Torture Victims Protection Act (TVPA)/Victims of Trafficking and Violence Protection Act (VTVPA)/Foreign Sovereign Immunity Act (FSIA):

District Court Vacates Default Judgment and Dismisses Complaint Against Nepalese Banking Entities on FSIA Grounds, Finding Neither the "Commercial Activity" Nor "Taking" Exception applicable

Chettri v. Nepal Bangladesh Bank, Ltd., US District Court for the Southern District of New York, September 2, 2014

Plaintiffs arranged through a subcontractor to supply equipment to the Nepalese army and police.  The complaint alleges that the Nepalese government's US$1 million payment for the equipment was placed in the Nepalese government's bank account of the subcontractor and subsequently frozen by the Nepalese government, purportedly in connection with a money laundering investigation.  The action against the bank and related entities seeks access to the frozen funds.  A default judgment was entered against the Nepalese entities, which now seek to avoid enforcement on grounds that they are immune from suit under the FSIA.

As relevant here, the District Court in New York first found that the defendants were sovereigns, and then concluded that the "commercial activity" exception did not apply because the action complained of—the confiscation of money—was by nature a governmental and not commercial act.  The fact that the money was alleged to have been delivered in the first place via a commercial contract was not considered by the Court to establish a basis for applying the commercial exception, as it was one step removed from the specific claim in the litigation—the freezing of the funds.  Similarly, the Court concluded that the freezing of monies in Nepal did not cause a "direct effect in the United States," as the FSIA exception requires. 

The Court also found that the claim did not qualify for the limited "takings" exception to the FSIA, which applies where a government agency or "instrumentality" (as opposed to the government itself) has taken property without cause and just compensation, in violation of international law.  Here, the Court found, the actions alleged were taken by the Nepal Government, not an agency.  The freeze was also purportedly imposed in furtherance of the application of Nepalese criminal law, requiring that the plaintiffs exhaust their local remedies before they could claim that the action was unlawful and in violation of international law.  Finding none of the multiple requirements for application of either exception met, the Court vacated the default judgment and, on the basis of the applicability of the FSIA,  dismissed the complaint.

Court of Appeals Dismisses ATS and TVPA Claims, Finding Alleged Coordination of Illegal Activities From the US Insufficient to Support ATS Jurisdiction

Cardona v. Chiquita Brands International, Inc., US Court of Appeals for the Eleventh Circuit, July 24, 2014

More than four thousand Colombians brought an action against various entities associated with the banana giant Chiquita alleging in claims under the ATS and TVPA that they suffered torture, personal injury, and death as a result of Chiquita's alleged collaboration with paramilitary forces in Colombia.

The Court of Appeals first disposed of the TVPA claim, noting that the US Supreme Court in 2012 held that the TVPA could only support claims made against natural persons, not corporations.  As to the plaintiffs' ATS claims, the Court applied the US Supreme Court's 2013 Kiobel decision, which found no general extraterritorial applicability of the statute and held that where alleged conduct occurred outside the US, ATS jurisdiction would be limited to claims that nonetheless "touch and concern the territory of the United States . . . with sufficient force to displace the presumption against extraterritorial application."  The Court rejected the plaintiffs' argument that the status of the primary Chiquita defendant as a US corporation was sufficient to confer ATS jurisdiction, and affirmed dismissal of the complaint.  In so doing, the Court rejected the argument of a dissenting judge that the ATS could reach claims that a US actor, from the US, orchestrated an alleged campaign of torture abroad.

District Court Rejects Prudential Challenges to ATS Complaint Because of the Inadequacy of a Non-US Forum for the Claim, but Dismisses Claim Without Prejudice Based on Failure to Allege Sufficient Connection With US

Doe v. ExxonMobil Corporation, US District Court for the District of Columbia, September 24, 2014

Plaintiffs are Indonesian citizens who filed suit under the ATS for injuries allegedly inflicted on them by Indonesian soldiers employed by ExxonMobil entities to provide security at a natural gas production facility in Indonesia.  The US District Court in Washington, DC addressed a number of grounds advanced by ExxonMobil for dismissal of the complaint. 

The Court first rejected the argument that the complaint implicated the "Act of State Doctrine," under which sovereign acts of non-US countries taken within their borders are presumed to be lawful, finding the private employment of the solders rendered the doctrine inapplicable.

The Court also disposed of ExxonMobil's arguments that the litigation should be dismissed on grounds of "international comity" and forum non conveniens (the US forum is unjustly inconvenient to a defendant) grounds, finding both arguments precluded by the inadequacy of an alternative forum in Indonesia where the case could be heard against all defendants.  ExxonMobil's argument that the case should be dismissed because it implicated the "Political Question Doctrine" was rejected because no political decision of the US Government was presented.

Turning to the ATS, ExxonMobil argued that the plaintiffs' claims impermissibly called for an extraterritorial application of the statute.  The Court noted that ATS claims could proceed even though some element of non-US activity was involved where the claims nonetheless "touch and concern the territory of the United States."  The Court first rejected the plaintiffs' claim that the status of the ExxonMobil parent as a US corporation itself was a sufficient contact to support jurisdiction.  It noted in the complaint generalized allegations of activities in the US that might be related to ExxonMobil's security operations in Indonesia, but found these to lack the specificity required.  It allowed the plaintiffs a chance to replead, however, since the complaint predated the US Supreme Court's 2013 decision in Kiobel v. Royal Dutch Petroleum Co., which articulated a new standard for ATS extraterritoriality.

District Court Finds Mere Knowledge in US of Illegal Actions Elsewhere an Inadequate Basis for ATS Liability and Concludes That TVPA Cannot Support "Aiding and Abetting" Claim

Doe v. Cisco Systems, US District Court for the Northern District of California, September 5, 2014

Plaintiffs are US and Chinese citizens alleged to have been persecuted in China as a result of their practice of the Falun Gang religion.  They allege that the defendants—all associated with Cisco Systems—"knew of and assisted in the facilitation of human rights abuses" against the plaintiffs through the provision of a "customized security system."  This conduct is alleged to constitute "violations of the law of nations," and thus to be actionable under the ATS.

The US District Court in California focused its attention on the question whether the claims "touch and concern the territory of the United States" so as to confer jurisdiction.  The Court observed that the existence of a US defendant was not alone sufficient to confer jurisdiction.  Rather, it was necessary for the plaintiffs to allege that human rights violations were "planned, directed, or committed" in the US.  The Court found that this standard was not satisfied by allegations that the US defendants merely acted with knowledge of violations by others.

Liability under the TVPA was alleged based on the theory that the defendants "aided and abetted" violations by others, but the Court concluded that no such claim existed under the statute.  With respect to a similar claim under the ATS, however, the Court found contrary precedent and agreed that such a claim might be brought.  But it found that the plaintiffs had failed to allege that the defendants' conduct had a "substantial effect" on the perpetration of the alleged human rights violations and thus dismissed the claim.

In re South African Apartheid Litigation, US District Court for the Southern District of New York, August 28, 2014

District Court Requires US Actions to Themselves Violate International Norms for ATS Claim to Exist

Plaintiffs are black Africans alleged to have suffered discrimination and acts of violence at the hands of the former South African apartheid political regime.  In this long-running litigation, the only remaining defendants are Ford Motor Company and IBM, which are accused of aiding and abetting violations of the ATS by the manufacture of military vehicles and computers by their subsidiaries for South African security forces.  Tracing the complicated history of the case and the evolving law under the ATS, the US District Court in New York concluded that, to proceed, the plaintiffs would have to plead "conduct within the United States" that would itself "give rise to a violation of customary international law."  The Court held that had not been pled, as all of the relevant conduct occurred abroad.  The fact that US corporations might have had the power to control their South African subsidiaries, which were alleged to have participated in the apartheid regime, was found insufficient conduct to violate the ATS.  And the theory of aiding and abetting failed because the alleged actions of Ford's and IBM's subsidiaries in South Africa did not implicate the ATS because of their geographic focus.

Antiterrorism Act

Court of Appeals Gives Extraterritorial Effect to Antiterrorism Act Despite Causing "Tension" With Decisions Made by UK Government

Weiss v. National Westminster bank PLC, US Court of Appeals for the Second Circuit, September 22, 2014

Plaintiffs are approximately 200 US nationals who claim to be victims of Hamas attacks in Israel.  They sued a UK bank under the Antiterrorism Act, alleging that the bank provided support to a "terrorist organization" by collecting and distributing funds to a non-profit account-holder organization.  The District Court had granted summary judgment in favor of the bank on grounds that the plaintiffs had not alleged that the bank acted with the requisite "scienter," or state of mind.  The Court of Appeals reversed, finding that the lower court had failed to find potential liability where a defendant "had knowledge that, or exhibited deliberate indifference to whether, [an entity] provided material support to a terrorist organization, irrespective of whether [the entity's] support aided terrorist activities of the terrorist organization."

In arriving at this conclusion, the Court confirmed that the presumption against the extraterritorial effect of a US law had been overcome by the specific wording of the Antiterrorism Act.  This clear declaration also had the effect of making irrelevant the otherwise relevant question whether giving extraterritorial effect to a law might cause conflicts with the laws of other countries—even in this case, where applying the law caused some "tension" with positions taken by the government of the UK.  The Court said that it was not free to ignore the plain language of the statute despite that potential conflict.

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

District Court holds that FTAIA Does Not Bar Antitrust Claim of US Purchaser of Televisions That Incorporate Price-Fixed Screens

Costco Wholesale Corp. v. AU Optronics Corp., US District Court for the Western District of Washington, September 22, 2014

Plaintiff Costco is a retailer in this long-running antitrust case that bought televisions from the manufacturer Panasonic at a cost of $77 million during the relevant period. The televisions were made with TFT-LCD panel screens that were the subject of price-fixing. This decision involved an effort by the defendants, including Panasonic and the manufacturers of the TFT-LCD screens, to eliminate from the case claims related to televisions purchased by Costco from entities outside the US that had themselves purchased the TFT-LCD screens ex-US. Among other rulings, the District Court in Washington State addressed the question whether the FTAIA barred a US antitrust suit based on these sales.

The convoluted FTAIA generally permits US antitrust cases involving actions outside the US implicating US "import trade" as well as claims that such actions caused an impact on other US commerce that was "direct, substantial, and reasonably foreseeable."  The Court first considered whether Costco's purchases of televisions from Panasonic (assumed for purposes of the opinion to be from Panasonic Corp. in Japan) would constitute "import trade," despite the fact that the purchases were of televisions, not the price-fixed screens themselves. The Court concluded that, if Panasonic were found to be a co-conspirator with the TFT-LCD panel manufacturers, its direct sales to US customers would embrace all aspects of the conspiracy and so would be deemed to implicate US import commerce, with the result that the FTAIA would not be a bar to suit. It did not matter that, in some cases, Panasonic had sub-contracted assembly of the televisions to companies not alleged to be part of the conspiracy. The Court did not directly address the question whether Panasonic's potential status as a co-conspirator would allow Costco to avoid the rule that federal antitrust claims are only available to direct purchasers, but this seems to be an implication of its decision.

The Court next considered the defendants' potential liability if Panasonic were not found to be a co-conspirator. It noted that a case could only proceed if Panasonic were in a "control relationship" with a co-conspirator, which apparently was intended to be a shorthand basis for concluding that the "indirect purchaser" exception would not apply. It is not clear whether the District Court intended also to mean that Costco's purchases in such case (unlike the case if Panasonic were a co-conspirator) would not be "import trade." At one point the Court characterizes purchases made if Panasonic were in a "control relationship" as implicating US "import commerce," but if that were true the "direct, substantial, and reasonably foreseeable" test would not apply in the first place because the FTAIA would not apply. Regardless, the Court found that the required impact in the US could be satisfied through evidence that the price of televisions sold to Costco had been inflated as a result of the price-fixing that had occurred with respect to the TFT-LCD panels.

In an earlier decision, a panel of the US Court of Appeals for the Seventh Circuit had determined that, as a categorical matter, the sale into the US of a product that merely incorporated a price-fixed component could never satisfy the requirement that an effect in the US be "direct."  That controversial decision was vacated pending further review by the entire Seventh Circuit sitting en banc, and the District Court here did not address the panel's ruling, which was contrary to its own.

District Court Rejects application of FTAIA Where US Subsidiary Allegedly Manufactured and Sold Price-Fixed Bearings at the Direction of its Non-US Parent

In re Automotive Parts Antitrust Litigation, US District Court for the Eastern District of Michigan, August 26, 2014

Among other claims, Plaintiffs in this long-standing antitrust litigation alleged price-fixing in the market for automotive bearings, and sued a Japanese company, NTN, and its US subsidiary, NTN USA.  Both entities sought dismissal from the case based on the FTAIA.

The US District Court in Michigan concluded that the plaintiffs had essentially alleged that NTN USA had manufactured and sold price-fixed bearings in the US at the direction of its parent.  The US sales by a US company did not involve international trade, the Court concluded, and so the FTAIA was inapplicable and was not a bar to claims.  Likewise, the FTAIA was not implicated by a claim that US commerce was adversely affected by NTN's alleged direction of its subsidiary; that conduct did not involve US foreign commerce at all.

District Court Declines To Address A Conditional Motion to Dismiss but Suggests Inapplicability of FTAIA to State Antitrust Claims

In re Optical Disk Drive Antitrust Litigation, US District Court for the Northern District of California, July 10, 2014

This is another opinion on the applicability of the FTAIA issued in the long-running multi-district consolidated class action antitrust litigation involving optical disk drives ("ODD"s) manufactured outside the US and the subject of a price-fixing conspiracy.  At issue was a motion to dismiss claims brought by three US-based subsidiaries of Acer, Inc., a Taiwanese company.

The subsidiaries alleged in their complaint that they made ODD purchases pursuant to negotiations that took place in California, with purchase orders issued in California, and with possession of the products taken in California.  One subsidiary alleged it only made purchases indirectly, i.e., in the form of purchases of products that incorporated ODDs purchased from the defendants by third parties; the remaining two subsidiaries alleged that they purchased ODDs both directly and indirectly. 

The defendants did not dispute that direct purchases that reflected imports into the US, or transactions within the US, would be outside the scope of the FTAIA and thus not be precluded on that basis from being litigated.  Rather, they argued that the complaint should be dismissed "to the extent" it alleged violations arising out of direct purchases made outside of the US, in that such purchases would not qualify for the "import trade" exception to the FTAIA and could not satisfy the FTAIA requirement that applicable transactions have a "direct, substantial, and reasonably foreseeable" effect on US commerce."

The US District Court in San Francisco concluded that a motion seeking to dispose of only a part of a complaint, based on facts that might or might not be shown later, should not be resolved on a motion to dismiss.  The Court stated that the plaintiffs' allegations were "consistent with" transactions that would not be barred by the FTAIA, and thus that "there was nothing to dismiss at the pleading stage." 

The Court did, however, observe that the Illinois Brick doctrine prohibited indirect purchaser claims in connection with alleged federal Sherman Act violations.  Further, addressing a question that remains unresolved in the cases, the Court stated in dictum that the FTAIA would not bar state antitrust claims, even if the statute barred the corresponding federal claims. 

District Court Construes FTAIA to Permit Claims By an Indirect US Purchaser Where the "Intent" of the Conspirators Was To Raise Prices of Component and Finished Products Alike in the US

In re: TFT-LCD (Flat Panel) Antitrust Litigation, US District Court for the Northern District of California, September 18, 2014

The issue considered in this long-running antitrust litigation was whether a US reseller of wireless mobile handsets could maintain an action against two phone manufacturers from which it purchased its stock.  Those manufacturers, in turn, had built the telephones with flat screens that they bought outside the US, and that were the subject of a price-fixing conspiracy.  They sought to dismiss claims brought under a state consumer protection law.  They argued that the FTAIA was applicable to the state law claim, and that the FTAIA barred the claims because the injury (paying for the price-fixed screens) occurred outside the US. 

The District Court in San Francisco did not address the unresolved question whether the FTAIA applied to state claims, concluding that its principles would apply to the state claim regardless.  The Court then reviewed a prior appellate decision in the case that had upheld a federal antitrust claim on similar facts.  The Court stated that it was not material that the screens had arrived in the US only indirectly because the "intent" of the conspirators was to raise prices in the US, in part through such indirect sales.

Intellectual Property (Copyright)

District Court Permits Copyright Infringement Action  Based on Publication of Books in the UK Containing US Copyrighted Image Where US Infringement Permitted UK Infringement To Occur

Cooley v. Penguin Group (USA), Inc., US District Court for the Southern District of New York, July 14, 2014

A photographer created pictures of a sculpture of dinosaur eggs for inclusion in an article in National Geographic magazine.  Both the sculpture and the photographs were copyrighted by their respective creators.  The photographer made his photographs available in the US to various stock photography agencies, and several photos were licensed by a publisher that included them in a series of books on dinosaurs published in Great Britain.  Neither the photographer nor the publisher had obtained the sculptor's permission to display his copyrighted work.  The sculptor sued the photographer and the publisher for copyright infringement, among other claims.

The US District Court in New York concluded that the copyright infringement claim was well-founded, in that the photographer's copyright did not extend to a right to copy the sculptor's work without his permission.  It found direct infringement in the photographer's contracting with the stock photo agencies, and indirect or vicarious liability for the republication of the photographs in the dinosaur books. 

With respect to its finding of indirect or vicarious liability, the Court considered whether publication in Great Britain could constitute infringement of the sculptor's copyright, given the Copyright Act's general rule against extraterritorial application.  The Court noted an exception to the general rule for cases in which a US infringement "permits" further infringement in another country.  It found this exception to be satisfied by the photographer's contracting with US stock photography agencies for the distribution of the works in question.

Intellectual Property (Patent)

District Court Finds Master Purchase Agreement to Which US Distributor Was a Party Could Establish Required US Link to Patent Infringement Claim Arising Out of Purchase Order Between Canadian and US Companies

Asatek Holdings, Inc. v. CoolIT Systems, Inc., US District Court for the Northern District of California, August 19, 2014

In this patent infringement suit involving a coolant system for computer hardware, the defendant CoolIT sought summary judgment on grounds that none of its sales of the relevant products—the sole basis for the lawsuit—occurred in the US.

The Patent Act only applies to patented goods made, used, sold or offered for sale in the US.  The US District Court in San Francisco observed that the geographical aspect of its jurisdiction is relatively easy to determine with respect to manufacture and use, but that the "sale" and "offer for sale" of a product has a conceptual dimension that requires an inquiry into the facts.  It surveyed case law to the effect that the location where legal title passes is less relevant to the question where a "sale" occurred than the circumstances of "contracting" and "performance."

In this case, the sales at issue were made via purchase orders ("POs") issued under a master product purchase agreement ("PPA") that did not itself effect any transactions.  The defendant argued that the POs were issued by a Canadian company to a Hong Kong company, to which the products were delivered, and thus that the alleged infringement was not within the scope of the Patent Act.  The plaintiff maintained that there was a factual dispute as to whether the POs had any connection with the US.  The PPA, however, clearly had US connections, as it had been entered into by a US company that was the parent of the Canadian company that issued the POs.  The Court's opinion is unclear in places because portions have been redacted, presumably to preserve the confidentiality of commercially sensitive information.  However, the Court did conclude that the PPA may bear on the question whether the subject sales pursuant to the POs should be deemed to have been made in the US.  This conclusion followed despite the fact that the PPA was entered into before issuance of the patents in suit, as the PPA nevertheless was relevant to inform the relationships between the parties and a course of dealing.

Intellectual Property (Trademark)

District Court Imposes Injunctive Relief in Trademark Infringement Case But Awards No Damages Based on Sales Outside US

Mauber Rides USA, Inc. v. Beijing Shibaolai Amusement Equipment Co., Ltd., US District Court for the Middle District of Florida, July 24, 2014

Plaintiff German and Italian manufacturers of amusement rides sued Chinese competitors under the Lanham Act based on the latter's alleged infringement of trademarks in promotions at an international trade show in Florida.  For reasons not relevant here, the Chinese manufacturers did not appear to defend the case and a default judgment was entered, with damages and injunctive relief ordered.  The Chinese manufacturer ultimately retained counsel and sought a withdrawal of the default judgment.

The US District Court in Florida concluded that it had personal jurisdiction over the defendants and that no basis existed to vacate the default judgment.  However, it revisited the question whether the Lanham Act confers jurisdiction over the Chinese manufacturers' "extraterritorial sales," which had been the basis for its previous damages award.  In so doing, the Court applied the jurisdictional rule applicable in the Eleventh and Second Circuits, which looks to whether the defendants are US citizens, the non-US activity had "substantial effects" in the US, and exercising jurisdiction would "interfere with the sovereignty of another nation."  The Court found the first two factors to suggest the absence of jurisdiction:  the defendants were all Chinese companies, and the plaintiffs merely submitted a declaration in support of damages that their reputation "could" be affected in the US by the defendants' conduct.  These factors were deemed to be dispositive, and the Court concluded that the defendant's extraterritorial sales could not give rise to a damages award.  It did, however, retain an injunction prohibiting the defendants from continuing to market their amusement rides in Florida, which conduct had been found to violate the Lanham Act.

[Editor's note:  the Mauber Rides case is also addressed under the Personal Jurisdiction heading of this report.]

Racketeer Influenced and Corrupt Organizations Act (RICO)

Court of Appeals Affirms Dismissal of RICO Claim Based on Lack of Extraterritorial Reach of Predicate Wire Fraud Violation

Petroleos Mexicanos (Pemex) v. SK Engineering & Construction Co. Ltd., US Court of Appeals for the Second Circuit, July 16, 2014

The Mexican State oil company, Pemex, and a subsidiary sued a South Korean engineering company and a unit of Siemens in Germany alleging RICO violations stemming from the defendants' bribing of Pemex officials to approve overrun and expense payments in the course of an oil refinery rehabilitation project.  While the planning and bribery were alleged to have occurred in outside the US, Pemex alleged that the financing for the project was obtained in the US and that invoices were sent to, and payment made from, a US bank, and so jurisdiction under RICO existed.  The question on appeal was whether the RICO statute could reach the alleged conduct given its geographic distribution.

The US Court of Appeals in New York began by noting that a different panel of Second Circuit judges had recently decided in European Community v. RJR Nabisco, Inc. [discussed in the Summer 2014 edition of The World in US Courts] that the extraterritorial scope of the RICO statute should be deemed to follow the reach of the "predicate offenses" alleged as a basis for the claim.  That prior decision had also determined that the US Wire Fraud statute should not be given extraterritorial application, and the Court of Appeals in this case thus ruled that only US contacts could be considered in determining whether jurisdiction under RICO would lie.  Those contacts were determined to be inadequate, and dismissal of the complaint was affirmed.

District Court Concludes that RICO Cannot Be Given Extraterritorial Application, But That Sufficient Connection With US Was Alleged Nonetheless

Reich v. Lopez, US District Court for the Southern District of New York, August 18, 2014.

Plaintiffs, a former US ambassador to Venezuela and his consulting company, sued a number of defendants for RICO and state claims including tortious interference with contract, arising out of the latters' alleged efforts to bribe Venezuelan officials and punish the plaintiffs for opposing those activities.  Implementing the recent appellate decision in the European community v. RJR Nabisco case [discussed in the Summer 2014 edition of The World in US Courts], the District Court in New York noted that the extraterritorial applicability of RICO depends upon the extraterritorial applicability of the underlying predicate offenses alleged.  In the this case, the Court observed that predicate violations of the Travel Act and the Wire Fraud statute have been alleged, and both of those statutes are limited to US conduct.  Thus, for the RICO claim to survive, sufficient facts must be alleged to establish a "domestic" violation.  The Court found this requirement to have been satisfied by allegations that the defendants implemented their scheme using telephone communications and wire transfers originating in the US, and in furtherance of their scheme traveled to and from the US.  The fact that additional aspects of the alleged scheme were international in nature did not affect the analysis, since the minimum US contacts were found.  The Court concluded that other elements of a RICO violation had not been made out, however, and dismissed the claim.

[Editor's note:  The Reich case is also discussed in this report in connection with personal jurisdiction.]

Applying Older Standards, District Court Finds That US Alleged Fraud Had Sufficient Links With US to Support RICO Claim

Tatung Co., Ltd. v. Hsu, US District Court for the Central District of California, September 2, 2014

Plaintiff Tatung in this complicated and long-running case is a Chinese manufacturer that claims to have been defrauded by multiple defendants and defendant families.  Among other claims, Tatung alleged that various Chinese companies and individuals committed RICO violations in connection with the alleged fraud.  The defendants argued that the activities they were alleged to have taken did not occur in the US, and that RICO should not apply.  The Court disagreed, noting that the conduct alleged included the fraudulent diversion of funds from one US corporation to another, and that this satisfied the requirement that there be "some degree of connection between the fraud and conduct in, or effects on" the US.  The Court relied upon relatively older cases and did not review any of the more recent authority articulating different specific tests for the extraterritorial application of RICO.

[Editor's Note:  The Tatung Co., Ltd.  case is also addressed in the Personal Jurisdiction section of this report.]

District Court Allows Plaintiffs to Replead RICO Violations Because of Change in Law

Tymoshenko v. Firtash, US District Court for the Southern District of New York, September 30, 2014

Plaintiff Yulia Tymoshenko, the former Prime Minister of Ukraine, and others sued a former political opponent, Dmytro Firtash, and related individuals and companies in US District Court in New York for violations of the Alien Tort Statute and RICO.  The complaint alleged that Tymoshenko, a long-time "vocal critic" of Firtash and the natural gas companies he controlled, was detained and persecuted by them 2010 following her defeat in Ukrainian elections.

Tymoshenko's RICO allegations included a charge that the defendants had used money obtained as a result of illegal bribery to operate a RICO "enterprise" in the US that engaged in money laundering and other violations under the guise of legitimate real estate deals and additional investments.  The complaint also alleged that the US enterprise sought to raise money in the US through the sale of unidentified non-US real estate investments at inflated prices.  Finally, Firtash and his associates were alleged to have acquired a Ukrainian bank that was then used to transfer illegally-obtained funds to the US.  The complaint alleged three RICO "predicate acts":  wire fraud, mail fraud, and money laundering.

The District Court in New York dismissed the complaint, finding that none of these violations had been properly supported by factual allegations.  However, the Court allowed the plaintiffs to amend their complaint, because of a change in the law regarding the extraterritorial application of RICO.  The original complaint had been dismissed in 2013, based upon a finding that both the alleged RICO "enterprise" and "pattern of racketeering activity" were "essentially foreign."  The Court recognized that the amended complaint currently under review was "likely" drafted with an eye to the law that existed prior to the Second Circuit's 2014 decision in European Community v. RJR Nabisco [See The World in US Courts, Summer 2014 issue], which changed the relevant inquiry to the geographic scope of the predicate acts alleged.  In light of the intervening law, the district court allowed the plaintiffs to amend their complaint for a second time.

District Court Upholds Indictment Alleging US-Based RICO Violation, Even Though Scheme Implemented Via Servers Located in Russia

United States v. Thomas, US District Court for the District of Nevada, May 1, 2014

The defendant Thomas was indicted for criminal RICO violations, and he moved to dismiss on a number of grounds, including that servers apparently instrumental to the alleged violation were located in Russia.  The District Court in Nevada cited precedent that addressed the geographic scope of RICO in terms of the location of the alleged "racketeering activity."  It found such activity in the US through allegations that the defendant operated a scheme to manufacture and sell counterfeit US drivers' licenses and "access devices" of a type purchased and used by US financial institutions.  Thus, while defendants utilized the Internet and servers (wherever located), the Court concluded that the indictment was properly based on allegations of US racketeering activity. 

Securities Law

Court of Appeals Limits Claims Under Commodities Exchange Act to Transactions occurring in US

Loginovskaya v. Batratchenko, US Court of Appeals for the Second Circuit, September 4, 2014

Plaintiff, a Russian citizen living in Russia, sued New York-based financial advisers and entities under the Commodities Exchange Act ("CEA"), alleging fraud in connection with the sale of an interest in a commodity fund.  She had been solicited in Russia and bought her interest in that country.

Loginovskaya's claim potentially required that the scope of two provisions of the CEA be determined:  Section 4o, which prohibits fraud by certain individuals involved in the sale of interests in commodities, and Section 22, which allows injured parties to sue in four limited circumstances.  Starting with Section 22, the Court of Appeals in New York found no indication in the statutory language to provide a private remedy for anything other than "transactions occurring in the territory of the United States."  By analogy to decisions in the context of the antifraud provisions of the US securities laws, the Court thus limited potential claims to those where "irrevocable liability" for a transaction arose or title was transferred in the US.  Since Loginovskaya's transaction occurred in Russia, the test was not satisfied and the Court ruled that her claim could not be heard in the US.

The Court considered it unnecessary to reach what it considered the more difficult question whether the underlying violations described in Section 4o, which generally prohibit fraudulent conduct but are not linked to specific "transactions," would be given a broader geographic reach than Section 4o.  While not relevant to private claims under Section 22, which as noted above would be limited in all cases to US transactions, the question left open by the Court of Appeals would affect the range of enforcement claims that could be brought by the Government.

Court of Appeals Finds Securities-Based Swap Agreements Allegedly Entered Into in the US Not Subject to Section 10(b) Claim

Parkcentral Global Hub Limited v. Porsche Automobile Holdings SE, US Court of Appeals for the Second Circuit, August 15, 2014

Plaintiff hedge funds sued the German auto manufacturer, Porsche, and Porsche executives, claiming fraud in connection with the plaintiffs' purchases of financial instruments called "securities-based swap agreements," which in this case were private contracts tied inversely to the stock price of another German company, Volkswagen AG.  In 2008, Porsche had acquired a significant interest in Volkswagen and, according to the complaint, the defendants falsely stated publicly that they did not intend to acquire a controlling interest when they actually—and eventually--did.  The plaintiffs claimed that they were misled by these allegedly false representations to acquire the securities-based swap agreements, which declined in value when Porsche acquired control of Volkswagen.

The Court of Appeals in New York considered whether the complaint sought an impermissible extraterritorial application of Section 10(b) of the 1934 Securities Exchange Act, which generally prohibits fraud in connection with the purchase or sale of any security.  The Second Circuit had previously ruled that Section 10(b) could only be applied to securities traded on US exchanges or where "irrevocable liability" for a transaction had been incurred, or title transferred, in the US.

The plaintiffs argued that, in varying ways, they entered into the swap agreements in the US and thus that the second branch of the test was satisfied.  The underlying Volkswagen stock, however, was not traded in the US.  And while the complaints alleged that some of the fraudulent statements were made in or directed to US recipients, the Court of Appeals concluded that the allegedly deceptive conduct occurred "primarily" in Germany.

The Court of Appeals held that it was a "necessary" but not "sufficient" basis for jurisdiction that that the swap agreements had been allegedly entered into in New York, and that additional contacts with the US, necessary to support jurisdiction, were absent.  Thus, the Court observed that the Volkswagen stock on whose price the swaps were based was not traded in the US, and that the actions giving rise to the claim were "so predominantly German," and in fact had been investigated by German authorities.  The Court did not believe it consistent with Congress' intent in enacting the US securities laws that a private agreement between parties, not involving the purchase and sale of the underlying security, could result in participants in the German market for German securities to be required to litigate their conduct under US law.  The Court emphasized, however, that it was not laying down a "bright-line" test, and that future cases involving derivatives contracts would have to be decided with close attention paid to their facts.

Court of Appeals Holds that "Whistleblower" Protection Provision of Dodd-Frank Amendments to US Securities Laws Do Not Apply Extraterritorially

Liu v. Siemens, AG, US Court of Appeals for the Second Circuit, August 14, 2014

This case holds that protection from retaliation afforded to individuals who report alleged illegal acts by covered corporations does not apply where the acts complained of have no connection with the US.  For a more complete discussion of the decision, please see the summary appearing in Orrick's Employment Law and Litigation Blog:

Court of Appeals Affirms Securities Fraud Convictions Upon Finding that Transactions Occurring "Primarily" or "Partially" in the US Did Not Implicate Extraterritoriality Limitations

United States v. Coffman, US Court of Appeals for the Sixth Circuit, July 22, 2014

Two defendants were convicted of fraud and money laundering in connection with sales of interests in oil wells.  Among other challenges, they argued that their convictions for securities fraud and wire and mail fraud required an impermissible extraterritorial application of the relevant statutes.  At issue were transactions with defrauded investors of Global Energy Group, a corporation operated by the defendants that was domiciled in the Bahamas and had sales offices in Canada.

As regards the claim of securities fraud, the Court of Appeals acknowledged that the basic securities law antifraud provision, Section 10(b) of the Securities Act, was intended to apply only within the territorial jurisdiction of the US.  But it concluded that extraterritoriality was not at issue because the transactions giving rise to the convictions occurred "primarily" (or "partially") in the US, observing that the fraud was accomplished via money mailed and wired to the defendants in the United States, that Global held itself out as being headquartered in the US, and that the defrauded investors were encouraged to travel to the US to visit subject oil wells.

Personal Jurisdiction

District Court Finds No Specific Personal Jurisdiction Over German Employee of New York Company.

AVRA Surgical Robotics, Inc. v. Gormbert, United States District Court for the Southern District of New York, August 21, 2014.

Plaintiff AVRA is a Delaware corporation headquartered in New York.  It filed suit against defendant Gormbert, a resident of Germany and a former AVRA employee, alleging breach of contract, breach of fiduciary duty, tortious interference with contractual relations, and misappropriation of property and funds.  Gormbert moved to dismiss for lack of personal jurisdiction. 

Gormbert, a German engineer, had been hired by plaintiff AVRA and established as an executive and 10% shareholder of a German subsidiary of AVRA.  When the solvency of this subsidiary was imperiled, Gormbert took a three day trip to New York, Dallas, and San Antonio to discuss funding with AVRA executives and investors, helping to raise approximately US$500,000. 

The District Court in New York considered whether this trip was an adequate basis to assert specific personal jurisdiction over Gormbert under New York law.  New York law permits specific personal jurisdiction if a defendant (1) conducts business in New York; (2) commits a tortious act in New York; (3) commits a tortious act outside of New York causing injury in the state if he has solicited business or engaged in a persistent course of conduct within the state, or reasonably expects his act to have consequences within the state; and he derives substantial revenue from interstate or international commerce; or (4) owns real property in New York, which Gormbert did not. 

As all of Gormbert's alleged wrongful acts occurred in Germany, the court found no personal jurisdiction on the basis of acts occurring in New York.  While, at oral argument, AVRA claimed Gormbert made fraudulent misrepresentations during his trip to New York, no misrepresentation claim was alleged in the complaint itself.  Furthermore, the court found that  Gormbert's single trip to New York did not constitute a persistent course of conduct, nor had AVRA shown an sufficient injury sited in New York, as it alleged only an expected lack of profits, which does not confer personal jurisdiction under New York law. 

Even if AVRA had shown a sufficient injury, the Court stated that it would not have had jurisdiction, as the compensation Gormbert received from AVRA (€26,225 against a promised salary of €300,000) was not enough to qualify as "substantial revenue."  The court explained that the "substantial revenue" provision has been interpreted by New York courts to impose a "bigness" requirement, assuring that the defendant is economically substantial enough to defend suit in New York.  In dismissing the case, the court also noted that the defendant had presented compelling arguments that the complaint against him ran afoul of constitutional due process norms as well as New York state law, but did not discuss his constitutional arguments. 

District Court Finds No Personal Jurisdiction Over Taiwanese Company Whose New Jersey Subsidiary Entered Into Contract With California-Based Employee.

Bui v. Golden Biotechnology Corp., United States District Court for the Northern District of California, August 14, 2014.

Plaintiff  Bui, a physician residing in California, entered an employment agreement with defendant GBC New Jersey, a New Jersey subsidiary of Taiwanese defendant GBC Taiwan.  When Bui's employment was terminated, she filed a complaint for breach of contract against both GBC New Jersey and GBC Taiwan.  GBC Taiwan moved to dismiss for lack of personal jurisdiction, and the District Court in California granted GBC Taiwan's motion.

Bui proposed two theories of personal jurisdiction over GBC Taiwan: (1) that GBC New Jersey, which did not challenge personal jurisdiction, was an alter ego or agent of GBC Taiwan and whose contacts could be attributed to its parent, and (2) that GBC Taiwan had sufficient minimum contacts on its own with California to support general personal jurisdiction.

The Court observed that a parent corporation is only chargeable with the contacts of its US subsidiary if the relationship between the two companies is so close that the subsidiary could be characterized as an alter ego or agent of the parent.  The Court held that Bui did not demonstrate the necessary unity of interest and ownership sufficient to make the required showing.  Specifically, she presented no evidence that GBC Taiwan dictated the daily operations of GBC New Jersey, nor did she provide support for her assertion that GBC New Jersey was undercapitalized.  Bui also failed to show that GBC New Jersey was an agent of GBC Taiwan, offering only conclusory allegations that "but for" the existence of GBC New Jersey, GBC Taiwan itself would have performed the activities GBC New Jersey performed.  

Neither did GBC Taiwan have minimum contacts with Taiwan sufficient to support general personal jurisdiction.  Bui did not show that it had "continuous and systematic" contacts with California:  GBC New Jersey, not GBC Taiwan, sought out and entered into the contract with the Bui, and even if GBC Taiwan had been a party to that contract, entering a contract with a state's resident does not constitute contact sufficient to establish general jurisdiction in that state. 

Finally, Bui did not satisfy the applicable three part test for establishing specific jurisdiction, which would require (1) that GBC Taiwan purposefully directed its activities at California or availed itself of the privileges of conducting activities in California, (2) that those activities gave rise to her claim, and (3) that the court's exercise of jurisdiction would be reasonable.  The Court explained that, aside from the fact that Plaintiff happened to reside in California, GBC Taiwan had almost no relationship with California, and that therefore Bui could not satisfy the second part of this test by showing that her claim would not have arisen "but for" GBC Taiwan's activity in California. 

District Court Asserts Personal Jurisdiction Over Israeli Manufacturer Whose Sole US Distributor is Located in Forum State

Corning Optical Communications Wireless v. Solid Inc. et al., United States District Court for the Eastern District of Virginia, August 18, 2014.

Plaintiff Corning Optical Communications Wireless, an Israeli company, filed suit in Virginia against Defendants Solid, a Korean supplier of optical products, and Reach, a California-based distributor of those products, alleging patent infringement.  Defendants moved to transfer the action to the Northern District of California.  The District Court observed that a defendant's desire to litigate elsewhere is not sufficient to support a transfer, among other reasons because federal rules require that the court independently conclude that the proposed transferee court could obtain personal jurisdiction over the defendants using traditional tests.  Here, that requirement was satisfied.  Reach, located in California, was Solid's exclusive U.S. distributor and its sales were the source of the alleged infringement.  The Court concluded that Solid "knew it was affiliating itself with a [business in California] in a manner that would lead to substantial contacts with California," and that an assertion of specific personal jurisdiction was appropriate.

Court of Appeals Concludes That Specific Personal Jurisdiction Over Non-Party Bank of China May Exist Based on Operation of Local Branches and Other Activities

Gucci America v. Bank of China, US Court of Appeals for the Second Circuit, September 17, 2014

Plaintiffs are luxury goods manufacturers that sued a number of entities under the Lanham Act for trademark infringement in connection with their alleged counterfeiting activities.  In the litigation, the plaintiffs sought to obtain jurisdiction over the nonparty Bank of China so that they could obtain documents and information from the bank that would assist them in the case.  The trial court required the bank to comply with the requests.  Also at issue was an asset freeze ordered by the trial court directing the defendants not to move certain funds from the bank.  On appeal, the US Court of Appeals in New York concluded that no basis for the exercise of general personal jurisdiction over the bank existed, but it returned the case to the trial court to determine whether specific personal jurisdiction could be obtained, on the terms described below.

The Bank of China argued that none of the orders could be applied to it because it was not subject to the court's personal jurisdiction.  As to the asset freeze, the Court observed that the target of the orders was the defendant companies, not the bank, and so jurisdiction over the bank was not immediately relevant.  While injunctions from federal courts run against named parties as well as others who are "in active concert or participation" with them, the Court of Appeals noted that questions as to personal jurisdiction could be addressed if and when any enforcement of the order against the bank was attempted.  As to that question, the Court observed that specific personal jurisdiction could ordinarily be obtained over a nonparty by the nonparty's intentional disregard or undermining of a court order of which it had notice.  In the context of a non-US nonparty, however, the Court noted that, in connection with the traditional inquiry as to whether the exercise of personal jurisdiction would comport with "fair play and substantial justice," a court should consider the nature of the bank's branches and activities in New York.

As to the Bank of China's obligation to respond to discovery, the Court of Appeals first concluded that general personal jurisdiction could not be obtained.  Applying the US Supreme Court's 2014 decision in Daimler AG v. Bauman, the Court noted that the bank was neither incorporated nor based in New York, and that the bank's four local branch offices, compared with the bank's global operations, were not so significant as to leave the bank essentially "at home" in New York and thus subject to general personal jurisdiction.

That left the question whether the trial court could assert specific personal jurisdiction over the Bank, based on claims that arose directly out of contacts with the forum.  Noting that a different rule applied to parties than to nonparties, like the Bank of China, the Court stated that the question whether an exercise of specific personal jurisdiction would be constitutional would require an assessment of the connection between the bank's contacts with New York and the order at issue, and whether exercising jurisdiction for the purposes of the order was consistent with traditional notions of fundamental fairness.  The Court also noted without deciding that the bank may have consented to personal jurisdiction in connection with its applications to open branch offices in New York.

Finally, the Court of Appeals directed that the trial court consider "comity" with other nations in connection with the assertion of specific personal jurisdiction over the Bank of China, noting specifically the bank's arguments that adherence to the asset freeze might expose it to criminal sanctions under Chinese law.

Court of Appeals Rejects, on Jurisdictional Grounds, Effort to Circumvent US Sanctions to Satisfy Judgment Against Iran

Havlish v. Royal Dutch Shell PLC, US District Court for the Southern District of New York, September 24, 2014.

Plaintiffs represent victims of the September 11 terrorist attacks in New York who obtained a judgment of approximately $6.1 Billion against the National Iranian Oil Company ("NIOC").  Defendant Royal Dutch Shell PLC ("RDS") is the parent holding company for two non-US subsidiaries that, though unrelated commercial transactions, owe NIOC approximately $2.1 billion, but which are unable to make that payment because of EU and UK sanctions.  This suit seeks an order requiring the RDA subsidiaries to make the payment directly to the plaintiffs in order partially to satisfy the judgment. 

RDS, a UK company based in the Netherlands, argued that it is not subject to general personal jurisdiction in the US (the claims do not arise out of contacts between any Shell company and New York, and so the question of specific personal jurisdiction was not presented).  The US District Court in New York first reviewed the New York jurisdictional statute, observing that it required a non-NY corporation to be conducting "continuous and systematic" business in the state for jurisdiction to attach.  The Court found this test was not satisfied because RDS itself did not conduct business in New York, and that its US subsidiaries were not located in New York.  Nor was the Court willing to impute to RDS the New York contacts of the subsidiaries on a theory that they were so directly managed by their foreign parent that their separate legal status should be ignored.  The District Court added, without having to decide the issue, that such a theory of agency that had been used in New York to attribute the actions of a New York subsidiary to a foreign parent might no longer be good law under as a result of the US Supreme Court's 2014 ruling in Daimler AG v. Bauman.  The Court also rejected the argument that the listing of RDC's securities on the New York Stock exchange was tantamount to conducting business in New York and thus did not support a finding of general personal jurisdiction.

The District Court also addressed the argument that general personal jurisdiction was alternatively available under a rule of federal civil procedure authorizing jurisdiction over a non-US defendant where i) the case involves a claim under federal law, ii) the defendant cannot otherwise be sued in any US state, and iii) the defendant's contacts with the US as a whole would be sufficient to establish jurisdiction.  The Court concluded that the plaintiffs' claim here—for execution of an award—arose under New York law, and that RDS was not even a party to the underlying federal lawsuit that gave rise to the $6.2 Billion judgment.

District Court Finds Personal Jurisdiction Over Chinese Company That Violated Lanham Act Through Actions Taken in Florida

Mauber Rides USA, Inc. v. Beijing Shibaolai Amusement Equipment Co., Ltd., US District Court for the Middle District of Florida, July 24, 2014

Plaintiff German and Italian manufacturers of amusement rides sued Chinese competitors based on the latter's alleged infringement of trademarks in promotion at an international trade show in Florida.  For reasons not relevant here, the Chinese manufacturers did not appear to defend the case and a default judgment was entered against them.  The Chinese manufacturers ultimately retained counsel and, among other things, sought to vacate the default judgment on grounds that the Court did not have personal jurisdiction over them.

The Court stated that it would have personal jurisdiction over the Chinese companies if (i) courts of the forum state (Florida) could obtain personal jurisdiction over the parties and (ii) exercising the jurisdiction was consistent with the Due Process Clause of the US Constitution.   It first considered whether specific personal jurisdiction would exist under Florida's "long-arm" statute by virtue of the commission of tortious conduct within the State.  The Court found that this test was satisfied for two reasons.  First, it concluded that the defendants' advertising at the trade show violated the Lanham Act and was tortious, noting in the process that the statute may be violated by advertising that merely solicits sales, whether or not sales result from the effort.  Second, and independently, the Court found injury in Florida from the "likely" confusion of Florida consumers as to the Plaintiffs' trademarks. 

The Court then considered whether the assertion of personal jurisdiction would be consistent with the Due Process Clause, requiring three factors to be considered:  (i) whether the claims relate to any of the defendants' contacts with the forum, (ii) whether the defendants "purposely availed" themselves of the privilege of conducting activities in the forum, and (iii) whether exercising jurisdiction would comport with "traditional notions of fair play and substantial justice." 

The Court found the first factor to be satisfied by the defendant's illegal promotion of their products at the Florida trade show.  The second factor was satisfied under either of the two possible tests:  That the effects of the wrongdoing were felt in the forum state (here, the likely confusion of trade show participants in Florida), and that the defendants had sufficient ""minimum contacts" with the forum (here, the trade show activities and the fact that the defendants were regular exhibitors at the show).  The third factor, the Court noted, was increasingly easy to satisfy given the internationalization of business and the relatively easy means of travel, and it found that factor to be satisfied, noting that defending the action would be no more burdensome that the defendants' Florida-based marketing activities.

[Editor's note:  the Mauber Rides case is also addressed in this report under the Intellectual Property: Lanham Act heading of this report.]

Court of Appeals Finds No "Tag Jurisdiction" For Corporations Whose officers Are Served In-State.

Martinez et al. v. Aero Caribbean et al., United States Court of Appeals for the Ninth Circuit, August 21, 2014.

Plaintiffs, heirs to a passenger killed in a plane crash in Cuba, sued defendant aircraft manufacturer Avions de Transport Régional ("ATR") in the US District Court for the Northern District of California.  That court dismissed the complaint, which alleged defective design and construction, for lack of personal jurisdiction.  On appeal the Ninth Circuit found there was no personal jurisdiction over ATR, and upheld the district court's dismissal.

Plaintiffs offered two theories of personal jurisdiction: (1) that under the United States Supreme Court's 1990 decision in Burnham v. Superior Court, service of process on a corporation's officer within a state creates specific jurisdiction over the corporation; and (2) that ATR's contacts with California created general personal jurisdiction over it.

Plaintiffs initially served the summons and complaint on ATR in France.  When ATR moved to dismiss, the district court permitted limited discovery on jurisdiction.  During the discovery period, plaintiffs served the summons and complaint on ATR's Vice President of Marketing while he was in California for a conference. 

The Ninth Circuit determined that "tag" jurisdiction, which, under Burnham, permits a federal court to exercise personal jurisdiction over a defendant personally served in-state, does not apply to corporations served through their officers.

The court then conducted an analysis of ATR's contacts with California to determine whether under the standard set out by the United States Supreme Court in 2014 in Daimler AG v. Bauman, the district court had general personal jurisdiction over ATR.  Daimler demands a defendant be "at home" in a state for the purposes of personal jurisdiction.  Here, ATR was a corporation organized under French law and headquartered in France, with no physical presence or license to do business in California.  While ATR had purchased parts from California, had sent representatives to California to promote its business, and had sold airlines to a California corporation, its California contacts were minor compared to its other contacts worldwide, and so it could not be said to be "at home" in California and there was no basis for an assertion of general personal jurisdiction.

District Court Finds No Personal Jurisdiction In Efforts To Enforce Patents or Under Federal Rule Providing Jurisdiction Where a Defendant Has Minimum Contacts With the US as a Whole, But Not With Any Particular Jurisdiction

NXP Semiconductors USA v. France Brevets, US District Court for the Northern District of California, September 15, 2014

NXP Semiconductors USA filed suit against two French corporations and the US sub of one of them seeking a declaration of noninfringement and invalidity relating to patents covering near field communication technology.  It alleged that the Court had specific personal jurisdiction over all the defendants.  The French company with the US subsidiary was 50% owned by the French Government and 50% owned by an entity created by an act of the French legislature.  The Court initially determined that the suit against the French Parent and its subsidiary was not authorized by the Foreign Sovereign Immunity Act because the defendants could not be considered foreign sovereigns.

The Court also rejected NXP's alternative argument that specific personal jurisdiction could attach based on normal jurisdictional considerations, which in the case of a declaratory judgment relating to patent infringement require evidence of the "purposeful direction" of patent enforcement activities at residents of the forum state.  The Court found that a number of the actions cited by NXP, including letters threatening litigation and suits against forum residents could not support specific personal jurisdiction because they were directed to enforcement in other jurisdictions.  The only forum-related allegation—that NXP, a forum resident, would itself suffer injury as a result of the defendants' enforcement activities—was likewise found to be an inadequate basis for jurisdiction.

Finally, the Court addressed NXP's argument that personal jurisdiction was available under a rule of federal civil procedure authorizing jurisdiction over a non-US defendant where i) the case involves a claim under federal law, ii) the defendant cannot otherwise be sued in any US state, and iii) the defendant's contacts with the US as a whole would be sufficient to establish jurisdiction.  The Court rejected the argument, noting that the French parent did not have sufficient contacts with the US as a whole to support jurisdiction.  Moreover, if the actions of the parent's US subsidiary were considered (which the Court did not conclude was appropriate), that would only establish a basis for jurisdiction in Texas. 

District Court Concludes that RICO Cannot Be Given Extraterritorial Application in Light of Claims Alleged, But That Sufficient Connection With US Nonetheless Alleged

Reich v. Lopez, US District Court for the Southern District of New York, August 18, 2014.

Plaintiffs, a former US ambassador to Venezuela and his consulting company, sued a number of defendants for RICO and state claims including tortious interference with contract arising out of the defendants' alleged efforts to bribe Venezuelan officials and punish the plaintiffs for opposing these activities.  Following dismissal of the plaintiffs' federal RICO claim, the District Court in New York considered whether it could obtain personal jurisdiction over two non-US entities in connection with the state claims.

The District Court observed that an assertion of personal jurisdiction must comply with state requirements as well as federal constitutional requirements.  Many federal decisions, noting that state "long-arm" statutes are typically construed to extend to the full limits of the Due Process clause of the US Constitution, recite that the state and federal tests are essentially the same.  The Court here observed, however, that the New York statute conferred general personal jurisdiction more broadly, over a corporation that was merely "doing business" in New York.  The Court observed that traditional understanding of the New York jurisdictional statute might no longer be consistent with the rule laid down by the US Supreme Court in the 2014 Daimler AG v. Bauman decision.  In that case, the Supreme Court limited general personal jurisdiction over individuals and corporations to situations where they are "at home" in a state—typically, where they are domiciled in the state in the case of an individual, and incorporated or having its principal place of business in the state in the case of a corporation. 

Adopting the Daimler approach, the Court first asked whether the two individual defendants—a Venezuelan citizen and a dual citizen of Venezuela and Spain—were "domiciled" in New York.  In answering this question, it looked to attributes of domicile including the holding of a driver's license, the filing of state taxes, the maintenance of personal and business banking relationships, and representations that the defendants had their "home" addresses in New York, and found that the Complaint had not alleged any of these adequately.  Nor did the complaint allege the amount of time each defendant spent in New York, or the number or locations of other residences they may own.  The Court did, however, permit discovery to be taken to address these factors.

The Court also examined whether, consistent with the Bauman rule, general personal jurisdiction could be obtained over an individual by means other than their being "domiciled" in New York.  While acknowledging that such circumstances may exist, the Court found an insufficient showing through allegations that the defendants merely transacted business in New York, even if that activity was "substantial, continuous, and systematic."

The Court finally considered whether specific personal jurisdiction could be obtained over the defendants arising from an alleged connection between the injuries they suffered and acts taken by the defendants in New York.  Here, those acts included the hiring of New York legal counsel.  Relying on precedent addressing similar claims, the Court found that specific personal jurisdiction would only be created if the legal counsel had itself taken actions giving rise to the claims, which had not been alleged. 

[Editor's Note:  The Reich case is also addressed in the RICO section of this report.]

District Court Finds Specific Personal Jurisdiction Over Dutch Parent Based on Shipments of Samples to US and Marketing by its US Subsidiary

Schutte Bagclosures Inc. v. Kwik Lok Corp., US District Court for the Southern District of New York, September 30, 2014

"Schutte Inc.," the US subsidiary of a Dutch manufacturer of plastic bag closures, sued Kwik Lok, a US competitor, for a declaratory judgment that its products did not infringe the trademarks and related rights held by Kwik Lok.  Kwik Lok counterclaimed, naming Schutte Inc.'s European parent, "Schutte BV."  Schutte BV sought to dismiss the claim on grounds that the US District Court in New York did not have personal jurisdiction over it.  Because discovery in the case had concluded, the Court found that, to sustain its burden, Kwik Lok would have to identify facts that, if credited, would establish a basis for jurisdiction.

The Court began by observing that the law of the forum in New York would allow for specific personal jurisdiction only if Schutte BV "transacted business" in New York, and the claim arose out of that activity.  Kwik Lok first argued that this test was satisfied because Schutte BV had itself directed activity towards New York in form of the shipment of samples to its US subsidiary and to an independent business services company for marketing by its subsidiary to customers in New York.  The Court agreed, concluding that "the shipping of a single allegedly infringing product combined with the business activity of an associated company in the forum is enough to establish jurisdiction."  Kwik Lok also argued that Schutte Inc. was merely an agent of Schutte BV, and so the US subsidiary's conduct could be attributed to its parent.  Again, the Court agreed.  Concluding that no "formal" agency relationship was required, it found that a prima facie case for agency was made out by facts showing  that Schutte Inc. acted "for the benefit of and with the knowledge and consent of Schutte BV," and that the Dutch parent "exercised some control over those actions."  Notably in this regard, Schutte Inc. had no employees and its only directors are also directors of Schutte BV.

The Court proceeded to address whether the assertion of jurisdiction was consistent with the Due Process Clause of the US Constitution, with the principal tests for specific personal jurisdiction being whether the defendant's contacts with the forum demonstrated that it had "purposefully availed itself" of the privilege of doing business in the forum, and whether the assertion of jurisdiction was consistent with "traditional notions of fair play and substantial justice."  The Court found that the first test was satisfied by the contacts establishing jurisdiction under New York law.  The second test was satisfied by the fact that the presence in the case of the Schutte Inc. corporate shell meant that much of the expense and disruption of the litigation would already be imposed on Schutte BV, that Schutte BV knew that a suit against it was likely prior to its decision to try to enter the US market, and that a full resolution of the case would likely require that Schutte BV participate in any judgment.

District Court Finds No Specific Personal Jurisdiction Over Australian Manufacturer in Product Liability Suit Despite Satisfaction of New York Jurisdictional Requirements

Tansey v. Cochlear Ltd., US District Court for the Eastern District of New York, September 26, 2014

Plaintiff brought product liability claims against two companies, an Australian manufacturer and its US subsidiary, arising out of injuries allegedly suffered as a result of a cochlear implant in her ear.  The Australian manufacturer argued that the US District Court in Brooklyn did not have personal jurisdiction over it, and that it should be dismissed from the case.

The Court addressed the question whether specific personal jurisdiction existed under the applicable New York statute.  That statute confers jurisdiction, where a tortious act is alleged to have caused injury in New York, if the plaintiff's allegations would show that the defendant conducts business regularly in New York or derives a substantial volume of revenue from its New York activities, and should reasonably expect the alleged conduct to have consequences in New York.  The District Court found these tests to be satisfied, based on allegations of the Australian parent's substantial sales into New York, supporting a network of 43 customer-clinics, and its related profitability.

The Court then considered whether the assertion of jurisdiction was consistent with the Due Process Clause of the US Constitution.  In this regard the Court noted that all sales of the relevant implant were made by the Australian parent's subsidiary in Colorado, and that the subsidiary's activities in selling to New York customers could not be imputed to its parent, absent a showing that the relationship between the parent and subsidiary was so close that the subsidiary's corporate existence should be ignored.  Based on a declaration submitted by the parent, attesting to the independence and substance of the subsidiary, the Court rejected this ground.  The Court also rejected the argument that specific personal jurisdiction could be based on the parent's operation of a website that could be accessed from New York, finding the website "passive"—merely providing information and directing US consumers to a website maintained by its US subsidiary.  The Court thus concluded that the Australian parent did not have sufficient contacts with New York to satisfy federal constitutional requirements.

District Court Finds Specific Personal Jurisdiction Over Chinese Defendants Alleged To Have Orchestrated Fraud Through US Corporations

Tatung Co., Ltd. v. Hsu, US District Court for the Central District of California, September 2, 2014

Plaintiff Tatung in this complicated and long-running case is a Chinese manufacturer that claims to have been defrauded by multiple defendants and defendant families.  Various defendants sought to be dismissed from the case for a lack of personal jurisdiction.  The Court stated that, in cases like this one alleging intentional torts, specific personal jurisdiction requires the commission of an intentional act "expressly aimed at the forum state" and causing harm, that the defendants knew such harm was likely to be suffered there, and that the claim arose from or was related to the acts. 

Specific personal jurisdiction over the Houng family group was found based on uncontested allegations that these defendants orchestrated and managed a scheme to finance a business in the forum (California), which in turn was the device allegedly used to defraud Tatung as a result of statements made and actions taken in that state.  The Court found that the claims alleged would not have arisen "but for" these actions, thus satisfying another requirement of specific personal jurisdiction.

Specific personal jurisdiction was found over defendant Hsu based on allegations that she intentionally directed and participated in a scheme to keep two California corporations ostensibly solvent, allowing them to entice Tatung into investing in them.  That failed investment formed the basis for Tatung's claim.

[Editor's Note:  The Tatung case is also discussed under the RICO heading of this report.]

Laws Discussed

We provide below alphabetically very brief summaries of key US laws addressed by cases summarized in this edition. Please note that these summaries provide a very simplified overview of the statutes and are not intended to describe fully what they may prohibit and require. They are only provided as a guide for the convenience of the reader.

Antiterrorism Act, 18 U.S.C. § 2331 et seq

The Antiterrorism Act creates criminal penalties and civil liability for various forms of terrorist activities committed against US nationals or on US soil. The statute is notable for its civil remedy allowing for the recovery of three-times damages plus attorneys’ fees, as well as an extended statute of limitations.

Alien Tort Statute (“ATS”), 28 U.S.C. § 1350 (also called the Alien Tort Claims Act)

The ATS is a jurisdictional statute that allows US courts to decide cases brought by a foreign citizen for torts committed in violation of international law or a US treaty. Much litigation under the statute involves the nature of the claims that can be brought; although treaties have specified terms, "international law" is a more general term. To support ATS jurisdiction, violations of international law "must be of a norm that is specific, universal, and obligatory."

Commodities Exchange Act (“CEA”) §§ 4o, 9(a), 22(a), 7 U.S.C. §§ 6o, 13(a), 25(a)

The CEA applies to the sale of commodities and imposes restrictions similar to those imposed on stock exchanges. Section 4o of the CEA generally makes unlawful the use of any means of fraud or deceit in connection with the sale of commodities or futures contracts involving commodities. Section 22(a) authorizes private individuals to sue for violations of Section 4o in certain limited circumstances. Finally, Section 9(a) prohibits manipulating the price of commodities or their futures contracts.

Dodd-Frank Wall Street Reform and Consumer Protection Act-Anti-Retaliation Provision, 15 U.S.C. § 78u-6(h)(1)(A)

The 2010 Dodd-Frank Act was reform legislation passed in the wake of the financial crisis. As relevant here, one provision expanded incentives for and protection of “whistleblowers” in specific circumstances. Most notably, the provision protects certain individuals from retaliation for making disclosures that are “required or protected” under previously-enacted securities laws or SEC rules. Other important limitations apply.

Foreign Sovereign Immunities Act of 1976(FSIA), 28 U.S.C. Sec. l330, l332(a), l39l(f) and l60l-l6ll

The FSIA codifies the longstanding US rule that non-US Governments generally are immune from suit in US courts. The statute establishes a presumption against suit, and sets out a number of specific exceptions. These include:

  • Explicit or implicit waiver of immunity by the foreign state;
  • Commercial activity carried on in the United States or an act performed in the United States in connection with a commercial activity elsewhere, or an act in connection with a commercial activity of a foreign state elsewhere that causes a direct effect in the United States;
  • Property taken in violation of international law is at issue;
  • Rights in property in the United States acquired by succession or gift or rights in immovable property situated in the United States are at issue;
  • Money damages are sought against a foreign state for personal injury or death, or damage to or loss of property, occurring in the United States and caused by the tortious act or omission of that foreign state;
  • Action brought to enforce an agreement made by the foreign state with or for the benefit of a private party to submit to arbitration;
  • Money damages are sought against a foreign state for personal injury or death that was caused by an act of torture, extrajudicial killing, aircraft sabotage, hostage taking, or the provision of material support or resources for such an act, if the foreign state is designated as a state sponsor of terrorism under section 6(j) of the Export Administration Act of 1979 (50 U.S.C. App 2405(j) or Section 620A of the Foreign Assistance Act of 1961 (22 U.S.C. 2371).
  • A suit in admiralty is brought to enforce a maritime lien against a vessel or cargo of the foreign state which maritime lien is based upon a commercial activity of the foreign state. 

Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a

The FTAIA is the principal US statute governing the applicability of US antitrust (competition) laws to foreign conduct. The statute is both complicated and unclear, and has been the subject of extensive litigation. Basically, the FTAIA provides that foreign conduct cannot be the basis of a violation of the US antitrust laws unless certain exceptions apply. These exceptions include, most significantly, foreign conduct that has a “direct, substantial, and reasonably foreseeable effect” on competition or prices in a US market, so long as the conduct also independently violates the substance of a US antitrust law. The FTAIA also permits antitrust claims to be brought where US export commerce is affected by anticompetitive acts outside the US. One important qualification is that the FATIA does not apply to claims that there has been an injury to the import trade into the US. Those claims must satisfy a different test under a different statutory regime.

Gun Control Act, 18 U.S.C. ch. 44

The Gun Control Act of 1968 restricts the sales of firearms the numerous classes of persons, including fugitives from justice, drug addicts, persons unlawfully in the US, certain persons suffering from mental illness, and persons convicted of felony crimes.

Hobbs Act, 18 U.S.C. § 1951

The Hobbs Act is a criminal statute that prohibits actual or attempted robbery or extortion affecting interstate commerce between the US and other countries. It is often used in labor disputes and cases involving commercial disputes and public corruption.

Lanham Act, 15 U.S.C. § 1051, et seq.

The Lanham Act is the principal trademark infringement statute in the US, and also creates additional remedies related to false advertising and “cybersquatting.” The statute makes unlawful the use of both registered and unregistered marks that create a “likelihood of confusion” with a pre-existing trademark. More generally, it also prohibits the use of false or misleading statements made in advertising where the effect may be the likely injury to a business. Amendments to the Lanham Act in 1999 prohibited the use of confusingly similar domain names in internet web sites. Parties that violate the Lanham Act may be subject to damages as well as injunctions.

Maritime Drug Law Enforcement Act (“MDLEA”), 46 U.S.C. § 70501, et seq.

The MDLEA makes unlawful drug trafficking on the high seas. It provides that an individual may not “knowingly or intentionally manufacture or distribute, or possess with intent to manufacture or distribute, a controlled substance on board (1) a vessel of the United States or a vessel subject to the jurisdiction of the United States; or (2) any vessel if the individual is a citizen of the United States or a resident alien of the United States.” The statute expressly provides for application to conduct occurring outside the territorial jurisdiction of the US.

Patent Act, 35 U.S.C. § 271 (Patent Infringement)

Under US law, patent infringement occurs generally where a person, “without authority makes, uses, offers to sell, or sells any patented invention, within the United States or imports into the United States any patented invention during the term of the patent therefor.” Prior knowledge of the patent is irrelevant for purposes of patent infringement liability. A person who “actively induces” the infringement of a patent is also liable as an infringer. Parties that commit patent infringement face monetary penalties as well as an injunction.

Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq.

RICO establishes civil and criminal liability for persons employed by or associated with an “enterprise” that has been engaging in a “pattern of racketeering.” The applicability of the statute turns on the meanings of these two terms. The term “enterprise” is broadly defined and can include formal legal entities such as corporations, as well as more informal associations-in-fact, which are “a group of persons associated together for a common purpose of engaging in a course of conduct.” A “pattern of racketeering” is defined in turn to be the commission of at least two “predicate acts” during a ten-year period, where those acts were sufficiently related to one another to be considered part of a “pattern.” The RICO statute lists 35 state and federal crimes that constitute “predicate acts,” including mail and wire fraud, bribery, obstruction of justice, embezzlement, money laundering, immigration fraud, and an assortment of crimes of violence.

Securities Act of 1933, 15 U.S.C. § 77a, et seq.

The Securities Act generally prohibits a security from being offered or sold to the public unless it is either registered with the Securities and Exchange Commission or an exemption from the registration requirement applies.

Securities Exchange Act of 1934 (“1934 Act”) §§ 10(b) & 15(a)(1), 15 U.S.C. §§ 78j(b) & 78o(a)(1) (also referred to as Exchange Act)

Section 10(b) of the 1934 Act is a broad provision prohibiting fraudulent activities with respect to securities listed on US exchanges, including American Depositary Receipts (“ADRs”). In addition, pursuant to Section 10(b), the Securities and Exchange Commission has promulgated Rule 10b-5, which extends Section 10(b)’s prohibition to fraudulent activity in connection with the purchase or sale of any security, registered or unregistered securities, publicly held or closely held companies, and any kind of entity that issues securities, including federal, state, and local government securities.

Section 15(a)(1) of the 1934 Act prohibits any person or company to from acting as a broker or dealer without first registering with the Securities and Exchange Commission.

Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2

The Sherman Antitrust Act is the most generally applicable antitrust statute in US law. Section 1 of the Act makes unlawful any agreement “in restraint of trade.” For most agreements affecting commercial transactions, the statute only makes unlawful agreements that unreasonably restrain trade, meaning that they have an actual anticompetitive effect on a market for goods or services in the US that is not outweighed by precompetitive benefits. Certain narrow classes of agreements, including price-fixing, bid rigging, and agreements among competitors to divide customers or territories, are per se violations of law as to which the facts, if proved, allow for no defenses. Section 2 of the Sherman Act makes unlawful monopolization and attempted monopolization, which may be undertaken by a company acting unilaterally.

Title VI of the Civil Rights Act of 1964

This federal statute broadly prohibits discrimination by covered employers. It declares an “unlawful employment practice” for an employer to take various actions, including to discriminate against any individual with respect to compensation, terms, or conditions of employment because of such individual’s race, color, religion, sex, or national origin.

Torture Victims Protection Act of 1991 (“TVPA”), Pub. L. No. 102–256, 106 Stat. 73 (1992), codified at 28 U.S.C. § 1350

The TVPA was passed for the purpose of giving a US civil remedy to victims of torture and/or murder. The statute, however, only authorized lawsuits against individuals, not corporations or political groups. When filing suit, the plaintiff must show that he or she pursued all “adequate and available” local remedies. Plaintiffs need not be US citizens to sue.

Victims of Trafficking and Violence Protection Act, 18 U.S.C. § 1581 et seq.

The Victims of Trafficking and Violence Protection Act of 2000, Public Law 106-386, as amended, declares illegal the trafficking in persons, including forced labor, involuntary servitude, slavery and sex trafficking. 18 USC § 1595 creates a private right of action in US federal court for victims of such conduct, allowing them to collect actual damages, punitive damages, and attorneys’ fees. Section 1596 of Title 18 establishes that the remedy applies extraterritorially.

Wire Act, 18 U.S.C. § 1084

The Interstate Wire Act of 1961 prohibiting the operation of certain types of betting businesses in the United States. The statute has been construed to be limited to betting on sporting events, and not to apply to other forms of online gambling.

42 U.S.C. § 1981 

This federal statute provides that “all persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.” The statute is intended to advance the goal that all persons within its scope or equal under the law. Courts have concluded in many cases that it may be enforced by lawsuits in federal court.


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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