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JURISDICTION (PERSONAL)
German Federal Court of Justice finds personal jurisdiction over New York Times and its columnist based on allegedly libelous article published on Times’ website
In June 2001, Raymond Bonner (Codefendant), a journalist on the New York Times (Defendant ), wrote an article about Ronald Lauder, a U.S. businessman; it dealt with Lauder’s television licensing activities in the Ukraine. The article appeared in the Defendant’s print edition as well as in the online version. Lauder’s business allegedly associated with shady characters such as Boris Fuchsmann (Plaintiff).
The article states that “[a] 1994 F. B. I. report on Russian organized crime in the United States described Plaintiff as a gold smuggler and embezzler, whose company in Germany was part of an international organized crime network. He is barred from entering the United States.” The report also described Plaintiff’s company as part of this Russian network.
Plaintiff and his company Innova Film GmbH of Dusseldorf, Germany (Plaintiffs) proceeded to sue the Times and Bonner (Defendants) in the German courts.. To support jurisdiction, Plaintiff alleged that the Defendant Times was on sale at a local book store and at airport newsstands in Dusseldorf, and that subscribers and book stores in the Dusseldorf area received at least 30 copies of the Defendant Times.
Furthermore, Plaintiffs claimed international jurisdiction because the article appeared in the Defendant’s online version, which is intended to be accessible internationally. The Defendants averred that mere international accessibility of the article is not enough and that jurisdiction requires an independent domestic connection. In this case, there was no further German domestic connection because the article describes a U.S. personality, the article appeared in English not German, and aimed at a U.S. readership. The District Court in Dusseldorf [LG Dusseldorf] dismissed Plaintiff’s case for lack of jurisdiction.
The Court of Appeals [OLG Dusseldorf] affirmed. It explained that: “There is agreement that because of the unavoidable technical features of the Internet … , the mere accessibility of a website from Germany cannot establish the international lex loci commissii of the German courts. Rather, it must be decisive whether the website the infringed party means to challenge is accessible in Germany in accordance with the intended use.”
“This is not the case unless the website has a sufficient connection to Germany beyond the mere fact that it is [electronically] accessible. Only in that case does the publisher of the press product demonstrate that he has the intention to address Internet users in Germany through his website. Accordingly, it is to be determined for each specific case whether the information presented on a website, based on an objective assessment of all relevant circumstances of the case, demonstrably addresses users in a specific country in accordance with the intended use …”
“Indications as to whether a website has a connection to Germany beyond the mere fact that it is accessible may be the website language, the content of the website, the number of access transactions to the website by Internet users in Germany, the type of products offered on the website … or, in the case of press publications, the content of the publication.”
“Accordingly, an analysis of the content of the allegedly infringing article decides whether the circulating party means to reach a specific country or whether there is any connection to that country. Based on these criteria, it cannot be presumed that the disputed article of Defendants has a ‘connection to Germany’ or is meant to reach the district of this Court. The article in dispute is largely adapted to a U.S. audience and particularly to an audience in the territory of New York.”
“It has been published in the news section ‘Metropolitan Desk’, the local news section which is made for and read in New York City. On the Internet, the article is displayed under the line ‘Metropolitan Desk.’ The article reports on the suspicion that media entrepreneur Ronald S. Lauder, who is well known in New York, paid more than 1 million dollars in bribes to Ukrainian officials to obtain a Ukrainian TV license. …” [from the English translation of the Court of Appeals opinion, available at www.medialaw.org]. Plaintiff petitioned to the BGH, Germany’s highest court. The BGH granted the petition and reverses the Court of Appeals.
The BGH explains its disagreement with the Court of Appeals and therefore remands for further proceedings. In its opinion of March 2, 2010, the BGH finds enough links to Germany on which to base personal jurisdiction over both Defendants. The BGH holds that German courts may have jurisdiction where an internet article has clear references to Germany and adversely affects an individual’s personal rights (Section 16 of the opinion). The mere international accessibility of the content, however, is insufficient for jurisdiction. (Section 17).
German courts do have international jurisdiction according to Section 32 of the civil procedure rules [§32 ZPO] (see Section 8). Specifically, a court in the district where the tort occurred has jurisdiction. The “place where the tort occurred” is either the place where the tortious act was committed, or the place where the effect occurs.
In this case, the “place where the effect occurs” is Germany as Plaintiff’s personal rights were adversely affected in Germany. There is a clear connection to Germany because it refers to a German resident, Plaintiff, and links him to Russian organized crime. Based on the facts of this case, it is highly likely that the article was and will be read in Germany.
The NY Times is an internationally renowned newspaper with a global reach. Its online edition is accessible in Germany. When a user registers for access to the NY Times online version, “Germany” is included in the drop‑down menu as one of the possible countries of residence. At the time of the publication of the article, there were approximately 15,000 registered German users of the NY Times (about 0.5% of the registered NY Times online users).
The BGH cites a French court decision under EC Council Regulation (EC) No 44/2001 of 22 December 2000 on “Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters.” There, the French court held that the number of views of the allegedly tortious content within the court’s jurisdiction is an important criterion. Tribunal de grande instance de Paris, Ordonnance du Juge de la Mise en Etat, rendue le 27 Avril 2009, 17. Ch. Press‑Civile, Nr. Rg. 08/15331; Ordonnance du Juge de la Mise en Etat, rendue le 6 Juillet 2009, 17. Ch. Press‑Civile, Nr. Rg. 08/15331 (Section 14).
The BGH, however, considers the number of internet views only an indication of the required domestic connection because the number of internet views is often difficult to determine, and such data is not always accessible for data protection reasons. (Section 19 ). Thus, the more important factor is whether the content has an objectively clear domestic connection so that a conflict of interests arises domestically (here: the interest of the Plaintiff in protecting his personal rights and the Defendants’ interest in presenting themselves on the internet and providing news). (Section 20).
The BGH also cites a supporting Australian case, Dow Jones and Company Inc. v. Gutnick [2002] HCA 56; 210 CLR 575; 194 ALR 433; 77 ALJR 255.
Citation: German Federal Court of Justice [Bundesgerichtshof, BGH], Urteil vom 2. Maerz 2010 ‑ VI ZR 23/09, available on the Court’s website http://juris.bundesgerichtshof.de. A translation of the Court of Appeals opinion is available at www.medialaw.org. The New York Times published the article at issue on June 12, 2001; it is available in the archives of www.nytimes.com.
Filed in: 2010 International Law Update, Issue 3
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Texas Supreme Court holds that German manufacturer is subject to personal jurisdiction in Texas where manufacturer specifically targeted Texas as one of its marketplaces; Defendant’s use of distributor‑intermediary fails to insulate Defendant from Texas jurisdiction
Spir Star AG (Defendant) is a German manufacturer of high‑pressure hoses and fittings. The company set up a distributorship in Houston, Texas in 1995. The distributorship, Spir Star Limited, is the Defendant’s exclusive U.S. distributor for its products but it also distributes the goods of other manufacturers.
In 2003, a high pressure hose manufactured by Defendant, and supplied to a U.S. company through the Texas distributorship, ruptured and injured Louis Kimich (Plaintiff), an employee. Defendant filed a special appearance in the Texas trial court, which the court denied. The Court of Appeals affirmed.
The Supreme Court of Texas grants Defendant’s petition for review and affirms.
The Court first outlines the applicable state and federal law. “Texas courts have personal jurisdiction over a nonresident defendant when (1) the Texas long‑arm statute provides for it, and (2) the exercise of jurisdiction is consistent with federal and state due process guarantees. … Our long‑arm statute reaches ‘as far as the federal constitutional requirements for due process will allow.’ … Consequently, the statute’s requirements are satisfied if exercising jurisdiction comports with federal due process limitations. …”
“If a defendant has never invoked the protections that a forum offers its residents, or has no purposeful contact with it, the forum court’s jurisdiction is confined. Personal jurisdiction over nonresident defendants is constitutional only when: (1) the defendant has established minimum contacts with the forum state, and (2) the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 … (1945) …”
“The catchphrase ‘traditional notions of fair play and substantial justice,’ first used in Milliken v. Meyer, 311 U.S. 457, 463‑64 (1940), has its origins in a 1917 decision that referred to both ‘fair play’ and ‘substantial justice’ when the Supreme Court considered whether service by publication comported with the due process clause. … Since that time, we have incorporated the phrase into our own jurisprudence … “
“Although this ‘fair play’ and ‘substantial justice’ test is well known to appellate courts, the expression is imprecise. It gains meaning, however, when viewed in light of the ‘minimum contacts’ a defendant has with the forum. Int’l Shoe, supra. at 316. Significant contacts suggest that the defendant has taken advantage of forum‑related benefits, while minor ones imply that the forum itself was beside the point. When a nonresident defendant has purposefully availed itself of the privilege of conducting business in a foreign jurisdiction, it is both fair and just to subject that defendant to the authority of that forum’s courts. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1984).” [Slip op. 1‑2]
In this particular case, the Texas Supreme Court finds that the lower court had specific jurisdiction over Defendant. “A court has specific jurisdiction over a defendant if its alleged liability arises from or is related to an activity conducted within the forum. … Unlike general jurisdiction, which requires a ‘more demanding minimum contacts analysis,’ …, specific jurisdiction ‘may be asserted when the defendant’s forum contacts are isolated or sporadic, but the plaintiff’s cause of action arises out of those contacts with the state.’ See 4 CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE & PROCEDURE § 1067.5 (3d ed. 2002).”
“In such cases, ‘we focus on the ‘relationship among the defendant, the forum[,] and the litigation.’‘ … Specific jurisdiction is appropriate when (1) the defendant’s contacts with the forum state are purposeful, and (2) the cause of action arises from or relates to the defendant’s contacts. …”
“The ‘touchstone of jurisdictional due process [is] `purposeful availment.’ … Purposeful availment requires a defendant to seek some ‘benefit, advantage, or profit by availing itself of the jurisdiction.’ …. Thus, sellers who reach beyond one state and create continuing relationships with residents of another state are subject to the specific jurisdiction of the latter in suits arising from those activities. …”
“Notably, however, a seller’s awareness ‘that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.’ … Instead, our precedent generally follows Justice O’Connor’s plurality opinion in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 … (1987) which requires some ‘additional conduct’—beyond merely placing the product in the stream of commerce—that indicates ‘an intent or purpose to serve the market in the forum State.’ Asahi, supra at 112 …”
“Examples of this additional conduct include: (1) ‘designing the product for the market in the forum State,’ (2) ‘advertising in the forum State,’ (3) ‘establishing channels for providing regular advice to customers in the forum State,’ and (4) ‘marketing the product through a distributor who has agreed to serve as the sales agent in the forum State.’ Asahi, supra at 112 … In this case, Plaintiff argues that Defendant’s substantial sales plus utilization of Limited as its distributor meets this standard.” [...]
“[O]ur concern is with Defendant’s own conduct directed toward marketing its products in Texas. When an out‑of‑state manufacturer like Defendant specifically targets Texas as a market for its products, that manufacturer is subject to a product liability suit in Texas based on a product sold here, even if the sales are conducted through a Texas distributor or affiliate. See Asahi, supra at 112 (‘Additional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State, for example, . . . marketing the product through a distributor who has agreed to serve as the sales agent in the forum State.’).”
“In such cases, it is not the actions of the Texas intermediary that count, but the actions of the foreign manufacturer who markets and distributes the product to profit from the Texas economy. As the U.S. Supreme Court stated in World‑Wide Volkswagen Corp. v. Woodson. 444 U.S. 286, 297… (1980)], purposeful availment of local markets may be either direct (through one’s own offices and employees) or indirect (through affiliates or independent distributors) …” [...]
“There are several limitations inherent in this rule. First, it is limited to the specific jurisdiction context, because stream‑of‑commerce analysis ‘is relevant only to the exercise of specific jurisdiction; it provides no basis for exercising general jurisdiction over a nonresident defendant.’ … If sales alone created general jurisdiction, a foreign manufacturer like Defendant could be sued in Texas for labor practices occurring in Germany even though they had nothing to do with Texas.”
“Second, specific jurisdiction is limited to claims that ‘arise out of or relate to’ a nonresident’s forum contacts. Burger King, supra at 472 … In such cases, there must be a ‘substantial connection’ between the defendant’s contacts and the operative facts of the litigation. … So when a nonresident’s only contacts with Texas involve indirect sales through a distributor or subsidiary, specific jurisdiction is limited to claims arising out of those sales. …”
“Third, not every product claim against a foreign manufacturer is included; there must be a substantial connection. That similar products were sold in Texas would not create a substantial connection as to products that were not. Similarly, a nonresident that buys a Texas distributor might have no substantial connection with sales that occurred before that purchase. …”
“Finally, the manufacturer must have intended to serve the Texas market. … While use of a Texas distributor may satisfy this requirement, there may be situations in which it does not. A Texas distributorship may increase the manufacturer’s bottom line because it is more efficient or has greater access to economies of scale, and not because it is intended to serve Texas consumers. …”
“Many transactions can be structured to avoid any benefit from, or availment of, Texas law—but not all. A nonresident manufacturer does not avoid Texas law merely by forming a Texas affiliate or utilizing a Texas distributor to sell its products in Texas markets. Just as manufacturers cannot escape liability for defective products by selling them through a subsidiary or distributor, neither can they avoid jurisdiction related to such claims by the same means.” [Slip op. 2‑4]
Defendant has purposefully directed acts towards Texas or purposefully availed itself of the benefits and protections of Texas law. Defendant marketed its products exclusively through the Texas distributor, and Plaintiff’s injuries were the result of Defendant’s purposeful direction of acts towards Texas. Having found specific jurisdiction, the Court reviews whether exercising jurisdiction over Defendant comports with traditional notions of fair play and substantial justice.
“To evaluate this component, we must consider Defendant’s contacts in light of: (1) ‘the burden on the defendant’; (2) ‘the interests of the forum state in adjudicating the dispute’; (3) ‘the plaintiff’s interest in obtaining convenient and effective relief’; (4) the interstate or international judicial system’s interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several nations or states in furthering fundamental substantive social policies. … To defeat jurisdiction, Defendant must present ‘a compelling case that the presence of some consideration would render jurisdiction unreasonable”—something Defendant has not done. …”
“Requiring Defendant to defend Plaintiff’s claim in Texas would not pose an undue burden for the company. The fact that Defendant is headquartered in Germany cannot, by itself, defeat jurisdiction. … Houston is familiar territory for Defendant’s leadership: its president spends six months of the year there (and can carry on Defendant’s business while there), … two of Defendant’s directors traveled to Houston to establish [the distributor] … Three of Defendant’s directors collectively own seventy‑five percent of Limited, which will be litigating in Houston.”
“Moreover, Texas has a significant interest in exercising jurisdiction over controversies arising from injuries a Texas resident sustains from products that are purposefully brought into the state and purchased by Texas companies. … Not only would Plaintiff face an undue burden were he forced to litigate his product liability claim against Defendant in Germany, but because the claims against [the distributorship] will be heard in Texas, it would be more efficient to adjudicate the entire case in the same place. … In this case, that burden is minimal and is outweighed by Plaintiff’s and Texas’s interests in adjudicating the dispute here. … Asserting personal jurisdiction over Defendant comports with traditional notions of fair play and substantial justice.” [Slip op. 6‑7]
The Court concludes that a manufacturer is subject to specific personal jurisdiction in Texas when it intentionally targets Texas as the marketplace for its products. Using a distributor‑intermediary provides no haven from the jurisdiction of Texas courts.
Citation: Spir Star AG v. Kimich, 53 Tex. Sup. Ct. J. 423, 310 S.W.3d 868 (Tex. Sup. Ct. 2010).
U.S. and Canada conclude agreement on government procurement. On February 12, 2010, the U.S. and Canada concluded the U.S.‑Canada Agreement on Government Procurement. U.S. Trade Representative, Ron Kirk, and Canadian Minister of International Trade, Peter van Loan, signed the Agreement on behalf of their respective countries. The Agreement provides for U.S. access to Canadian provincial, municipal and federal procurement, based on the terms of the World Trade Organization (WTO) Government Procurement Agreement (GPA). The U.S. grants Canadian companies access to 37 states that are already covered by the GPA. Citation: U.S. Trade Representative press release February 2010, available at www.ustr.gov. The full text of the agreement is also available on that website.
Filed in: 2010 International Law Update, Issue 3
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JURISDICTION (PERSONAL)
Eleventh Circuit declines to enforce default judgment by Georgia federal court against Kuwaiti company where Defendant company lacks minimum contacts with Georgia
The parents of Lieutenant Colonel Dominic Baragona, who died in Iraq in a traffic collision with a truck are the Plaintiffs here. Operating the truck was Kuwait & Gulf Link Transport Company (KGL). It is incorporated and has its principal place of business in Kuwait.
Plaintiffs filed a tort action in a Georgia federal court. Both Kuwait and the U.S. are parties to the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters. [20 U.S.T. 361; T.I.A.S. 6638; 658 U.S.T.S. 163; in force Feb. 10, 1969] Pursuant to this Convention, Plaintiffs served KGL through the Kuwaiti Ministry of Justice, but KGL refused to accept delivery of the complaint and summons. Nevertheless, KGL did hire U.S. counsel to monitor the U.S. proceedings.
Plaintiffs eventually obtained a default judgment for $4.9 million. At that point, KGL did appear and moved to set aside the judgment under Fed. R. Civ. P. 60(b)(4). After a hearing, the district court ruled that KGL lacked those minimum contacts with Georgia enough to support personal jurisdiction over it. The district court vacated the default judgment against the Defendants. Plaintiffs appealed, but the Eleventh Circuit affirms.
“The Plaintiffs first argue that KGL waived its personal jurisdiction defense through its ‘lawyerly gamesmanship’ in ignoring valid service, retaining counsel in the U.S., monitoring court proceedings, and then filing a motion to vacate the judgment after a default judgment was rendered against it. A defendant normally only waives a personal jurisdiction defense if he or she has entered an appearance or was involved in overt wrongdoing to deceive the court and avoid service of process. …”
“In this case, however, none of these circumstances are present and ‘[a] defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding.’ … This is particularly true in this case where the court must determine whether the constitutional requirements of minimum contacts are satisfied. See Foster v. Arletty 3 Sarl, 278 F.3d 409, 413 (4th Cir. 2002) (holding that the defendant, a French company, did not waive its personal jurisdiction defense merely because it was served with process and had notice of district court proceedings).”
“The Plaintiffs point to cases they characterize as holding that a defendant’s willful ignorance of district court proceedings waives a later challenge to personal jurisdiction. ¼ These cases, however, all involve the improper service of process.”
“As we explained in Prewitt Enterprises, Inc. v. Organization of Petroleum Exporting Countries, 353 F.3d 916, 925 n.15 (11th Cir. 2003): ‘The concept of personal jurisdiction comprises two distinct components: amenability to jurisdiction and service of process. Amenability to jurisdiction means that a defendant is within the substantive reach of a forum’s jurisdiction under applicable law. Service of process is simply the physical means by which that jurisdiction is asserted.’.”
“These cases, therefore, state that a defendant that ignores faulty service of process might be found to have waived one component of personal jurisdiction: the defense of improper service of process. They do not, however, hold that a defendant waives the personal jurisdiction defense when it receives notice but does not meet the constitutional test of minimum contacts making it amenable to jurisdiction.” [Slip op. 3‑5]
Citation: Baragona v. Kuwait Gulf Link Transport Co., No 09‑127700 (11th Cir. January 21, 2010).
Filed in: 2009 International Law Update, Issue 1
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JURISDICTION (PERSONAL)
In Alien Tort Claims Act (ATCA) action by alleged victims of Argentine military dictatorship filed against German company Mercedes Benz, with U.S. jurisdiction based on adequacy of Mercedes’ U.S. subsidiary’s U.S. contacts, Ninth Circuit agrees with District Court that it had no personal jurisdiction over German parent company in absence of showing of pervasive and continual control over subsidiary
The Plaintiffs are Argentine residents who sued Daimler‑Chrysler AG (DCAG) for human rights violations allegedly committed by DCAG’s subsidiary, Mercedes Benz Argentina (MBA), during the military rule. According to the complaint filed in California district court in 2004, Argentine security forces kidnaped, detained and tortured the Plaintiffs or their family members at the direction of their former employer MBA. MBA managers allegedly had a working relationship with military officers and reported “subversive” employees.
Here, the Plaintiffs tried to ground personal jurisdiction over DCAG in the U.S. through the U.S. subsidiary, Mercedes Benz USA, LLC (MBUSA). DCAG is a German corporation headquartered in Stuttgart, Germany. MBUSA is a Delaware limited liability company with its principal place of business in New Jersey, with an office in California. DaimlerChrysler North America Holding Corporation owns it; it in turn is a subsidiary of DCAG.
A General Distributor Agreement governs the DCAG‑MBUSA relationship. DCAG has no control of the products’ ultimate destinations within the U.S. While MBUSA must comply with certain DCAG‑dictated standards such as for advertising and relations with resellers, it does not directly manage MBUSA.
Upon DCAG’s motion, the district court dismissed the case under Rule 12(b)(2) for lack of personal jurisdiction over it. This appeal followed. The U.S. Court of Appeals for the Ninth Circuit affirms.
The parties dispute whether there is subject matter jurisdiction over the claims pursuant to the Alien Tort Claims Act (ATCA) and the Torture Victims Protection Act (TVPA). 28 U.S.C. § 1350. The district court addressed the issue of personal jurisdiction first. Here, the Plaintiffs argue that district court should have attributed the continuous and systematic contacts of MBUSA to its parent company DCAG.“
In Doe v. Unocal Corp., 248 F.3d 915, 926 (9th Cir. 2001)], we described our agency doctrine, by which the contacts of a subsidiary may be imputed to the parent. Id at 928‑31. ‘To satisfy the agency test, the plaintiff must make a prima facie showing that the subsidiary represents the parent corporation by performing services `sufficiently important to the [parent] corporation that if it did not have a representative to perform them, the [parent] . . . would undertake to perform substantially similar services. …”
“The Unocal ‘court distinguished an agency relationship between a parent and its subsidiary from that of a holding company and its subsidiary, explaining that in the case of a holding company the parent could simply hold another type of subsidiary.’ supra at 929 … If ‘the business of the parent is the business of investment,’ then the subsidiaries do not conduct business as agents. Id. ‘Where, on the other hand, the subsidiaries are created by the parent, for tax or corporate finance purposes, there is no basis for distinguishing between the business of the parent and the business of the subsidiaries.’ ‘ Id. ‘The doctrine supports the exercise of jurisdiction when the local subsidiary performs a function that is compatible with, and assists the parent in the pursuit of, the parent’s own business.’ …”
“To that end, ‘[a]ppropriate parental involvement includes: monitoring of the subsidiary’s performance, supervision of the subsidiary’s finance and capital budget decisions, and articulation of general policies and procedures.’ Unocal, supra at 926 … ‘[I]t is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability.’ Id. Similarly, consolidated reports are not dispositive. Id. at 929.” [Slip op. 9‑10]
The Court then makes clear that its agency law requires a two‑step analysis. First, the parent company must exert control in a way that the law may reasonably treat the subsidiary as the parent’s agent or instrumentality. This control must be greater than what is commonly expected as an incident to ownership. Second, the agent‑subsidiary’s tasks must be important enough to the parent that if the parent did not have such an agent‑subsidiary, it would perform substantially similar tasks.
“Under common law principles, control is the sine qua non of agency. See Restatement (Third) of Agency Section 1.01 cmt. c (2006) (‘A relationship is not one of agency within the common‑law definition unless … the principal has the right … to control the agent’s acts.’).”
“The requirements that MBUSA provide detailed information and comply with general marketing standards are consistent with the ‘monitoring’ and ‘articulation of general policies’ permitted under our law. See Unocal, supra at 926. Furthermore, although DCAG articulates some specific policies for MBUSA, the Agreement was terminable, MBUSA goals are negotiated by both parties, and title to the cars passes in Germany.” [Slip Op. 12]
“The requirements that MBUSA provide detailed information and comply with general marketing standards are consistent with the ‘monitoring’ and ‘articulation of general policies’ permitted under our law. See Unocal, supra at 926. Furthermore, although DCAG articulates some specific policies for MBUSA, the Agreement was terminable, MBUSA goals are negotiated by both parties. … DCAG has no control over the product’s ultimate destination within the United States, and the evidence shows that MBUSA had the power to independently decide against buying DCAG [certain] vehicles in California. This is not pervasive and continual control.” [Slip Op. 12]
Citation: Bauman v. Daimler Chrysler Corp., 579 F.3d 1088 (9th Cir. 2009).
Filed in: 2009 International Law Update, Issue 8
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JURISDICTION (PERSONAL)
Where diversity breach of contract action was filed in Virginia federal court, Fourth Circuit rules that transactions of two U. S. corporations with India company lacked minimum contacts with Virginia thus depriving court of personal jurisdiction over foreign company
This dispute arose from a series of interactions among three companies involving a software and structural design project to be carried out in India. Structure Works, LLC (SW), a Colorado corporation, hired Geometric Software Solutions (GSS), an Indian corporation, to work on the project. Consulting Engineers Corp. (CEC) is a Virginia corporation with two branch offices in India. SW, believing that CEC might be able to assist GSS in India with one aspect of this project, arranged a conference call in early 2004 in which it introduced the two outfits.
In early February 2004, Plaintiff and GSS entered into a non-disclosure agreement (NDA-1) in which each party agreed, inter alia, not to recruit certain named employees from the other. The parties also agreed that Virginia law (except Virginia choice of law rules) would govern the agreement. NDA-1 did not contain a forum selection clause. GSS negotiated NDA-1 from India, and Plaintiff negotiated from Virginia. The negotiations leading to the agreement amounted to 4 e-mail exchanges and several phone calls. GSS signed the agreement in India.
Plaintiff entered into a separate non-disclosure agreement (NDA-2) with SW. NDA-2 specified that Colorado law would govern all disputes and that Colorado would be the forum for any litigation over the agreement. These negotiations, as well as discussions regarding the potential project, consisted of 24 e-mails (eight from SW and sixteen from Plaintiff) and several telephone calls. Plaintiff and SW each negotiated from their home offices in Virginia and Colorado respectively.
In mid-February 2004, representatives from SW, GSS, and Plaintiff held their first and only face-to-face meeting at GSS’s office in India. The negotiations over the potential assistance lasted from February until May 2004. In May 2004, GSS hired Plaintiff employee Manoj Kumar, one of the employees named in NDA-1. Plaintiff had employed Kumar in one of its Indian offices. GSS hired Kumar in India for work to be performed in India. Thereafter, SW elected not to pursue the software and structural design project with Plaintiff.
Nearly two years later, in March 2006, Plaintiff filed suit against SW and GSS in state court in Fairfax, Virginia. Plaintiff alleged various tort claims against SW and tort and contractual claims against GSS. All the claims came about from GSS’s hiring of Kumar. SW and GSS removed the action to the Eastern District of Virginia based on the diversity of the parties. SW and GSS then each moved to dismiss, inter alia, claiming lack of personal jurisdiction. The district court granted the motions, holding that it lacked general and specific personal jurisdiction over SW and GSS. Plaintiff timely appealed only the district court’s holding that it lacked specific jurisdiction over the defendants. The U. S. Court of Appeals for the Fourth Circuit affirms.
The Court then explains its reasoning. “We review de novo a district court’s dismissal for lack of personal jurisdiction, although we review for clear error any underlying factual findings. Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc. (Carefirst), 334 F. 3d 390, 396 (4th Cir. 2003). Where, as here, the district court addresses the question of personal jurisdiction on the basis of motion papers, supporting legal memoranda, and the allegations in the complaint, the plaintiff bears the burden making a prima facie showing of a sufficient jurisdictional basis to survive the jurisdictional challenge. Combs v. Bakker, 886 F. 2d 673, 676 (4th Cir. 1989).”
“In considering Plaintiff’s assertion of personal jurisdiction, we first set forth the applicable law. A federal district court may only exercise personal jurisdiction over a foreign corporation if such jurisdiction is authorized by the long-arm statute of the state in which it sits and application of the long-arm statute is consistent with the due process clause of the Fourteenth Amendment, U.S. Const. amend. XIV § 1. Carefirst, supra at 396; see also Stover v. O’Connell Assoc., Inc. , 84 F. 3d 132, 136 (4th Cir. 1996). We turn first to state law.”
“The relevant portion of Virginia’s long-arm statute provides, ‘A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person’s . . . [t]ransacting any business in this Commonwealth. ’ Va. Code Ann. § 8. 01-328. 1(A)(1). ”
“The exercise of personal jurisdiction is proper, then, only if the asserted cause of action ‘aris[es] from’ the non-resident defendant’s ‘[t]ransacting business’ in Virginia. § 8. 01-328. 1(A)(1); [Cites]. Because Virginia’s long-arm statute is intended to extend personal jurisdiction to the extent permissible under the due process clause, the statutory inquiry merges with the constitutional inquiry. Young v. New Haven Advocate, 315 F. 3d 256, 261 (4th Cir. 2002) . . . ; see also English & Smith v. Metzger, 901 F. 2d 36, 38 (4th Cir. 1990); Peninsula Cruise, Inc. v. New River Yacht Sales, Inc. , 257 Va. 315, 512 S. E. 2d 560, 562 (1999).”
“We turn next to the constitutional analysis. To satisfy the constitutional due process requirement, a defendant must have sufficient ‘minimum contacts’ with the forum state such that ‘the maintenance of the suit does not offend traditional notions of fair play and substantial justice.’ Int’l Shoe Co. v. Wash., 326 U. S. 310, 316 (1945).”
“The minimum contacts test requires the Plaintiff to show that the defendant ‘purposefully directed his activities at the residents of the forum’ and that the Plaintiff’s cause of action ‘arise[s] out of’ those activities. Burger King Corp. v. Rudzewicz, 471 U. S. 462, 472 (1985). This test is designed to ensure that the defendant is not ‘haled into a jurisdiction solely as a result of random, fortuitous, or attenuated contacts. ’ Burger King, supra at 475.”
“It protects a defendant from having to defend himself in a forum where he should not have anticipated being sued. See World-Wide Volkswagen Corp. v. Woodson, 444 U. S. 286, 297(1980). Because a sovereign’s jurisdiction remains territorial, to justify the exercise of personal jurisdiction over a non-resident defendant, the defendant’s contacts with the forum state must have been so substantial that ‘they amount to a surrogate for presence and thus render the exercise of sovereignty just.’ ESAB Group, Inc. v. Centricut, Inc. , 126 F. 3d 617, 623 (4th Cir. 1997). ” [277]
“This court has synthesized the due process requirements for asserting specific personal jurisdiction in a three part test in which ‘we consider (1) the extent to which the defendant purposefully availed itself of the privilege of conducting activities in the State; (2) whether the plaintiffs’ claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally reasonable. ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F. 3d 707, 712 (4th Cir. 2002).”
“The first prong articulates the minimum contacts requirement of constitutional due process – that the defendant purposefully avail himself of the privilege of conducting business under the laws of the forum state. While this requirement is not susceptible of mechanical application, see Int’l Shoe, supra at 319; Kulko v. Superior Court, 436 U. S. 84, 92 (1978), courts have considered various nonexclusive factors in seeking to resolve whether a defendant has engaged in such purposeful availment.”
“In the business context, these factors include, but are not limited to: (1)whether the defendant maintains offices or agents in the forum state, see McGee v. Int’l Life Ins. Co., 355 U. S. 220, 223 (1957); (2) whether the defendant owns property in the forum state, see Base Metal Trading, Ltd. v. OJSC, 283 F. 3d 208, 213 (4th Cir. 2002); (3) whether the defendant reached into the forum state to solicit or initiate business, see McGee, supra at 221; Burger King, supra,. at 475-76; (4) whether the defendant deliberately engaged in significant or long-term business activities in the forum state, see Burger King, supra at 475-76, 481; (5) whether the parties contractually agreed that the law of the forum state would govern disputes, see Burger King, supra at 481-82; (6) whether the defendant made in-person contact with the resident of the forum in the forum state regarding the business relationship, see Hirschkop & Grad, P. C. v. Robinson, 757 F. 2d 1499, 1503 (4th Cir. 1985); (7) the nature, quality and extent of the parties’ communications about the business being transacted, see English & Smith, supra at 39; and (8) whether the performance of contractual duties was to occur within the forum, see Peanut Corp. of Am. v. Hollywood Brands, Inc., 696 F. 2d 311, 314 (4th Cir. 1982).”
“Through an analysis of such factors, if a court finds that the defendant has availed himself of the privilege of conducting business in the forum, specific jurisdiction exists. ‘[B]ecause [the defendant’s] activities are shielded by the benefits and protections of the forum’s laws, it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.’ Burger King, supra at 476. If, and only if, we find that the Plaintiff has satisfied this first prong of the test for specific jurisdiction need we move on to a consideration of prongs two and three.” [278]
“The second prong of the test for specific jurisdiction – that the plaintiff’s claims arise out of the activities directed at the forum – requires that the defendant’s contacts with the forum state form the basis of the suit. See Burger King, supra at 472; Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U. S. 408, 414 (1984). If the plaintiff satisfies prongs (1) and (2), prong (3) comes into play.”
“The third prong—that the exercise of personal jurisdiction be constitutionally reasonable — permits a court to consider additional factors to ensure the appropriateness of the forum once it has determined that a defendant has purposefully availed itself of the privilege of doing business there. Such factors include: (a) the burden on the defendant of litigating in the forum; (b) the interest of the forum state in adjudicating the dispute; (c) the plaintiff’s interest in obtaining convenient and effective relief; (d) the shared interest of the states in obtaining efficient resolution of disputes; and (e) the interests of the [involved] states in furthering [their] substantive social policies. See Burger King, supra, at 477.”
“With that background in mind, we now turn to Plaintiff’s arguments that the district court erred in finding that it lacked specific personal jurisdiction over SW and GSS. We consider Plaintiff’s arguments against these entities in turn. Plaintiff’s tort claims against SW are based on SW’s alleged conspiracy with GSS to violate NDA-1 by hiring Kumar. The contacts that support Plaintiff’s assertion of jurisdiction consist of approximately 4 telephone conversations and 24 e-mails, 8 of which were sent by SW. The substance of these communications, according to Plaintiff, included the negotiation of NDA-2 and discussion of a proposal for Plaintiff’s services. Plaintiff argues that SW ‘sought out’ and ‘transact[ed] business with’ Plaintiff, and therefore ‘by its own actions . . . created a relationship with a Virginia citizen.’”
“Plaintiff asserts that SW ‘intentionally directed electronic communications into Virginia with the clear intent of transacting business there.’ Plaintiff maintains that the district court erred in holding that it lacked specific jurisdiction over SW because these communications constituted the requisite minimum contacts with Virginia. We disagree.”
“We look to the quality and nature of the contacts in evaluating whether they meet the minimum contacts requirement. Harking back to the factors distilled from the case law, it becomes apparent that the contacts described by Plaintiff do not support the conclusion that SW purposefully availed itself of the privilege of doing business in Virginia to an extent sufficient to justify personal jurisdiction.” [279]
“SW did not have offices or employees in Virginia, nor did it own property there. It had no on-going business activity in Virginia. The record does not reflect any in-person contact with Plaintiff in Virginia. SW negotiated NDA-2 from, and signed it in, Colorado, and the agreement includes a Colorado choice-of-law and choice-of-forum clause. Any work contemplated by the discussions would have been performed in India; no formal agreement was ever reached to perform the work; and, indeed, the very activity of which Plaintiff complains—the hiring of Kumar—took place in India.”
“Further, because the alleged conspiracy (between two non-Virginia corporations) and alleged tortious interference with an at-will contract occurred in India, Indian law would govern under Virginia’s choice of law provisions. For torts, under Virginia’s choice of law rules, claims are analyzed under the law governing the place of the alleged wrong. [Cite]. The place of [the] alleged wrong is the place ‘where the last event necessary to make an act liable for an alleged tort takes place. ’ Quillen v. Int’l Playtex, Inc. , 789 F. 2d 1041, 1044 (4th Cir. 1986). Here, this ‘last event’ would be GSS’s hiring of Kumar [in India].”
“Although Plaintiff argues that SW reached out to it in Virginia, this assertion, even when coupled with the cited communications, is not enough to overcome the factors noted above. On these facts, SW’s contact with Virginia was simply too attenuated to justify the exercise of personal jurisdiction.”
“Plaintiff also argues that jurisdiction exists based on the so-called ‘effects test. ’ See Carefirst, supra at 398 n. 7. Under that test, the plaintiff must establish that specific jurisdiction is proper by showing that ‘(1) the defendant committed an intentional tort; (2) the plaintiff felt the brunt of the harm in the forum, such that the forum can be said to be the focal point of the harm; and (3) the defendant expressly aimed his tortious conduct at the forum, such that the forum can be said to be the focal point of the tortious activity.’ Id. Plaintiff argues that because Plaintiff suffered its economic injury in Virginia, and SW allegedly intentionally aimed its conduct at Virginia, the exercise of personal jurisdiction is proper.”
“The effects test does not aid Plaintiff on the facts here. As we explained in Carefirst, part of the effects test requires the plaintiff to establish that the defendant expressly aimed his tortious conduct at the forum, such that the forum can be said to be the focal point of the tortious activity. Plaintiff has failed to demonstrate that the focal point of the alleged tortious activity was Virginia. Rather, as previously noted, the focal point of the alleged tortious transaction was India: the individuals named in NDA I worked in India; the only face-to-face meeting between the parties took place in India; the performance of any potential contract between the parties was to occur in India; and the alleged tortious activity took place in India.” [280]
“The effects test does not supplant the minimum contacts analysis, but rather informs it. As we noted in ESAB Group, ‘[a]lthough the place the plaintiff feels the alleged injury is plainly relevant to the [jurisdictional] inquiry, it must ultimately be accompanied by the defendant’s own contacts with the state if jurisdiction over the defendant is to be upheld. ’ ESAB Group, supra, at 626.”
“SW’s contacts with the forum state were sufficiently attenuated that it would be a manifest injustice to hale it into Virginia court. The district court did not err in concluding that it lacked specific personal jurisdiction over SW.”
“Plaintiff alleges both tort and contract claims against GSS. Plaintiff argues that the district court erred in holding that it lacked specific jurisdiction over GSS because GSS (1) ‘initiated contact with Plaintiff via telephone and e-mail’; (2) ‘negotiated the terms of [NDA-1] with Plaintiff’; and (3) ‘agreed that Virginia law governed [NDA-1].’”
“Plaintiff urges that the inclusion of the choice of law clause in NDA-1 ‘preemptively waives any potential challenges to Virginia’s jurisdiction.’ This provision, however, while significant, cannot by itself carry the weight Plaintiff would assign to it. The inclusion of a choice of law clause is one factor that a court may take into account in determining whether the exercise of personal jurisdiction is justified, but it is no more than that. Burger King, supra at 482 (‘[S]uch a [choice of law] provision standing alone would be insufficient to confer [personal] jurisdiction.’).”
“Indeed, Plaintiff appears to [have] recognize[d] as much. In an earlier pleading, Plaintiff acknowledged that such a clause is ‘not dispositive of a personal jurisdiction question.’ The jurisdictional inquiry remains centered on the extent, nature, and quality of GSS’s contacts with Virginia. See Burger King, supra at 481-82; see also Nw. Airlines, Inc. v. Astraea Aviation Servs. , Inc. , 111 F. 3d 1386, 1390 (8th Cir. 1997).”
“Here, the communication between GSS and Plaintiff consisted of an exchange of four brief e-mails, several telephone conversations about NDA-1, and the exchange of the various drafts. Even when considered together with the choice of law provision, the contacts described do not make out a prima facie showing of a sufficient jurisdictional basis to survive challenge.”
“GSS is based in, and negotiated solely from, India. GSS owns no property in Virginia. None of GSS’s employees work in Virginia; none have ever even traveled to Virginia. Although Plaintiff contended that GSS ‘initiated’ contact with it in Virginia, the record does not support this assertion. The record reflects, and indeed Plaintiff does not dispute, that the two parties were first introduced on a joint conference call with SW.” [281]
“GSS engaged in no on-going business activities in Virginia, and the only in-person meeting among the parties occurred in India. If the parties had consummated their agreement to work together, the work would have been performed in India. Again, the activity of which Plaintiff complains—the hiring of Kumar in alleged violation of NDA-1 — took place in India. The alleged conspiracy and interference with an at-will contract occurred outside of Virginia, involving an alleged plan between two non-Virginia corporations to hire an employee working in India. Considering all the factors here, and despite the choice of law clause in NDA-1, we conclude that the district court did not err in holding that GSS’s contacts with Virginia were too attenuated to support specific personal jurisdiction.”
“The third prong of the specific jurisdiction test also likely weighs against exercising personal jurisdiction over GSS, an Indian corporation. As the Supreme Court has explained, ‘[t]he unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders.’ Asahi Metal Ind. Co. v. Superior Court, 480 U. S. 102, 114 (1987); see also Foster v. Arletty, 3 Sarl, 278 F. 3d 409, 414 (4th Cir. 2002).”
“Because Plaintiff has failed to satisfy the first prong of the specific jurisdiction test, a detailed analysis of this third prong is unnecessary.”
“Because Plaintiff failed to demonstrate that SW and GSS had sufficient contacts with Virginia to satisfy the due process minimum contacts requirement, the district court’s holding that it lacked specific personal jurisdiction over the defendants is affirmed. ” [282]
Citation: Consulting Engineers Corp. v. Geometric Ltd. , 561 F. 3d 273 (4th Cir. 2009).
Filed in: 2009 International Law Update, Issue 5
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Fifth Circuit affirms dismissal of lawsuit by Panamanian cancer patients injured by faulty radiation treatment in Panama because Texas federal court lacked personal jurisdiction over Missouri and Canadian defendants involved in manufacture of allegedly defective radiation equipment
Most of the Plaintiffs are Panamanian cancer patients who sought treatment at the Instituto Oncologico Nacional (ION) in Panama City, Panama in 2000. This is the third lawsuit they have brought in the U.S. See also 2005 International Law Update 68. The ION treated the Plaintiffs using a Theratron 780C Teletherapy Unit (TU ) in conjunction with a Treatment Planning System (TPS). The TU is a radiation device for treating cancer patients, and the TPS is a computer software system used to calculate appropriate dosages. Due to the alleged negligence of ION physicians, they had applied incorrect calculations in treating Plaintiffs; these errors caused many serious injuries and several deaths from radiation over exposure.
When the Panamanian government found out about the incidents, it asked the International Atomic Energy Agency (IAEA) to investigate along with a group of doctors from the MDA Cancer Center in Houston, Texas. Their reports attributed the injuries and deaths to misuse of the TPS. As a result, the Panamanian authorities stripped a number of physicians of their Panamanian medical licenses and convicted two of negligent homicide.
In 2001, Plaintiffs sued Defendants for wrongful death and negligence in a Missouri state Court. Multidata (Def. 1) of Missouri manufactured the TPS, while MDS (Def. 2) , which made the Theratron Unit, is a Canadian Corporation. Defendants moved to dismiss for forum non conveniens, arguing that because the Plaintiffs and evidence are located in Panama that is the appropriate forum. Plaintiffs countered that Panama was not in fact an available alternative forum; the Panamanian court system is allegedly corrupt and would not accept a suit which a foreign court had dismissed.
Before the Missouri trial court reached a decision, however, one Plaintiff filed a petition in a Panamanian court against Defendants, which court dismissed the case for want of jurisdiction. On January 8, 2004, the Missouri court dismissed the action without prejudice on forum non conveniens grounds. The court ruled that Plaintiffs could re file in Missouri if Panama declined jurisdiction upon a re filing. Plaintiffs appealed, and the higher court affirmed. When the Panamanian appeals court likewise affirmed its prior dismissal, Plaintiffs filed four new suits in Missouri. The state court dismissed once again.
Instead of refiling in Panama, Plaintiffs sued in Texas federal court under claims similar to those made to the previous Missouri suits. Defendants moved to dismiss on two relevant grounds: (1) that the court lacked personal jurisdiction over Defendants, and (2) that Texas was forum non conveniens. In response, Plaintiffs argued: (1) that the Texas court could exercise general jurisdiction over Defendants; and (3) that Panama was not an available alternative forum for Plaintiffs.
The district court denied the motion to dismiss and this interlocutory appeal ensued. The U.S. Court of Appeals for the Fifth Circuit reverses for a dismissal based on lack of personal jurisdiction over the Defendants.
The Texas long arm statute extends to the limits of U.S. constitutional jurisdiction over nonresidents under the Fourteenth Amendment’s Due Process Clause. This required Plaintiffs to prove: (1) that the non resident defendant(s) purposely availed himself of the benefits and protections of Texas by establishing “minimum contacts”� with the state; and (2) that the exercise of jurisdiction would not offend “traditional notions of fair play and substantial justice.”�
“Plaintiffs put forward three bases for jurisdiction over Def. 1. First, over a period of five years, Def. 1 sold about $140,000 worth of goods and related service contracts to ten different customers located in Texas. Those sales represented roughly 3% of Def. 1′s business during that time span, and led to periodic trips to Texas by Def. 1 employees to service the equipment. Second, Def. 1 had been advertising in national trade journals that circulated in Texas. Third, Def. 1 employees periodically attended trade conventions in Texas.”�
In response, Def. 1 stressed that it neither maintains a place of business in Texas nor has a registered agent for service of process in Texas. It argues that the contacts identified by Plaintiffs are too limited and sporadic to give rise to general personal jurisdiction. We agree.”� [Slip. Op. 10].
“Similarly, MDS’s contacts with Texas are lacking the substance or regularity necessary to establish general jurisdiction. Plaintiffs identify four different contacts that MDS has with Texas: (1) it purchased over $5.2 million worth of goods from Texas vendors during the five year period prior to the lawsuit; (2) it is party to a Hosting Services Agreement and a Software Licensing Agreement with a Texas corporation governed by Texas law; (3) it employs two Texas residents who perform work from their homes; and (4) a former corporate director lived in Texas.”�
“In response, MDS notes that it: (1) has not manufactured or sold any products in Texas; (2) owns no real property in Texas; (3) does not have a registered agent for service of process in Texas; and (4) does not maintain any offices in Texas. Moreover, it argues that the contacts identified by Plaintiffs are insufficient to establish a systematic and continuous contact with Texas. Once again, we agree.”� [Slip. Op. 10].
The Court points out that MDS’ status as a foreign defendant implicated other jurisdictional concerns. “In the instant case, we find that exercising jurisdiction over MDS Canada would offend traditional notions of fair play and substantial justice. First, like the defendant in [Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987)], a severe burden would be placed on MDS Canada if it is forced to defend itself in Texas.”�
“In addition to the regular burdens of defending oneself in a foreign legal system, MDS Canada would not have compulsory access to many of the necessary witnesses and evidence.. Second, the “�the procedural and substantive policies’ of two other nations Canada and Panama would be affected by the assertion of jurisdiction over MDS Canada. Third, the judicial system’s interest in an efficient resolution of the case favors litigating the case in Panama because MDS Canada has a potential third party claim for indemnification against the [Panamanian] doctors and physicists.”� [Slip. Op. 16 17].
“We do not believe that MDS Canada has sufficient substantial, continuous, and systematic contacts with Texas to justify the exertion of general jurisdiction. MDS Canada does not maintain any office or other permanent presence in Texas. And the volume of MDS Canada’s business in Texas is not so substantial that it should have reasonably expected to be haled into Texas court on any matter whatsoever.”�
“But even if MDS Canada’s contacts were sufficient, it would offend traditional notions of fair play and substantial justice to exercise jurisdiction over MDS Canada in this case. In light of the international context of the case, [and] the slight interests of both Plaintiffs and Texas, it is unreasonable to impose the heavy burden of defending this case in Texas on MDS Canada.”� [Slip. Op. 17 18].
Citation: Johnston v. Multidata Systems International Corp., 523 F.3d 602 (5th Cir. 2008).
Filed in: 2008 International Law Update, Issue5
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Third Circuit rules that Barbados Hotel can be subject to specific personal jurisdiction in a slip and fall case brought in Pennsylvania where Plaintiffs resided in Pennsylvania and Defendant had solicited Plaintiffs patronage at their home
Patrick J. O’Connor slipped and fell, injuring his shoulder, while receiving a massage treatment at a Barbados hotel, owned by the Sandy Lane Hotel Company (Defendant), a Barbados corporation. Plaintiff had signed up for the massage by telephone after the hotel had mailed a sales brochure to Plaintiff’s home in Pennsylvania.
Mr. O’Connor and his wife Marie (Plaintiffs) filed suit in the Philadelphia Court of Common Pleas. Defendant then had the case removed to federal court which dismissed it for lack of personal jurisdiction. Plaintiffs appealed to the U.S. Court of Appeals for the Third Circuit. It reverses and remands the case for further proceedings below.
Since the Plaintiffs conceded that Defendant lacked sufficient Pennsylvania contacts to support general jurisdiction, the court limited itself to the issue of specific jurisdiction. “The inquiry as to whether specific jurisdiction exists has three parts. First, the defendant must have ‘purposefully directed [its] activities’ at the forum. [Cite]. Second, the litigation must ‘arise out of or relate to’ at least one of those activities. [Cite]. And third, if the prior two requirements are met, a court may consider whether the exercise of jurisdiction otherwise ‘comport[s] with fair play and substantial justice.’[Cite].”
“After the [Plaintiffs'] initial stay, [Defendant] continued to cultivate the relationship by mailing seasonal newsletters to their Pennsylvania home. And after the [Plaintiffs] booked their 2003 trip, [Defendant] mailed them a brochure and traded phone calls with them for the purpose of forming an agreement to render spa services. Through these acts, [Defendant] deliberately reached into Pennsylvania to target two of its citizens.” [Slip op. 4]
The Circuit Court next addresses the predominant approaches to assessing the “arise out of or relate to” language. After critiquing the current approaches, the Court settled on a different test. “We thus hold that specific jurisdiction requires a closer and more direct causal connection than that provided by the but for test. As we stated in [Miller Yacht Sales, Inc. v. Smith, 384 F.3d 93, 97 (3d Cir. 2004)], there is no ‘specific rule’ susceptible to mechanical application in every case. See 384 F.3d at 100.”
“But in the course of this necessarily fact sensitive inquiry, the analysis should hew closely to the reciprocity principle upon which specific jurisdiction rests. See [Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 6 (1985)]. With each purposeful contact by an out of state resident, the forum state’s laws will extend certain benefits and impose certain obligations. [Cites].”
“The relatedness requirement’s function is to maintain balance in this reciprocal exchange. In order to do so, it must keep the jurisdictional exposure that results from a contact closely tailored to that contact’s accompanying substantive obligations. The causal connection can be somewhat
looser than the tort concept of proximate causation, see Miller Yacht at 99 100, but it must nonetheless be intimate enough to keep the quid pro quo proportional and personal jurisdiction reasonably foreseeable.” [Slip op. 9 10]
“It is enough that a meaningful link exists between a legal obligation that arose in the forum and the substance of the Plaintiffs’ claims. The [Plaintiffs] claim [that Defendant] breached a duty that is identical to a contractual duty assumed by the hotel in Pennsylvania. So intimate a link justifies the exercise of specific jurisdiction as a quid pro quo for [Defendant's] enjoyment of the right to form binding contracts in Pennsylvania. We therefore hold that the [Plaintiffs'] claims ‘arise out of or relate to’ [Defendant's] Pennsylvania contacts.” [Slip op. 11]
As to the issue of “fair play and substantial justice” the Court points out that: “Severalfactors weigh in favor of litigating this dispute in Barbados. First, the burden on the Defendant is a ‘primary concern’ in any case[Defendant's] representatives will have to travel 2,000 miles to litigate in Pennsylvania, and the company must also familiarize itself with a foreign legal system. Second, the efficiency factor also tips toward [Defendant] [Cite]. Most of the witnesses are in Barbados, the evidence is there, and it is not at all clear that Pennsylvania law will apply to the merits Third, Barbados has a considerable ‘substantive interest’ in determining the rights and liabilities of its own domestic corporations. [Cite]. All told, these factors tend to show that litigating this dispute in Barbados might well be a reasonable and efficient outcome.”
“[Defendant], though, has a much higher hill to climb. Because [Defendant] has minimum contacts with Pennsylvania under the first two steps of our analysis, it must make a ‘compelling case’ that litigation in Pennsylvania would be unreasonable and unfairwe conclude that this is not one of those ‘rare’ and ‘compelling’ cases where jurisdiction would be unreasonable despite the presence of minimum contacts. The burdens on [Defendant] are substantial, but they do not entirely dwarf the interests of the [Plaintiffs] and the forum state.” [Slip op. 12]
“In sum, the [Plaintiffs] have alleged facts that, if true, establish personal jurisdiction over [Defendant] in Pennsylvania. [Defendant] purposefully directed its activities at Pennsylvania, the [Plaintiffs'] claims arise from, or relate to, those activities, and no other factors render jurisdiction in Pennsylvania unfair or unreasonable. The District Court therefore had specific jurisdiction to adjudicate the [Plaintiffs'] claims.” [Slip op. 13]
Citation: O’Connor v. Sandy Lane Hotel Co., Ltd., 2007 WL 2135274 (3d Cir. 2007).
Filed in: 2007 International Law Update, Issue7
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On appeal from dismissal for lack of personal jurisdiction under New York’s long-arm statute, Second Circuit holds that lower court erred in failing to take into account in-state contacts which underlay contract that gave rise to challenged arbitration award
Sole Resort, S.A. de C.V., a Mexican company (Plaintiff), owned a hotel in Tulum, Mexico. Plaintiff entered into an agreement whereby Allure Resorts Management, LLC, also a non-U.S. corporation (Defendant), would manage the hotel. After ten months of disappointing performance by Defendant, Plaintiff terminated the contract. The formation, performance, and termination of the contract involved several contacts with New York state.
As provided for in the contract, Defendant began an arbitration proceeding against Plaintiff in Miami, Florida, alleging a breach of contract. The arbitrators found in favor of Defendant and awarded $2.1 million in lost future profits. Plaintiff then sued Defendant in a New York federal court to vacate the arbitration award. Defendant moved to dismiss for lack of personal jurisdiction, which the district court granted.
Applying New York’s “long-arm” statute (LAS), the district court first concluded that the New York contacts were not enough to support personal jurisdiction; Plaintiff’s claim rests solely on the actions of the arbitrators, all of which took place in Florida.
Next, the court decided that it did not gain personal jurisdiction on the theory that Defendant had committed a tort elsewhere that caused injury in New York. The arbitration panel had determined that Defendant did not commit a tort and Plaintiff’s action did not challenge that finding. Therefore, the court reasoned, Plaintiff has no colorable claim that Defendant had committed a tort causing injury in New York.
On Plaintiff’s appeal, the U.S. Court of Appeals for the Second Circuit vacates the dismissal and remands the case to the lower court to reconsider whether the parties’ contacts with New York were enough to establish jurisdiction under the LAS.
The Court first examined Section 302(a)(1) of the LAS which provides for specific jurisdiction over nondomiciliaries. See N.Y.C.P.L.R. Section 302. To establish personal jurisdiction under Section 302(a)(1), a plaintiff has to meet two requirements. First, the defendant must have transacted business within the state; and, secondly, the claim asserted must arise from that business activity. McGowan v. Smith, 52 N.Y.2d 268, 273 (1981). The New York courts have generally held that a claim “arises from” a particular transaction when “there is a substantial relationship between the transaction and the claim asserted.” Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988).
The Circuit Court finds that the district court had incorrectly limited its jurisdictional inquiry to the arbitrators’ actions in Florida. Although Plaintiff’s claim deals only with allegations that the arbitrators had disregarded the law in awarding judgment to Defendant, the New York contacts underlying the dispute that led to the arbitration are substantially related to Plaintiff’s claim.
“Arbitration is entirely a creature of contract[a]ny arbitration proceeding is thus an extension of the parties’ contract with one another, a mechanism through which they attempt to ensure compliance with the terms of that contract. …There is therefore a substantial relationship between a challenge to the arbitrators’ decision and the contract that provided for the arbitration.” [Slip op. 6] Thus, the district court should reconsider whether the parties’ conduct in negotiating, consummating, and performing the contract which ultimately led to the challenged arbitration satisfies the definition of “transacting business” in New York as defined by Section 302(a)(1).
Alternatively, Plaintiff contended that LAS Section 302(a)(3) confers jurisdiction over its claim. This provision bases the exercise of extraterritorial jurisdiction on five elements: (1) Whether the Defendant committed a tortuous [sic] act outside the state; (2) whether the cause of action arose from that act; (3) whether the act caused injury to a person or property within the state; (4) whether the Defendant expected, or should reasonably have expected, the act to have consequences in the state; and (5) whether the Defendant derives substantial revenue from interstate or international commerce. To satisfy the first element, the plaintiff need only state a colorable cause of action. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 125 (2d Cir. 2002).
Relying on its line of reasoning under Section 302(a)(1), the Second Circuit holds that the district court erred in confining its analysis of jurisdiction to the facts as found by the arbitrators. “[While] [Plaintiff] does not challenge the arbitrator’s determination of the merits of [the claims] in its petition, all of the facts underlying that contact are substantially related to [Plaintiff]‘s claim that the arbitrators’ judgment is infirm.”[Slip op. 8]
Citation: Sole Resort v. Allure Resorts Management, 450 F.3d 100 (2nd Cir. 2006).
Filed in: 2006 International Law Update, Issue7
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On appeal from dismissal for lack of personal jurisdiction under New York’s long-arm statute, Second Circuit holds that lower court erred in failing to take into account in-state contacts which underlay contract that gave rise to challenged arbitration award
Sole Resort, S.A. de C.V., a Mexican company (Plaintiff), owned a hotel in Tulum, Mexico. Plaintiff entered into an agreement whereby Allure Resorts Management, LLC, also a non-U.S. corporation (Defendant), would manage the hotel. After ten months of disappointing performance by Defendant, Plaintiff terminated the contract. The formation, performance, and termination of the contract involved several contacts with New York state.
As provided for in the contract, Defendant began an arbitration proceeding against Plaintiff in Miami, Florida, alleging a breach of contract. The arbitrators found in favor of Defendant and awarded $2.1 million in lost future profits. Plaintiff then sued Defendant in a New York federal court to vacate the arbitration award. Defendant moved to dismiss for lack of personal jurisdiction, which the district court granted.
Applying New York’s “long-arm” statute (LAS), the district court first concluded that the New York contacts were not enough to support personal jurisdiction; Plaintiff’s claim rests solely on the actions of the arbitrators, all of which took place in Florida.
Next, the court decided that it did not gain personal jurisdiction on the theory that Defendant had committed a tort elsewhere that caused injury in New York. The arbitration panel had determined that Defendant did not commit a tort and Plaintiff’s action did not challenge that finding. Therefore, the court reasoned, Plaintiff has no colorable claim that Defendant had committed a tort causing injury in New York.
On Plaintiff’s appeal, the U.S. Court of Appeals for the Second Circuit vacates the dismissal and remands the case to the lower court to reconsider whether the parties’ contacts with New York were enough to establish jurisdiction under the LAS.
The Court first examined Section 302(a)(1) of the LAS which provides for specific jurisdiction over nondomiciliaries. See N.Y.C.P.L.R. Section 302. To establish personal jurisdiction under Section 302(a)(1), a plaintiff has to meet two requirements. First, the defendant must have transacted business within the state; and, secondly, the claim asserted must arise from that business activity. McGowan v. Smith, 52 N.Y.2d 268, 273 (1981). The New York courts have generally held that a claim “arises from” a particular transaction when “there is a substantial relationship between the transaction and the claim asserted.” Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467 (1988).
The Circuit Court finds that the district court had incorrectly limited its jurisdictional inquiry to the arbitrators’ actions in Florida. Although Plaintiff’s claim deals only with allegations that the arbitrators had disregarded the law in awarding judgment to Defendant, the New York contacts underlying the dispute that led to the arbitration are substantially related to Plaintiff’s claim.
“Arbitration is entirely a creature of contract[a]ny arbitration proceeding is thus an extension of the parties’ contract with one another, a mechanism through which they attempt to ensure compliance with the terms of that contract. …There is therefore a substantial relationship between a challenge to the arbitrators’ decision and the contract that provided for the arbitration.” [Slip op. 6] Thus, the district court should reconsider whether the parties’ conduct in negotiating, consummating, and performing the contract which ultimately led to the challenged arbitration satisfies the definition of “transacting business” in New York as defined by Section 302(a)(1).
Alternatively, Plaintiff contended that LAS Section 302(a)(3) confers jurisdiction over its claim. This provision bases the exercise of extraterritorial jurisdiction on five elements: (1) Whether the Defendant committed a tortuous [sic] act outside the state; (2) whether the cause of action arose from that act; (3) whether the act caused injury to a person or property within the state; (4) whether the Defendant expected, or should reasonably have expected, the act to have consequences in the state; and (5) whether the Defendant derives substantial revenue from interstate or international commerce. To satisfy the first element, the plaintiff need only state a colorable cause of action. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 125 (2d Cir. 2002).
Relying on its line of reasoning under Section 302(a)(1), the Second Circuit holds that the district court erred in confining its analysis of jurisdiction to the facts as found by the arbitrators. “[While] [Plaintiff] does not challenge the arbitrator’s determination of the merits of [the claims] in its petition, all of the facts underlying that contact are substantially related to [Plaintiff]‘s claim that the arbitrators’ judgment is infirm.”[Slip op. 8]
Citation: Sole Resort v. Allure Resorts Management, 450 F.3d 100 (2nd Cir. 2006).
Filed in: 2006 International Law Update, Issue6
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Ninth Circuit decides that smoker may sue R. J. Reynolds Tobacco Company, based in North Carolina, in Washington state for its alleged part in worldwide conspiracy to deny addictive and harmful effects of smoking over defendant’s objections based on lack of personal jurisdiction and forum non conveniens
R.J. Reynolds Tobacco Company (defendant), originally incorporated in New Jersey in 1899, maintains its headquarters in North Carolina. Defendant has been licensed to do business in Washington state since 1940 but has no manufacturing or production facilities in the state.
Since at least 1998, defendant has maintained an office and up to forty full-time employees in Washington. From 1999-2002, defendant sold between 2.5 and 3 million cigarettes to distributors in Washington annually, generating $145-$240 million in net sales each year.
Nilo D. Tuazon (plaintiff) was born and grew up in the Republic of the Philippines. He began smoking cigarettes at age seventeen and has been smoking continually for more than forty years. Plaintiff began experiencing a persistent cough ten to fifteen years ago, and, in 2003, doctors diagnosed him with a chronic lung disorder. Later that year, he immigrated to the United States and settled in Washington state.
Plaintiff is still seeking treatment in Seattle. He alleges that defendant took part in a global conspiracy to suppress information about the effects of cigarettes. Though the conspiracy had originated in the United States, it had moved abroad by the 1970s through affiliates and subsidiaries, such as the Asian Tobacco Council, the Philippines Tobacco Institute, and Fortune Tobacco. This in turn worsened plaintiff’s health problems despite warnings from friends and family.
Defendant moved to dismiss plaintiff’s complaint on grounds of lack of personal jurisdiction and forum non conveniens. The district court denied the motions, and defendant appealed. The U.S. Court of Appeals for the Ninth Circuit affirms.
Since the parties agree that plaintiff’s claim arises from defendant’s conduct outside of Washington, the Court has to decide whether defendant’s contacts with the state suffice to support the exercise of general jurisdiction there. This involve analysis (1) of whether Washington’s jurisdictional statute confers jurisdiction over the nonresident defendant and, if so, (2) whether the exercise of statutory jurisdiction comports with federal due process requirements.
The Washington Supreme Court has no rigid or formulaic test for determining when a company is “doing business” in Washington. Instead, it conducts a fact-intensive, case-by-case analysis. In this case, defendant has long been doing a business in Washington that generates substantial revenue. It has been licensed to operate in Washington for decades, maintaining an office and a staff of permanent employees, advertising in local media, and targeting Washington consumers. The Ninth Circuit agrees that defendant’s activities amount to “doing business” within the Washington long arm statute.
Furthermore, the Court concludes that defendant has enough contacts with Washington that support a reasonable exercise of jurisdiction, thereby meeting the Due Process requirement. “In the context of general jurisdiction, minimum contacts exist where a defendant has substantial or continuous and systematic contacts with the forum state, even if the case is unrelated to those contacts.” [Slip op. 7]
The Court also points out that the nature and extent of the contacts are critical. “Longevity, continuity, volume, economic impact, physical presence, and integration into the state’s regulatory or economic markets are among the indicia of such a presence.” [Slip op. 8]
Defendant’s decades-long presence and its integration into Washington’s markets are more than casual interactions with the state. “The minimum contacts are established by the confluence of Reynolds’ physical, economic, and political presence and the company’s myriad other activities in the state.” [Slip op. 11]
Presumably on the forum non conveniens issue, the Circuit Court states that there was no abuse of discretion in exercising general jurisdiction in this case. These factors support it: (1) there is no specific hardship on the defendant; (2) Washington has an interest in providing a forum for its resident plaintiff; (3) the forum is convenient and effective for the plaintiff; (4) since plaintiff’s claim will require evidence and testimony from far-flung regions that are mutually inconvenient for other forums, it is neither impractical nor unreasonable for Washington to exercise jurisdiction; and (5) from a social policy standpoint, Washington has an interest in its citizen’s suit alleging an injurious cover-up by a tobacco company as to the dangers of smoking.
Citation: Tuazon v. R. J. Reynolds Tobacco Co., No. 04-35618 (9th Cir. January 11, 2006).
Filed in: 2006 International Law Update, Issue 1
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