Jay Mayesh
M. Tomas Murphy
As global commerce has expanded beyond traditional territorial bounds, the jurisdiction of the U.S. courts has undergone a similar expansion. Long behind us are the days when a foreign corporation could consider itself comfortably beyond the reach of a U.S. court so long as it maintained no “physical presence” in that court’s geographical jurisdiction. By the middle of the last century, a clear trend toward “expanding the permissible scope of state jurisdiction over foreign corporations” was already evident, in response to what the U.S Supreme Court in McGee v. Int’l Life Ins. Co. characterized as the “increasing nationalization of commerce.” In more recent years, driven by the increasing internationalization of commerce, the movement toward expanded extraterritorial jurisdiction has continued to gather momentum.
Under current Supreme Court precedents, including Hanson v. Denckla and its successors, a foreign manufacturer or other company may be subject to the jurisdiction of a U.S. court only if that company “purposefully avails itself of the privilege of conducting activities within the forum State.” As the Supreme Court acknowledged in J. McIntyre Mach., Ltd. v. Nicastro, this “purposeful availment” test “does not by itself resolve many difficult questions of jurisdiction that will arise in particular cases,” and the standard has proven highly elastic in the hands of the lower courts. Indeed, the Supreme Court’s own fractured decisions on personal jurisdiction have allowed lower courts wide latitude in interpreting the “purposeful availment” standard, enabling the contours of extraterritorial jurisdiction to be drawn expansively.
A Recent Federal Court Ruling That Shows the Trend Toward Expanded Jurisdiction
A recent federal district court ruling (Eastern District of Louisiana) in the much-publicized Chinese drywall litigation illustrates how far the trend toward expanded extraterritorial jurisdiction has progressed. In the case of In re Chinese Manufactured Drywall Prods. Liab. Litig., the judge affirmed his court’s jurisdiction over two closely affiliated Chinese companies—Taishan Gypsum Co. Ltd. and Taian Taishan Plasterboard Co. Ltd.—whose drywall was exported to various states in the U.S. The District Court’s jurisdictional findings have been vigorously challenged by the Taishan defendants, whose success or failure on appeal may have significant repercussions for foreign companies doing business—either directly or indirectly—with customers in the United States.
From the outset, the court acknowledged that the Taishan entities had no physical contacts with any of the states at issue—Virginia, Florida, and Louisiana. The facts with respect to Virginia are illustrative: Taishan Gypsum never manufactured or sold its drywall in Virginia, never performed any services in Virginia, maintained no offices in Virginia, owned no property in Virginia, and held no bank accounts in Virginia. Indeed, not a single officer, employee, or agent of Taishan Gypsum had ever set foot in Virginia for the purpose of doing business.
And although Taishan Gypsum touted itself as a worldwide supplier of building materials, Taishan Gypsum appears to have done virtually nothing to solicit business from Virginia. On the contrary, it was a Virginia company—Venture Supply, Inc.—that in November 2005 approached Taishan Gypsum regarding the purchase of drywall for export.
Taishan Gypsum’s subsequent interactions with its Virginia customer were, from a business point of view, entirely unremarkable: Taishan Gypsum met on multiple occasions with a Venture Supply representative in China, submitted product samples to Venture Supply, provided documentation that its products were in compliance with U.S. standards, and offered information regarding shipping agents, freight rates, and ship availability.
Taishan Gypsum ultimately entered into two contracts with Venture Supply, the first executed via fax and the second executed in China. Taishan Gypsum additionally “engaged in extensive discussions” with Venture Supply, “regarding their current and future business relationship,” and provisionally considered designating Venture Supply as the exclusive distributor of Taishan Gypsum drywall in the United States.
Interestingly, the Eastern District of Louisiana did not confine its jurisdictional analysis to Taishan Gypsum’s specific contacts with Venture Supply or Virginia, but also considered Taishan Gypsum’s more general engagement with the U.S. market. Perhaps most strikingly, the court found it significant that Taishan Gypsum’s website featured English-language content and that Taishan Gypsum advertised on an international website accessible in the U.S., suggesting that even the most modest gestures toward global trade may be marshaled as evidence of “purposeful availment” on the part of a foreign company.
Similarly, the court noted that Taishan Gypsum had “encouraged, welcomed, and accommodated representatives of U.S. companies to visit its drywall offices and factories in China.” The particulars of these visits were mundane, reflecting standard business courtesies: Taishan Gypsum’s U.S. guests were offered tours of the offices and factories, transportation assistance and hotel recommendations, lunch at the cafeteria, and promotional literature. The court also observed that Taishan Gypsum had made direct sales to other U.S. customers outside of Virginia, that Taishan Gypsum used English in its communications with its U.S. customers, and that Taishan Gypsum’s employees adopted “Americanized” names.
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