On April 25, the U.S. Court of Appeals for the Second Circuit held that a Dutch holding company’s suit in a New York federal court to enforce a foreign arbitration award against a corporate parent of a Turkish conglomerate had to be tossed out for lack of personal jurisdiction over the defendant. Sonera Holdings B.V. v. Cukurova Holding A.S. (2nd Cir. April 25, 2014). The district court earlier upheld jurisdiction. Why did the circuit court reverse and order a dismissal? Is this an important development? Can we expect more refusals to adjudicate against foreign defendants on jurisdictional grounds?
The answers to these questions inhere in the dramatic impact of two rulings months ago by the U.S. Supreme Court regarding in personam (or personal) jurisdiction. The significance of the Second Circuit’s Sonera Holdings decision is that it illustrates the new, markedly changed landscape of personal jurisdiction. Those asserting jurisdiction will find the new era to be a minefield if they don’t learn the lessons taught by the new decisions. Those opposing jurisdiction have been handed a gold mine to develop. We will briefly discuss Sonera Holdings later. First, however, some simplified background review.
In my March Complex Litigation column in the New York Law Journal (“U.S. Supreme Court Clarifies Personal Jurisdiction Boundaries,” NYLJ, March 10, 2014, p. 3; also available on LEXIS), I suggested that two recent U.S. Supreme Court decisions could (and should) alter some popular notions of how far courts can go in exercising “general” and “specific” jurisdiction over foreign defendants.
So-called “general” jurisdiction is sometimes called “all purpose,” “presence” or “doing business” jurisdiction. When appropriately exercised, it allows a court to adjudicate controversies against a foreign defendant even if the forum connection is unrelated to the underlying lawsuit and even if the defendant’s acts occurred outside the state or in a foreign country.
“Specific” jurisdiction, on the other hand, depends on an affiliation between the forum and the underlying controversy. The jurisdictional nexus is case-linked. The court’s exercise of power to adjudicate against the foreign defendant stems from an activity or occurrence that takes place in the forum state, provided constitutional due process requirements are met. This type of jurisdiction is sometimes called by other names such as “longarm,” “single act” or “effects test” jurisdiction.
The U.S. Supreme Court decision dealing with general jurisdiction is Daimler AG v. Bauman, 134 S. Ct. 746 (2014), decided on January 14. The Court’s ruling on specific jurisdiction is Walden v. Fiore, No. 12-574 (Sup. Ct. Feb. 25, 2014). Both decisions emphasize that constitutional due process imposes real limits on where a foreign company may be haled into court to defend a lawsuit.
Daimler teaches that general jurisdiction will extend beyond an entity’s state of incorporation and principal place of business (or headquarters) only in the exceptional case where its contacts with another forum are so substantial as to render it “at home” in that state. Thus, the mere fact that the foreign defendant has affiliates or subsidiaries who do business in the forum state is not enough if the defendant itself is not “at home” there. This new approach has potential to upset a lot of apple carts since many litigants and courts earlier had imputed to the foreign litigant the effect of in-state activities by related companies or even by independent distributors and dealers of the defendant’s products. After the new decisions, this gambit is going to be a tough sell.
Walden v. Fiore teaches that for specific jurisdiction to be exercised appropriately, the defendant’s suit-related conduct “must create a substantial connection with the forum state.” This “necessary relationship” must arise out of contacts that the “defendant himself” creates with the forum state. It is not the plaintiff’s contacts, however significant they may be, that count. So the mere occurrence of plaintiff’s injury or accident in the forum state is simply not enough. Further, the “minimum contacts” analysis looks to the defendant’s contacts with the forum state itself, not the defendant’s contacts with people who reside there. Thus, random, fortuitous or attenuated contacts the defendant makes by interacting with other persons affiliated with the state is insufficient.
In my March column, I suggested that the Walden ruling might threaten reliance on state “longarm” statutes that posit jurisdiction merely on the basis of a defendant’s out-of-state act (e.g., allegedly manufacturing a “defective” product) along with a plaintiff’s in-state injury plus some unrelated, amorphous factor such as “deriving substantial revenue” from the use of goods sold by others in the forum state.
Sonera illustrates the new era, particularly the teachings of Daimler AG v. Bauman. Sonera is a Dutch holding company that obtained a final arbitration award against Cukurova, a parent company of a large Turkish conglomerate. The dispute concerned shares in a company controlling Turkey’s largest mobile phone operator. The arbitral tribunal ordered Cukurova to pay Sonera $932 million in damages for failing to deliver the shares.
Sonera filed applications to enforce the arbitral award in jurisdictions across the world, including the Southern District of New York. Cukurova unsuccessfully moved to dismiss for lack of jurisdiction. The district court not only confirmed the award but issued a preliminary injunction preventing the defendant from engaging in transactions to shield its assets. Cukurova appealed. It is a Turkish entity with its registered office in Istanbul. It holds investments in other companies but has no operations and owns no property in New York or any of the United States. Sonera claimed general jurisdiction based on defendant’s own actions and the actions of its affiliates. The five claimed jurisdictional predicates are listed on p. 5 of the circuit court’s slip opinion.
The appellate court held that Cukurova’s contacts with New York were insufficient to subject it to general jurisdiction. Despite earlier case law allowing a kind of agency theory to support jurisdiction when a defendant’s representative entities operated in the state, the court held that, in light of Daimler AG v. Bauman, subjecting Cukurova to jurisdiction in New York “would be incompatible with due process.” A foreign defendant’s contacts with the state have to be “so continuous and systematic” as to render the company “essentially at home in the forum State.”
The natural result of the “at home” requirement is that “only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction there.” A corporation that operates in many places “can scarcely be deemed at home in all of them.” Thus, for an individual, the home is his domicile. For a corporation, “the paradigm bases” are the place of incorporation and the principal place of business. Those affiliations are “easily ascertainable” and “unique,” that is, each “ordinarily indicates only one place.” Even a company’s engagement in a “substantial, continuous and systematic course of business” (a test popularly used in older case law) is alone insufficient to render the defendant at home in a forum.
The failure of general jurisdiction in Sonera clearly was influenced by the Supreme Court’s Daimler decision. Indeed, in a footnote, the circuit panel even noted some “tension” between Daimler’s “at home” requirement and New York’s traditional “doing business” test for corporate “presence” since not every company that regularly “does business” there is “at home” in New York. Thus, said the circuit court, Daimler’s gloss on due process “may lead New York courts to revisit Judge Cardozo’s well-known and oft-repeated jurisdictional incantation.” The appellate panel also questioned, but left unanswered, whether the “agency” principles used in prior case law survive.
When it comes to suing foreign or multistate defendants, there is a brave new world of personal jurisdiction out there. The catchwords, shibboleths and euphemisms reflecting old legal standards, found in traditional case law, are now potential traps for the unwary. There’s a new language, terminology and analytic approach that resides in Daimler AG and Walden v. Fiore. Those who learn the lessons and advocate incisively can succeed. Those who don’t, act at their (and their clients’) peril. The April 25 Sonera ruling, a short, pithy per curiam opinion, well illustrates the impact of the new era.