Standard & Poor’s Can be Sued in Frankfurt – Update

As reported, the Frankfurt Court of Appeals (Oberlandesgericht) on November 29, 2011 has held it has jurisdiction to hear claims for damages against Standard & Poor’s in relation to losses caused by investing in Lehman certificates. In my opinion, the Court of Appeals has taken a surprisingly liberal approach to assuming jurisdiction; quite honestly, the first instance judgment was more in line with what I would have expected. As a New York lawyer commented: “Seems like the German courts are learning from the US courts on extending their jurisdictional reach!”

Here’s the detail:

The full judgment of the Frankfurt Court of Appeals (Oberlandesgericht) has  been published during my Christmas break. I have now also obtained an (edited) copy of the first instance judgment of the Frankfurt District Court (Landgericht) which the Court of Appeals had overruled. The first instance court did follow the traditional approach. It did discuss, and deny, in turn the theories on which jurisdiction of the Frankfurt court against non-resident defendant Standard & Poors’s could be based in the absence of an agreement on jurisdiction, namely

• corporate domicile (allgemeiner Gerichtsstand juristischer Personen; Sec. 17 ZPO)
• existence of a branch in the jurisdiction (besonderer Gerichtsstand der Niederlassung; Sec. 21 ZPO)
• assets within the jurisdiction (besonderer Gerichtsstand des Vermögens; Sec. 23 ZPO)

It is in the last point that the judgments differ:

The District Court had dismissed Sec. 23 ZPO on the basis that the matter lacked sufficient nexus to Germany: The fact that the claimant was a German citizen and residing in Germany was not sufficient to satisfy the minimum contact requirement. In its support, it quoted the Federal Labour Court (Bundesarbeitsgericht), which had argued that in modern times, the mere fact that someone had assets in a country was no indication of any specific links to that county which would justify submitting that person to the jurisdiction of that county’s courts. Hence, for the District Court, there was no need to go into the issue whether Standard & Poor’s had assets in Frankfurt.

The Court of Appeals first dealt with the existence of assets, and finds that the subscriber contracts between Standard & Poor’s and customers in Frankfurt satisfy the requirement. The Court then reviews the case law and the legal literature on the required nexus in detail. It finds that the prevailing opinion accepts domicile and German citizenship as sufficient nexus. In its judgment, the Court discusses whether fairness considerations (see # 46 of the judgment) would require it to adopt a narrow interpretation of Sec. 23 ZPO. The Court concedes that Standard & Poor’s may not have expected to be sued in Frankfurt in relation to a New York law contract it entered into with Lehman Brothers Treasury B.V.,  a Dutch legal entity.Still, the Court finds that the business of Standard & Poor’s is of such an international nature that there was no need to protect Standard & Poor’s from being sued in Germany.

On that basis, the Court of Appeals finds in favour of the claimant. In addition, the Court finds that there no diverging decisions amongst the various courts of appeal, nor does it deviate from a Federal Supreme Court decison. Hence, there is no fundamental legal question which would need to be put before the Federal Supreme Court (Bundesgerichtshof).