Federal Supreme Court: Standard & Poor’s, New York, NY, Can Be Sued in Germany over Lehman Ratings

Back in November 2011, we had covered the judgment of the Frankfurt Court of Appeals (Oberlandesgericht), which held it had jurisdiction to hear actions by German claimants against Standard & Poor’s, New York, in disputes arsing from Lehman ratings. In December 2012, the Federal Supreme Court (Bundesgerichtshof) confirmed the Frankfurt judgment on the issue of jurisdiction.

Technically, Standard & Poor’s were successful in having the Frankfurt judgment repealed. The Federal Supreme Court has sent the matter back to the Frankfurt Court of Appeals in order to revisit the issue whether service was properly effected.

However, on the issue of jurisdiction, the Federal Supreme Court confirmed the holding of the Frankfurt Court of Appeals. The Frankfurt court had applied Sec. 23 German Code of Civil Procedure (ZPO) (besonderer Gerichtsstand des Vermögens). Pursuant to this provision, a foreign party can be sued in Germany, if two conditions are satisfied. First, the foreign defendant must have assets within the jurisdiction. This requirement is stated in the Code itself. Secondly, in order to avoid exorbitant jurisdiction, the courts have developed the requirement that the matter must have a sufficient nexus to Germany and have, in other words, introduced a minimum contact requirement.

The Court of Appeals had held that the existence of subscriber contracts between Standard & Poor’s and customers in Frankfurt satisfied the first requirement. The Federal Supreme Court did not discuss this finding of fact. On the second requirement,  the Federal Supreme Court concurred with the Court of Appeals: The fact that the claimant was domiciled in Germany was sufficient to satisfy the minimum contact test. The Federal Supreme Court confirmed its earlier case law on the interpretation of Sec. 23 ZPO. It expressly stated that the present set of facts and the arguments made by Standard & Poor’s do not require it to deviate from its established position. In the last sentence of the judgment, the court even attached some weight to the fact that the claimant did not only have its domicile in Germany, but also was a German national.

The issue of service may deserve a separate post. The interpretation of Sec. 23 ZPO, however, is now very clear. It certainly exposes foreign corporates to a greater litigation risk in Germany than they may anticipated.

1 Comment

  1. Peter Bert

    Angelo Anglani has given me permission to repoduce a comment here that he made in the LinkedIn “ABA Section of Litigation International Litigation Committee” Group:
    “In Italy at least two proceedings are pending in first instance where the objection of lack of jurisdiction over Lehman ratings was raised, but a decision in these proceedings will not come before 2014. In the meantime, it may be interesting to note that the Combined Divisions of the Supreme Court issued a judgment with regard to an action in tort (before the court of Bologna) vis-à-vis S&P’s and Moody’s, in relation to the rating of certain securities bought by italian investors. In this case, the Court confirmed its precedents and found that the principle pursuant to Article 5.3 of EC Regulation 44/2001 (which is identical to the art. 5.3 of the Brussel Convention which would apply for issues of jurisdiction out of Europe), according to which the place where the harmful event occurred is the place where the relevant judge has jurisdiction, has to be interpreted in the sense that such place is the one where the “initial harm” occurred, being irrelevant the place where the future consequences of such harm occurred or could occur; “… as a consequence the action commenced against a rating agency which has no registered seat nor operates in Italy, for the damages consequent to the hypothesized mistake in the evaluation of financial instruments purchased out of the Italian territory is subtracted to the jurisdiction of the Italian judge”.

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