Personal Jurisdiction Over Foreign Parties in US Courts: New Developments

European businesses view being sued in the United States as a major business risk, and they traditionally percieve the U.S. courts to be very liberal in assuming jurisdiction over foreign parties. Recent decisions of the U.S. Supreme Court appeared to be more restrictive.  They were widely reported over here, in particular Daimler AG vs. Bauman earlier this year. In today’s guest post, Peter S. Selvin summarizes the recent cases and reports that the lower courts do not always follow the trend.

While the U.S. Supreme Court has recently cut back on the power of US courts to exercise personal jurisdiction over non-US parties in civil litigation, certain federal appellate courts nevertheless continue to issue surprising decisions that buck this trend. 

Thus, in 2011, the Court issued a pair of decisions about the proper exercise of personal jurisdiction by trial courts over foreign parties in civil litigation — J McIntyre Machinery Ltd. vs. Nicastro, 131 S. Ct. 2780 (2011) and Goodyear Dunlop Tires Operations, S.A. vs. Brown, 131 S. Ct. 2846 (2011). In both cases the Court rejected the exercise of personal jurisdiction over foreign parties.

In McIntyre, the Court rejected the exercise of personal jurisdiction over a foreign manufacturer, even though the manufacturer’s act of putting the machine at issue into the “stream of commerce” had caused the machine to reach the forum state where the injury took place.

In Brown, another products liability suit, the Court also rejected the exercise of personal jurisdiction over foreign parties. In that case the Court found no personal jurisdiction over certain subsidiaries of the principal defendant even though products manufactured by those subsidiaries had been distributed in the forum state.

McIntyre and Brown were followed in 2012 by the Court’s decision in Kiobel vs. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2012).  There the Court held that the Alien Tort Statute (ATS) did not allow for the exercise of personal jurisdiction over non-US parties based on injuries arising from alleged wrongful conduct occurring wholly outside the US.

Finally, earlier this year, the Court issued its opinion in Daimler AG vs. Bauman, 134 S. Ct. 746 (2014). In that case, several non-US plaintiffs asserted ATS and other claims against Daimler, AG, a German company.  Plaintiffs alleged that Mercedes-Benz Argentina (MBA) had collaborated with Argentina’s security forces during the 1978-83 “dirty war”. Jurisdiction over Daimler had been found by the Ninth Circuit Court of Appeal[1] on the ground that Mercedes-Benz USA was Daimler’s “agent” for jurisdictional purposes and therefore that subsidiary’s contacts with California could be imputed to Daimler itself. The U.S. Supreme Court reversed and vacated the Ninth Circuit’s decision, noting that the Ninth Circuit had “paid little heed to the risks to international comity its expansive view of general jurisdiction posed”. Id. at 762-763.

In all of its four recent decisions, the Supreme Court cited the principles of comity and non-interference in U.S. foreign relations as grounds for its view that trial courts should act cautiously in exercising personal jurisdiction over foreign parties in civil cases.  Nevertheless, the Ninth Circuit appears to blazing its own path in this area, as reflected in its recent decision in Sachs vs. Republic of Austria, 737 F. 3d 584 (9th Cir. 2013).

In Sachs, plaintiff sued, among other defendants, the Republic of Austria (Austria) in California. The lawsuit arose from personal injuries she sustained while attempting to board a train from Austria to the Czech Republic.  Although her injury and defendants’ alleged negligence all took place in Austria, plaintiff asserted that a California court could properly exercise personal jurisdiction over the defendants because she purchased her train ticket online from a vendor based in Massachusetts. The Ninth Circuit agreed.

Because Sachs dealt fundamentally with the “commercial activity” exception in the Foreign Sovereign Immunities Act (the FSIA), the opinion focused on whether “the action [was] based upon commercial activity carried on in the United States” by a foreign state or its instrumentality.  28 USC § 1605(a)(2); emphasis added. As this prong of the FSIA’s “commercial activity” exception is essentially the same test for determining personal jurisdiction over a foreign party (Exchange Nat. Bank of Chicago vs. Empresa Minera del Centro Del Peru, S.A., 595 F. Supp. 502, 505 (S.D.N.Y. 1984)), the Sachs opinion is squarely at odds with the four recent Supreme Court decisions discussed above.

By way of background, the rail system in question was operated by OBB Personenverkehr, AG (OBB), which was indirectly owned through an intermediate holding company by the Austrian Ministry of Transport.  Like many of its counterparts in other European countries, OBB is a member of Eurail Group, which is an association organized under Luxemburg law. The Eurail Group, in turn, contracted with a separate, unaffiliated company that is based in the US, Rail Pass Experts (RPE), to market and sell tickets for the trains operated by its members to customers based in the US.

In the Ninth Circuit’s view, plaintiff’s online purchase of a ticket from RPE for travel from Austria to the Czech Republic demonstrated that Austria had “carried on [commercial activity] in the United States”. “Because we conclude RPE acted as an authorized agent of OBB, we impute RPE’s sale of the Eurail pass in the United States to OBB”. Id. at 594.

As noted in the dissenting opinion Sachs, the majority decision “effectively reads ‘activity carried on … by a foreign state’ and ‘activity carried on by such state’ to mean activity carried on by the authorized agents of a foreign state. This necessarily equates a foreign state and its authorized agents.” Id. at 593-594.

Thus, although personal jurisdiction over a foreign party can sometimes be based on the US-based activities of that party’s agent (Wells Fargo & Co. vs. Wells Fargo Exp. Co., 556 F. 2d 406, 423 (9th Cir. 1977)), the connection between RPE and OBB appears to be remote at best. Moreover, the thrust of the Supreme Court’s decision in Daimler was that the forum state contacts of a corporate subsidiary cannot be imputed to a foreign parent corporation for purposes of exercising personal jurisdiction over the parent. As the decision in Sachs appears to be squarely inconsistent with the Supreme Court’s recent decisions in this area, it seems likely that Austria will seek Supreme Court review of this opinion.

[1]       The Ninth Circuit Court of Appeals is an intermediate federal appeals court whose jurisdiction includes California and several other western US states.

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