Proskauer Rose International Practice Guide Proskauer Rose LLP |
      Proskauer on International Litigation and Arbitration:
       Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
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  1. Jurisdiction based on use of the internet. Increasingly, company websites – which are accessible all over the world – are being used (or at least considered) as a basis for U.S. courts to obtain personal jurisdiction over a foreign company that has never physically entered the jurisdiction.
    1. Zippo sliding scale. The likelihood that personal jurisdiction can be constitutionally exercised by U.S. courts is directly proportionate to the nature and quality of commercial activity that an entity conducts over the Internet. See Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119 (W.D. Pa. 1997).
      1. “Doing business over the internet” - If the defendant enters into contracts with residents of a foreign jurisdiction that involve the knowing and repeated transmission of computer files over the Internet, personal jurisdiction is proper.
        1. Viz Commc’ns, Inc. v. Redsun – Japanese website, an English-language pay-per-view adult website with paid subscriptions from a large consumer base in the United States, was found to have purposefully availed itself of the privileges of conducting activities in the forum. No. C-01-04235 JF, 2003 WL 23901766 (N.D. Cal. Mar. 28, 2003).
        2. Arista Records, Inc. v. Sakfield Holding Co. - Website that enabled users to download copyrighted musical works without authorization constituted “doing business” in the forum for personal jurisdiction when at least 240 customers were from the forum jurisdiction. 314 F. Supp. 2d 27 (D.D.C. 2004).
      2. “Interactive websites” - Exercise of jurisdiction is determined by examining the level of interactivity between users and the host computer; U.S. courts often require "something more" than interactive websites before conferring jurisdiction.
        1. Morris Material Handling, Inc. v. KCI Konecranes – Two Finnish websites that provided an 800 number for customers to call, allowed customers to email the company, provided a link by which customers could request information or a quote and were directed at U.S. customers, established minimum contacts with Wisconsin for jurisdictional purposes. 334 F. Supp. 2d 1118 (E. D. Wisc. 2004).
      3. “Passive websites” – If the defendant has simply posted information on an internet website which is accessible to users in jurisdictions outside the U.S., personal jurisdiction is improper in U.S. courts.
        1. Ty Inc. v. Clark - An English company’s website about beanie babies merely posted sale information and did not enable consumers to buy online, instead required all purchases to be conducted by mail, did not meet the requirements for specific jurisdiction. No. 99 C 5532, 2000 WL 51816 (N.D. Ill. Jan. 14, 2000).
        2. Edelson v. Ch’ien – Passive defamatory comments on a Hong Kong corporation’s website about one of its former directors did not support a court’s exercise of specific jurisdiction over the corporation’s president in Illinois. 352 F. Supp. 2d 861 (N.D. Ill. 2005).
    2. Calder “effects test.” A non-resident defendant purposefully avails itself of the forum if its contacts with the forum are attributable to (1) intentional acts; (2) expressly aimed at the forum; and (3) causing harm, the brunt of which is suffered – and which the defendant knows is likely to be suffered – in the forum. Calder v. Jones, 465 U.S. 783 (1984).
      1. Rio Props., Inc. v. Rio Int’l Interlink - Costa Rican company subject to personal jurisdiction in Nevada for running a gambling website that used the plaintiff’s trademark because by using plaintiff’s name on its highly interactive website, in radio and print advertisements in Las Vegas, defendant knowingly injured plaintiff in Nevada. 284 F.3d 1007 (9th Cir. 2002).
      2. Carefirst of Md., Inc. v. Carefirst Pregnancy Ctr., Inc. – Pro-life advocacy organization’s website which allowed viewers to make credit card donations directly online did not subject organization to personal jurisdiction in Maryland because activities were primarily aimed at helping local Chicago-area women and the harm caused by the alleged trademark infringement was not “expressly aimed” at Maryland. 334 F.3d 390 (4th Cir. 2003).

  2. Effect of presence of subsidiary in the forum. As a general rule, the existence of a parent-subsidiary relationship is not sufficient in and of itself to warrant the assertion of jurisdiction over the foreign parent.
    1. Alter Ego Theory. Only when the foreign parent so dominates and controls the affairs of the subsidiary, such that the subsidiary could be considered the foreign parent’s alter ego under applicable state law, will personal jurisdiction over the parent corporation be imputed for the activities of its in-state subsidiary. Reverse Vending Assoc. v. Tomra Sys. U.S., Inc., 655 F. Supp. 1122 (E.D. Pa. 1987).

      1. Gen. Elec. Co. v. Deutz AG - German parent corporation was subject to personal jurisdiction because it had acted as its subsidiary’s guarantor, shared common officers and directors, its top officials from the German parent corporation made numerous trips to Pennsylvania to oversee the joint venture, continued to negotiate with the plaintiff directly, and even regulated the number of employees the subsidiary committed to the venture. 270 F.3d 144 (3d Cir. 2001)
      2. Alpine View Co. v. Atlas Copco AB - Swedish parent corporation was the ultimate owner of the U.S. subsidiaries, had some directors and officers in common with the subsidiaries, and had also made some interest-bearing loans to the subsidiaries; but without more, court could not justify imposing jurisdiction over the Swedish parent under an alter ego theory. 205 F.3d 208 (5th Cir. 2000).
      3. Transp. Commc’ns Int’l Union v. Sultran Ltd - Canadian parent corporation was subject to personal jurisdiction in Michigan based on its dominance and control of its U.S. subsidiary when the parent actively directed the operations of its subsidiary; the parent's officers met regularly in Michigan while being compensated and reimbursed for travel expenses solely by the parent; and the parent infused over $700,000 into the subsidiary without interest or repayment terms. 187 F. Supp. 2d 880 (E.D. Mich. 2000).

        Practice Tip: A parent corporation may be directly involved in the activities of its subsidiaries without subjecting itself to jurisdiction so long as its involvement is consistent with its investor status.

        Practice Tip: State law varies on the issue of suing a parent or an affiliate as an alter ego. That difference may significantly influence where suit is brought in the U.S.

      4. Appropriate parental involvement includes monitoring the subsidiary’s performance, supervision of the subsidiary’s finance and capital budget decisions, and articulation of general policies and procedures. Doe v. Unocal Corp., 248 F.3d 915 (9th Cir. 2001).
    2. Agency Theory. Where a subsidiary is merely an agent through which the foreign parent company conducts business in a particular jurisdiction or its separate corporate status is formal only and without any semblance of individual identity, then the subsidiary’s business will be viewed as that of the parent and the latter will be said to be doing business in the jurisdiction through the subsidiary for purposes of asserting personal jurisdiction.
      1. Meier v. Sun Int’l Hotels, Ltd. - Several affiliated Bahamian corporations were subject to jurisdiction in Florida through the activities of their Florida subsidiaries, which essentially acted as the parent corporations’ accounting, advertising, and booking departments; the subsidiaries’ corporate existence was simply a formality. 288 F.3d 1264 (11th Cir. 2002).
  3. Effect of advertising in the U.S. Advertising that is reasonably calculated to reach the forum can constitute purposeful availment of the privileges of doing business in the forum. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980).
    1. As a general rule, federal courts typically hold that national advertisements by a foreign defendant alone do not constitute “minimum contacts” to satisfy constitutional due process requirements. Seymour v. Parke, Davis & Co., 423 F.2d 584 (1st Cir. 1970).
    2. Cascade Corp. v. Hiab-Foco AB - Swedish corporate defendant’s advertisements in national publications available in Oregon were not sufficient to subject the Swedish corporation to personal jurisdiction in Oregon. 619 F.2d 36 (9th Cir. 1980).
    3. SRAM Corp. v. Sunrace Roots Enter. Co. - Taiwanese corporation that advertised in national U.S. publications and that, in addition, sent cease and desist letters to plaintiff’s customers warning them to stop buying plaintiff’s product, was held to be subject to specific jurisdiction in Illinois. 390 F. Supp. 2d 781 (N.D. Ill. 2005).
    4. SEC v. Carrillo - Costa Rican corporation and its officers were subject to jurisdiction in Florida based on their fraudulent offer and sale of unregistered securities into the United States by placing advertisements for the securities in in-flight magazines used on American Airlines flights on sixteen occasions in two separate magazines over a two-year period. 115 F.3d 1540 (11th Cir. 1997).
  4. Effect of prior lawsuits on exercise of personal jurisdiction. Personal jurisdiction is found where a defendant in one suit is found to have previously invoked the jurisdiction of the presiding court by seeking affirmative relief from that court.
    1. Gen. Contracting & Trading Co. v. Interpole - Shipping company which was the subject of a third-party complaint for indemnity had submitted itself to specific personal jurisdiction in the forum when it filed a separate suit in connection with the same order and chose to avail itself of the benefits of the forum’s courts as a plaintiff by bringing suit against the supplier. 940 F.2d 20 (1st Cir. 1991).
    2. Int’l Transactions, Ltd. v. Embotelladora - Mexican corporation involved in arbitration in Texas surrendered to personal jurisdiction when it filed two new suits relating to the same promissory note, asking to stay the arbitration proceedings, seeking to join additional parties to the arbitration and asserting an affirmative claim against a third party. 277 F. Supp. 2d 654 (N.D. Tex. 2002).
    3. Dow Chem. Co. v. Calderon - Defending one law suit in the forum state does not waive the defendant’s right to contest personal jurisdiction in a second lawsuit initiated by other parties regarding the same matter because without an independent affirmative decision to seek relief in the state’s courts, there can be no conscious consent to settle all aspects of the dispute in the same court. 422 F.3d 827 (9th Cir. 2005).
    4. Coupons, Inc. v. Efros - Out-of-state legal representation does not meet the criteria for surrendering objections to personal jurisdiction in the forum state where the law firm is solicited in its home state and takes no affirmative action to promote business within the forum state. No. C 05-03491, 2006 WL 37036 (N.D. Cal. Jan. 5, 2006).

      Practice Note: For purposes of imposing personal jurisdiction, the party contesting jurisdiction must have invoked the jurisdiction of the same court previously. Simply defending itself in that court or seeking affirmative relief in other U.S. courts is not enough.

  5. Effect of stock exchange-related activities. “The prevailing caselaw accords foreign corporations substantial latitude to list their securities on New York-based stock exchanges and to take the steps necessary to facilitate those listings. . . without thereby subjecting themselves to New York jurisdiction for unrelated occurrences.” See Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88 (2d Cir. 2000).
    1. Simply having an investor relations office in order to maintain a stock exchange listing is, without more, insufficient to confer jurisdiction. However, a court will examine the particular activities of the investor relations office to determine whether the activities are substantial enough for a foreign corporation to be subject to New York jurisdiction. See id.

      Practice Tip: Similar to the agency discussion Supra, if a defendant utilizes an outside agent for investor relations and that agent (1) also services other clients or (2) is not under the defendant’s direct control, such facts will weigh heavily against conferring jurisdiction based solely on investor relations activities.

    2. Merely using American Depository Receipts (“ADRs”) to facilitate the trade of a defendant’s shares on a stock exchange, without more, does not amount to the requisite “continuous and systematic contacts” to establish jurisdiction. See In re Ski Train Fire in Kaprun, Austria on Nov. 11, 2000, 230 F. Supp. 2d 376 (S.D.N.Y. 2002).
    3. Importantly, although each of these activities alone may not be substantial enough to warrant the exercise of jurisdiction over a foreign corporation, a court will focus on the totality of all circumstances, and these activities, if combined with others, may together form the necessary basis to establish jurisdiction.See Wiwa, 226 F.3d 88 (2d Cir. 2000).
  6. Jurisdiction based on loan payments made in the United States. Making loan payments in the United States may serve as a basis for U.S. courts to assert jurisdiction over foreign entities, depending on the particular requirements of a state’s long-arm statute.

    1. Generally, contract performance in a particular state—which would include the repayment of loans—“has of itself been held a sufficient basis for jurisdiction.”Jacobs/Kahan & Co. v. Marsh, 740 F. 2d 587, 590 (7th Cir. 1984).
    2. Where loans are payable in the U.S., a court will also determine that loan agreement and any attendant guaranties are also to be performed in the U.S.; therefore, being a guarantor on a loan payable in the U.S. may subject a foreign entity to the jurisdiction of a U.S. court. See id.; Cont’l Bank N.A. v. Everett, 742 F. Supp. 508 (N.D. Ill. 1990)

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