B. Extending/Contracting US Personal and Subject Matter Jurisdiction
Personal jurisdiction: Two cases indicated that US courts would narrowly construe personal jurisdiction in cases involving non-US defendants.
(a) In Technology Patents, L.L.C. v. Deutsche Telekom AG, Case 8:07-cv-03012-AW (D. Md. 8/29/08), Dkt. No. 1082, the District Court in Maryland denied personal jurisdiction over international wireless suppliers that did not supply wireless services to the United States. The district court observed that the international defendants' alleged actions did not occur in or target Maryland but rather actions of those defendants' subscribers. The international defendants did not have complete control over how messages got to Maryland, and the district court found that the "roaming agreements" between Telecom carriers were not enough to be considered purposeful activity directed towards Maryland.
(b) In In re Terrorist Attacks on September 11, 2001, Dkt. No. 06-0319 (2d Cir. 8/14/08), the Second Circuit applied the state court doctrine of "fiduciary shield" to deny personal jurisdiction over a representative of a non-US bank. The Second Circuit stated, the "fiduciary shield doctrine deems it ?unfair to subject the corporate employee personally to suit in a foreign jurisdiction where his only contacts with that jurisdiction have been undertaken on behalf of his corporate employer'" 531 F.3d at 96, quoting Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 467-68 (1988).
(i) In In re Terrorist Attacks, several individuals who incurred losses in the September 11, 2001 terrorist attacks brought tort claims against various non-US parties who had provided financial and logistical support to al Qaeda. The Second Circuit affirmed the Southern District of New York decision to dismiss the plaintiffs' claims against, inter alia, a Saudi banker due to the lack of personal jurisdiction.
(ii) The plaintiffs argued that personal jurisdiction was proper because the actions of the Saudi bank, which allegedly provided material financial support to terrorists, could be imputed to the banker as a corporate employee. The plaintiffs relied on Kreuter v. McFadden Oil Corp., 71 N.Y.2d 460 (1988), which found jurisdiction over an individual who was a "primary actor" engaging in "purposeful corporate" acts in that state on behalf of a corporate employer. Kreutter held that the "fiduciary shield doctrine," does not defeat personal jurisdiction under New York's long-arm statute. Here, the Second Circuit found Kreutter to be inapposite, since the bank transactions that the Saudi banker allegedly supervised had no direct contact with the US and the Saudi banker himself was not a "primary actor" that would cause him to be subject to the jurisdiction of US courts.
Subject matter jurisdiction: The decisions of 2008 related to subject matter jurisdiction were quite important and in more than one instance, unprecedented. The cases were described variously as implicating principles of subject matter jurisdiction or stating a cognizable cause of action. Theoretically, the two concepts are quite different, but in practice, they often lead to the same result.
(a) Prudential or judicially-imposed exhaustion requirement before suing in US
(i) In Sarei v. Rio Tinto, PLC, 2008 WL 5220286 (9th Cir. 2008) (en banc), the Ninth Circuit held that Alien Tort Statute actions were subject to exhaustion requirements and that the defendant had the burden to establish that legal remedies in the host country were not exhausted.
(ii) In Sarei, residents of Bougainville, Papua New Guinea, sued the coal mining company Rio Tinto in a California district court for various crimes and environmental torts arising from Rio Tinto's copper mining operations in Papua New Guinea. The plaintiffs claimed that the defendant was liable under the Alien Tort Statute ("ATS"), which grants jurisdiction to a US district court over civil actions by aliens for torts committed in violation of international law or a US treaty.
(iii) The Ninth Circuit court noted that, under international law, a state is ordinarily not required to consider a non-US claim until domestic remedies have been exhausted, "unless such remedies are clearly sham or inadequate or their application is unreasonably prolonged." (quoting Restatement (Third) ? 713 cmt. f). To determine whether the exhaustion rule applied to ATS claims, the Ninth Circuit looked to Sosa v. Alvarez Machain, 542 US 692 (2004), in which the Supreme Court stated that "a prudential or judicially-imposed exhaustion requirement for ATS claims ?would certainly [be considered] in an appropriate case.'" Id. at 733 n.21.
(iv) The Ninth Circuit found that certain ATS claims may be appropriately considered for exhaustion based on prudential standards and core principles of international law, particularly where the claim's "nexus" to the US is weak and where the claim does not involve matters in which a state may exercise jurisdiction regardless of territoriality or the nationality of the offenders.
(v) The Ninth Circuit held that Sarei was indeed an "appropriate case" to consider whether to invoke the exhaustion analysis, and that the defendant bears the burden to plead and justify an exhaustion requirement in an ATS claim.
(b) Contrast the Ninth Circuit's decision in Sarei with the decision of the Second Circuit in Khulumani v. Barclay Nat. Bank Ltd., 504 F.3d 254 (2d Cir. 2007), in which the Supreme Court denied a petition for certiorari review in 2008. In Khulumani, the Second Circuit held that a corporation could be sued under the ATS in the US for their alleged role in aiding and abetting violations of international law by a foreign government (in that case the government of South Africa). See generally the discussion in Proskauer's alert Businesses Ask Supreme Court To Limit "Aiding and Abetting" Liability for Foreign Government Violations of International Law.
(c) Also consider Liquidation Commission of Banco Intercontinental, S.A. v. Renta, 530 F.3d 1339, 1352 (11th Cir. 2008) (upholding $177 million judgment and applying RICO to extraterritorial conduct where "the conduct occurring in, or directed at, the United States in this case was not an insubstantial or preparatory part of the overall looting scheme, but the actual means of its consummation").
- Denying Access to US Courts by Interpreting Treaties Not to Provide Cause of Action
(a) In McKesson Corp. v. Islamic Rep. of Iran, 539 F.3d 485 (D.C. Cir. 2008), the DC Court of Appeals held that violations of the Treaty of Amity do not give rise to a private cause of action against non-US countries in US courts.
(i) In this never-ending saga (this was the fifth time the case had been before the DC Circuit), McKesson, an American corporate shareholder in an Iranian dairy company, alleged that Iran unlawfully expropriated the plaintiff's equity interest in the Iranian company and wrongfully withheld the plaintiff's dividend payments. The district court concluded that the Treaty of Amity did provide a private plaintiff with a cause of action. The DC Circuit reversed and held that the Treaty of Amity did not in fact provide for a private right of action.
(ii) The Court of Appeals noted that there is a general presumption that international agreements do not provide for a private cause of action in US courts. Looking at the text of the Treaty of Amity, the court did not find anything that would overcome the presumption. Nor did the court recognize an implied cause of action in federal common law - akin, for example, to implying a cause of action from the Constitution, which "stands apart from other texts." The court stated that inferring a treaty-based cause of action would "embroil the judiciary in matters outside its competence and authority."
Expanding Jurisdiction to Hear Claims of non-US Entities, but with Enforcement to Occur Only in the non-US Jurisdiction
(a) In Bondi v. Capital & Fin. Asset Mgmt., S.A., 535 F.3d 87 (2d Cir. 2008), the Second Circuit refused to bar US securities fraud actions against an Italian successor to a company in Italian bankruptcy proceedings but, importantly, left the enforcement of any US judgment against the company to the Italian courts.
(i) Parmalat Finanziaria, S.p.A. ("Old Parmalat"), an Italian dairy and food conglomerate, filed for bankruptcy after the corporation collapsed when reports of its financial fraud became public. Debt and equity investors of Old Parmalat filed class action securities-based lawsuits in the US against Old Parmalat and other alleged financial participants in the fraud.
(ii) Meanwhile, the Extraordinary Commissioner of the Old Parmalat bankruptcy (analogous to a US bankruptcy trustee) transferred all of Old Parmalat's assets to a newly formed entity, Parmalat, S.p.A. ("New Parmalat"). Assuming all legal liabilities of its predecessor companies, New Parmalat moved the US district court to bar the securities fraud plaintiffs in the US class actions from bringing direct claims against the new entity.
(iii) The district court denied New Parmalat's motion and issued an order subjecting New Parmalat to any direct or contribution claims that may arise in that court. On appeal, the Second Circuit affirmed the district court's ruling, rejecting New Parmalat argument that decision violated Bankruptcy Code ? 304's directive to assure "economical and expeditious administration of the foreign estate" as well as principles of international comity and fairness. Otherwise, the Second Circuit reasoned, securities fraud litigation would be conducted in Italy, forcing an Italian court to confront "a foreign legal and regulatory scheme to which . . . there is no Italian analog."
(iv) The Second Circuit also held that the district court's order respected international comity and deference since, importantly (and inventively), it left the enforcement of any judgment for the securities fraud plaintiffs against New Parmalat to the Italian courts.
- Denying Jurisdiction in "Foreign Cubed" Securities Case.
(a) In Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167 (2d Cir. 2008), the Second Circuit for the first time reviewed a so-called "foreign-cubed" securities action. Although the court found a lack of subject matter jurisdiction over the particular claims in Morrison, it refused to create a bright line rule prohibiting all such actions in the future.
(i) A "foreign-cubed" securities action is one in which (i) non-US plaintiffs; (ii) sued a non-US issuer; (iii) based on securities transactions in countries other than the US.
(ii) In Morrison, non-US investors brought a securities fraud action against an Australian banking corporation, alleging, inter alia, that the bank's subsidiary in Florida manipulated its corporate records. As a result, the issuer (the Australian bank) (1) made materially false filings with the foreign securities markets and (2) indirectly interfered with ADRs trading in the US. Following dismissal by the Southern District of New York, the investors appealed to the Second Circuit.
(iii) The Second Circuit rejected calls from the defendant and several amici curiae to create a bright line rule that US courts did not have jurisdiction in any foreign-cubed claims. Instead, the court relied on the "conduct and effect" tests to determine whether there was sufficient US involvement to justify the exercise of jurisdiction by an American court. The Second Circuit stated that subject matter jurisdiction would exist only if (1) the potentially infringing US activity was "more than merely preparatory" to the fraud and (2) if the particular acts or failures to act within US territory directly caused losses to non-US investors.
(iv) Applying the conduct test (the "effects" issue was not part of the suit), the Second Circuit concluded that the federal court lacked subject matter jurisdiction over the action because the activity of the Australian bank in Australia was significantly more central to the fraud and more directly responsible for harm inured by investors than the activity that occurred in Florida.
(v) In language that signals a clear change in attitude the Second Circuit said, "we are an American court, not the world's court, and we cannot and should not expend our resources resolving cases that do not affect Americans or involve fraud emanating from America." 547 F.3d at 175.