The World in U.S. Courts: Fall 2015 - Personal Jurisdiction/Forum Non Conveniens
In 1988, Paysys, a software company, licensed one of its products to a company called Sema through a license agreement which, according to Paysys, strictly limited Sema's ability to assign its rights. In 2001, Paysys and Sema entered into a settlement agreement that included a clause designating the Southern District of New York as the proper venue, and New York law as the governing law, for adjudicating future disputes. Subsequently (and simplifying the parties involved), Sema's rights were ultimately transferred to Atos, a French company, through a series of transactions.
Paysys brought suit in in the Southern District of New York claiming that the licensing agreement precluded the assignments that were later made, and that Atos was liable for breach of contract, copyright infringement, misappropriation of trade secrets, conversion, and unfair competition. Atos moved to dismiss for lack of personal jurisdiction and for failure to state a claim. It argued (1) that the Court had no general jurisdiction over the non-U.S. corporation, and (2) that Paysys was precluded from asserting the forum selection clause in the settlement agreement as a basis for specific personal jurisdiction.
With regard to specific jurisdiction—which focuses on a defendant's contacts with a forum—Paysys argued that the French defendant was bound by the forum designation clause of the settlement agreement Paysys had signed with Sema. Paysys simultaneously argued in the alternative, however, that Atos defendant never became a party to the license agreement since Sema was prohibited from assigning its rights.
The Court refused to apply the forum selection clause, holding that the assignment of rights from Sema to Atos was invalid. It thus found no basis to assert specific personal jurisdiction over Atos.
Paysys also argued that general personal jurisdiction could be asserted over Atos under an "alter ego" theory, which would result in a finding that Atos and Sema should be deemed for jurisdictional purposes to be the same entity. The alter ego test focuses on four factors: (1) common ownership, (2) financial dependency of the subsidiary on the parent corporation, (3) the degree to which the parent corporation interferes in the selection and assignment of the subsidiary's executive personnel and fails to observe corporate formalities, and (4) the degree of control over the marketing and operational policies exercised by the parent. The Court concluded that the complaint made allegations of fact capable of satisfying all of these factors. However, it also authorized jurisdictional discovery to provide more facts in support of a final decision.
In the course of its discussion, the Court rejected the argument that the "alter ego" test had been superseded by the U.S. Supreme Court's decision in the Daimler case, which stated that general jurisdiction over a corporation ordinarily was limited to states where the corporation was organized or had its principal place of business. The Court found that Daimler cast doubt only on the usefulness of agency analysis focusing on an affiliate's importance to the defendant, not on whether the affiliate is so dominated by the defendant as to be its alter ego, which was the argument made in the present case.