Employment Contract Providing That Disputes Should be Resolved in Germany Does not Divest US Court of Personal Jurisdiction Over German Executive

The World in U.S. Courts: Summer 2017 - Personal Jurisdiction/Forum Non Conveniens | April.21.2017

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MAG IAS Holdings, Inc. v. Schmückle, US Court of Appeals for the Sixth Circuit, April 21, 2017

Plaintiff MAG Holdings (MAG) is a US member of the “MAG Group,” an international affiliation of companies that make automotive components.  Defendant Schmückle, a citizen and current resident of Germany, was MAG Group’s CEO.  Schmückle’s employment agreement with MAG Group stated that legal claims regarding his employment would be heard in Germany.  MAG subsequently alleged that Schmückle violated his corporate fiduciary duty to the US entity and sued him in federal court in its home State of Michigan.  The lower court dismissed the case, holding (without a hearing) that MAG had not made a sufficient initial showing that the court had specific personal jurisdiction over Schmückle.  MAG had based its jurisdictional argument on allegations that Schmückle:

  • Had global authority over all MAG entities, directed and controlled MAG operations in Michigan, and received a portion of his salary from that State;
  • As CEO, visited Michigan from Germany and had regular contact with MAG’s American management team;
  • Dealt personally with MAG’s Michigan-based customers and business, transferring a portion of it to Germany; and
  • Owned a vacation home in the United States.

The Court of Appeals found these allegations sufficient to establish specific personal jurisdiction.  It noted that personal jurisdiction in connection with the State-law claims presented would be based on Michigan’s “long-arm” statute, which is as expansive as permitted under the Due Process Clause of the US Constitution.  In such case, jurisdiction could only exit (i) if Schmückle “purposefully availed” himself of the duties and protections of Michigan law, (ii) his conduct within Michigan led to the claims alleged, and (iii) those connections were significant enough that the exercise of jurisdiction would be reasonable.  The Court found that Schmückle’s significant control and activities directly related to MAG in the US, as well as his “close working relationship with MAG entities and Employees in Michigan” were sufficient to constitute the “purposeful availment” of the protections of Michigan law.  As relevant here, moreover, MAG alleged that Schmückle’s Michigan activities violated his fiduciary duty, giving rise to its claims.  And the exercise of jurisdiction was reasonable, in the Court’s view, because of Schmückle’s frequent travel to the United States, his ownership of a US vacation home, and the nature and extent of his contacts.

The Court acknowledged that the provision in Schmückle’s employment contract calling for disputes to be resolved in Germany might ultimately preclude the litigation of contract-related claims.  But it said its inquiry at this early stage of the case was merely whether jurisdiction could be asserted, and the provision was not yet relevant to that inquiry.

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