Personal Jurisdiction Over Turkish Corporation and its CEO Based on their Being “Alter Egos” of New York Company

The World in U.S. Courts: Fall 2017 - Personal Jurisdiction/Forum Non Conveniens | June.29.2017

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International Diamond Importers, Inc. d/b/a I.D.I. Design, Inc. v. Med Art, Inc., US District Court for the Southern District of New York, June 29, 2017

International Diamond Importers (IDI) is a New York-based designer, manufacturer, and seller of jewelry that enjoys US trademark and copyright protection. The defendants—a New York Corporation (Med Art), a Turkish Corporation (Turkish Zen) , and the Turkish citizen (Emil Güzeliş) who serves as CEO of both companies—were alleged to have infringed that IP in connection with similar jewelry sold in 2016 at an international jewelry fair in Hong Kong allegedly attended by New York buyers.

The Court considered whether it had personal jurisdiction over Turkish Zen, first addressing “general” personal jurisdiction, which could support claims of any kind. The Court noted that Turkish Zen is neither incorporated nor has its principal place of business in the US—the two facts on which general personal jurisdiction typically must be based. But an exception to this principle exists where a US corporation (here, Med Art) is a “mere department” of a non-US parent or other related defendant company based elsewhere. In such case, the court’s general personal jurisdiction over the US entity is deemed to attach to its non-US relative.

The Court stated that the determination whether Med Art was a “mere department” of Turkish Zen would be based on four factors, each of which it found to be satisfied:

  • Güzeliş owned 100% of Med Art and 92% of Turkish Zen’s shares, satisfying the “essential” requirement of “common ownership,” even though Turkish Zen was not the parent of Med Art.
  • Med Art is “wholly dependent” on Turkish Zen and Güzeliş’s financial support to stay in business, satisfying the requirement of “financial dependence—again, even though Med Art is not a subsidiary of Turkish Zen.
  • Güzeliş is the sole officer and director of Turkish Zen and has been listed as the CEO of Med Art (which has two employees), thus satisfying the requirement that the non-US corporation exercise a “degree of interference” over its US relative’s employment decisions and adherence to corporate formalities. The defendants’ assertion that Med Art observed corporate formalities and had responsibility for its own employees was dismissed as unsupported by any specific facts.
  • Finally, Media Art’s social media pages are maintained by Turkish Zen and the companies’ promotional materials refer to the companies interchangeably, thus satisfying the requirement that the non-US company control its US relative’s “marketing and operational policies.”

The Court found that specific personal jurisdiction—jurisdiction only for claims arising out of a defendant’s contacts with the forum—also existed as to Turkish Zen and Güzeliş. The Court noted that the first requirement for jurisdiction was satisfaction of New York’s “long-arm” statute, which in pertinent part reaches a defendant that either “(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered” in New York, or “(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.” The Court found the first test to be satisfied by its prior holding that Turkish Zen supplied about 99% of Med Art’s stock and used the US company essentially as a “sales office.” The second test was satisfied by the relationship among the defendants (which included a New York corporation) and their profitability.

The Court also found the assertion of jurisdiction over Turkish Zen and Güzeliş satisfied the requirements of the Due Process Clause of the US Constitution because they “purposely availed themselves of the New York forum” by doing business through Media Art, creating a reasonable anticipation that they might be sued in New York based on their US activities. The Due Process Clause has an independent requirement that jurisdiction be “reasonable,” and the Court found it to be satisfied by the defendants’ substantial New York activities and the State’s interest in resolving intellectual property disputes between New York business owners.

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