Personal Jurisdiction Defeated Where US Contacts Were Made Principally by Defendant’s Affiliates, and Allegations Failed to Establish Jurisdiction Under “Agency” or “Conspiracy” Theories

The World in U.S. Courts: Summer 2017 - Personal Jurisdiction/Forum Non Conveniens | June.08.2017

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In re: North Sea Brent Crude Oil Futures Litigation, US District Court for the Southern District of New York, June 8, 2017

Putative classes of futures and derivatives traders and of the owners of landholding and lease-holding interests asserted claims against a number of Brent crude oil producers, traders, and their selected affiliates. Among other things, the complaint alleged that the defendants conspired to manipulate Brent crude oil prices and the prices of Brent crude oil futures and derivatives contracts traded on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE Futures Europe”), in violation of the Commodities Exchange Act and the Sherman Antitrust Act.

Two non-US defendants, described below, moved to dismiss the complaint, arguing that the Court in New York had no basis on which to assert jurisdiction over them. The Court focused on the assertion of specific personal jurisdiction, which it explained required that a defendant have “personally directed” its activities toward the forum and that the litigation must have “arisen out of or relate to those activities.” Under the alternative “effects” test, jurisdiction exists over a defendant that (i) committed intentional, tortious actions outside the forum (ii) that were expressly aimed at the forum and (iii) caused harm, the brunt of which was suffered (and which the defendant knew was likely to be suffered) in the forum, and (iv) where the plaintiffs’ claims arise from or are related to those actions. Notably, the Court observed, jurisdiction may not be based only upon an injury in a forum being “foreseeable.” In this case the relevant “forum” was the US as a whole, because the case arose under two federal statutes that authorize suit anywhere in the country.

Requiring the defendant to participate in the case must also be “reasonable,” judged against the requirements of the Due Process Clause of the US Constitution. Where, as in the case at bar, the parties had participated in limited discovery directed toward the jurisdictional issues but there had been no hearing in which evidence was taken, the Court stated that the plaintiff must come forward with facts which, if believed, would meet its burden of establishing the court’s authority over the defendant.

The first moving defendant, Shell International Trading and Shipping Co. Ltd. (“STASCO”), is a UK-based trader in crude oil. The plaintiffs alleged that a STASCO executive oversaw US trading in oil by STASCO and its affiliated companies, acting as part of a “Vice Presidential Leadership Team” with responsibility for the trading of multiple entities, including entities not named as defendants. The Court observed that the plaintiffs had not shown the STASCO executive’s work was for the benefit of STASCO itself as opposed to non-party companies that were managed by the “Vice Presidential Leadership Team,” and thus found the evidence insufficient to support jurisdiction. The Court also gave credence to disputed evidence that STASCO imported Brent crude oil into the US, but it concluded nonetheless that these allegations did not satisfy the requirement that a plaintiff’s claims be sufficiently related to a defendant’s contacts with the US for specific personal jurisdiction to apply. Especially where, as in the case at bar, the contacts are small, the Court stated that it would require the contacts to have caused the plaintiffs’ alleged injury for the test to be met. Here, by contrast, “importing oil is not related to the suit.” Finally, the Court found the plaintiffs’ trades in West Texas Intermediate Crude irrelevant because that commodity’s pricing was not dependent on the pricing of Brent crude.

The Court also rejected the plaintiffs’ claim that jurisdiction was appropriate under the “effects” test, concluding most importantly that the possibility that STASCO affiliates in the US would benefit from the alleged conspiracy did not show that the US had been targeted.

Finally, the Court rejected two additional arguments for jurisdiction. First, it rejected the plaintiffs’ argument that STASCO should be deemed to have acted in the US through its US affiliates, which were alleged to be merely “agents” of STASCO itself. The Court found no evidence that STASCO “controlled” the affiliates, which was one of a number of preconditions to the argument even to be considered. The plaintiffs also advanced a “conspiracy” theory, under which a party would be deemed to have committed acts in a jurisdiction based on the acts of a party found to be its “co-conspirator.” The Court questioned the validity of the theory in general, but concluded it would require in any event the allegation of an agency relationship of the kind it had just rejected.

A second defendant, Philbro Commodities, admitted that it directed certain of its activities toward the US but argued these contacts could not support jurisdiction because they were limited and unrelated to the subject of the case. The Court disagreed, finding that Philbro Commodities was alleged to have engaged in illegal activities in the North Sea intended in part to affect the company’s own trading activities on the NYMEX exchange in New York. Moreover, because the same traders alleged to have engaged in unlawful activities also directed US trades, the Court found the contacts “substantially connected” to the claims in the case even though specific transactions in the US allegedly affected by the scheme had not been identified. Finally, the Court found the assertion of jurisdiction over Philbro Commodities to be reasonable, noting that the defendant had not made the “compelling case” necessary to defeat jurisdiction where minimum contacts existed.

[Editor’s note: In re: North Sea Brent Crude Oil Futures Litigation is also discussed in the Securities Law/Commodities Exchange Act (“CEA”) section of this report.]

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