Anaya v. Machines de Triage et Broyage, US District Court for the Northern District of California, March 7, 2019
This jurisdictional dispute involves a personal injury action in California. During the installation of a recycling system, an allegedly defective screw conveyor malfunctioned causing equipment to fall on and kill the plaintiff. Defendant Machines de Triage et Broyage (“MTB”) sold the recycling system, which included a screw conveyor manufactured by Auger SAS (“Auger”), a French manufacturer. Auger designs, manufactures, and sells all of its products in France. It does not sell or market any of its products in the United States. As relevant here, its only connection with the forum was that it sold a screw conveyor to MTB, and knew MTB sells products to purchasers in the United States, Europe, and Asia that incorporate the screw conveyor. The issue arose in connection with a cross-claim filed by MTB against Auger, which the Court dismissed due to a lack of personal jurisdiction.
In evaluating whether personal jurisdiction over Auger existed, the Court considered the first two prongs of the three-part “effects” test of Calder v. Jones: whether the defendant allegedly committed an intentional act and whether that act was expressly aimed at the forum state. MTB alleged Auger committed an intentional act by selling the screw conveyor at issue to MTB; Auger did not dispute that prong was satisfied. The Court instead focused on whether the act was expressly aimed at California. MTB contended that Auger’s product was known to be destined for California and was specifically configured for use in the US. However, the record did not clearly show that Auger knew the product at issue was destined for California, let alone that Auger expressly aimed its conduct at California. Although Auger configured the product for use in the US, it did not have offices, advertise, or send its employees to California (or indeed anywhere in the US) to support the sale of its products. MTB also cited the fact that Auger sent a technician to California to assist in the investigation of the incident underlying this case, but the Court found that irrelevant because it occurred after the incident itself.
Aviles v. S&P Global, Inc., US District Court for the Southern District of New York, March 28, 2019
More than 500 non-US investors claim to have lost their investments in a Netherlands Antilles fund due to fraud by the fund's organizers and their accomplises. The funds invested in “life settlements” in which US residents were paid to assign to the fund their rights to collect on life insurance policies that the fund kept current. Among other claims, the plaintiffs alleged that the defendants violated the RICO statute.
The Court observed that a private RICO action required a “US domestic injury,” and observed that the US Supreme Court had not yet provided guidance as to how to determine where an injury occurred for purposes of RICO. It noted, however, that precedent from the Second Circuit Court of Appeals suggested that physical injuries to “tangible property” occur where the property is located and that injuries to “intangible property” generally occur where the effects are felt by the plaintiff. In the case at bar, non-US plaintiffs alleged a decrease in the value of their investments in non-US funds. No “misappropriation” of a physical asset was alleged, and so injury would be deemed to have occurred outside the US, where the injury was allegedly suffered. The Court rejected the plaintiffs’ assertion that a US domestic injury had been suffered because the underlying life insurance policies had been “located” in Minnesota at the time certain injuries acts were performed, as RICO allows recovery to a plaintiff’s “business or property” and the policies were neither—they belonged to the funds.
[Editor’s note: The Aviles case is also addressed in the RICO section of this report.]
Electro Scan, Inc. v. Henrich, US District Court for the Eastern District of California, March 21, 2019
Electro Scan sued Henrich, a Canadian citizen, a Canadian entity for which he worked, and an Austrian entity with whom he allegedly had a relationship for trademark infringement and trade libel in connection with allegedly disparaging statements made against Electro Scan products by Henrich while in Canada to deliver a webinar.
The Court first concluded easily that the availability in California of the Austrian entity’s website and Henrich’s alleged connection with the entity did not establish the “approximat[ion] of physical presence” necessary for the assertion of “general” personal jurisdiction.
To establish “specific” personal jurisdiction, the Court observed that Elecro Scan was first required to show that the defendants “purposefully directed” their conduct towards California, meaning that the conduct satisfied the requirements of the “effects test”: “whether the defendant (1) committed an intentional act, (2) expressly aimed at the forum state, (3) causing harm that the defendant knows is likely to be suffered in the forum state.” The plaintiffs focused on four allegations of conduct to satisfy that test and the Court found none adequate: The attendance of California companies at a national conference in Nevada (. . . an inadequate link to the forum and no link between the alleged contact and the claim), Email between defendants concerning Electro Scan’s technology received by an employee who attended the Nevada conference (. . . the recipient of the Email had no connection with California), the availability of the allegedly injurious webinar in California (. . . targeting of a State, not merely availability in the State, must be shown), and the availability of the Austrian defendant’s website in California (. . . the website is passive and no evidence of interactions with California residents was provided). With the first prong of the test unsatisfied, there was no need to proceed further.
Fischer v. BMW of North America, LLC, et al., U.S. District Court for the District of Colorado, March 25, 2019
Plaintiff Ronnie Fischer was injured when, while trying to change his car’s tire, the tire jack broke and the car crushed his finger. He sued the US-based car distributor BMW North America (“BMW NA”) as well as BMW NA’s ultimate parent, the German car manufacturer BMW Aktiengesellschaft (“BMW AG”), for strict product liability, negligence, and breach of warranty. BMW AG moved to dismiss Fischer’s claims against it for lack of personal jurisdiction.
The District Court in Colorado held that it lacked jurisdiction over BMW AG. The Court noted that personal jurisdiction under Colorado’s long-arm statute is as broad as allowed by the Due Process Clause. Thus, the question was whether BMW AG had minimum contacts with Colorado such that it could expect to be sued in Colorado based on the contacts and, if so, whether exercise of personal jurisdiction would offend traditional notions of fair play and substantial justice—the standard set out in the Due Process Clause of the US Constitution.
The Court began by addressing Fischer’s argument that BMW AG had sufficient minimum contacts with Colorado under the “stream of commerce theory,” which is often applied in products liability cases. The Court noted that the test to determine whether minimum contacts exist under the theory remains unclear because of ambiguous guidance from the US Supreme Court. However, the Court noted that the Supreme Court’s opinions appear to agree that minimum contacts under the stream of commerce theory require a defendant at the very least to deliver its products into the stream of commerce of a State with the expectation consumers in that state will purchase the products, and undertake some other action showing that the defendant has “purposefully directed” its action toward the State. The Court therefore examined whether Fischer had alleged and provided evidence sufficient to meet these threshold requirements.
Fischer first argued that personal jurisdiction over BMW AG was appropriate because BMW AG created a global distribution network and marketed its cars through BMW NA, which Fischer alleged was BMW AG’s sales agent in Colorado. In response, the Court noted that, without targeting a specific state, a global distribution network alone does not satisfy the stream of commerce test. Here, Fischer failed to allege or offer any evidence that BMW AG had targeted Colorado with its distribution efforts. Additionally, while BMW NA did sell cars in Colorado it was only an indirect subsidiary of BMW AG and there was no evidence that BMW AG exercised any control over BMW NA. On the contrary, BMW AG’s general counsel submitted a declaration stating that BMW AG neither made direct sales of cars to Colorado nor had any control over how BMW NA sold cars in Colorado. As a result, the Court rejected Fischer’s argument that BMW NA was BMW AG’s sales agent and that the US company’s actions could be imputed to its indirect parent.
Fischer next argued that the stream of commerce test was satisfied because many of the cars BMW AG manufactured were sold in the United States. The Court rejected this argument, again noting that BMW AG did not sell directly to the United States and had no control over any entity selling cars in the United States. Reiterating that the mere presence of a global distribution system is not enough to justify personal jurisdiction under the stream of commerce test, the Court rejected Fischer’s second argument.
Finally, Fischer argued that BMW NA’s contacts with Colorado could be imputed to BMW AG on the theory that BMW NA was the general agent or the “alter ego” of BMW AG and that the two companies should be treated as the same entity. The Court noted that a parent-subsidiary relationship, without more, does not make the parent the agent or alter ego of the subsidiary. Here, while BMW NA was an indirect subsidiary of BMW AG, Fischer failed to provide any evidence that the BMW NA was doing business in Colorado on behalf or at the direction of BMW AG. Therefore, the Court held that Fischer had not shown BMW NA was the alter ego or agent of BMW AG.
Having rejected all three of Fischer’s arguments, the Court held that Fischer had failed to establish that BMW AG had the requisite minimum contacts with Colorado under a stream of commerce theory. Because BMW AG did not have the necessary minimum contacts with Colorado to support specific personal jurisdiction, the Court granted BMW AG’s motion to dismiss.
Ford v. Hotelera Playa Paraiso, S.S. De C.V., US District Court for the Eastern District of New York, February 28, 2019
We include this case as an example of the risks of waiving potentially meritorious personal jurisdiction defenses through delay in asserting them.
This was a personal injury suit filed in State court arising out of injuries allegedly suffered in Mexico. As the Court noted, “[o]ver the course of about a year, the defendants removed the case to this court, answered the complaint, and engaged in discovery with Fischer, before seeking to move to dismiss the complaint for lack of personal jurisdiction.” Although the defendants raised the absence of personal jurisdiction in their Answer to the Complaint, they said nothing about it thereafter, including in two conferences before the trial judge. By the time they filed their motion, the statute of limitations had expired in Mexico and Fischer could not refile her case there.
The Court noted that waivers of personal jurisdiction defenses were to be evaluated under all the circumstances, and noted specifically that the defendants had never once expressed an intention to move to dismiss on jurisdictional grounds, that no other grounds reasonably justified the failure or delay, and that Fischer would be prejudiced if the defense were allowed to proceed.
Greene v. Karpeles, US District Court for the Northern District of Illinois, March 12, 2019
Mt. Gox was a bitcoin exchange based in Tokyo, Japan that declared bankruptcy and ceased its operations in February 2014. Prior to its collapse, Mark Karpeles, the defendant, was its president and CEO. Plaintiffs are Illinois residents who sought on behalf of a putative class to hold Mr. Karpeles responsible for financial losses allegedly arising from the exchange’s collapse. Plaintiffs allege that Mr. Karpeles, who held 88% of Mt. Gox’s shares, made and directed fraudulent mispresentations to assure the plaintiffs and public that issues with processing bitcoin transactions were due to a temporary backlog and the assets were safe, despite the growing problems with the exchange’s reliability and security that lead to its demise.
Mr. Karpeles, who is currently confined in Japan as a result of his alleged misconduct, moved to dismiss the Illinois suit for lack of personal jurisdiction. Plaintiffs contended, as a threshold matter, that Mr. Karpeles waived his personal jurisdiction defense by engaging in informal discovery and settlement discussions early in the case. The court disagreed, noting that the defendant had consistently argued that the court lacked personal jurisdiction throughout the brief period when discussions were underway and that his effort to settle the case prior to seeking dismissal should not require that the defense be waived.
The Court observed that the Due process Clause of the US Constitution requires a defendant have “minimum contacts” with a forum before he may be subject to a court’s jurisdiction, and that a claim arise or be related to those contacts. Here, Mr. Karpeles suit-related contact with Illinois arose solely from “virtual” contacts, and the Court asked whether these contacts amounted to the purposeful exploitation of the Illinois marketplace or, rather, (i) the mere operation of an interactive website accessible in Illinois and (ii) sending emails to people who happen to live in the State. The Court observed that it is not necessary for the defendant to have singled out Illinois for his business activities; rather, he could target Illinois by purposefully directing his business activities toward the State just as he had toward all other States.
The Court found sufficient contacts based on the following facts: First, Mr. Karpeles encouraged users to create and maintain accounts on Mt. Gox’s online platform, creating a position of trust giving rise to an ongoing obligation toward and interactions with users, like the plaintiffs, and their property. Second, the plaintiffs relied on Mr. Karpeles’s promises about Mt. Gox’s security and in turn deposited money into their accounts from which Mt. Gox earned fees. Third, the plaintiffs' contacts were not random, isolated, or fortuitous: some 7,056 addresses associated with Mt. Gox came from Illinois, which the court characterized as a virtual presence in the forum state. In sum, even if the Illinois market was not a particular focus of the defendant, he nevertheless availed himself of that market by operating the exchange, which generated thousands of Illinois accounts (including the plaintiffs’) by purporting to safeguard the users’ assets. The Court also emphasized that the plaintiffs had interacted with Mt. Gox regarding issues with their accounts, and Mr. Karpeles authorized through his agents repeated communications to conceal the alleged fraud by reassuring the users there was no reason to cancel deposits and to withdraw funds.
Mr. Karpeles further argued that jurisdiction would offend “traditional notions of fair play and substantial justice,” and thus be inconsistent with Due Process protections, because he faced a burden litigating in Illinois while confined in Japan. He also alleged the Illinois plaintiffs could participate in on-going Japanese civil proceedings. The Court discounted this argument because Mr. Karpeles’s burden (his confinement in Japan) arose from his own alleged misconduct. The Court also concluded that litigating in Japan would be a significant burden for the Illinois plaintiffs, and Japanese relief would not vindicate the same interests due to the lack of punitive damages, which plaintiffs sought.
Finally, Mr. Karpeles argued that even if personal jurisdiction existed, that the “fiduciary shield” doctrine protected him personally because his presence and activity in the State was solely on behalf of his employer, Mt. Gox. In addition to waiving the argument by failing to raise it until his reply brief, the Court observed that the fiduciary shield doctrine would not apply because Mr. Karpeles owned substantial equity in Mt. Gox and therefore had a personal interest in Mt. Gox beyond a mere employment relationship.
Nuevos Destinos, LLC v. Peck, US District Court for the District of Columbia, January 2, 2019
The plaintiffs brought RICO claims, among others, against twenty-two companies and individuals who purportedly used otherwise legitimate business entities to defraud them by making false promises to sell agricultural goods. One issue addressed by the District Court in the District of Columbia was whether the Court could assert personal jurisdiction over a number of Peruvian defendants based on 21 U.S.C. Section 1965(a) and (b)—the provisions that allow for nationwide service of process in RICO cases and for the assertion of jurisdiction over all defendants where jurisdiction existed as to one and “the ends of justice” so require.
In this case, the Court determined that it could not directly assert personal jurisdiction over the Peruvian defendants because they had insufficient contacts with the US. It then concluded that Section 1965(a) was not relevant because it only authorized the service of process in the US, not in Peru. Section 1965(b) was unavailing because it had no jurisdiction over any members of the RICO conspiracy.
[Editor’s note: The Nuevos Destinos case is also discussed in the RICO section of this report.]
Performance Industries Manufacturing, Inc. v. Vortex Performance Pty Ltd., US District Court for the Middle District of Florida, January 2, 2019
This is a trademark dispute between an American and an Australian seller of motorcycle parts. The Court observed that it could assert personal jurisdiction over the non-US defendant only if permitted under the laws of both the State of Florida and the US. As to the former, the Court rejected the argument that the defendant’s website constituted the carrying on of business in Florida or was an act that caused injury in Florida: Although the website permitted Florida residents to make purchases and secure deliveries in the State, evidence of “substantial” Florida sales did not exist.
As to US law, the Court stated that the Due Process Clause of the US Constitution required that the claim “arises out of or relate to” at least one of the defendant’s contacts with Florida, that defendant have been shown to have “purposely availed itself” of the “privilege of conducting activities” in the State, and that requiring the defendant to participate in the case otherwise would “comport with traditional notions of fair play and substantial justice.” The Court found the first requirement satisfied “in only the most attenuated manner” because “any website selling goods worldwide may be accessed in Florida.” In trademark cases, the Court stated that the second requirement should be judged under the “effects test,” in which the Court determines whether a tort “(1) was intentional; (2) was aimed at the forum state; and (3) caused harm that the defendant should have anticipated would be suffered in the forum state.” Assuming trademark infringement is an “intentional” tort, it was not “aimed at Florida” because the defendant had no contacts with Florida other than through the website it operates worldwide. The Court observed that the fact that the defendant’s products “might have found their way to Florida” through distributors (three motorcycle shops based in California) was not relevant because the distribution agreement did not target Florida specifically and the defendant did not otherwise control distribution so closely that it would be responsible for the distributor’s decision to sell products in Florida imputed to it.
[Editor’s Note: The Performance Industries Manufacturing case also appears in the Intellectual Property-Trademark section of this Report.]