GPSolo Magazine - September 2006

International Law
Personal Jurisdiction and the Foreign Defendant

The law of personal jurisdiction has evolved as modern-day technology has created a variety of new contacts that may occur between a defendant and a forum state. The inquiry no longer begins and ends with the physical presence of agents or offices in the forum state. Technological change and a global economy have resulted in a departure from such straightforward rules to a broader view of the participation of a foreign defendant with a forum state. These issues are particularly important for the foreign defendant who views the issue of personal jurisdiction as an opportunity to seek a motion to dismiss and avoid the burden and expense of litigation in the United States.

In assessing a personal jurisdiction claim against a foreign defendant, U.S. courts usually apply the long-arm statute of the forum state and the federal due process requirements of the Fourteenth Amendment. In general jurisdiction cases, the defendant’s contacts with the forum must be systematic and continuous. General jurisdiction cases are the most common way foreign defendants are pulled into an unfamiliar forum. This often occurs through prior business contacts with the forum state or the activity of a foreign defendant’s domestic subsidiary. Under the federal due process analysis, “minimum contacts” must exist between the foreign defendant and the forum, and the extension of jurisdiction must not offend “traditional notions of fair play and substantial justice.” In general jurisdiction cases, the “minimum contacts” inquiry resembles the systematic and continuous contacts analysis under the forum state’s long-arm statute.

Plaintiffs often argue that the foreign defendant has minimum contacts with the forum state because of the acts of its domestic subsidiary located in the forum state. Alternatively, the court may determine that the domestic subsidiary’s existence was simply a formality, such that the subsidiary and the foreign defendant are actually one company. In such a case, the court may find that the defendant does business in the forum state through its subsidiary and will “pierce the corporate veil.” In examining an agency or alter ego argument, a court generally will examine several factors, including the foreign defendant’s involvement in the day-to-day operation of the subsidiary, whether the subsidiary’s presence in the forum is primarily for the purpose of carrying on the business of the foreign defendant, whether the entities maintain separate books and accounts, and whether the offices and senior managers of the entities overlap. Once an agency or alter ego relationship is found, the personal jurisdiction examination will shift from the activities of the foreign defendant to that of its subsidiary, and the subsidiary’s contacts in the forum state will be imputed to the foreign defendant.

A recent example of this phenomenon was a case in which a French manufacturer became subject to the jurisdiction of an Arkansas court. In Anderson v. Dassault Aviation, 361 F.3d 449 (8th Cir. 2004), cert. denied, 2004 U.S. Lexis 7903, the plaintiff was a flight attendant on a business jet who sustained injuries while on descent into a Michigan airport. The plaintiff originally brought an action in Michigan against the manufacturer of the jet, Dassault Aviation, a French corporation, and its wholly owned subsidiary, Dassault Falcon Jet (Falcon Jet), which was headquartered in New Jersey, but which had a production site in Arkansas. Dassault Aviation’s motion to dismiss for lack of personal jurisdiction was granted, and the plaintiff refiled the case against Dassault in the Eastern District of Arkansas.

In the Arkansas action, the plaintiff argued that Falcon Jet’s contacts in Arkansas could be imputed to Dassault for the purposes of establishing personal jurisdiction. For example, it was Falcon Jet that purchased the jet, took title and possession in France, flew it to Arkansas, and then sold it to the plaintiff’s employers. Plaintiff also pointed out that Dassault and Falcon Jet also shared two corporate officers. The Arkansas District Court construed these as alter ego arguments and refused to regard the joint marketing and operational efforts that both entities initiated as an indication that Dassault controlled and manipulated its subsidiary such that Falcon Jet was a mere instrumentality. The court noted that Dassault was neither qualified nor licensed to do business in Arkansas and maintained no offices, agents for service of process, personal property, or bank accounts in Arkansas. The court granted Dassault’s motion to dismiss for lack of personal jurisdiction, holding that the record was devoid of any evidence suggesting that Dassault disregarded its subsidiary’s corporate existence.

The Eighth Circuit reversed this ruling on appeal and held that Dassault had sufficient contacts with Arkansas to support the assertion of personal jurisdiction. It found that Dassault’s distribution system and its marketing activities in Arkansas were proper matters to consider. The court found it significant that the majority of the Dassault jets, which were sold worldwide, flew in and out of Arkansas to be completed. Furthermore, Falcon Jets, which accounted for the majority of Dassault’s revenue, were exclusively sold and leased in the Western Hemisphere by its Arkansas subsidiary. The court also discussed Dassault France’s marketing efforts, including its use of a website.

The growing popularity of the Internet has resulted in a focus on whether personal jurisdiction can be exercised based on a foreign defendant’s website activity. Internet use is characterized as falling within three categories on a sliding scale for the purposes of establishing personal jurisdiction. Websites clearly used for transacting business over the Internet, such as entering into contracts and the knowing and repeated transmitting of files of information, suffice to establish minimum contacts. Jurisdiction in cases involving interactive websites, which allow exchange of information between a potential customer and the host computer, must be determined by the degree of interactivity. Finally, passive websites used only for advertising or posting information are not sufficient to establish minimum contacts unless their use is coupled with additional business activity in the forum.

Although its use alone will rarely subject a foreign defendant to liability, accomplishments and developments posted on a company’s passive website can be used against it when assessing personal jurisdiction. In Dassault Aviation the Eighth Circuit discussed the fact that Dassault jointly operated a website with its subsidiary that discussed their consolidated efforts and discussed expansion plans for the Arkansas site. The plaintiff even used a timeline published on the site to demonstrate that the subsidiary’s contacts with Arkansas dated back several decades. The timeline represented the Arkansas facility as the “main completion center for all Falcon Jets worldwide.”

These marketing efforts can serve as a further basis to establish contacts between a foreign company and the forum state. Although the Internet has been a vital and growing part of establishing a global network, a foreign defendant may employ other business initiatives. The Eighth Circuit found that Dassault endeavored to create synergy between itself and its subsidiary by highlighting the activities of the Arkansas completion center and marketing various services to Arkansas customers. For example, Dassault created a publication that listed entities that own or operate its jets in Arkansas and gave contact information for a field service representative, a service center, and salespersons in Arkansas. Unfortunately for foreign defendants, such efforts to market to the American consumer may open them up to liability should a claim be filed in the United States.

 

Lisa Savitt is a partner and Melissa Pierre is an associate at Blank Rome, LLP, in Washington D.C. They can be reached at savitt@blankrome.com and pierrem@blankrome.com.

For More Information about the Section of International Law

- This article is an abridged and edited version of one that originally appeared on page 17 of International Law News, Fall 2005 (34:4).

- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221.

- Website: www.abanet.org/intlaw.

- Periodicals: The International Lawyer, quarterly journal; International Law News, quarterly newsletter.

- Books and other recent publications: China Law Deskbook, 2d ed.; The Foreign Corrupt Practices Act and the New International Norms; Careers in International Law, 2d ed.; Negotiating and Structuring International Commercial Transactions, 2d ed.; ABA Guide to International Business Negotiations, 2d ed.; Joint Ventures in the International Arena; ABA Guide to Foreign Law Firms, 4th ed.; International Lawyer’s Deskbook, 2d ed.; International Trademarks and Copyrights: Enforcement and Management, International Practitioner’s Deskbook Series.

 

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