“Tag” Jurisdiction Defined
Since 1945, the Supreme Court has held that the Constitution requires courts to have either specific or general personal jurisdiction over a defendant. Specific jurisdiction exists only where the events underlying a lawsuit arise out of or relate to the defendant’s contact with the forum state. General jurisdiction, which extends personal jurisdiction to “any and all claims” brought against a defendant, exists in two circumstances: (1) when the defendant is “essentially at home” in the forum, or (2) when the defendant is physically present within the relevant court’s territory, “no matter how fleeting his visit.”
Lower courts allowing corporate “tag” jurisdiction anchor their decisions on this second circumstance, holding that the physical presence of a corporate executive within a jurisdiction suffices to bring the corporate entity within the personal jurisdiction of a U.S. court. Although the Supreme Court affirmed tag jurisdiction for individual defendants in Burnham v. Superior Court, it has not done so in the corporate context.
The Circuit Split
The federal circuit courts that have weighed in on the permissibility of corporate “tag” jurisdiction are evenly split, with the First and Second Circuits allowing the practice while the Fifth and Ninth Circuits disallowing it. The Supreme Court has acknowledged the split, noting that “some courts have sought to revive the tag rule for artificial entities while others argue that doing so would be inconsistent with International Shoe.”
Second and First Circuits: “Tag, You’re It”
The Second Circuit explicitly affirmed the usage of tag jurisdiction for artificial entities in 1998. In First American Corp. v. Price Waterhouse LLP, that court enforced a subpoena against the British arm of an international accounting firm after a domestic corporation served a partner at the accounting firm during a temporary visit to New York. The court premised its decision on the Supreme Court’s decision in Burnham and the partner’s physical presence in New York, reasoning that the British entity knew, or should have known, that it was risking exposure to personal jurisdiction in New York when it chose to send one of its partners there. The First Circuit made a statement to similar effect in Northern Light Technology, Inc. v. Northern Lights Club in 2001, writing in a footnote that service on a foreign corporation’s president would suffice to confer general jurisdiction over the corporate entity.
Fifth and Ninth Circuits: “Tag, Not It”
In contrast, in its 1992 Wenche Siemer v. Learjet Acquisition Corp. decision, the Fifth Circuit rejected corporate “tag” jurisdiction and refused to exercise personal jurisdiction over an out-of-state aviation company based solely on “in state service on a designated corporate agent.” The court found Burnham did not support corporate “tag” jurisdiction, as Burnham “did not involve a corporation and it did not decide any jurisdictional issue pertaining to corporations.” The Ninth Circuit similarly rejected of corporate “tag” jurisdiction in Martinez v. Aero Caribbean, another suit arising out of an aircraft accident. Although the defendant company had few contacts in the United States, plaintiffs sought personal jurisdiction by serving the company’s vice president of marketing when he attended a short conference in the forum state. The court declined to find personal jurisdiction over the defendant and rejected plaintiffs’ argument that Burnham provided an endorsement for corporate tag jurisdiction, stating that “[a]n officer of a corporation is not the corporation, even when the officer acts on the corporation’s behalf.”
The Terraform Labs Matter
The Terraform Labs controversy afforded the Supreme Court an opportunity to weigh in on this circuit split, but the Court declined to do so. Specifically, Terraform Labs arose when the SEC sought to subpoena both Terraform Labs, a Singapore-based company, and its chief executive officer Do Kwon, a resident of South Korea, by serving Kwon during a visit to New York for a blockchain conference. After Terraform and Kwon failed to comply, the SEC sought, and the Southern District of New York granted, judicial enforcement of the subpoenas. Thereafter, Terraform and Kwon appealed to the Second Circuit, which affirmed the subpoenas’ validity, and then petitioned the Supreme Court for a writ of certiorari. In their petition to the Court, defendants raised the argument that the Second Circuit unconstitutionally found general personal jurisdiction via corporate “tag” jurisdiction. In response, the SEC argued that the Second Circuit’s decision was not predicated on corporate “tag” jurisdiction, which is a form of general jurisdiction, but rather on specific jurisdiction.
The Existing Circuit Split Creates Continuing Uncertainty for Corporations and Their Executives Working Across Jurisdictions
With the Supreme Court’s denial of certiorari in March 2023, the circuit split on corporate “tag” jurisdiction continues to create uncertainty, especially for international corporations and executives seeking to do business in the United States. Indeed, the current state of the law potentially allows for a corporation to unwittingly subject itself to the jurisdiction of a U.S. court, agency, or department due simply to the travel of a single executive officer to one district versus another.
Practice Pointers
Until the Supreme Court’s resolution of the issue, in-house and outside counsel can and should take precautionary measures to avoid inadvertently subjecting their clients to the jurisdiction of the United States. For example:
- Should counsel be aware of, or anticipate, an investigation or litigation in the United States, counsel should be cautious in allowing executives to travel on corporate business or travel to the United States at all.
- Counsel should recognize that differences exist with respect to how certain districts treat corporate jurisdiction; Fifth and Ninth Circuit states like Texas and California are safer for travel than Second and First Circuit localities such as New York and Boston.
- An entity’s form and the level of executive involved may also impact the risk of jurisdiction; First American (Second Circuit) involved a partner in a partnership and Northern Light (First Circuit) involved the president of a corporation.
- International companies with frequent travel to the United States should train their U.S.-bound employees of the risks of traveling to the United States as well as how to prepare for traveling to the United States, including traveling with corporate laptops and electronic devices.
- As part of that training, traveling employees should be provided with the name and phone number of a U.S. attorney (whether in-house or outside counsel) who they can contact in the event they are confronted with federal agents or other process servers.
Though these precautions can hardly assure an international corporation that it will not be summoned into an American courtroom during executive travel into the United States, they can help reduce the likelihood of corporate tag jurisdiction and also inject a bit more predictability into the risk assessment process.
