Victory: March 2016: Groundbreaking Constitutional Due Process Victory

The firm recently won a groundbreaking motion to dismiss decision in the Southern District of New York, holding that exercising personal jurisdiction over a foreign defendant, on the basis of leave-and-mail  service of process on the doorman of a building where the defendant is staying, does not comport with the Due Process Clause.

Earlier this year, Quinn Emanuel was retained by Indian businessman, Kabul Chawla, to oppose confirmation of a $90 million foreign arbitral award against him. The action, brought by JPMorgan subsidiary Harbour Victoria Investment Holdings Limited, also involved motions for a temporary restraining order, attachment and discovery related to a New York apartment rented by Mr. Chawla and his family. After Harbour Victoria obtained a TRO in state court, the firm removed the action to the Southern District of New York, where Judge Laura T. Swain ultimately vacated the TRO and denied the attachment and discovery motions. Harbour Victoria again sought discovery, through a Section 1782 petition, but again was denied, this time by Judge Alison J. Nathan. Judge Nathan’s decision held, for the first time, that a Section 1782 petition may be denied where it is an attempt to evade a U.S. discovery ruling. Here, Judge Nathan determined Harbour Victoria’s Section 1782 petition was really an attempt to circumvent Judge Swain’s denial of discovery.

Following these victories, Quinn Emanuel moved to dismiss the confirmation action for lack of personal jurisdiction. The firm made several arguments under both state and federal law, including that exercising personal jurisdiction over Mr. Chawla violated the Due Process Clause because (1) Mr. Chawla is domiciled in India; (2) the dispute arose between foreign parties over conduct in India and was heard by a foreign arbitral tribunal; and (3) Harbour Victoria did not adequately plead that Mr. Chawla had minimum contacts with New York sufficient to meet the Supreme Court’s standard in Int’l Shoe Co. v. State of Wash., 326 U.S. 310 (1945).

Harbour Victoria’s only real argument for jurisdiction was that its process server served the doorman of Mr. Chawla’s New York apartment building while Mr. Chawla was staying in New York. Harbour Victoria argued that such service established  “transient” jurisdiction over Mr. Chawla based on the Supreme Court’s decision in Burnham v. Superior  Court of California, 495 U.S. 604 (1990), which held that service of process on a person while in the jurisdiction, even absent any other contacts with the state, satisfied federal due process requirements.

Quinn Emanuel argued that Burnham was irrelevant because it  involved personal service directly on the defendant, rather than service on a doorman. This distinction was crucial, the firm argued, because (1) personal  service is a longstanding part of American legal tradition,  whereas leave-and-mail service was a more recent alternative to personal service; and (2) personal service was far more likely to apprise the defendant of the lawsuit, in contrast to serving a doorman of a building where a foreign defendant may only reside a few days out of the year.

Judge Swain agreed, incorporating both arguments in her decision. Specifically, Judge Swain wrote that, “the use of a method of service that both has an historic pedigree and leaves  no doubt that the person is in fact properly notified of the lawsuit while present in the forum is likewise a requisite of constitutionally valid transient jurisdiction.” Harbour Victoria Inv. Holdings Ltd. v. Chawla, 2015 WL 7871042, at *3 (S.D.N.Y. Dec. 3, 2015).  Judge Swain found that leave-and-mail  service did not have a historical tradition of use, nor did it provide any assurance of actual, effective notice. Thus, Judge Swain found that exercising personal jurisdiction over Mr. Chawla would violate the Due Process Clause and, as such, granted Mr. Chawla’s motion to dismiss for lack of personal jurisdiction.

The decision has broad constitutional and practical implications.  The decision is the first to  address  the constitutionality of using leave-and-mail service as a basis for personal jurisdiction absent additional contacts with the jurisdiction. In holding that such service does not establish personal jurisdiction, the decision limits plaintiffs’ ability to sue foreign nationals that maintain part-time residences in the United States or stay in hotels while in the country by serving a doorman or hotel employee, provided the dispute did not arise in the jurisdiction and the foreign national lacks other contacts with the jurisdiction sufficient to meet due process requirements.

The decision provides important new protections for our non-U.S. clients seeking to protect their assets in the United States against enforcement of arbitration awards rendered outside the United States