Article: October 2015: Securities & Structured Finance Litigation Update

Renewed Potency for Personal Jurisdiction Defenses in the United States. Personal jurisdiction may be an afterthought for many lawyers. But recent developments—including an August 4, 2015 decision in the ongoing LIBOR multidistrict litigation—mean that personal jurisdiction defenses have become a potent weapon for corporate defendants in U.S. litigation.

The Supreme Court Changes the Landscape. For years, companies generally conceded personal jurisdiction in every state where they were doing business because “minimum contacts” meant that plaintiffs were able to show personal jurisdiction based on a defendant’s business in that state.

That started to change in 2011, when the Supreme Court issued its opinion in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011). In that case, the Supreme Court rejected the exercise of general jurisdiction in North Carolina over various subsidiaries of a United States tire manufacturer in a suit arising out of a French bus accident. Goodyear, 131 S. Ct. at 2858. The Court held that general jurisdiction required a forum like the corporation’s domicile, place of incorporation, or principal place of business, “in which the corporation is fairly regarded as at home.” Id. at 2853-54.

Three years later, in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Supreme Court rejected the exercise of personal jurisdiction over a German company in California. Id. at 762. The Court held that—despite the extensive contacts between the German company’s U.S. subsidiary and California— the German company was not subject to general jurisdiction in California for injuries allegedly caused by the conduct of its Argentinian subsidiary in Argentina, because California was not defendants’ principal place of business or state of incorporation. Daimler, 134 S. Ct. at 761. General jurisdiction was no longer available in every jurisdiction in which a corporation “engages in a substantial, continuous, and systematic course of business” (id.), but, absent “exceptional circumstances,” was to be available only in “the place of incorporation and principal place of business” of the corporation. Id. at 760.

Then, in Walden v. Fiore, 134 S. Ct. 1115 (2014), the Court rejected the exercise of specific personal jurisdiction in Nevada against a Georgia DEA officer who filed an allegedly false affidavit against plaintiff, a Nevada citizen, about an incident at the Atlanta airport. Walden, 134 S. Ct. at 1118. The Supreme Court held that “random, fortuitous, or attenuated contacts” are insufficient; that a defendant’s suit-related conduct must create a substantial connection with the forum state; and that “the mere fact that [defendant]’s conduct affected plaintiffs with connections to the forum state does not suffice to authorize jurisdiction.” Walden, 134 S. Ct. at 1126.

The Fallout: LIBOR IV. On August 4, the effect of the recent turn in personal jurisdiction case-law was brought home by a decision in the Southern District of New York in the ongoing LIBOR litigation on motions to dismiss brought by multiple defendants on personal jurisdiction grounds.

The Court’s August 4, 2015 opinion followed the recent trend in Supreme Court cases. First, the Court rejected the exercise of general jurisdiction outside a defendant’s place of incorporation or principal place of business. In re LIBOR-Based Financial Instruments Antitrust Litigation, 2015 WL 4634541, at *21 (S.D.N.Y. Aug. 4, 2015). Even representations to the Federal Reserve and the FDIC that the New York branches of certain moving defendants were “significant to the activities of a critical operation or core business line” were insufficient to create general jurisdiction and did not present an “exceptional case.” Id. at *21.

Second, the Court upheld specific jurisdiction only as to claims that “ar[ose] out of or [are] relate[d] to the defendants’ forum-related conduct.” Id. at *15. The Court rejected specific jurisdiction over co-conspirators, holding that “a bare allegation of a conspiracy…is not enough” to establish specific jurisdiction. Id. at *24. The Court also rejected specific jurisdiction based on the marketing of LIBOR into particular forums, on the ground that “the importance of LIBOR was its universal significance, not its projection into any particular state,” and that this theory of specific jurisdiction “would improperly create ‘de facto universal jurisdiction.’” Id. at *25. The Court further rejected specific jurisdiction over bond and MBS issuers, holding that securities may arrive in the hands of plaintiffs anywhere in the world by plaintiffs’ own trades—not at the direction of the issuers—and that such a “fortuitous, plaintiff-driven contact cannot support personal jurisdiction.” Id. at *26. And the Court rejected specific jurisdiction based on a LIBOR-related government investigations or settlements in the United States or a particular state, because those activities were not the “basis of plaintiffs’ claims.” Id., at *28.

The thrust of the Court’s ruling was that even banking defendants in New York, for example, with permanent offices and thousands of employees in New York, who hold themselves out to the Federal Reserve as central to the U.S. banking system, are not subject to suit in New York if New York is not their place of incorporation or principal place of business, or if the suit does not otherwise directly arise out of their activities in New York.

The consequences of this position are far-reaching. Plaintiffs in complex lawsuits must now consider bringing claims in different jurisdictions against different defendants to establish personal jurisdiction. Corporate defendants now routinely bring motions to dismiss on personal jurisdiction grounds for suits not in their principal places of business or state of incorporation. And, as demonstrated by the LIBOR decision (consistent with dozens of other decisions applying Daimler), these motions are now far more likely to be granted.