1   Introduction

U.S. litigation can be a long and expensive process involving multiple appeals and extensive discovery. Under the “American rule” on costs, each party typically bears its own costs. Therefore, any defenses that can result in dismissal of an action as early as possible are valuable to defendants, particularly to non-U.S. defendants who face increased costs due to their distance from the forum.

This article discusses two affirmative defenses that non-U.S. defendants can raise when faced with a U.S. civil action or default judgment: lack of personal jurisdiction and failure to serve process.

2   Personal Jurisdiction in U.S. Civil Litigation

Personal jurisdiction is a “court’s power to bring a person into its adjudicative process” and refers to a court’s jurisdiction over a party’s personal rights rather than over property interests.[1] Before a court can order a party to comply, it must have jurisdiction over that party.

Modern personal jurisdiction jurisprudence asks whether a party has a sufficient connection to a particular forum to make it fair and just to require that party to face an action against it in that forum. Where a party believes it would not be fair or just, it can seek dismissal of the action for lack of personal jurisdiction under Federal Rule of Civil Procedure (FRCP) 12(b)(2) or a state law equivalent.

2.1   Consent and Waiver

Parties can consent to jurisdiction via a forum-selection clause in a contract. Such clauses provide that the parties agree to submit to the jurisdiction of a particular court if a dispute arises out of the contract containing the forum-selection clause.

Parties can also consent to jurisdiction by appearing and defending a claim without raising the defense in its first responsive pleading.[2]

Apart from consent/waiver, U.S. courts can exercise jurisdiction over a party when three requirements have been satisfied: (1) the party has been properly served process, (2) the court has a statutory basis for exercising jurisdiction, and (3) the exercise of jurisdiction comports with due process under the U.S. Constitution.[3]

2.2   Service of Process in Federal Civil Actions

Parties must serve process by providing copies of case-initiating documents to provide the defendant with notice that a proceeding against it has been initiated.

a)   FRCP 4

FRCP 4 requires proper service of process on all defendants in a federal civil action. Under FRCP 12(b)(5), a court may dismiss an action for “insufficient service of process.” Plaintiffs must prove service was sufficient, and defective service cannot be ignored just because a defendant had “actual notice.”[4]

To effect service, a copy of the complaint asserting the claims and a summons commanding the defendant to appear and answer the claims must be served on each defendant. The requirements of proper service vary depending on whether the defendant is an individual or an entity, such as a corporation, and on whether the defendant is in the U.S. or abroad. Service on non-U.S. corporations presents issues of U.S. and international law and is examined below.

b)   Service on a Non-U.S. Corporation

FRCP 4(h) sets forth the acceptable methods of service on a non-U.S. corporation. It permits service in the U.S. on non-U.S. corporations by the same means prescribed for service on U.S. individuals (except for personal delivery) and allows service in the U.S. on an appropriate representative or agent of the defendant. Where service within the U.S. is not possible, FRCP 4(f)(1) permits service outside the U.S. “by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention.”

The Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters has 76 Contracting Parties, including the U.S. and China.[5] Each Contracting Party designates a “Central Authority” that facilitates service on parties located in the Contracting Party’s territory. A plaintiff in a U.S. litigation may submit a request for service to a non-U.S. party’s Central Authority. That Central Authority then facilitates service in a manner allowed under applicable local law. The complaint and summons must sometimes be translated into the official language of the place of service. If a request for service submitted contains a defect, the Central Authority must promptly notify the plaintiff of the defect. Upon effecting service, the Central Authority returns a certificate of service to the plaintiff. The plaintiff can then file this certificate of service with the U.S. court to prove that service has been effected. If a Central Authority cannot effect service, it provides the plaintiff with a certificate stating why not. In such cases, the plaintiff may then seek a court order approving other means of service under FRCP 4(f)(3).

Where the non-U.S. corporation is not within a Contracting Party’s territory, FRCP 4(h) specifies that service can be accomplished in the same manner as it is on a non-U.S. individual under Rule 4(f)(2) (except for personal delivery). Under these Rules, service may be effected consistent with the laws of the nation where the non-U.S. corporation is located. Service may also be effected as the appropriate foreign authority directs in response to a letter rogatory or letter of request, both of which are formal requests for assistance from the U.S. court to the appropriate non-U.S. court where the party to be served is located.

2.3   Statutory Basis

In a federal civil action, the statutory basis for exercising personal jurisdiction may come from federal or state law.[6]

In an action brought under a federal statute that permits nationwide service of process, the party to be served can be served anywhere in the U.S.[7] Otherwise, federal courts apply the forum state’s personal jurisdiction rules if the applicable federal statute does not provide for national service of process.[8] In such cases, a party’s conduct must meet the requirements of state law on jurisdiction, such as a long-arm statute.[9]

For example, New York’s long-arm statute, N.Y. C.P.L.R. § 302, which often applies in cases involving non-U.S. financial institutions due to the central role New York banks play in international finance, allows courts seated in New York to exercise jurisdiction over non-New York parties when they transact any business within the state or contract anywhere to supply goods or services in the state. The New York Court of Appeals has held that “a non-U.S. bank’s purposeful use of a New York correspondent account to execute dozens of wire transfers constitutes a “transaction of business” within the meaning of that section.[10]

Other activities that permit the exercise of long-arm jurisdiction under Section 302 include committing a tortious act within the state or one that causes injury within the state, or owning, using, or possession real property in the state. In many states, the long-arm statute reaches as much conduct as the due process requirements of the Fifth and Fourteenth Amendments to the U.S. Constitution allow.

2.4   Constitutional Due Process

The U.S. Constitution’s due process principle requires that a party have “minimum contacts” with the state where the lawsuit has been filed “such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.”[11] From this starting point, two separate “tests” for personal jurisdiction have developed: “general” and “specific” jurisdiction.[12]

a)   General Jurisdiction

If a court has general (or “all-purpose”) jurisdiction over a party, it may “hear any and all claims against [the party].”[13] For a court to have general jurisdiction over a non-U.S. corporation, the corporation’s “affiliations with the State [must be] so continuous and systematic as to render [it] essentially at home in the forum State.”[14] The “paradigm” forums for all-purpose jurisdiction are courts in the state where the party is incorporated or in the state where it has its principal place of business.[15] After Daimler, a non-U.S. party with no principal place of business in any state should not be subject to general jurisdiction in the United States.[16]

b)   Specific Jurisdiction

Specific or “conduct-linked” jurisdiction, on the other hand, permits judicial authority to extend only to issues that arise out of or relate to the party’s contacts with the forum state which create a “substantial connection” with the forum state.[17]

Asserting specific jurisdiction requires a two-step analysis.[18] First, the party must have “purposefully directed his activities at … the forum,” and the litigation must “arise out of or relate to those activities.”[19] Once these minimum contacts are established, the court “determine[s] whether the assertion of personal jurisdiction would comport with fair play and substantial justice.”[20] This involves consideration of factors such as: (1) the burden on the defendant, (2) the interests of the forum state, (3) the plaintiff’s interest in obtaining relief, (4) the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and (5) the shared interest of the several states in furthering fundamental substantive social policies.[21]

2.5   Consequences of a Lack of Personal Jurisdiction

U.S. courts are not required to dismiss an action when they lack personal jurisdiction over a party. A federal court may, in the interest of justice, transfer the action to any other district where it could have been brought[22] even if it lacks jurisdiction over the defendants.[23] Where non-U.S. parties are involved, and there is not another court that could exercise jurisdiction, the U.S. court must dismiss the action.

3   Conclusion

Personal jurisdiction and service are highly fact-dependent issues discussion of which has filled many thousands of pages of court opinions and legal scholarship. This article is not an exhaustive analysis of each, but may serve as a basis for understanding, further discussion, and research.

 

Authors

Aaron Wolfson

New York Office

aaron.wolfson@us.kwm.com

Meg Utterback

New York Office

Meg.Utterback@us.kwm.com

Vincent Filardo

New York Office

Vincent.Filardo@us.kwm.com

 

[1] Jurisdiction, Black’s Law Dictionary (11th ed. 2019).

[2] See FRCP 12(h)(1).

[3] See Waldman v. Palestine Liberation Org., 835 F.3d 317, 327 (2d Cir. 2016) (citation omitted).

[4] International Diamond Importers, Inc. v. Oriental Gemco (N.Y.), Inc., 64 F. Supp. 3d 494, 506 (S.D.N.Y. 2014) (citations omitted).

[5] The full list can be found at https://www.hcch.net/en/instruments/conventions/status-table/?cid=17.

[6] See FRCP 4(k).

[7] See, e.g., Strauss v. Credit Lyonnais, S.A., 175 F. Supp. 3d 3, 26 (E.D.N.Y. 2016) (finding that an anti-terrorism statute expressly authorized nationwide service, thereby establishing personal jurisdiction over the defendant under Federal Rule of Civil Procedure 4(k)(1)(C)) (citation omitted).

[8] Dennis v. JPMorgan Chase & Co., 343 F. Supp. 3d 122, 197 (S.D.N.Y. 2018).

[9] The term “long-arm jurisdiction” comes from these statutes. The purpose of state long-arm statutes is to overcome the territorial limits on individual states’ sovereignty. Consistent with this purpose, courts invoke long-arm jurisdiction over U.S. citizens and residents living in other states far more than they do over non-U.S. citizens living outside the U.S.

[10] Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 732 F.3d 161, 165 (2d Cir. 2013) (citation omitted).

[11] International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

[12] Daimler AG v. Bauman, 571 U.S. 117, 122, 126 (2014).

[13] Id. at 122 (quotation omitted).

[14] Id. at 139 (quotation omitted).

[15] Id. at 137. The “paradigm” forum for an individual is a forum in the state where the individual is domiciled (the place where the person intends to stay indefinitely). Id.

[16] See SPV Osus Ltd. v. UBS AG, 882 F.3d 333, 343 (2d Cir. 2018) (“Aside from the truly exceptional case, a corporation is at home and subject to general jurisdiction only in its place of incorporation or principal place of business.”).

[17] See Bristol-Myers Squibb Co. v. Superior Court of Cal., S.F. Cty., 137 S. Ct. 1773, 1780 (2017) (“[T]here must be an affiliation between the forum and the underlying controversy, principally, [an] activity or occurrence that takes place in the forum State and is therefore subject to the State’s regulation.” (quotation omitted)).

[18] See Gucci Am., Inc. v. Li, 768 F.3d 122, 136 (2d Cir. 2014) (citation omitted).

[19] Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (citation omitted).

[20] Id. at 476 (quotation omitted).

[21] Asahi Metal Indus. Co. v. Superior Ct. of Cal., Solano Cnty., 480 U.S. 102, 113–14 (1987).

[22] 28 U.S.C. § 1406(a).

[23] Wultz v. Islamic Republic of Iran, 762 F. Supp. 2d 18, 31 (D.D.C. 2011) (citation omitted).