Second Circuit Affirms Dismissal Of Claims, Finding No Personal Jurisdiction Where Defendants Were Not “At Home” In The Forum And Only “A Handful Of Communications And Transfers Of Funds” Linked Defendants To The Forum
On February 9, 2018, the United States Court of Appeals for the Second Circuit affirmed the dismissal of aiding and abetting claims against UBS AG, AIA LLC, and their affiliated entities and individuals. SPV Osus Ltd. v. UBS AG, et al., No. 16-2173-cv (2d Cir. Feb. 9, 2018). Plaintiff alleged defendants aided and abetted a Ponzi scheme orchestrated by Bernard L. Madoff Investment Securities LLC (“BLMIS”), by sponsoring and providing support for two European-based feeder funds despite being aware of fraudulent activity. Plaintiff further alleged it suffered losses of approximately $2.9 billion when the scheme was uncovered. The United States District Court for the Southern District of New York had denied plaintiff’s motion to remand the case to New York Supreme Court, where plaintiff had originally filed, and had granted defendants’ motion to dismiss the complaint for lack of personal jurisdiction. On appeal, plaintiff argued that the district court erred by: (1) denying plaintiff’s motion to remand because the instant litigation was not “related to” the Madoff/BLMIS bankruptcies and thus the federal court lacked subject-matter jurisdiction; (2) holding that the court lacked personal jurisdiction over defendants; and (3) holding that plaintiff failed to adequately plead proximate cause. The Second Circuit rejected plaintiff’s arguments and affirmed the dismissal of the action based on lack of personal jurisdiction over defendants and failure to plead proximate cause.
Regarding the issue of personal jurisdiction, the Court focused first on the impact of the Supreme Court’s 2014 decision in Daimler AG v Bauman, pertaining to the exercise of general jurisdiction, which held that a corporate defendant is subject to the “general” jurisdiction of a U.S. court in a particular state only when that corporation is “essentially at home” in the state, typically either by having its principal place of business in the forum state or being incorporated in the state. Citing its own interpretation of Daimler in the 2014 decision in Gucci Am., Inc. v Weixing Li, the Second Circuit noted that the Supreme Court’s ruling “expressly cast doubt on previous Supreme Court and New York Court of Appeals cases that permitted jurisdiction on the basis that a foreign corporation was doing business through a local branch office in the forum.” Because the UBS defendants, here, had no U.S. employees, were incorporated in Luxembourg and Switzerland, and had their principal places of business in Luxembourg and Switzerland, the Second Circuit found that Daimler barred the exercise of general jurisdiction here because “aside from a truly exceptional case, a corporation is at home and subject to general jurisdiction only in its place of incorporation or principal place of business.”
The Court next turned to whether the district court may exercise specific personal jurisdiction over defendants. Citing, among other case law, the Supreme Court’s 2017 decision in Bristol‐Myers Squibb Co. v. Superior Court of Calif., San Francisco Cty., the Court noted that in order to exercise specific jurisdiction over a nonresident defendant, the defendant’s suit-related conduct must create a substantial connection with the forum state. The Court observed, however, that the Supreme Court has not yet addressed exactly how a defendant’s activities must be tied to the forum for a court to properly exercise specific jurisdiction. The Court further noted that some circuits require the in-forum contact to be the proximate cause of plaintiff’s injuries, while others find the standard satisfied if the defendant’s activities are the “but for” cause of those injuries. The Court stated that the standard applied in the Second Circuit depends on the relationship among the defendant, the forum, and the litigation. For example, where a defendant has only limited contacts with the forum, it may be subject to the court’s jurisdiction only if the plaintiff’s injury was proximately caused by the defendant’s contacts. However, where the defendant’s contacts are more substantial, the defendant may be subject to the court’s jurisdiction even though the acts within the forum are not the proximate cause of the plaintiff’s injury. The Court here first noted that plaintiff’s complaint alleged that the injuries suffered “were caused by Madoff and BLMIS,” not the UBS defendants. Next, considering the relationship in this case between defendants and New York, the Court found that the connections were too tenuous to support the exercise of specific jurisdiction, as none of the UBS defendants reside in New York, and the contacts alleged by plaintiff between defendants, the forum, and the litigation amounted to only “a handful of communications and transfers of funds.”
As to the remand question and whether plaintiff’s claims were “related to” the Madoff/BLMIS bankruptcies, the Court noted that federal courts may assert subject matter over litigation “related to cases under title 11.” The Court observed that the gravamen of plaintiff’s complaint was that “defendants are joint tortfeasors with Madoff/BLMIS, which, if proven, would provide defendants with a putative contribution claim, to be asserted in the bankruptcy proceedings.” Finding that a payout by the estate to defendants was therefore possible, and that any claim by defendants would potentially alter the distribution of assets among the estates’ creditors, the Court concluded that the litigation was “related to” the bankruptcy proceedings, and affirmed the district court’s decision to exercise subject matter jurisdiction over the action.
Regarding whether plaintiff had sufficiently alleged that certain defendants proximately caused its injury, as required for a claim of aiding and abetting under New York law, the Court affirmed the district court’s dismissal of plaintiff’s aiding and abetting claims. The Court found that plaintiff failed to plead the “substantial assistance” element of its claims because the link between defendants’ alleged actions and the harm suffered was too attenuated to constitute proximate cause.
This decision reaffirms the limitations on general personal jurisdiction in the wake of Daimler and Gucci. Typically, only corporations “at home” in the forum—via incorporation or principal place of business—will be subject to the forum court’s general jurisdiction. The decision also clarifies that the standard for the exercise of specific personal jurisdiction over nonresident defendants in the Second Circuit will depend on the extent of those defendants’ contacts with the forum. Defendants with substantial connections to the forum may be subject to jurisdiction even where the plaintiff’s injuries are not proximately caused by its actions within the forum. However, if the defendants’ contacts are minimal, jurisdiction exists only where the plaintiff’s injuries were proximately caused by the defendants’ contacts with the forum.