Commercial Division Says, “Nope, Not Enough” When Using Local Counsel to Establish Personal Jurisdiction
February 03, 2022
Commercial transactions often involve parties from different states. When a dispute arises between diverse parties, the question of whether a party can obtain personal jurisdiction over a defendant becomes critical. This issue becomes even more apparent when the defendant is a foreign corporation that conducts business across the world. In a recent decision from the Manhattan Commercial Division, Justice Andrew Borrok reminds us that “[t]he hiring of New York based lawyers (and closing out of a firm’s New York office) and funding through New York banks” is simply not enough to obtain jurisdiction over a defendant in New York.
In Haussmann v Baumann, plaintiffs Rebecca R. Haussmann, Trustee of Konstantin S. Haussmann Trust, and Jack E. Cattan (collectively, “Plaintiffs”) are shareholders in defendant Bayer AG (“Bayer”), a German based pharmaceutical corporation, headquartered in Leverkusen, Germany. In or around 2016, Bayer negotiated and agreed to acquire the Monsanto Company (“Monsanto”), an agricultural-products company incorporated in Delaware and headquartered in Missouri for $66 billion (the “Moonshot Transaction”). During the due diligence period of the transaction, Bayer retained several banks, including Bank of America and Credit Suisse Group AG (collectively, the “Bank Defendants”). In addition, Bayer hired New York based law firm Wachtell Lipton Rosen & Katz to complete the transaction. Notably, neither Bayer nor the Bank Defendants were present at the closing, and none of Bayer’s board meetings took place in New York in connection with authorizing the transaction.
Following the completion of the Moonshot Transaction, Bayer was “crushed by a tsunami of Monsanto legacy tort suits and legacy liabilities” causing a loss of $12 billon. As a result, on or about December 9, 2020, Plaintiffs filed a Second Amended Complaint (the “Complaint”) in the form of a shareholder derivative action in the Manhattan Commercial Division against Bayer, the Bank Defendants, and members of Bayer’s Board of Management or Supervisory Board (collectively, the “Individual Defendants”). Plaintiffs alleged causes of action for breach of fiduciary duty under Section 117 of the German Stock Corporation Act (“GSCA”), aiding and abetting in the alleged breaches of fiduciary duties, and civil conspiracy in connection with the Moonshot Transaction. In response, Bayer, the Bank Defendants, and the Individual Defendants, each filed three separate motions to dismiss, seeking to dismiss the Complaint on multiple grounds, including lack of personal jurisdiction, forum non conveniens, and lack of standing under German law.
First, on the issue of forum non conveniens, both the Individual Defendants and the Bank Defendants argued that Germany was a more appropriate forum for this lawsuit based on the fact that (a) Plaintiffs were pursuing claims under German law, not New York law; (b) the decisions leading to the alleged breaches of fiduciary duties took place in Germany; and (c) all of the Individual Defendants resided in Europe. In opposition, Plaintiffs asserted that New York courts frequently adjudicate shareholder derivative lawsuits involving foreign corporations and foreign laws, and that Germany’s pre-suit court procedures would “create impossible pre-discovery proof barriers and expose plaintiffs to mandatory fee-shifting.” In its decision, the Court held that although the Commercial Division was capable of handling this matter, Germany was a more suitable forum since it “has a significant interest in adjudicating a dispute involving an old and major German company, and the activities and judgments of individual directors all located in Germany and operating under German law.”
Second, on the issue of personal jurisdiction, the Individual Defendants argued that meager allegations that Bayer engaged advisors, such as banks and law firms, with New York offices to help close the Moonshot Transaction do not constitute the transaction of business under CPLR § 302(a)(1). In support of their motion, the Individual Defendants relied on the fact that Plaintiffs failed to allege (a) that any members of the Board of Management or Supervisory Board made any business decision in New York; and (b) that Bayer has any employees or offices in New York. In opposition, Plaintiffs argued that jurisdiction was proper here based on the fact that the heart of lawsuit surrounds Bayer and the Individual Defendants’ decision to engage New York law firms and banking institutions to help with the due diligence and closing of the Moonshot Transaction. The Court rejected Plaintiffs’ arguments and dismissed the Complaint against the Individual Defendants for lack of personal jurisdiction, finding that engaging New York based attorneys and arranging funding through New York institutions was too tenuous of a connection to New York.
Third, the Court found that Plaintiffs lacked standing under GSCA § 148 to bring this lawsuit against Bayer, as Plaintiffs failed to allege that “they own a sufficient number of shares to assert their claims, that they made a demand upon the company to take legal action, or that they have sought permission from a German court to assert their claims.”
The Haussmann case is a helpful decision for foreign defendants that are forced to defend a lawsuit in New York where they have no connection to the state. Further, this dismissal should serve as a cautionary tale to plaintiffs who rely on a party’s use of legal counsel and financial institutions as a ground for personal jurisdiction when the defendant has no other contacts or presence in New York.