Jurisdictional Discovery: When and Why It’s Available
October 19, 2017
Personal jurisdiction analysis is often the enemy of 1L’s tackling that doozy of a CivPro exam. Outside of that 10-page fact pattern requiring consideration of Helicopteros Nacionales de Colombia, SA v. Hall, International Shoe Co. v. Washington, and World-Wide Volkswagen Corp. v. Woodson, this is normally a seamless endeavor for commercial litigators. But what happens when plaintiff’s counsel lacks sufficient information to adequately establish personal jurisdiction in opposition to a CPLR § 3211 (a) (8) motion?
The obvious answer is that the defendant’s motion will be granted. But that is not the only answer. In some cases, the court will deny the motion and grant the plaintiff jurisdictional discovery. In considering the New York County Commercial Division’s (Scarpulla, J.) grant of a CPLR § 3211 (a) (8) motion, the Appellate Division, First Department in Universal Inv. Advisory SA v. Bakrie Telecom PTE, Ltd., offered insight into when this relief is appropriate.
The relevant defendants were an Indonesian telecommunications company (“BTEL”), its parent company (“B & B”), and certain of its directors and commissioners (“Individual Defendants”). Under an indenture, a subsidiary of BTEL (the “Issuer”) issued on BTEL’s behalf $380 million of guaranteed senior notes (“Notes”) that were offered in international financial markets. BTEL then received the $380 million in proceeds from the offering through an intercompany loan from the Issuer, and issued an unconditional guarantee of the Issuer’s payment obligations under the Notes. Plaintiffs, holders of 25% of the Notes, commenced the underlying suit after BTEL defaulted in making the interest payments required under the indenture, which contained a New York forum selection clause. Of particular importance, neither the Individual Defendants nor B & B were signatories to the Indenture (“Non-Signatories”).
The Commercial Division held that the court lacked personal jurisdiction over the Non-Signatories for two reasons: 1) because as non-signatories to the indenture, they could not be bound by the forum selection clause; and 2) the plaintiffs failed to satisfy the “closely related theory,” (see Tate & Lyle Ingredients Ams., Inc. v. Whitefox Tech. USA, Inc.) under which a signatory to a contract may invoke a forum selection clause against a non-signatory if the non-signatory is so closely related to the signatory that enforcement of the forum selection clause against the non-signatory is foreseeable.
In addressing the closely related theory, the First Department explained further that a finding of personal jurisdiction based on a forum selection clause may be appropriate where the non-signatory has an ownership or controlling interest in the signatory, or where the signatory and non-signatory were jointly involved in the decision-making process. In ruling that the dismissal motion should have been denied without prejudice as to the Non-Signatories and that parties should have been permitted to conduct jurisdictional discovery, the First Department held that the plaintiffs demonstrated that facts may exist, which would satisfy the closely related theory. Specifically, the plaintiffs alleged that the Non-Signatories – the Individual Defendants through their senior management positions, power and decision-making authority, and B & B as BTEL’s parent company and principal shareholder – authorized, participated in, and promoted the offering and caused the offering memoranda to be distributed in the marketplace.
The key guidance from the First Department is that jurisdictional discovery is appropriate when information may exist to support a finding of jurisdiction, and where that information cannot without discovery be known by the plaintiff. Not surprisingly, this tracks nearly identically CPLR § 3211 (d), entitled “Facts unavailable to opposing party.” As the First Department explained, the plaintiff’s allegations in Universal Advisory SA warranted jurisdictional discovery regarding the Non-Signatories actual knowledge and role and responsibilities in the offering, because that information “may result in a determination that the nonsignatories are indeed ‘closely related’ to the signing parties, [and] is a fact that cannot be presently known to plaintiff, but rather is within the exclusive control of defendants.”