The World in U.S. Courts: Fall 2014 - Personal Jurisdiction
September.30.2014
"Schutte Inc.," the U.S. subsidiary of a Dutch manufacturer of plastic bag closures, sued Kwik Lok, a U.S. competitor, for a declaratory judgment that its products did not infringe the trademarks and related rights held by Kwik Lok. Kwik Lok counterclaimed, naming Schutte Inc.'s European parent, "Schutte BV." Schutte BV sought to dismiss the claim on grounds that the U.S. District Court in New York did not have personal jurisdiction over it. Because discovery in the case had concluded, the Court found that, to sustain its burden, Kwik Lok would have to identify facts that, if credited, would establish a basis for jurisdiction.
The Court began by observing that the law of the forum in New York would allow for specific personal jurisdiction only if Schutte BV "transacted business" in New York, and the claim arose out of that activity. Kwik Lok first argued that this test was satisfied because Schutte BV had itself directed activity towards New York in form of the shipment of samples to its U.S. subsidiary and to an independent business services company for marketing by its subsidiary to customers in New York. The Court agreed, concluding that "the shipping of a single allegedly infringing product combined with the business activity of an associated company in the forum is enough to establish jurisdiction." Kwik Lok also argued that Schutte Inc. was merely an agent of Schutte BV, and so the U.S. subsidiary's conduct could be attributed to its parent. Again, the Court agreed. Concluding that no "formal" agency relationship was required, it found that a prima facie case for agency was made out by facts showing that Schutte Inc. acted "for the benefit of and with the knowledge and consent of Schutte BV," and that the Dutch parent "exercised some control over those actions." Notably in this regard, Schutte Inc. had no employees and its only directors are also directors of Schutte BV.
The Court proceeded to address whether the assertion of jurisdiction was consistent with the Due Process Clause of the U.S. Constitution, with the principal tests for specific personal jurisdiction being whether the defendant's contacts with the forum demonstrated that it had "purposefully availed itself" of the privilege of doing business in the forum, and whether the assertion of jurisdiction was consistent with "traditional notions of fair play and substantial justice." The Court found that the first test was satisfied by the contacts establishing jurisdiction under New York law. The second test was satisfied by the fact that the presence in the case of the Schutte Inc. corporate shell meant that much of the expense and disruption of the litigation would already be imposed on Schutte BV, that Schutte BV knew that a suit against it was likely prior to its decision to try to enter the U.S. market, and that a full resolution of the case would likely require that Schutte BV participate in any judgment.