United States: Latest On Personal Jurisdiction – Using Bauman To Quash Third-Party Subpoenas

Last Updated: June 24 2016
Article by James Beck

In updating our post-Bauman personal jurisdiction cheat sheet, we recently came across an interesting application of Daimler AG v. Bauman, 134 S.Ct. 746 (2014) – lack of general personal jurisdiction requiring that a third-party subpoena, issued in the context of a discovery in aid of execution on a judgment, be quashed. Since many of our clients frequently find themselves subjected to third-party subpoenas (and other discovery demands) in litigation in jurisdictions where they are not "at home" under Bauman, we thought we'd do more than just add the case to the cheat sheet.

The case is Leibovitch v. Islamic Republic of Iran, ___ F. Supp.3d ___, 2016 WL 2977273 (N.D. Ill. May 19, 2016), and the plaintiffs instituted collection efforts on a terrorism-related judgment in Illinois against two foreign banks, one Japanese and the other French. Although both banks had branches in Illinois (probably why the plaintiffs chose that forum), they certainly did not have the kind of uniquely deep relationship with that state to be "at home" there. Id. at *6. Plaintiffs responded by arguing that Bauman "only applies to defendants, and not to third parties." Id. at *7.

The court rejected the claim, pointing out that general principles of jurisdiction have always been applied to the involvement of third-parties in litigation. Id. at *5 (citing pre-Bauman precedent). Thus, discovery subpoenas could not be valid against those over which the forum could not exercise general (or specific, but that wasn't the real point) jurisdiction:

[T]he Court cannot discern any valid reason why [Bauman] would not apply any time the Court is called to decide personal jurisdiction. . . . This same rationale [requiring jurisdiction] applies to non-parties like the banks: they have been haled into a foreign court, required to obtain counsel to represent their interests, and risk the imposition of a judgment and/or sanctions if they fail to comply with Plaintiffs' filings. For this reason, other courts have applied [Bauman] and earlier Supreme Court decisions addressing personal jurisdiction generally to cases involving third parties. If anything, one would think that a more restrictive standard should apply when assessing personal jurisdiction over non-parties, not a looser one, because unlike defendants they are not accused of violating the plaintiff’s rights and essentially have "no dog in the fight."

2016 WL 2977273, at *7 (citations omitted) (emphasis supplied).

The only post-Bauman precedent Leibovitch cited is Gucci America, Inc. v. Weixing Li, 768 F.3d 122 (2d Cir. 2014). The plaintiff in Gucci was going after assets hidden by product counterfeiters. As in Leibovitch it went after the defendant’s bank accounts in third-party overseas banks (this time, Chinese). After being held in contempt for resisting discovery and execution, the bank appealed. While the court had jurisdiction over the actual defendants sufficient to freeze their assets held in the third-party bank, id. at 129-30, it didn't have personal jurisdiction over the bank itself:

[A] district court can enforce an injunction against a nonparty . . . only if it has personal jurisdiction over that nonparty. Following oral argument in this case, the Supreme Court decided [Bauman]. . . . [The third-party bank] asserts, in post-argument letter briefs, that in light of [Bauman] the district court erred in concluding that the [it] was properly subject to all-purpose general jurisdiction. We agree. We also conclude, however, that this matter should be remanded so that the district court may consider whether it has specific jurisdiction.

Id. at 134 (citation omitted). The third-party bank was not "at home" in the jurisdiction – it only had branch offices there – so "there is no basis consistent with due process for the district court to have exercised general jurisdiction over the Bank." Id. at 135. Gucci has been followed by other Second Circuit courts to halt third-party litigation against non-residents under Bauman. See Tiffany (NJ) LLC, v. China Merchants Bank, 589 F. Appx. 550, 553 (2d Cir. 2014) ("a district court can enforce an injunction against a nonparty only if it has personal jurisdiction over that nonparty"); Motorola Credit Corp. v. Uzan, 132 F. Supp. 3d 518, 521 (S.D.N.Y. 2015) (third-parties "are incorporated and maintain their principal places of business abroad, and no 'exceptional circumstances' exist that would otherwise support general jurisdiction").

Finally, while we don't think it should make a difference, we do point out that all of these decisions involved discovery in aid of execution, rather than more routine discovery authorized under Fed. R. Civ. P. 26. The principle laid down in these cases – that subpoenas cannot be enforced against third parties without personal jurisdiction – would seem to apply identically to both, but so far nobody seems to have litigated it to a decision in ordinary discovery. Cf. Bay v. Simi Motorsports, 2015 WL 9916501, at *1 (Cal. Super. Oct. 15, 2015) (argument apparently made, but subpoena quashed on state-law grounds). Indeed, it may well be that the “otherwise transacts business” standard, added to Fed. R. Civ. P. 45(c) in 2013, is no longer constitutionally valid, when directed against corporate third parties, to the extent that the Rule 45(c) standard contemplates jurisdiction that Bauman‘s “at home” due process test no longer permits.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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James Beck
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