SPV OSUS Ltd. v. UBS AG, Nos. 15-cv-619; 14-cv-9744 (S.D.N.Y. July 20, 2015) [click for opinion]

Plaintiffs in these two consolidated actions allege that they were customers of the infamous Bernard L. Madoff Investment Securities (“BLMIS”).  Plaintiffs alleged that Defendants—a foreign corporation and several of its subsidiaries—acted as accomplices to BLMIS and its founder by sponsoring international “feeder funds” that funneled billions of dollars worth of new investments into BLMIS’s Ponzi scheme.  Defendants moved to dismiss the action on four grounds, including lack of personal jurisdiction.

Turning first to the issue of general jurisdiction, the court relied on the Supreme Court’s recent Daimler decision that announced a more stringent standard for finding a corporation to be “essentially at home” in a foreign jurisdiction.  Under Daimler, a corporation is ordinarily subject to general jurisdiction only at its place of incorporation or principal place of business.  Only in exceptional cases (yet to be defined), would a corporation’s operations in another forum be so substantial as to render the corporation at home in that state.  Here, none of the Defendants were incorporated or had their principal place of business in the forum.

Despite this, Plaintiffs argued that, because Defendants have offices, conduct business, have a registered agent, and have been the subject of many suits in the forum state, Defendants were subject to general jurisdiction in the forum.  The court determined, however, that Plaintiffs’ allegations amounted to nothing more than a substantial, continuous, and systematic course of business in the forum, which the Supreme Court expressly held to be insufficient for general jurisdiction.  Accordingly, the court held that it lacked general jurisdiction over the Defendants.

The court then discussed whether it had specific jurisdiction over the Defendants.  Specific jurisdiction depends on the relationship among a defendant, the forum, and the litigation.  Plaintiff alleged a variety of contacts between Defendants and the United States, including forming a company and immediately executing a board resolution to open an account with BLMIS, delivering the account opening documents to BLMIS, contracting with BLMIS to serve as the company’s sub-custodian, and engaging in regular communication with BLMIS concerning the company.  These contacts were, however, insufficient to confer jurisdiction because none of Plaintiffs’ claims arose out of, or were related to, these contacts.

As the court explained, where a defendant’s contacts with the forum are limited, it is appropriate to require the plaintiff to establish that his injury was proximately caused by those contacts.  This provision, the court held, applied here, where all Defendants were foreign banks alleged to have provided services to foreign investment funds, acting entirely abroad and with only sporadic or indirect contacts with the United States.  Because Plaintiffs’ claims failed to allege any meaningful connection between Defendants’ conduct and Plaintiffs’ injuries, the court could not exercise specific jurisdiction over Defendants.

Plaintiffs’ claims against the Defendants were dismissed for lack of personal jurisdiction.

Paul Chappell of the Dallas office contributed to this summary.