Opinion ID: 306468
Heading Depth: 1
Heading Rank: 5

Heading: Jurisdiction over the Person

Text: Jurisdiction over the person is challenged, thus far unsuccessfully, by defendants Fleming Ltd., and Chalmers, Impey & Co. and, thus far successfully, by defendant Kerman. 8 Plaintiffs assert personal jurisdiction on the basis of Sec. 27 of the Securities Exchange Act. Alternatively they claim personal jurisdiction with respect to Fleming Ltd. under New York CPLR 301 and 302(a)(1) and (2) with respect to Kerman under New York CPLR 302(a)(1) and (3). 9 Since we hold that Congress meant Sec. 27 to extend personal jurisdiction to the full reach permitted by the due process clause, it is unnecessary to discuss the applicability of the New York statutes, which could reach no further. So far as here pertinent, Sec. 27 provides: The district courts of the United States, the Supreme Court of the District of Columbia, and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any suit or action to enforce any liability or duty created by this title or rules and regulations thereunder, or to enjoin any violation of such title or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. The second sentence and the first portion of the third deal with venue; the last portion of the third speaks expressly only to service of process. 10 See United States v. Scophony Corp., 333 U. S. 795, 68 S.Ct. 855, 92 L.Ed. 1091 (1948); Arrowsmith v. United Press International, 320 F.2d 219, 227-228 (2 Cir. 1963). While Congress was doubtless thinking mainly in terms of exercising its power to provide that the process of every District Court shall run into every part of the United States, Robertson v. Railroad Labor Board, 268 U.S. 619, 622, 45 S.Ct. 621, 622, 69 L.Ed. 1119 (1925), use of the word wherever, rather than where or in which, demonstrates an intention to authorize service on a defendant who can be found only in a foreign country, and although the section does not deal specifically with in personam jurisdiction, it is reasonable to infer that Congress meant to assert personal jurisdiction over foreigners not present in the United States to but, of course, not beyond the bounds permitted by the due process clause of the Fifth Amendment. See SEC v. Briggs, 234 F.Supp. 618 (N.D. Ohio 1964); Ferriaoli v. Cantor, 259 F. Supp. 842, 847-848 (S.D.N.Y.1966); see also Smit, International Aspects of Federal Civil Procedure, 61 Colum.L.Rev. 1031, 1039 n. 45 (1961). The Supreme Court's latest relevant expression on the subject is the statement in Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240, 2 L.Ed.2d 1283 (1958), that where the defendant is not personally present and there is no other demonstrable basis for jurisdiction, it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws. Amplifying this, the Restatement (Second) of Conflict of Laws, Sec. 27, lists various bases for the exercise of judicial jurisdiction over an individual who is not present. Those relevant here are doing business in the state, Sec. 35; doing an act in the state, Sec. 36; and causing an effect in the state by an act done elsewhere, Sec. 37. These principles apply likewise to corporations, Secs. 47, 49, 50. All this reflects the modern notions that where a defendant has acted within a state or sufficiently caused consequences there, he may fairly be subjected to its judicial jurisdiction even though he cannot be served with process in the state, and that the principal function of service of process is rather to give notice and opportunity to be heard, which can be done by appropriate methods of service outside the state. See McGee v. International Life Ins. Co., 355 U.S. 220, 78 S. Ct. 199, 2 L.Ed.2d 223 (1957). Fleming Ltd. In light of these principles we have little difficulty in upholding the denial of the motion of Fleming Ltd. to dismiss for lack of personal jurisdiction. Richard Fleming, its managing director, and Lawrence Banks, first with him and then representing him, appeared at meetings in the United States and allegedly made misrepresentations concerning the value of Pergamon and the accuracy of the Whinney Murray & Co. report which Fleming Ltd. had commissioned. We thus do not reach the question whether Fleming Ltd. could be considered to be doing business in the United States by virtue of the activities of its New York subsidiary in buying and selling securities in the American markets and furnishing other services to Fleming Ltd. Chalmers, Impey & Co. We come to an opposite conclusion with respect to Chalmers, Impey & Co. (Chalmers). Plaintiffs' attempt to show that Chalmers was doing business in the United States in the spring of 1969 completely failed. All that was shown was that in October 1965 two partners of Chalmers and certain partners and employees of an American accounting firm, Hurdman and Cranstoun, formed a partnership to carry on, under the Chalmers' name, specific engagements introduced to the U.S.A. partners by the United Kingdom partners. The only matter ever handled by this partnership related to the 1965 statements of Pergamon Press, Inc., but the audit was never completed. The partnership then became dormant. There is no suggestion that plaintiffs' claim arose from these minuscule activities three years before their encounters with Maxwell, and it is immaterial that the partnership was not formally dissolved until after the conduct here in question occurred and the amended complaint was filed. It is equally clear that Chalmers has done no act within the United States giving rise to the present cause of action. This leaves only the ground elaborated in Sec. 37 of the Restatement (Second) of Conflict of Laws: A state has the power to exercise judicial jurisdiction over an individual who causes effects in the state by an act done elsewhere with respect to any cause of action arising from these effects unless the nature of the effects and of the individual's relationship to the state makes the exercise of such jurisdiction unreasonable. The classic illustration is the man who shoots a bullet across a state boundary; a more realistic example is furnished by McGee v. International Life Ins. Co., supra, 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed. 2d 223 (soliciting purchase of insurance policy and sending premium notices by mail from outside the state into the state). But this is a principle that must be applied with caution, particularly in an international context. See Duple Motor Bodies, Ltd. v. Hollingsworth, 417 F.2d 231, 239 (9 Cir. 1969) (dissenting opinion); Von Mehren & Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv.L.Rev. 1121, 1127 (1966). At minimum the conduct must meet the tests laid down in Sec. 18 of the Restatement (Second) of Foreign Relations Law, including the important requirement that the effect occurs as a direct and foreseeable result of the conduct outside the territory. We believe, moreover, that attaining the rather low floor of foreseeability necessary to support a finding of tort liability is not enough to support in personam jurisdiction. The person sought to be charged must know, or have good reason to know, that his conduct will have effects in the state seeking to assert jurisdiction over him. 11 The amended complaint does charge that Chalmers knew or had good reason to know that the allegedly false and misleading financial reports it had prepared would be given by the defendants to plaintiffs as prospective purchasers of Pergamon and that plaintiffs would receive them and rely upon them. But the affidavit of John Ralph Briggs, the Chalmers partner who was in charge of the firm's work on Pergamon, broadly denies this. He avers that his first knowledge of negotiations between Leasco and Maxwell for the purchase of Pergamon shares came on June 18 when he saw a placard on a London newspaper stand Maxwell in £25,000,000 Deal. The only contacts with Leasco consisted in his attending a social luncheon the next day, after the annual general meeting of Pergamon, and his making documents and other information available to a firm of accountants retained by Leasco, pursuant to a request made on July 14. By that date the bulk of the purchases on the London Stock Exchange had been made, and there is nothing to indicate that any false statements by Chalmers in the papers submitted to Leasco's accountants caused the purchases subsequent to July 14. Leasco did not dispute Briggs' assertions; it relied simply on the fact that Chalmers must have known that its reports on Pergamon would be relied on by anyone interested in buying Pergamon shares. On that basis accountants operating solely in London could be subjected to personal jurisdiction in any country whose citizen had purchased stock of a company they had audited; the same would be true, of course, of accountants operating solely in the United States. Although such worldwide reliance may be, in a sense, foreseeable, it is not sufficiently so to constitute a basis of personal jurisdiction consonant with due process. See discussion in footnote 11 supra. Chalmers' motion to dismiss for lack of personal jurisdiction should have been granted. Isidore Kerman The issue with respect to Kerman is closer than either of those previously discussed. As stated above, he was a director of Pergamon and the firm in which he is a senior partner acted as its solicitors, although he states that his partner DiBiase was generally responsible for handling commercial matters for it. Admittedly he attended the London meetings over four days in early June, 1969. His affidavit minimized his participation, saying that he attended because he was a Director of the Company, as well as one of its solicitors and as such was keeping informed of developments of significance to the company and its stockholders. An opposing affidavit by a Leasco officer alleged that Kerman took an active part in the meetings and remained silent when, to his knowledge, Maxwell was misrepresenting the facts. Other Leasco officers averred that in the New York negotiations DiBiase did not act simply as a draftsman but made numerous false and misleading statements to plaintiffs as to the operations and financial condition of Pergamon and its affiliated companies. Steinberg averred upon information and belief, the source of which was undisclosed, that Maxwell and DiBiase received from and sent to Kerman many communications respecting the terms of the June 17th Agreement. Kerman responded that there had been no such communications. DiBiase did not submit an affidavit, and Maxwell's affidavit neither mentions nor denies communication with Kerman. On the other hand, Leasco apparently made no effort to subpoena the telephone company or other records that would show whether transatlantic telephone calls were made. Leasco averred that, in addition to his position as director and solicitor, Kerman had an interest as owner of 60,000 Pergamon shares and trustee of Maxwell family trusts owning 600,000 shares, some or all of which may have figured in the purchases on the London Stock Exchange. Kerman denied he was a trustee of any Maxwell family trusts holding Pergamon shares or had any connection with sales by any such trusts; he said nothing with respect to the sale of the 60,000 shares. Leasco urged that if Judge Lasker was not prepared to deny Kerman's motion to dismiss, he should postpone decision until Kerman had answered interrogatories which Leasco intended shortly to serve upon him. Kerman's conduct in England differs from that of Chalmers (except for the two insignificant episodes after June 18) in that he was at all times well aware that Maxwell was endeavoring to sell Pergamon shares to Leasco. On the other hand, Leasco did not allege that Kerman himself made any misrepresentations; his offense, if offense it was, lay in remaining silent while Maxwell did. Kerman's case may differ also from Chalmers' with respect to his performing acts in the United States. To be sure, the rule in this circuit is that the mere presence of one conspirator, such as Maxwell, does not confer personal jurisdiction over another alleged conspirator. Bertha Building Corp. v. National Theatres Corp., 248 F.2d 833, 836 (2 Cir. 1957), cert. denied, 356 U.S. 936, 78 S.Ct. 777, 2 L.Ed.2d 811 (1958); H. L. Moore Drug Exchange, Inc. v. Smith, Kline & French Laboratories, 384 F.2d 97 (2 Cir. 1967). Neither would the partnership relation between Kerman and DiBiase alone justify a conclusion that DiBiase's acts in New York were the equivalent, for purposes of personal jurisdiction, of acts by Kerman here-as would be apparent if Leasco sought to assert such jurisdiction over other members of the firm. However, the matter could be viewed differently when the relationship was the closer one between a senior partner, especially one who is a director of the client, and a younger partner to whom he has delegated the duty of carrying out an assignment over which the senior retains general supervision. The case for doing this would be materially strengthened by proof that the junior was in frequent communication with the senior. There were too many unresolved questions of fact to make it proper for the judge to take the important step of dismissing Kerman as a defendant on the basis of the conflicting affidavits before him. Although plaintiffs may have been dilatory in not sooner propounding interrogatories, the burden of answering these would have been slight, and delay was scarcely a factor in an action that could not come to trial for many months. While Kerman's answers to interrogatories may do little to advance plaintiffs' case, plaintiffs are at least entitled to have them answered, see 4A Moore, Federal Practice p30.52 (1972 ed.), and to have the issue of personal jurisdiction decided in accordance with the principles stated in this opinion. 12