Rule 4(k)(2) Personal Jurisdiction Over a Foreign Defendant

John Kong | June 13, 2012

Merial Limited v. Cipla Limited

May 31, 2012

Panel:  Lourie, Schall, and Reyna.  Opinion by Lourie.  Dissent by Schall.

Summary:

Foreign defendant Cipla chose not to respond to plaintiff Merial’s 2007 lawsuit for patent infringement because Cipla believed there was no personal jurisdiction under Georgia’s long arm statute.  The Georgia district court entered a default judgment and permanent injunction against Cipla.  During a subsequent contempt proceeding to enforce the injunction, the Georgia court found that Cipla was subject to personal jurisdiction pursuant to Federal Rule of Civil Procedure 4(k)(2) instead of the Georgia long-arm statute.  Cipla’s consent to jurisdiction in another forum (the Northern District of Illinois) during the contempt proceedings did not defeat the Georgia court’s reliance on Rule 4(k)(2) because the Federal Circuit held that Cipla failed to show that jurisdiction would have been proper in that other forum at the time of filing of the complaint in Georgia, regardless of Cipla’s later consent to jurisdiction in Illinois.  This Federal Circuit decision clarifies that a foreign defendant, to defeat personal jurisdiction under Rule 4(k)(2), must not only identify another forum where suit is possible, but also show that suit is possible in that other forum at the time the suit was filed.  A later consent to jurisdiction in another forum may not be enough to defeat personal jurisdiction under Rule 4(k)(2).

Details:

Cipla is a foreign defendant incorporated in India and with its principle place of business in Mumbai, India.  When Merial filed its 2007 complaint in Georgia, Merial only asserted personal jurisdiction over Cipla under Georgia’s long arm statute.  Believing that it did not have sufficient contacts with Georgia to subject it to personal jurisdiction there, Cipla did not answer the complaint and risked a default judgment, following the principle enunciated by the Supreme Court that “[a] defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding.”  Ins. Corp of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 706 (1982).  Without Cipla responding, the Georgia district court issued a default judgment and a permanent injunction against Cipla’s infringing flea and tick pet protection product, Protektor Plus.

Having become aware of Cipla’s role in an impending commercial launch of a rebranded version of the enjoined Protektor Plus, Merial filed a motion for contempt of the permanent injunction with the Georgia district court in 2011.  During the contempt proceedings, Cipla challenged the original default judgment and permanent injunction on jurisdictional grounds.  In opposing Cipla’s jurisdictional challenge, Merial newly asserted that the Georgia court had personal jurisdiction under FRCP Rule 4(k)(2).  According to Federal Circuit precedent, Rule 4(k)(2) may apply whether or not it is raised by the parties.

Rule 4(k)(2) was introduced by the 1993 amendment to the FRCP.  It provides a forum for federal claims in situations where a foreign defendant lacks substantial contacts with any single state, but has sufficient contacts with the U.S. as a whole to satisfy due process standards and justify application of federal law.  Rule 4(k)(2) approximates a federal long arm statute, allowing district courts to exercise personal jurisdiction even if the defendant’s contacts with the forum state would not support jurisdiction under that state’s long arm statute, as long as (1) the plaintiff’s claim arises under federal law, (2) the defendant is not subject to personal jurisdiction in the courts of any state (the “negation requirement”), and (3) the exercise of jurisdiction satisfies due process requirements.

Although a plaintiff has the burden of establishing a prima facie case of personal jurisdiction, that burden is shifted in the context of Rule 4(k)(2) to avoid the impossible burden of proving a negative many times over.  With regard to the negation requirement, if the defendant contends that he cannot be sued in the forum state and refuses to identify any other state where suit is possible, then the federal court is entitled to use Rule 4(k)(2).

Here, since Merial raised the issue of personal jurisdiction under Rule 4(k)(2) for the first time during the contempt proceedings, Cipla likewise asserted consent to personal jurisdiction in a different state, Illinois, for the first time during the contempt proceedings.  Cipla’s consent to personal jurisdiction in a different state would clearly defeat the Georgia court’s reliance on Rule 4(k)(2).

In discussing the negation requirement, the Federal Circuit previously stated that a defendant can “avoid the application of [Rule 4(k)(2)] only when it designates a suitable forum in which the plaintiff could have brought suit.”  Touchcom, Inc. v. Bereskin & Parr, 574 F.3d 1403, 1415 (Fed. Cir. 2009).  The Federal Circuit now clarifies that “a defendant cannot defeat Rule 4(k)(2) by simply naming another state; the defendant’s burden under the negation requirement entails identifying a forum where the plaintiff could have brought suit – a forum where jurisdiction would have been proper at the time of filing, regardless of consent.”

Schall disagreed.  According to Schall, because the rule that allows a party to defeat Rule 4(k)(2) jurisdiction by designating a substitute forum is founded upon the proposition that personal jurisdiction is waivable, it is not necessary to independently establish that suit could lie in the substitute forum absent the designation.  Returning to the ISI International Seventh Circuit case and the approach regarding Rule 4(k)(2) espoused therein that was adopted by the Federal Circuit in Touchcom, the Seventh Circuit stated that defendant’s counsel’s consent to jurisdiction during oral argument would have been sufficient to defeat Rule 4(k)(2) jurisdiction.  There was no predicate requirement to establish personal jurisdiction in the substitute forum at the time the complaint was filed.  Indeed, Cipla merely did what the Supreme Court has expressly stated was available to it – “free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding.”

Schall also took exception to the majority’s view that Cipla “should have apprehended that Rule 4(k)(2) might arise.”  Merial only pled personal jurisdiction under Georgia’s long arm statute, which precludes the application of Rule 4(k)(2).  Merial elected not to plead the application of Rule 4(k)(2) in the alternative, as specifically contemplated by the Federal Circuit in Touchcom.  Because Merial at all times had the burden of making out a prima facie case of personal jurisdiction over Cipla and because Cipla was entitled to ignore what it viewed as a defective basis for such jurisdiction stated in the 2007 complaint, it was error not to allow Cipla to designate a substitute forum the first time Rule 4(k)(2) was asserted as the ground for personal jurisdiction over it.

However, the majority noted that in ISI International, the Seventh Circuit also mentioned “naming a more appropriate state,” and, a defendant does not identify a more appropriate state by suggesting a forum with no basis for personal jurisdiction but for its consent.  Absent some independent basis for jurisdiction, neither forum is manifestly “more appropriate” than the other.

Moreover, the majority believed that the incentives for gamesmanship would be particularly acute in such cases where the defaulting party could use a simple, unilateral statement of consent not only to achieve transfer into a forum it considers more convenient (or less convenient for the opponent), but also to undo an adverse final judgment for the chance to litigate from a clean slate.  Cipla also had the option of filing a pre-answer motion under Rule 12(b)(2) to settle all issues of personal jurisdiction up front, but chose to do nothing.

In addition, regarding claims of reliance on Merial’s complaint pleading personal jurisdiction under Georgia’s long arm statute and the unfair surprise of Merial’s later assertion of Rule 4(k)(2) jurisdiction, Federal Circuit precedent holds that Rule 4(k)(2) can be considered even when the plaintiff has affirmatively pled a different basis for personal jurisdiction.  Besides, Cipla had actual notice of suit and chose to risk a default judgment.

“In any event, we need not decide today the general requirements for a defendant to prevent the application of Rule 4(k)(2) by consenting to suit in another jurisdiction, for it suffices in this case to hold that a defendant, like Cipla, challenging a prior default judgment may not do so by naming another forum that would not have had an independent basis for jurisdiction at the time of the original complaint.”

Here, Cipla’s evidence of contacts with Illinois was insufficient to establish personal jurisdiction there in 2007.  Therefore, the Federal Circuit affirmed the Georgia court’s Contempt Order.

Cipla also raised an issue of insufficient service.  As a predicate to establishing personal jurisdiction, Rule 4(k)(2) also requires service of process or waiver of service.  FRCP Rule 4(f) governs service in a foreign country.  Rule 4(f)(1) permits service outside the U.S. by “internationally agreed means … such as those authorized by the Hague Convention…”  Merial served Cipla in Mumbai via “courier and registered post” in an attempt to comply with Rule 4(f)(2)(A), but Rule 4(f)(2) generally applies only “if there is no internationally agreed means” of service.  India became a signatory to the Hague Convention effective August 1, 2007 (just before Merial’s service).  However, since this issue was raised for the first time on appeal, the court deemed this issue waived.

Litigation Tips

For a foreign defendant, before risking a default judgment and contemplating challenging it on jurisdictional grounds in a collateral proceeding, make sure that any defense against a potential Rule 4(k)(2) basis for personal jurisdiction (by designating an substitute forum) checks whether there is independent personal jurisdiction in that substitute forum at the time the original complaint was filed.

For a plaintiff, it doesn’t hurt to plead the application of Rule 4(k)(2), if applicable, in the alternative in the complaint.  Even though Rule 4(k)(2) could still apply despite plaintiff pleading a different basis for personal jurisdiction in the complaint, this alternative pleading would at least reduce any issues of unfair surprise.  Also, remember to use the correct service of process.

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