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US 5th Circuit to Consider Test for Federal Courts to Exercise Jurisdiction Over Foreign Defendants in Maritime Cases

On 2 July 2021, the US Court of Appeal for the Fifth Circuit agreed to reconsider en banc the personal jurisdiction issue presented in the case of Douglass v. Nippon Yusen Kabushiki Kaisha (NYK). The rehearing en banc means all active judges of the Fifth Circuit will consider and decide the test for assessing whether a US federal court has jurisdiction in a maritime case over a foreign defendant to adjudicate claims which are otherwise not connected to the forum. The decision once issued will be binding on the federal courts in the Fifth Circuit (which encompasses Texas, Louisiana, and Mississippi) and will be persuasive authority for federal courts in the other circuits.

Given the importance of the issue to be decided and the potential wide application of the eventual decision, the case is one to watch. The rehearing is tentatively scheduled for oral argument in September 2021.

Personal jurisdiction in US courts

Federal courts in the US must have subject matter and personal jurisdiction to hear a case. Subject matter jurisdiction refers to the power to hear the type of claim presented. Personal jurisdiction refers to the court’s power over the person being sued. Generally, the person being sued must have sufficient minimum contacts with the forum such that the court’s exercise of jurisdiction over that defendant comports with due process. The required scope and nature of the contacts depends on the type of personal jurisdiction being exercised.

Specific jurisdiction can be exercised when the defendant’s contacts with the forum are limited if the claim arises from or relates to those contacts. In contrast, a court with general jurisdiction may hear any claim against the defendant, even if all the incidents underlying the claim occurred outside the forum. An exercise of general jurisdiction requires the defendant to have more substantial minimum contacts with the forum.

The minimum contacts analysis traditionally examines the defendant’s contacts with the single US state in which the federal court hearing the case sits. However, Federal Rule of Civil Procedure 4(k)(2) authorizes a nationwide contacts analysis in cases arising under federal law which includes those involving maritime law. Therefore, in maritime cases, a district court will frequently examine whether a defendant has sufficient minimum contacts with the whole of the US. The question in Douglass is by which standard should the sufficiency of those nationwide contacts be judged.

The issue presented in the Douglass case

Douglass involves a collision in Japanese territorial waters between the ACX Crystal, a vessel time chartered by NYK, and the U.S.S. Fitzgerald, a US Navy destroyer. The collision resulted in the death and injury of several Navy sailors. After the incident, two sets of claimants filed, respectively, wrongful death and personal injury suits against NYK in a federal district court in Louisiana. NYK moved to dismiss both suits on personal jurisdiction grounds.

Because NYK was a foreign defendant and lacked sufficient contacts with any one state in the US, the district court examined the jurisdiction question under Rule 4(k)(2)’s nationwide contact approach. In so doing, the court applied what is referred to as the ‘essentially at home’ test. Under this test, general jurisdiction over a defendant exists only when its contacts with the US are so continuous and systematic as to render the defendant essentially at home there. This test further provides that absent an exceptional case, a defendant is essentially at home where it is incorporated or where it maintains its principal place of business.

Because NYK’s contacts did not render it essentially at home in the US, the district court dismissed both cases. The claimants appealed to the Fifth Circuit advocating for application of a different test and arguing that NYK’s ‘vast amounts of shipping business in the United States, directly and through at least eleven wholly owned U.S. subsidiaries’ should be enough.

Proceedings before the Fifth Circuit

In April 2021, a three-judge panel of the Fifth Circuit affirmed the dismissal of the cases. The panel’s written opinion makes clear it was reluctant to affirm.

The panel felt constrained by prior case precedent to apply the essentially at home test. The panel then agreed that personal jurisdiction over NYK was lacking because its ‘considerable contacts’ with the US were not so substantial and of such a nature to render NYK at home in the US.

The panel nevertheless suggested a different test should apply to the jurisdictional inquiry and commented that the claimants’ arguments had merit and were persuasive. One of the judges on the panel even wrote separately to urge the entire Fifth Circuit to consider the issue ‘to correct our course and undo the unnecessary limitation’ imposed on Rule 4(k)(2) inquiries with the at home jurisdictional test. This judge clearly felt that NYK as a ‘global corporation with extensive contacts with the United States’ should be subject to jurisdiction in this case.

Not surprisingly, the claimants filed an application with the Fifth Circuit for rehearing en banc. A rehearing en banc is rare, as it is ‘not favored and ordinarily will not be granted.’ Rehearing en banc can be appropriate when ‘the proceeding involves a question of exceptional importance.’

On July 2, the Fifth Circuit granted the application for rehearing en banc and vacated the April decision issued by the three-judge panel. The en banc court can, if it chooses, overrule the prior precedent to which the panel was bound and thus overturn the district court’s decision. Additional briefing by the parties is expected in the next months with oral argument scheduled to take place in September 2021. There is no set time frame by which the en banc court must issue its decision after argument.

Potential significance

It is difficult to predict how the Fifth Circuit will rule or the impact any such decision will have on foreign shipowners and charterers facing claims in the US. It is newsworthy any time a US circuit court decides to address an issue en banc. The Fifth Circuit also has an extensive history of maritime cases and has issued many decisions with long-lasting importance for the industry. As such, regardless the outcome, the Fifth Circuit’s decision on this maritime jurisdictional issue will be important. The court will, at a minimum, confirm the test that will be applied by federal district courts to determine if general jurisdiction exists in maritime cases and may reshape the test in its entirety.

In the meanwhile, foreign shipowners and operators who find themselves named as defendants in a lawsuit in the US where the incidents underlying the claim occurred outside the US should carefully consider with legal counsel whether a personal jurisdiction defence is available and should be advanced. In other words, whether there are sufficient minimum contacts with the forum to allow the relevant US court to exercise jurisdiction over the claim. Additionally, should you have any questions or comments, please do not hesitate to contact your usual club contact at any time.
Source: The Standard Club

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