Bank of China Averts Compel Order, for Now

     MANHATTAN (CN) – U.S. luxury brands looking to lean on the Bank of China for help seizing the ill-gotten gains of forgers must wait a while longer, the 2nd Circuit ruled Wednesday.
     A three-judge panel remanded the case to District Court in light of the Supreme Court decision earlier this year that limits U.S. jurisdiction over foreign corporations.
     The judges said the District Court still may be able to establish jurisdiction over the nonparty Bank of China, but it should weigh the principles of international comity before deciding whether to compel the bank to freeze the copycats’ assets.
     Four years ago, Gucci America, Yves Saint Laurent America and other well-known manufacturers of luxury handbags, clothing, jewelry and fragrances sued a handful of individuals and their online companies for allegedly selling knockoff products on the Internet.
     The manufacturers claimed the alleged copycats violated at least 20 trademarks and sold millions of dollars in fake goods to U.S. consumers.
     In July 2010, the manufacturers secured a preliminary injunction in U.S. District Court for the Southern District of New York that froze the defendants’ assets and barred further sales. The Bank of China was served at its New York branch for allegedly receiving sales proceeds wired by some of the counterfeiters.
     The manufacturers subsequently subpoenaed the bank for all documents relating to the defendants and their accounts.
     After a year of motions and amendments, the District Court in August 2011 ordered the bank to comply with the injunction and subpoena. Another year of back and forth followed before the District Court held the bank in contempt in November 2012 for failing to comply. The court assessed a $75,000 fine for past noncompliance and a $10,000-a-day fine going forward.
     The bank appealed the contempt citation and fine. It also appealed the injunction and subpoena.
     On Wednesday, the 2nd Circuit reversed the contempt finding and fine, calling the latter unduly punitive. It affirmed the District Court’s authority to issue the injunction freezing the copycats’ assets.
     But the three-judge panel vacated the August 2011 order compelling the bank to comply with the asset-freeze injunction and a May 2012 order denying the bank’s motion to reconsider.
     Key to that part of the ruling, the panel said, was the Supreme Court decision this year in Daimler AG v. Bauman, which said corporations need to be “essentially at home” in a state – headquartered or incorporated there – to be subject to general jurisdiction in that state.
     Prior to the decision, courts allowed general jurisdiction “on the basis that a foreign corporation was doing business through a local branch office in the forum,” according to the 2nd Circuit’s order.
     “We conclude that applying the Court’s recent decision in Daimler, the District Court may not properly exercise general personal jurisdiction over the Bank [of China],” Judge Debra Ann Livingston wrote for the court. “Just like the defendant in Daimler, the nonparty bank here has branch offices in the forum, but is incorporated and headquartered elsewhere.”
     Bank of China, owned primarily by the Chinese government, operates worldwide but has just four U.S. branches, including the one in New York City.
     While agreeing that all-purpose general jurisdiction no longer applied, “we also conclude, however, that this matter should be remanded so that the District Court may consider whether it has specific jurisdiction to enforce the asset-freeze injunction against the bank and may exercise such jurisdiction, with due process,” Livingston wrote.
     General jurisdiction typically allows a court to hear any and all claims against an entity, but specific jurisdiction “permits adjudicatory authority only over issues that ‘aris[e] out of or relat[e] to the [entity’s] contacts with the forum,'” the judges said, citing precedent.
     Bank of China’s “presence and activity in the forum may thus be relevant for determining whether specific jurisdiction to force compliance with the asset-freeze injunction is appropriate in this case,” they added.
     If the District Court concludes it can exercise specific jurisdiction, the judges suggested doing a comity analysis, too.
     The doctrine of international comity “refers to the spirit of cooperation in which a domestic tribunal approaches the resolution of cases touching the laws and interests of other sovereign states,” Livingston wrote.
     Bank of China, a Chinese law expert and two Chinese banking regulators already alerted the District Court and the federal appeals court to provisions in Chinese banking law that prohibit freezing bank accounts in that country under foreign court order.
     A comity analysis under Section 403 of the Restatement (Third) of Foreign Relations Law “should give due regard to the various interests at stake,” Livingston said.
     Judges Gerard Lynch and Raymond Lohier Jr. concurred.

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