In a recent decision, Justice Scarpulla of the New York County Commercial Division declined to exercise personal jurisdiction over several Japanese entities, and even imposed sanctions on the plaintiff for attempting to relitigate its already-decided claims in New York.
Defendant ANA Aircraft Technics, Co., Ltd. (“ANA Technics”) maintained a fleet of airplanes owned and operated by its parent, All Nippon Airways, Co., Ltd. (“ANA”). In early 2003, ANA Technics entered into a Memorandum of Understanding (“MOU”) with plaintiff Kyowa Seni, Co., Ltd. (“Kyowa”), pursuant to which Kyowa agreed, among other things, to manufacture seat covers for ANA Technics.
After Kyowa began manufacturing the seat covers, ANA Technics allegedly directed Kyowa to: (1) affix TSO C127a labels onto the seat covers, demonstrating that the seat covers had been flammability tested in accordance with U.S. Federal Aviation Administration (“FAA”) regulations, and (2) execute certificates affirming the seat covers had been flammability tested.
Kyowa alleged it initially executed the certificates because it believed the required testing was performed, but subsequently requested confirmation that ANA Technics had conducted all of the necessary fire tests and possessed the certifications necessary to obtain the FAA labels. When ANA Technics failed to respond to Kyowa’s requests, Kyowa informed ANA Technics that it would not execute any additional certificates until it received confirmation that the testing was performed.
On October 1, 2004, ANA Technics terminated the MOU, claiming that Kyowa’s work was “substandard.” Kyowa brought an action in Japan (the “Japanese Action”) alleging, among other things, that ANA Technics terminated the MOU to conceal the unlawful TSO C127a labeling. Ultimately, the Japanese Action was dismissed, and that dismissal was upheld on appeal.
Kyowa then brought an action against ANA Technics and other related entities (collectively, the “ANA Companies”) in New York Supreme Court for fraud based on the same acts and transactions set forth in the Japanese Action. The ANA Companies moved to dismiss arguing, among other things, lack of personal jurisdiction. The ANA Companies also moved for sanctions against Kyowa on the ground that Kyowa’s lawsuit was an attempt to relitigate the same claims which were dismissed in the Japanese Action.
First, Justice Scarpulla rejected Kyowa’s argument that the ANA Companies were subject to general jurisdiction merely because the defendant companies were registered in New York and appointed the Secretary of State as their agent for service of process. According to the Court, the ANA Companies’ “simple registration in New York is an insufficient ground for this Court to exercise general jurisdiction over them.” Moreover, the fact that the ANA Companies, which are all incorporated and headquartered in Japan, derive some revenue from their New York flight operations “is plainly insufficient to render the ANA Companies ‘essentially at home’ in New York”.
Second, the Court declined to exercise specific jurisdiction over the ANA Companies under either CPLR §§ 302(a)(1) (transaction of business) or 302(a)(2) (tortious acts committed within the state). Specifically, the Court held there was no “articulable nexus” or “substantial relationship” between New York and Kyowa’s claims arising out of ANA Technics’ termination of the MOU. And, the Court noted that Kyowa failed to allege any tortious act that the ANA Companies committed in New York. Indeed, the MOU was executed in Japan, any alleged misrepresentations occurred in Japan, the seat covers were manufactured in Japan, and any alleged harm to Kyowa occurred in Japan.
Last, the Court agreed that sanctions were warranted under 22 NYCRR § 130-1.1 because the “action is meritless and without a good faith basis.” According to the Court, “there is simply no basis for a New York court to assert jurisdiction over a dispute between Japanese entities, a dispute which has no specific connection to New York or its citizens.” Importantly, the Court noted that Kyowa’s claims were already fully litigated and disposed of in the Japanese Action.
As demonstrated in Kyowa Seni, Justices in the Commercial Division have very little patience for litigants who assert frivolous arguments and attempt to relitigate previously decided claims. While the result in this case may seem harsh to some, a full reading of the Court’s decision reveals that Justice Scarpulla gave plaintiff the opportunity to withdraw its action and avoid sanctions. Despite fair warning, Plaintiff declined to do so.