In re Motors Liquidation Company: US Court has Jurisdiction over Foreign Lender | Practical Law

In re Motors Liquidation Company: US Court has Jurisdiction over Foreign Lender | Practical Law

On February 16, 2017, in In re Motors Liquidation Company, the US Bankruptcy Court for the Southern District of New York (the Court), denying a motion to dismiss, held that a foreign lender who purchased an interest in a secured loan was subject to specific personal jurisdiction of the Court under Rule 12(b)(2) of the Federal Rules of Civil Procedure since the loan agreement included a provision in which the lenders consented to the jurisdiction of any New York State court or any Federal court sitting in the City of New York, and the lender had sufficient minimum contacts with the forum.

In re Motors Liquidation Company: US Court has Jurisdiction over Foreign Lender

Practical Law Legal Update w-006-6460 (Approx. 5 pages)

In re Motors Liquidation Company: US Court has Jurisdiction over Foreign Lender

by Practical Law Finance
Published on 02 Mar 2017 • USA (National/Federal)
On February 16, 2017, in In re Motors Liquidation Company, the US Bankruptcy Court for the Southern District of New York (the Court), denying a motion to dismiss, held that a foreign lender who purchased an interest in a secured loan was subject to specific personal jurisdiction of the Court under Rule 12(b)(2) of the Federal Rules of Civil Procedure since the loan agreement included a provision in which the lenders consented to the jurisdiction of any New York State court or any Federal court sitting in the City of New York, and the lender had sufficient minimum contacts with the forum.
On February 16, 2017, the US Bankruptcy Court for the Southern District of New York (the Court), in In re Motors Liquidation Company, held, in a motion to dismiss, that a foreign lender who purchased an interest in a secured loan was subject to specific personal jurisdiction of the Court under Rule 12(b)(2) of the Federal Rules of Civil Procedure since the loan agreement included a provision in which the lenders consented to the jurisdiction of any New York State court or any Federal court sitting in the City of New York, and the lender had sufficient minimum contacts with the forum.

Background

In 2007, Austrian bank Immigon portfolioabbau (Immigon) purchased from JPMorgan Chase Bank, N.A. (JPMorgan) on the secondary market a $10 million interest in General Motors' (GM) syndicated $1.5 billion term loan. The loan was secured and granted JPMorgan a first priority security interest in certain manufacturing equipment. In accordance with the loan agreement's assignment provisions, Immigon executed and delivered an assignment and acceptance agreement to JPMorgan, which recorded the assignment to Immigon and updated the register of lenders to reflect Immigon's purchase of its interest in the term loan. As a result, Immigon became party to the loan agreement and, to the extent of its interest in the loan, had all the "rights and obligations of a Lender" under the loan agreement.
GM filed for Chapter 11 bankruptcy protection in the Court in June 2009. Under the terms of the Debtor in Posession (DIP) Order, Immigon received $9,893,347.29, paid by JPMorgan into Immigon's New York account at the Bank of New York Mellon. Subsequently, it was discovered that the liens securing most of the collateral for the $1.5 billion term loan were inadvertently released before the petition date. GM's unsecured creditors filed a lawsuit to clawback the funds repaid to all the holders of the term loan.
Immigon asserted that the Court lacked personal jurisdiction over it, requiring dismissal of the case against it under Rule 12(b)(2) of the Federal Rules of Civil Procedure.
The plaintiff, Motors Liquidation Company Avoidance Action Trust (AAT), successor to the rights of GM's official committee of unsecured creditors, argued that the Court had specific personal jurisdiction over Immigon on account of:
  • Its consent to the Court's jurisdiction based on a provision in the loan agreement.
  • Its consent to the Court's jurisdiction under the DIP Order by its receipt of the repayment.
  • Recognized principles of specific jurisdiction.

Outcome

The Court held that:
  • Immigon was a lender of record under the term loan agreement.
  • By purchasing an interest in the term loan, Immigon had consented to personal jurisdiction in New York concerning any dispute relating to its interest in the term loan.
  • Immigon had entered into a transaction in New York that was governed by New York law.
  • Immigon reviewed the DIP Order before receiving payment.
  • Immigon monitored the term loan in New York after it received its payoff and was aware of the action by AAT to recover post-petition payments made to the lenders in connection with the term loan agreement.
The Court found that Immigon had consented to jurisdiction in New York. The Court further concluded that, even if there was no consent, Immigon had established sufficient minimum contacts with New York State to support specific personal jurisdiction. As a result, the Court found in favor of AAT and denied Immigon's motion to dismiss.

Consent to Jurisdiction Under the Term Loan Agreement and DIP order

The term loan agreement contained customary jurisdiction provisions in which each lender and its assignees "irrevocably and unconditionally submits ….to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City … in any action or proceeding arising out of or relating to this Agreement." Further, each party "irrevocably and unconditionally waives… any objection… to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal Court."
The Court concluded that, by purchasing a $10 million interest under the term loan agreement, Immigon consented to personal jurisdiction in New York concerning any dispute relating to its interest in the term loan.
The Court also considered the DIP Order as relevant to the question of Immigon's consent to jurisdiction. The Court held that Immigon had received notice that the DIP Order included a consent to the Court's jurisdiction, and it had received and reviewed the final DIP Order before receiving payment. By accepting the transfer of funds in these circumstances, the Court held that Immigon had knowingly consented to the jurisdiction provision in the DIP Order.

Minimum Contacts Supports Jurisdiction

Even in the absence of consent to jurisdiction, specific personal jurisdiction over a foreign defendant can be supported by a showing that the party had sufficient minimum contacts with the forum. The Court highlighted that:
  • Payments under the term loan agreement were made in New York.
  • Immigon purchased its interest in the term loan from JPMorgan in New York.
  • Immigon agreed that New York law governed the loan.
  • Immigon selected Bank of New York Mellon for its correspondent bank account for payments under the term loan (as well as other dollar-denominated transactions).
  • JPMorgan made the disputed payment to Immigon's New York bank account.
These contacts showed that Immigon had purposefully availed itself of New York's banking system and laws, and as a consequence of which the Court held that AAT had established sufficient minimum contacts to support specific personal jurisdiction over Immigon.

Due Process

The Court also considered whether subjecting Immigon to personal jurisdiction satisfied due process by being consistent with traditional notions of fair play and substantial justice. It considered several factors relevant to determining reasonableness for this purpose that were identified by the Second Circuit in Chloe v. Queen Bee of Beverly Hills, LLC 616 F.3d 158 (2d Cir. 2010)(citing Int'l Shoe Co. v. Washington, 326 U.S. 310 (1945)). These include:
  • The burden that exercise of jurisdiction will impose on the defendant.
  • The interest of the forum state in adjudicating the case.
  • The plaintiff's interest in obtaining convenient and effective relief.
  • The interstate judicial system's interest in obtaining the most efficient resolution of the controversy.
  • The shared interest of the states in furthering substantive social policies.
The Court concluded that New York had a strong interest in adjudicating the claim since New York was the location of the loan transaction. Further, Immigon's burden in having to litigate in New York was small, due to the accessability of modern communication and transportation.

Practical Implications

This case serves as a reminder of the significance of New York jurisdiction and governing law provisions to foreign lenders acquiring interests in loans if a dispute arises under the loan agreement. Even in the absence of the lender's consent, however, the case highlights that a court will look at all the facts of the case in determining whether it has specific personal jurisdiction over a foreign lender in a dispute arising under the loan agreement. The court focuses on whether the lending relationship is centered in New York and the parties to the loan agreement enjoy the benefits of the US banking system and New York's position as a financial center.
In this case, Immigon failed in its motion to dismiss for lack of personal jurisdiction even though the Court accepted that it:
  • Was a licensed bank operating under the authority of the Austrian banking authorities.
  • Had no offices, employees or property in the United States.
  • Did not hold itself out as conducting business in New York, or elsewhere in the United States.
  • Did not have a postal address or telephone number in the United States.
  • Did not offer any financial or other services in the United States.
  • Did not advertise in the United States.
For more information on personal jurisdiction, see Practice Notes, Commencing a Federal Lawsuit: Initial Considerations: Does the Court Have Personal Jurisdiction Over the Defendant?, Responsive Pleadings: Counterclaims and Crossclaims: Personal Jurisdiction, and Motion to Dismiss: Overview: Lack of Personal Jurisdiction.