High Court Limits Suits That Target Foreign Firms

The Supreme Court on Tuesday gave foreign corporations greater protection from lawsuits in U.S. courts, ruling that a British commodities trader need not answer a complaint filed by investors in Louisiana.

To bring a foreign firm into a U.S. court, an American citizen must show that the firm did business here and clearly violated a federal or state law, the high court ruled unanimously.

This is the second time this year that the justices have told state courts to exercise caution before applying American laws to foreign corporations or citizens.

In this case, the two Louisiana investors charged a London commodities broker with having misrepresented the tax advantages of an investment in silver futures. But the London firm did no business in Louisiana. It did not have offices or employees there and did not advertise in Louisiana. The two investors actually dealt with a New York firm, Omni Capital International, which in turn invested in the London firm of Rudolf Wolff & Co.

‘Circumspection’ Needed

This is not “a constitutionally sufficient relationship” to justify bringing the London firm into court in Louisiana, Justice Harry A. Blackmun wrote. He also concluded that the federal Commodity Exchange Act alone does not create grounds for a private citizen to bring such an action in federal court.

In February, the high court said a California man could not sue in state court a Japanese maker of a motorcycle part sold to a Taiwanese motorcycle manufacturer whose products were in turn sold in the United States. The business relationship was so tenuous that it did not justify dragging the foreign firm into an American court, the justices concluded.

In Tuesday’s ruling, Blackmun said the court is reluctant to create broad, new rules that would allow U.S. courts to reach out to take actions against foreign businesses, although Congress may choose to undertake this task.

No Jurisdiction

“Circumspection is called for in going beyond what Congress has authorized,” Blackmun wrote. “We reject the suggestion that we should create a common law rule authorizing service of process (on a foreign firm), since we would consider that action unwise, even were it within our power.”

The Louisiana case (Omni Capital vs. Rudolf Wolff, 86-740) arose over the selling of silver futures on the London Metal Exchange. When Omni, the New York company, was sued by the Louisiana investors, it filed suit against Wolff, the London company.

A federal court in Louisiana said the suit against Wolff could proceed, but a federal appeals court disagreed. It ruled that a district court had no “jurisdiction (based) on a federal statute or rule,” and the high court affirmed that conclusion.