Successor Jurisdiction and Anti-Terrorism Litigation

Transnational litigation often presents tricky questions of personal jurisdiction. Ongoing litigation in New York arising out of rocket attacks by Hizbollah does so in spades. This post reviews the recent New York Court of Appeals decision in Lelchook v. Société Générale de Banque au Liban SAL, answering a certified question posed by the Second Circuit Court of Appeals about the New York law of personal jurisdiction.

Background and Prior Litigation

Hizbollah carried out a series of rocket attacks in Israel in July and August of 2006. David Martin Lelchook, a U.S. citizen, was killed, and more than twenty other U.S. citizens were injured. In 2008, Lelchook’s estate and family members and the injured U.S. citizens filed suit in the United States against Lebanese Canadian Bank (LCB) under the Anti-Terrorism Act of 1990. Plaintiffs’ theory was that LCB provided extensive financial assistance to Hizbollah prior to the 2006 attacks.

The original case bounced around between the Eastern District of New York, the Second Circuit, and the New York Court of Appeals. Among the import questions was whether LCB would be subject to personal jurisdiction in New York.

To determine the personal jurisdiction question, the Second Circuit certified questions to the New York Court of Appeals regarding New York’s long-arm statute. Recall that personal jurisdiction in federal court requires that the exercise of jurisdiction comports with the Due Process Clause of the Constitution and that there is jurisdiction under Federal Rule of Civil Procedure 4(k). Rule 4(k)(1)(A), the most widely used part of 4(k) and the one at issue here, requires a court to determine whether a state court of general jurisdiction in the forum state would have jurisdiction. In New York, that means looking to the CPLR. And here, given the complicated nature of the question and unclear precedent, the Second Circuit asked certified questions to the highest court of New York (the Court of Appeals). The New York Court of Appeals confirmed that there was jurisdiction over LCB under state law, and the Second Circuit then concluded that plaintiffs satisfied the constitutional test as well.

Current Litigation

Meanwhile, in June 2011, Société Générale de Banque au Liban SAL (SGBL), a Lebanese company, purchased all the assets and liabilities of LCB for $580 million. Note that this transaction was not a merger or even a de facto merger under New York law. It was just the acquisition of assets and liabilities.

Next, the same plaintiffs who previously sued LCB sued SGBL on substantially similar claims. SGBL then filed a motion to dismiss for lack of personal jurisdiction, and the district court granted that motion. The court concluded that SGBL itself lacked the requisite contacts with New York. The court also concluded that LCB’s contacts could not be imputed to SGBL because, under New York law, the contacts of a predecessor could be imputed to successor when they merge but not when there is merely a sale of assets and liabilities. So according to the Eastern District of New York, while a state court of New York could assert jurisdiction over LCB, it could not assert jurisdiction over SGBL. Therefore, Rule 4(k)(1)(A) was not satisfied and the district court lacked personal jurisdiction.

Plaintiffs appealed, and the Second Circuit determined that New York law was not clear on the specific question of successor liability. So, the Second Circuit (again) posed certified questions to the New York Court of Appeals about the state law of personal jurisdiction.

New York Court of Appeals

The New York Court of Appeals accepted the questions and issued a decision on April 18, 2024. In brief, informed by (but not controlled by) the law of successor liability, the court held that New York law permitted the exercise of personal jurisdiction based on “successor jurisdiction,” including when the successor purchased the assets and liabilities of its predecessor.

A detailed review of the court’s reasoning is not necessary, but a few points are worth mentioning. As noted, the court suggested that the doctrines of successor liability and successor jurisdiction are related but not the same. The court reaffirmed prior precedent that successor liability was available when “(1) [a corporation] expressly or impliedly assumed the predecessor’s tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape such obligations.” As for successor jurisdiction, the court did not lay out an enumerated list but instead identified factors relevant to the question of successor jurisdiction. Those factors include “the impact of our rule on parties to a potential acquisition, whether imputing jurisdiction fairly reflects the reasonable assumptions and expectations of the parties to such transactions, whether doing so induces responsible parties to internalize responsibility for risks they create, and the impact of imputing jurisdiction on those injured by a predecessor’s acts.”

The court then explained that all of the factors supported successor jurisdiction in situations such as this one. The court observed that the acquisition of assets and liabilities was complete, not partial. And it suggested that SGBL should have been on notice of the potential tort liability. The court also worried about “unfortunate incentives.” The court went on:

Allowing a successor to acquire all assets and liabilities, but escape jurisdiction in a forum where its predecessor would have been answerable for those liabilities, would allow those assets to be shielded from direct claims for those liabilities in that forum. As the Second Circuit put it, a predecessor could “decouple . . . its assets from its enforceable liabilities, for value.” Injured parties would be left to directly sue the successor in a forum that may well be less favorable, with respect to both the likely outcome and available mechanisms to enforce a judgment. As a consequence, the value of plaintiffs’ claims would likely be reduced, perhaps by a significant amount, leaving the injured parties to absorb those costs themselves. That, in turn, would compromise the objective of having a “responsible source” available to absorb the risk of liability and compensate injured parties.

Therefore, the court concluded that “where an entity acquires all of another entity’s liabilities and assets, but does not merge with that entity, it inherits the acquired entity’s status for purposes of specific personal jurisdiction.”

Next Steps

With this answer in hand, the case goes back to the Second Circuit. The Second Circuit reserved the question whether an assertion of jurisdiction over SGBL would satisfy constitutional due process until it had an answer on New York law. So, the next step in the case presumably will be a federal court decision on this constitutional question. Stay tuned.