New York Courts May Have Jurisdiction Over Foreign Defendants That Trade On The New York Stock Exchange In Employment And Other Disputes

November 5, 2009


In a recent decision arising from an employment-related dispute, Georgakis v. Excel Maritime Carriers Ltd., No. 650322/08 (Sup. Ct. New York County, Oct. 23, 2009), the New York Supreme Court asserted jurisdiction over a foreign defendant (in a case brought by a foreign plaintiff) predominantly because the defendant traded its stock exclusively on the New York Stock Exchange (“NYSE”). Relying in part on the “increasingly global nature of our economy,” the court concluded that “the burden of litigation in a foreign country is part of the price which may properly be demanded of those who extensively engage in international trade.” Accordingly, non-US corporations listed on the NYSE should be aware that they may be subject to litigation in New York on this basis in employment or other disputes — even if the plaintiff is also foreign to the United States.

In Georgakis, the defendant, a Liberian corporation with its principal place of business in Greece, employed the plaintiff, a citizen of Greece, as its chief executive officer and a member of its board of directors. The plaintiff unsuccessfully attempted to exercise stock options, which he was granted pursuant to a stock option agreement. Thereafter, the plaintiff’s employment was terminated, and the defendant filed a Form 6-K with the United States Securities and Exchange Commission (“SEC”), stating that the plaintiff had been removed from the board of directors for cause. The plaintiff then initiated litigation in New York Supreme Court, claiming breach of contract and fraud with respect to the stock option agreement and defamation with respect to the Form 6-K filing. The defendant moved to dismiss, arguing that the court did not have personal jurisdiction over it, or, in the alternative, that the forum was inconvenient.

Rule 302 of the New York Civil Practice Law and Rules (“CPLR”) confers personal jurisdiction over a defendant when the defendant has transacted business in New York, thereby availing itself of the forum without establishing a presence in New York. The court held that “[t]o establish jurisdiction under [Rule 302], plaintiff must make a showing that defendant engaged in purposeful activities within [New York] and demonstrate a substantial relationship between those activities and the cause of action.” The defendant argued that this standard was not satisfied because the stock option agreement at issue was negotiated and executed in Greece, between Greek residents, but the court found that argument irrelevant because the contract was executed in English and provided that it was to be governed by New York law. The court did find it relevant that the defendant’s corporate counsel for the underlying transactions was a New York law firm, and the alleged defamation was published in an SEC filing. Overall, the court concluded that the plaintiff’s claims were all “directly related to [the] defendant’s trading of its stock on NYSE and ancillary activities, and solicitation of investors.”

The defendant further argued that the New York forum is inconvenient, pursuant to Rule 327 of the CPLR, because New York would be “unduly burdened” by the litigation. The defendant pointed to relevant secondary agreements that were negotiated in Greece and written in Greek. The court again highlighted the fact that the primary agreement at issue, the stock option agreement, was written in English and purported to be governed by New York law. In addition, the court stated that it “is well accustomed and equipped to interpret the law of other countries, and documents written in foreign languages are considered by the court through certified English translations.”

The court denied the defendant’s motion to dismiss in its entirety concluding that “[r]egardless of where the relevant contracts were negotiated and executed, . . . the controversy at hand involve[d] the transfer of shares listed in NYSE, and filings made to the SEC in connection with [the] defendant’s trading of shares in NYSE,” and the defendant “trade[d] its stock exclusively in New York’s NYSE.” Although the dispute in Georgakis was employment-related, the court’s reasoning is not limited to the employment context.

For several decades, foreign corporations have been accessing US public markets, and engaging in a broad range of employment and other arrangements to assist them. Because of decisions like Georgakis, foreign companies must be sensitive to the risk of being required to litigate disputes in New York or other US courts. Companies can take certain steps to reduce this risk, starting with a careful review of their contractual arrangements, including considering forum selection clauses and alternative dispute resolution provisions, among others. While the overall boundaries of this decision remain to be seen, foreign corporations that are looking to tap into the US public markets, such as trading their shares on the NYSE, should be aware of its potential jurisdictional implications.