First American Corp. v. Price Waterhouse LLP
1997 U.S. Dist. LEXIS 20137, 1997 WL 784597, 988 F. Supp. 353 (1997)
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Rule of Law:
A foreign corporation is considered to be "doing business" in New York, thereby subjecting it to personal jurisdiction, when a separate local entity acts as its agent by performing services that are so essential to the foreign corporation's business that the foreign corporation would have to perform them itself if the agent were not present.
Facts:
- The Bank of Credit and Commerce International (BCCI) allegedly perpetrated a massive fraud, which included the secret and illegal acquisition of First American Corporation (FAC).
- Various legally separate Price Waterhouse (PW) firms around the world served as auditors for different parts of the BCCI group.
- Beginning in 1987, Price Waterhouse-United Kingdom (PW-UK) became the worldwide auditor for the entire BCCI group and was responsible for coordinating the global audit.
- As part of its coordination, PW-UK sent detailed instructions to and controlled the audit work of Price Waterhouse-United States (PW-US) regarding BCCI's New York operations.
- PW-US partners viewed their work on the BCCI audit as being directed by PW-UK, with one partner describing the U.S. audits as a "fill in the blanks exercise" directed by London.
- A PW-UK partner testified that when one PW office uses another for regional services, it effectively creates an agency relationship.
- Clive Newton, a partner in PW-UK, was residing in Connecticut and working for PW-US when discovery was sought.
Procedural Posture:
- First American Corporation (FAC) filed a civil action in the U.S. District Court for the District of Columbia against parties related to the Bank of Credit and Commerce International (BCCI) fraud.
- In that D.C. action, FAC served a subpoena for documents on 'Price Waterhouse' at the New York office of PW-US.
- FAC later served an identical subpoena on Clive Newton, a PW-UK partner residing in Connecticut and temporarily working for PW-US.
- PW-US objected to the subpoenas, asserting that there was no single 'Price Waterhouse' entity, that it did not control the documents of the foreign PW firms, and that the court lacked jurisdiction over those foreign firms.
- FAC filed a petition in the U.S. District Court for the Southern District of New York to compel discovery from various foreign Price Waterhouse firms.
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Issue:
Is a foreign accounting firm subject to personal jurisdiction in New York for discovery purposes when it uses an affiliated New York firm as its agent to conduct a worldwide audit, including directing and controlling significant work within New York?
Opinions:
Majority - Sweet, District Judge.
Yes. A foreign accounting firm is subject to personal jurisdiction in New York when it does business through a local agent, even if that agent is a legally separate entity. The court first rejected the theory of 'partnership by estoppel' as a basis for jurisdiction over all foreign PW firms because the plaintiff, FAC, failed to show it had relied to its detriment on any representation of a worldwide partnership. The court also found that service on a PW-UK partner residing in the U.S. was insufficient to establish jurisdiction over the foreign partnership, as the partner's activities in the U.S. were for a separate entity (PW-US) and did not satisfy due process requirements of minimum contacts for PW-UK. However, the court found jurisdiction over PW-UK under an agency theory. PW-UK was 'doing business' in New York through PW-US because it controlled every significant aspect of PW-US’s audits of BCCI’s New York branch. These services were so essential to PW-UK's worldwide audit that PW-UK would have had to perform them itself if PW-US had not done so. This purposeful direction of activities in New York satisfies due process and establishes personal jurisdiction. Finally, the court held that international comity did not require deferring to the Hague Convention, as the U.S. interest in adjudicating a massive bank fraud case outweighed foreign interests in confidentiality, particularly since the foreign laws in question contained exceptions for disclosure.
Analysis:
This decision clarifies the application of the agency theory for establishing personal jurisdiction over foreign corporations in a globalized economy. It affirms that a court can look beyond formal corporate separateness to find a functional agency relationship based on the level of control a foreign entity exerts over a domestic one. This provides a crucial avenue for U.S. litigants to obtain discovery from foreign affiliates of multinational organizations that might otherwise be beyond the court's reach. The case also reinforces the principle that U.S. discovery obligations can trump foreign secrecy laws when a significant U.S. public interest, such as combating large-scale financial fraud, is at stake.
