Second Circuit Issues Decision in Gucci America, Inc. et. al. v. Li et. al.

On September 17, 2014, the Second Circuit issued its long awaited decision in Gucci America, Inc. et. al. v. Li et. al., 2014 WL 4629049 (Appeal Nos. 11-3934 & 12-4557). In its decision, the Court vacated and remanded an August 2011 order compelling nonparty Bank of China (BOC) to comply with a document subpoena and asset freeze provision in an injunction and a May 2012 order denying the bank’s motion to reconsider. The court also reversed a November 2012 decision holding the bank in contempt for non-compliance with the court’s August 2011 order and imposing civil penalties.

The asset freeze purported to enjoin banks with notice of the injunction from transferring money out of defendants’ bank accounts, while the subpoena sought records concerning the defendants and their accounts at the bank. BOC had sought reconsideration of the court’s August 2011 order, arguing that Chinese law prohibited commercial banks in China from freezing accounts or turning over account records pursuant to foreign court orders.

The Supreme Court’s January 2014 Daimler AG v. Bauman decision 134 S. Ct. 746 threw an unexpected wrench into the appeal when the high court held that aside from the exceptional case, a corporation is only subject to general jurisdiction in a state in which it formally incorporates or has its principal place of business. This decision led the BOC to argue, and the Second Circuit to conclude, that the district court lacked general jurisdiction over the bank.

While the district court had authority to issue the freeze, without personal jurisdiction over the bank, it could not enforce it against BOC. The Second Circuit thus remanded to the district court to decide whether it had specific jurisdiction over the bank and if so, whether, in light of the stated conflict with Chinese law, ordering compliance would be consistent with the principles of comity set forth in Section 403 of the Restatement (Third) of Foreign Relations Law. In the event the district court proceeds to an application of the Section 403 factors, the Second Circuit directed it to consider a Beijing court decision unfreezing previously frozen deposits of one of the Gucci defendants in the PRC.

Gibbons will monitor case activity on remand and report on whether the district court finds specific jurisdiction over the bank and if so, how it applies the Section 403 Restatement factors.

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