Foreign Online Customer is Subject to US Personal Jurisdiction in Fraudulent Transfer Litigation

May 17, 2018

Is a foreign online customer of a bankrupt goods supplier subject to personal jurisdiction in the United States, when sued by a bankruptcy trustee for fraudulent transfers? Yes, says the Bankruptcy Court for the Northern District of California in In re Fox Ortega Enterprises, Inc. Debtor. Michael Kasolas, Chapter 7 Tr., Plaintiff, v. Johnny Yau, Defendant., No. 16-40050, 2018 WL 2191597 (Bankr. N.D. Cal. May 11, 2018).

Legal and Factual Background 

In Fox Ortega, a chapter 7 case, one of the Debtor’s operations was a wine business which sold “pre-bottled wine at very favorable prices.” Two years after the Debtor filed for bankruptcy, the appointed Trustee commenced over a hundred actions alleging fraudulent transfers against those among the Debtor’s business customers who actually received their pre-bottled wine. Among those customers was the Defendant in the case discussed herein, a Hong Kong resident who made (almost) all of his purchases online. 

Once sued, Defendant filed a motion to dismiss the action for lack of personal jurisdiction. Defendant argued that he made all of the relevant transactions online without being physically present in the United States, and therefore has not established sufficient contacts with the forum. Defendant further argued that requiring him to litigate in the United States will be unreasonably burdensome, while a reasonable alternative would be for the Trustee to bring an action in a Hong Kong court. 

The Court’s Personal Jurisdiction Finding: Physical Presence Not Required 

The court rejected those arguments, finding that Defendant was subject to specific personal jurisdiction in California. At the outset, the court clarified that while Defendant directed most his arrows to questions of diversity jurisdiction, personal jurisdiction in cases arising under the Bankruptcy Code exists as long as it does not violate the Constitution. Noting that general personal jurisdiction is inapplicable here, the court proceeded to examine whether the elements for specific personal jurisdiction existed. Such jurisdiction, the court explained, exists over a non-resident defendant “if the defendant purposefully directed his activities at the forum, and the litigation results from injuries arising out of those activities.” 

Applying the Ninth Circuit’s three-part test to evaluate whether a court may exercise specific personal jurisdiction, the court had to decide (x) whether Defendant “purposefully avail[ed] himself of the privilege of conducting activities in the forum,” (y) whether the claim arises out of or results from Defendant’s forum-related activities, and (z) whether exercise of jurisdiction is reasonable. The court answered “yes” to all three questions. 

First, relying on the Supreme Court’s opinion in Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985), the court found that “physical presence in a forum is not necessary for a court in that forum to assert personal jurisdiction over a non-resident defendant.” Rejecting Defendant’s argument that he merely purchased items on the internet, the court explained that the “pertinent question for this Court is not whether Defendant has physically appeared in California or the United States but rather whether he purposefully directed his litigation-related activities toward forum residents.” Here, Defendant used the internet “to deliberately form contracts with [Debtor] in California for wine to be shipped from California subject to terms that explicitly stated that the contracts were formed in California.” What is more, Defendant admitted to have made at least one purchase in person. 

The court concluded that the means with which Defendant directed the transactions is irrelevant. Defendant “could have used the internet to order wine, he could have ordered by mail, or he could have ordered by carrier pigeon. In all three cases, Defendant would have initiated transactions with a California resident that purposefully availed himself of the United States and California as forums and by such transactions would have implicated the protections of their laws.” 

As for the second and third prongs of the specific personal jurisdiction test, the court found that the litigation clearly arises from Defendant’s forum contacts, and that the burden caused to him will not be unreasonable. With respect to the latter, the court explained that “Defendant has already demonstrated the ability to hire local counsel” and that he travels to California regularly. On the other hand, the court found, the burden to Plaintiff of suing Defendant in Hong Kong is “manifestly greater.” Finally, the court found that exercise of personal jurisdiction over Defendant is “consistent with fair play and substantial justice.” 

Filing Forum is Favored in Bankruptcy 

After reaching its conclusion, the court reiterated that the Trustee brought over a hundred fraudulent transfer actions against defendants residing all over the United States and the world. Therefore, a different result would require Plaintiff to bring separate lawsuits in jurisdictions all over the world. “There is a strong federal interest,” the court noted, “in hearing bankruptcy matters in the bankruptcy court where the bankruptcy case was filed.” 


In the global web-based economy, foreign parties conducting business online with U.S. persons may not be shielded from being sued in the United States due to their lack of physical presence in the United States. Careful structuring should be considered by foreign persons intent on avoiding the assertion of personal jurisdiction over them in the United States. 

Read the opinion »

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