U.S. Legal News for Japanese Companies - October 2023 Edition

October 9, 2023 - This newsletter reports on U.S. legal developments relevant to Japanese companies.  This edition covers U.S. court cases and cross-border transactions from the summer of 2023. Among other things, we discuss a recent class action ruling in the ongoing Takata MDL, an important opinion of the U.S. Supreme Court relating to jurisdiction, and recent court decisions relating to the arbitrability of claims and selection of arbitrators.

Class Action Litigation

On June 15, the federal judge overseeing the Takata multidistrict litigation (“MDL”) granted class certification in a case against Fiat Chrysler Automobiles (“Fiat Chrysler”).  In re: Takada Airbag Products Liability Litigation, No. 1:15-MD-02599-FAM (S.D. Fla. June 15, 2023).  The Takata MDL was formed in 2015 to consolidate U.S. federal court cases arising out of the failure of Takata airbags.  Since then, Takata has filed for bankruptcy and numerous automobile manufacturers, including Toyota Motors Corp., Mazda Motor Corp., Subaru Corp., Honda Motor Co. Inc., and Nissan Motors Co. Ltd., have settled with vehicle purchasers.

In the ongoing case against Fiat Chrysler, plaintiffs assert economic claims on behalf of approximately six million Fiat Chrysler vehicle owners who, they allege, would not have purchased or paid as much for their vehicles had they known about the airbag defect.  The court certified an expansive class, consisting of vehicle owners who had purchased their vehicles not just from Fiat Chrysler’s authorized dealers, but from other dealers and individual resellers of used vehicles as well.

Consent to Jurisdiction

Japanese companies with U.S. subsidiaries should be aware that, in registering to do business in a particular U.S. state, they may be subjecting themselves to lawsuits in that state.  On June 27, the U.S. Supreme Court decided Mallory v. Norfolk Southern Railway Co., 143 S. Ct. 2028 (2023).  In a 5-4 opinion, the Court found that a Pennsylvania court had personal jurisdiction over an out-of-state company because it had registered to do business in Pennsylvania.  This finding was based on the language of the Pennsylvania corporate registration law, which contains an explicit consent to the jurisdiction of the Pennsylvania courts.  Pennsylvania is apparently the only U.S. state that has a corporate registration law with an explicit consent to jurisdiction.  But there are states, such as Georgia, Iowa, Kansas and Minnesota, where courts have held that registering to do business or appointing an agent in the state to receive service of process may constitute consent to general jurisdiction.

Mallory involved a plaintiff who alleged that, while working for the railroad, he was exposed to carcinogens that later caused his cancer.  Mallory’s exposures occurred in Ohio and Virginia, and the railroad company was incorporated and headquartered in Virginia, yet Mallory chose to file his case in Pennsylvania.  He contended that this was proper because the railroad had registered to do business in Pennsylvania, having “‘regular, systematic, [and] extensive’” operations there, and in so doing agreed to appear in Pennsylvania’s courts on “any cause of action” against the company.  15 Pa. Cons. Stat. § 411(a); 42 Pa. Cons. Stat. §5301(a)(2)(i), (b).  The Pennsylvania state courts – including the Pennsylvania Supreme Court – rejected Mallory’s argument and found no personal jurisdiction over the railroad.  The Pennsylvania Supreme Court recognized the consent to jurisdiction provision in Pennsylvania’s corporate registration law but decided that this provision violated the Due Process Clause of the U.S. Constitution.

The Supreme Court vacated the opinion of the Pennsylvania Supreme Court and remanded the case for further proceedings.  In so doing, the Court decided that a state may require an out-of-state corporation to consent to personal jurisdiction in the state as a condition of doing business there.  This is significant for two reasons.  First, while the Supreme Court has recognized that a corporation may consent to personal jurisdiction when entering into a contract, Mallory confirms that such consent may also occur when registering to do business in a state.  Second, recent Supreme Court precedent has held that a corporation is subject to jurisdiction only where it is “at home,” and Mallory now expands that concept to include these types of statutory consents.

Jury Trial

On July 19, in Honeywell International Inc. v. Opto Electronics Co., Ltd., No. 3:21-cv-00506-KDB-DCK (W.D.N.C. July 19, 2023), a federal jury in North Carolina found that Opto, a Japanese company, breached a settlement agreement in a patent dispute by failing to pay royalties on certain barcode scanners.  The settlement agreement required Opto to pay royalties on sales of its 2D barcode products in the U.S.  (One-dimensional or 1D barcode scanners read parallel lines like UPC codes, and two-dimensional or 2D scanners read more complex patterns like QR codes.)  The trial turned on whether certain of Opto’s scanners qualified as 2D barcode products because they could read certain types of barcodes (found, for example, on driver’s licenses and boarding passes).  One feature of U.S. litigation that Japanese companies sometimes overlook is that the company’s prior statements may be introduced into evidence at trial.  Here, Honeywell did exactly that to Opto.  Honeywell pointed out that Opto had made inconsistent statements about these scanners in related litigation, and this apparently influenced the jury’s finding against Opto. Note: On September 27, the court denied Honeywell’s post-trial motion for attorney fees in part because the settlement agreement permitted recovery of “fees and costs” but not specifically “attorney fees.”

Arbitration-Related Decisions

On June 5, in Fujitsu Semiconductor Ltd. v. Cypress Semiconductor Corp., No. 22-mc-80313-VKD (N.D. Cal. June 5, 2023), the U.S. District Court for the Northern District of California enforced an arbitration clause in a foundry agreement pursuant to which Fujitsu Semiconductor Ltd. (“FSL”) provided semiconductor manufacturing services, or foundry services, to Cypress.  Based on the arbitration clause, the court ruled that all of Cypress’s claims against FSL, including an equitable claim under the California unfair competition law, were to be arbitrated in Tokyo under the rules of the Japan Commercial Arbitration Association.  Cypress argued that its equitable claim should stay in the California federal court because the arbitration clause excluded claims for “equitable relief.” But the court disagreed, finding that the arbitrability of Cypress’s equitable claim was an issue for the arbitral tribunal to decide.

On June 8, in Hotel 57 LLC v. FSR International Hotels Inc., No. 1:22-cv-09331-LLS (S.D.N.Y. June 8, 2023), the U.S. District Court for the Southern District of New York issued an order relating to the appointment of arbitrators.  The parties’ dispute arose out of two hotel management agreements that contained arbitration clauses calling for the parties to agree on a panel of three arbitrators.  To avoid two separate arbitrations, the parties entered into a letter agreement and a new protocol for the selection of arbitrators.  When this also failed, they asked the court to choose the arbitrators for them.  Deciding the matter in “a way that [gives] effect to the parties’ agreement,” the court ordered that, if the parties could not agree on arbitrators, they should use the arbitrator appointment process originally set forth in the hotel management agreements. On July 7, the respondents (FSR International Hotels Inc. and Four Seasons Hotels Limited) filed a notice of appeal.

Regulatory Fines

On August 31, the U.S. Department of Justice and the Environmental Protection Agency announced that Tadano Ltd. and its subsidiaries (the “Tadano Group”) are to pay a U.S. $40 million civil penalty to resolve allegations that they violated the Clean Air Act (the “CAA”) by importing and selling cranes with diesel engines not certified to CAA emission standards.  In addition, based on the proposed settlement, the Tadano Group is to contribute U.S. $3.2 million towards a project to mitigate harm caused by excess nitrogen oxide and particulate matter emissions from the crane engines. The settlement is subject to a public comment period and final court approval.

Cross-Border Transactions

On June 30, Dentsu announced that it had completed its acquisition of Tag Worldwide Holdings, Ltd., a global producer of ads and other marketing content, from private equity group Advent International. According to media reports, the purchase price was U.S. $516 million.

On July 13, Marubeni Corporation announced it had acquired a 50% equity interest in Diversified Aero Services, LLC, a global aircraft inventory solution provider that procures and sells aircraft parts through its online marketplace. The purchase price was undisclosed.

On June 16, AP Acquisition, a special purpose acquisition company (or SPAC), announced that it had entered into a definitive business combination agreement with JEPLAN, Inc., a Japanese company engaged in chemically recycled PET technology, pursuant to which JEPLAN would become an NYSE-listed company. According to the announcement, the combination agreement sets JEPLAN’s equity value at U.S. $300 million. The closing is expected later this year.