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Default Judgments for Foreign Defendants: Assessing New York State Consequences

by | Jul 20, 2023

When will a Court grant a default judgment over a foreign defendant whose actions have consequences in the state of New York?
This precise issue was raised in the case of McGraw-Hill Glob. Educ. Holdings, LLC v. Khan, 323 F. Supp. 3d 488 (S.D.N.Y. 2018). Plaintiff McGraw-Hill (“McGraw”), an educational platform offering teachers and students access to class lessons, textbooks, assignments, an examinations etc. (the “Protected Intellectual Property”), sued Defendant Farukh Khan (“Kahn”), the owner/operator of several websites under varying domains for allegedly distributing McGraw’s Protected Intellectual Property without a licensing agreement or any similar authorization to do so, pocketing significant wrongfully gleaned financial earnings in the process. Khan’s address was outside of the State of New York and neither he nor registration of the domains occurred in New York State.
Plaintiff sought damages for, inter alia, copyright infringement and related claims, and sought to permanently enjoin Kahn from any further unauthorized sales of McGraw’s courses, otherwise known as a permanent injunction. When Khan failed to appear in the Action, Plaintiff moved for a default judgment. Typically, jurisdiction is quite easily established over a defendant that is either located or has engaged in business affairs within the state of the court. Hence, at issue before the Court was whether the New York District Courts had jurisdiction over Kahn given that the Defendant was located outside of New York and neither conducted daily business in New York nor was registered to do business in New York State.
While the Court had no trouble granting Plaintiff a permanent injunction, along with statutory damages in the amount of $9,150,000, the United States District Court for the Southern District of New York (“S.D.N.Y”) needed to first determine whether personal jurisdiction (power to make judicial decisions over people or entities) existed prior to awarding the Plaintiff a Default Judgment.
To accomplish this task, the court had to ensure conformity with two factors: (i) New York’s Long-Arm Statute (a state statute that outlines qualities of valid personal jurisdiction for a particular case type when the Defendant is out-of-state) and (ii) Due Process. Under New York’s Civil Practice Laws and Rules (the “CPLR”), New York’s Long-Arm Statue suggests that a court might exercise personal jurisdiction over any non-domiciliary (i.e. out of state defendant) who “transacts any business within the state or contracts anywhere to supply goods or services in the state.” (N.Y. CPLR 302 (a) (1)).
Under this stipulation, a plaintiff hoping for a court to maintain suitable jurisdiction over an out-of-state defendant would have to demonstrate that the “(1) defendant purposefully availed himself of the privilege of doing business in the forum state such that the defendant could foresee being brought into court there, and (2) the claim [arose] out of or is related to the defendant’s contacts with the forum state.” See Aqua Products, Inc. v. Smartpool, Inc., No. 04 Civ. 5492 (GBD), 2005 WL 1994013, at *5 (S.D.N.Y. Aug. 18, 2005).
In other words, for a Court to accept jurisdiction over a foreign defendant outside of New York, the Plaintiff must first show how the Defendant’s behavior interfered with the Plaintiff’s operations in such a way that consciously harmed them in the state where the case was filed (in this case, New York). To determine this, the court had to grasp whether Khan’s websites, his sole conduits for the illicit transactions, were significantly interfering with McGraw-Hills’s operations in New York. Since Khan was executing purchases to customers who were buying the Protected Intellectual Property in New York State, this condition was satisfied. Interestingly, the Court noted that had Khan’s New York website visitors only scrolled through, but not purchased the infringing product, the court may have determined its jurisdiction otherwise.
Moreover, Plaintiff was also able to satisfy jurisdiction concerning its alleged copyrighted work via N.Y. CPLR 302 (a)(3)(h), which states that in a respective copyright infringement case, the jurisdiction lies in the residence of the copyright owner. As McGraw was a company with its’ principal place of business in New York, jurisdiction could be properly established. Ultimately, when considering (i) McGraw’s copyright ownership, (ii) its dominant operations in New York, and (iii) the consequences of Khan’s actions negatively impacting McGraw’s functioning, such as sales, acquisition, etc., in New York, the Court determined suitable jurisdiction in accordance to this Long-Arm Statute over the Defendants in this case.
Following this, it was concluded that this adequate practice of the Long-Arm Statute was soundly within the parameters of Due Process. Therefore, overall validity with respect to this Court’s jurisdiction over Defendant, Khan was determined.
Key Takeaway(s):
Establishing adherence to procedural legal requirements, such as that of applicable jurisdiction, is absolutely crucial when setting forth claims in the New York State Court System.
For Courts like that of the United States District Court Southern District of New York, uncovering and demonstrating conformity to the checks and balances of the law is a consistent and naturally habitual practice.

 

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