Pleading Problems of Extraterritoriality

As a general matter, statutes are not extraterritorial. Congress can make them extraterritorial, and in some areas have, like the Sherman Act, Congress has. The Copyright Act is not extraterritorial, although some courts have permitted recovery for overseas acts where the original infringement occurred in the United States. As a pleading matter, where plaintiff has claimed liability for overseas acts how does the defendant respond? Does defendant assert the court lacks subject matter jurisdiction under FRCP 12(b)(1), or instead that plaintiff has failed to state a claim upon wehich relief can be granted under FRCP 12(b)(6)?

The distinction between subject matter jurisdiction and an element of the claim is not always easy to discern and in some areas is subject to a healthy disagreement among judges, beginning with the debate between Justices Souter (for the majority on this issue) and Scalia (dissenting on this issue) in Hartford Fire Insurance Co. v. California, 509 U.S. 764 (1993). Justice Scalia believed that the extraterritorial reach of the Sherman Act has nothing to do with the jurisdiction of the courts. According to Justice Scalia: “It is a question of substantive law turning on whether, in enacting the Sherman Act, Congress asserted regulatory power over the challenged conduct. … If the plaintiff fails to prevail on this issue, the court does not dismiss the claim for want of subject-matter jurisdiction – want of power to adjudicate; rather, it decides the claim, ruling on the merits that the plaintiff has failed to state a cause of action under the relevant statute …”

The Souter-Scalia debate was replayed in the Seventh Circuit’s en banc opinion in United Phosphorus Ltd. v. Angus Chemical Co. 322 F.3d 942 (7th Cir. 2003) (en banc). where a 5-4 split saw Judge Evans’ majority opinion holding that the 1982 Federal Trade Antitrust Improvements Act, an amendment to the Sherman Act was jurisdictional, while Judge Wood, writing for herself and three others, believed the relevant provision was an element of the cause of action. Judge Wood was particularly concerned about stripping the federal courts “of their competence to hear and decided antitrust cases with a foreign element.” She also ticked off a number of practical issues, such as the ability to challenge subject matter jurisdiction at any time in the proceedings, something that is not the case with the alternative approach of a Rule 12(b)(6) motion to dismiss for failure to state a claim.

A number of other courts have referred to questions regarding extraterritorial application of statutes as involving subject matter jurisdiction, and it is common to refer to the extraterritoriality of the Lanham Act as involving a subject matter inquiry. In cases under the Copyright Act, courts uniformly have the issue as involving subject matter jurisdiction.

Most recently, in Arbaugh v. Y&H Corp. 126 S.Ct. 1235 (2006) the Supreme Court addressed whether the limitation in 42 U.S.C.A. §200e(b) that title VII suits may be brought only if the defendant business has “fifteen or more employees” was a subject matter jurisdiction requirement or an element of the cause of action. Defendant had stipulated to subject matter jurisdiction; the case was tried to a jury which found for plaintiff. The court entered verdict for plaintiff. In a post-trial motion, defendant for the first time asserted that it had fewer than 15 employees and that this fact deprived the court of subject matter jurisduiction, requiring vacating the judgment and dismissing the case. Although the trial court rightly stated that to do so was “unfair and a waste of judicial resources,” it granted plaintiff’s motion. The Fifth Circuit affirmed. The Supreme Court reversed.

Acknowledging that its own use of the term “jurisdictional” had been inconsistent, the Court remarkably did nothing to provide a consistent analytical framework. At bottom, the Court merely noted a parade of horribles that resulted when a particular challenge was classified as involving subject matter jurisdiction, and threw the matter at Congress’s feet: if Congress wants the numerosity requirement to be one of subject matter jurisdiction, the Court said please amend the statute to say so. One can agree that defendant’s behavior in Arbaugh was reprehensible, and that the numerosity requirement should not, as a policy matter, concern subject matter jurisdiction in order to prevent future such efforts, but it is hard to find any analytical foundation supporting the Court’s opinion. Even worse, the Court gratuitously called into question its earlier opinion in EEOC v. Aramco by stating: “En passant, we copied the petitioners’ characterizations of terms included in Title VII’s ‘Definitions’ section … as ‘jurisdictional.” See 499 U.S. at 249, 251, 253.” As the citation here reveals, “en passant” happened three times. The Arbaugh Court didn’t come out and say that the issue of extraterritoriality in Aramco wasn’t one of subject matter jurisdiction – as the lower court in that very case had held - only that in Aramco “we were not prompted … to home in on whether the dismissal had been properly based on the absence of subject-matter jurisdiction rather than on the plaintiff’s failure to state a claim. 499 U.S. at 247.” Such revisionism might be defensible – if still inaccurate – if the Arbaugh Court had gone on and stated what it thought the basis for dismissal in Aramco should have been, but it didn’t. Gratuitously calling into question the basis for one of its own decisions without then supplying the answer is very unhelpful. There is, moreover, nothing in the Court’s parade of horribles for challenging the numerosity requirement in title VII that is unique to such suits, and which does not apply with equal validity to all subject matters jurisdiction challenges, including ones the Court itself would readily acknowledge are subject matter jurisdictional issues.

The current state of the law then is unsettled, and that’s not good.