Fraud Exception to “Government Contact Rule” for Personal Jurisdiction in the District of Columbia

February 2, 2012 Authors: Susan Linda Ross, Matthew H. Kirtland

On January 26, 2012, the District of Columbia Court of Appeals, in Companhia Brasileira Carbuerto de Calcio—CBCC v. Applied Industrial Materials Corp, No. 11-SP-500 (D.C. Jan. 26, 2012), carved out an important exception to the long-standing general rule that personal jurisdiction in the District of Columbia is not conferred over nonresidents who enter the District of Columbia for the purpose of contacting federal government agencies.

The origins of the case go back to 1993, when U.S. producers of an alloy used in manufacturing steel submitted false and misleading information to the U.S. International Trade Commission (ITC) to convince it to impose duties on imports of the alloy from Brazil. Upon discovery of this, and conviction of the U.S. producers for price-fixing, the ITC reversed the duties. The ITC sits in the District of Columbia.

In 2001, three Brazilian producers of the alloy sued the U.S. producers and their (foreign) parent corporations in federal court in the District of Columbia. Personal jurisdiction was asserted on the basis of the false and misleading information previously submitted by the U.S. producers to the ITC. In 2010, the federal court dismissed the lawsuit, holding that it lacked personal jurisdiction over the defendants. On appeal, this jurisdictional issue was certified to the District of Columbia Court of Appeals.

The District of Columbia, like most states, has a long-arm jurisdiction statute that permits local courts to exercise jurisdiction over nonresident defendants due to such actions as "transacting any business" or "causing tortious injury" in the District of Columbia. However, in a 1976 case -- Environmental Research Int'l, Inc. v. Lockwood Greene Engineers, Inc., 355 A.2d 808 (D.C. 1976) -- the District of Columbia Court of Appeals recognized a "government contacts" exception to this rule, due to the unique nature of the District of Columbia as the seat of the federal government. Under this exception, "entry into the District of Columbia by nonresidents for the purpose of contacting federal government agencies" was held not to be a basis for the assertion of personal jurisdiction. The stated rationale was to preserve public participation in government and avoid the potential for every dispute over every federal government contact to overwhelm the District of Columbia courts.

In the current decision, the District of Columbia Court of Appeals carved out a fraud exception to this "government contacts exception," stating that "a person who uses the government as an instrumentality of fraud and thereby causes unwarranted government action against another, forfeits the protection of the government contacts exception." To rule otherwise, the court reasoned, could lead to an unfair result: "Having come here to seek the 'benefits and protection' that the adoption of their fraudulent petitions would have provided, such individuals cannot fairly cry foul when they are summoned before our courts." The court cautioned that the fraud exception would be subject to "strict adherence to standards of pleading" for fraud and that the plaintiff must provide support both for the allegation of fraud and that the federal agency relied on the fraudulent information in making its decision.

This article was prepared by Sue Ross (sross@fulbright.com or 212 318 3400) and Matthew Kirtland (mkirtland@fulbright.com or 202 662 4659) from Fulbright's Government Contracts Practice Group. Should you have any questions, please contact either of the authors or Joe Dirik (jdirik@fulbright.com or 214 855 8128).