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August 28, 2017 Articles

Limits on State Courts' Jurisdictional Reach

The U.S. Supreme Court found that the California Supreme Court's sliding scale approach did not square with precedent.

By Sandra A. Edwards – August 28, 2017

In June, the U.S. Supreme Court reversed a closely watched California Supreme Court ruling, finding that California state courts did not have specific jurisdiction to hear the claims of nonresident plaintiffs in a class action associated with Plavix, a Bristol-Myers Squibb Company drug. The 8–1 opinion concluded that Bristol-Myers’s extensive contacts with California, including its marketing and distribution of the drug in California as well as its research and development centers there, were not sufficient to establish specific personal jurisdiction of nonresident plaintiffs’ claims. Bristol-Myers Squibb Co. v. Superior Court of Cal., 582 U.S. ___ (2017).

The underlying claims involved eight separate complaints filed in San Francisco by 86 Californians and 592 residents of 33 other states against Bristol-Myers, alleging that Plavix had damaged their health. Each complaint contained the same allegations, including negligence, false or misleading advertising, and strict product liability claims.

Bristol-Myers is incorporated in Delaware and headquartered in New York. However, the company does engage in business activities in California, including research and development facilities, employment of sales representatives in California, and a small state-government advocacy office. It also sold almost 187 million Plavix pills in California between 2006 and 2012, with revenue from those sales exceeding $900 million.

Nonetheless, the nonresident plaintiffs did not allege that they obtained Plavix from a California source, that they were injured in California, or that they were treated for their injuries in California. Little about the plaintiffs’ claims involved California, and the marketing and promotion of the drug were conducted on a nationwide basis and were not unique to California.

California Supreme Court: Sliding Scale Approach
The California Supreme Court, in its June 2016 ruling, upheld the lower court’s decision that the company’s business contacts in the state were not sufficient to establish general jurisdiction; but it applied a “sliding scale” approach to specific jurisdiction, under which “the more wide ranging the defendant’s forum contacts, the more readily is shown a connection between the forum contacts and the claim.” Bristol-Myers Squibb Co. v. Superior Court of Cal., 1 Cal. 5th 783, 806 (2016). In applying this test, the majority concluded that Bristol-Myers’s extensive contacts with California permitted the exercise of specific jurisdiction based on a less direct connection between the company’s forum activities and plaintiffs’ claims “than might otherwise be required” and that the claims of the nonresident plaintiffs were similar in several ways to the claims of California residents. Id.

U.S. Supreme Court: Rejection of State Courts’ Reach
The U.S. Supreme Court found that the California Supreme Court’s sliding scale approach did not square with precedent and that relaxing the strength of the requisite connection between the forum and the specific claims at issue if the defendant has extensive forum contacts unrelated to the claims resembles a “loose and spurious form of general jurisdiction.” The decision specifically notes that

[t]he mere fact that other plaintiffs were prescribed, obtained, and ingested Plavix in California—and allegedly sustained the same injuries as did the nonresidents—does not allow the State to assert specific jurisdiction over the nonresident plaintiffs’ claims. As we have explained, “a defendant’s relationship with a . . . third party, standing alone, is an insufficient basis for jurisdiction.”

582 U.S. (internal citation omitted).

Indeed, “[w]hat is needed—and what is missing here—is a connection between the forum and the specific claims at issue.” Id.

Moreover, the U.S. Supreme Court rejected the argument that Bristol-Myers’s contracts with a California company to distribute Plavix nationally provided a sufficient basis for personal jurisdiction. It was not alleged that Bristol-Myers engaged in relevant acts together with that company in California, nor that Bristol-Myers was derivatively liable for that company’s conduct in California.

The opinion concludes by rejecting the suggestion that the Court’s decision will result in a “parade of horribles,” noting not only that it will not prevent the California and nonresident plaintiffs from joining together in a state that has general jurisdiction over the corporate defendant but also that it does not prevent the residents of a particular state from potentially suing together in their home state.

The decision left open the question of whether the Fifth Amendment imposes the same restrictions on the exercise of personal jurisdiction by a federal court.

The good news for corporate defendants is that the decision reaffirms long-settled limits on the application of personal jurisdiction.

Sandra A. Edwards is a partner in Farella Braun + Martel’s San Francisco, California, office.

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