June 18, 2014 Articles

The Changing Landscape of General Jurisdiction Post-Bauman

This decision will have an immense impact on a foreign corporation's amenability to bring suit in U.S courts.

By Adam W. Braveman

On January 14, 2014, the Supreme Court decided Daimler AG v. Bauman, No. 11-695 (2014), an extraordinarily important opinion with respect to general personal jurisdiction over corporations, particularly foreign corporations. In a unanimous decision (with Justice Sotomayor concurring), the Court held that general jurisdiction only exists over a corporation when “that corporation’s ‘affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.’” Bauman, No. 11-695, slip op. at 20 (citation omitted). Thus, a foreign corporation that has no direct contacts with a forum state, but has subsidiaries or independent contractors doing business in the forum, will not satisfy the general-jurisdiction standard. As such, the decision severely restricts the ability of a plaintiff to hale foreign corporations into court on a theory of general jurisdiction.

Background on Personal-Jurisdiction Law

The Fourteenth Amendment’s Due Process Clause “protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful ‘contacts, ties, or relations.’” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471–72 (1985) (citing Int’l Shoe Co. v. Washington, 326 U.S. 310, 319 (1945)).

By requiring that individuals have “fair warning that a particular activity may subject [them] to the jurisdiction of a foreign sovereign,” the Due Process Clause “gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.”

Id. at 472 (internal citations omitted).

The Supreme Court’s decision in International Shoe sets forth the due-process requirement for personal jurisdiction. Bauman, No. 11-695 at 16; see also Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851, 2853 (2011) (noting that “[t]he canonical opinion in this [due-process personal jurisdiction] area remains International Shoe . . .”). According to the Court,

due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.”

Int’l Shoe, 326 U.S. at 316.

With respect to corporations, the Court noted that while “presence” in a forum state “has never been doubted when the activities of the corporation there have not only been continuous and systematic, but also give rise to the liabilities sued on . . . it has been generally recognized that the casual presence of the corporate agent or even his conduct of single or isolated items of activities in a state in the corporation’s behalf are not enough to subject it to suit on causes of action unconnected with the activities there.” Id. at 317 (citations omitted).

The Supreme Court later clarified this distinction by explaining that “[w]hen a State exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant’s contacts with the forum, the State is exercising ‘specific jurisdiction’ over the defendant.” Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 n.8 (1984) (citation omitted) (emphasis added). In this circumstance, the “‘relationship among the defendant, the forum, and the litigation’ is the essential foundation of in personam jurisdiction.” Id. at 414 (citing Shaffner v. Heitner, 433 U.S. 186, 204 (1977)). As a result, “specific jurisdiction is confined to adjudication of ‘issues deriving from, or connected with, the very controversy that establishes jurisdiction.’” Goodyear Dunlop Tires,131 S. Ct. at 2851 (citation omitted).

Conversely, “when the cause of action does not arise out of or relate to the foreign corporation’s activities in the forum State . . . [a] court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” Helicopteros, 466 U.S at 414 (emphasis added) (citing Int’l Shoe, 326 U.S. at 317). Thus, under general jurisdiction, a court can exercise its powers against a foreign corporation even “where the subject matter of the suit is unrelated to [the foreign corporation’s] contacts” with the state. Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 568 (2d Cir. 1996) (citing Helicopteros, 466 U.S. at 414–16 & nn.8–9).

Supreme Court Jurisprudence Post-International Shoe

Surprisingly, since International Shoe, only three Supreme Court decisions have “considered whether an out-of-state corporate defendant’s in-state contacts were sufficiently ‘continuous and systematic’ to justify the exercise of general jurisdiction over claims unrelated to those contacts.” Goodyear Dunlop Tires, 131 S. Ct. at 2854. The first of these decisions is Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952), which “remains ‘[t]he textbook case of general jurisdiction appropriately exercised over a foreign corporation that has not consented to suit in the forum.’” Goodyear Dunlop Tires, 131 S. Ct. at 2856 (citing Donahue v. Far E. Air Transp. Corp., 652 F.2d 1032, 1037 (D.C. Cir. 1981)).

In Perkins, the Court found that it did not violate due process to subject a Filipino corporation, which moved its operations to Ohio during the occupation of the Philippine Islands, to general jurisdiction in Ohio. 342 U.S. at 447–48. While in Ohio, the president of the corporation maintained an office in the state, carried on correspondence relating to the business of the company and its employees, drew and distributed salary on behalf of the company, and used and maintained two active bank accounts carrying “substantial balances of company funds.” Moreover, several directors’ meetings were held in Ohio, and from his Ohio office the president supervised policies that rehabilitated the corporation’s properties in the Philippines. Based on these facts, the Court concluded that the president “carried on in Ohio a continuous and systematic supervision of the necessarily limited wartime activities of the company,” and thus general jurisdiction was appropriate.

Over 30 years later, the Court decided Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984). There, the Court found that it would violate due process to subject a Colombian corporation to general jurisdiction in Texas when

[b]asically, [the Colombian corporation]’s contacts with Texas consisted of sending its chief executive officer to Houston for a contract-negotiation session; accepting into its New York bank account checks drawn on a Houston bank; purchasing helicopters, equipment, and training services from [a Texas corporation] for substantial sums; and sending personnel to [a Texas corporation]’s facilities in Fort Worth for training.

466 U.S. at 416.

In short, as opposed to the contacts in Perkins, the Colombian corporation’s contacts with Texas were not “continuous and systematic” in nature. Furthermore, the Court noted that “mere purchases, even if occurring at regular intervals, are not enough to warrant a State’s assertion of in personam jurisdiction over a nonresident corporation in a cause of action not related to those purchase transactions.” Id. at 418.

The last general-jurisdiction decision was Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), where the Court concluded that two foreign subsidiaries of a North Carolina parent corporation were not subject to general jurisdiction in North Carolina. 131 S. Ct. at 2856–57. Although personal jurisdiction existed over the parent corporation, the Court found that the foreign subsidiaries, who manufactured tires on behalf of the parent, did not have “affiliations with the State [that were] so ‘continuous and systematic’ as to render them essentially at home in the forum State.” Id. at 2851 (citing Int’l Shoe, 326 U.S. at 317). The Court noted that only a small percentage of the foreign subsidiaries’ tires—tens of thousands out of tens of millions—were distributed within North Carolina through intermediaries. Thus, despite the fact that the tires “had reached North Carolina through ‘the stream of commerce,’” the foreign subsidiaries’ contacts with the forum state were more akin to Helicopteros than Perkins, and “a connection so limited between the forum and the foreign corporation” did not support a finding of general jurisdiction.

Supreme Court’s Decision in Bauman

In Bauman, the Supreme Court held that exercising general jurisdiction over a German parent corporation, Daimler AG, based on the in-state activities of its subsidiary, Mercedes-Benz USA (MBUSA), violated due process. Daimler AG v. Bauman, No. 11-695, slip op. at 18. There, the plaintiffs alleged that Mercedes-Benz Argentina (MBA), which is a subsidiary of Daimler, collaborated with state security forces to commit human-rights offenses against them and/or their relatives whom MBA viewed as union agitators. The plaintiffs, who are all Argentinian residents, claimed that general jurisdiction existed over Daimler in California based on its relationship with and activities by another one of its subsidiaries, MBUSA.

Daimler is a manufacturer of Mercedes-Benz motor vehicles and parts, primarily at factories in Germany. MBUSA purchased Mercedes-Benz vehicles from Daimler in Germany for distribution in the United States, with a focus on the California market. Indeed, MBUSA’s California sales of Daimler’s cars accounted for 2.4 percent of Daimler’s total worldwide sales. Based on these facts, the Ninth Circuit found that under the agency theory, general jurisdiction existed over Daimler because “the services provided by MBUSA [were] sufficiently important to [Daimler] that, if MBUSA went out of business, [Daimler] would continue selling cars in this vast market either by selling them itself, or alternatively by selling them through a new representative.” DaimlerChrysler AG v. Bauman, 644 F.3d 909, 920 (9th Cir. 2011).

The Supreme Court reversed the Ninth Circuit’s decision, specifically rejecting the “sufficiently important” test because “it will always yield a pro jurisdictional answer.” Bauman, No. 11-695, slip op. at 17. As the Court stated, “[a]nything a corporation does through an independent contractor, subsidiary, or distributor is presumably something that the corporation would do by other means if the independent contractor, subsidiary, or distributor did not exist.” Id. (citation omitted).

In making its decision, the Court unambiguously articulated the standard for general personal jurisdiction:

[T]he [general personal jurisdiction] inquiry under Goodyear is not whether a foreign corporation’s in-forum contacts can be said to be in some sense “continuous and systematic,” it is whether that corporation’s “affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.”

Id. at 20 (citing Goodyear, 131 S. Ct. at 2851).

According to the Court, “only a limited set of affiliations with a forum” will satisfy the general jurisdiction standard. Id. at 18 (emphasis added). For a corporation, this consists of “the place of incorporation and principal place of business,” id. at 18–19, as well as the “exceptional case [where] a corporation’s operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State.” Id. at 20 n.19 (emphasis added) (citing Perkins, 342 U.S. at 448, as an example of where this standard is satisfied). Accordingly, the Court rejected the plaintiffs’ argument that general jurisdiction should be allowed when a corporation “engages in a substantial, continuous, and systematic course of business” in a forum as “unacceptably grasping.”

Under this framework of general jurisdiction, the Court relied on the fact that “neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there.” Consequently, although MBUSA’s California sales of Daimler’s product accounted for 2.4 percent of Daimler’s worldwide sales, Daimler was not “at home” in the state.

This decision will have an immense impact on a foreign corporation’s amenability to bring suit in U.S courts. According to the Supreme Court’s ruling, it will now be extremely difficult to assert general jurisdiction over a foreign corporation that is neither incorporated nor has its principal place of business in a state. This is true regardless of the quantity of business that the foreign corporation performs in the state. The narrowing trajectory of general jurisdiction will be a useful tool for foreign corporations that wish to avoid U.S.-based litigation.

 

Keywords: litigation, pretrial practice, discovery, general jurisdiction, personal jurisdiction, Bauman, International Shoe

 

Adam W. Braveman is an attorney in New York, New York.

 


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