Are you defending suits where you don’t belong?
The United States Supreme Court turned conventional wisdom on its head about the reach of personal jurisdiction 12 months ago in its unanimous opinion in Daimler AG v. Bauman, 134 S. Ct. 746 (2014). Personal jurisdiction comes in two forms: (1) specific jurisdiction and (2) general jurisdiction. Daimler changed what everyone thought that they knew about general jurisdiction, and, therefore, it should be on the tip of everyone’s tongue.
What every lawyer learned in law school about the reach of general jurisdiction was short and sweet: if a corporation’s activities in a particular state were “continuous and systematic,” then that was enough to establish general jurisdiction, and, in turn, personal jurisdiction. The Supreme Court created the concept in International Shoe v. Washington, 326 U.S. 310, 317 (1945) and reinforced it in Helicopteros Nacionales de Colombia v. Hall, 466 U.S. 408, 411 n.9 (1984). Indeed, in the 60 years after International Shoe, the US Supreme Court only issued three decisions about general jurisdiction to literally dozens about specific jurisdiction in that same time. Not surprisingly then general jurisdiction almost never received the same attention in practice as its counterpart, specific jurisdiction. However, that disparity changed last January when the Supreme Court catapulted general jurisdiction to the fore in Daimler.
Before Daimler, if a defendant corporation had activities in a forum state like selling millions of dollars of products there, having sales representatives soliciting potential customers there, or satellite offices there, then the foregone conclusion was that any one of those contacts was enough to constitute the requisite “continuous and systematic” activities for a court to exercise personal jurisdiction over that corporation based upon general jurisdiction. Daimler’s relevant facts were that a group of Argentinian plaintiffs alleged that Daimler’s Argentinian subsidiary had collaborated with state security forces during Argentina’s “Dirty War” to kidnap, detain, torture and kill a number of its employees. Although Daimler is a German public stock company headquartered in Stuttgart, the Argentinian Plaintiffs sued it in California. They claimed the California court had general jurisdiction based on the unrelated activities of another Daimler subsidiary, Mercedes-Benz USA (MBUSA). MBUSA was a Delaware corporation with its principal place of business in New Jersey. It distributed Daimler-manufactured vehicles throughout the United States. Ultimately, the Supreme Court ruled that Daimler’s contacts with California through its subsidiary, MBUSA, were not significant enough to render it “at home” in California where the lawsuit was pending. Importantly, the Supreme Court expressly rejected the arguments that plaintiffs ordinarily have made to gain access to a forum based on general jurisdiction. For example, MBUSA’s “substantial” revenue in California, which accounted for 2.4% of Daimler’s worldwide sales or $4.6 billion, did not make Daimler “at home” in California. Similarly, numerous sales representatives and multiple offices did not warrant an exception to the new rule.
In the year after Daimler, trial courts have been receptive to motions to dismiss filed by corporations when that forum state is not where they are incorporated or having their principal place of business. For example, in a decision in late December, a Texas district court judge was faced with a motion to dismiss filed by a defendant medical device manufacturer as to the claims of 96 plaintiffs. The plaintiffs did not allege specific jurisdiction, but relied upon “systematic and continuous” corporate activities to find general jurisdiction. Of those 96 plaintiffs, only one was a Texas resident, and only two were New Jersey residents, the state where the defendant’s principal place of business was located. In opposition, the plaintiffs argued that the court could exercise general jurisdiction because the defendant sold more of the product in Texas than in New Jersey; hired and trained Texas-based salesmen and managers to market and sell the product in Texas; trained physicians to use the product in Texas; and maintained websites directed at marketing the product to all states, including Texas. Relying upon Daimler, the district court rejected plaintiffs’ arguments, explaining “[i]f the court were to consider the contacts cited by the plaintiffs as sufficient to render Texas ‘home’ for Defendants, then ‘the same global reach would presumably be available in every other State in which [Defendants] (sic) sales are sizable.” . . . “Such exorbitant exercises of [general or] (sic) all-purpose jurisdiction would scarcely permit out-of-state defendants ‘to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.’” The district court granted the motion to dismiss as to the 95 out-of-state plaintiffs. Evans v. Johnson & Johnson, 2014 U.S. Dist. LEXIS 176598 (Dec. 23, 2014) (quoting Daimler, 134 S. Ct. at 761).
Thus, Daimler is a new arrow in a corporation’s quiver. Practically, the new general jurisdiction rule means that doing business in a particular state – no matter how much revenue those operations bring or how many offices or employees are located there – is no longer dispositive for personal jurisdiction. Unless the facts of a particular plaintiff’s case establish specific personal jurisdiction, general personal jurisdiction challenges should be considered in all states other than the state of incorporation and the company’s principal place of business. Lack of personal jurisdiction should be on the shortlist of defense strategies to consider if the company is sued anywhere other than the location of the alleged tort, the company’s principal place of business, or its state of incorporation.
For further reading about Daimler’s impact, consider the following links to a law review article, a Supreme Court blog, and a financial news magazine article: (1) http://harvardlawreview.org/2014/11/daimler-ag-v-bauman/ ;(2) http://www.scotusblog.com/case-files/cases/daimlerchrysler-ag-v-bauman/ ; and (3) http://www.forbes.com/sites/wlf/2014/02/04/with-bauman-v-daimlerchrysler-high-court-may-have-put-brakes-on-forum-shopping/.
—Phillip S. Sykes & Laura R. McCarthy