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U.S. Supreme Court Addresses When a State can Assert General Jurisdiction of Foreign Corporations

February 7, 2014

The United States Supreme Court recently handed down a decision that may affect whether and when state and federal district courts can exercise general jurisdiction over non-resident corporations.  In Daimler AG v. Bauman, et al., US Supreme Court no 11-965 (January 14, 2014), the U.S. Supreme Court held that Daimler AG, a German Corporation with headquarters in Stuttgart Germany, was not amenable to personal jurisdiction in Federal Court in California because it was not incorporated in California, did not have its principal place of business there and could not be said to otherwise be “at home” in California.  It is this latter pronouncement of being at home in the forum jurisdiction for personal jurisdiction purposes that is most interesting.

In the case, 37 plaintiffs who were citizens of Argentina (one was noted to have actually been a Peruvian citizen) sued Daimler AG, the German Corporation that makes automobiles.  The plaintiffs alleged that Daimler AG’s  Argentinian subsidiary  collaborated with Argentinian state security forces to detain, torture and kill some of  the automaker’s workers between 1976 and 1983, a period known in Argentina as the “Dirty War”. Id., slip op at 3. The plaintiffs brought suit under two federal statutes and under California and Argentina law.  Daimler AG argued that the Federal District Court did not have personal jurisdiction over the German corporation under the Due Process Clause of the Fourteenth Amendment.  The Federal District Court had agreed, but the Ninth Circuit Court of Appeals reversed the District Court.  The Ninth Circuit held that Mercedes Benz USA (MBUSA), a subsidiary of Daimler AG, was Daimler AG’s agent in the United States and imputed its business activities to Daimler AG.  MBUSA is incorporated in Delaware and has its principal place of business in New Jersey.  It serves as the entity that buys Mercedes Benz automobiles from Daimler AG and distributes them to dealerships across the United States, including substantial sales to California. Id., slip op. at 4.  The case was appealed to the United States Supreme Court which reversed.  Eight justices joined in the majority opinion, Justice Sotomayor wrote a separate, concurring opinion.

The issues before the U.S. Supreme Court were whether MBUSA was the agent of Daimler AG for purposes of determining whether the federal court in California had personal jurisdiction of Daimler AG and whether the court could assert general jurisdiction over Daimler AG.  The U.S. Supreme Court determined that the Ninth Circuit had incorrectly determined that MBUSA was Daimler AG’s agent for purposes of jurisdiction.

The Ninth Circuit had found that since the activities of MBUSA, an independent contractor subsidiary were “important” to Daimler AG’s business, its contacts with California could be considered in assessing whether the court had jurisdiction over Daimler AG.  Id., slip op. at 15-16.  The U.S. Supreme Court noted that other appellate courts had required a showing that the subsidiary was an “alter ego” of the parent company before the subsidiary’s contacts could be considered.  It determined that MBUSA’s contacts with California should not have been imputed to Daimler AG.  Id., slip op. at 17.

The Supreme Court next considered whether Daimler AG could be subject to general jurisdiction in a California court without imputing MBUSA’s activity to it.  The U.S. Supreme Court traced the history of the dichotomy between specific jurisdiction, where the subject matter of a lawsuit arose from a foreign corporation’s activity in the forum state, and general jurisdiction, where a foreign corporation can be subject to personal jurisdiction for acts that did not arise in the forum jurisdiction.  In the Bauman case, the activity that gave rise to the lawsuit did not occur in California; it occurred in Argentina.

The US Supreme Court relied on its previous opinion in Goodyear Dunlop Tires Operations, S.A. v Hall to hold that in order for a foreign corporation to be subject to general jurisdiction, its affiliations with the forum state must be “so continuous and systematic as to render it essentially at home in the forum state.” Bauman, slip op. at 20, citing Goodyear, 564 U.S. at __(slip op. at 2).  The court often referred to a foreign corporation being “at home” in the forum state in its historical analysis of general jurisdiction.

It also explained that the requirement in its previous decision in International Shoe Co. v. Washington, 326 U.S. 310 (1945) that a foreign corporation maintain continuous and systematic activities in a forum state in order to be subject to personal jurisdiction referred to specific jurisdiction, where these activities “gave rise to the liabilities sued on.”  Bauman, slip op. at 7.  The Supreme Court further pointed out that its previous cases had explained that mere purchases within the forum state by a foreign corporation, even if they occurred at regular intervals, were not enough to warrant a state’s assertion of jurisdiction where the cause of action did not relate to the company’s activities within the state.  Id., slip op. at 12.

In Bauman, the court noted that because Daimler AG was not incorporated in California and did not maintain its principal place of business there, a federal court sitting in California could not assert jurisdiction over it based on activities that did not occur in California.  Id., slip op. at 21.  The court also noted that MBUSA was not incorporated in California and did not maintain its principal place of business there, either.  Id.  However, Daimler AG had not contested the court’s general jurisdiction over MBUSA, which was not a party to the suit, and the Supreme Court specifically assumed for purposes of its opinion that California did have general jurisdiction over MBUSA.  Id., slip op. at 15.

Yet, it is not clear from reading the court’s opinion whether it would have actually found MBUSA subject to general jurisdiction in California had the defendant not conceded the point.  The opinion seems to be clear that just doing business in a state in a continuous and systematic manner is not enough to subject a foreign corporation to general jurisdiction.  Something more is needed.  That something more is what the Supreme Court describes as rendering the foreign corporation “at home” in the forum state.  The Supreme Court did not define how much more than continuous and systematic conduct is necessary, did not define the term “at home” and it did not identify what factors a trial court should use to determine whether a corporation is at home for purposes of general jurisdiction.

A copy of the Supreme Court’s Bauman opinion is attached to this bulletin.  Certainly, a defendant sued in asbestos litigation should determine whether they may be considered at home when sued in foreign jurisdictions for exposures not committed there.  HeplerBroom is evaluating its clients’ personal jurisdiction objections in light of the Bauman opinion.