General Jurisdiction Gutted By New SCOTUS Ruling

Yesterday, the U.S. Supreme Court reversed precedents concerning the states in which a corporation can be sued for any act, no matter where committed that have been in place since the International Shoe case in 1945 in the case of Daimler AG v. Bauman.  The ruling was 9-0 with only Justice Sotomayor filing even a concurring opinion.

Before this ruling, courts had personal jurisdiction over corporations in every place where they have a regular office or agent for the conduct of business, because, in those cases, the foreign corporation's "continuous corporate operations within a state [are] so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities."

Now, "general jurisdiction" without regard to the place where the events giving rise to the lawsuit took place is available, except in exceptional cases, only where the business is incorporated or where it has its principal offices.  In all other cases must be supported by "specific jurisdiction" where the lawsuit "arise[s] out of or relate[s] to the defendant's contacts with the forum." (Presumably, specialized exceptions to these two main personal jurisdictional categories such as "in rem" jurisdiction and "tag" jurisdiction still survive this ruling.)

The facts set for in the syllabus of the case were as follows:

Plaintiffs (respondents here) are twenty-two residents of Argentina who filed suit in California Federal District Court, naming as a defendant DaimlerChrysler Aktiengesellschaft (Daimler), a German public stock company that is the predecessor to petitioner Daimler AG. Their complaint alleges that Mercedes-Benz Argentina (MB Argentina), an Argentinian subsidiary of Daimler, collaborated with state security forces during Argentina's 1976-1983 "Dirty War" to kidnap, detain, torture, and kill certain MB Argentina workers, among them, plaintiffs or persons closely related to plaintiffs. Based on those allegations, plaintiffs asserted claims under the Alien Tort Statute and the Torture Victim Protection Act of 1991, as well as under California and Argentina law. Personal jurisdiction over Daimler was predicated on the California contacts of Mercedes-Benz USA, LLC (MBUSA), another Daimler subsidiary, one incorporated in Delaware with its principal place of business in New Jersey. MBUSA distributes Daimler-manufactured vehicles to independent dealerships throughout the United States, including California. Daimler moved to dismiss the action for want of personal jurisdiction. Opposing that motion, plaintiffs argued that jurisdiction over Daimler could be founded on the California contacts of MBUSA. The District Court granted Daimler's motion to dismiss. Reversing the District Court's judgment, the Ninth Circuit held that MBUSA, which it assumed to fall within the California courts' all-purpose jurisdiction, was Daimler's "agent" for jurisdictional purposes, so that Daimler, too, should generally be answerable to suit in that State.

The U.S. Supreme Court could easily have reached the same result on much narrower grounds, ruling that MBUSA was not an agent of true tortfeaser MB Argentina, even if both were subsidiaries of Daimler AG, the parent corporation, or more generally, that subsidiary companies were not agents of their parent companies for jurisdictional purposes.

This would have followed naturally from its recent ruling in Goodyear, 564 U.S. ___, without any need to reach for the much broader holding reached yesterday that unravels court and longstanding precedents, rather than tweaking an obscure rule regarding how they are applied.  The question resolved in Goodyear was: "Are foreign subsidiaries of a United States parent corporation amenable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum State?"  

The Court could have even held, more narrowly and consistent with Goodyear,  that a general principal that a subsidiary corporation's presence is enough to establish general jurisdiction over the parent company does not apply, for constitutional reasons to international subsidiaries. It would have been simple to simply to narrowly hold that the existence of foreign subsidiaries of a United States parent corporation do not suffice to provide general jurisdiction over a foreign parent corporation based upon acts taken by a different foreign subsidiary.

Indeed, Justice Ginsberg considers taking that path and declines to do so, stating:

This Court has not yet addressed whether a foreign corporation may be subjected to a court's general jurisdiction based on the contacts of its in-state subsidiary. Daimler argues, and several Courts of Appeals have held, that a subsidiary's jurisdictional contacts can be imputed to its parent only when the former is so dominated by the latter as to be its alter ego. The Ninth Circuit adopted a less rigorous test based on what it described as an "agency" relationship. Agencies, we note, come in many sizes and shapes: "One may be an agent for some business purposes and not others so that the fact that one may be an agent for one purpose does not make him or her an agent for every purpose." 2A C. J. S., Agency §43, p. 367 (2013) (footnote omitted).  A subsidiary, for example, might be its parent's agent for claims arising in the place where the subsidiary operates, yet not its agent regarding claims arising elsewhere. The Court of Appeals did not advert to that prospect. But we need not pass judgment on invocation of an agency theory in the context of general jurisdiction, for in no event can the appeals court's analysis be sustained.

Take note.  Even in its U.S. Supreme Court argument, Daimler was arguing for the narrow holding, and didn't even dream that the court would reach so far beyond the facts before it.

But, instead, the U.S. Supreme Court largely disavowed the notion that has been the settled constitutional law for 68 years in the United States, that general jurisdiction over a corporation can be asserted anywhere that it has a regular agent or office for the conduct of business, and held instead that a corporation was a resident only of the state of its incorporation and the state of its principal place of business for general jurisdiction purposes.  This will have a sweeping impact far beyond the facts of this case.  

Essentially, Justice Ginsberg, writing for the majority retcons the last sixty-eight years of constitutional general jurisdiction law and specifically International Shoe which is redefined as a specific jurisdiction rather than a general jurisdiction holding (see footnote 10 of the opinion), by arguing in the manner officially summarized as follows (citations omitted).

The paradigm all-purpose forums for general jurisdiction are a corporation's place of incorporation and principal place of business.  Plaintiffs' reasoning, however, would reach well beyond these exemplar bases to approve the exercise of general jurisdiction in every State in which a corporation "engages in a substantial, continuous, and systematic course of business." The words "continuous and systematic," plaintiffs and the Court of Appeals overlooked, were used in International Shoe to describe situations in which the exercise of specific jurisdiction would be appropriate. With respect to all-purpose jurisdiction, International Shoe spoke instead of "instances in which the continuous corporate operations within a state [are] so substantial and of such a nature as to justify suit . . . on causes of action arising from dealings entirely distinct from those activities." Accordingly, the proper inquiry, this Court has explained, is whether a foreign corporation's "affiliations with the State are so 'continuous and systematic' as to render [it] essentially at home in the forum State."

Neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there. If Daimler's California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA's sales are sizable. No decision of this Court sanctions a view of general jurisdiction so grasping. The Ninth Circuit, therefore, had no warrant to conclude that Daimler, even with MBUSA's contacts attributed to it, was at home in California, and hence subject to suit there on claims by foreign plaintiffs having nothing to do with anything that occurred or had its principal impact in California.

In lieu of the actual relevant history of the law, Justice Ginsberg at footnote 18 notes a law review article which pushes for the kind of broad ruling that she enters, which was not argued for by either party: Feder, Goodyear, "Home," and the Uncertain Future of Doing Business Jurisdiction, 63 S. C. L. Rev. 671 (2012) (questioning whether "doing business" should persist as a basis for general jurisdiction). In fact, the standard cited by the Defendant's has been the well settled black letter law for half a century or more, and the "continuous and systematic" contacts test hasn't been the relevant test for "specific jurisdiction" for decades (the primary issue today is whether the defendant "purposefully availed itself" of the benefit of the forum state such that it would not be unfair to subject it to that state's laws, something that can happen even in a single, isolated instance).  On these facts, Justice Ginsberg concludes that:

Even if we were to assume that MBUSA is at home in California, and further to assume MBUSA's contacts are imputable to Daimler, there would still be no basis to subject Daimler to general jurisdiction in California, for Daimler's slim contacts with the State hardly render it at home there. . . Here, neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there. If Daimler's California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA's sales are sizable. Such exorbitant exercises of 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." Burger King Corp., 471 U.S., at 472(internal quotation marks omitted)

The fact that the suit is international and involves a kind of human rights statute that the Supreme Court has looked upon with disfavor are added as additional justifications for the denial of jurisdiction, but don't really narrow the dramatic holding that will impact far more ordinary cases.

The new rule on the scope of general jurisdiction may not change many outcomes in ordinary cases, because the scope of specific jurisdiction has grown so expansive.  But, it does dramatically increase the range of facts that are relevant to determining whether or not personal jurisdiction is present in a vast array of very ordinary civil cases and greatly increases the uncertainty involved in resolving those case because "specific jurisdiction" law, like the law of Fourth Amendment search reasonableness is highly fact specific.  In the past, facts easily determinable by a third party, like the existence of an office or store address in a state was sufficient to dispense with personal jurisdiction questions in civil cases without reaching the merits of the case.   Now, cases that would have once been obvious and not litigated under the general jurisdiction rule against out of state defendants will hinge on mini-trials that go to facts at issue on the merits of the claim.

While specific jurisdiction is factually simple to prove in physical tort cases, specific jurisdiction can be very vexing to prove and hinge on seemingly trivial details in contract and business tort cases where general jurisdiction principles are often much easier to apply.

Under Daimler it is not even entirely clear if a corporation's registration as a foreign corporation authorized to do business in a state, historically required for the purpose of granting a state general jurisdiction over that business, will continue to serve that purpose.

It is not at all clear that the Daimler court has anticipated these consequences of its holding in the vast majority of cases that have far less exotic facts.  Conceptually, Justice Ginsberg made the critical mistake of failing to realize that the fact that there is little litigation over a clear rule that works well does not mean that it is not a good and widely relied upon rule.  General jurisdiction is rarely litigated because the relevant facts are few and easy to discern, and the application of the general jurisdiction rules to those facts is obvious in the vast majority of cases where it applies.  Justice Ginsberg's failure to realize what is at stake is clear in this part of footnote 20 of her opinion:

JUSTICE SOTOMAYOR fears that our holding will "lead to greater unpredictability by radically expanding the scope of jurisdictional discovery." Post, at 14. But it is hard to see why much in the way of discovery would be needed to determine where a corporation is at home. JUSTICE SOTOMAYOR's proposal to import Asahi's "reasonableness" check into the general jurisdiction determination, on the other hand, would indeed compound the jurisdictional inquiry. The reasonableness factors identified in Asahi include "the burden on the defendant," "the interests of the forum State," "the plaintiff's interest in obtaining relief," "the interstate judicial system's interest in obtaining the most efficient resolution of controversies," "the shared interest of the several States in furthering fundamental substantive social policies," and, in the international context, "the procedural and substantive policies of other nations whose interests are affected by the assertion of jurisdiction." 480 U.S., at 113-115(some internal quotation marks omitted). Imposing such a checklist in cases of general jurisdiction would hardly promote the efficient disposition of an issue that should be resolved expeditiously at the outset of litigation.

The radical expansion of jurisdictional discovery that Justice Sotomayor fears does not involve a determination of where a corporation is at home.  It involves jurisdictional discovery to determine if specific jurisdiction is present in cases that would previously have been straightforwardly resolved by general jurisdiction principals because the Defendant has an office for the conduct of business or regular agent in the forum state.

Cases were a foreign corporation is sued in a state that is not its narrowly defined "home state" but does have an office for the conduct of business or regular agent in a state are legion.  Cases like Daimler where a foreign corporation is sued by people who are not U.S. citizens for conduct of a non-U.S. subsidiary for non-U.S. conduct, when neither have any connections to the United States except insofar as the non-U.S. subsidiary of the defendant also has a different subsidiary in the United States, are extraordinarily rare and can safely be made the subject of special rules that won't place a burden on state and federal courts alike in routine fact patterns.

The Daimler case also includes the revolutionary holding that specific jurisdiction (i.e. jurisdiction based on the events giving rise to the lawsuit) was the rule and that general jurisdiction was the exception, upsetting precedents that are even older.  Specific jurisdiction, also known as long arm jurisdiction, wasn't even a well defined concept until a few years after International Shoe.  Prior to International Shoe, under a doctrine exemplified in Pennoyer v. Neff (1878) only the courts of  the state where a person resided had jurisdiction over that person for most civil actions and a person was deemed to have only a single domicile at any one time.
Justice Sotomayer's sensible concurrence makes all the right points, but in the face of eight Justices ruling the other way, probably won't have much of an impact.  But, there is some hope to tame this decision in footnote 19 and 20 of the majority opinion which backhandedly acknowledges the pre-2014 state of the law and explains that (many citations omitted):

We do not foreclose the possibility that in an exceptional case, 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. But this case presents no occasion to explore that question, because Daimler's activities in California plainly do not approach that level. It is one thing to hold a corporation answerable for operations in the forum State, quite another to expose it to suit on claims having no connection whatever to the forum State. . . .To clarify in light of JUSTICE SOTOMAYOR's opinion concurring in the judgment, the general jurisdiction inquiry does not "focu[s] solely on the magnitude of the defendant's in-state contacts." General jurisdiction instead calls for an appraisal of a corporation's activities in their entirety, nationwide and worldwide. A corporation that operates in many places can scarcely be deemed at home in all of them. Otherwise, "at home" would be synonymous with "doing business" tests framed before specific jurisdiction evolved in the United States. See von Mehren & Trautman 1142-1144. Nothing in International Shoe and its progeny suggests that "a particular quantum of local activity" should give a State authority over a "far larger quantum of . . . activity" having no connection to any in-state activity.

Footnote 19 and 20 seem to open up the possibility of "doing business" jurisdiction as a third kind of personal jurisdiction, between specific jurisdiction and general jurisdiction, that makes a corporation generally subject to the jurisdiction of the forum state for "operations in the forum state" of that corporation, without the kind of myopic, transaction specific analysis that applies to specific jurisdiction cases.

All in all, this case is an example of a horrible decision making process by the U.S. Supreme Court making bad law based upon exceptional and unusual facts when it could easily have avoided doing so. It is really a disappointment that undermines my faith in the Court as an institution and Justice Ginsberg as a smart Justice, even though its precedent doesn't do earthshaking injustice despite being a bad rule, and despite the fact that its holding on the case before it is a correct one.