21 August 2014

9th Circuit Holds That There Is No Tag Jurisdiction Over Corporations

Executive Summary

The 9th Circuit held today a trial court cannot have jurisdiction over a corporation merely because it was served with process in a state (i.e. "tag jurisdiction"), joining the 5th Circuit in taking that position, and continuing a circuit split that had already existed with the 1st Circuit which has taken the opposite position.  It held that only natural persons can be subject to "tag jurisdiction."

The decision, which concisely recounts the entire history of the leading cases in personal jurisdiction law is certain to found in almost every law school casebook on jurisdiction unless it is superseded by a subsequent opinion of an en banc panel of the 9th Circuit or by the U.S. Supreme Court.

The issue remains unsettled in the eight other numbered U.S. Court of Appeals Circuits, in the D.C. Circuit and in the Federal Circuit.


Normally, if you (1) do not reside or have a regular place of business in a state ("general jurisdiction"), (2) have not engaged in any conduct within a state that gives someone a right to sue you in that state ("specific jurisdiction"), (3) do not own property located in a state ("in rem" and "quasi-in-rem" jurisdiction), and (4) have not legally agreed to be sued in a state (consent to jurisdiction), then you cannot be sued in state or federal trial courts in that state.

In the case of general jurisdiction, you can be sued without regard to the nature of the lawsuit.

In the cases of specific jurisdiction, in rem jurisdiction, quasi-in-rem jurisdiction and consent to jurisdiction, moreover, you can only be sued in the state in connection with the conduct or property that give rise to jurisdiction there, or within the scope of the matter to which consent to jurisdiction has been provided.

There are close cases under each of these four rules. Is there general jurisdiction if you live in a vacation house in the state for one month a year, or if your corporation sets up a temporary office in the state for a couple of months to response to some short term business need of a client? Does your conduct count as taking place in a state if you make a telephone call to a state or send good to a state, but never set foot there yourself? Where is a bank account located for jurisdictional purposes? Does a contract providing for jurisdiction in a state for conduct "arising out of, or related to" a contract cover a dispute arising under a separate contract without that clause between the same parties?

Even when there is no basis for jurisdiction under any of these four grounds, there is one more way for a state or federal trial court to obtain jurisdiction over a defendant named in a lawsuit.

Service of process on a natural person within a state upon a person who has no other connections to the state in connection with a lawsuit unrelated to a state is a fifth basis upon which a court can obtain jurisdiction over a defendant ("tag jurisdiction") under the U.S. Supreme Court case of Burnham v. Superior Court, 495 U.S. 604 (1990) (holding that personal service upon physically present defendant suffices to confer jurisdiction, without regard to whether defendant was only briefly in state or whether cause of action was related to his activities there).

In one notable case, tag jurisdiction was found to be sufficient even when the person served with process was merely flying over the forum state on a commercial airplane flight when the flight had neither a point of departure or a destination in that state.

Today's Decision

The facts related to the first four grounds for asserting personal jurisdiction were not close, in the case of Martinez v. Aero Caribbean decided today by the United States Court of Appeals for the 9th Circuit, as they related to defendant Avions de Transport RĂ©gional (ATR).

ATR was a French aircraft manufacturer whose allegedly defective plane carrying Lorenzo Corazon Mendoza Cervantes crashed in Cuba, killing everyone on board, the facts on these four theories were not close. ATR has no offices for the conduct of business and no property in California. None of the manufacturing or design or maintenance of the airplane took place in California, and neither did any part of the flight to Cuba that crashed. And, AFR had not consented in any way in any agreement or document to the jurisdiction of California's courts.

The only connection the case has to California is that the heirs of Martinez live there, and that the Vice President of Marketing of ATR was served with process, after an attempt to service the company with process in France had been held to be invalid, while he was attending a marketing conference in California.  Delivery of legal papers to the Vice President of a corporation is valid service of process under the applicable law in a case like this one, if the court otherwise has jurisdiction over ATR.

If tag jurisdiction applies to corporations served with process in a state, then the federal district court in the Northern District of California would have jurisdiction over ATR.  If it does not, then it must be dismissed as a defendant for lack of personal jurisdiction.  The issue was a matter of first impression in California, although other cases in the 9th Circuit and in the U.S. Supreme Court have implicitly acted in ways consistent with today's decision.

The question of whether tag jurisdiction can be established over a corporation is not settled law, however, and resolution of the issue is complicated by the fact that the reasoning behind Burnham is unclear. In Burnham, there was unanimous support for the result, but no one opinion's reasoning commanded a majority of the U.S. Supreme Court's nine justices. As the Martinez panel in the 9th Circuit explains:
Justice Scalia, in a plurality opinion joined in full by Chief Justice Rehnquist and Justice Kennedy and in part by Justice White, concluded that tag jurisdiction satisfied due process because it accorded with the “firmly established” historical principle that “the courts of a State have jurisdiction over nonresidents who are physically present in the State.” Id. at 610.
Both of the current justices of the U.S. Supreme Court who participated in Burnham, Justices Kennedy and Scalia, joined that plurality opinion. Tellingly, Justice Scalia's plurality opinion also contained a footnote:
Noting that corporations “have never fitted comfortably in a jurisdictional regime based primarily upon ‘de facto power over the defendant’s person.’” Burnham, 495 U.S. at 610 n.1 (opinion of Scalia, J.) (quoting Int’l Shoe, 326 U.S. at 316)
The decision creates a circuit split between the 9th Circuit in this opinion and 5th Circuit in a 1992 decision, which held that there is no tag jurisdiction for corporations, and the 1st Circuit, which has reached the opposite conclusion in a 2001 case.

The 2nd Circuit held in 1998, that tag jurisdiction can apply to partnerships, but the legal analysis in the case of partnerships and in the case of corporations is sometimes different. While the modern rule is that a partnership is an entity separate from its partners, the traditional rule, which is the minority rule today, is that a partnership is not a separate entity from its partners, and the traditional rule is applied by the federal court, by statute, for other jurisdictional purposes, such as diversity of citizenship jurisdiction.


Tag jurisdiction is an anachronistic stepchild of personal jurisdiction law, divorced from the legal theories of due process that motivate the other grounds for a court to assert personal jurisdiction over a party.

Indeed, as the 9th Circuit noted in its decision, in some recently decided cases involving assertions of personal jurisdiction over non-U.S. corporations, the U.S. Supreme Court has been reluctant to affirm even that "general jurisdiction" based upon regular contacts with a state suffice to establish personal jurisdiction in a case otherwise unrelated to a state.  See, e.g., Daimler AG v. Bauman (U.S. Supreme Court, January 14, 2014), previously discussed on this blog.

The 9th Circuit has likewise held that in King v. Am. Family Mut. Ins. Co., 632 F.3d 570, 579 (9th Cir. 2011), that a corporation’s designation of an agent for in-state service of process does not create general jurisdiction over the corporation, even though there has been a widespread view that this was precisely the purpose behind requiring corporations to do so in order to obtain permission to do business in a state.  Again, this is a decision doubting not just general jurisdiction based upon service of process in a state.  Instead, it doubts the validity of general jurisdiction under the requirements of International Shoe, one of the first modern federal jurisdiction cases, at all.

On the other hand, tag jurisdiction is a very useful legal doctrine from a practical perspective for trial courts.  The percentage of civil cases in a typical trial court where a defendant was served with with process within the state is high, and in those cases, all other personal jurisdictional analysis may be dispensed with, without any need to resort to further jurisdictional discovery or analysis, based solely upon the return of service provided by the process service which is notarized and has been made a part of the court file.

Tag jurisdiction, general jurisdiction, purely in rem jurisdiction, and specific jurisdiction cases such as those based upon automobile accidents taking place within a state, combined, leave only a modest percentage of cases where there is any legitimate doubt about a court's personal jurisdiction over the parties to the case.  But, without tag jurisdiction, there would be good faith arguments against personal jurisdiction that could be made in many of those cases which would require considerable fact specific legal analysis, increasing the cost of routine litigation.

Martinez and the Corporate Personhood Debate

Any distinction between corporate defendants and natural person defendants that is favorable to a corporation fuels an ongoing political narrative about the special treatment that big businesses receive under the law and in politics that is often rolled into a lack of support for corporate personhood.

The recent U.S. Supreme Court holdings that corporations have a right to make campaign contributions that are unlimited in dollar amount under the First Amendment in Citizen's United and that closely held, "for profit" corporations can assert the religious objections of their owners to providing reproductive health care for their employees as they are mandated by the Affordable Care Act (i.e. Obamacare) in the Hobby Lobby case, appear to substantiate this critique and make a decision like the 9th Circuit decision in this case a target for progressive critics of corporate personhood in a very direct way.

Corporations are persons when it suits them, but not when it doesn't, under the law, critics may fairly argue.  And, in general, any technical and procedural legal doctrine that makes it harder for someone harmed by corporate action to secure redress for torts committed against them is problematic for liberals.

On the other hand, tag jurisdiction has long been considered problematic by liberals, because it gives little credit to the due process concerns of the individuals served which differ very little in substance from the due process concerns raised by the corporation in the Martinez case.

While I am certainly more liberal than I am conservative, I don't see "corporate personhood" per se, as a conservative or pernicious doctrine.  Corporate personhood and its close cousin, the vicarious liability of private entities and persons for the acts of their employees and agents, is a critical tool by which average individuals can hold large businesses accountable without knowing the details of their inner workings.  Tort law would be toothless without it, and would instead look like the far more restrictive regime of governmental liability, where vicarious liability is the exception, and immunity from liability is the norm.

In my view, the problem is not "corporate personhood" but the undue concentration of political power of big businesses, and in wealthy individuals who often make their money in big businesses, which can be leveraged into legal and economic advantages.  But, it is also not a problem with an easy solution.  Even in a system totally free of corruption and partisanship and bias, people who make big decisions about the laws that should govern the political economy should care a great deal about the impact of their decisions on big businesses that if made unaware of the consequences of these decisions on big businesses could have a serious negative effect on the overall economy and the jobs of large numbers of people.  Big businesses provide a natural way to give voice to legitimate economic concerns that have widespread impact but are not very familiar or salient to the daily lives of most individuals.  Ignoring their voice poses a serious risk of destructive mob rule.

I also can't say that there is no rational basis to distinguish between corporations and natural persons when it comes to "tag jurisdiction."

The typical corporation is embodied in far more people who are legally authorized to accept legal process on its behalf than a typical individual.  Corporations often have dozens or scores of people who are subject to service of process and are generally required to have a registered agent for service of process available to be served during all regular business hours.  There are often only a few people, in contrast, who are authorized to accept legal process on behalf of an individual.  So, tag jurisdiction could, in principle, be more onerous for a corporation than it is for an individual.

Conversely, even "tag jurisdiction" is not quite as extreme when applied to natural persons as it seems.  There are many ways to serve a natural person who is an adult with process other than by delivering a summons personally to that individual.  In Colorado, one can also deliver legal process to any adult member of the defendant's family at his or her "usual place of abode", or at the person's "usual workplace" with his or her "supervisor, secretary, administrative assistant, bookkeeper, human resources representative, management agent."  Service of process upon an adult individual can also be made upon that person's agent for service of process.

Service upon any of these people would probably not be considered a basis for "tag jurisdiction", upon the individual. For example, if Harvey Smith has a natural person named Fred Jones who is a designated agent for service of process upon him in Utah in connection with a requirement that he do so in order to be qualified to do business as a sole proprietor there, and a process server delivered a summons and complaint to Fred Jones in Colorado, it is not at all obvious that the Colorado courts would have jurisdiction over Harvey Smith on the basis of "tag jurisdiction."  Similarly, tag jurisdiction would probably not apply to an individual that a court authorizes "substituted service" upon on a case by case basis, such as a doorman for a gated community where a defendant owns a house.

Of course, the mere fact that a person has a "usual place of abode" or "usual workplace" within the state would itself, normally establish that a Colorado court has general personal jurisdiction over the defendant.  Likewise, the fact that someone has an agent for service of process whose regular office is in the State of Colorado would traditionally suffice to establish general jurisdiction over that person in the State (although the 9th Circuit disagreed in a 2011 decision).

Colorado law does not, however, allow for service of process upon an adult natural person, by delivering papers to a spouse or adult child of the defendant who lives with the defendant, at their respective places of work, or upon someone's secretary or supervisor at work at their respective homes.

The Case For A Compromise Rule To Resolve The Circuit Split

One could reconcile the circuit split between the 1st Circuit, which held that tag jurisdiction was available in Northern Light Technology, Inc. v. Northern Lights Club, 236 F.3d 57 (1st Cir. 2001), where tag jurisdiction was held to be present when the person upon whom process against the corporation was served upon the President of the corporation, and the 9th Circuit, where service of process was made upon the Vice President of Marketing in a large corporation that probably had dozens of Vice Presidents, by holding that for tag jurisdiction purposes, that the highest ranking officer of the corporation, the CEO if there was one, and the President, if there was not a CEO, was the physical embodiment of the corporation for tag jurisdiction purposes.  This would be individuals and corporations on equal footing, as in each case, it would be possible to secure tag jurisdiction in each case, solely by serving one individual.

This would treat sole proprietorships and closely held corporations identically, which would be a fair result in cases like a 9th Circuit implicitly rejected this theory in dicta in the case of Chan v. Society Expeditions, Inc., 39 F.3d 1398 (9th Cir. 1994), where personal service in Washington State was obtained against the president and sole owner of a German corporation within Washington State where the action was brought.  In that case, the service of process was held to be valid, but the issue of personal jurisdiction over the corporation was reserved for determination on remand, even though it would have been transparently obvious if tag jurisdiction applied to corporations.  But, it is hard to see how due process is offended in the case when the German business is organized as a corporation, but not if the German business had been organized as a sole proprietorship with the same ownership and management structure.

Against Trans-Substantive Personal Jurisdiction Rules

It is  somewhat troubling that so many of the leading personal jurisdiction cases apply to instances of non-U.S. corporations sued in U.S. courts.  In principle, the constitutional boundaries on the assertion of personal jurisdiction are no different in interstate and international case, and as a result of statutory law creating the U.S. District Courts, there is also no difference between the ability of a federal trial court and a state trial court to assert personal jurisdiction over someone.

But, there are principled reasons for treating international cases differently (a difference which exists expressly when it comes to the enforcement of court judgments from another state), and also for treating federal courts differently than state courts (a distinction which does not have constitutional character).

On one hand, forcing someone to litigate in one U.S. state rather than another is a less serious issue than forcing someone to litigate abroad, rather than in the United States.  All U.S. courts are subject to the same constitutional standards of due process of law, almost all share the same legal tradition and general outlines of substantive law, and all are subject to ultimate supervision on direct appeal by the U.S. Supreme Court whose precedents on issues of due process rights bind all of them.  Moreover, a court decision of a U.S. Court is enforceable in any other state under the full faith and credit clause of the United States Constitution.

Also, forcing someone to litigate in a federal court in a given state is a less serious issue than forcing someone to litigate in the state courts of a different U.S. state, or in a different country.  The federal courts were established by the United States Constitution expressly for the purposes of providing a fair forum for interstate and international litigants that might not be available in a particular state's own popularly courts that might have an incentive to systematically disfavor out of state defendants.  Procedural issues in federal trial courts in civil cases are governed by a uniform national set of federal rules of civil procedure and federal procedural statutes, even though there are local rules in different federal district courts that often reflect state court practice in those states, and even though some procedural issues (like choice of law) are determined using forum state law.

Furthermore, there is no really good reason, other than tradition, for the fact that the long arm jurisdiction analysis made by a federal trial court should be based upon the connection that the defendants and the case has to the United States of America, in general, rather than merely the ties that the defendants and the case have to the particular state in which the particular federal trial court in the case is located.  Congress and the U.S. Supreme Court could easily have adopted a national analysis of personal jurisdiction for the federal courts, while leaving the consideration of which of the federal courts a case should be tried in as a non-jurisdictional question of proper venue (as the state courts do when deciding which county a case is most appropriately tried in which the state).

Thus, it would be perfectly reasonable to have a personal jurisdiction rule that made it easier to sue a non-U.S. corporation in a federal trial court than it was to sue a U.S. corporation from the next state over in a state trial court.  Similarly, it would be perfectly reasonable to have a personal jurisdiction rule that made it easier for a non-U.S. corporation to escape a state court forum, than it was for a U.S. corporation to do so.

For what it is worth, I favor changing the law to allow federal trial courts to evaluate specific jurisdiction on the basis of contacts with the United States, rather than contacts with a specific U.S. state (which would expand the federal courts' personal jurisdiction), and changing the law to repeal the statutory basis of U.S. District Court jurisdiction over both diversity jurisdiction cases between non-governmental parties (except cases that have specialized statutory authorization such as interpleader, interstate property disputes and interstate class action lawsuits), and federal question lawsuits between non-governmental parties that have no other separate jurisdictional basis authorizing them (particularly, employment law lawsuits against non-governmental defendants) (which would narrow the federal courts' personal jurisdiction in cases where all parties were U.S. parties).  Although, I might be inclined to allow for diversity jurisdiction in cases involving a non-U.S. party who is not collusively joined, even in the absence of "complete diversity" which is currently required.

These reforms would subject more foreign defendants to the jurisdiction of the U.S. courts and make it easier for them to get into federal court, but would dramatically reduce the volume of ordinary domestic litigation between non-governmental domestic parties in the federal courts, where state court authority and capacity is more or less co-equal under existing law.

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