United States: Supreme Court Docket Report - April 22, 2013

Keywords: personal jurisdiction, subsidiary, affiliate, forum state

On April 22, 2013, the Supreme Court granted certiorari in one case of interest to the business community:

Personal Jurisdiction - General Personal Jurisdiction Based on Subsidiary's or Affiliate's Activities in Forum State

The question whether a corporate defendant located outside the United States may be sued in U.S. courts is often critical - especially in view of the significant differences between the substantive and procedural standards applied by U.S. courts and those employed by the courts in most other countries. The question whether a defendant located outside a particular state may be sued in the courts of that state can also matter because of the differences in legal standards among the states.

U.S. constitutional principles of due process permit a defendant to be sued in the courts of a state (or, generally, in the federal courts within that state) only if the defendant is subject to personal jurisdiction in that state. A defendant will be subject to "general" personal jurisdiction in a state - meaning that the defendant can be sued in the state for any claim, even if the claim has nothing to do with the defendant's conduct in that state - if the defendant engages in continuous and systematic conduct there. For example, if the defendant has a branch office with numerous employees who make a large volume of sales in the state, the defendant would be subject to general personal jurisdiction in that state.

Today, the Supreme Court granted certiorari in DaimlerChrysler AG v. Bauman, No. 11-965, to address whether due process allows a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that the defendant's indirect corporate subsidiary performs services in the forum state that are unrelated to the lawsuit.

The defendant in DaimlerChrysler, Daimler AG, is a German public stock company that does not have any U.S. operations and does not own property, manufacture or sell products, or employ any workers in the United States. The plaintiffs are residents of Argentina who sued Daimler in a federal court in California, alleging that an Argentine subsidiary of Daimler's predecessor committed human-rights abuses in Argentina.

The district court dismissed the suit for lack of personal jurisdiction over Daimler, but a three-judge panel of the Ninth Circuit reversed, holding that courts in California have general personal jurisdiction over Daimler because a different indirect subsidiary, Mercedes-Benz USA LLC, distributes Daimler-manufactured vehicles to dealerships in California and is therefore Daimler's "agent" in the state. Daimler sought to have the matter reheard by the Ninth Circuit en banc. Although eight judges would have granted that request because the panel's decision departed from the rulings of at least six other circuits, the Ninth Circuit denied en banc review.

The Supreme Court recently addressed related personal-jurisdiction issues in its decisions in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), and J. McIntyre Machine Ltd. v. Nicastro, 131 S. Ct. 2780 (2011). In Goodyear, the Supreme Court held that a state may not exercise general personal jurisdiction over foreign manufacturers whose products enter into a state through the "stream of commerce." 131 S. Ct. at 2856-57. In Nicastro, a plurality of the Court held that New Jersey courts could not exercise personal jurisdiction over a British manufacturer of scrap-metal machines that the plaintiff had bought from an independent dealer because the defendant had never advertised in, sent goods to, or in any relevant sense targeted New Jersey. The grant of review here demonstrates the Court's continuing interest in clarifying and rationalizing the due-process standards governing courts' power to exercise authority over litigants based in other states or countries.

Although the personal-jurisdiction issue in this case arises in the context of a case involving claims under the Alien Tort Statute - the law that was the subject of the Court's ruling last week in the Kiobel case (described in the April 17, 2013, Decision Alert) - as well as under related state-law causes of action, the legal question concerning personal jurisdiction that the Court will decide is not at all limited to Alien Tort Statute claims. The issue has arisen in a myriad of common-law tort and contract actions, as well as in lawsuits invoking federal statutes, whenever a plaintiff has tried to justify the assertion of jurisdiction over a defendant by pointing solely to activities within a state by the defendant's subsidiary or other related entity.

The Supreme Court's decision in this case will be of great interest to the business community, and especially to foreign businesses that have - or are contemplating having - affiliated or subsidiary entities with operations in the United States. If the business activities of an indirect subsidiary or affiliate are sufficient to confer general personal jurisdiction over the parent entity even in states with which the parent entity has no contacts itself, the parent entity's exposure to suit in U.S. courts would be greatly expanded. The Court's decision thus implicates decisions by foreign businesses whether to undertake business activities and commercial investment in the United States.

Absent extensions, amicus briefs in support of the petitioner will be due on June 13, 2013, and amicus briefs in support of the respondents will be due on July 15, 2013.

Originally published April 22, 2013

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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