United States: Daimler AG v. Bauman: In Latest ATS Decision, The Supreme Court Limits Jurisdiction Of U.S. Courts Over Multinational Corporations

Last Updated: January 22 2014
Article by Vivek Krishnamurthy

A sweeping decision by the Supreme Court on January 14 has further restricted the circumstances under which plaintiffs may sue multinational corporations in U.S. courts for harms occurring outside the United States.

In Daimler AG v. Bauman, the Supreme Court unanimously rejected an attempt by twenty-two Argentinian plaintiffs to sue the German automaker in California for the alleged role of its Argentinian subsidiary in the deaths, kidnappings, torture, and wrongful detention of certain of its employees during that country's notorious "Dirty War."

The outcome of this case is not surprising given the Court's ruling last year in Kiobel v. Royal Dutch Petroleum, 133 S. Ct. 1659 (2013), that there must be "some relevant conduct" in the United States for a corporation to be answerable under the Alien Tort Statute ("ATS"), 28 U.S.C. §1350, for its alleged role in human rights abuses perpetrated abroad. What is a surprise, however, is that in deciding this case, the Court substantially tightened the law of jurisdiction in both U.S. federal and state courts as it applies to large corporations.

Decisions of the Lower Courts

The central issue in the Supreme Court's ruling was whether a federal District Court in California had jurisdiction to hear its claims against Daimler AG (Daimler) – the German parent corporation of Mercedes-Benz Argentina, which is alleged to have committed the human rights abuses – based on the activities in that state of Daimler's American subsidiary, Mercedes-Benz USA (MBUSA). Even before the Supreme Court released its decision in Kiobel, the District Court dismissed the plaintiffs' lawsuit, ruling that the relationship between Daimler and MBUSA did not support the Court's exercise of jurisdiction over Daimler in this case.

Despite the intervening release of the Kiobel judgment, a divided Ninth Circuit ruled on appeal that the activities of MBUSA could be attributed to Daimler for jurisdictional purposes. The Ninth Circuit so ruled because in its view, MBUSA acts as Daimler's all-purpose agent in California by performing "services that are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services."

The Supreme Court's Decision

All nine Supreme Court justices agreed that this lawsuit, which "involves foreign plaintiffs suing a foreign defendant based on foreign conduct," did not belong in the U.S. based on the presumption announced in Kiobel against the extraterritorial application of the ATS. The Argentinian plaintiffs did not allege that MBUSA played any role in the abuses committed by Mercedes-Benz Argentina, nor did they allege that Daimler itself engaged in any "relevant conduct" in the United States that contributed to the human rights abuses suffered by the plaintiffs. Hence there was no "relevant conduct" in the United States that could serve to overcome the Kiobel presumption, regardless of whether the courts in California possessed jurisdiction over Daimler.

While Justice Sotomayor would have disposed of the case on these limited grounds, Justice Ginsburg, in an opinion joined by the seven other members of the Court, went further in holding that Daimler did not have sufficient "affiliations" with California to subject it to the general jurisdiction of the courts of that state.

The Law of Jurisdiction

Since the mid 20th century, the law of jurisdiction in the United States has recognized a distinction between general jurisdiction based on a corporation's physical presence in a state, and specific jurisdiction based on its "purposeful availment" of the privilege of doing business in a state.

The difference between the two forms of jurisdiction is best illustrated through some examples. The courts in California possess general jurisdiction over all corporations "at home" in that state, meaning that they may entertain all claims against such corporations arising from their activities anywhere in the world. Hence the courts in California may hear a discrimination claim brought by an employee of a Silicon Valley software company's office in Bangalore. By contrast, if a Dutch corporation's only connection to California is that third-party retailers in that state sell its bicycles in some volume, the California courts will possess only specific jurisdiction over the Dutch corporation to entertain specific claims arising from that activity, such as a products liability suit alleging that the bicycles are defectively designed.

In the Daimler case, since the plaintiffs' lawsuit was not based on any activity by Daimler or its subsidiaries in California, the courts in that state could only hear the case if they possessed general jurisdiction over the parent corporation. Even assuming that the Ninth Circuit was correct to attribute MBUSA's activities in California to Daimler in deciding the jurisdictional question, Justice Ginsburg found that "there would still be no basis to subject Daimler to general jurisdiction in California." Justice Ginsburg so held based on the Supreme Court's decision in Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. __ (2011), a case dealing with the reverse question of when the jurisdictional contacts of a parent company can be attributed to a subsidiary.

In Goodyear, the Supreme Court held unanimously that "[a] court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so 'continuous and systematic' as to render them essentially at home in the forum State." The paradigmatic examples of "continuous and systematic" affiliations are for a corporation to either be incorporated or to maintain its principal place of business in a state. There may, of course, be other "continuous and systematic" affiliations that could form the basis for general jurisdiction, but given that MBUSA is neither incorporated in California nor maintains its principal place of business there, Justice Ginsburg ruled that it would be "exorbitant" for courts in that state to exercise general jurisdiction over Daimler in such circumstances.

Justice Sotomayor concurred in the majority's judgment dismissing the case, but she disagreed vehemently with the logic of Justice Ginsburg's ruling. In her view, the majority deems Daimler "too big for general jurisdiction" by asking the wrong question. Instead of examining the absolute magnitude of Daimler's contacts with California, the majority considers the "relative magnitude of those contacts in comparison to the defendant's contacts with other states" in determining where it is "at home."

In Justice Sotomayor's view, the fact that California accounts for 2.4% of Daimler's global sales (some $4.6 billion per year), combined with the many facilities that MBUSA maintains in that state, might well be sufficient to render Daimler "at home" in the Golden State. By contrast, requiring a corporation to have contacts with a state akin to incorporation or a head office to establish general jurisdiction "shift[s] the risk of loss from multinational corporations to the individuals harmed by their actions" by preventing consumers from filing suit where they are at home. Justice Sotomayor cites the example of a person maimed by the negligence of a global hotel chain while vacationing abroad being unable to file suit in the state where they live, despite the fact that the corporation does billions of dollars of business there, because the corporation is neither incorporated nor headquartered there. According to Justice Sotomayor, not only is this result inconsistent with the law as it has been for decades, but it is also fundamentally unfair.

The Effect of the Supreme Court's Decision

What was widely expected to be an important decision regarding the scope of the ATS has instead turned out to be a landmark ruling on the much more general question of when large, complex corporations may be sued in U.S. courts. The Supreme Court's ruling does not change the fact that multinationals can be sued in any U.S. state in connection to claims arising from business they have conducted in a particular state, but lawsuits arising from all other situations can now only be brought in the limited number of states where the multinational can be considered to be "at home."

The true impact of the decision ruling will ultimately depend on how the lower federal courts decide that a corporation is "at home" in a state when it is neither incorporated nor headquartered there. If it turns out that large corporations, like wealthy individuals, can have many homes across the United States, the impact of Daimler may turn out to be more muted than it first appears.

To view Foley Hoag's Corporate Social Responsibility Blog please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Vivek Krishnamurthy
 
In association with
Related Video
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
Accounting and Audit
Anti-trust/Competition Law
Consumer Protection
Corporate/Commercial Law
Criminal Law
Employment and HR
Energy and Natural Resources
Environment
Family and Matrimonial
Finance and Banking
Food, Drugs, Healthcare, Life Sciences
Government, Public Sector
Immigration
Insolvency/Bankruptcy, Re-structuring
Insurance
Intellectual Property
International Law
Law Practice Management
Litigation, Mediation & Arbitration
Media, Telecoms, IT, Entertainment
Privacy
Real Estate and Construction
Strategy
Tax
Transport
Wealth Management
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.