United States: SCOTUS Shortens The Reach Of Long-Arm Statutes

The Court has now made clear that general jurisdiction over a foreign (sister-state or foreign country) corporation requires affiliations establishing that the forum state is "home" to the corporation, and a specific jurisdiction analysis is not applicable to this decision.

International Shoe Co. v. Washington, 326 U. S. 310 (1945), was the canonical case that led to enactment of state long-arm statutes. The cases that followed "differentiated between general or all-purpose jurisdiction, and specific or case-linked jurisdiction." General jurisdiction means a court may hear any case against the corporate defendant just as though it had been incorporated in the forum state. Specific jurisdiction means a court may exercise jurisdiction over the defendant in the particular case before the court because the case arose out of activity of the corporate defendant in the forum state. Most decisions after International Shoe focused on specific jurisdiction, but with unpredictable results. More recently, unpredictability was spreading to general jurisdiction cases. In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), and Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), the Court tried to halt the trend and add predictability: neither a state nor a federal court may exercise general jurisdiction over a foreign (sister-state or foreign- country) corporation unless the corporation is essentially at home in the forum state.

In Goodyear, the Supreme Court reversed because the lower court, after "[c]onfusing or blending general and specific jurisdictional inquiries," had erroneously concluded that North Carolina had general jurisdiction over the defendant foreign corporations. A bus accident outside Paris resulted in the deaths of two boys from North Carolina. Their parents sued a US corporation and three of its foreign subsidiaries, claiming that tires designed or manufactured by one or more of the foreign subsidiaries were on the bus in France, were defective, and caused the accident. A small percentage of tires manufactured by the foreign subsidiaries were distributed in North Carolina. Using a "stream-of-commerce" analysis, the North Carolina Court of Appeals concluded the foreign subsidiaries were amenable to general jurisdiction.

The Supreme Court said the lower court's "stream-of-commerce analysis elided the essential difference between case-specific and all-purpose (general) jurisdiction." The Court added that ties which may bolster specific jurisdiction "do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant."

Writing for a unanimous court, Justice Ginsburg explained the paradigms of general jurisdiction. For an individual, the paradigm forum for general jurisdiction is the individual's domicile. For a corporation, the paradigm fora are the states of incorporation and principal place of business—places in which the corporation is fairly regarded as "at home."

The issue arose again in Daimler AG v. Bauman. The Ninth Circuit had held that the federal district court in California could exercise general jurisdiction over Daimler, a German corporation with no presence in California. Plaintiffs were Argentinians who claimed that Daimler's Argentinian subsidiary had collaborated with state security forces to torture and kill some of the subsidiary's employees during Argentina's 1976–1983 "Dirty War."

Jurisdiction over Daimler was predicated on the California contacts of Mercedes-Benz USA, LLC (MBUSA), another Daimler subsidiary, incorporated in Delaware with its principal place of business in New Jersey. MBUSA distributed Daimler-manufactured vehicles to independent dealerships throughout the US, including California.

The Ninth Circuit concluded that Daimler's subsidiary, MBUSA, had "engaged in a substantial, continuous, and systematic course of business" in California such that MBUSA was subject to general jurisdiction in California. The Court attributed the contacts of MBUSA to its parent, Daimler, under an agency theory. Therefore, Daimler was also subject to general jurisdiction in California.

The Supreme Court reversed. It criticized the Ninth Circuit's agency theory, which was simply to ask whether the in-state subsidiary was performing services sufficiently important to the parent that if the subsidiary were not performing them, the parent would undertake to perform substantially similar services. The Supreme Court rejected this analysis saying it "stacks the deck, for it will always yield a pro-jurisdiction answer." Anything a corporation does through an independent contractor, subsidiary or distributor is presumably something that the corporation would accomplish by other means if these entities did not exist.

The Ninth Circuit's agency theory thus appears to subject foreign corporations to general jurisdiction whenever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the "sprawling view of general jurisdiction" we rejected in Goodyear.

Beyond this, the Court returned to its central point, which was that regardless of what the subsidiary's contacts were and whether they could be attributed to the parent, it could not be said that the parent was at home in California. It noted that in Goodyear it had made clear that only a limited set of affiliations with a forum would create general jurisdiction. And the paradigmatic affiliations of incorporation and principal place of business "have the virtue of being unique and easily ascertainable."

The Court added that general jurisdiction is not always limited to the state(s) of incorporation and principal place of business. But it rejected the Ninth Circuit's erroneous and expansive formulation.

Plaintiffs would have us look beyond the exemplar bases Goodyear identified, and approve the exercise of general jurisdiction in every State in which a corporation "engages in a substantial, continuous, and systematic course of business"...That formulation, we hold, is unacceptably grasping.

It was error for the Ninth Circuit "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."

Daimler and Goodyear teach that general jurisdiction over a foreign (sister-state or foreign-country) corporation requires bases or affiliations establishing that the defendant is at home in the forum state. In making this determination, a specific jurisdiction analysis will not suffice.

Originally published July 2, 2014

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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