United States: Corn, Justice Brandeis, Litigation Tourism And The Dormant Commerce Clause (Guest post)

Last Updated: July 6 2016
Article by James Beck

We have another guest post for our readers today, this time courtesy of Richard Dean of Tucker Ellis. His point involves personal jurisdiction. As we've discussed, some courts have allowed "general jurisdiction by consent" as a way to dodge Daimler AG. V. Baumann, 134 S. Ct. 746 (2014), on the basis of an ancient Supreme Court decision from 1917 – Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co., 243 U.S. 93, 95 (1917). This posts points out that this argument can be countered successfully with Supreme Court decisions (almost as old) involving the Dormant Commerce Clause. It's a nice counter, and it has worked.

As always, our guest poster deserves full credit (and any blame) for the contents that follow.

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Last weekend I attended my 50th high school reunion in rural Indiana. While driving to the reunion, there were literally cornfields to the North, South, East and West. There was corn as far as the eye can see. Ironically, that weekend I had my first occasion to read In re: Syngenta AG MIR 162 Corn Litigation, 2016 WL 2866166 (D. Kan. May 17, 2016). I don't think there has been any significant commentary about this case. It deserves some.

The issue in this case was whether an MDL court located in Kansas had general jurisdiction over the defendant in cases direct-filed in the MDL, some of which had been selected for bellwethers, where none of the defendants were incorporated in or had their principal place of business in Kansas. Kansas has a registration statute, which had been interpreted by the Kansas Supreme Court to establish consent jurisdiction. Syngenta argued that such consent by registration of a business agent was effectively negated by Daimler AG. V. Baumann, 134 S. Ct. 746 (2014), and by earlier Supreme Court cases. Originally the MDL Court had rejected this argument based upon the fact that the Supreme Court had not directly addressed the issue and there was Supreme Court authority supporting the constitutionality of such statutes from pre-Daimler days. 2016 WL 1047966 at * 2. It denied the reconsideration on that basis on the merits.

But Syngenta also asked the Court to reconsider based on the argument that giving effect to the consent statute would violate the Dormant Commerce Clause—an argument which Syngenta had previously raised only in passing. That judicially created doctrine addresses the validity of state legislation that may unconstitutionally burden commerce in another, unrelated state. See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). The Court was persuaded by Syngenta's motion, finding it "presented a much more thorough analysis of the application of the commerce clause." Syngenta, 2016 WL 2866166 at *4. And even though the court said it was not obligated to consider a motion for reconsideration, it believed that the issue was of sufficient importance to decide it.

The Court granted reconsideration, finding that the consent to registration statute violated the Dormant Commerce Clause. It was persuaded by a 1923 case, authored by Justice Louis Brandeis, which it found to be controlling: Davis v. Farmers' Co-Operative Equity Co., 262 U.S. 312 (1923). There, the plaintiff sought recovery for loss of grain shipped under a bill of lading issued by a Kansas carrier for transportation over its line from one point in that state to another. The suit was filed in Minnesota, even though the transaction had no connection to Minnesota. A statute in Minnesota provided that a foreign corporation having an agent for service in the state for the solicitation of freight and passenger traffic may be served with a summons by delivering it to that agent. The Minnesota Supreme Court construed this statute to mean that a foreign interstate carrier submitted to suit even in Minnesota as a condition of maintaining a soliciting agent within the state. Jurisdiction was not limited to suits arising out of business transacted in Minnesota. Justice Brandeis succinctly concluded that:

This condition imposes upon interstate commerce a serious and unreasonable burden, which renders the statute obnoxious to the commerce clause.

...

That the claims against interstate carriers for personal injuries and for loss and damage of freight are numerous; that the amounts demanded are large; that in many cases carriers deem it imperative, or advisable, to leave the determination of their liability to the courts; that litigation in states and jurisdictions remote from that in which the cause of action arose entails absence of employees from their customary occupations; and that this impairs efficiency in operation, and causes, directly and indirectly, heavy expense to the carriers-these are matters of common knowledge. Facts, of which we, also, take judicial notice, indicate that the burden upon interstate carriers imposed specifically by the statute here assailed is a heavy one; and that the resulting obstruction to commerce must be serious.

Id. at 315-16. This was 1923; Justice Brandeis is famous for a reason.

The Davis opinion specifically noted that the statute might be valid when applied to suits in which the cause of action arose elsewhere if the transaction out of which it arose had been entered into within the state or if the plaintiff was a resident of the state when it arose. See the court's later decision in International Mill v. Columbia Transp. Co., 292 U.S. 511 (1934). But where the plaintiff was not a resident of the state and there was no connection to the state, a consent by registration statute violated the Dormant Commerce Clause by burdening interstate commerce.

Getting back to corn (this time in Kansas), the Syngenta court concluded that Davis had never been overruled by the Supreme Court and that it had not been directed to any authority suggesting that it should not control the present case. And it noted:

In Davis, . . . the Supreme Court took judicial notice of fact establishing the burden on interstate commerce, including the fact that having to litigate in a remote location can affect business operations.

Syngenta, 2016 WL 2866166 at *3. So it found no general jurisdiction. It also rejected a specific jurisdiction contention on grounds there was no connection between the alleged damages and any conduct in Kansas.

Accordingly, the MDL court decided it did not have jurisdiction over the direct filed cases by non-Kansas plaintiffs and ordered that the parties agree to which judicial district they should be transferred given the fact that discovery had been undertaken in some of the bellwether cases. (The decision does not make direct reference to direct filed cases being at issue but the nature of the relief directing the parties to agree on transfer means that there was not a transferor court.) This is significant in itself since it appears to be the only reported decision addressing personal jurisdiction issues of direct-filed cases in MDLs that have been selected as bellwethers since Daimler.

There is also a good discussion of waiver. Plaintiffs argued that this defense was not in the master answer, and that the court's ruling on motions to dismiss generally applied to all cases. But the Court rejected this argument finding that the master pleadings were an administrative tool to the Court and that a defendant does not waive a defense in one case by failing to assert it in another.

Both Syngenta and Davis are significant because they address the paradigm we face in defending the pharmaceutical industry from litigation tourists. Daimler and Walden v. Fiore, 134 S. Ct. 1115 (2014), have given us good defenses under the due process clause. But Justice Brandeis got there in 1923 through the Dormant Commerce Clause and provided a cogent rationale for its application. Not only does his decision have profound impact on the arguments about personal jurisdiction through consent statutes, but the paradigm he describes is the classic litigation tourism plaintiff that we now confront, who is not a resident of the forum state and who was not injured by any activity in the forum state , and yet who is trying to sue in that state.

We should add the Dormant Commerce Clause and the Davis decision to our arsenal of arguments against litigation tourism.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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