United States: Supreme Court Will Review Two Important Cases Regarding Scope Of Personal Jurisdiction

Every first-year law student learns that one of the first questions a defendant must ask is whether the court in which a lawsuit is filed has personal jurisdiction—that is, whether the state or federal court can exercise power over the defendant. The Due Process Clause of the Fourteenth Amendment limits the reach of that power, preventing a court from exercising jurisdiction over a defendant that has no ties to the State in which the court sits.

Applying this limitation, the U.S. Supreme Court has recognized two kinds of personal jurisdiction: general and specific. General jurisdiction permits courts to adjudicate claims against a defendant arising out of actions occurring anywhere in the world (subject, of course, to any limits specific to a particular cause of action). It requires that the defendant be considered "at home" in the forum.

Specific jurisdiction, by contrast, empowers a court to adjudicate particular claims relating to a defendant's conduct within the forum. To be subject to specific jurisdiction, the defendant must have established contacts with the forum, and the lawsuit must arise out of those contacts.

Both of these forms of personal jurisdiction have been examined by the Supreme Court in recent years, but the lower courts remain in disarray over how to apply the Court's precedents. Likely for that reason, the Court has recently agreed to review two cases addressing both facets of personal jurisdiction.

First, the Court granted certiorari in BNSF Railway Co. v. Tyrrell, in which (in our view) the Montana courts failed to honor Supreme Court precedent establishing limits on general jurisdiction. Second, the Court granted review in Bristol-Myers Squibb Co. v. Superior Court, in which the California courts similarly flouted the limits on specific jurisdiction by allowing out-of-state plaintiffs to sue in California for claims that have nothing to do with the state. Defendants who face class and mass actions should follow both cases closely, and both will be important barometers for whether the Court is committed to maintaining strict limits on the scope of personal jurisdiction. (We filed an amicus brief (pdf) for the U.S. Chamber of Commerce in Bristol-Myers Squibb explaining the disarray in the lower courts and why that case in particular warranted Supreme Court review.)

BNSF v. Tyrrell

For companies that do business in many States, the Supreme Court's 2014 decision in Daimler AG v. Bauman was a game-changer. Prior to Daimler, many courts had held that corporations could be subjected to general personal jurisdiction—and thus haled into a State's courts for claims unrelated to activities within that State—in any State in which they did a large volume of business.

But in Daimler, the Court held that general personal jurisdiction is ordinarily available only in the two places where a business is "at home"— the company's State of incorporation and its principal place of business. Indeed, the Court held, general jurisdiction will only exist outside those two locations in "exceptional circumstances."

As businesses know, it is commonplace for plaintiffs who are bringing class actions or mass claims to shop for a preferred forum (often a judicial "hellhole" (pdf)) when suing a corporate defendant. Daimler's due process holding affords defendants at least some protection from that kind of forum-shopping: Plaintiffs cannot simply pick the most plaintiff-friendly jurisdiction in which the defendant does business; rather, they must either sue in the place where the events giving rise to their claims occurred (relying on specific personal jurisdiction) or sue in the defendant's State of incorporation or principal place of business (relying on general jurisdiction). In response, plaintiffs' lawyers—and plaintiff-friendly courts—have resorted to a number of stratagems in an attempt to get around Daimler.

BNSF Railway Co. v. Tyrrell exemplifies that tactic. In Tyrrell (pdf), the Montana Supreme Court relied on two dubious justifications in concluding that Daimler did not apply and that BNSF was subject to general jurisdiction in Montana—even though its State of incorporation and principal place of business are both elsewhere. As we discuss below, the Montana Supreme Court's attempt to circumvent Daimler is misguided and should be overturned

The plaintiffs in Tyrrell are two employees (one former and one current) of BNSF who seek damages from the company under the Federal Employers Liability Act (FELA), which provides railroad employees with a federal cause of action for personal injuries caused by their employers' negligence. Neither plaintiff resides in Montana, nor was either one injured there. Nevertheless, both plaintiffs sued in Montana on the theory that BNSF is subject to general jurisdiction in that State. In our view, that approach cannot be squared with Daimler, given that BNSF is incorporated in Delaware and has its principal place of business in Texas.

A divided Montana Supreme Court nonetheless held that Daimler did not apply, for two reasons. First, the majority argued, Daimler's holding is limited to the facts of that case—i.e., to disputes "brought by foreign plaintiffs against a foreign defendant based on events occurring entirely outside the United States." Second, the majority pointed to Section 56 of FELA, which provides that a plaintiff may bring suit in any federal district in which the defendant does business and gives state courts "concurrent" jurisdiction over FELA suits. The majority argued that Section 56 should be read to give State courts not only subject-matter jurisdiction over FELA claims but also general personal jurisdiction.

Both of these conclusions are deeply misguided. First, nothing in Daimler suggests that the Court's holding was limited to cases involving foreign corporations. Indeed, though Daimler itself involved a foreign defendant, the Court's analysis referred to the States' power to exercise jurisdiction over "sister-state" corporations as well as "foreign-country" corporations. Unsurprisingly, therefore, countless courts have relied on Daimler in cases involving a corporation domiciled in one State and being sued in another—including every federal court of appeals to consider the issue.

Second, the Montana Supreme Court's reading of Section 56 is equally untenable. As the dissent below put it, "Section 56 is a venue statute for the federal courts." The statute refers to the "concurrent" jurisdiction of State courts, but that is clearly meant as a grant of subject-matter jurisdiction, not personal jurisdiction.

Moreover, even if Section 56 purported to give State courts general personal jurisdiction over the defendants in every FELA case, regardless of where the defendant is incorporated or headquartered, that grant of jurisdiction would violate the U.S. Constitution. Congress cannot authorize either federal or State courts to exercise personal jurisdiction where such jurisdiction is barred by the constitutional guarantee of due process. And as the Supreme Court has explained many times, including in Daimler, due process prohibits a State from exercising general personal jurisdiction over a defendant that is not "at home" in the State.

In Daimler, the Supreme Court articulated a straightforward and predictable rule governing general personal jurisdiction that is vitally important to businesses. As the Supreme Court has often noted, clear jurisdictional rules are desirable because they allow businesses to better predict where they might be subjected to suit. In our view, the Court should take the opportunity provided in Tyrrell to affirm that Daimler means what it says.

Bristol-Myers Squibb v. Superior Court

Just as the Court carefully limited general jurisdiction in Daimler, it also recently reaffirmed the limited nature of specific jurisdiction, in Walden v. Fiore. Walden emphasized that the specific jurisdiction inquiry "focuses on the relationship among the defendant, the forum, and the litigation"; "[f]or a State to exercise jurisdiction consistent with due process, the defendant's suit-related conduct must create a substantial connection with the forum State."

Although Walden and prior Supreme Court cases make clear that a plaintiff's claims must be related to the defendant's forum contacts, some lower courts have sought to get around this relatedness requirement by taking an unduly expansive view of when claims are considered related to the defendant's in-state activity. Bristol-Myers Squibb v. Superior Court (BMS), is a perfect example.

The plaintiffs in BMS are 661 individuals who took BMS's blood-thinning medication Plavix. The plaintiffs assert a number of product-defect claims relating to their use of the drug.

In this mass action, 575 of the 661 plaintiffs reside outside California. As to these plaintiffs, BMS moved to dismiss for lack of personal jurisdiction, arguing that California lacked specific jurisdiction over these plaintiffs' claims because none of the events relevant to their claim occurred in California: they did not take the drug in California, it was not marketed to them in California, and it was not designed or manufactured in California. (General jurisdiction is unavailable under Daimler because BMS is incorporated in and has its principal place of business in other states).

The California Supreme Court held (pdf) that California courts could exercise specific jurisdiction over these out-of-state plaintiffs' claims. It concluded that specific jurisdiction does not require that a plaintiff's claims "arise directly from the defendant's forum contacts" or be causally linked to those contacts in any way. Instead, the court held, it was sufficient that the in-state and out-of-state plaintiffs' claims were "based on the same allegedly defective product and the assertedly misleading marketing and promotion of that product" as part of a "common nationwide course of distribution."

That holding cannot be squared with Supreme Court precedent. The Court has held, most recently in Goodyear Dunlop Tires Operations, S.A. v. Brown, that specific jurisdiction may be exercised only with respect to "activity or an occurrence that takes place in the forum State and is therefore subject to the State's regulation." (brackets and internal quotation marks omitted). This means that in order to invoke specific jurisdiction, a plaintiff's claims must arise directly out of the defendant's in-state conduct.

The out-of-State plaintiffs in BMS do not allege any activity that occurred in California; every operative event underlying their claims took place outside the State. Thus, none of petitioner's "suit-related conduct" with respect to these claims had any connection to California, let alone the direct, "substantial connection" required by Walden. In essence, the California court held that BMS could be subjected to specific jurisdiction in California for these out-of-state claims merely because its alleged in-state conduct with respect to the claims of in-state plaintiffs paralleled its alleged conduct in other states. But that rule would expand specific jurisdiction beyond any reasonable limit. If the California Supreme Court were correct, product manufacturers would effectively be subject to general jurisdiction in every state in which they sell their products, because any plaintiff who purchased the product could bring suit in any state where the product was sold, simply by alleging that the manufacturer engaged in a "common nationwide course of distribution." That would undermine Daimler's framework—which, as discussed above, contemplates that a corporation should be subject to general jurisdiction only in its state of incorporation and principal place of business.

The result of this boundless approach to specific jurisdiction would be increased uncertainty for product manufacturers, who would lose all ability to anticipate where they might be sued in mass actions. That is the exact opposite of the predictability that the Supreme Court has sought to foster in jurisdictional rules. It would also allow for untrammeled forum shopping by plaintiffs, who would flock to the most plaintiff-friendly jurisdictions (no matter how inconvenient for the parties) in order to bring suit.

Now that the Court has decided to review BMS, we hope it will overturn the California Supreme Court's decision and reaffirm that in order to qualify for specific jurisdiction, a plaintiff's claims must directly arise out of the defendant's contacts with the forum state.

We will be watching both of these cases closely.

Originally published on January 24, 2017

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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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