United States: U.S. Supreme Court Limits Jurisdictions Where Non-U.S. Businesses May Be Sued

Last Updated: July 6 2017
Article by Antitrust Watch

Authored by Robert Reznick and Elena Kamenir

On June 19, 2017, the U.S. Supreme Court decided Bristol-Myers Squibb Co. v. Superior Court of California,[1] a multi-plaintiff State product liability case in which the Court rejected a loose standard for personal jurisdiction for claims brought by out-of-State plaintiffs. Though questions as to its impact remain, BMS surely will signal the end to multi-State plaintiffs' efforts to centralize claims in the State court of their choosing. Even beyond this, the decision has potentially significant implications for State class actions and perhaps even federal antitrust cases.

Background

Eighty-six California residents and 592 residents from 33 other U.S. States sued the drug maker Bristol-Myers Squib (BMS) in a single non-class action in California.[2]  All alleged injury from ingestion of a drug that they argued had been promoted and sold through a national marketing campaign.  The drug was not developed or manufactured in California, and the campaign was neither designed in nor supervised from California. BMS argued that the claims of the 592 plaintiffs who were not California residents should be dismissed because they lacked any connection with California, and that a California court thus could not assert jurisdiction over the company under the Due Process Clause of the Fourteenth Amendment of the U.S. Constitution.[3]  The California Supreme Court disagreed, but the U.S. Supreme Court agreed with the BMS and limited the case to the 86 California plaintiffs.

The case involved the standards for a court's assertion of personal jurisdiction—the ability of a court to require a defendant to participate in a case and to order relief if warranted.  Two types of personal jurisdiction exist.  First, "general" personal jurisdiction over a defendant is very broad:  it can support a claim brought by any plaintiff no matter where located and no matter where the conduct giving rise to a claim occurred.  General personal jurisdiction over BMS did not exist in California because the U.S. Supreme Court's 2015 Daimler decision essentially limited that type of jurisdiction to States where a corporate defendant is incorporated or has its principal place of business, neither of which was California in the case of BMS.[4]  By contrast, "specific" personal jurisdiction may generally be asserted over a defendant in any U.S. State (i) with which the defendant had "minimum contacts" and (ii) where the "conduct giving rise" to the claim occurred.[5]  (Forcing the defendant to defend against a claim must also satisfy a third "fairness" requirement, which usually is satisfied where the first two requirements are met.)

Specific personal jurisdiction concededly existed as to the California plaintiffs, but the non-California plaintiffs' claims did not arise from the company's contacts with California; while BMS conducted research in California, that work was unrelated to the drug that allegedly caused the plaintiffs' injuries.[6]  BMS likewise admitted that it had contracted with a California distributor to resell its drugs, but argued that neither the act of contracting nor the distributor's subsequent activities elsewhere established the required connection between California and the claims of out-of-State plaintiffs.[7]

The California Supreme Court disagreed.  It applied a "sliding scale" test under which the greater a defendant's contacts with California, whether or not related to the plaintiffs' claims, the less factual connection would be required between those contacts and a plaintiff's claims for specific personal jurisdiction to exist.[8]  Applying this "sliding scale," the Court first concluded that BMS's California research activities were substantial.[9]  That permitted a reduced showing to establish the required connection between the out-of-State plaintiffs and California. The Court found that connection on the ground that the claims of all plaintiffs, no matter where located, were based on the same alleged conduct.

In an 8-to-1 decision, the U.S. Supreme Court rejected the California Supreme Court's expansive "sliding scale" rule of specific personal jurisdiction.[10]  The U.S. Supreme Court held that specific jurisdiction required each and every plaintiff's claim to have arisen from conduct by BMS in California, without reference to whatever other contacts BMS may or may not have had with California.[11]  Because BMS did not develop or make the drug in California, and marketing of the drug likewise was implemented elsewhere, the 592 non-California plaintiffs could not assert specific personal jurisdiction over BMS, and their claims were dismissed. In reaching this conclusion, the U.S. Supreme Court rejected the contention that specific personal jurisdiction could be based on BMS's having engaged a California distributor, potentially for sales in States where non-California plaintiffs resided.  Even if evidence showed that the distributor supplied the pills taken by the out-of-State plaintiffs, the "bare fact" that BMS contracted with a California company could not in any event fairly be said to have "give[n] rise to the claims," nor could the distributor's activities in California be attributed to BMS.[12]  The result, in the Court's view, was that the only locations where BMS could be sued by all of the plaintiffs together were the two jurisdictions outside of California where general personal jurisdiction could be established: the States where the company is incorporated and where it has its principal place of business.

Justice Sotomayor, the lone dissenter, disagreed with the majority on largely policy grounds. She believed the Court's precedents did not preclude personal jurisdiction over defendants in States where they had substantial activities, and argued that the touchstone of personal jurisdiction should remain the Court's seminal International Shoe decision in 1945, which provided simply that the assertion of jurisdiction complies with constitutional requirements so long as it comports with "fair play and substantial justice."[13]  Justice Sotomayor argued that standard was met by BMS's substantial California activities, which demonstrated—to use the parlance of one strand of more recent specific personal jurisdiction law—that the company had "purposefully availed" itself of the benefit of California law, and so may fairly be held to account for its actions in California courts.[14]  She criticized the majority's rule as serving no practical purpose other than to benefit corporate defendants.  She noted that under the Court's decision, foreign corporations that likely are not subject to general personal jurisdiction anywhere in the United States may not be subject to personal jurisdiction in any single state for "nationwide mass actions" arising from their conduct.  Finally, she sought to limit its scope by saying that the case had no applicability to class actions that might be brought on behalf of a class including plaintiffs whose claims had no connection with the forum.

Application to Antitrust Claims and Beyond

  Although decided in the context of a multi-plaintiff state product liability case, the BMS decision applied the Fourteenth Amendment's Due Process Clause, and so should be directly applicable to all State court actions, including those brought under State antitrust laws. State antitrust laws are important nationally because about half of the States have enacted Illinois Brick repealer statutes to enable indirect purchasers to bring antitrust damages claims under state law even though they cannot bring those same claims under the Sherman Act. It should not be surprising to see courts apply BMS in the same manner in the context of non-class action indirect purchaser claims.

That said, certain cautions should be noted. Defendants always can be sued for conduct affecting the United States as a whole in jurisdictions where they are subject to general personal jurisdiction—i.e., where they are incorporated and have their principal places of business. And seemingly even after BMS, companies will be amenable to suit in jurisdictions where they have engaged in conduct allegedly giving rise to injuries nationwide. Some would also argue that, where multiple defendants are involved, allegations of conspiracy may broaden the geographic reach of state lawsuits.[15] However, that assertion has been called into question.[16]

The question whether BMS will be extended to class actions also bears on the size and number of State antitrust claims a defendant may face, and how the resultant changes in financial incentives would alter the shape of litigation. There is California federal court precedent, for example, to the effect that personal jurisdiction with respect to the claims of out-of-State indirect purchaser plaintiffs need only be considered if the law in the plaintiffs' home States differs.[17] To the extent BMS is found applicable to class actions, that holding would appear no longer to be good law.

The Court's majority reserved judgment on whether a different rule for specific personal jurisdiction would apply to certain claims brought in federal court based on alleged violations of federal law—those implicating due process under the Fifth Amendment. The ruling's effect on federal antitrust claims remains a close question.  At least where the claim implicates a federal statute that provides for "nationwide service of process" (including the antitrust laws, as well as the securities laws and RICO, for example), courts have historically recognized some differences in jurisdictional principles, as issues regarding the sovereign rights of individual States are not presented.  In such cases, personal jurisdiction is generally assessed under the Fifth Amendment, not the Fourteenth Amendment, and the relevant constitutional question is whether a defendant's contacts with the United States as a whole, not with the particular forum State, are sufficient to satisfy Due Process requirements of fairness.[18]  Because the Court's analysis in BMS specifically reserved the question whether its analysis would apply under Fifth Amendment due process principles, the issue remains open.  It certainly is the case that much reasoning in the opinion is rooted in concerns over the limits of particular States' sovereignty that would not apply in federal antitrust cases.

Another interesting issue is the effect of the BMS decision on foreign defendants.  Justice Sotomayor may well be right that foreign defendants neither incorporated nor having a principal place of business in the United States will be free from most national litigation brought in a single State forum because they will not be subject to general personal jurisdiction anywhere in the country.  But if the foreign defendant has committed acts in a State allegedly giving rise to national injury, such suits may still be possible.  And foreign companies should also bear in mind that a special federal rule (Fed. R. Civ. P. 4(k)(2)) already makes them amenable to suit anywhere in the United States for alleged violations of federal law, if their contacts with the United States in the aggregate satisfy the "minimum contacts" standard, and there is no other U.S. forum where the contacts are sufficient to support jurisdiction.

In summary, whether and how the BMS opinion will be applied to federal antitrust and State antitrust class action claims remains to be seen and is likely to be litigated in pending cases.

Footnotes



[1] No. 16–466, 2017 WL 2621322 (June 19, 2017).

[2] Id. at *4.

[3] Id. at *4-5.

[4] Id. at *4 (citation omitted).

[5] See Daimler AG v. Bauman, 134 S. Ct. 746, 754 (2014); International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

[6] Bristol-Myers Squibb Co., 2017 WL 2621322, at *8.

[7] Id. at *10.

[8] Bristol-Myers Squibb Company v. Superior Court, 377 P.3d 874, 889 (Cal. 2016).

[9] Id. at 889-890.

[10] Bristol-Myers Squibb Co., 2017 WL 2621322, at *8.

[11] Id. at *7-11.

[12] Id. at *10.

[13] Id. at *16 (citing International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

[14] Id. at *14.

[15] See St. Joe Paper Co v. Superior Court, 120 Cal. App. 3d 991, 997-98 (1981) (citing Maricopa County v. American Petrofina, Inc., 322 F. Supp. 467 (N.D. Cal. 1971), for the proposition that "if a person engages in an out-of-state conspiracy that is designed to and affects the prices charged in the forum state, the forum state has jurisdiction of the conspirators").

[16] See, e.g.,Gutierrez v. Givens, 1 F. Supp. 2d 1077, 1083 n.1 (S.D. Cal. 1998).

[17] See, e.g., Fenerjian v. Nong Shim Co., Ltd., No. 13-cv-04115-WHO, 2015 WL 13000357, at *4 (N.D. Cal. Mar. 30, 2015).

[18] See, e.g.,KM Enterprises, Inc. v. Global Traffic Tech., Inc., 725 F.3d 718, 724 (7th Cir. 2013); Carrier Corp. v. Outokumpu Oyj, 673 F.3d 430, 450 (6th Cir. 2012).

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