Exercising General Jurisdiction Over Corporations
November 6, 2014
– by Amber Barlow
A decision by the U.S. Supreme Court in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), made some big changes to the way courts permit the exercise of general jurisdiction over corporations. Twenty-two Argentinian residents filed suit in the Northern District of California against one defendant, DaimlerChrysler Aktiengesellschaft (Daimler), alleging human rights violations under the laws of the U.S., California, and Argentina. Plaintiffs sought to invoke the court’s general or all-purpose jurisdiction, by predicating jurisdiction on the California contacts of Mercedes-Benz USA, LLC (MBUSA), a subsidiary of Daimler. MBUSA had multiple California-based facilities and is the largest supplier of luxury vehicles to California. Daimler moved to dismiss for lack of personal jurisdiction. The District Court granted the motion but the Ninth Circuit reversed. The Ninth Circuit held that California had general jurisdiction over Daimler because Daimler had substantial control over the activities of MBUSA and MBUSA played an important role in Daimler’s business. Thus, according to the Ninth Circuit, MBUSA operated as Daimler’s agent for jurisdictional purposes. The Supreme Court granted certiorari to decide whether Daimler is amenable to suit in California for claims involving only foreign plaintiffs and conduct occurring entirely outside the state. Ultimately, the Supreme Court held that the exercise of general jurisdiction over the corporation in California was not proper.
While this case involved foreign entities, the decision is applicable to corporations in domestic situations as well. Daimler suggests that a corporation being licensed to do business in a state or simply operating in a state no longer is enough to mean the corporation may be sued in that state on claims that are unrelated to the corporation’s actual operations in that state.
As it currently stands, U.S. courts seem to operate under the assumption that ongoing and continuous activity and operations of a corporation in a state is enough to justify general jurisdiction. Daimler noted that for general jurisdiction, the proper inquiry is whether a foreign corporation’s “affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State.” The crux of the Daimler decision essentially was the meaning of “continuous and systematic” and how those terms should apply to general jurisdiction.
In distinguishing general and specific jurisdiction, the Court pointed out that simply placing goods in the stream of commerce has never been enough to establish general jurisdiction. The Court cited Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011) and noted that general jurisdiction was denied in that case because “although the placement of a product into the stream of commerce may bolster an affiliation germane to specific jurisdiction, such contacts do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant.”
The Court explained that in Goodyear, with respect to a corporation, the place of incorporation and principal place of business are “paradigm bases for general jurisdiction.” However, the Court did not hold that a corporation may be subject to general jurisdiction only in a forum where it is incorporated or has its principal place of business, but rather, those places model all-purpose forums. In addition, Goodyear made clear that there are only a limited set of affiliations within a forum that will render a defendant amenable to all-purpose jurisdiction there. For an individual, the model forum for the exercise of general jurisdiction is the individual’s domicile. Likewise, the model forum for a corporation is the equivalent, a place where the corporation is regarded at home. However, just because a corporation operates in many places does not mean that a corporation can be considered at home in all of them. Otherwise, “at home” would be synonymous with “doing business,” and this is not something the Court agrees to be the case.
In addition, the Court rejected the Ninth Circuit’s agency theory because it would subject foreign corporations to general jurisdiction wherever they have an in-state subsidiary or affiliate. The Court stated that it has not yet addressed whether a foreign corporation may be subjected to a court’s general jurisdiction based on the contacts of its in-state subsidiary. The Court pointed out that agencies come in many shapes and sizes, and while agency relationships may be relevant to the existence of specific jurisdiction, it does not inevitably follow that similar reasoning applies to general jurisdiction.
The Daimler decision will ultimately affect the way courts view personal jurisdiction of corporations. Daimler clears up the common misconception that if a corporation is doing business in a state, then it is subject to suit for any claims in that state, even suits unrelated to the business being conducted in that state. The burden for plaintiffs to show that a corporation is subject to personal jurisdiction will likely be heightened by this decision and may affect where suits such as mass tort claims are filed.