We’ve been reviewing the (relatively, in Internet time) recent Supreme Court decision in Daimler AG v. Bauman, 134 S.Ct. 746 (2014), and having done so we recommend it to anyone representing overseas clients worried about being swept into the maw of the over-lawyered legal climate in the United States.  But more than overseas companies are affected.  All companies should give Bauman a thorough look.  It may portend a sea change – and a favorable one – in the concept of “general” personal jurisdiction.

The underlying litigation was ridiculous, involving Argentinian nationals whose relatives were injured (often “disappeared”) in Argentina’s quasi-civil war between 1976 and 1983 (Statute of limitations?  We don’t need no stinkin’ statute of limitations!). Allegedly the Argentinian government of the time collaborated with the Argentinian subsidiary (Mercedes-Benz Argentina) of a German corporation (Daimler AG) in committing nefarious acts – on Argentinian soil.  From this brief description of the facts, it should be immediately obvious why the proper venue for this action (according to plaintiffs) was – wait for it – San Francisco.

We don’t know, and it would take too much time for us to figure out, whether Bauman was actually mooted on the merits by Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013), instructing American courts to keep their noses out of disputes arising from overseas activities, but it should be.  Bauman is another example of the same type of “we can tell the rest of the world what to do” hubris that we decried in connection with Kiobel.

Sorry for the tangent.  Back to personal jurisdiction.

The trial court quite reasonably found no personal jurisdiction over a German company for actions in Argentina.  However, the schizophrenic Ninth Circuit – assuming its “Ninth Circus” persona in this matter – reversed.  In a ruling that sent shivers up the spine of many of our overseas clients, it held that general personal jurisdiction, that is, where a defendant is sufficiently ensconced in a forum to be sued for anything, no matter where the claim arose, could be established merely because the German parent controlled a subsidiary (not alleged to have anything to do with long-ago Argentinian events) that did business in the forum state.  No, this wasn’t a form of “piercing the corporate veil.”  There was no allegation that either parent or subsidiary messed up any of the details of corporate separation.  Nope, the Ninth Circuit found jurisdiction on an “agency” theory: essentially that a subsidiary controlled by a parent (as almost all of them, by definition, are) can be considered an agent of the parent and their forum contacts aggregated for jurisdictional purposes.  Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 923-24 (9th Cir. 2011), rev’d, 134 S. Ct. 746 (2014).

The Supreme Court reversed – unanimously.  That wasn’t much of a surprise, frankly, but the Court (the majority opinion; there was more than one rationale for reversal) didn’t just blow out the “agency theory.”  It went beyond that, returning to first principles.  Even if the Ninth Circuit’s cockamamie agency theory were otherwise accepted, the Court held, that was insufficient to create general personal jurisdiction over the defendant for things that happened in Argentina – not California.

The test for general (as opposed to “specific”) jurisdiction is “when [a defendant’s] affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.”  Bauman, 134 S. Ct. at 754 (citation and quotation marks omitted).  Over the years, most lawyers (and many courts) forgot about the “essentially at home” part of this definition.  Not the Supreme Court in Bauman. The Court focused on “essentially at home,” and gave it independent weight.  “Continuous and systematic” wasn’t enough, by itself.  The defendant must be “at home” to be amenable to general personal jurisdiction.  “Specific jurisdiction has been cut loose from Pennoyer’s sway, but we have declined to stretch general jurisdiction beyond limits traditionally recognized.”  Id. at 757-58 (discussing Pennoyer v. Neff, 95 U.S. 714 (1878), restricting exercise of personal jurisdiction to “the geographic bounds of the forum”). The Pennoyer rule, while long since abandoned in “specific” jurisdiction cases, was held in Bauman to be alive and well when “general” jurisdiction is asserted.

That’s a big deal, because “geographic bounds” is a quite limited test.

The Ninth Circuit’s “agency” theory went straight out the window. Agency had nothing to do with being “at home” in this or that forum, so it has nothing to do with general personal jurisdiction.  The Ninth Circuit had improperly “stacked the deck”:

[T]he inquiry into importance stacks the deck, for it will always yield a pro-jurisdiction answer. . . .  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 [Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011)].

Bauman, 134 S. Ct. at 759-60.  Instead, “only a limited set of affiliations with a forum” will create general or “all-purpose” jurisdiction.  Id. at 760.

So what is the general jurisdiction test, then?

Where a corporate defendant is “essentially at home”?  Creating and supervising an agent that does business somewhere else are “slim” contacts, not nearly enough.  “Daimler’s slim contacts with the State hardly render it at home there.”  Id. at 760.  More importantly, even “continuous and substantial” contacts don’t suffice by themselves – the corporate defendant must also be “at home” – this is the key point for future cases.

Goodyear 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; it simply typed those places paradigm all-purpose forums. . . . [T]he inquiry under Goodyear is not whether a foreign corporation’s in-forum contacts can be said to be in some sense “continuous and systematic,” it is whether that corporation’s “affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.”

Id. at 761. This is continuous and substantial plus.   Only in an “exceptional” case (not defined) will a corporate defendant be subject to personal jurisdiction beyond the places where it is either:   (1) incorporated, or (2) has its principal place of business.   Id. at 761 n.19.   The example the court used of such a case was Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952), which was pretty darn exceptional:  the company was run out of its usual principal place of business (the Philippines) by the Japanese invasion in World War II, and had set up temporary quarters in Ohio.  So, short of a corporation becoming a wartime refugee, being “at home”looks pretty well limited to incorporation/principal place of business.   Bauman thus set a standard well beyond having an agent for service of process.

So – what if an overseas corporation (like the defendant in Bauman) doesn’t have an American principal place of business? The answer appears to be, “tough”:

The Ninth Circuit, moreover, paid little heed to the risks to international comity its expansive view of general jurisdiction posed. Other nations do not share the uninhibited approach to personal jurisdiction advanced by the Court of Appeals in this case. . . .  Considerations of international rapport thus reinforce our determination that subjecting Daimler to the general jurisdiction of courts in California would not accord with the “fair play and substantial justice” due process demands.

134 S. Ct. at 763. “Comity” means that, in the interest of the smoother operation of international affairs generally, a court refrains from upsetting the international applecart, even if it could. So overseas corporations may well be shielded altogether.  Comity would not, however, be an additional factor for companies incorporated in an American state.

Bauman could be a big deal.  Our shorthand from law school – general = continuous & substantial; specific = minimum contacts, is no longer so.  Continuous and substantial is not enough.  Some of our clients are large enough that they arguably had a continuous and substantial presence in every state.  But they’re still only domiciled in a couple of states.  This will make it harder, we think, for forum-shopping plaintiffs to aggregate claims by limiting (or in some cases eliminating altogether) the fora in which claims may be aggregated.  Consider:

  • Will plaintiffs be able to concoct nationwide class actions and bring them in jurisdictions with peculiarly unfavorable law or procedures, when the target defendant isn’t domiciled there, and thus is not subject to jurisdiction where the plaintiff was not injured in forum state?
  • Will all these food class actions still be able to be brought in California?  Can plaintiffs claim specific jurisdiction instead?
  • Will all these False Claims Act cases (unless the FCA has special federal jurisdictional provisions, which we don’t know) still be able to be brought in Massachusetts?
  • Will all those cases about just about anything be able to be brought in Madison County Illinois – or Philadelphia, Pennsylvania, for that matter, when the plaintiff suffered no injury in the forum?
  • What about fraudulent misjoinder cases, since personal jurisdiction is a constitutional issue?

We don’t know the answers to these questions (although we can guess as to some), but we’re sure looking forward to finding out.  So should every lawyer currently engaged in the defense of mass tort litigation – and not just drug and device mass torts (plane crashes have never fit well into territorial models, and patent “hellholes” may be just as threatened).

What we do know is that the contacts in Bauman of the defendant’s claimed agent – Mercedes-Benz, USA – with California weren’t near enough to sustain general jurisdiction.  Eight justices (all but Sotomayor) signed on to Bauman, which was authored by Justice Ginsburg, not ordinarily considered a conservative ideologue.  So the mere fact that a company sells lots of its products all over the country doesn’t cut it for general jurisdictional purposes.  That’s all the jurisdictional facts that plaintiffs ordinarily have against most of our clients, and against most large U.S. companies.

But the idea of “continuous and substantial” as the sole test for general jurisdiction is now dead.  Instead, “[g]eneral jurisdiction . . . calls for an appraisal of a corporation’s activities in their entirety, nationwide and worldwide.  A corporation that operates in many places can scarcely be at home on all of them.” Bauman, 134 S. Ct. at 762 n.20. Likewise dead is the assumption that large companies conducting “continuous and substantial” business everywhere in the country may be sued anywhere for anything.  Thus, the jurisdictional basis for this country’s litigation hellholes is, after Bauman, open to considerable question.  And what happens if a hellhole is limited to defendants actually domiciled in that state?   Those defendants may just pack up and leave, since escape is now possible.

So, where can a plaintiff sue a corporate entity?  Three places in most instances – where the plaintiff was injured/exposed (under principles of specific jurisdiction), where the defendant is incorporated, or where the defendant has a principal place of business.  After that, anything else, and the plaintiff better have something “exceptional” – like a World War II-style military invasion.  By and large, they won’t.