Avoiding Judicial Hellholes

more+
less-
more+
less-

Special thanks to Gray Reed’s Drew York for this blog contribution.

Bedder Sailz, a salesman for Orange Computers, Inc., lives in Seattle, Washington, and frequently travels on business. After successfully closing a computer deal in Dallas, Sailz catches East-West-Wings (EWW) flight #101 from Dallas home to Seattle. When the plane’s front wheel collapses on landing, Bedder sustaines back and neck injuries sending him to a Seattle hospital.  To recover his medical expenses and lost wages, Bedder files suit – not in his home state of Washington, but in California – against EWW, a Texas corporation headquartered in Dallas, alleging that EWW’s flights to leased gates at LA International Airport were “continuous and systematic contacts” permitting Bedder to sue there.  Where should EWW be sued? In Dallas, its HQ? In Seattle, where the wheel collapsed? Or, in California, where Bedder thinks he will get a more sympathetic jury?

Not surprisingly, Bedder’s lawyers prefer to “forum shop” to file his claim in California, believing that California courts are most friendly to his claim. EWW argues its “home court” of Dallas– where a jury is more likely to be friends, neighbors and family members of employees and happy customers.

Who Has Jurisdiction? Without certain “minimum contacts” to a state, out-of-state defendants are protected from being hauled out of their “home” (residence or HQ) into another state’s courts – to avoid offending “traditional notions of fair play and substantial justice.”  There must be more than limited connections to a particular state to be subject to jurisdiction for injuries incurred elsewhere. The legal analysis is (1) the facts of the accident – specific jurisdiction and (2) what’s fair – general jurisdiction. 

Specific and General Jurisdiction. For specific jurisdiction, the Courts examine the specific relationship between the defendant, the Court, and the claim.  EWW would be subject to specific jurisdiction in Washington because the accident occurred in Seattle, but not in California because it has nothing to do with the accident.  General jurisdiction focuses on whether a defendant’s contacts are so “continuous” and “systematic” that it may be sued in that State because of ongoing, albeit completely unrelated activities in that state.  Often conducting regular business in a state, such as having a manufacturing facility or call center, was previously enough for general jurisdiction. Thus, EWW would normally have had a good chance of being hauled into California based on its gate leases at LAX. 

Hope on the Horizon – Daimler AG v. Bauman Blogged.  Presenting a more straightforward, stricter test to eliminate just “doing business,” the United States Supreme Court required more than leased gates at LAX for general jurisdiction. Instead, “the place of incorporation and principal place of business” are better determinants for general jurisdiction.  Calling engaging in a “substantial, continuous and systematic course of business” in a state “unacceptably grasping,” the Court ruled it insufficient to create general jurisdiction. Rather, the Court ruled that general jurisdiction now requires “an appraisal of a corporation’s activities in their entirety, nationwide and worldwide.”  A corporation cannot be at home everywhere it does any business at all, but it must also take care not to operate elsewhere as an “alter ego.”  Therefore, EWW is not subject to California general jurisdiction and can only be sued in its incorporated state of Texas and in Dallas, its principal place of business, or in Washington where the accident occurred. 

Tilting the Scales in Your Favor.

The Daimler opinion should prevent, or at least impede, forum shopping in Judicial Hellholes. To make the most of this Supreme Court opinion, companies with offices in multiple states should carefully consider the state where they are incorporated and headquartered, and perhaps also consider as important factors both whether they are happy defending lawsuits and the tax implications of being there. Maybe changing the state of incorporation and headquarters to a state, like Texas, which is becoming more and more business / “defendant friendly,” is a good idea.

Topics:  DaimlerAG, EWW, Forum Shopping, Jurisdiction

Published In: Civil Procedure Updates, Personal Injury Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Gray Reed & McGraw, P.C. | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »