Daimler AG v. Bauman and its Progeny: U.S. Courts Significantly Limit General Personal Jurisdiction

In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the Supreme Court issued a unanimous decision that significantly limited where a corporate defendant is subject to general jurisdiction in the United States. This ruling provides greater predictability with respect to whether a corporate defendant will be amenable to suit in a particular forum where the claims are unrelated to the corporation's activities in that state.

Daimler will inevitably have a far-reaching effect on litigation across the United States because personal jurisdiction is a fundamental element of every lawsuit. In order for a U.S. court to exercise authority over a defendant, the defendant must be subject to either specific jurisdiction or general jurisdiction. "Specific jurisdiction" exists when a claim arises from a defendant's activities in the forum state or its activities directed toward the forum state. "General jurisdiction," on the other hand, permits a court to exercise personal jurisdiction over the defendant for any matter, even if the claim is unrelated to a defendant's contacts or activities within that state.

Daimler signifies the Supreme Court's continuing trend of limiting general jurisdiction over a non-resident defendant and adopts a substantially simplified general jurisdiction analysis. Under Daimler, a court should focus solely on whether a defendant corporation is essentially "at home" in the forum state. If it is not, general jurisdiction does not exist and the court can only adjudicate the matter if plaintiff demonstrates that the corporation's in-state conduct gives rise to the plaintiff's cause of action (thus establishing specific jurisdiction).

The Daimler Decision

In Daimler, Argentinean residents brought claims against DaimlerChrysler AG ("Daimler"), a German company, for events and injuries that occurred entirely outside of the United States. The complaint alleged that during Argentina's 1976-1983 "Dirty War," Daimler's Argentinean subsidiary, Mercedes-Benz Argentina ("MB Argentina") collaborated with Argentina's state security forces to harm plaintiffs or their family members. Plaintiffs sued Daimler in the United States District Court for the Northern District of California and sought damages for human-rights violations under the laws of the United States, California, and Argentina.

Daimler moved to dismiss the complaint for lack of personal jurisdiction. In response, Plaintiffs argued that the California contacts of Daimler's wholly-owned subsidiary, Mercedes-Benz USA, LLC ("MBUSA"), provided a basis for asserting jurisdiction over Daimler. Although Daimler does not directly manufacture or sell products in the United States, MBUSA – which is incorporated in Delaware and has a principal place of business in New Jersey – distributes Daimler-manufactured vehicles to independent dealerships throughout the United States, including California. The district court dismissed the case, finding that MBUSA's California contacts could not be imputed to Daimler under an agency theory for the purpose of establishing general jurisdiction. The Ninth Circuit Court of Appeals initially affirmed the dismissal, but on rehearing in 2011, reinstated the action. The Ninth Circuit held that plaintiffs had sufficiently pleaded an agency theory under which Daimler was subject to general jurisdiction in California based on MBUSA's California contacts. In particular, the Ninth Circuit found that: (i) MBUSA had extensive forum contacts (e.g., MBUSA maintained offices in California and its sales in California accounted for 2.4% of Daimler's worldwide sales); (ii) MBUSA's distribution services were sufficiently important to Daimler (i.e., its parent corporation); and (iii) Daimler had the right to exert actual control over MBUSA, even though it did not actually do so.

On January 14, 2014, in an opinion authored by Justice Ginsburg (with a concurrence by Justice Sotomayor), the Court overturned the Ninth Circuit's ruling and held that general jurisdiction does not exist over a foreign corporate parent based solely on its subsidiary's in-state contacts. Elaborating on its prior decision in Goodyear Dunlop Tires Operations, S. A. v. Brown, 131 S. Ct. 2846 (2011), the Court held that "only a limited set of affiliations will render a defendant amenable" to general jurisdiction, and with respect to a corporation, these affiliations are typically limited to the corporation's place of incorporation and principal place of business. Daimler, 134 S. Ct. at 762. While the Court acknowledged that "in an exceptional case," general jurisdiction may exist elsewhere, it noted that the plaintiff would need to prove that the company's operations are so substantial and of such a nature as to render the corporation "at home" in that state. Id. at 761 n. 19. Driving home the point that a general jurisdiction analysis should focus on a corporation's true locus of corporate activity, the Court noted that the inquiry "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 deemed at home in all of them." Id. at 762, n. 20. These bases for asserting general jurisdiction afford plaintiffs at least one clear forum in which a corporate defendant may be sued on any and all claims, and provide both plaintiffs and defendants with greater predictability as to whether a claim can be filed in a particular forum.

In addition to limiting where a foreign entity can be sued, Daimler will likely limit the amount of jurisdictional discovery granted by U.S. courts. Responding to Justice Sotomayor’s concern that the Court's decision would lead to an expansion of the scope of jurisdictional discovery, Justice Ginsberg stated that it should actually result in less jurisdictional discovery because "it is hard to see why much in the way of discovery would be needed to determine where a corporation is at home." Daimler, 134 S. Ct. at 762, n. 20. Ultimately, Daimler's holding seeks to "promote the efficient disposition of an issue that should be resolved expeditiously at the outset of litigation." Id.

General Jurisdiction Post-Daimler

Although the effects of Daimler are still in their infancy, courts throughout the country are quickly adopting the new, limited jurisdictional standard. Indeed, since Daimler, the Court of Appeals for the Second Circuit has already issued two decisions dismissing claims over out of state defendants based on lack of general jurisdiction. On February 7, 2014, the Second Circuit issued a decision in In re Roman Catholic Diocese of Albany, New York, Inc., 745 F.3d 30 (2014) (hereinafter referred to as "RCD"), granting the Diocese's petition for a writ of mandamus and instructing the district court to grant the Diocese's motion to dismiss. In RCD, the plaintiff argued that general jurisdiction existed over the Diocese for actions that were purportedly committed outside of Vermont. The Second Circuit vacated the district court's order and found that the Diocese was not "at home" in Vermont based on the Diocese's "scant" contacts with the forum. The Court further concluded that "there is no way to reconcile the district court's decision with Daimler AG," which required dismissal based on lack of personal jurisdiction. Id. at 40.

Similarly, on April 25, 2014, the Second Circuit issued a decision in Sonera Holding v. Çukurova Holdings,  2014 WL 1645255 (2d Cir. 2014), holding that general jurisdiction did not exist over Çukurova – a corporate parent of a Turkish conglomerate – because Çukurova did not have sufficient contacts with the State of New York. The Court overturned a preliminary injunction that had prevented Çukurova from selling assets, transferring funds or raising finances globally. It also reversed the district court's ruling to enforce a $932 million foreign arbitration that Sonera had obtained against Çukurova. In reaching its decision, the three-judge panel cited Daimler and held that in order to establish jurisdiction over a foreign entity, the entity must have substantial enough contact to make it "at home" in the forum state. Id. at *3. The Court acknowledged that although Çukurova holds investments in other companies that have or have had some form of contact with New York, it has no operations of its own and owns no property in New York or in the wider U.S. As such, the panel found that "Çukurova's contacts with New York [are] insufficient to subject it to general jurisdiction." Id. at *2.

The Seventh Circuit has also embraced Daimler as demonstrated in its decision in Snodgrass v. Berklee College of Music 2014 WL 960898 (7th Cir. Mar. 13, 2014). In Snodgrass, an Illinois resident sued her former employers in federal court in Illinois, even though all of the defendants – three well-known educational institutions – had their principal places of business and were incorporated in Massachusetts. Plaintiff claimed that they were subject to general jurisdiction based on the institutions "sizeable endowment[s] and extensive 'cyber contacts.'" Id. at *1. Relying on Daimler, the court rejected plaintiff's expansive general jurisdiction argument and dismissed the complaint.

Together, these cases provide a glimpse into the expansive impact that Daimler will likely have on cases in which a plaintiff seeks to assert general jurisdiction over a foreign corporation with minimal in-state contacts. Moreover, they mark a significant development in general jurisdiction jurisprudence and establish a new era in which multinational corporations can expect greater predictability with respect to where they can anticipate defending claims brought in the United States.

Topics:  DaimlerAG, DaimlerChrysler v Bauman, Foreign Corporations, Personal Jurisdiction, SCOTUS

Published In: Civil Procedure Updates, General Business 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.

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