World in US Courts Special Edition: January 2014 - New US Supreme Court Decision Limits Suits Against Non-US Corporations

by Orrick, Herrington & Sutcliffe LLP
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In prior reports, we have covered significant US court decisions addressing personal jurisdiction—the question whether, even if it is clear that certain claims may be raised in a US litigation, a particular individual or company may be named as a defendant. The lack of personal jurisdiction is an important and frequent basis for obtaining dismissal of non-US defendants from US litigation. 

On January 13, 2014, the US Supreme Court decided Daimler AG v. Bauman, which set a new and binding standard for determining the circumstances under which personal jurisdiction may be asserted over a non-US defendant—especially a corporate defendant. The standard is significantly more difficult to satisfy than the one previously employed by many federal courts, and it represents another step in the Supreme Court’s recent inclination to limit the exposure of non-US defendants to litigation in this country. Because the case has such importance, The World in US Courts is issuing this special alert and providing a detailed of the decision and its significance.

Background

Plaintiffs are twenty-two Argentinean residents who were either employees or closely related to employees of Mercedes-Benz Argentina (MB-Argentina), a subsidiary of the automobile manufacturer Daimler AG (“Daimler”), a German corporation. Plaintiffs filed suit against Daimler in US federal court in California under the Alien Tort Statute (ATS), Torture Victims Protection Act (TVPA), and California and Argentinean law, claiming that MB-Argentina collaborated with the ruling Argentine military junta to kidnap, detain, torture, and kill MB-Argentina employees during the “Dirty War” from 1976 to 1983. The ATS and TVPA claims were undermined by recent Supreme Court rulings (holding that the ATS does not apply abroad and that the TVPA does not apply to corporations), but plaintiffs wished to press ahead with their state law and Argentina law claims.

Daimler sought to have the case dismissed for lack of jurisdiction over it in California. There are two ways to establish such jurisdiction.  The first is to show there is “general personal jurisdiction” over the defendant, which generally requires that the defendant have contacts with a forum that are continuous and substantial. If general personal jurisdiction exists, the defendant may be sued even if the claim relates to activities and injuries having nothing to do with the forum where the suit has been brought. The second method of establishing personal jurisdiction is to show “specific personal jurisdiction.” To do so, the plaintiff must demonstrate that the facts giving rise to the claim themselves bear a sufficient relationship to the forum.

In this case, the claims were based on allegations having nothing to do with California. Thus, Daimler could be sued only if general personal jurisdiction were found to exist. The German company had only sporadic contacts with California, however, and so argued that there was no basis for asserting general personal jurisdiction over it in California. The court of appeals rejected that argument. It held that because Daimler had a subsidiary that operated in California, there was general personal jurisdiction to sue Daimler itself, the parent corporation, in that forum.

The Supreme Court’s Ruling

The US Supreme Court unanimously decided that general personal jurisdiction did not exist over Daimler in California, with eight justices signing a majority opinion. The majority first found that no agency relationship existed between Daimler and MB-US, rejecting the liberal definition of “agency” employed by the court of appeals. The Court also rejected an alternative theory under which agency could be found by the ability of a parent to “substantially control” its subsidiary, even where, as here, a written agreement between a parent and its subsidiary declared that no agency relationship was created. The Court concluded that under either rule, it would be too easy to find general personal jurisdiction over a parent corporation that itself had no significant contacts with a forum.

But the Court did not stop there. It went on to hold that general jurisdiction would not exist over a subsidiary even if the subsidiary did have close contacts with a forum and if the subsidiary’s contacts could be imputed to the parent, via a theory of agency or otherwise. The Court emphatically made clear: “California is not an all-purpose forum for suits against Daimler.” The Court explained for there to be general personal jurisdiction against a foreign parent, such as Daimler, the parent corporation must itself have activities in the state that are so continuous and systematic as to render the foreign corporation “essentially at home.” A corporation is “home,” the Court added, where it is incorporated or has its principal place of business.

While not ruling out categorically that another location might in some case suffice, no other examples were provided and the Court emphasized that the standard for general personal jurisdiction was difficult to satisfy. Thus, the Court noted that when looking at whether a parent corporation’s activities render it “at home” in a forum where it is not incorporated or based, a court must look at the “corporation’s activities in their entirety, nationwide and worldwide,” so as to assure that general personal jurisdiction was not based on activities that were not unique to the forum in question. Further, the Court emphasized the need for certainty and predictability attendant to rules regarding where a foreign corporation may be sued. And, in a passage of particular importance to readers of this publication, the Court observed that finding that a non-US corporation was subject to general personal jurisdiction in a US court based on the presence of a domestic subsidiary could jeopardize “international comity.” The Court noted other countries have a restrictive view of when a foreign parent corporation may be sued, and that the rule adopted by the court of appeals threatened to interfere with smooth international relations.

Implications

Daimler is very important because of what the court of appeals’ ruling threatened to do. The court of appeals, in essence, opened the door for plaintiffs with any type of claim to attempt to sue foreign parent corporations in California (or another US state), even if the foreign parent corporation had no presence there and even if the claimed violation of law occurred abroad. That door has now been substantially closed. After Daimler, foreign corporations that do not have a principal place of business the US face a dramatically reduced risk of being sued in this country for actions having nothing to do with the forum state. The exceptions to this rule are likely to be small.

Notably, the Court’s decision does not limit the exercise of specific personal jurisdiction over non-US corporations. Thus, the risk to a non-US corporation of suit in the US remains when the facts relating to the claim or the injuries at issue were in the forum state. There are other defenses to the assertion to jurisdiction to such cases, but none of those were implicated by the Supreme Court’s Daimler ruling.

 

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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