All courts cannot hear all disputes. Not only do courts have to be able to rule on a particular type of case (such as a federal court hearing cases about federal law), but the court must be able to adjudicate a case against a particular defendant, which is referred to as "personal jurisdiction." For example, the personal jurisdiction requirements prevent a plaintiff from forcing an individual who lives in Rhode Island into court in Oregon for a dispute that has nothing to do with Oregon. The rules about personal jurisdiction become much more complicated when companies are involved. In this post, we discuss two recent U.S. Supreme Court decisions that narrowly limit personal jurisdiction in a way that may benefit large, multinational corporate defendants by insulating them from being subject to lawsuits in any U.S. forum. In each case, Justice Sotomayor provided the lone contrary viewpoint for an otherwise unanimous Court.
What is Personal Jurisdiction?
There are two categories of personal jurisdiction: specific and general. Specific jurisdiction requires a foreign (out-of-state or out-of-country) defendant's in-state conduct to arise out of, or give rise to, the conduct and liabilities at issue in the litigation. For example, an out-of-state trucking company causes a car accident while driving within the state can be sued for claims that relate to the car accident, but not their employment practices in another state. General jurisdiction is far broader, and enables a court "to hear any and all claims against" a defendant, even those that are based on conduct that took place entirely outside of the forum and with no relationship to the defendant's typical in-state activities. General jurisdiction only applies when a corporate defendant's contacts within the state are so substantial, continuous, and systematic that they "render [the defendant] essentially at home in the forum State." The "paradigm" examples of such contacts are incorporating or maintaining a principal place of business in the forum. There may also be "exceptional case[s]" where general jurisdiction would exist without incorporation or a principal place of business, but that would depend on whether the defendant's in-forum activities are substantial enough.
The Recent Limits to Personal Jurisdiction.
In Daimler AG v. Bauman, decided by the U.S. Supreme Court in 2014, Argentine citizens sued a German corporation, DaimlerChrysler Aktiengesellschaft ("Daimler"), in federal court in California based on human rights violations allegedly committed by one of Daimler's subsidiaries in Argentina. The plaintiffs attempted to achieve general personal jurisdiction over Daimler in California by first establishing general jurisdiction over Daimler's U.S. subsidiary, Mercedes-Benz USA ("MBUSA"), and then attributing MBUSA's in-state activities to Daimler. MBUSA is incorporated in Delaware and headquartered in New Jersey. However, MBUSA had substantial in-state contacts in California, including being the largest supplier of luxury vehicles to the California market, with multiple in-state facilities and billions of dollars in in-State sales (which accounted for 2.4% of Daimler's sales worldwide).
The Supreme Court found that although MBUSA was neither incorporated in California nor maintained its principal place of business there, its contacts with and activities in California were so substantial that it would be appropriate to assume that MBUSA was "at home" in California such that it was subject to general jurisdiction. The Court further assumed that MBUSA's California contacts and activities were "imputable to Daimler." However, the Court held that the same in-state contacts and activities that were sufficient to create general jurisdiction over MBUSA in California were not sufficient to create general jurisdiction over Daimler. The Court reasoned that "the general jurisdiction inquiry does not focus solely on the magnitude of the defendant's in-state contacts," but "instead calls for an appraisal of a corporation's activities in their entirety, nationwide and worldwide." The Court compared each company's respective contacts and activities within California against their out-of-state activities. Although a substantial portion of all of MBUSA's business was conducted in California, that same level of business activity constituted only a small percentage of Daimler's total world-wide activities.
Concurring in the judgment, Justice Sotomayor criticized the majority's comparative contacts analysis, stating that the majority's "focus on Daimler's operations outside of California ignore[d] the lodestar of [the Court's] personal jurisdiction jurisprudence: A State may subject a defendant to the burden of suit if the defendant has sufficiently taken advantage of the State's laws and protections through its contacts in the State; whether the defendant has contacts elsewhere is immaterial." Thus, she reasoned, the fact that the majority had assumed that MBUSA was subject to California's general jurisdiction and that its activities could be attributed to Daimler should have been "dispositive" to create general jurisdiction over Daimler.
Justice Sotomayor noted that "the ultimate effect of the majority's approach [would] be to shift the risk of loss from multinational corporations to the individuals harmed by their actions." Justice Sotomayor imagined that "a parent whose child is maimed due to the negligence of a foreign hotel owned by a multinational conglomerate will be unable to hold the hotel to account in a single U.S. court, even if the hotel company has a massive presence in multiple States." Because the hotel's extensive worldwide activities would be greater than those of any single U.S. forum, it would effectively be "immunized from general jurisdiction" in any single U.S. forum.
In the Supreme Court's 2017 decision in BNSF Railway Co. v. Tyrrell, Justice Sotomayor's unsettling prediction came to pass. There, the defendant railroad, BNSF Railway Company ("BNSF"), was sued in Montana state court by two former employees who alleged that they had been injured on the job. The injured workers did not reside in Montana and were not injured there, but BNSF conduced business in Montana.
Applying the principles espoused in Daimler, the Court held that general jurisdiction over BNSF in Montana was lacking. After noting that BNSF was neither incorporated, nor headquartered, in Montana, the majority performed its comparative contacts analysis to determine whether BNSF's contacts in Montana were substantial enough, when compared to its contacts outside of that forum, to render the company "essentially at home" in Montana. BNSF maintained over 2,000 miles of railroad track and over 2,000 employees in Montana, but those amounted to only 6% of its total track mileage and less than 5% of its total work force, respectively. The majority determined that BNSF was not "at home" in Montana because its in-state business activities were outweighed by its activities occurring outside of Montana.
Justice Sotomayor, dissenting in that portion of the Court's judgment governed by Daimler (and concurring in other respects), renewed her objection from Daimler that the majority's comparative contacts analysis, which had "prove[n] all but dispositive" here, had no precedential basis and was merely "invented" by the Daimler majority. According to Justice Sotomayor, the result was "perverse" because "[t]he majority's approach [would] grant a jurisdictional windfall to large multistate or multinational corporations that operate across many jurisdictions. Under its reasoning, it is virtually inconceivable that such corporations will ever be subject to general jurisdiction in any location other than their principal places of business or of incorporation."
We will be watching to see how the federal district and appellate courts treat personal jurisdiction over large national and international companies.