“This case concerns the authority of a court in the United States to entertain a claim brought by foreign plaintiffs against a foreign defendant based on events occurring entirely outside the United States.”
When that is the opening line in Justice Ruth Bader Ginsburg’s Jan. 14 majority opinion in Daimler A.G. v. Bauman, there cannot be much doubt that the answer will not favor the plaintiffs. The plaintiffs there tried to invoke California’s laws on general personal jurisdiction to sue Daimler A.G., a German company, in federal court for activities of Daimler’s subsidiary in Argentina. Its basis was that Daimler’s wholly owned U.S. subsidiary, which distributes Mercedes Benz automobiles, was subject to general jurisdiction in California. That tactic worked in the U.S. Court of Appeals for the Ninth Circuit, but the Supreme Court unanimously disagreed—although Justice Sonia Sotomayor wrote a 19-page opinion concurring only in the judgment.
It is clear, following a trend that began in Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (2011), that the court has decided that general jurisdiction will be available against a corporation in relatively few, if any, jurisdictions outside its states of incorporation and principal place of business. I leave to the law reviews and others to trace Ginsburg’s precise steps in arriving at her conclusion that Daimler followed quite easily from Goodyear.
The principal argument offered by the plaintiffs was that, because Daimler had the legal right to control its wholly owned subsidiary, it was appropriate to use the general jurisdiction over that subsidiary to obtain general jurisdiction over Daimler itself. The court declined to take that final step, in large part because it saw general jurisdiction as something special that was not warranted here. The court seems to be saying that suing out-of-state defendants should be accomplished in most cases by obtaining the more narrow specific jurisdiction in which the cause of action will be tied to the forum state—unlike general jurisdiction, in which there need be (and in this case there was) no connection between them. A plaintiff can always sue a corporation at its home, which includes its state of incorporation and where its principal places of business are, and perhaps some other locations. But, in the main, plaintiffs should rely on specific jurisdiction.
There are a number of aspects of Daimler that are worthy of further discussion. Daimler’s principal argument was that the court should disregard the amenability of its U.S. subsidiary to jurisdiction in California in determining jurisdiction over the parent, unless the court concluded that the subsidiary was acting as the alter ego of the parent, so that piercing the corporate veil was appropriate. Under that test, assuming the two companies observed all formalities, the connection between the two would always be disregarded, which would mean no jurisdiction. By contrast, the Ninth Circuit would have attributed the acts of the sub to the parent if it were doing something important that the parent would have to do were there no subsidiary. The plaintiffs did not embrace that test, and the court rejected it also as being too expansive. But, more significantly, it did not agree with Daimler’s approach: If it had, the opinion could have been very short, because there were no other facts supporting jurisdiction of any kind over Daimler the parent.
The concern on the part of plaintiffs’ amici was less with the implications of Daimler’s approach in this case than on what it might do when the issue was one of specific jurisdiction. Suppose a Mercedes Benz that was sold in California, through Daimler’s subsidiary, exploded there. Would acceptance of Daimler’s theory mean that selling through a wholly owned subsidiary would insulate Daimler from being sued in California? If so, that would have serious implications for the issue of liability, not to mention the plaintiff’s ability to gain discovery in the United States regarding the causes of the explosion. That argument is not likely to go away, especially in light of the court’s divided decision in J. McIntyre Machinery Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), in which the sale of a product through an independent distributor precluded the exercise of specific jurisdiction against the foreign manufacturer on the facts of that case. The Daimler majority suggests that the attribution problem may be less serious when specific jurisdiction is at issue, but it did not resolve that question.
In its amicus brief supporting Daimler, the U.S. Chamber of Commerce urged the court to hold that general jurisdiction is available against a corporation only in its state of incorporation and where it has its principal place of business, which the court had referred to as its “nerve center.” Ginsburg refused to go that far, but it is unclear how much room she is willing to leave for other locations.
There is another problem with this approach to general jurisdiction. As Sotomayor observed in her concurrence, the majority did not base its ruling on the fact that Daimler is not a U.S. corporation, and so its limits would apply to General Motors, even though it has major manufacturing facilities in many states beyond where it has its headquarters. While the majority may be correct that simply “doing business” in a state should not suffice for creating general jurisdiction, no matter where a claim arose, why should a company that has thousands of employees, owns substantial property and registers to do business in the state not be treated as at home there and subject to general jurisdiction?
The majority opinion did answer one question that has been long debated in civil procedure class: Was the grant of personal jurisdiction in International Shoe Co. v. Washington, 326 U.S. 310 (1945), general or specific? Those terms were developed afterwards, and the opinion itself contains language that would allow both readings. Ginsburg has now resolved that question in favor of specific jurisdiction, which was plainly satisfied there, making a finding of general jurisdiction unnecessary.
In her concurrence, Sotomayor raised a nice irony. Corporations are probably subject to general jurisdiction in no more than two states, whereas, under Burnham v. Superior Court, 495 U.S. 604 (1990), individuals are subject to general jurisdiction in their home state as well as any place where they are served with process. But, following the conclusion that Shoe is a specific-jurisdiction case, perhaps Burnham can also be re-thought in the same manner. After all, petitioner Dennis Burnham was served in his wife’s divorce action in California, where she and her family lived. Burnham did visit his family there, and so, despite the language of the opinion, why would it not make sense—and avoid Sotomayor’s irony—to conclude that all the California court obtained was specific jurisdiction over him to resolve the family law litigation, which did not make him subject to suit on an auto accident that happened in Nebraska?
In earlier personal jurisdiction cases, several justices have based their votes either to uphold or reject jurisdiction on their assessment of whether the assertion of jurisdiction was “reasonable.” Daimler relied on those cases and said that it would be unreasonable for the court to allow general jurisdiction over it on these claims. The majority did not accept that argument, although Sotomayor would have relied on it to support dismissal. At least in the context of general jurisdiction, the court declined to go that route because of the highly subjective nature of a reasonableness determination, an objection highlighted by Justice Antonin Scalia in Burnham. I agree. If the broad standards of International Shoe, as amplified by the court’s subsequent decisions, are met, that should be the end of the constitutional inquiry. Other subconstitutional avenues for correcting unfairness if personal jurisdiction should seem to sweep too broadly are available in the federal courts—venue, motions to transfer and forum non conveniens—and the latter doctrine is also applicable in virtually every state system. Kedy v. A.W. Chesterton Co., 946 A.2d 1171, 1180 n.9 (R.I. 2008). Fairness is the reason behind these due process limits, but it can be better achieved, and less subject to personal whim, if it is grounded in objective criteria embodied in the doctrine of minimum contacts, and not in an open-ended inquiry as to whether the exercise of personal jurisdiction is reasonable on the facts of each case.
The final troubling aspect of the decision is its lack of attention to the principle of constitutional avoidance. Because California provides personal jurisdiction to the extent permitted by the Constitution, the court had to decide whether the exercise of jurisdiction here violated due process. There were, however, two nonconstitutional grounds on which the court could have ruled that would have dismissed the case from the federal courts without having to take on the meaning of general jurisdiction for non-U.S. corporations under the due-process clause: lack of subject matter jurisdiction and forum non conveniens, both of which I pointed out in my amicus brief.
Subject matter jurisdiction was originally based on the presence of two federal claims, with supplemental jurisdiction available to bring in claims under California and Argentine law under 28 U.S.C. 1367(a). However, by the time cert was granted (after being held for more than a year), the court had decided two cases, knocking out the bases for the claims under the two federal statutes. There was no other basis for subject matter jurisdiction because the remaining claims were by aliens against an alien and hence outside 28 U.S.C. 1332. Under those circumstances, there was no reason to keep the case in federal court, and subsection 1367(c) was an obvious and simple basis for avoiding the due-process issue, yet neither opinion mentioned it.
Second, application of the doctrine of forum non conveniens screamed out for attention, but no one bit. Daimler never raised it in the trial court, almost certainly because it would have been futile to argue that a court outside the United States was the proper place to decide claims based on U.S. statutes, which were the heart of plaintiff’s case. Again, all that changed when those claims were eliminated, and although Sotomayor mentioned the doctrine as a reason to reject the need for what she saw as the near absolutist nature of the majority opinion, she never suggested that it was a means of avoiding the constitutional question presented.
To be sure, neither of these alternatives was raised by either party, almost certainly because neither had an incentive to urge them: Daimler hoped for a grand slam home run on jurisdiction, and the plaintiffs still had a hope of staying in the federal court, neither of which would have occurred if these other questions had proven to be decisive. The facts relevant to those issues were not disputed, and at the very least the court could have, and should have, remanded the case to the district court to decide those questions in the first instance. Furthermore, there was some dispute as to the correctness of Daimler’s concession that its wholly owned subsidiary was subject to general jurisdiction in California (a proposition cast in further doubt by this decision), and so there was every reason not to reach the due-process question. That is, unless the court wanted to close the general jurisdiction door a little tighter.
Alan Morrison is Lerner Family Associate Dean for Public Interest and Public Service Law, George Washington University Law School.
