Courts in the United States frequently preside over cross-border litigation involving foreign parties and activities that occurred, in large part, outside of the country. But in recent years, the U.S. Supreme Court has led the charge in pulling back on the reach of U.S. courts' jurisdiction over foreign companies. As a result, cross-border disputes that played out in U.S. courts in the past have become more susceptible to jurisdictional challenges from foreign defendants hoping to avoid litigating in the United States.

Personal Jurisdiction Threshold

When faced with a lawsuit in the United States, the first issue a foreign company defendant (i.e., incorporated and/or based outside of the U.S.) should consider is whether the court has grounds for exercising personal jurisdiction over the defendant. A court may exercise personal jurisdiction over a foreign defendant only if federal due process and the forum state's “long-arm” statute are satisfied. Long-arm statutes set out the circumstances under which a state's courts may exercise personal jurisdiction over an out-of-state defendant. However, since long-arm statutes often reach as far as federal due process allows, personal jurisdiction typically focuses on the due process requirement of whether the defendant purposely established “minimum contacts” with the forum state.

The minimum contacts analysis is further analyzed under two separate theories: general jurisdiction and specific jurisdiction. Specific jurisdiction is dispute-specific and requires that the claims at issue arise from or relate to the defendant's activities in the forum state. General jurisdiction is dispute-blind in that it does not require the claims to be related to the defendant's activities in the forum state. But general jurisdiction involves a more demanding minimum-contacts analysis than specific jurisdiction because it requires that the defendant's activities in the forum state be so “continuous and systematic” that the defendant is “at home” in the forum.

Recent Limitations on the Reach of General Personal Jurisdiction

Although the minimum contacts analysis is a fact-intensive determination that depends on the circumstances of each case, U.S. courts appear to be shrinking the scope of personal jurisdiction over foreign defendants in cross-border disputes. The U.S. Supreme Court has led this trend by weighing in on jurisdictional issues several times in recent years and, in doing so, limiting the reach of U.S. courts.

In 2011, the U.S. Supreme Court struck down general jurisdiction over foreign defendants in Goodyear Dunlop Tires Operations S.A. v. Brown. The court reaffirmed the principle that general jurisdiction over a foreign corporation requires contacts with the forum state that are so continuous and systematic as to render the corporation “at home” in the forum. Of interest to foreign companies manufacturing and selling goods in the U.S., the Goodyear court specifically held that the flow of a foreign corporation's products into the forum state alone cannot support general jurisdiction over the corporation in that state.

While Goodyear confirmed the limited boundaries of general jurisdiction, the Supreme Court's 2014 decision in Daimler AG v. Bauman clarified how those limitations should apply on a broader level when evaluating a foreign company's contacts.

In Bauman, the court considered whether a foreign corporation may be subject to general jurisdiction based on the contacts of its in-state subsidiary. Applying the requirement that the foreign corporation be considered “at home” in the forum state, the court found that general jurisdiction was improper because neither the foreign corporation nor its subsidiary were incorporated or headquartered in the forum state. The court noted that general jurisdiction is not appropriate in every forum state where a corporation “engages in a substantial, continuous, and systematic course of business.” Instead, a corporation's place of incorporation and principal place of business are the paradigm considerations for general jurisdiction.

Following Goodyear and Bauman, general jurisdiction may be limited in many cases to the forum state where a defendant is incorporated or maintains its principal place of business. At the very least, plaintiffs will be hard-pressed to establish general jurisdiction based solely on the contacts of a foreign corporation's subsidiary or affiliate in the forum state. The road to jurisdiction in those types of cases will have to rely on agency or alter ego theories, which are difficult to prove and infrequently accepted by the courts. And following Bauman, such theories most likely would need to implicate an affiliated company that is, at the very least, incorporated or headquartered in the forum state.

Recent Limitations on the Reach of Specific Personal Jurisdiction

With the narrowing of the boundaries of general jurisdiction, plaintiffs in cross-border cases more frequently invoke specific jurisdiction when pursuing claims against foreign defendants in U.S. courts. However, the U.S. Supreme Court recently clarified that specific jurisdiction should be applied narrowly as well.

In 2017's Bristol-Myers Squibb v. Superior Court of California, the Supreme Court found that specific jurisdiction was lacking due to an insufficient connection between the alleged activities in the forum state and the specific claims at issue. The court explained that there must be “an affiliation between the forum and the underlying controversy” such that the plaintiff's claims derive from the very activity of the defendant in the forum state. In this respect, the fact that the foreign defendant's medication was prescribed and sold in the forum state did not give rise to specific jurisdiction when the plaintiffs' claims related to their purchase and use of those drugs in another state.

Although specific jurisdiction necessarily involves a fact-intensive inquiry, the court's finding in Bristol-Myers Squibb underscores the need for a direct link between the defendant's activities in the forum state and the specific claims asserted by the plaintiff. Otherwise, a defendant's contacts with the forum state, even if related to the general subject matter of the lawsuit, will not give rise to specific jurisdiction.

Key Takeaways

When it comes to foreign defendants, the reach of U.S. courts may be long, but their grasp is not unlimited. Foreign defendants should look closely at the forum contacts alleged by the plaintiff as grounds for exercising personal jurisdiction. In more and more cases, foreign companies are able to challenge the nature and quality of those contacts and avoid litigating cross-border disputes in U.S. courts.

On the other side of the bar, plaintiffs in cross-border cases need to have a coherent plan for establishing meaningful contacts with the forum state by a foreign defendant. With the trend toward narrowing the boundaries of general jurisdiction, plaintiffs should be prepared to invoke specific jurisdiction and establish a direct link between the defendant's forum contacts and the specific claims at issue. Otherwise, an unprepared plaintiff may end up pursuing the same case all over again in a distant venue, with nothing more than the cost of the first case to show for its efforts.

Brian Boyle is a partner in the Houston office of Lightfoot, Franklin & White. His practice focuses on commercial litigation and arbitration, with an emphasis on the energy and construction industries. He frequently deals with foreign law application, cross-border discovery, and jurisdictional challenges in cases arising from international transactions and projects.