On February 25 2014 the Supreme Court decided Walden v Fiore.(1) The unanimous opinion reversed the Ninth Circuit's holding that Nevada had specific personal jurisdiction over an out-of-state defendant who had known that the alleged harm would affect residents of Nevada.
Walden is the latest in a string of recent Supreme Court decisions that have curtailed attempts to expand personal jurisdiction. Before this recent activity, the Supreme Court had not significantly addressed personal jurisdiction for almost a quarter of a century, since the court issued a splintered decision in Asahi Metal Industry Co v Superior Court of Cal, Solano Cty.(2) However, during the 2010 term the Supreme Court decided two cases that effectively limited the ability of state courts to assert personal jurisdiction over foreign defendants: Goodyear Dunlop Tires Operations v Brown and J McIntyre Machinery v Nicastro. Earlier in 2014, the court decided Daimler AG v Bauman, which addressed whether the in-state contacts of a corporate subsidiary can be imputed to a foreign parent corporation for the purposes of exercising general jurisdiction over the parent, even though the parent does not itself conduct any business in the forum state. The Supreme Court held that the subsidiary's in-state contacts could not support general jurisdiction over the parent corporation (for further details please see "Supreme Court curtails general personal jurisdiction").
In Walden the court addressed the "minimum contacts" necessary to give a state specific personal jurisdiction over an alleged intentional tortfeasor. The Supreme Court clarified that the effect on the in-forum plaintiff was not sufficient contact to support the exercise of specific personal jurisdiction by that forum. The court emphasised that the existence of minimum contacts turns on an assessment of the defendant's contacts with the forum that the defendant created, not the defendant's contacts with forum residents.
The plaintiffs in Walden were two professional gamblers. After hitting it big in Puerto Rico casinos, their luck ran out when they were detained in an Atlanta, Georgia airport by a Drug Enforcement Agency (DEA) agent on their way home to Las Vegas, Nevada. The DEA agent suspected that the significant cash the plaintiffs possessed – approximately $97,000 – was evidence of illegal narcotics transactions, rather than the legitimate proceeds of legal gambling. The DEA agent seized the money and the plaintiffs went home empty handed.
The plaintiffs later sent documentation to the DEA agent in an attempt to recover the funds, but were unsuccessful. The DEA agent subsequently filed a probable cause affidavit for the forfeiture of the funds. Ultimately, the US Attorney's Office determined that there was no probable cause for the forfeiture and returned the money to the plaintiffs.
In 2007 the plaintiffs brought suit against the DEA agent in the US District Court for the District of Nevada. The DEA agent subsequently moved to dismiss for lack of personal jurisdiction. He cited his complete lack of contacts with the state: he had never contacted anyone in Nevada, owned no property in Nevada and conducted no personal business in Nevada. The district court agreed and dismissed the case for lack of personal jurisdiction.
In a divided opinion, the Ninth Circuit reversed. The court held that Nevada had specific personal jurisdiction over the DEA agent because the agent had committed an intentional act that was expressly aimed at the forum state where the plaintiffs resided – the filing of an allegedly false probable cause affidavit with knowledge that it would affect Nevada residents. Rehearing en banc was denied, with eight judges dissenting.
The Supreme Court reversed. In a unanimous opinion authored by Justice Thomas, the Supreme Court held that due process did not permit a Nevada court to exercise jurisdiction over the DEA agent.(3)
The court emphasised that although a defendant's physical presence within a forum state is not required, a non-resident defendant must have "minimum contacts" with the forum sufficient to support specific jurisdiction. The court explained that the Ninth Circuit had erred because it "shifted the analytical focus from [the defendant's] contacts with the forum to his contacts with [the plaintiffs]".(4)
Explaining the correct inquiry, the court made two observations. First, a defendant's minimum contacts with the forum state "must arise out of contacts that the 'defendant himself' creates with the forum State".(5) The court explained that it has "consistently rejected attempts to satisfy the defendant-focused 'minimum contacts' inquiry by demonstrating contacts between the plaintiff (or third parties) and the forum State".(6)
Second, the "'minimum contacts' analysis looks to the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there".(7) The court explained that "[d]ue process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the 'random, fortuitous, or attenuated' contacts he makes by interacting with other person affiliated with the State".(8)
The court also held that its analysis does not change in the context of intentional torts. The court explained that Calder v Jones(9) "made clear that mere injury to a forum resident is not a sufficient connection to the forum".(10) In Calder the court held that California could exercise jurisdiction over an out-of-state reporter and editor who wrote an allegedly libellous story for a national weekly newspaper because the defendants created contacts with California by writing the story. The defendants relied on California sources and the cause of action arose from the publication in California, where the story was widely circulated.(11) Thus, "[t]he crux of Calder was that the reputation-based 'effects' of the alleged libel connected the defendants to California, not just to the plaintiff".(12)
Where there is no such connection to the forum, as in Walden, there can be no personal jurisdiction.
Finally, in a footnote, the court left for another day the question of whether the minimum contacts inquiry might differ in suits brought by victims of internet fraud, where the defendant's activity might give rise to "virtual contacts" with a forum.
Walden's clarification of the minimum contacts test for personal jurisdiction will make it more difficult for resident plaintiffs to bring suit against out-of-state defendants. Under Walden, the plaintiff cannot be the only link between the defendant and the forum state. It is not sufficient that the plaintiff resides in the forum state, that an injury was suffered by a resident of the forum state or that it was foreseeable that harm could occur in the forum state. Rather, the defendant's conduct must have given rise to minimum contacts with the forum state, connecting the defendant to the forum in a meaningful way.
In the end, these gamblers lost more than an argument: they squandered six years in procedural wrangling that could have been avoided by simply filing suit in Georgia, where the defendant was unquestionably subject to personal jurisdiction. Litigants that pick the right court to resolve their disputes at the outset are not guaranteed a jackpot, but they will certainly save on the ante.
For further information on this topic please contact Grant J Esposito at Morrison & Foerster LLP's New York office by telephone (+1 212 468 8000), fax (+1 212 468 7900) or email (firstname.lastname@example.org). Alternatively, contact Brian R Matsui at Morrison & Foerster LLP's Washington DC office by telephone (+1 202 887 1500), fax (+1 202 887 0763) or email (email@example.com). The Morrison & Foerster website can be accessed at www.mofo.com.