On January 14, 2014, the US Supreme Court, in a unanimous judgment, once again reversed a lower court’s assertion of extraterritorial jurisdiction over a foreign corporation. The Court’s decision in Daimler AG v. Bauman et al. held that a US court cannot exercise general personal jurisdiction – whereby a court asserts jurisdiction over a defendant on claims unrelated to the defendant’s activities in the forum in which the court sits – over a foreign corporation solely because of contacts that the foreign corporation’s subsidiary has with the state in which the lawsuit is filed. In rejecting this imputed agency theory, the Court went even further – holding that general personal jurisdiction over a corporate defendant exists only in a state where that corporation’s “affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State.” In so doing, the Court stressed that the fact that a corporation does substantial business in a state, is not by itself sufficient to confer that state’s courts with general personal jurisdiction over the corporation.

The Court’s decision continues its recent trend of restricting the jurisdiction of US courts to hear cases brought by foreign plaintiffs against foreign defendants for conduct occurring outside of the United States.  See, e.g., Kiobel v. Royal Dutch Petroleum Co., 133 S. Ct. 1659 (2013) (alien tort claim act does not apply extraterritorially); Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (2010) (securities laws do not apply extraterritorially); United States v. Vilar, 729 F.3d 62 (2d Cir. 2013) (criminal application of securities laws does not apply to extraterritorial conduct); Norex Petroleum Ltd. v. Access Industries, Inc., 631 F.3d 29 (2d Cir. 2010) (applying Morrison to bar extraterritorial application of civil RICO claims).  Like Morrison and Kiobel, Bauman was a “foreign cubed” case, in which a foreign plaintiff sued a foreign defendant based on conduct that occurred in a foreign country.  Justice Sotomayor, who wrote a concurring opinion, would have reversed for that reason alone.  But Justice Ginsburg’s opinion for the Court, joined by seven justices, reversed the Ninth Circuit on a more sweeping basis that further limits the risk to foreign corporations of being subjected to jurisdiction in the United States.

Daimler AG v. Bauman et al

The case arose out of Argentina’s so-called “Dirty-War.” Twenty-two residents of Argentina brought suit in a federal district court in San Francisco against Daimler AG (“Daimler”), alleging that during the Dirty War, Daimler’s Argentinean subsidiary, Mercedes Benz Argentina, “collaborated with state security forces to kidnap, detain, torture and kill certain” employees of Daimler’s Argentinean subsidiary. The plaintiffs alleged claims under the Alien Tort Statute and the Torture Victim Protection Act, as well as common law tort claims under the laws of California and Argentina.

Daimler, a German multinational, moved to dismiss the suit for lack of personal jurisdiction. The plaintiffs contended that Daimler had sufficient contacts with California and, in the alternative, that the district court could exercise general personal jurisdiction over Daimler under an agency theory based on the California contacts of Daimler’s US subsidiary (“MBUSA”).  Specifically, Plaintiffs argued that because MBUSA was Daimler’s exclusive importer and distributor in the United States and had several facilities in California, its California contacts could be imputed to Daimler itself and justify the court’s exercise of general personal jurisdiction over Daimler.  The district court disagreed holding that:

Daimler’s affiliation with California was insufficient to support general personal jurisdiction; and

The plaintiffs failed to establish that Daimler’s subsidiary, MBUSA, had acted as Daimler’s agent.       

The Ninth Circuit Court of Appeals reversed, holding that the district court could exercise general personal jurisdiction over Daimler based on MBUSA’s contacts with California, which, the court held, could be imputed to Daimler.  The Supreme Court reversed.

The Supreme Court’s Decision

At its core, the Supreme Court’s decision was heavily informed by its holding in Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. __ (2011), stating that for the exercise of general personal jurisdiction over a defendant to be valid the defendant must be “essentially at home” in that forum and, therefore, courts should be careful in exercising personal jurisdiction over a corporate defendant.

In reversing the Ninth Circuit, the Supreme Court initially rejected the Ninth Circuit’s reasoning that a court could assert general personal jurisdiction over Daimler on an agency theory.  The Ninth Circuit reasoned that because but for MBUSA’s existence, Daimler would have itself performed the services being performed by MBUSA, and therefore it was “reasonable” to exercise personal jurisdiction over Daimler by imputing to Daimler the California contacts of MBUSA.  The Supreme Court disagreed, holding that the Ninth Circuit’s interpretation could not be sustained because it would result in a court having general jurisdiction over a parent corporation any time that it had an in-state subsidiary because it could be assumed that a corporation would always do by other means what it does through a subsidiary if the subsidiary did not exist. The Court observed that such reasoning had to be rejected because it resulted in an “outcome that would sweep beyond even the sprawling view of general jurisdiction” the Court had previously rejected in Goodyear.

The Supreme Court further explained that even if it accepted the Ninth Circuit’s “agency” theory, the district court still lacked personal jurisdiction over Daimler because MBUSA’s contacts with California were not substantial enough to justify the exercise of general jurisdiction. Specifically, the Court held that merely having “sizable” sales in a forum is not sufficient to justify the exercise of general jurisdiction, which can only be found if a corporation’s contacts with the state are “so continuous and systematic as to render it essentially at home in” that state.

Finally, the Supreme Court noted that in evaluating the scope of general personal jurisdiction, lower courts should pay “heed” to the risks to international comity posed by expansive views of general personal jurisdiction – something that the Ninth Circuit failed to do. 

Lessons Learned

Although the Supreme Court’s decision leaves several unanswered questions – including the ability of a plaintiff to ever assert general personal jurisdiction over a corporate parent based on an agency theory and its subsidiaries’ contacts with a state – it is clear that the Supreme Court is committed to limiting the ability of plaintiffs to haul foreign corporations into US courts for conduct occurring outside of the United States.  When considered together, the Supreme Court’s increasing vigilance in limiting extraterritorial reach of US laws and its’ narrowing of when a court can exercise general personal jurisdiction over a defendant, the ability of plaintiffs to haul foreign corporations into a US court to answer for conduct committed outside of the United States has been much circumscribed.