Following the trend of its recent decisions in Kiobel and Morrison, the Supreme Court on Tuesday, in Daimler AG v. Bauman, reversed the Ninth Circuit, and held that a corporation could not be sued in the US for actions that took place entirely abroad, even if that company has some general contacts within the forum state. Whether a foreign corporation is subject to personal jurisdiction in the US is an often-litigated issue. Usually the question presented is whether a corporation is subject to “specific jurisdiction” under a particular state’s “long-arm” statute. Specific jurisdiction subjects a party to suit for claims that arise from the specific transaction that itself forms the basis of the jurisdiction. Less frequently litigated is whether a corporate defendant is subject to “general jurisdiction” within a state, allowing it to be sued in that state for any of its conduct throughout the world, even where the alleged conduct has no nexus to the forum state.

On January 14, 2014, the Supreme Court ruled that it would violate due process to subject a foreign corporation, Daimler AG (“Daimler”), to general jurisdiction in California based on its subsidiary’s systematic contacts with that state. Because Daimler was not “at home” in California, it was not subject to general jurisdiction there, and could not be sued in California for claims that arose out of alleged conduct in Argentina by another of its affiliates. This decision will make it more difficult to sue foreign corporations in the US for conduct that occurred entirely outside of the US, even if the corporation has affiliates that regularly conduct business in the US.

BACKGROUND

Daimler involved claims by Argentinian residents against Daimler for conduct that allegedly occurred in Argentina. According to plaintiffs, during Argentina’s 1976-1983 “Dirty War,” Daimler’s Argentinian subsidiary, Mercedes-Benz Argentina (“MB Argentina”) “collaborated with state security forces to kidnap, detain, torture, and kill certain MB Argentina workers.” Plaintiffs chose to file the suit in California, even though the alleged conduct had no connection with the state.

Plaintiffs argued that a court sitting in California had personal jurisdiction of Daimler because of the California contacts of its subsidiary, Mercedes-Benz USA, LLC (“MBUSA”). MBUSA maintains operations in California, and is the largest supplier of luxury cars to the California market. In fact, 2.4% of Daimler’s worldwide sales come from MBUSA’s sales in California.

DAIMLER WAS NOT SUBJECT TO GENERAL JURISDICTION BECAUSE IT WAS NOT “AT HOME” IN CALIFORNIA

The Court began by referring to the limits on personal jurisdiction imposed by the Due Process Clause of the Fourteenth Amendment. A court may exercise personal jurisdiction over a party only if doing so is consistent with “traditional notions of fair play and substantial justice.” This requirement “presaged the development of two categories of personal jurisdiction”—general and specific jurisdiction.

Relying on its 2011 decision in Goodyear Dunlop Tires Operations, S.A. v. Brown, the Court stated that a corporation is subject to general jurisdiction within a state “only when the corporation’s affiliations with the State in which suit is brought are so constant and pervasive as to render it essentially at home in the forum State.” The paradigm locations where a corporation is “at home”—for jurisdictional purposes—are its place of incorporation and its principal place of business. California was neither for Daimler (nor, apparently, for MBUSA). Thus, the question the Court addressed was whether Daimler could nonetheless be considered “at home” in California based on its subsidiary’s contacts with that state.

The Court assumed that MBUSA could be considered “at home” in California. The Ninth Circuit, in its opinion below, “relied on an agency theory, determining that MBUSA acted as Daimler’s agent for jurisdictional purposes and then attributing MBUSA’s California contacts to Daimler.” Although the Court did not explicitly reject this “agency” theory, it held that even if MBUSA’s California contacts were attributable to Daimler, Daimler could not be said to have affiliations with California that were “so continuous and systematic” as to render it (as opposed to MBUSA) “at home” in California.

Consistent with the Due Process Clause, notions of fair play guided the Court’s decision. According to the Court, if MBUSA’s sales activities in California could make Daimler subject to jurisdiction for any conduct that occurred throughout the world, the same would be true for “every other State in which MBUSA’s sales are sizable.” The Court held that such an “exorbitant” exercise of jurisdiction would be unfair and, importantly, would not allow foreign parties “to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.”

Although the Court did not go as far as to hold that a corporation is subject to general jurisdiction only in the state where it is incorporated or has its principal place of business, this week’s decision will restrict the ability of plaintiffs to bring suit in the US against foreign corporate defendants where the allegations are based on extraterritorial activities.