A paramount concern of UK clients is the exercise of jurisdiction over them by US courts. The issue of personal jurisdiction over UK parties is the first consideration in assessing a client’s exposure to US litigation and the appropriate response to be taken to a threatened or actual US lawsuit. Some measure of protection for UK parties is aforded by carefully drafted, comprehensive business terms containing choice of law and jurisdiction provisions and limitations on consequential and punitive damages. But absent such prior, preventative measures, the question becomes whether a UK client can properly be sued in US courts.
There are two bases on which US courts exercise personal jurisdiction over foreign defendants. “Specific jurisdiction” extends to claims arising from a defendant’s specific activities in, or directed toward, the forum state, even if the defendant has no physical presence in that state. “General jurisdiction”, on the other hand, is much broader and allows a defendant to be sued in a forum state for any claim, whether or not it has anything to do with the defendant’s connections with that state, based upon that defendant’s continuous and systematic contacts with that state. The basic principles of jurisdiction are derived from the seminal decision of the US Supreme Court in International Shoe Co. v Washington, 326 US 310 (1945). That case held that specific jurisdiction could be based upon a defendant’s “minimum contacts” with the state (eg; a company soliciting business in the state, so long as the claim asserted related to those activities). General jurisdiction was held to exist only when a foreign defendant’s continuous and systematic activities justified suit within the state, even as to causes of action not arising from such activities. Until recently, the US courts took an expansive view of jurisdiction. Exposure to US litigation was a substantial risk for UK clients, and challenging jurisdiction in US courts was a difcult, costly and often futile exercise.
The legal atmosphere began to change in 2011, with the Supreme Court decisions in Goodyear Dunlop Tires Operations, S.A. v Brown, 131 S. Ct. 2846 (2011) and J. McIntyre Machinery, Ltd. v Nicastro, 131 S. Ct. 2780 (2011). The Goodyear Dunlop Tires case addressed the distinction between general (or “all purpose”) jurisdiction and specific (or “conduct-linked”) jurisdiction, and the former was held to apply only when the defendant’s afliations with the state in which a suit is brought are so constant and pervasive “as to render [it] essentially at home in the forum State.” The Supreme Court in Goodyear Dunlop Tires found that general personal jurisdiction had not been established on the facts, because the defendant’s contact with the state fell far short of the ‘continuous and systematic’ afliation necessary.
J. McIntyre Machinery v Nicastro concerned the jurisdiction of the New Jersey court over a British manufacturer that sought to sell its products to the United States market through an American distributor. There, a divided Supreme Court held the allegations that the defendant’s product entered the ‘stream of commerce’ to be insufcient to establish specific jurisdiction over the UK manufacturer. While the company held a patent for the machine in question and directed the distributor with regard to US advertising and sales, the Court held that the test for establishing specific personal jurisdiction is the defendant’s ‘purposeful availment’ of the protections of that particular state. The company must be actively directing its operations towards the state it is being sued in, rather than just marketing over the whole of the US.
Less than three years after its landmark decisions in Goodyear Dunlop Tires and J. McIntyre Machinery, the US Supreme Court handed down two further rulings substantially limiting personal jurisdiction over non-resident defendants: Daimler AG v Bauman, 134 S. Ct. 746, 761 (2014) and Walden v Fiore, 134 S. Ct. 1115 (2014).
Daimler AG v Bauman concerned general jurisdiction over a foreign corporation. The Supreme Court held that DaimlerChrysler AG in Germany could not be sued in California federal court based on the continuous and substantial business activities of its US subsidiary Mercedes-Benz USA, LLC where the claims at issue were for human rights violations allegedly committed by Daimler’s Argentine subsidiary in Argentina. The Supreme Court said that International Shoe had made plain that general jurisdiction was the exception, and not the norm. The Court stressed the need to find ‘afliations’ between the defendant and the forum state, which is not established by the volume of commerce there. A corporation is “at home” for purposes of general jurisdiction in only a narrow set of circumstances, the Court said, the paradigm examples being a corporation’s place of incorporation and its principal place of business. Those criteria were not exclusive, but a substantial, continuous, and systematic course of business alone is not sufcient to create general jurisdiction, and the exercise of general jurisdiction in every state in which a corporation engages in a substantial, continuous, and systematic course of business was rejected as “unacceptably grasping”.
The approach taken in Daimler is reminiscent of that in the European Union, where a corporation is generally to be sued in the country in which it is domiciled; ie; its “statutory seat,” “central administration” or “principal place of business”.
Daimler is expected to have widespread impact on the conduct of US litigation against foreign parties; eg by dampening US courts’ willingness to order discovery from a foreign party or non-party, or to enforce injunctions or judgments obtained outside the United States against foreign parties or non-parties. The Supreme Court itself expressed it expectation that future discovery exercises for the sole purpose debating jurisdiction should be unnecessary, as an individual’s domicile and a corporation’s place of incorporation and principal place of business would normally be simple, established facts. Daimler could also afect a judgment creditor’s ability to have a foreign bank ordered by a US court to hand over assets held on behalf of a foreign judgment debtor. This was the issue in the New York Court of Appeals’ decision in Koehler v Bank of Bermuda Ltd., 911 N.E.2d 825 (N.Y. 2009) that caused such consternation amongst non-US banks.
In Walden v Fiore, 134 S. Ct. 1115 the Supreme Court held that a nonresident defendant is not subject to specific jurisdiction unless there is a sufcient relationship between the defendant, the forum and the litigation. Like the inquiry in Daimler, the Supreme Court held that “the proper question is whether defendant’s conduct connects him to the forum in a meaningful way. ” By this standard, the Georgia-based defendant was not subject to personal jurisdiction in Nevada because the alleged conduct had not occurred there and none of the defendant’s actions connected him to the state. The Court rejected the plaintifs’ “injury-based” argument that jurisdiction should be conferred based on the foreseeability of the defendant’s action causing injury in the forum, saying that “an injury is jurisdictionally relevant only insofar as it shows that the defendant has formed a contact with the forum. ”
The Supreme Court in Walden explained that the “minimal contacts” inquiry for specific jurisdiction established in International Shoe is focused on “the relationship among the defendant, the forum, and the litigation” and the “contacts” must be those that the defendant himself creates with the forum state itself. Jurisdiction cannot be based upon contacts between the plaintif (or third parties) and the forum state. Moreover, the defendant’s contacts must be with the forum state itself, not with persons who reside there. Specific jurisdiction, it was held, extends only over defendants who have purposefully reached out beyond their own domestic base into the forum state, for example, by creating a contractual relationship with continuing and wide-reaching contacts in the forum state, or otherwise deliberately exploiting a market in the forum state. And although a defendant’s contacts with the forum state may be intertwined with transactions or interactions with the plaintif or other parties, those relationships, on their own, are an insufcient basis for jurisdiction.
This decision limits the exercise of specific jurisdiction over individuals in a similar way that Daimler limits general jurisdiction over foreign companies. The combined efect of these cases is to limit the framework within which US courts will accept general or specific jurisdiction over non-resident defendants, by requiring the focus of the jurisdictional inquiry to be on the actual defendant’s contacts and activities with the forum state, and not those of the defendant’s subsidiaries or the defendant’s contacts with the plaintif or other third parties.
For UK individuals and business entities, the Court’s decisions in these cases ofer additional ammunition to challenge personal jurisdiction in US courts which are unrelated to the issues in dispute and where a defendant is “essentially not at home”.