The U.S. Supreme Court recently issued a much anticipated decision in Daimler AG v. Bauman that will not only reverberate through the legal world, but the auto world as well. Large corporations that do business across a wide expanse of territory, or who have subsidiaries doing business in many jurisdictions, are now more protected in terms of where they can be sued. To understand the holding of the case and its implications for companies, a bit of background in personal jurisdiction is required.

The idea that a corporation or person can’t be hauled into court in any jurisdiction is fundamental to the American legal system. The court has to have personal jurisdiction over the defendant. Personal jurisdiction can be found in two ways:  specific jurisdiction and general jurisdiction. For the court to have specific jurisdiction over a company, there are two requirements, (1) the company must have a “continuous and systematic course of business” in the state, and (2) the case must arise from that activity. For general jurisdiction, the case does not need to arise from the company’s contacts with the state, but its presence in the state must be much stronger.

Daimler addresses the requirements for the court to exercise general jurisdiction. In the case, the plaintiffs were former workers and relatives of former workers of Mercedes-Benz Argentina (MBA), a subsidiary of German Corporation Daimler AG.  They filed a claim under the Alien Tort Claims Act and the Torture Victims Protection Act alleging that MBA had cooperated with the Argentine government in perpetrating human rights violations during that country’s “Dirty War” of the 1970’s and 1980’s. Despite the fact that the claims and allegations of the case all took place in Argentina, the Plaintiff’s brought the suit in California. In order to satisfy personal jurisdiction requirements, they argued that Daimler AG, a German Corporation, could be held responsible for the actions of MBA, its subsidiary, and that California was a proper venue because another subsidiary of Daimler AG, Mercedes-Benz USA, LLC (MBUSA), had operations in California. Further, they were forced to argue that the California court had general jurisdiction because it was clear that a case involving potential human rights abuses in Argentina did not arise from MBUSA’s contacts in California.

Dashboard Insights has been following the progression of the case from the Ninth Circuit to the U.S. Supreme Court. The issue argued by the parties before the supreme court was to what extent the actions of MBUSA in California could be attributable to its foreign parent company Daimler AG. The Ninth Circuit, in reversing a lower court opinion, held that MBUSA was subject to general jurisdiction in California because of its extensive operations in the state, and that its California activities were attributable to parent company Daimler AG. When the Supreme Court agreed to hear the case, most speculated that the issue addressed by the Court would be exactly that question. Could MBUSA’s contacts with California be imputed to Daimler AG?

Instead, the Court addressed a different and more fundamental issue – the requirements for general jurisdiction. In a somewhat surprising move, it held that neither MBUSA nor Daimler AG were subject to general jurisdiction in California because neither had the high level of activity required when the case does not arise from the company’s in-state activity. The standard used to exercise general jurisdiction is “continuous corporate operations within a state are so substantial and of such a nature as to justify causes of action against it arising from dealings entirely distinct from those activities.” In Daimler v. Bauman, the Court explained what it understands that standard to mean. The court said that the company must be “at home” in the state.  Specifically, that the state must be either the company’s state of incorporation or its principal place of business.  In the case of MBUSA and Daimler AG, neither was incorporated in California and neither had its principal place of business in California. The court thus held that California could not exercise general jurisdiction over either company. The issue of whether MBUSA’s actions could be imputed to Daimler AG was moot.

The practical implications of the decision cannot be overstated. In the past, companies may have strategically created subsidiaries for the purpose of mitigating the risk of where the parent company could be held liable.  For large multinational corporations with vast operations in nearly every state, the risk of possible suit in every state was very real. Daimler v. Bauman offers a bit of protection for companies. Now, in order to be sued in a state that is not the company’s state or incorporation or principal place of business, the Plaintiff must allege specific jurisdiction rather than general.  In other words, the case must arise from the company’s contacts with that state, and the contacts must still be continuous and systematic.