Foreign companies doing business in the US are often concerned about getting sued before a US court, even in situations where there is no apparent connection to the US. In its recent Daimler AG v Bauman et al. ruling, the Supreme Court seems to have placed some limits on this broad jurisdiction by ruling that a foreign company cannot automatically be sued in a State court if it has no clear links with that State.

In this case, a number of Argentinian nationals had sued Daimler AG before a federal court in California. The case was based on the Alien Tort Claims Act, a law that allows foreign nationals to claim damages in the US for human rights violations occurring outside the US. This law can have far-reaching consequences for foreign parties, in the same way as the Foreign Corrupt Practices Act does. The plaintiffs alleged that Daimler’s Argentinian subsidiary had collaborated with the Argentinian government in its ‘dirty war’ during the period 1976-1983. The subsidiary had allegedly been involved in the kidnapping, imprisonment, torture and unlawful killing of its employees.

According to the Argentinian plaintiffs, they had the right to sue Daimler AG in California because Daimler had a subsidiary in the US (“MBUSA”). In the Daimler Group, MBUSA was the company that distributed new Daimler cars in the US, including California. The plaintiffs asserted that MBUSA should be regarded as Daimler AG’s agent, because without MBUSA’s presence Daimler AG would have had to distribute the cars in the US.

A federal court of appeals ruled in 2011 that Daimler could be held liable for its subsidiary MBUSA’s operations and that Daimler could therefore be sued in California, even in this type of case where the claimants’ position was based on alleged misconduct in Argentina. But in its recent ruling, the Supreme Court rejected this view, arguing that it would violate the constitutional guarantee of due process.

In an earlier ruling, the Supreme Court had held that a foreign company could be sued if there were on-going contacts with the State in question. But in the Daimler ruling, the Supreme Court reproached the court of appeals for having paid insufficient attention to the risks resulting from an ever expanding jurisdiction of US courts.

The ruling suggests that the Supreme Court has recognised the concern felt by the international business community. It is interesting to see that the ruling was partly based on how the US’s relationship with other countries would be affected if the court of appeals’ decision were to stand. The Supreme Court refers to a problem mentioned by the US government: this wide application of jurisdiction has been an obstacle in government negotiations on treaties dealing with mutual recognition of court decisions. The unpredictable jurisdictional reach of US courts could, moreover, discourage foreign investors from doing business in the US.

Although Justice Sotomayor concurred with the majority view in her opinion, she expressed less concern for the potential effect on international business. She felt that the activities of MBUSA in California alone were sufficient basis for assuming that Daimler could be sued in that State.

It is too early to tell if international companies should no longer be concerned, but this ruling seems a move in the right direction as it shows common sense and sensitivity to sentiments abroad.