14 January 2014
In a case arising out of Argentina's "dirty war," the U.S. Supreme Court on Tuesday significantly limited the general jurisdiction of federal courts over injured victims' lawsuits against corporations doing business in the United States.
The decision, according to legal observers on both sides of the case, means that a corporation, in effect, may be sued primarily where it is incorporated or in its principal place of business. For foreign corporations operating here, they added, the decision likely means never.
Although the court did not shut the door on the possibility that general jurisdiction could be available somewhere other than the place of incorporation or principal place of business, "The burden is very high: proof of operations that are 'so substantial and of such a nature as to render the corporation at home in that State' and that are much more significant than the corporation's operations in other states or countries," said Andrew Pincus of Mayer Brown, amicus counsel on behalf of foreign banks supporting Daimler A.G.
The justices unanimously ruled in Daimler v. Bauman that Daimler, headquartered in Stuttgart, Germany, may not be sued in California, where its Mercedes-Benz USA subsidiary operates, by Argentine victims of alleged human rights violations in Argentina 30 years ago.
The victims alleged that a wholly owned subsidiary of Daimler—Mercedes-Benz Argentina—collaborated with state security forces during the "dirty war" in Argentina in the 1970s and 1980s. Under the country's military dictatorship, thousands of Argentines disappeared or were kidnapped, tortured or killed, among them the plaintiffs or their relatives.
The federal district court dismissed their lawsuit for lack of jurisdiction. However, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that Mercedes-Benz USA (MBUSA) was Daimler's "agent" for jurisdictional purposes and the court attributed the MBUSA’s California contacts to Daimler.
Writing for the high court, Justice Ruth Bader Ginsburg said that in deciding Goodyear Dunlop Tires v. Brown in 2011, the justices examined whether foreign subsidiaries of a U.S. parent corporation could be sued in state court for claims unrelated to any activity of the subsidiaries in the forum state. That case stemmed from a bus accident outside of Paris that killed two boys from North Carolina. The boys' parents sued in North Carolina and alleged that the bus' tire was defectively manufactured. A small percentage of tires manufactured by Goodyear's foreign subsidiaries were distributed in North Carolina.
The Goodyear decision, she said, held that a court may assert general jurisdiction over a foreign corporation only when the corporation's contacts with the state in which the suit is brought are so constant and pervasive "as to render it essentially at home in the forum state."
Instructed by Goodyear, she said, Daimler was not "at home" in California. "Here, neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there," she wrote. "If Daimler's California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA's sales are sizable."
Daimler's high court counsel, Thomas Dupree of Gibson, Dunn & Crutcher, had urged the court during oral arguments in October to adopt the "at home" standard as a "clear, workable" rule for general jurisdiction.
Some lawyers who followed the case closely called the high court decision "broad" and "dramatic," even though Ginsburg said the standard may not apply in the "exceptional case"—which she did not define.
Justice Sonia Sotomayor concurred only in the judgment, writing that the decision was wrong as to both process and substance. "The problem, the Court says, is not that Daimler's contacts with California are too few, but that its contacts with other forums are too many," she wrote. "In recent years, Americans have grown accustomed to the concept of multinational corporations that are supposedly 'too big to fail'; today the Court deems Daimler 'too big for general jurisdiction.' "
She chided the court for deciding the case on a ground that had neither been argued nor decided by the lower court and was raised for the first time by Daimler in a footnote to its brief. And, as for substance, she said, the court's focus on Daimler's operations outside of California "ignores the lodestar of our personal jurisdiction jurisprudence: A State may subject a defendant to the burden of suit if the defendant has sufficiently taken advantage of the State's laws and protections through its contacts in the State; whether the defendant has contacts elsewhere is immaterial."
Sotomayor said the "far simpler" ground for deciding the case was that, "no matter how extensive Daimler's contacts with California, that State's exercise of jurisdiction would be unreasonable given that the case involves foreign plaintiffs suing a foreign defendant based on foreign conduct, and given that a more appropriate forum is available."
Reprinted with permission from the January 14, 2014 edition of The National Law Journal © 2014 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.