Michael Hoenig ()
On Feb. 25 the U.S. Supreme Court issued a unanimous opinion in Walden v. Fiore1 dealing with constitutional Due Process boundaries on a court’s exercise of personal jurisdiction over a litigant. The ruling concerns a popular form of jurisdictional nexus that has been called by various names—e.g., “specific jurisdiction,” “longarm” or “single-act” statute, “effects test”—all of which are intended to distinguish this jurisdictional animal from the standard “general,” “doing business,” “presence,” or “all purpose” jurisdiction test. Walden has potential to upset some apple carts, to disturb existing or smug notions of in personam jurisdiction and to revitalize jurisdictional challenges by foreign defendants sued in a state where they had no or little direct activity.
A “specific” or “case-linked” jurisdictional nexus depends on an affiliation between the forum and the underlying controversy. Thus, an activity or an occurrence that takes place in the forum state may be subject to state court regulation for causes of action arising out of the defendant’s act within the state—provided that constitutional due process requirements are met. Walden expounds mightily on the limits of due process. Its ruling, reasoning and clarifications arguably could undo application of long-standing “longarm” statutes such as New York’s CPLR 302(a)1 and (a)3 in certain relatively common scenarios, some products liability or warranty lawsuits against foreign defendants among them.
In distinction to the “specific” or “longarm” form of jurisdictional predicate, the “general” or “all purpose” type of jurisdiction allows a court to adjudicate against a defendant based on a forum connection unrelated to the underlying lawsuit.2 An example of such a jurisdictional predicate would be the litigant’s domicile within the forum state or a corporation’s continuous, systematic “presence” within the state. In such “general jurisdiction” cases, the forum court can adjudicate even regarding a defendant’s acts that occurred outside the state or even in a foreign country.
Walden comes hard on the heels of the Supreme Court’s Jan. 14 decision in Daimler AG v. Bauman,3 a pivotal ruling that a German company could not be subjected to “specific” or “general” California jurisdiction for torts committed in Argentina by defendant’s Argentine subsidiary even though defendant’s U.S. subsidiary had some California contacts unrelated to the Argentine atrocities. The court held that the Due Process Clause precludes the exercise of jurisdiction since, among other things, “California is not an all-purpose forum for claims against Daimler.”4 The foreign defendant, quite simply, was not “at home” in California and, thus, was not “subject to suit there on claims by foreign plaintiffs having nothing to do with anything that occurred or had its principal impact in California.”5 The combination of Daimler and Walden can be lethal jurisdictional obstacles, a kind of one-two punch. Thus, lawyers are advised to study the new decisions.
Let’s look at Walden a bit closer because it has potential to destabilize as-yet-comfortable notions. The facts are somewhat anomalous, but the lessons to be learned could apply to some common scenarios. Walden (the defendant) was working as a Drug Enforcement Agency (DEA) officer at the Atlanta Airport. Fiore and Gipson (the plaintiffs) were professional gamblers going from Puerto Rico to their Nevada home with a layover in Atlanta. While there, Walden seized some $97,000 in cash from plaintiffs believing it was related to drug activities. Their protests in Atlanta were to no avail. They were advised that the money would be returned if they gave documentation that the cash was lawfully obtained. Walden assisted in drafting a “probable cause” affidavit—one the plaintiffs alleged was false—to support forfeiture of the money and sent it to the U.S. Attorneys Office in Georgia. Eventually, plaintiffs got their money back.
However, Fiore and Gipson sued the DEA agent in a Nevada federal court alleging wrongful seizure of the cash and violation of their constitutional rights. Walden moved to dismiss. The district court granted the motion because Nevada jurisdiction was lacking. The U.S. Court of Appeals for the Ninth Circuit reversed, however, holding that Walden, though in Georgia, “expressly aimed” his submission of the false affidavit at Nevada with knowledge that it would affect persons with a significant connection to Nevada. This amounted to application of the “effects test” of specific jurisdiction which looks to the effect caused in the forum state by an out-of-state actor. Rehearing en banc was denied by the Ninth Circuit with eight judges dissenting.
The Supreme Court reversed. It held that a Nevada court may not exercise personal jurisdiction over Walden because of the “contacts” of plaintiffs Fiore and Gipson with Nevada. It is the defendant who must have the requisite “minimum contacts” with the forum state in order to support specific jurisdiction over him. The inquiry “focuses on the ‘relationship among the defendant, the forum and the litigation.’” The defendant’s suit-related conduct “must create a substantial connection with the forum state.” Two related aspects of this “necessary relationship” are relevant. First, the relationship must arise out of contacts that the “defendant himself” creates with the forum state. Thus, “[p]ut simply, however significant the plaintiff’s contacts with the forum may be, those contacts cannot be ‘decisive in determining whether the defendant’s due process rights are violated.’”6
Second, the court’s “minimum contacts” analysis looks to the “defendant’s contacts with the forum state itself, not the defendant’s contacts with persons who reside there.” The plaintiff “cannot be the only link between the defendant and the forum.” Rather, it is the “defendant’s conduct that must form the necessary connection with the forum state.” Due process “requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the ‘random, fortuitous, or attenuated’ contacts he makes by interacting with other persons affiliated with the State.”7 Indeed, these same principles apply when intentional torts are involved.
The defendant DEA agent lacked the requisite “minimal contacts” with Nevada. No part of Walden’s course of conduct occurred in Nevada. The questioning and seizure of money occurred at the Atlanta airport. The allegedly false probable cause affidavit was drafted in Georgia. Walden never traveled to, conducted activities within, contacted anyone in, or sent anything or anyone to Nevada. “In short,” said the court, “when viewed through the proper lens—whether defendant’s actions connect him to the forum—petitioner formed no jurisdictionally relevant contacts with Nevada.”8 The Ninth Circuit erred by shifting the “analytical focus” from Walden’s contacts with the forum to his contacts with the plaintiffs. Rather than assessing defendant’s own contacts with Nevada, the court looked to Walden’s knowledge of plaintiffs’ “strong forum connections.” That knowledge was then coupled by the Ninth Circuit with its conclusion that plaintiffs “suffered foreseeable harm in Nevada” to satisfy the “minimum contacts” inquiry.
This approach was wrong. A plaintiff’s contacts with the defendant and the forum do not drive the jurisdictional analysis. Simply because defendant directed his conduct at plaintiffs with knowledge of their Nevada connections is insufficient. A plaintiff’s forum connections are not to be attributed to the defendant. “[A] mere injury to a forum resident is not a sufficient connection to the forum.” Regardless of where a plaintiff lives or works, an injury is “jurisdictionally relevant” only insofar as it shows that defendant has formed a contact with the forum state. The “proper question” is not where the plaintiff experienced a particular injury or effect “but whether the defendant’s conduct connects him to the forum in a meaningful way.”9
The question is not how minimal to a defendant the “burden of defending in a foreign tribunal” might be. Rather, it is the requisite “minimal contacts” with the forum state that allow the exercise of power over a defendant. The court noted that it had upheld jurisdiction where defendants purposefully “reached out beyond” their state and into another by, for example, entering a contractual relationship that “envisioned continuing and wide-reaching contacts” in the forum state.10
The court also had upheld jurisdiction when the defendant “circulated magazines ‘to deliberately exploit’ a market” in the forum state. A relevant contact is “physical entry” into the state—either by the defendant in person or through an agent, goods, mail, or some other means.11 But it is clear that a defendant’s “random, fortuitous or attenuated contacts” or the “unilateral activity” of a plaintiff are insufficient.
The Supreme Court illustrated the application of these principles with a discussion of Calder v. Jones,12 a California libel action by a California actress against the reporter and editor of the National Enquirer based on an article written and edited in Florida. The weekly newspaper had a circulation in California of roughly 600,000. Jurisdiction was upheld because the jurisdictional inquiry “focused on the relationship among the defendant, the forum and the litigation.” The court examined the various contacts defendant had created with California by writing the libelous story. Those forum contacts were deemed “ample.”
The defendants relied on phone calls to “California sources” for the information in the article; they wrote the story about the plaintiff’s activities in California; they caused reputational injury in California by writing an allegedly libelous article that was widely circulated in the state; and the “brunt” of that injury was suffered by the plaintiff in California. As the court put it, “California was the focal point both of the story and of the harm suffered.” Jurisdiction was therefore proper in California based on the “effects” of their Florida conduct in California.13
But the court did not stop there. It was the very nature of the libel tort that strengthened the defendants’ connection to California, not just to the plaintiff. The “crux of Calder” was the reputation-based “ effects” of the alleged libel that connected defendants to California. However scandalous a newspaper article might be, it can lead to a loss of reputation only if communicated to (and read and understood by) third persons. Thus, the “reputational injury caused by defendants’ story” would not have occurred but for the fact that the defendant wrote an article for publication in California that was read by a large number of California citizens.
Indeed, “because publication to third persons is a necessary element of libel, the defendant’s tort actually occurred in California.”14 Even though the defendants did not circulate the article themselves, they “expressly aimed” their “intentional and allegedly tortious actions” at California because they knew the National Enquirer had its largest circulation there and that the article would “have a potentially devastating impact” there.15
The court’s focus on Calder’s rather intensive connection of defendants’ libelous acts to the forum state (i.e., “defendant’s tort actually occurred in California”) suggests that lesser “contacts” or connections can fall short. Some states, for example, have “longarm” or “single-act” provisions primarily emphasizing the occurrence of plaintiff’s injury within the state as being sufficient. But the court has again made clear that the unilateral activity of the plaintiff in the state is not the due process test. “Where the plaintiff experiences a particular injury or effect” does not control. It is the defendant’s significant conduct that counts, i.e., “whether the defendant’s conduct connects him to the forum in a meaningful way.”
Further, due process requires that a defendant only be haled into a forum court “based on his own affiliation” with the state, not on “random, fortuitous or attenuated” contacts he makes by interacting with other persons affiliated with the state. Thus, there are states with longarm, “effects”-type statutes that require something more than plaintiff’s in-state injury but far less than the intensive forum connections specified in Calder.
Will such “gray area” jurisdictional predicates pass constitutional muster? Perhaps not. There seems room for advocacy both ways. New York’s CPLR 302(a)1, for example, would fasten jurisdiction for actions arising out of a contract “anywhere” to supply goods or services in the state. Is a defendant’s contract made “anywhere” outside New York a “meaningful,” jurisdictionally relevant connection or is it a “random, fortuitous or attenuated contact” made by interacting with other persons who are affiliated with the state?
Or, consider the ever-popular CPLR 302(a)3(i) which fastens jurisdiction for a tort committed outside New York if the defendant regularly “derives substantial revenue from goods used or consumed” in the state. If a foreign manufacturer earns revenue from selling its products to others outside New York, is that a “meaningful” connection by the defendant himself with the state simply because the goods end up being used in the state? Is the mere sale in New York of defendant’s goods by others a “meaningful” forum contact by the defendant himself or, rather, a “random, fortuitous or attenuated” contact made by “interacting” with other persons affiliated with the state?
Keep in mind that a defendant’s mere knowledge or foreseeability that its goods will be sold by others is not the equivalent of “minimum contacts.” Further, CPLR 302(a)3(ii) posits jurisdiction when the foreign defendant “expects” (or “should”) that his out-of-state act will have in-state consequences and derives substantial revenue from “interstate or international commerce.” Isn’t “expectation” something like mere “foreseeability”? That may not work. And how does “interstate or international commerce” supply a “meaningful” and direct, rather than a “random, fortuitous or attenuated,” connection by defendant with New York?
Walden deserves the bench and bar’s keen analysis. Prior assumptions about specific, longarm or “effects”-based jurisdiction may now be shaky or, at least, debatable. Statutory provisions can be found unconstitutional “as applied,” so the facts of a given scenario become quite significant. Incisive advocacy clearly can play a role. The reader also should study Daimler AG for that decision has critical observations about the limited jurisdictional role a foreign company’s domestic subsidiaries may play in the jurisdictional picture.
Michael Hoenig is a member of Herzfeld & Rubin.
1. No. 12-574 (U.S. Sup. Ct. Feb. 25, 2014) (Slip Opinion).
2. Walden, Slip Op. at 6 n. 6.
3. No. 11-965 (U.S. Sup. Ct. Jan. 14, 2014) (Slip Opinion).
4. Daimler AG v. Bauman, Slip Op. at p. 18 n. 16.
5. Id., Daimler AG, Slip Op. at 21.
6. Walden, Slip Op. at 6-7.
7. Walden, Slip Op. at 7-8.
8. Walden, Slip Op. at 11 (Emphasis by court).
9. Walden, Slip Op. at 11-12. The court rejected other “possible contacts with Nevada” as “unavailing.” Thus, plaintiffs’ Nevada lawyer contacted Walden in Georgia; some of the seized cash originated in Nevada; and the funds were eventually returned to plaintiffs in Nevada. These “attenuated” connections were not created by Walden, however. Thus, they were not jurisdictionally relevant. Id. at 13.
10. Walden, Slip Op. at p. 7.
11. Walden, Slip Op. at p. 8.
12. 465 U.S. 783 (1984).
13. Walden, Slip Op. at pp. 9-10.
14. Walden, Slip Op. at p. 10. (Emphasis by court).
15. Id. at pp.10-11 n. 7.