Lawrence W. Newman and David Zaslowsky
Lawrence W. Newman and David Zaslowsky ()

The Supreme Court, in a recent case, Daimler AG v. Bauman,1 undertook to separate, analytically and practically, the standards for specific and general jurisdiction. In doing so, the court gave prominence to a separate standard for general jurisdiction—the “at home” test—that could well change the way the courts allow suits against foreign corporations, even those with active subsidiaries in the United States.

When most lawyers think of the requirements for personal jurisdiction over defendants under the U.S. Constitution, they refer to the International Shoe case.2 That case dealt primarily with what is known as “specific jurisdiction”—that which is based on activities within the jurisdiction that relate to the basis for the lawsuit—and “sufficient contacts or ties” under the facts of the case to permit, in the words of the decision, “the state of the forum to make it reasonable and just, according to our traditional conception of fair play and substantial justice, to permit the state to enforce the obligation which appellant has incurred there.”3

The International Shoe decision dealt only in passing with general jurisdiction, describing it as not just “continuous activity of some sorts within a state” but instances in which “the continuous corporate operations within a state were thought to be so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities.”4 Over the years since, the focus of courts and litigators has been on specific rather than general jurisdiction, often with a resultant eliding of the standards for both types of jurisdiction into a shorthand “minimum contacts” and “fair play and substantial justice” standard.

‘Daimler’

In Daimler, the U.S. Court of Appeals for the Ninth Circuit held that Daimler/Chrysler, the German parent corporation, could be sued in California by victims of the Argentine “Dirty War” even though none of the activities complained of took place in California. In determining whether there was general jurisdiction over Daimler, the Ninth Circuit examined first whether Daimler’s activities in California were “substantial” or “continuous and systematic, even if the cause of action is unrelated to those activities” so as to “justify suit against [it] on causes of action arising from dealings entirely distinct from those activities.”5 The court quickly concluded that Daimler’s local subsidiary had such contacts and went on to examine whether there was jurisdiction over Daimler “by virtue of its relationship to a subsidiary that has continued operations in the forum.”6

The court considered first whether the subsidiary could be properly considered to be the alter ego of the parent, a test that it considered “not directly at issue here,” or whether there could be jurisdiction under the “agency” test, which it said is “predicated upon a showing of the special importance of the services performed by the subsidiary.”7 The court assessed the importance of the subsidiary, finding the importance sufficient to satisfy the test because the subsidiary was sufficiently important to the foreign parent that the parent “would perform equivalent services if no agent were available.”8

The Ninth Circuit then went on to apply a reasonableness test under which the defendant has the burden of presenting “a compelling case” that jurisdiction would be unreasonable.9 The court considered various factors: the “extent of purposeful interpretation,” the burden on the defendant, the extent of conflict with the sovereignty of the defendant’s state, the forum state’s interest in adjudicating the suit, the most efficient official resolution of the dispute, the convenience and effectiveness of relief for the plaintiff, and the existence of an alternative forum. Summing up, the court emphasized what it had said before, that the subsidiary’s business in California was such that, without the subsidiary or another representative, the parent would have performed these services itself. The court concluded that it had “no doubt” that the parent was subject to personal jurisdiction in California and that “the exercise of such jurisdiction is not only reasonable, but fair and just.”10

The Supreme Court Opinion

The Supreme Court, on the other hand, had no difficulty in rejecting the Ninth Circuit’s reasoning, reversing it unanimously, with a concurring opinion by Justice Sonia Sotomayor. Justice Ruth Bader Ginsburg, writing for the court, reviewed the history of general jurisdiction, observing that the Supreme Court’s opinions after the “canonical opinion” of International Shoe on general (or “all-purpose”) jurisdiction are few compared to those on specific jurisdiction,11 which has become “the centerpiece of modern jurisdiction theory.”12

The court placed emphasis on its decision in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011), in which it held that a court may assert jurisdiction over foreign corporations to hear all claims against them only when the corporation’s affiliations with the state in which suit is brought are so constant and pervasive “as to render them essentially at home in the forum state.”13 In fact, in Goodyear, although it stated that petitioners are in no sense at home in North Carolina, where the suit was brought, the Supreme Court did not emphasize the “at home” metaphor. Rather, after making this observation, it went on to use as its primary rationale that the foreign subsidiary’s activities in the state fell “far short of the single ‘continuous and systematic general business contacts’ necessary to empower North Carolina to entertain suit against them on claims unrelated to anything that connects them to the State.”14

‘At Home’ as the Test

In Daimler, Ginsburg, also the author of the court’s opinion in Goodyear, placed heavy emphasis on the “at home” test, rejecting the test of substantial, continuous course of business, a formulation that the court described as “unacceptably grasping.” The Supreme Court said that the proper inquiry is not whether a foreign corporation’s in-forum contacts can be said to be “in some sense ‘continuous and systematic,’ it is whether that corporation’s affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.”15

In applying its at-home test, the Supreme Court recognized that it was also addressing, for the first time, whether “a foreign corporation may be subjected to a court’s general jurisdiction based on the contacts of its in-state subsidiary.”16 The Supreme Court rejected the Ninth Circuit’s reliance on an agency theory to hold that there was general jurisdiction on the parent Daimler, in particular, the Ninth Circuit’s test—whether the subsidiary performs services that are sufficiently important to a foreign corporation that, without the subsidiary, the corporation’s own officials would undertake to perform substantially similar services. The court said this test “stacks the deck” because it will always yield a pro-jurisdiction answer.17 Holding that the only inquiry is whether the foreign corporation is genuinely “at home,”18 the Supreme Court said that, even attributing the subsidiary’s activities to the parent, it was error for the Ninth Circuit to have concluded that Daimler was at home in California.19

What does being “at home” as used by the Supreme Court mean? In one of its footnotes, the Supreme Court said that “general jurisdiction requires affiliations so ‘continuous and systematic’ as to render [the foreign corporation] essentially at home in the forum State,” meaning that they are “comparable to a domestic enterprise in that State.”20 The court did not express whether, under any circumstances, the activities of a subsidiary could subject a foreign parent to general jurisdiction, although one could assume that passing some sort of alter ego test would suffice.

Moreover, the Supreme Court said that it did not “foreclose the possibility that in an exceptional case…a corporation’s operations in a forum other than its place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State.”21 The court did not provide analytical tools that lower courts could use to determine whether a foreign corporation is “at home” in a state. It did, however, say that general jurisdiction calls for an appraisal of a corporation’s activities in their entirety, nationwide and worldwide, apparently because “[a] corporation that operates in many places can scarcely be deemed at home in all of them.”22

The court also seemed to suggest that a court might have to do some balancing of a foreign defendant’s local activities against its out-of-state activities as part of its “at-home” analysis. The lower courts will have to wrestle with the test as described in Daimler and perhaps formulate their own interpretations and subtests.

Cases after ‘Daimler’

Since the Daimler decision, only a few cases have applied it. The most prominent is Shovah v. Roman Catholic Diocese of Albany, decided by the U.S. Court of Appeals for the Second Circuit on Feb. 7, 2014.23 There, the plaintiff brought suit in Vermont, where the activities of the defendant diocese, consisting only of weekly masses plus the use by the dioceses’ parishes of 21 Vermont vendors and the receipt by the diocese of advertisements from 11 Vermont merchants, did not come close to the extent of contacts with the forum found insufficient in Daimler. Thus, there was no need for the Second Circuit to apply the “at home” test with precision. It did, however, wonder about the test, asking how many homes an out-of-state entity might have, indicating that too loose a test might lead to findings that foreign corporations were “‘at home’ virtually anywhere.”24

On the other hand, a district court in Florida, in an undefended case, Barriere v. Cap Jaluca, found there to be general jurisdiction over an Anguillan hotel corporation because, by virtue of its maintaining a sales office in Florida, having its “assets” managed by an agent based in Florida and its promotion by the Leading Hotels of the World, it had “such minimum contacts with Florida [as] to be considered to be ‘at home’.” The district court considered the Daimler decision and recognized that it “undoubtedly limited the application of general jurisdiction to foreign defendants, although it did not view Daimler as “mandating the complete casting off” of the logic of prior Eleventh Circuit cases to the effect that the marketing of foreign resorts in Florida was sufficient to warrant the imposition of general jurisdiction over the foreign resorts. 25

Conclusion

It remains to be seen the extent to which the Supreme Court’s decision in Daimler will have an impact on cases based only on general jurisdiction. One can speculate that there may be a reluctance on the part of litigants and sympathetic courts to give up old policy considerations, such as to enable U.S. plaintiffs to obtain redress for injuries against resorts abroad, as was evidently a significant factor in the Cap Jaluca decision referred to above. There may also be, as in the past, the importation of aspects of the specific jurisdiction tests, such as reasonableness, when the at-home test is applied.

Lawrence W. Newman is of counsel and David Zaslowsky is a partner in the New York office of Baker & McKenzie. They are authors of “Litigating International Commercial Disputes” (West) and can be reached at lawrence.newman@­bakermckenzie.com and david.zaslowsky@­bakermckenzie.com.

ENDNOTES:

1. 2014 WL 113486 (No. 11-965), decided Jan. 14, 2014.

2. Int’l Shoe Co. v. State of Washington, 326 US 310 (1946).

3. Id. at 320.

4. Id. at 318 [citation omitted]

5. Bauman v. DaimlerChrysler, 644 F.2d 909, 920 (9th Cir. 2011) (citations omitted).

6. Id.

7. Id. (emphasis in original)

8. Id. at 922, (emphasis added in circuit court opinion).

9. Id. at 925 (emphasis by Ninth Circuit)

10. Id. at 931

11. Bauman, 214 WL 113486, p.3

12. Id.

13. Id. p.1

14. Goodyear, 131 S.Ct. at 2857

15. Daimler at p.6 (quoting from Goodyear, 131 S. Ct. at 2851).

16. Id. p.5

17. Id.

18 Id. p. 14.

19. Id. p.6.

20. Id. p. 13 (quoting in part from Goodyear, 131 S. Ct. at 2851).

21. Id. p.14, n. 19.

22. Id. n. 20

23. Docket No. 13-4736-CV.

24. Id. at p.5

25. Barriere v. Cap Jaluca, Case No. 12-23510 (S.D. Fl., Feb. 19, 2014) p.5. Leading Hotels of the World is a New York company that represents hotels, resorts and spas.