For many lawyers, the words “personal jurisdiction” do little more than invoke distant memories of a civil procedure course in law school, or perhaps a tortured essay question on the bar exam. But for global companies with a U.S. presence, those words have often invoked shock and bewilderment at the apparent ability of state and federal courts to issue orders over and render judgments against companies outside of the United States based solely on the presence of an in-state affiliate.
Not so anymore. In Daimler AG v. Bauman [PDF], the U.S. Supreme Court held that a foreign corporation is not amenable to general jurisdiction merely because its affiliate, parent or subsidiary is subject to general jurisdiction in the forum state. Rather, courts may only assert general jurisdiction over a company if that company itself is “at home” there. In so holding, the Supreme Court erased decades of case law from lower federal and state courts, and aligned the United States with its international peers on the limits of jurisdictional power.
To understand the import of Daimler, it is helpful to take a brief look at the history of the law on general jurisdiction. It is a familiar principal of U.S. law that a corporation is subject to jurisdiction where it has certain minimum contacts with the forum state, such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” International Shoe, 326 U.S., at 316. Courts recognize two varieties of personal jurisdiction: general and specific. Whereas specific jurisdiction limits a corporation’s exposure to suits deriving from the very controversy that establishes jurisdiction, general jurisdiction subjects a corporation to the court’s jurisdiction in all suits against it.
Traditionally, a corporation is only subject to general jurisdiction where its contacts with the state are “continuous and systematic.” But over the past few decades, state courts and lower federal courts have devised various ways to assert jurisdiction over foreign corporations based on the presence of a U.S. affiliate. New York law, for example, provides two bases for attributing to a foreign corporation the acts of a local affiliate for the purposes of assessing general jurisdiction: the “agency” basis and the “mere department” basis. Under the agency theory of attribution, a court can assert jurisdiction over a foreign corporation if the related New York entity does all the business that the foreign corporation could do were it here. Under the mere department theory, a court can assert jurisdiction over a foreign company if the company has common ownership with its New York affiliate; financial dependency on its New York affiliate; common corporate formalities with its New York affiliate; and no independent control over its marketing and operational policies.
Less than three years ago, in Goodyear Dunlop Tires Operations, S.A. v. Brown [PDF], the U.S. Supreme Court held that foreign corporations are only subject to general jurisdiction “where their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” But the Court did not address the attribution theories of general jurisdiction, and thus arguably left open the question of whether an affiliate’s in-state contacts could be imputed to the foreign company for purposes of asserting general jurisdiction over the foreign company. In Daimler, the Supreme Court answered that question with a firm and resounding, “No.”
In Daimler, 22 Argentinian residents filed suit in the Northern District of California against DaimlerChrysler Aktiengesellschaft (Daimler), a German corporation, alleging violations of the Alien Tort Statute, the Torture Victim Protection Act of 1991 and various California laws. The plaintiffs argued that general jurisdiction over Daimler could be obtained based on the California contacts of Daimler’s indirect subsidiary, Mercedes-Benz USA’s (MBUSA). The district court dismissed the action because Daimler’s own contacts with California were insufficient to establish general jurisdiction, and MBUSA was not sufficiently Daimler’s agent to attribute MBUSA’s contacts to Daimler. But the Ninth Circuit reversed, holding that Daimler and MBUSA had an agency relationship sufficient to impute MBUSA’s California contacts with Daimler.
In a 9-0 decision written by Justice Ruth Bader Ginsberg, with Justice Sonia Sotomayor concurring in judgment only, the Supreme Court reversed the U.S. Court of Appeals for the Ninth Circuit—Daimler is not amenable to suit in California for its alleged acts occurring outside the United States. The Court rejected the Ninth Circuit’s agency test, which provided that a local corporation’s contacts could be imputed to a foreign affiliate where the local corporation “performs services that are sufficiently important to the forgoing corporation that if it did not have a representative to perform them, the corporation’s own officials would undertake to perform substantially similar services.” The Court rejected the test as it “would appear to subject a foreign corporation to general jurisdiction wherever they have an in-state subsidiary.”
Instead, the Court finished what Goodyear started. Corporations are only amenable to suit in states where they are “at home,” and the mere presence of an affiliate cannot satisfy that test. While the contours of what constitutes a “home” remain uncertain, Daimler makes clear that a corporation will only be at home in limited circumstances. Absent an “exceptional case,” a corporation generally has two paradigmatic homes: its place of incorporation and its principal place of business. Moreover, Daimler establishes that whether a corporation is subject to general jurisdiction is a qualitative, not quantitative analysis; it requires a comparison of the corporation’s nationwide and worldwide contacts. Thus, by mandating a qualitative inquiry, the Daimler Court limited the number of potential jurisdictions in which a corporation is amenable to suit.
It is worth noting that the Court acknowledged the role of comity in its decision. The Court admonished the Ninth Circuit for paying “little heed” to the effect of its sprawling construction of general jurisdiction, and noted that “[o]ther nations do not share the uninhibited approach to personal jurisdiction advanced by the Court of Appeals in this case.” Although the Court stopped well short of formally incorporating comity into the general jurisdiction test, the Court stated that such considerations “reinforce our determination that subjecting Daimler to the general jurisdiction of courts in California would not accord with the ‘fair play and substantial justice’ due process demands.” (citing Int’l Shoe, 326 U.S. at 316).
In her concurrence, Sotomayor criticized the majority’s general jurisdiction analysis as contrary to prior precedent that “focused solely on the magnitude of the defendant’s in-state contacts” rather than a survey of the defendant’s worldwide and national contacts. According to Sotomayor, the Court’s qualitative approach to general jurisdiction—which requires a survey of the corporation’s activities in their entirety, nationwide and worldwide—will impose greater discovery burdens on corporations to disclose information about their contacts outside the forum state.
Daimler further narrowed the circumstances in which a foreign corporation will be subjected to the general jurisdiction of a state or federal court in the United States. The Court rejected the Ninth Circuit’s agency theory because, in effect, it would subject a global corporation to suit by virtue of having a company in the forum-state. In doing so, Daimler clarified that the attribution theories of general jurisdiction that have been used for decades by state and federal courts alike are no longer viable. Of course, Daimler only concerns general jurisdiction, not specific jurisdiction. Accordingly, to the extent a foreign company is being sued for its actions within the forum, Daimler is not likely to come into play.
Regarding Sotomayor’s prediction that Daimler will radically expand the scope of discovery, it is important to note that the scope of jurisdictional discovery is distinct from its frequency. Courts have the discretion to deny jurisdictional discovery when “the plaintiff [has] not made out a prima facie case for jurisdiction.” Given Daimler’s narrow approach to general jurisdiction, it is quite likely that plaintiffs will have greater difficulty making a prima facie showing of personal jurisdiction, and therefore may not be entitled to any jurisdictional discovery at all.
In conclusion, there can be no real doubt that Daimler is a win for global companies with a U.S. presence. It is no longer the law that courts in the United States can rely on the presence of a local company to hear disputes against a foreign affiliate for alleged conduct completely unconnected to the forum. What is more, Daimler may also help pave the way for easier negotiations of international agreements now that the law in the U.S. is more aligned with the law in other nations.
As for lawyers who usually greet jurisdictional rulings with little interest, they may want to make an exception for Daimler.
Jennifer L. Achilles is a partner in the global regulatory enforcement group at Reed Smith in the New York office. Her practice is devoted to internal investigations, securities and regulatory matters, and complex commercial litigation. Ian M. Turetsky is an associate in the firm’s U.S. commercial litigation group.