Michael Hoenig ()
On June 19, the U.S. Supreme Court issued its 8-1 decision in Bristol-Myers Squibb Co. v. Superior Court of California (No. 16-466, June 19, 2017) (BMS). The court clarified whether a state court (here California) can, consistent with due process, assert “specific” personal jurisdiction over a foreign defendant when nonresident plaintiffs sue for claims having “no affiliation between the forum and the underlying controversy,” such as a case-linked “activity or an occurrence that takes place in the forum state.” When there is no such connection, held the court, “specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the State.” BMS, Slip Op., at 7.
This is pretty powerful lesson-giving from the nation’s high court, especially as it comes so soon after the court’s end of May decision on “general” jurisdiction in BNSF R. Co. v. Tyrrell, 2017 U.S. LEXIS 3395. Last month’s column (NYLJ, June 12, 2017) reported on BNSF. With BMS on June 19 and BNSF on May 30, the court elaborated again important parameters regarding the two types of personal jurisdiction: “general” (sometimes called “all-purpose”) jurisdiction and “specific” (sometimes called “case-linked”) jurisdiction. Thus, when the defendant is a corporation, it is subject to general (“all-purpose”) jurisdiction in the state where the company is “at home.” Normally, that will be the corporation’s place of incorporation or its principal place of business. General jurisdiction allows the court to hear any claim against that defendant, even if the underlying acts or omissions occurred in a different state.
The “at home” standard thus forecloses amenability of the corporate defendant to lawsuits in states where it is not “at home,” unless the case or controversy is “linked” sufficiently (for due process purposes) to the forum state. BMS, the new decision on “specific” (“case-linked”) jurisdiction, helps to explain what criteria will permit forum-based jurisdiction to be asserted over the foreign company. Before mentioning the critical criteria that make specific jurisdiction pass or flunk the due process test, it is helpful to note the facts in BMS.
Individual plaintiffs—678 to be exact—sued Bristol-Myers Squibb (BMS), a pharmaceutical manufacturer headquartered in New York and incorporated in Delaware, in California state court. They also sued BMS’ California-based distributor, McKesson. The eight separate complaints focused on injuries allegedly caused by a BMS prescription drug called Plavix that thins blood and inhibits blood clotting. All the complaints asserted 13 claims under California law, including products liability, negligent misrepresentation and misleading advertising claims.
However, out of the 678 plaintiffs, only 86 were California residents; 592 claimants were from 33 other states including 92 plaintiffs from Texas and 71 from Ohio. The non-California plaintiffs did not allege that they obtained Plavix through California physicians or from any other California source. Nor did they claim they were injured by Plavix in California or were treated for their injuries there.
BMS engages in business activities in California. It has five research and laboratory facilities employing some 160 employees located there. It also employs about 250 sales representatives in California and maintains a small state-government advocacy office in Sacramento. However, BMS did not develop Plavix in that state, did not create a marketing strategy for Plavix there, and did not manufacture, label, package, or work on the regulatory approval of the product in California. The latter activities occurred either in New York or New Jersey. Nevertheless, BMS did sell Plavix in California. Between 2006 and 2012, it sold nearly 187 million Plavix pills there and took in nearly $900 million from those sales, amounting to a little over one percent of the company’s nationwide sales revenue.
BMS unsuccessfully moved to dismiss the nonresidents’ claims for lack of jurisdiction. Eventually, the California courts decided there was no general jurisdiction over BMS but there was specific jurisdiction. A majority of the California Supreme Court articulated a kind of “sliding scale approach to specific jurisdiction.” Thus, “the more wide ranging the defendant’s forum contacts, the more readily is shown a connection between the forum contacts and the claim.” BMS, Slip Op., at 3. The state court majority noted that the claims of the nonresidents were based on the same allegedly defective product as the California residents’ claims (as to which specific jurisdiction was uncontested by BMS).
The U.S. Supreme Court reversed. In order for a state court to exercise specific jurisdiction, “the suit” must “arise out of or relate to the defendant’s contacts with the forum.” In other words, there must be “an affiliation between the forum and the underlying controversy, principally, an activity or an occurrence that takes place in the forum state and is therefore subject to the state’s regulation.” For this reason, “specific jurisdiction is confined to adjudication of issues deriving from or connected with, the very controversy that establishes jurisdiction.” BMS, Slip Op. at 5-6.
The court clarified that constraints on personal jurisdiction amount to more than the burden of inconvenient or distant litigation. They are a consequence of “territorial limitations on the power of the respective states.” Thus, even if the defendant would suffer minimal or no inconvenience from being forced to litigate in a foreign state, even if the forum state has a strong interest in applying its law to the controversy, and even if the forum state is the most convenient location for litigation, the Due Process Clause, “acting as an instrument of interstate federalism, may sometimes act to divest the state of its power to render a valid judgment.” BMS, Slip Op. at 6-7 (quoting from World-Wide Volkswagen, 444 U.S. at 294).
Settled principles regarding specific jurisdiction controlled this case. Thus, there must be an affiliation between the forum and the underlying controversy, such as an act or occurrence that takes place in the forum state. When there is no such connection, specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the state.” Even “regularly occurring sales of a product in a state do not justify the exercise of jurisdiction over a claim unrelated to those sales.” For this reason, California’s “sliding scale” approach was inconsistent with the court’s precedents. A defendant’s “general connections with the forum are not enough” for specific jurisdiction. A corporation’s “continuous activity of some sorts within a state … is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.” BMS, Slip Op. at 7-8.
The California court found specific jurisdiction without identifying any adequate link between the state and the nonresidents’ claims. None of them were prescribed Plavix in California, none purchased the drug there, and none were injured by Plavix there. The mere fact that other plaintiffs (those in California) had those contacts does not allow the state to assert specific jurisdiction over the nonresidents’ claims. A defendant’s relationship with a third party is an insufficient basis for jurisdiction. Nor were BMS’ research activities in California unrelated to Plavix sufficient. What was missing here was a connection between the forum and the specific claims at issue. BMS, Slip Op. at 8.
BMS’ contract with McKesson, a California company, to distribute Plavix nationally, was not a basis for specific jurisdiction. It was not alleged that BMS engaged in relevant acts in California with McKesson. Nor was it alleged that BMS was “derivatively liable” for McKesson’s conduct in California. The “bare fact that BMS contracted with a California distributor is not enough to establish personal jurisdiction in the state.” BMS, Slip Op. at 11-12). The court, however, left open the question whether “the Fifth Amendment imposes the same restrictions on the exercise of personal jurisdiction by a federal court” as does the Due Process Clause upon state courts.
The Supreme Court’s recent decisions in BNSF (general jurisdiction) and BMS (specific jurisdiction) must be regarded by litigators and courts as pivotal rulings going to the heart of a state court’s ability to adjudicate a case. Shibboleths and common arguments of the past—for example, “Oh, the foreign defendant has loads of contacts with this state.”—may amount nowadays to being fatal oversimplifications. “All-purpose” general jurisdiction is not controlled by “contacts” with a state but, rather, by whether the corporation is “at home” in the forum state. “Case-linked, forum-linked” specific jurisdiction is not, strictly speaking, dependent upon a defendant’s “contacts” with the state, even loads of them, but rather with whether the suit “arises out of or relates to” those contacts sufficiently to meet due process requirements.
There’s little doubt that the Supreme Court’s one-two punch regarding jurisdictional requisites has dealt a blow to forum-shopping opportunists. Likely, it can affect joinder of nonresident plaintiffs in mass tort or consolidated case contexts. Perhaps class action practice will be materially affected since nonresidents’ claims often are included in the state filings. And, on a more “exotic” note certainly requiring further incisive analysis and future case developments, maybe, just maybe, federal court class actions and federal multi-district litigation practice, as we know it, might be affected. The latter issues would seem dependent on the answer to the question the court left open, namely, whether the Fifth Amendment imposes the same restrictions on the exercise of personal jurisdiction by federal courts.