The U.S. Supreme Court has issued two recent decisions on personal jurisdiction. Like the Goodyear and Daimler decisions covered in past newsletters, both place or reinforce restrictions on the exercise of jurisdiction over non-resident corporate defendants and, therefore by definition are favorable to defendants in litigation.1
In Bristol Myers Squibb Co. v. Superior Court of California, No. 16-466 (Slip Opinion June 19, 2017), the Court ruled 8-1 to overturn a lower court decision that allowed 592 plaintiffs from 33 states to join 86 California residents who were suing a pharmaceutical manufacturer for personal injuries allegedly caused by Plavix, a blood-thinning medication. The suits brought by California residents may proceed, but not those of non-residents because neither the injuries nor their alleged causes with respect to those plaintiffs had any connection to California.
In BNSF Railway Co. v. Tyrrell, No. 16-405 (Slip Opinion May 30, 2017), the Court overturned a state supreme court’s attempt to establish general jurisdiction through the broad construction of a venue statute.
For context, the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution limits the power of a state court to render judgment against a non-resident defendant in a personal (not property-related) action.2 A judgment is unenforceable if the issuing court lacks jurisdiction over the “person” of the defendant.3
Many years ago, the analysis was straightforward: jurisdiction existed if the defendant—usually a natural person—was served with process while physically present in the state where the forum court was located. The “strict territorial approach,” however, was modified in response to challenges arising from “changes in the technology of transportation and communication, and the tremendous growth of interstate business activity,” often conducted by corporations.4
In the Supreme Court’s 1945 decision, International Shoe v. Washington, the “strict territorial approach” was replaced by “minimum contacts” analysis, whereby a court could exercise personal jurisdiction over a non-resident defendant who had “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.’”5 There was no bright-line test for “minimum contacts” applicable in all cases, but due process required that it be “reasonable” to require the corporation to defend a particular suit in the particular forum, and an “‘estimate of the inconveniences’ which would result to the corporation from a trial away from its ‘home’ or principal place of business is relevant in this connection.”6
Even in 1945, non-residents with continuous and extensive contacts with the forum state could not avoid jurisdiction in suits arising out of those contacts, but could avoid jurisdiction in actions unrelated to a “casual presence” in or isolated contacts with the state. The results were less certain in converse situations where: (1) the defendant had systematic contacts with the forum state but the claims did not arise out of them; or (2) the defendant had a casual presence or engaged in isolated activities in the forum state but the claims arose out of those contacts, however slight.
Years later, the first category would be dubbed “general” or “all-purpose” and the second category “specific” or “case-related” jurisdiction. International Shoe did not use these terms.7
As discussed in our earlier articles on Daimler and Goodyear, the Supreme Court issued a number of decisions on “specific” jurisdiction over the years but, until Goodyear in 2011, only ruled on two “general” jurisdiction cases.8 In New York and many other states, “general” jurisdiction was predicated on a “doing business” standard, whereby a defendant that engaged in substantial, continuous, and extensive activities in the forum state would be deemed “virtually present” there and amenable to “all-purpose,” general jurisdiction unless its exercise would be manifestly unreasonable.
Goodyear invalidated the “doing business” standard for general jurisdiction, although so obliquely it was not immediately noticed—not even by Justice Sotomayor, who joined the unanimous opinion written by Justice Ginsburg. The case arose out of a bus accident in France that caused the deaths of three North Carolina residents, and the relevant defendants were the foreign subsidiaries of a U.S. tire company. The decedents’ survivors sued in North Carolina and the state Court of Appeals sustained jurisdiction. The U.S. Supreme Court, accepting certiorari after the state Supreme Court declined further review, reversed, holding that there was no reasonable basis for asserting general jurisdiction, with Justice Ginsburg noting that the European subsidiaries were “in no sense at home” in North Carolina.9
Three years later, in Daimler AG v. Bauman, the Court, with Justice Ginsburg again writing for the majority, held that a German corporation was not amenable to general jurisdiction in California in actions arising out of the alleged collaboration between its Argentina subsidiary and state security forces during Argentina’s “Dirty War.”10
According to Daimler, general jurisdiction only exists where a corporate defendant is “at home.” For precedent, Justice Ginsburg cited the dictum in International Shoe quoted above, advising that the inconvenience of litigating away from home would be relevant when considering the reasonableness of exercising jurisdiction and, of course, her opinion in the Goodyear case. Daimler further held that the “paradigm” bases for general jurisdiction over a corporation—that is, the places where it was “at home”—were its place of incorporation and principal place of business (presumably its headquarters). The Court allowed for “exceptional cases” where general jurisdiction might be established elsewhere, but the only example it could find was in Perkins—see note 8, where a “surrogate for the state of incorporation or head office” was established during a wartime exile from the defendant’s home country—or, possibly, the existence of an “alter ego” relationship.11
Justice Sotomayor joined in the decision—she agreed the exercise of jurisdiction would have been unreasonable under the circumstances—but wrote a separate concurrence, declining to “adopt a new rule of Constitutional law that is unmoored from decades of precedent,” such as the “doing business” standard.12
In spite of Justice Sotomayor’s reluctance, the “at home” standard has become the new touchstone for determining general personal jurisdiction. This has lead some courts to look for ways to avoid it. This brings us to the two recent decisions.
In BNSF Railway Co, the plaintiffs were a North Dakota railroad worker employed by BNSF, a Delaware corporation based in Texas, and the widow of a South Dakota railroad worker employed by BNSF. They sued BNSF separately under the Federal Employers’ Liability Act (“FELA”)—Workers’ Compensation for railroad workers—in Montana, where BNSF conducts some of its operations. In the state courts, jurisdiction was upheld based on an FELA provision that allows actions to be brought in federal district court located where the defendant was “doing business.” (State courts have concurrent jurisdiction in FELA actions.) The Montana Supreme Court concluded that this provided a statutory basis for personal jurisdiction. The Court reversed, holding it was only a venue provision—i.e., allocating cases among courts that have authority to decide the case—and not relevant to determining personal jurisdiction.
Justice Ginsburg once again wrote the majority opinion, with Justice Sotomayor concurring with respect to the “venue” aspects of the FELA provision, but dissenting as to whether general jurisdiction actually existed under the tests that prevailed prior to Daimler/Goodyear. She also noted that, since the Montana Supreme Court had applied the wrong legal standard, the case should have been remanded so the state courts could consider, for instance, whether there were “exceptional circumstances” for exercising jurisdiction. Since the state courts never had a chance to consider that issue, the lower courts might conclude “that the exceptional-circumstance inquiry is all form, no substance.”
The Bristol Myers litigation began in 2012 as a “general” jurisdiction case, but jurisdiction had to be repleaded in the wake of Daimler. The California Court of Appeals and (state) Supreme Court sustained jurisdiction based on allegations of “specific” jurisdiction, but the Supreme Court reversed with respect to the plaintiffs who did not reside in the forum state of California.
The plaintiffs all alleged that they had sustained injuries as a result of ingesting Plavix, a Bristol-Myers product marketed and distributed in California but not designed or developed there. The 86 California plaintiffs had been prescribed the drug in California and had (allegedly) sustained injuries as a result in California. Since the defendant employed over 400 people in California, maintained half a dozen research, development, and policy-making facilities in the State, sold $1 billion worth of Plavix in California during the period relevant to the suit, and derived a significant portion of its revenue through a California-based distributor, specific jurisdiction existed over these claims (and likely would have even before International Shoe was decided).
Nothing, however, linked Bristol-Myers, California, and the claims of the 592 non-residents, who had been prescribed Plavix, ingested it, and allegedly sustained injuries as a result in other states. (Again, the defendant showed that Plavix had been not been designed or developed in California.) The California Supreme Court found a basis for specific jurisdiction by applying a “sliding scale” analysis, whereby the “strength of the requisite connection between the forum and the specific claims at issue is relaxed if the defendant has extensive forum contacts that are unrelated to those claims.”
Specific jurisdiction predicated on contacts unrelated to the claims sounds an awful lot like general jurisdiction, and an 8-1 U.S. Supreme Court majority reversed the California state court decision, finding no basis for general or specific personal jurisdiction.
Justice Sotomayor was the dissenter. In her view, the exercise of jurisdiction might have comported with traditional factors for specific as well as general (“doing business”) jurisdiction.
The principal factors considered with respect to “specific” jurisdiction are: (1) the defendant must have “‘purposefully avail[ed] itself of the privilege of conducting activities within the forum State’” or purposefully directed its conduct into the forum State;13 (2) the claims must “arise out of or relate to” the defendant’s forum conduct;14 and, (3) the exercise of jurisdiction must be reasonable under the circumstances.15
The first factor allowed for jurisdiction—the California residents, after all, established sufficient contacts for their claims—and the third may have favored it, as consolidated California litigation would arguably be more convenient than dozens of separate cases in multiple states. The dispositive issue, therefore, was the meaning of how a claim “relates to” a defendant’s conduct. The resident and non-resident claims were “related” in the sense they were founded on identical theories of product defects and misleading marketing and promotion, but were not “related” by California contacts shared by the defendant and non-resident plaintiffs. In Justice Sotomayor’s view, the claims may be sufficiently related under the “fair play and substantial justice” standard that was the overriding concern of International Shoe, but the majority—Justice Alito wrote the opinion—considered “territorial limitations” dispositive.
Bristol-Myers establishes a significant restriction on courts’ ability to consolidate cases in mass tort litigation, and has already prompted stays and mistrials in pending mass tort litigation so courts can sort out which may proceed and which (if any) must be severed.
1 Goodyear Dunlop Tire Operations, S.A. v. Brown, 564 U.S. 915, 131 S. Ct. 2846 (2011), was discussed in a July 2011 Client Bulletin and Daimler AG v. Bauman, 571 U.S. __, 134 S. Ct. 746 (2014), in our February 26, 2014 Newsletter. Both are summarized in the main text below.
2 World-wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291, 100 S. Ct. 559, 564 (1980).
3 “Personal” is distinct from “subject matter” jurisdiction, which refers to the power conferred upon a court to decide certain types of disputes.
4 Daimler AG v. Bauman, 571 U.S. __, 134 S. Ct. 746, 753-54 (2014).
5 International Shoe v. Washington, 326 U.S. 310, 316, 60 S. Ct. 154, 158 (1945), quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S. Ct. 339, 342 (1940). Milliken held that “traditional notions of fair play and substantial justice” implicit in due process are satisfied if service of process provided the defendant with “actual notice of the proceedings and an opportunity to be heard.”
6 326 U.S. at 317, 60 S. Ct. at 158.
7 Technically “long arm” jurisdiction refers to “specific” jurisdiction, though many states enacted “long arm statutes” which include provisions for “general” jurisdiction under the “doing business” standard.
8 In Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U. S. 408, 104 S. Ct. 1868 (1984), the Court concluded that certain enumerated contacts a Colombian entity had with Texas did not give rise to general jurisdiction in Texas but did not indicate what might have established a basis for general jurisdiction. In Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437, 72 S. Ct. 413 (1952), the Court reversed and remanded a decision by the Ohio Supreme Court that had concluded a Philippine mining company, temporarily headquartered in Ohio during the Japanese occupation of the Philippines during World War II, was not amenable to general jurisdiction in Ohio. The state court records were not clear but the U.S. Supreme Court suspected the state courts were under the impression that the exercise of jurisdiction would violate federal due process standards. This, however, was incorrect, as “the business done in Ohio by the respondent mining company … was sufficiently substantial and of such a nature as to permit to entertain a cause of action against a foreign corporation,” even though “the cause of action arose from activities entirely distinct from its activities in Ohio.” On remand, the Ohio courts were still free to consider declining jurisdiction, but they were not required to do so by the Due Process Clause.
The Helicopteros case may be the first time the Supreme Court began to refer to “general” and “specific” personal jurisdiction. See 466 U.S. at 414 n.9-10, 104 S. Ct. at 1872 n.9-10. In Perkins and International Shoe, the Court simply considered whether a defendant’s contacts with the forum state were of such a nature and quality that jurisdiction could be exercised over its person without offending due process.
9 Some of the subsidiaries’ products had been sold in North Carolina, and North Carolina Court of Appeals concluded that the subsidiaries were amenable to jurisdiction under a “stream of commerce” test. The Supreme Court rebutted this argument first. (The test has not been fully defined but, in any event, is only relevant to specific jurisdiction.) Moving on to discuss the relevant standards for general jurisdiction, Justice Ginsburg began by noting:
A corporation’s “continuous activity of some sorts within a state,” International Shoe instructed, “is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.”
564 U.S. at 927, 131 S. Ct. at 2856. This sounds quite definite, much more so than the text she selectively quotes:
While it has been held, in cases on which appellant relies, that 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, [citations omitted], there have been instances in which the continuous corporate operations within a state were thought 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. [Citations to contrasting cases omitted.]
International Shoe, 326 U.S. at 318, 60 S Ct. at 159. One of the cases cited as an example of a case where continuous activity supported jurisdiction was allowed (one of the omitted “contrasting cases”) was Justice Benjamin Cardozo’s opinion in Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 115 N.E. 915 (1917), which established the “doing business” standard for general jurisdiction that governed New York law for decades prior to Goodyear and Daimler. In Daimler, Justice Ginsburg wrote off Tauza as a product of an era dominated by “territorial thinking.” 134 S. Ct. at 761 n. 18. However, as Justice Alito wrote in the recent Bristol-Myers opinion discussed infra, even today “restrictions on personal jurisdiction ‘are more than a guarantee of immunity from inconvenient of distant litigation. They are a consequence of territorial limitations on the power of the respective States.’” Bristol Myers, Slip Op. at 7, quoting Hanson v. Denckla, 357 U.S. 235, 251, 78 S. Ct. 1228, 1238 (1958).
10 A U.S. subsidiary had the actual “contacts” with California, and the California courts relied upon an “agency” theory to distribute them to the German parent. The Supreme Court rejected this “sweep[ing]” agency theory also, as it would establish general jurisdiction over a foreign corporation in any state where it had a subsidiary or affiliate. Daimler, 134 S. Ct. at 759-60.
11 Daimler, as noted, rejected “agency” as a basis for extending general jurisdiction but noted that plaintiffs had not raised the issue of an “alter ego” relationship—basically, a “sham” corporation created for improper purposes. Daimler, 134 S. Ct. at 758.
12 134 S. Ct. at 773 (Sotomayor, J. concurring).
13 J. McIntyre Machinery, Ltd. v. Nicastro, 564 U. S. 873, 877, 131 S. Ct. 2780, 2785 (2011) (plurality opinion) (quoting Hanson v. Denckla, 357 U. S. 235, 253, 78 S. Ct. at 1239-40 (1958)).
14 Helicopteros, 466 U. S. 408, 414, 104 S. Ct. at 1872 (1984).
15 Asahi Metal Indus. Co. v. Superior Court, 480 U. S. 102, 113–114, 107 S. Ct. at 1033 (1987); Burger King Corp. v. Rudzewicz, 471 U. S. 462, 477–478, 105 S. Ct. 2174, 2185 (1985).