Supreme Court clarifies the jurisdictional reach of US Courts over foreign corporations

In a unanimous judgment, the US Supreme Court has again reversed a lower court’s assertion of extraterritorial jurisdiction over a foreign corporation. The Court’s decision yesterday in Daimler AG v. Bauman held that a US court cannot exercise general personal jurisdiction over a foreign corporation solely because of contacts that the foreign corporation’s subsidiary has with the state in which the lawsuit is filed. In rejecting this imputed agency theory, the Court went even further – holding that general personal jurisdiction over a corporate defendant exists only in a state where that corporation’s “affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State.” In so doing, the Court stressed that a corporation’s doing substantial business in a state, by itself, is not sufficient to confer that state’s courts with general personal jurisdiction over the corporation.

The Court’s decision continues its recent trend of restricting the jurisdiction of US courts to hear cases brought by foreign plaintiffs against foreign defendants for conduct that occurred outside of the United States. Like Morrison v. NAB and Kiobel v Royal Dutch Shell, Bauman was a “foreign cubed” case, in which a foreign plaintiff sued a foreign defendant based on conduct that occurred in a foreign country. Justice Sotomayor, who wrote a concurring opinion, would have reversed for that reason alone. But Justice Ginsburg’s opinion for the Court, joined by seven justices, reversed the Ninth Circuit on a more sweeping basis that limits the risk to foreign corporations of being subjected to jurisdiction in the United States.

Case summary

The case arose out of Argentina’s so-called “Dirty-War.” Twenty-two residents of Argentina brought suit in a federal district court in San Francisco against Daimler AG (“Daimler”), alleging that during the Dirty War, Daimler’s Argentinean subsidiary “collaborated with state security forces to kidnap, detain, torture and kill certain” employees of Daimler’s Argentinean subsidiary. The plaintiffs alleged claims under the Alien Tort Statute and the Torture Victim Protection Act, as well as tort claims under the laws of California and Argentina.

Daimler’s jurisdictional challenge

Daimler, a German multinational, moved to dismiss the suit for lack of personal jurisdiction. The plaintiffs contended that Daimler had sufficient contacts with California and, in alternative, that the district court could exercise general personal jurisdiction over Daimler under an agency theory based on the California contacts of Daimler’s US subsidiary (“MBUSA”). The district court was not persuaded, and granted Daimler’s motion to dismiss. The court held that:

• Daimler’s affiliation with California was insufficient to support general personal jurisdiction; and• The plaintiffs failed to establish that Daimler’s subsidiary, MBUSA, had acted as Daimler’s agent. 

Appellate reversal

The Ninth Circuit Court of Appeals reversed the district court’s order granting Daimler’s motion to dismiss, holding that the district court could exercise personal jurisdiction over Daimler based on its US subsidiary’s contacts with California, which, the Ninth Circuit held, could be imputed to Daimler.

District court vindicated by the Supremes

The Supreme Court reversed. As an initial matter, the Supreme Court rejected the Ninth Circuit’s reasoning that a court could assert general personal jurisdiction over Daimler on an agency theory because MBUSA performed services that were important to Daimler, which, but for MBUSA’s existence, Daimler would have performed itself. The Supreme Court held that the Ninth Circuit’s interpretation could not be sustained because it would result in a court having general jurisdiction over a parent corporation any time that it had an in-state subsidiary because it could be assumed that a corporation would always do by other means what it does through a subsidiary if the subsidiary did not exist. The Court observed that such reasoning had to be rejected because it resulted in an “outcome that would sweep beyond even the sprawling view of general jurisdiction” the Court had previously rejected in Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. __ (2011).

The Supreme Court further explained that even if it accepted the Ninth Circuit’s “agency” theory, the district court still lacked personal jurisdiction over Daimler because MBUSA’s contacts with California were not substantial enough to justify the exercise of general jurisdiction. Specifically, the Court held that merely having “sizable” sales in a forum is not sufficient to justify the exercise of general jurisdiction, which can only be done if a corporation’s contacts with the state are “so continuous and systematic as to render it essentially at home in” that state.

Finally, the Supreme Court noted that in evaluating the scope of general personal jurisdiction, lower courts should pay “heed” to the risks to international comity posed by expansive views of general personal jurisdiction – something that the Ninth Circuit failed to do. 

Lessons learned

Although the Supreme Court’s decision leaves several unanswered questions – including the ability of a plaintiff to ever assert general personal jurisdiction over a corporate parent based on an agency theory and its subsidiaries’ contacts with a state – it is clear that the Supreme Court is committed to limiting the ability of plaintiffs to haul foreign corporations into US courts for conduct occurring outside of the United States.