New U.S. Supreme Court Decision Limits Personal Jurisdiction Over Foreign Companies

Kegler Brown Global Business News

The Supreme Court recently decided a closely watched personal jurisdiction case, Daimler AG v. Bauman, No. 11-965. The decision from January 14, 2014, reversed the Ninth Circuit’s decision and addressed the issue whether "due process prevents a state from exercising general personal jurisdiction over a foreign corporation based solely on the business activities performed in the forum state by a U.S. subsidiary on behalf of the foreign parent." Justice Ginsburg wrote the opinion for eight Justices and answered in the affirmative, stating that a subsidiary's in-state contacts could not support general jurisdiction over the parent corporation. Justice Sotomayor concurred in the judgment.

In Daimler, several residents of Argentina sued DaimlerChrysler Aktiengesellschaft (AG), a German public stock company in California, alleging that DaimlerChrysler’s Argentine subsidiary (Mercedes-Benz Argentina) had collaborated with state security forces to commit certain acts during Argentina’s 1976-1983 "Dirty War." Plaintiffs argued that California had personal jurisdiction over the lawsuit due to a Daimler corporate subsidiary (Mercedes-Benz USA, LLC) that was incorporated in Delaware with its principal place of business in New Jersey and this subsidiary’s contacts in California. The Ninth Circuit found the U.S. subsidiary’s California contacts to be imputable to DaimlerChrysler as the subsidiary was Daimler’s "agent" for jurisdictional purposes and therefore, California should have general jurisdiction over DaimlerChrysler. However, the U.S. Supreme Court rejected the Ninth Circuit’s test for general personal jurisdiction and held that "it violates due process for a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum State."

Prior to Daimler, the prevalent test for personal jurisdiction was defined in the Goodyear Dunlop Tires Operations v. Brown case. According to Goodyear, general jurisdiction exists when a business is "essentially at home" in the forum state. The Supreme Court concluded in Daimler that even if the subsidiary’s California contacts were attributable to its parent company, "there still would be no basis to subject DaimlerChrysler to general jurisdiction in California, for DaimlerChrysler’s slim contacts with the State hardly render it at home there."

According to the Court, a corporation’s "home," under the Goodyear test, is usually its place of incorporation and principal place of business. However, as neither DaimlerChrysler AG nor its subsidiary was incorporated in California, and neither had its principal place of business there, the Supreme Court denied personal jurisdiction and held that DaimlerChrysler cannot be sued in California as its "home" state.

With its decision in Daimler, the Supreme Court did not expand the scope of corporate and shareholder liability and reaffirmed the more stringent requirement that foreign corporations are not subject to general personal jurisdiction in a state unless they are "essentially at home" there.

More coverage of this story can be read in both legal publications Lexology and Mondaq.