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Supreme Court Limits Jurisdiction of U.S. Courts over Foreign Corporations with Domestic Subsidiaries

Aerial_view_of_Buenos_Aires,_2009-03-28.jpgThe U.S. Supreme Court rejected an argument that a U.S. district court in California could exercise jurisdiction over a German corporation in a lawsuit based on events that occurred outside of the United States. Daimler Ag v. Bauman, 571 U.S. ____, No. 11-965, slip op. (Jan. 14, 2014). The lawsuit asserted vicarious liability against the defendant for alleged actions by an Argentinean subsidiary, and the plaintiffs based their jurisdictional choice on the the claim that the defendant’s U.S.-based subsidiary could act as its agent for claims brought against it anywhere in the world. The Supreme Court ruled that allowing general jurisdiction in this way would violate due process principles. The decision makes it very difficult to file suit in a jurisdiction unrelated to the subject of the litigation.

The plaintiffs are residents of Argentina whose relatives were allegedly victims of the military dictatorship that ruled the country during a campaign of kidnapping, torture, and execution known as the “Dirty War” lasting from 1976 to 1983. The plaintiffs allege that Mercedes-Benz Argentina (“MB Argentina”) collaborated with the government in committing these crimes. They filed suit against MB Argentina’s parent company, Stuttgart, Germany-based Daimler AG, in U.S. District Court for the Northern District of California. The lawsuit asserted causes of action under the Alien Tort Statute and the Torture Victim Protection Act of 1991.

None of the conduct alleged in the lawsuit occurred in California or anywhere else in the United States. Daimler has another subsidiary, Mercedes-Benz USA, LLC (MBUSA), which is organized in Delaware and based in New Jersey. The plaintiffs alleged that MBUSA has contacts with California because it distributes automobiles there, and that the court may therefore exercise its “general or all-purpose jurisdiction” over Daimler on “any and all claims against it, wherever in the world the claims may arise.” Id. at 2.

The district court granted Daimler’s motion to dismiss, finding that the plaintiffs had not shown that MBUSA acted as Daimler’s agent. The Ninth Circuit affirmed the dismissal based on the question of agency, but Daimler requested a rehearing en banc. Daimler argued that any finding that the California court could exercise personal jurisdiction was inconsistent with the Supreme Court’s ruling in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011). The Ninth Circuit denied the petition for rehearing, and the Supreme Court took the case.

In Goodyear, the Supreme Court ruled that a court can only exercise jurisdiction over a foreign corporation when its contacts with the court’s state “are so ‘continuous and systematic’ as to render them essentially at home” in that state. Id. at 2851. The court found that Daimler’s contacts with California did not rise to the “continuous and systematic” level required by Goodyear, noting that the plaintiffs’ argument could subject corporations to general jurisdiction for any claim anywhere in the world that they have a subsidiary. Daimler, slip op. at 17. All-purpose jurisdiction is only available with “a limited set of affiliations,” the court held, and the “paradigm” is the corporation’s “place of incorporation and principal place of business.” Id. at 18-19.

Business and commercial lawyer James G. Schwartz has represented businesses in the Bay Area since 1976, helping them stay apprised of all the changes and developments in California’s business and corporate statutes. To schedule a free and confidential consultation to see how we can assist you, please contact us today online or at (925) 463-1073.

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Photo credit: By Martin Terber [CC-BY-2.0], via Wikimedia Commons.