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U.S. Supreme Court Reverses California Court’s Claim of Personal Jurisdiction Over Out-of-State Corporations

Balance iconIn order for a plaintiff to maintain a lawsuit, they must demonstrate that the court in which they filed suit has jurisdiction over the case. Our legal system identifies two types of jurisdiction. Subject matter jurisdiction means that a court has jurisdiction over the cause of action asserted in the lawsuit. For example, a county-level court in California probably lacks jurisdiction over a claim based entirely on federal law. Personal jurisdiction involves the court’s jurisdiction over the defendants themselves. The U.S. Supreme Court recently considered whether a state court in California had personal jurisdiction over a corporation located outside California in a California business lawsuit involving alleged incidents occurring outside this state. The Supreme Court ruled that this exceeded the state court’s authority. Bristol-Myers Squibb Co. v. Super. Ct. of Cal., 582 US ___ (2017).

The Supreme Court’s landmark ruling on personal jurisdiction is International Shoe v. Washington, 326 U.S. 310 (1945). This case held that a court cannot exercise personal jurisdiction over a corporation based in another state, unless the corporation has “minimum contacts” with the state where the court is located. Id. at 316. Since then, courts have further identified two types of personal jurisdiction. “General jurisdiction” is based on where an individual lives or where a company is domiciled, and it can allow a court to hear almost any case against a defendant. “Specific jurisdiction” is based on a defendant’s connection to the particular state, or “forum.”

When multiple courts could have jurisdiction over a defendant or a particular claim, plaintiffs may seek out the court that they believe will treat them most favorably, based on a range of factors like distinct procedural rules or a more amenable local jury pool. This practice is often known as “forum shopping.” Several recent decisions from the Supreme Court have limited some rather expansive views of personal jurisdiction in cases involving corporations with national or international presences. One case held that a California federal court lacked jurisdiction over a German corporation in a lawsuit involving alleged acts in Argentina. Daimler AG v. Bauman, 571 U.S. ___ (2014). These decisions have had the effect of reducing forum shopping in lawsuits against major corporations.

In the Bristol-Myers case, a group of nearly 700 plaintiffs from 34 states filed a product liability lawsuit in the Superior Court of San Francisco County, California, against a corporation organized in Delaware and headquartered in New York. Only 86 of the plaintiffs were California residents. The plaintiffs claimed that they suffered damages from a prescription drug manufactured and marketed by the defendant. None of them alleged that wrongful or negligent acts by the defendant occurred in California. The California Supreme Court eventually held that, while the court lacked general jurisdiction over the defendant, it had specific jurisdiction over the out-of-state plaintiffs’ claims.

The U.S. Supreme Court reversed this ruling. It criticized California’s “sliding scale approach,” which it described as relaxing “the strength of the requisite connection between the forum and the specific claims at issue…if the defendant has extensive forum contacts that are unrelated to those claims.” Citing Daimler and other recent decisions, the court rejected this view of personal jurisdiction.

For over 40 years, business litigation attorney James G. Schwartz has advocated for the interests of Bay Area businesses and business owners. To schedule a free and confidential consultation with a member of our experienced and knowledgeable team, contact us today online or at (925) 463-1073.

More Blog Posts:

California Supreme Court Issues Important Ruling on Government Records that Could Affect Business Litigation, Pleasanton Business & Commercial Law Blog, June 27, 2017

Laws Regulating Certain Types of Interstate Business Transactions May Be Up for Supreme Court Review, Pleasanton Business & Commercial Law Blog, Novembr 30, 2016

Delaware Supreme Court Ruling Changes Personal Jurisdiction Rules for Out-of-State Businesses, Pleasanton Business & Commercial Law Blog, April 29, 2016

Photo credit: 百楽兎 (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons.