Supreme Court Rolls Back Jurisdiction of U.S. Courts Over Foreign Companies

Can a U.S. court exercise jurisdiction over claims by foreign plaintiffs against a foreign corporation based on events in a foreign country? In a case decided on January 14, 2014, the United States Supreme Court said "No."

In Daimler AG v. Bauman, several Argentine residents brought suit in a California federal court against Stuttgart-based Daimler AG (Daimler) for allegedly participating in human rights violations in Argentina during that country’s "Dirty War." The Court of Appeals for the Ninth Circuit sustained jurisdiction based on the substantial business carried on in California by Daimler’s U.S. subsidiary. The Supreme Court unanimously reversed and held that such an exercise of jurisdiction over Daimler violated due process under the U.S. Constitution. The Court’s opinion (written by Justice Ginsburg, with Justice Sotomayor concurring only in the result) was based on three grounds.

First, the Court held that the business carried on in California by Daimler’s U.S. subsidiary did not subject Daimler itself to jurisdiction. The Ninth Circuit had treated the subsidiary as Daimler’s agent and imputed the subsidiary’s contacts with California to Daimler because the subsidiary conducted business that Daimler itself would have conducted if the subsidiary did not exist. The Supreme Court said that analysis “stack[ed] the deck" in favor of jurisdiction because it would "subject foreign corporations to general jurisdiction whenever they have an in-state subsidiary or affiliate." Such a "sprawling" view of jurisdiction was too much for the due process clause.

Second, the Court held that even if the subsidiary’s business in California were attributable to Daimler on an agency theory, that business was too "slim" for general jurisdiction relative to Daimler’s "activities in their entirety, nationwide and worldwide." Neither Daimler nor its subsidiary is incorporated in California and neither has its principal place of business there. Accordingly, California could not be considered Daimler’s "home" for jurisdictional purposes: "A corporation that operates in many places can scarcely be deemed at home in all of them."

Third, the Court considered the "transnational context" of the dispute and the fact that "[o]ther nations do not share the uninhibited approach to personal jurisdiction" applied by the Ninth Circuit. "Considerations of international rapport thus reinforce[d]" the Court’s determination that subjecting Daimler to jurisdiction in California violated due process.

The Daimler case represents a significant check on efforts to expand the jurisdiction of U.S. courts over essentially foreign disputes. Going forward, such disputes will generally have to be brought in a corporate defendant’s "home" state, i.e., where it is incorporated or has its principal place of business. This will shield many foreign corporations from lawsuits in U.S. courts over disputes that arise from events and activities outside the U.S.

It must be emphasized, however, that Daimler involves what is known as "general" or "all-purpose" jurisdiction over disputes unrelated to the forum state. It places no limits on the "specific" jurisdiction that U.S. courts exercise over disputes arising out of a foreign corporation’s activities within the forum state. As the Court noted, its analysis would not apply to a claim by a California plaintiff injured by a Daimler vehicle in California; instead, such a claim would be considered under the broader specific jurisdiction rules applicable to claims arising from or related to a defendant’s business activities in the state.