New England Biz Law Update
You probably learned it your first year of law school: To sue in a particular forum, you must show personal jurisdiction over the defendant. That means compliance with the forum’s long arm statute and the Constitution’s due process clause.
The due process clause allows two types of personal jurisdiction: specific and general. Specific personal jurisdiction is present when the claim arises out of the defendant’s activities in the forum. General personal jurisdiction is present when the defendant has engaged in continuous and systematic activities in the forum, even if those activities are unrelated to the claim.
Both specific and general personal jurisdiction are limited by principles of reasonableness. This is all hornbook law, right?
Wrong. The U.S. Supreme Court’s recent decision in Daimler AG v. Bauman radically shrunk general personal jurisdiction for corporate defendants. It explicitly rejected the “continuous and systematic” test upon which courts have relied for decades. It instead imposed a new requirement that a defendant corporation’s contacts effectively render it “at home” in the forum (e.g., a corporation’s principal place of business or state of incorporation). And it added a new comparative step to the analysis: General personal jurisdiction now demands that the defendant’s in-state activities not be outweighed by a “far larger quantum” of activity elsewhere.
This quiet revolution has the potential to significantly reshape commercial litigation in the United States — particularly for foreign entities and for domestic businesses with continuous operations in many states.
In 1945, the court in International Shoe Co. v. Washington adopted a fairly liberal approach to questions of personal jurisdiction:
“[D]ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’” Int’l Shoe, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)).
Explaining that “there have been instances in which the continuous corporate operations within a state were thought so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities,” the court established a foundation for general personal jurisdiction against corporate defendants within this constitutional framework (emphasis added) (citing Missouri, K. & T.R. Co. v. Reynolds, 255 U.S. 565 (1921) and others).
Subsequent decisions of the Supreme Court formalized International Shoe’s vision of
general personal jurisdiction in the corporate context. In 1952, in Perkins v. Benguet Consolidated Mining Co., the court found general personal jurisdiction where a corporate defendant carried on in the forum “a continuous and systematic, but limited, part of its general business.” See 342 U.S. 437, 438, 449 (1952). It repeated the “continuous and systematic” formulation in Helicopteros Nacionales de Columbia, S.A. v. Hall, 466 U.S. 408, 416 (1984).
Many circuit courts of appeal have since relied on the “continuous and systematic” activities test to evaluate the existence of general personal jurisdiction over business entities. See, e.g., Harlow v. Children’s Hospital, 432 F.3d 50, 57, 64 (1st Cir. 2005); Metropolitan Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 568 (2d Cir. 1996); Gorman v. Ameritrade Holding Corp., 293 F.3d 506, 512 (D.C. Cir. 2002).
The Supreme Court, however, has never been completely comfortable with a broad notion of general personal jurisdiction. For example, in 1984, in Keeton v. Hustler Magazine, Inc., the court went out of its way to emphasize that the “continuous and systematic” activities creating general personal jurisdiction in Perkins were so pronounced that they effectively rendered the forum state “the corporation’s principal, if temporary, place of business.” See Keeton, 465 U.S. 770, 779 n.11 (1984).
The Supreme Court began to formally roll the doctrine back in 2011, in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011). There, the court reversed the judgment of the North Carolina Court of Appeals and declined to exercise general personal jurisdiction over several foreign corporations, a small percentage of whose products continuously reached the forum state through the stream of commerce.
The court ruled, for the first time, that general personal jurisdiction requires contacts with the forum state that are so “continuous and systematic as to render [the corporate defendant] essentially at home in the forum State.” (emphasis added). The court derived the new rule from Keeton’s characterization of the facts of Perkins.
But the court was also obviously repelled — at a policy level — by the notion that a corporation could be required to answer all possible claims in every forum where its products are continuously and systematically distributed.
In Daimler, a decision authored by Justice Ruth Bader Ginsburg and joined by all the justices save for Sonia Sotomayor (who authored a concurrence), the Supreme Court elaborated on the new “at home” standard articulated in Goodyear and further constricted general personal jurisdiction.
The court reversed a decision of the 9th U.S. Circuit Court of Appeals and held that the corporate defendant — Daimler AG — was not “at home” in California such that the exercise of general jurisdiction by a California court was proper. See 134 S. Ct. 746, 762 (2014).
Daimler is a German public stock company headquartered in Stuttgart. The plaintiffs alleged that Daimler’s Argentinian subsidiary collaborated with state security forces during Argentina’s “Dirty War” to kidnap, detain, torture and kill certain of its employees. The plaintiffs sued Daimler in California.
The plaintiffs asserted general jurisdiction in California based on the unrelated activities of another one of Daimler’s subsidiaries, Mercedes-Benz USA, or MBUSA.
MBUSA is incorporated in Delaware, has its principal place of business in New Jersey, and distributes Daimler-manufactured vehicles to independent dealerships throughout the United States, including in California.
The court ruled that Daimler’s contacts with California, through MBUSA, were not significant enough to render it “at home” in the state.
To reach that outcome, the court narrowed the definition of what it means for a corporation to be “at home” in a state in several specific ways. First, it explicitly held that a corporation is not “at home” in a forum merely because it “engages in a substantial, continuous, and systematic course of business” there. “That formulation … is unacceptably grasping.”
Second, the court explained that a corporation is most likely to be “at home” in its state of incorporation and of its principal place of business. Those states are the “paradigm all-purpose forums,” although it is theoretically possible that circumstances sufficiently similar to these “exemplar bases” could also invoke the doctrine.
Third, the court added a new requirement for general personal jurisdiction: that the volume of the corporation’s activities in the forum are not significantly outweighed by its operations elsewhere. Because “[a] corporation that operates in many places can scarcely be deemed at home in all of them,” general personal jurisdiction cannot be imposed without a comparative “appraisal of a corporation’s activities in their entirety, nationwide and worldwide” to determine its foci of action.
As the court explained, “[n]othing in International Shoe and its progeny suggests that a particular quantum of activity should give a State authority over a far larger quantum of activity having no connection to any in-state activity.” (internal quotation marks and ellipses omitted)
In light of these strict changes, it is clear that the classic “continuous and systematic” activities test is, in substance, overruled.
The Daimler decision was clearly motivated by specific public policy concerns. The court explained that limiting general personal jurisdiction to a corporation’s state of incorporation and principal place of business offered all parties increased predictability — there are few such locations, they are easily ascertainable, and they provide all plaintiffs with at least one clear and certain forum to seek relief for any claim.
The court also raised the “transnational context” of the claim at issue and noted that recognition of “expansive” general personal jurisdiction would conflict with international norms, especially those of the European Union. “[C]onsiderations of international rapport” and “risks to international comity” militated in favor of a narrow application of the doctrine.
Thus, the black letter law you learned in school is simply no longer accurate. General personal jurisdiction now requires more than “continuous and systematic” contacts. The corporate defendant must now be so extraordinarily active in the forum — and so inactive elsewhere — that it has built a “home” there, roughly equivalent to its principal place of business.
From this point forward, if a corporate defendant is sued anywhere besides the location of the alleged bad act, its state of incorporation, or its principal place of business, it should carefully consider whether a lack of personal jurisdiction under the Daimler test is a viable defense.
Daniel L. McFadden is a litigator at Foley Hoag in Boston, with an emphasis on commercial litigation and trademark and copyright matters. Elizabeth M. Holland is an associate in the firm’s litigation department.
