Eroding Theory of General Personal Jurisdiction: Effect of 'Bauman'
On Jan. 14, 2014, the U.S. Supreme Court decided Daimler AG v. Bauman, 571 U.S. __ (2014) (slip op.), an extraordinarily important opinion with respect to general personal jurisdiction over corporations, particularly foreign corporations. In an eight-justice opinion (with Justice Sonia Sotomayor concurring separately in the result), the court held that general jurisdiction may only exist over a corporation when "that corporation's 'affiliations with the State are so 'continuous and systematic' as to render [it] essentially at home in the forum State.'"1 This decision effectively invalidates 47 years of general jurisdiction law in the state of New York starting with the seminal New York Court of Appeals case, Frummer v. Hilton Hotels Int'l, 19 N.Y.2d 533, 227 N.E.2d 851, 281 N.Y.S.2d 41 (1967), and it severely restricts the ability of a plaintiff to hail a foreign corporation into New York court based on a theory of general jurisdiction.
General Personal Jurisdiction
The Fourteenth Amendment's Due Process Clause "protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful 'contacts, ties, or relations.'"2 The Supreme Court's decision in International Shoe v. Washington, 326 U.S. 310 (1945), sets forth the due process requirements for personal jurisdiction over a corporation.3 According to the court, "[due process] demands may be met by such contacts of the corporation with the state of the forum as make it reasonable…to require the corporation to defend the particular suit which is brought there."4
Supreme Court jurisprudence has distinguished between two types of personal jurisdiction; "specific" and "general." As the court has explained, "[w]hen a State exercises personal jurisdiction over a defendant in a suit arising out of or related to the defendant's contacts with the forum, the State is exercising 'specific jurisdiction' over the defendant."5 Conversely, "when the cause of action does not arise out of or relate to the foreign corporation's activities in the forum State,"6 a court "may assert general jurisdiction over foreign [ ] corporations to hear any and all claims against them when their affiliations with the State are so 'continuous and systematic' as to render them essentially at home in the forum State."7
Surprisingly, since International Shoe, the court has rarely addressed the issue of general jurisdiction, especially in the context of foreign corporations.8 These decisions, moreover, have provided little guidance for foreign corporations that have no direct contacts with a forum state but have subsidiaries or independent contractors doing business in the forum.
Opinion in 'Bauman'
In Bauman, the Supreme Court held that exercising general jurisdiction over a German parent corporation, Daimler AG, based on the in-state activities of its subsidiary, Mercedes-Benz USA (MBUSA), violated due process.9 There, plaintiffs alleged that Mercedes-Benz Argentina (MBA), which is a subsidiary of Daimler, collaborated with state security forces to commit human rights offenses against them and/or their relatives whom MBA viewed as union agitators.10 Plaintiffs, who are all Argentinian residents, claimed that general jurisdiction existed over Daimler in California based on its relationship with and activities by another one of its subsidiaries, MBUSA.11
Daimler is a manufacturer of Mercedes-Benz motor vehicles and parts, primarily at factories in Germany.12 MBUSA purchased Mercedes-Benz vehicles from Daimler in Germany for distribution in the United States, with a focus on the California market.13 Indeed, MBUSA's California sales of Daimler's cars accounted for 2.4 percent of Daimler's total worldwide sales.14 Based on these facts, the U.S. Court of Appeals for the Ninth Circuit found that under the agency theory of jurisdiction, general jurisdiction existed over Daimler because "the services provided by MBUSA [were] sufficiently important to [Daimler] that, if MBUSA went out of business, [Daimler] would continue selling cars in this vast market either by selling them itself, or alternatively by selling them through a new representative."15
The Supreme Court reversed the Ninth Circuit's decision. While the court did not address directly whether agency could be a basis for general jurisdiction, the court rejected the "sufficiently important" test enunciated by the Ninth Circuit, as "it will always yield a pro jurisdictional answer."16 As the court stated, "[a]nything a corporation does through an independent contractor, subsidiary, or distributor is presumably something that the corporation would do by other means if the independent contractor, subsidiary, or distributor did not exist."17 The court found that "even if we were to assume that MBUSA is at home in California, and further to assume MBUSA's contacts are imputable to Daimler, there would still be no basis to subject Daimler to general jurisdiction in California, for Daimler's slim contacts with the State hardly render it at home there."18 In making its decision, the Court unambiguously articulated the standard for general personal jurisdiction:
[T]he [general personal jurisdiction] inquiry under Goodyear is not whether a foreign corporation's in-forum contacts can be said to be in some sense 'continuous and systematic,' it is whether that corporation's 'affiliations with the State are so 'continuous and systematic' as to render [it] essentially at home in the forum State.'"19
According to the court, "only a limited set of affiliations with a forum" will satisfy the general jurisdiction standard.20 For a corporation, this consists of "the place of incorporation and principal place of business,"21 as well as the "exceptional case [where] a corporation's operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State."22 Accordingly, the court rejected plaintiffs' argument that general jurisdiction should be allowed in states where a corporation "engages in a substantial, continuous, and systematic course of business" as "unacceptably grasping."23 The court instead held that general jurisdiction calls for "an appraisal of a corporation's activities in their entirety, nationwide and worldwide. A corporation that operates in many places can scarcely be deemed at home in all of them."24
Under this framework of general jurisdiction, the court relied on the fact that "neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there."25 Consequently, although MBUSA's California sales of Daimler's product accounted for 2.4 percent of Daimler's worldwide sales, Daimler was not "at home" in the state.26
Effect on New York Law
The Bauman decision substantially changes the law of general personal jurisdiction in New York. The New York Court of Appeals decision in Frummer is a seminal case, which articulated a standard for obtaining general jurisdiction over a corporation based on agency theory. In Frummer, the court held that activities by a New York entity on behalf of a foreign corporation, including performing public relations work, generating business, and accepting and confirming rooms for the foreign corporation, established the foreign corporation's "presence" in New York, thereby subjecting it to general jurisdiction in the state.27
As the U.S. Court of Appeals for the Second Circuit has articulated, Frummer held that "[t]o establish that a subsidiary is an agent of the parent [for jurisdictional purposes], the plaintiff must only show that the subsidiary 'does all the business which [the parent corporation] could do were it here by its own officials.'"28 "Courts have further interpreted this to mean that the agent's activities in New York must be sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services."29 This, of course, is the very test upon which the Ninth Circuit relied and which the Supreme Court rejected in Bauman.
New York courts have frequently applied the agency theory first enunciated in Frummer to find that general jurisdiction exists over foreign corporations that have no direct New York contacts. For example, in Wiwa v. Royal Dutch Petroleum, 226 F.3d 88 (2d Cir. 2000), the Second Circuit held that personal jurisdiction existed over two foreign holding companies when the holding companies' New York investor relations office fielded inquiries from investors, mailed information about the foreign holding companies to "thousands of individuals throughout the United States," and organized meetings between the foreign holding companies and investors.30 Additionally, the foreign holding companies approved decisions made by the office and funded the office, and the office only performed investor relations on the foreign holding companies' behalf.31 Likewise, in Sonera Holding v. Cukurova Holding, 895 F.Supp.2d 513 (S.D.N.Y. 2012), the court exerted general jurisdiction over a foreign defendant when an affiliate company of the defendant described itself as the "gateway to the Americas for [the defendant]," distributed textiles produced by the defendant's sister company, and there was no indication that this affiliate "[was] engaged in business on behalf of interests other than those of [the defendant]."32