GAME CHANGING DECISIONS FROM THE U.S. SUPREME COURT ON PERSONAL JURISDICTION OVER CORPORATIONS
By: Lisa J. Savitt, Esquire
Whether a court has personal jurisdiction over a corporation is a threshold issue when a corporation is sued in the United States. It is a subject many overlook, but one that can have significant ramifications. If it can be shown that a state has no jurisdiction over a corporate defendant, the defendant must be dismissed from litigation in that state. Under some circumstances, if the statute of limitations has passed on bringing suit against the corporation in a proper state, the company may avoid liability altogether. Recent Supreme Court cases have provided a new narrow paradigm as to the limited number of jurisdictions in which corporations can be sued.
There are two forms of personal jurisdiction – specific and general. In a nutshell, specific jurisdiction requires some connection between the cause of action and the forum state – it is dispute specific. General jurisdiction does not require such a connection – up until recently, what was primarily required were continuous and systematic contacts with a forum state.
There had been no U.S. Supreme Court decision on either concept for about 25 years. In June 2011, however, the U.S. Supreme Court issued two decisions – one on specific jurisdiction and one on general jurisdiction. While the split decision on specific jurisdiction did not bring much clarity to this concept, the unanimous decision on general jurisdiction was the start of a real game changer for corporations. The concept of general jurisdiction was further explained in several U.S. Supreme Court cases in 2014 and 2017. This newsletter discusses the new case law on general jurisdiction. The cases underscore how critically important it is for all corporations – U.S. and foreign – to always consider bringing a threshold jurisdictional challenge.
Four recent U.S. Supreme Court cases – Goodyear Dunlop Tires Operations SA v. Brown in 2011, Daimler AG v. Bauman in 2014, Bristol-Myers Squibb Co. v. Superior Court and BNSF Railway Co. v. Tyrrell in 2017 – set very strict limits on when a court can exercise general jurisdiction. Essentially, the standard is that general jurisdiction will be found where “the corporation is fairly regarded as at home.” The Supreme Court interpreted “at home” to mean where a corporation is incorporated or has its principal place of business. As Justice Ginsburg explained in Daimler, the inquiry is not whether the corporation’s “affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.” To seek otherwise – for a court to find general jurisdiction to exist over a corporation in every State in which the corporation engages in business – even if the business is substantial, continuous and systematic – the Supreme Court recognized in Daimler, would be “unacceptably grasping.”
The Daimler opinion recognizes the reality that corporations today do business globally and nationally, and limits the states in which a corporation may be sued. Generally speaking, if there is no specific jurisdiction, corporations may only be hailed into court to respond to claims where they have their principal place of business or in the state where they are incorporated. Thus, every time a corporation is sued in the U.S., consideration should be given to whether it can challenge personal jurisdiction.
Legal challenges to Daimler and progeny
A number of states have statutes that require companies to register to do business in their states and appoint an agent for service of process there. Courts looking at such statutes are split on whether Daimler’s personal jurisdiction limitations are applicable. Some opine that corporations “consented” to general jurisdiction by registering in their states and appointing service agents in them. Others, such as courts in California, the Second Circuit and Delaware, have held that registration to do business is not sufficient to constitute consent to general personal jurisdiction.
Some state legislatures are trying to amend statutes to explicitly state that registering to do business means agreeing to general jurisdiction.
This reasoning is certainly at odds with Daimler. It subverts the Court’s stated recognition that corporations cannot be subjected to lawsuits all over the country.
Practical Considerations
If a corporation is sued in a state in which there is no specific jurisdiction, and the corporation is not incorporated there and does not have its principal place of business there, the corporation should consider immediately moving to dismiss for lack of personal jurisdiction. When deciding whether to do so, counsel for the corporation face a number of practical considerations including whether the lawsuit could still be brought in the corporation’s principal place of business or state of incorporation. Has the statute of limitations passed in either of those jurisdictions? The corporation’s counsel should also consider whether the forum in which the corporation has been sued is a more desirable forum. If so, counsel for the corporation may choose not to contest jurisdiction. Another common consideration is when there are co-defendants and there is a likelihood that the plaintiff will file another lawsuit if dismissed from its chosen forum. These and other factors may weigh into the analysis of whether to contest jurisdiction, but the issue should always be considered.
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For more information, contact Lisa Savitt at lsavitt@theaxelrodfirm.com.