The Foundation filed an amicus brief on the merits in the United States Supreme Court in an important case, DaimlerChrysler AG v. Bauman, No. 11-965, involving the exercise of general jurisdiction over a foreign corporation through the contacts of its U.S. subsidiary.
The case arises from allegations by Argentine residents that DaimlerChryslers Argentine subsidiary aided the military junta in committing human-rights abuses from 1976-1983 during the Dirty War. The plaintiffs sued DaimlerChrysler (Daimler), the German parent company, in federal district court in California. The district court concluded it did not have jurisdiction over the German corporation and dismissed the case.
On appeal, the Ninth Circuit Court of Appeals initially affirmed the district courts dismissal. But on reconsideration, the appeals court panel reversed itself, and held that California had general jurisdiction over Daimler, a German corporation with no facilities or personnel in the United States. The appeals court ruled that there were sufficient contacts with California because a U.S. subsidiary of Daimler, Mercedes Benz USA, sells vehicles made by Daimler in Germany in California. The Ninth Circuit concluded there was general jurisdiction in a case in which foreign plaintiffs sue a foreign corporation for events that occurred entirely outside the United States. The Ninth Circuit formulated an agency test, under which an entity will be considered an agent of another company if (1) the subsidiarys services are sufficiently important to the parent company that the parent would continue to perform those services either by itself or through a new representative and (2) the parent company has a right to control its subsidiary, even if it does not in fact exercise control.
In our amicus brief in support of the petitioner, Daimler, we argued the Ninth Circuits agency test conflicted with Supreme Court precedent and violated the Due Process clause because the contacts the Ninth Circuit panel deemed sufficient for general jurisdiction fall far short of the kind and degree outlined by the Supreme Court in prior cases. We also argued that the Ninth Circuit approach would have profoundly harmful consequences for international commerce.
One aspect of Due Process is that individuals or corporations should be subject to suit only when they have sufficient contacts with the state asserting jurisdiction. The Supreme Court has held that a corporation is amenable to general jurisdiction if its continuous corporate operations within a state are 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. These criteria serve to provide a corporation with fair warning that it could be amenable to suit in a jurisdiction. The Supreme Court has traditionally only found two circumstances where a corporation has the minimum contacts required to subject it to general jurisdiction: when it is incorporated in a jurisdiction or when its principal place of business is located in that jurisdiction. When either of these requirements is met, a corporation is considered at home in the jurisdiction. For Daimler, a German corporation with no facilities or personnel in California, it would be a violation of Due Process to call it at home in the state.
The Ninth Circuits agency test is flawed because the special importance prong does not show that a corporation can be considered essentially at home in the forum state. There is no discernible limit to the test because a company would nearly always find alternative business arrangements if its original distributor ceased to exist and there is a profit to be made. This amounts to a stream of commerce test that is inconsistent with recent unanimous Supreme Court precedent that held that even regularly occurring sales of a product in a State do not justify the exercise of jurisdiction over a claim unrelated to those sales.
We argue that the Ninth Circuit holding improperly failed to employ a minimum contacts test as the Supreme Court requires. It also failed to respect the corporate distinction between Daimler and Mercedes Benz USA. The Supreme Court has held that a parent company typically will not be held liable for the actions of its subsidiary, and that a separate due process analysis is required for each because respect for corporate distinctions is a fundamental principle deeply engrained in our economic and legal systems.
Atlantic Legal also argued that practical considerations alone are sufficient to reverse the Ninth Circuits decision. There is also a danger that foreign corporations would be dissuaded from doing business in the United States. This would deprive America of the full benefits of foreign trade and the hardship would ultimately fall on consumers. In addition, if foreign nations retaliated by adopting similarly sweeping notions of jurisdiction, U.S. companies could find themselves subject to suit in foreign courts even when their contacts with those foreign countries are minimal.
To view the Foundation’s brief, please click here.