Supreme Court Issues General Jurisdiction Opinion

The U.S. Supreme Court rued last week that defendant DaimlerChrysler Corp. could not be sued in in California over an Argentine subsidiary’s alleged tortious conduct under the theory of general jurisdiction.  See Daimler AG v. Barbara Bauman et al., No. 11-965 (U.S. 1/14/14).

Plaintiffs were twenty-two residents of Argentina who filed suit in California Federal District Court, naming as a defendant DaimlerChrysler Aktiengesellschaft (Daimler),a German public stock company that is the predecessor to the petitioner, Daimler AG.  Their complaint alleged that Mercedes-Benz Argentina (MB Argentina), an Argentinian subsidiary of Daimler, engaged in various illegal conduct respecting unions from 1976 to 1983 in Argentina. Personal jurisdiction over Daimler was predicated on the California contacts of Mercedes-Benz USA, LLC (MBUSA), yet another Daimler subsidiary, one incorporated in Delaware with its principal place of business in New Jersey.  (MBUSA distributes Daimler-manufactured vehicles to independent dealerships throughout the United States, including California.)  

Daimler moved to dismiss the action for want of personal jurisdiction. Opposing that motion, plaintiffs argued that jurisdiction over Daimler could be founded on the California contacts of MBUSA. The District Court granted Daimler’s motion to dismiss. Reversing the District Court’s judgment, the Ninth Circuit held that MBUSA, which it assumed to fall within the California courts’ all-purpose jurisdiction, was Daimler’s “agent” for jurisdictional purposes, so that Daimler, too, should generally be answerable to suit in that State. Daimler moved for cert.

The Supreme Court held that Daimler was not amenable to suit in California for injuries allegedly caused by conduct of MB Argentina that took place entirely outside the United States.

California’s long-arm statute allows the exercise of personal jurisdiction to the full extent permissible under the U. S. Constitution. Thus, the inquiry here became whether the Ninth Circuit’s holding comported with the limits imposed by federal due process. International Shoe distinguished exercises of specific, case-based jurisdiction from a category known as “general jurisdiction,” exercisable when a foreign corporation’s continuous corporate operations within a state are so substantial and of such a nature as to justify suit against it even on causes of action arising from dealings entirely distinct from those activities. Since International Shoe, specific jurisdiction has become the centerpiece of modern jurisdiction theory. The Supreme Court’s general jurisdiction opinions, in contrast, have been few.

The Court said that even assuming, for purposes of this decision, that MBUSA qualifies as at home in California, Daimler’s affiliations with California were not sufficient to subject it to the general jurisdiction of that State’s courts. Whatever role "agency" theory might play in the context of general jurisdiction, the Court of Appeals’ analysis in this case could not be sustained. The Ninth Circuit’s agency determination rested primarily on its observation that MBUSA’s services were “important” to Daimler, as gauged by Daimler’s hypothetical readiness to perform those services itself if MBUSA did not exist. But if  mere “importance” in this sense were sufficient to justify jurisdictional attribution, observed the Court, foreign corporations would be amenable to suit on any or all claims wherever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the sprawling view of general jurisdiction the Court has rejected in cases like Goodyear.  

Even assuming that MBUSA was at home in California and that MBUSA’s contacts were imputable to Daimler, there would still be no basis to subject Daimler to general jurisdiction in California, said the Court. The paradigm all-purpose forums for general jurisdiction are a corporation’s place of incorporation and principal place of business.  Plaintiffs’ reasoning, however, would reach well beyond these exemplar bases to approve the exercise of general jurisdiction in every State in which a corporation engages in a substantial, continuous, and systematic course of business. The Court felt that the words “continuous and systematic,” were misread by plaintiffs and the Court of Appeals; they were used in International Shoe to describe situations in which the exercise of specific jurisdiction would be appropriate. See 326 U. S., at 317. With respect to all-purpose jurisdiction, International Shoe spoke instead of  instances in which the continuous corporate operations within a state were so substantial and of such a nature as to justify suit on causes of action arising from dealings entirely distinct from those activities.  Id., at 318. Accordingly, the proper inquiry, the Court explained, was whether a foreign corporation’s affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State.

Neither Daimler nor MBUSA was incorporated in California, nor did either entity have its principal place of business there. If Daimler’s California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA’s sales were sizable. No decision of the Supreme Court ever sanctioned a view of general jurisdiction so grasping. The Ninth Circuit, therefore, had no warrant to conclude that Daimler, even with MBUSA’s contacts attributed to it, was at home in California, and hence subject to suit there on claims by foreign plaintiffs having nothing to do with anything that occurred or had its principal impact in California.

The Court referred to the "transnational context" of the dispute, essentially making the point that U.S. courts are not suppose to be widely open to cases being brought against foreign companies when the underlying facts of the case have essentially nothing to do with the U.S.  The Supreme Court now has confirmed that general jurisdiction is typically limited to a jurisdiction companies can expect to be sued in, essentially where they are at home.

 

Ninth Circuit En Banc Decision on Daubert Errors

Readers may recall we posted about a Ninth Circuit case involving a worker at a paper mill who claimed asbestos exposure from various products used there.  The trial court admitted testimony from three experts over defendants’ objections, without conducting an adequate Daubert review, resulting in a trial verdict of $10.2 million. The Ninth Circuit reversed the trial verdict, and the panel remanded the case to the trial judge for a new hearing and trial. See Henry Barabin. et al. v. AstenJohnson Inc., No. 10-36142 (9th Cir.) The Ninth Circuit then agreed to hear the case en banc, and our guess was that the court was thinking more about the fact that the panel remanded the case for a new trial in light of the court’s 2003 decision in Mukhtar v. California State University, 299 F.3d 1053 (9th Cir. 2002), amended by 319 F.3d 1073 (9th Cir. 2003).

The court has now issued its en banc opinion, upholding the reversal of the verdict; agreeing with the original panel that the trial court had conducted an improper Daubert review; and rejecting two key arguments that plaintiffs made in trying to save the case. Plaintiffs, first, wanted a remand for purposes of the Daubert hearing only. They argued that an appeals court did not have the authority to exclude the experts on its own (even after the inadequate job by the trial judge) and must remand that decision. The en banc court disagreed, said that it did have such authority, although here the record was insufficient to allow the panel to make that decision. The en banc court thus held that a reviewing court has the authority to make Daubert findings based on the record established by the district court, and overruled Mukhtar v.California State University, 299 F.3d 1053, 1066 n.12 (9th
Cir. 2002), amended by 319 F.3d 1073 (9th Cir. 2003), to the extent that it required that Daubert findings always be made by the district court.

Second, plaintiffs argued that on remand the trial judge should get another shot at a Daubert decision without necessarily holding a complete new trial. But, the court held that if expert admissibility error occurred and was prejudicial, the only recourse was an entire new trial. Thus, the plaintiffs now have to first get past a real Daubert analysis, and if they do, then win an entire new trial in front of a new jury.

We have argued here that to remand for an evidentiary hearing post-jury verdict undermines Daubert's requirement that a reliability determination must be made by the trial court before the jury is permitted to hear the evidence. Otherwise, instead of fulfilling its mandatory role as a gatekeeper, the district court clouds its duty to ensure that only reliable evidence is presented. A post-verdict analysis does not protect the purity of the trial, but instead creates an undue risk of post-hoc rationalization. This is hardly the gatekeeping role the Supreme Court envisioned in Daubert and its progeny. The rule recognized here gives trial courts a real and important incentive to be proper, active gatekeepers.

(Note that my partner Mark Behrens was asked to submit an amicus brief on behalf of the Coalition For Litigation Justice, Inc., Chamber Of Commerce Of The United States Of America, NFIB Small Business Legal Center, American Insurance Association, Property Casualty Insurers Association Of America, American Chemistry Council, And National Association Of Manufacturers.)

 

FDA Issues Draft Guidance on Social Media

The U.S. Food and Drug Administration recently took a small step towards providing industry with the long-awaited guidance on how pharmaceutical makers may communicate about their products on social media like Twitter. 

In July, 2012, Congress gave the FDA two years to come up with comprehensive policies on Internet promotion, and FDA has now released for comment the draft guidance document entitled, "Fulfilling Regulatory Requirements for Postmarketing Submissions of Interactive Promotional Media for Prescription Human and Animal Drugs and Biologics." It is the first of what is certain to be a series of guidance documents on this subject. 

This draft guidance is intended to describe FDA’s current thinking about how manufacturers, packers, and distributors (firms), that may either be the applicant or acting on behalf of the applicant, of prescription human and animal drug and biological products (drugs) can fulfill regulatory requirements for postmarketing submissions of interactive promotional media for their FDA-approved products. 

FDA states that a company will be responsible for product promotional communications on sites that are owned, controlled, created, influenced, or operated by, or on behalf of, the firm. Such product promotional communications may include firm-sponsored microblogs (e.g., Twitter), social networking sites (e.g., Facebook), firm blogs, and other sites that are under the control or influence of the firm. In determining whether a firm must submit promotional material about its product to FDA, the Agency considers whether the firm, or anyone acting on its behalf, is influencing or controlling the promotional activity or communication in whole or part. Thus, a firm is responsible if it exerts influence over a site in any particular, even if the influence is limited in scope. For example, if the firm collaborates on or has editorial, preview, or review privilege over the content provided, then it is going to be responsible for that content, says the document. A firm is responsible for promotion on a third-party site if the firm has any control or influence on the third-party site, even if that influence is limited in scope. For example, if a firm collaborates, or has editorial, preview, or review privilege, then it is responsible for its promotion on the site and, as such, that  the site is subject to submission to FDA to meet postmarketing submission requirements. 

FDA said it recognizes the challenges of submitting promotional materials that display real-time information and thus in the draft makes recommendations for submitting interactive promotional media. The main point of this part of the draft guidance is that marketers don’t always need to obtain FDA pre-clearance on planned tweets or an online posting before it is sent out.  If a firm submits interactive promotional media in the manner described in this draft guidance, FDA intends to exercise enforcement discretion regarding the regulatory requirements for postmarketing submissions related to promotional labeling and advertising.

The draft does not address such things as how risks can be communicated within the character-limits of media like Twitter, and  what constitutes acceptable use of hyperlinks. Clearly, more to come.

 

Ice Cream Class Action Melts

Happy New Year to all our readers. Let's start 2014 with a delicious class action decision, a Late night snack for our readers.

A California court recently rejected a proposed statewide class in a suit accusing Ben & Jerry's Homemade Inc. of falsely advertising ice cream products as “all-natural.”  See Astiana v. Ben & Jerry’s Homemade Inc., No. 4:10-cv-04387 (N.D. Cal., 1/7/14).  Yes, we are starting off the year right where we left off, another all natural complaint.

Readers probably know that with a $5 correspondence course from Penn State in making ice cream, two regular guys named Ben and Jerry opened their first ice cream scoop shop in Burlington, Vermont, in 1978. 

Here, plaintiffs claimed that both the packaging and the advertising for the Ben & Jerry's ice cream products were deceptive and misleading to the extent that the cocoa in some of them was allegedly alkalized with a "synthetic" agent. Plaintiff filed the complaint in this action in 2010, alleging six causes of action – "unlawful business practices" in violation of Business & Professions Code § 17200; "unfair business practices" in violation of § 17200; "fraudulent business practices" in violation of § 17200; false advertising, in violation of Business & Professions Code § 17500; restitution based on quasi-contract/unjust enrichment; and common law fraud.  Everything but the ...pretty typical in these kinds of label attacks.

The parties originally reached a tentative settlement, which fell apart because of cy pres problems and S'mores issues regarding settlement distribution procedures.

Eventually, plaintiffs moved for class certification. Before certifying a class, the trial court must conduct a rigorous analysis to determine whether the party seeking certification has met the prerequisites of Federal Rule of Civil Procedure 23. Mazza v. American Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012). The party seeking class certification must affirmatively demonstrate that the class meets the requirements of Rule 23. See Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011); see also Gen'l Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 156 (1982).  As a threshold matter, and apart from the explicit requirements of Rule 23, the party seeking class certification must also demonstrate that an identifiable and ascertainable class exists. Mazur v. eBay Inc., 257 F.R.D. 563, 567 (N.D. Cal. 2009).

The court here found that the motion must be denied, for two primary reasons – plaintiff had not established that the class was ascertainable, and she had not established that common issues predominated over individual issues.

While there is no explicit requirement concerning the class definition in Rule 23, courts have held that the class must be adequately defined and clearly ascertainable before a class action may proceed. See Xavier v. Philip Morris USA Inc., 787 F.Supp. 2d 1075, 1089 (N.D. Cal. 2011); Schwartz v. Upper Deck Co., 183 F.R.D. 672, 679-80 (S.D. Cal. 1999). A class definition need not be Berry, berry extraordinary, but should be precise, objective and presently ascertainable. See Rodriguez v. Gates, 2002 WL 1162675 at *8 (C.D. Cal. May 30, 2002). That is, the class definition must be sufficiently definite so that it is administratively feasible to determine whether a particular person is a class member. See Xavier, 787 F.Supp. 2d at 1089.

Defendant contended that because cocoa can be alkalized using one of several alkalis – some of which are "natural" and some of which are allegedly "non-natural" (i.e., "synthetic") – it would be necessary to determine which class members bought an ice cream containing alkalized cocoa processed with a synthetic ingredient.  However, there was no way to identify which class members bought which type of ice cream, particularly given that Ben & Jerry's is a wholesale manufacturer that does not maintain records identifying the ultimate customers or their purchases. What a cluster it would be.

The district court agreed with the defendant that the class was not sufficiently ascertainable. The class was defined as persons who bought Ben & Jerry's labeled "all natural" which contained alkalized cocoa processed with a synthetic ingredient. However, plaintiffs provided no evidence as to which ice cream contained the allegedly "synthetic ingredient" (assuming that alkali can even be considered an "ingredient"). More importantly, plaintiffs had not shown that a means exists for identifying the alkali in every class member's ice cream purchases. The packaging labels said only "processed with alkali," because that is all the FDA required.

A second basis for rejecting the class was the predominance requirement. This inquiry requires the weighing of the common questions in the case against the individualized questions, and the predominance analysis under Rule 23(b)(3) can be more stringent than the commonality requirement of Rule 23(a)(2).  Rule 23(b)(3) focuses on the relationship between the common and individual issues. The inquiry is rigorous as it tests whether proposed class is sufficiently cohesive to warrant adjudication by representation. See AmChem Prods., 521 U.S. at 623-24. 

Defendant asserted that reliance, materiality, and causation were all inherently individual; for example, its experts established that consumer choice is affected by many different factors, and plaintiff had no evidence to show that "all natural" has any uniform meaning or that it would have any major impact on a consumer's decision to purchase (or not to purchase) a particular brand of ice cream. Defendant also contended that the likelihood of confusion from the label must be "probable," not just "possible," and that studies showed that at most 3% of consumers who saw "all natural" on the packaging expected that the alkali used to process the cocoa was "natural."

Defendant similarly argued that the only way to test materiality and reliance would be to determine how much each consumer would have de-valued the ice cream products given the alleged presence of the "synthetic" alkalizing agent. However, this also could not be done on a class-wide basis, because consumer choice is affected by myriad factors. 

Most importantly, the damages claim was Half-baked, as the evidence showed that no one paid a premium for the "all natural" Ben & Jerry's ice cream, as Ben & Jerry's charges its wholesale customers the same price regardless of flavor and regardless of the contents of the label. When Ben & Jerry's changed its label and removed the "all natural" label from some ice cream packages, the prices did not decrease (neither the wholesale nor the retail prices);  so there was no support for plaintiff's speculation that "all natural" ice creams command a premium.

The Court agreed. Whichever way one approached it, plaintiff had not met her burden of showing that there was a class-wide method of awarding relief that was consistent with her theory of deceptive and fraudulent business practices, false advertising, or common law fraud (or the alternative theory of restitution based on quasi-contract). Plaintiff had not offered any expert testimony demonstrating that the market price of Ben & Jerry's ice cream with the "all natural" designation was higher than the market price of Ben & Jerry's without the "all natural" designation. More importantly, plaintiff had not offered sufficient expert testimony demonstrating a gap between the market price of Ben & Jerry's "all natural" ice cream and the price it purportedly should have sold for if it had not been labeled "all natural" – or evidence demonstrating that consumers would be willing to pay a premium for "all natural" ice cream that was made with cocoa alkalized with a "natural" alkali, and did in fact pay such a premium.

Under Comcast, the plaintiff is required to provide evidentiary proof showing a class-wide method of awarding relief that is consistent with plaintiff's theory of liability. See 133 S.Ct. at 1432. Here, however, plaintiff provided no such damages evidence, and the failure to offer a damages model that was capable of measurement across the entire class for purposes of Rule 23(b)(3) barred her effort to obtain certification of the class.