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.


Supreme Court Hears Argument in Personal Jurisdiction Cases

Continuing our Supreme Court theme.  We have posted before about two cases involving personal jurisdiction over foreign corporations in state courts, now pending in SCOTUS.  McIntyre Machinery Ltd. v. Nicastro, U.S., No. 09-1343 (certiorari petition granted 9/28/10); Goodyear Luxembourg Tires SA v. Brown, U.S., No. 10-76 (certiorari petition granted 9/28/10). The former involves the assertion by New Jersey courts of jurisdiction over a European manufacturer of a machine that allegedly injured a state resident; the latter involves the assertion by North Carolina courts of general jurisdiction over the European affiliates of the manufacturer of tires allegedly responsibly for a vehicle accident in Europe injuring state residents on vacation there.

Several members of the Supreme Court were active in questioning the advocates in the Nicastro oral argument.  The defendant kept its argument focused on the “purposeful availment” branch of the prior case law on personal jurisdiction, the rule that a foreign company needs to intentionally take advantage of doing business in a state, and arguing that it matters whether the manufacturer directed the distributor to go to a certain state or controlled the relationship with customers in that state.

Several of the justices asked hypothetical questions about a variety of fact patterns beyond those presented by the case.  As difficult as the individual case may be per se, the Court recognizes that whatever rules it lays down here will have a potentially dramatic impact on foreign and domestic corporations, including small business, and the economy. Accordingly, a number of  questions were asked to help explore how the rules might impact other factual scenarios as well. Justice Kagan asked defense counsel to explain the difference between targeting the “United States” with your product and targeting one or more individual states, and whether targeting the country meant that you were automatically targeting each state within the country. (Traditionally, of course, the case law had focused on contacts with the individual state in which the defendant was being sued.) Justice Scalia asked whether the same issue arises for a domestic corporation; that is, a U.S. manufacturer could thus be sued in every state if it simply targeted the country as a whole.

Justice Ginsburg expressed concern about the whether plaintiff would be left with no forum (other than England) if New Jersey was not available, which led to a lengthy debate about Ohio, the home of the U.S. distributor, and the importance of the distributor contract. Justice Scalia returned to the notion of targeting the country, as opposed to a state, and wondered if the federal courts could be given jurisdiction over such cases by Congress, to which Justice Kennedy wondered aloud whether it would be “odd” to have federal courts but no state courts having jurisdiction over a state law-based product claim. This even led to a brief mention of the pending foreign manufacturer legislation in Congress, which we have posted on.

Justice Sotomayor asked about the facts in the record that the English company traveled to trade shows in the U.S., “approved” the marketing efforts of the distributor, or “suggested” certain advertising, and whether that would be enough to make it reasonable to be hauled into court where the product then has been sold. (Justice Kagan later asked plaintiff’s counsel about this, seemingly trying to get at whether the manufacturer knew and expected that people from all 50 states might attend the trade shows).  Chief Justice Roberts asked plaintiff’s counsel about what a manufacturer has to do to not be targeting a specific state, getting plaintiff to concede that both intent and conduct on the part of the manufacturer is needed to purposefully avail oneself. Justice Breyer and Justice Scalia seemed to observe that “availment” doesn’t mean much at all if the conduct of the English manufacturer here was sufficient.

Justice Breyer expressed the policy concern about subjecting every small business, even in developing countries, to the products liability law of each of the 50 states simply because they agreed to sell to an independent company that was going to sell in the U.S. generally. Justice Kagan and Justice Ginsburg prompted plaintiff’s counsel to say that a U.S. company doing the same thing in Europe as the English company did in this case would be subject to suit in the foreign country (implying that it was fair for the U.S. courts to do to foreign companies what foreign courts allegedly do to U.S. companies abroad). Chief Justice Roberts asked a hypothetical designed to address the issue of a plaintiff who lives in state A and commutes into state B to use the product at work, and whether he can also sue in his home state A, stating that “the stream of commerce doesn’t wash over the United States evenly.”

C.J. Roberts and Justice Kagan then asked about component parts makers. Plaintiff answered that there should be a different test for a component part maker and acknowledged that mere knowledge that the part would go into a machine to be sold in the U.S. was insufficient for the exercise of jurisdiction.

Justice Alito brought up the difficult issue of Internet websites, and Justices Breyer, Ginsburg, and Kennedy all later chimed in on this topic. Plaintiff drew a distinction (as some lower courts have) between a passive website, and an active site at which a plaintiff may have conducted the transaction for the product from his home computer. Plaintiff argued that the actual conduct of the sale was purposeful availment sufficient to be hauled into court there.

The Court then heard argument in the Brown case. Here, the argument generated far fewer questions.  While Justice Ginsburg seemed to ask the defendant difficult question in the New Jersey case, here she found “troubling” the North Carolina court’s apparent and questionable blending of the concepts of general and specific jurisdiction. Indeed, the argument focused on general jurisdiction as opposed to specific jurisdiction.

Much of the early part of the argument also involved a discussion of the relationship between the foreign subsidiary defendants and the parent U.S. corporation, which here had consented to jurisdiction. There were numerous questions about the subsidiaries and parent as a joint enterprise, the parent as agent of the subsidiaries, and whether the actions of the parent could be attributed to the subsidiaries for purposes of establishing jurisdiction over the subsidiaries. Justice Sotomayor asked whether plaintiff’s argument really was nothing more than a reverse of the typical principal-agent theory.

The federal government appeared in the case as amicus curiae and argued on behalf of defendants, against the finding of jurisdiction. It argued that even if the contacts of the parent could be attributed to the subsidiaries, those contacts still did not rise to the level necessary for the finding of general jurisdiction; and that the consent to jurisdiction of the parent would not extend to every corporation in the corporate family. Justice Scalia, in particular, seemed to be expressing some doubt that the level of coordination between the defendants demonstrated a unitary enterprise. The last part of the argument concerned policy issues, such as whether the finding of jurisdiction would cause companies to move all operations out of the U.S. for fear that even the actions of a separate entity in the corporate family would keep them in the U.S. courts.

Both cases were submitted for consideration, with decisions expected late in the spring of 2011.

Toyota Court Recognizes "Apex" Rule for Corporate Executive Depositions

The Michigan Court of Appeals ruled last week that two top Toyota executives do not have to give depositions in a personal injury lawsuit involving the death of a Flint, Mich., woman whose vehicle allegedly suddenly accelerated and struck a tree. See Alberto v. Toyota Motor Corporation, No. 296824 (Mich. Ct. App.,  8/5/10).

Plaintiff filed this wrongful death action and claimed that decedent drove a 2005 Toyota
Camry at a speed of less than 25 miles per hour when the vehicle suddenly accelerated to a speed in excess of 80 miles per hour. Plaintiff also asserts that decedent attempted unsuccessfully to apply the vehicle’s brakes, but the vehicle struck a tree, went airborne, struck another tree; plaintiff’s decedent sustained fatal injuries.

Plaintiff noticed the video depositions of Yoshimi Inaba, defendant’s Chairman and Chief
Executive Officer, and Jim Lentz, defendant’s President and Chief Operating Officer, and defendant moved in response for a protective order to prevent the depositions because neither Mr. Inaba nor Mr. Lentz participated in the design, testing, manufacture, warnings, sale, or distribution of the 2005 Camry, or the day-to-day details of vehicle production.  Thus neither officer had unique
information pertinent to issues in the case.  The trial court denied the protective order, and defendant appealed.

This appeal presented the question whether Michigan should formally adopt the apex
deposition rule in the corporate context. As used by other state and federal courts, the apex
deposition rule provides that before a plaintiff may take the deposition of a high-ranking or
“apex” government official, the plaintiff must demonstrate that: (1) the government official or officer possesses superior or unique information relevant to the issues being litigated, and (2)  information cannot be obtained by a less intrusive method, such as by deposing lower-ranking persons. See, e.g., Baine v Gen Motors Corp, 141 F.R.D. 332, 334-35 (M.D. Ala. 1991).  Courts have applied the apex deposition rule not to shield high-ranking officers from discovery, but rather to sequence discovery in order to prevent litigants from deposing high-ranking government officials as a matter of routine procedure before less burdensome discovery methods are attempted. See, e.g., Sneaker Circus, Inc. v. Carter, 457 F Supp 771, 794 n. 33 (E.D.N.Y. 1978).

Courts have reasoned that giving depositions on a regular basis would impede high-ranking government officials in the performance of their duties, and thus contravene the public interest. See, e.g., Union Savings Bank v. Saxon, 209 F. Supp. 319, 319-320 (D.D.C. 1962). In essence, the apex deposition rule prevents high-ranking public officials from being compelled to give oral depositions unless a preliminary showing is made that the deposition is necessary to obtain relevant information that cannot be obtained from another discovery source or mechanism. Baine, 141 F.R.D. at 334-336.

Premised on similar reasoning, several federal appellate and district courts have extended
application of the apex deposition rule to high-ranking corporate executives. Generally, these
cases hold that before a high-ranking corporate executive may be deposed, the plaintiff must
establish that the executive has superior or unique information regarding the subject matter of the
litigation, and that such information cannot be obtained via a less intrusive method, such as by
deposing lower-ranking executives, etc. See, e.g., Salter v. Upjohn Co., 593 F.2d 649, 651 (5th Cir.
1979); Lewelling v Farmers Ins. of Columbus, Inc., 879 F.2d 212, 218 (6th Cir. 1989); Thomas v.
Int’l Business Machines
, 48 F.3d 478, 482-484 (10th Cir. 1995); Mulvey v. Chrysler Corp, 106 F.R.D.
364, 366 (D.R.I. 1985); Evans v. Allstate Ins. Co., 216 F.R.D. 515, 518-519 (N.D. Okla. 2003).

Some state courts, including California and Texas, have also adopted the apex deposition rule
in the corporate context. For example, in Liberty Mut. Ins. Co. v. Superior Court, 10 Cal. App. 4th
1282; 13 Cal. Rptr. 2d 363 (1992), the California Court of Appeals, relying on federal decisions
adopted the apex deposition rule in the corporate context and held that the potential deponent, the company President and Chief Executive Officer, could not be deposed absent a showing that the officer had “unique or superior personal knowledge of discoverable information.” Id. at 1289.

The court here adopted the apex deposition rule in the public and private corporate context as consistent with Michigan’s broad discovery policy, which allows a trial court to control the timing and sequence of discovery for the convenience of parties and witnesses and in the interests of
justice. Recognizing that the highest positions within a business entity rarely have the specialized
and specific first-hand knowledge of matters at every level of a complex organization, courts
have adopted the apex deposition rule in the corporate context to: (1) promote efficiency in the
discovery process by requiring that before an apex officer is deposed it must be demonstrated
that the officer has superior or unique personal knowledge of facts relevant to the litigation, and (2) prevent the use of depositions to annoy, harass, or unduly burden the corporate parties.

The rule does not mean that an apex or high-ranking corporate officer cannot be deposed under any circumstances. The rule is to ensure that discovery is conducted in an efficient manner and that other methods of discovery have been attempted before the deposition of an apex officer is conducted.

Adopting the apex deposition rule in the corporate context does not shift the burden of proof, but
merely require the party seeking discovery to demonstrate that the proposed deponent has unique
personal knowledge of the subject matter of the litigation and that other methods of discovery
have not produced the desired information.  It is invoked only after the party opposing discovery has moved for a protective order and has made a showing regarding the lack of the proposed deponent’s personal knowledge and that other discovery methods could produce the required information. In other words, after the party opposing the deposition demonstrates by affidavit or other testimony that the proposed deponent lacks personal knowledge or unique or superior information relevant to the claims in issue, then the party seeking the deposition of the high-ranking corporate or public official must demonstrate that the relevant information cannot be obtained absent the disputed deposition, said the court of appeals.

Here, the record reflected that Mssrs. Inaba and Lentz had only generalized knowledge of Toyota’s alleged unintended acceleration problems, but had no unique or superior knowledge of or role in designing the subject vehicle or in implementing manufacturing or testing processes.