By Dan Jaffe on April 10, 2017

gavel courtIn recent years the United States Supreme Court has strengthened the due process protections for defendants against suits in states with which they have no meaningful contacts. In J. McIntyre Machinery, Ltd. v. NiCastro, 564 U.S. 873 (2011), the plaintiff sued the British manufacturer of a metal-shearing machine in New Jersey, where he was injured.  The defendant neither marketed nor sold its products in that State. It sold its machines nationwide through an independent U.S. distributor, but defendant’s representatives were never present in New Jersey. In any event, no more than four of its machines ended up in New Jersey. The Court held that exercise of judicial power over a defendant is unlawful unless the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws, and that defendant engaged in no activities that disclosed an intent to invoke or benefit from New Jersey’s laws. NiCastro, 564 U.S. at 887.

More recently, in Daimler AG v. Bauman, ___U.S.___, 134 S.Ct. 746 (2014), the Supreme Court rejected the proposition that large corporations doing substantial and continuous business in multiple States should, without more, be subject to personal general jurisdiction in all of those States. In Daimler, the Supreme Court unanimously held[1] that even where a defendant has purposely availed itself of conducting activities in the forum State, and has minimum contacts, “such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice,” then a court must still determine whether either specific or general jurisdiction exists. Specific jurisdiction exists when the case arises directly from a defendant’s contacts with the forum State. General (or “all-purpose”) jurisdiction exists where a defendant’s affiliation with the state is 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 on causes of action arising from dealings entirely distinct from those activities.” Daimler, 134 S.Ct. at 749.

In Daimler the Supreme Court considered the scope of general jurisdiction, saying that, “general jurisdiction requires affiliations “so ‘continuous and systematic’ as to render [the foreign corporation] essentially at home in the forum State.” Daimler, 134 S.Ct. at 758, 761.  Under the “at home” standard, general jurisdiction exists where (1) defendant’s place of incorporation is the forum; (2) defendant’s principal place of business is in the forum; or (3) in exceptional cases, where the defendant’s activities in the forum are “so substantial and of such nature as to render the defendant “at home’ in the forum, even though it is neither the defendant’s State of incorporation, nor the place of its principal office.

In the case of large multi-national or multi-State corporations, the fact that defendant’s business in the forum is substantial, continuous and systematic, without more, is insufficient to establish general personal jurisdiction if that business amounts only to a small fraction of defendant’s over-all business. In Daimler, the fact that defendant was the forum State’s largest seller of luxury cars was insufficient to  confer general jurisdiction where this business amounted to only 2.4% of its total sales. Daimler, 134 S.Ct. at 752, 758.[2]

Businesses must make decisions balancing business opportunities and advantages with issues such as the litigation risks posed by adverse judicial forums. Advance planning is necessary to avoid the jurisdiction of a hostile forum. Issues to be considered include: (1) use of an independent distributor, or legally separate subsidiary to market/sell one’s goods and services; (2) refraining from physically visiting or having any presence in the forum; (3) refraining from advertising in, shipping goods to, or otherwise purposely availing the company of benefits and protections of the laws of the forum; and (4) explicitly indicating an intent not to conduct any business in the forum.

Needless to say, litigation concerns are far from the only relevant consideration. A few years ago Boeing decided to move its corporate headquarters to Chicago, well known as a plaintiff-friendly forum. However, personal jurisdiction issues should be assessed as part of a sound risk management plan.

[1] Justice Sotomayor concurred in a separate opinion.

[2] See Brown v Lockheed Martin Corp., 814 F.3d 619, 626-630 (2d Cir. 2016); State ex rel. Norfolk Southern Railway Company v. Dolan, ___S.W.3d___, 2017 WL770977 (MO banc 2017).