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Monday, September 19, 2016

The Next Personal Jurisdiction Issue for the Supreme Court

In the past couple years, the Supreme Court has decided a spate of personal jurisdiction cases.  Most of the cases turned out more or less as expected; the Court clarified some issues and filled in some gaps, but did not significantly change the law.  In Daimler A.G. v. Bauman, however, the Court did something unexpected: it put an end to so-called "general jurisdiction."  Before Bauman, large corporations doing business throughout the country (e.g., Walmart) could be sued in just about any state.  After Bauman, a plaintiff wishing to sue a large, nationwide corporation was basically limited to 2 or 3 states: (1) the state in which the company's maintained its principal place of business, (2) the state in which the company was incorporated (if different from state of its ppb) and (3) the state where the company established contacts that caused the harm (if different from the state of ppb and state of incorporation). 

When the court abolished general jurisdiction, it delivered a big blow to the plaintiffs bar. Plaintiffs' lawyers had gotten used to filing suits in the most favorable forums in the country--often called "judicial hellholes" by defendants mired in litigation there.  After Bauman, plaintiffs' lawyers had to regroup and find a new way to shop for the best forums.  Their new strategy, and the next personal jurisdiction issue that the Supreme Court will decide, is after the jump.

With general jurisdiction gone, plaintiffs' lawyers turned to consent.  Specifically, they argued that, when a company registers to do business in a state, it consents to jurisdiction there for any and all claims that might arise throughout the world.  Because every state requires companies wishing to do business in the state to register, this argument would re-establish the nationwide jurisdiction that Bauman took away.  Although these registration statutes do not usually specifically say that the act of registration operates as consent, the statutes usually require the registering company to appoint an in-state agent to receive service of process. By appointing an agent, the argument goes, the company has either evinced its openness to being sued in the state, or at least made itself vulnerable to jurisdiction through service of process (see Burnham v. Superior Court).   

Courts are split on the issue.  Some courts buy the logic stated just above.  Other courts think that the consent argument runs headlong into Bauman.  The whole point of Bauman, these courts reason, was to put an end of nationwide jurisdiction over large corporations.  Such jurisdiction, under the Due Process Clause at least, was fundamentally unfair.  Courts on the other side of the matter point out that unfairness arguments collapse when a company consents. Bauman was a case about forcing companies to stand trial in a state, not a case about whether they can consent to it.      

Helpful scholarship on the issue is here, here and here.  My own contribution is here, where I argue that personal jurisdiction based on registration/consent violates the Dormant Commerce Clause in cases where the plaintiff is a nonresident injured out of the forum state.  In a nutshell, states that require companies to consent to jurisdiction for any and all claims (regardless of where they arose) discourage out of state companies from entering the state to do business.  Lots of regulations, of course, discourage companies from entering a state to do business.  But what makes these regulations different--and unconstitutional--is that the regulations are not justified by any state interest.  In cases where the plaintiff is a non-resident injured out of state, the forum state has no cognizable interest in adjudicating the dispute.  Thus, the state can't justify its jurisdiction-via-registration scheme.

Even though there is a clear split right now, the split is mostly confined to federal district courts and state courts.  The Delaware Supreme Court is the first state supreme court (that I'm aware of) that has tackled the issue.  It held that jurisdiction-via-registration was impermissible in light of Bauman.  My guess is that the issue will percolate up to the Court by the October 2018 term, but that's just a wild guess.                 

 

 

 

Posted by Jack Preis on September 19, 2016 at 10:11 AM | Permalink

Comments

I don't think a general registration-to-do-business statute automatically translates into consent to personal jurisdiction (though it strikes me as a relevant contact for the PJ test). But it might be different if the forms a company signs in registering to do business expressly condition the right to do business on the company's consent to PJ in the state for specified claims. After all, the Court has been firm in upholding individual choice in procedural contracts, including in contracts expanding or restricting personal jurisdiction. One distinction with that line of precedent is that the future plaintiff is not in privity with the business-registration terms. But perhaps this distinction goes to the difference between *waiving* the procedural right to contest PJ in a private contract (which would be a commitment to a specific plaintiff) and *consenting* to PJ generally in a business-registration form (which could be, if you are Justice Kennedy, a grant to the state of sovereign power over you).

Posted by: Scott Dodson | Sep 19, 2016 1:31:01 PM

As far as I'm aware, Pennsylvania is the only state whose registration statute specifically states that registration operates as consent. 42 Pa. Stat. § 5301(a)(2)(i)–(ii) Importantly, however, the statute the statute that says this is not the registration statute, but rather the long-arm statute. Thus, if all you do is check the registration statute, you won't know that registration will subject you to general jurisdiction. Whether it is appropriate impute knowledge of the long-arm statute to the registrant it a different issue. But if even we did, states other than Pennsylvania fall far short of the notice that Pennsylvania supplies.

Posted by: Jack Preis | Sep 19, 2016 2:08:47 PM

Jack, I'm intrigued by your statement that the effective abolition of GPJ is a big blow to the plaintiffs' bar, since I was under the impression that there just weren't that many cases based on GPJ. Other than Perkins, how many successful assertions of GPJ were there pre-Bauman, in cases where there was no basis for SPJ? I don't recall seeing any, with the brief exception of Gator.com v. LL Bean, but I've never systematically looked.

Posted by: Bruce Boyden | Sep 19, 2016 2:39:05 PM

Fair point, Bruce. I confess that I don't have any data on the prevalence of GPJ overall, or its prevalence in particular areas of law or courts. My claim is based on what I kept reading in the trade journals and legal updates put out by firms. Here is an example from Forbes: http://www.forbes.com/sites/wlf/2014/02/04/with-bauman-v-daimlerchrysler-high-court-may-have-put-brakes-on-forum-shopping/2/#448fc6b15c2d These sources are just hearsay, of course, as they don't seem to produce data either. I guess one reason to believe them, however, is that the consent issue I address in my post is suddenly getting litigated a lot. That suggests to me that GPJ was doing some useful work before Daimler came along, but I'm certainly open to being enlightened by others who have expertise (or know of scholarship) on this particular issue.

Posted by: Jack Preis | Sep 19, 2016 3:20:33 PM

Check out Golanski's peice. He argues that shrinking of General PJ is in fact a by product of SCOTUS's desire to enlarge Specfic PJ. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2791643

Posted by: Eric Lindenfeld | Sep 19, 2016 9:53:26 PM

Bruce, speaking only as a practitioner in this area (who also has not done a systemic survey), I think the import of the "continuous and systematic contacts" test pre-Daimler is that large, national companies (e.g. Walmart) wouldn't contest nationwide personal jurisdiction. So those cases simply never got litigated. Post-Daimler, national companies are now making personal jurisdiction challenges against forum shoppers.

Posted by: Sean M. | Sep 20, 2016 8:12:46 AM

I would second Sean M.'s point. My experience, again anecdotal, was that large corporate defendant's saw contesting GPJ as a waste of time and money when it was clear the state trial court and intermediate court of appeals would rule for the plaintiff. This hypothesis would explain the dearth of appellate case law.

Posted by: Lou Mulligan | Sep 20, 2016 9:02:12 AM

And to use a canonical example--VWA and Audi did not contest personal jurisdiction in Oklahoma. And that prompted the Brilmayer-Twitchell debate over whether the jurisdiction over them was general or specific. Under Bauman, there almost certainly is not G/J over them in OK.

Posted by: Howard Wasserman | Sep 20, 2016 10:35:14 AM

Another practitioner adding anecdote: Pre-Daimler, clients would specifically avoid battles of general jurisdiction because (a) so likely to lose and (b) expensive when a court orders jurisdictional discovery. Post-Daimler, it's a legal issue that has real bite and is very low cost.

Posted by: A Non-E Mous | Sep 20, 2016 12:30:28 PM

It seems to me this overstates the importance of Daimler because it doesn't take into account the venue statutes. Whether a court has GJ over a corporation may be interesting doctrinally, but it's irrelevant in practical terms unless you also have proper venue.

Posted by: CS | Sep 20, 2016 2:30:49 PM

Thanks for your comment, CS. I think your point turns on two questions. First, there is the question whether the advantages of suing in particular venue stem from law and practices that are *particular to that venue* or instead stem from law and practices that are *particular to the state*. In many cases, plaintiffs are suing in a particular state so that they can take advantage of choice of law rules for that state. If that is true, then suing in any venue in the state would be sufficient to give the plaintiff what she desires. But let's suppose that that's not true in a given case--that the plaintiff wants to sue in Madison County, Illinois because it, as compared to all other counties in Illinois, has a reputation for big judgments. This brings up the second question, which is: what limits to do state venue laws impose on plaintiffs' choice of venue and how vigorously are those limitations enforced? Lots of states (with Illinois being one example) allow plaintiffs to lay venue in any county where the defendant maintains an office, which is pretty expansive. Additionally, as I note in my article, some courts simply don't enforce venue law very vigorously, whether because they take venue when they shouldn't, or because they refuse to transfer a case when they should. So, in short, I think you're correct that venue rules will sometimes be the real driver of forum selection. But for the reasons I stated, I think personal jurisdiction will be the main event in many cases.

Posted by: Jack Preis | Sep 20, 2016 3:27:09 PM

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