220px-Ruth_Bader_Ginsburg_official_SCOTUS_portraitCross-posted from WLF’s Forbes.com contributor site

The Supreme Court’s decision last month in Daimler AG v. Bauman has been viewed by many as having its principal impact on lawsuits involving overseas events.  There is no question that the decision evinces the Court’s reluctance to permit federal courts to exercise jurisdiction over controversies arising within other nations.  But to focus exclusively on this aspect of Daimler overlooks its potential bombshell consequences for domestic tort litigation; it could result in major upheavals in standard operating procedures for much of the plaintiffs’ bar.  Indeed, Daimler may even conceivably spell the end of most nationwide class action lawsuits.

The plaintiffs in Daimler were 22 residents of Argentina who claim to have suffered human rights abuses at the hands of Argentina’s military rulers more than 30 years ago.  The plaintiffs alleged that Mercedes-Benz Argentina, a subsidiary of Daimler, aided and abetted those human rights abuses.  Daimler is a German corporation whose cars are sold world-wide.  It sells its cars here through its American subsidiary, Mercedes-Benz USA (MBUSA).  MBUSA is a Delaware corporation with a principal place of business in New Jersey, and it distributes Daimler-manufactured cars to independent dealerships throughout the U.S., including many in California.

The plaintiffs filed suit in a federal district court in California against Daimler, claiming that it should be held responsible for the alleged misdeeds of its Argentine subsidiary.  They asserted personal jurisdiction over Daimler on the basis of MBUSA’s contacts with California, although they conceded that none of the events giving rise to their claim occurred in California.  The Ninth Circuit upheld the assertion of personal jurisdiction; it held that MBUSA did sufficient business in California to be answerable for any lawsuit filed against it within the state and that Daimler was similarly answerable because MBUSA was Daimler’s agent for jurisdictional purposes.

The Supreme Court unanimously reversed, holding that Daimler was not subject to the general jurisdiction of California courts.  While most observers had expected a reversal, the rationale underlying Justice Ginsburg’s majority opinion (joined by all justices except Justice Sotomayor, who concurred only in the result) is extremely broad.  The Court explained that most modern personal jurisdiction case law (beginning with the Court’s 1945 International Shoe decision) has addressed due process limitations on personal jurisdiction in the context of “specific jurisdiction”—that is, instances in which the suits arise out of the defendants’ contacts with the forum.  Thus, it is well accepted that a manufacturer is subject to suit within a state if it purposely avails itself of the opportunity to sell its products there and one of its products later causes an injury within the state.  But, the Court explained, the Argentine plaintiffs could not rely on the International Shoe line of cases because they were seeking to invoke “general jurisdiction” over Daimler for purposes of asserting claims bearing no relation to California.

The Court said that a defendant is subject to “general jurisdiction” only if its extensive contacts with the forum render it “at home” there.  The Court then provided an extremely limited definition of what it means for a corporation to be “at home” within a state:  it is “at home” in the states where it is incorporated and where it maintains its principal place of business (if different)—and perhaps nowhere else.  The Court’s only concession to other possible forums: it did not “foreclose the possibility” that there might exist an “exceptional case” in which a corporation’s contacts with a third state were “so substantial and of such a nature as to render the corporation at home in the State.”  But the Court did not explore that question further, concluding that Daimler’s activities in California “plainly” did not reach that level.  Importantly, the Court declined to address the issue that was the crux of the Ninth Circuit’s decision—whether MBUSA was Daimler’s “agent” for jurisdictional purposes—because, it held, Daimler could not be deemed “at home” in California “even with MBUSA’s contacts attributed to it.” 

The unstated implication of that latter holding is clear:  even MBUSA, a U.S.-based corporation that does extensive business in every State, is not “at home” in California and hence is not subject to the “general jurisdiction” of California’s courts.  That conclusion is particularly surprising because Daimler had conceded (mistakenly, it now seems) in the lower courts that MBUSA was subject to “general jurisdiction” in California.  Indeed, most large American corporations have long assumed that they are subject to the general jurisdiction of the courts of any state in which they engage in “a substantial, continuous, and systematic course of business.” Over the objections of Justice Sotomayor, the Court explicitly rejected that standard.

If state courts willingly heed Daimler’s dictates, the decision’s impact on tort litigation in this country will be immediate and dramatic.  Lawyers will no longer be permitted to seek out plaintiff-friendly forums (think Madison County, Illinois) that bear no relation to the parties and the cause of action.  If a consumer claims that he has been injured by a prescription drug, for example, his choice of forum will likely be limited to no more than three states:  his home state, and the state(s) in which the pharmaceutical manufacturer is incorporated and maintains its principal place of business.  After Daimler, it makes no difference that the manufacturer’s sales within the plaintiff’s favored forum are in the billions of dollars annually, so long as that state is not the manufacturer’s principal place of business; it would take “exceptional circumstances” to convince the Court that the manufacturer is “at home” in that State.

Daimler can also put a serious crimp in the plaintiffs’ bar’s continuing efforts to undermine defendants’ rights to remove diversity-jurisdiction lawsuits from state court to federal court.  Washington Legal Foundation has helped fight numerous suits in which plaintiffs’ counsel combine the claims of numerous plaintiffs in a single lawsuit filed in a favored state-court forum and then add one plaintiff whose citizenship corresponds with the corporate defendant’s principal place of business.  The intent in doing so is to forum shop and to defeat removal rights by eliminating complete diversity of citizenship.  But if the defendant is not “at home” in the forum state, and if the added plaintiff cannot assert that his claim arose within that state, then Daimler dictates that the claims of the non-diverse plaintiff must be dismissed—thereby restoring the defendant’s removal rights.

Daimler may even spell the end of nationwide class actions against multiple defendants filed anywhere other than the states (if any) in which all corporate defendants are “at home.”  In the vast majority of nationwide class actions, the claims of most class members did not arise in the forum state.  Accordingly, such claims cannot be heard in a state in which neither the class member nor the corporate defendant is “at home,” regardless of whether the defendant’s contacts with the forum state are extensive or whether consolidating all claims would be efficient.  Daimler does not rule out all nationwide class actions, but hereafter such lawsuits can only be heard in a forum in which all defendants are “at home,” not in any forum of the plaintiffs’ bar’s choosing.