California Supreme Court Continues Its “Grasping” and “Exorbitant” Personal Jurisdiction over Nonresident Defendants

California supreme courtIn its seminal 2014 decision, Daimler AG v. Bauman, the U.S. Supreme Court imposed strict limits on the authority of courts to exercise personal jurisdiction over out-of-state corporate defendants.  It condemned as “grasping” and “exorbitant” a California court’s efforts to exercise jurisdiction over claims lacking any connection with the State based solely on a corporate defendant’s regular conduct of business there.  But apparently the California Supreme Court did not get the message.  This week it ruled 4-3 that out-of-state plaintiffs whose tort claims arose outside the State could sue an out-of-state corporation in California courts simply because other plaintiffs who live in California have filed similar claims against the corporation.  Bristol-Myers Squibb Co. v. Superior Court (BMS).  That decision conflicts both with Daimler and basic notions of due process.  The U.S. Supreme Court ought to reverse it in short order.

BMS involves 678 unrelated plaintiffs from across the country who filed eight product-liability suits in California state court, alleging they were injured after taking Plavix, a BMS drug.  Only 86 of the plaintiffs are California residents; the other 592 live in 33 other States, and their claims are not connected to any California conduct.  Like many large manufacturers, BMS sells its products in all 50 States, and its sales in California (the largest State) are significant.  But BMS’s actual business operations in California are not large; its principal place of business is in New York, and it is incorporated in Delaware.

The Fourteenth Amendment’s Due Process Clause has long been understood to limit  state courts’ power to exercise jurisdiction over nonconsenting defendants.  In the nineteenth and early twentieth centuries, such power was thought to be tied to a defendant’s physical presence in the State.  In the case of a corporation, physical presence was equated with the State of incorporation and (perhaps) its principal place of business.  But that definition of physical presence often made it difficult for state courts to exercise jurisdiction over a corporation, even when a corporation’s activities gave rise to legal claims that unquestionably were directly connected with the forum State.

In a 1945 decision, International Shoe Co. v. Washington, the U.S. Supreme Court abandoned its focus on physical presence and instead focused its jurisdictional inquiry on the extent of the connection among the defendant, the forum, and the litigation.  It held that the Due Process Clause permits a state court to exercise personal jurisdiction over an out-of-state defendant if the defendant has certain “minimum contacts” with the State such that maintenance of the suit did not offend “traditional notions of fair play and substantial justice.”  The Court explained that such minimum contacts include shipping a product into a State for sale to a consumer if that shipment later gives rise to a legal claim, because a business should reasonably expect to be answerable in the State’s courts for such shipments.

Following Int’l Shoe, legal commentators began referring to two categories of personal jurisdiction.  “General jurisdiction” referred to a court’s exercise of jurisdiction over a defendant whose “home” was in the State.  “Specific jurisdiction” referred to a court’s exercise of jurisdiction under Int’l Shoe; that is, an exercise of jurisdiction over an out-of-state defendant in cases where the connection among the defendant, the forum, and the litigation is sufficiently close that an exercise of jurisdiction conforms to traditional notions of fair play and substantial justice.

Unfortunately for corporations that operate nationwide, some state courts in recent decades began assuming that every corporation with significant sales within a State should be deemed to be “at home” there, and thus subject to the general jurisdiction of the courts of that State.  Daimler disabused lower courts of that notion.  It held that, except in very unusual circumstances, a corporation should be considered “at home” (and thus subject to general jurisdiction) only in the State(s) in which: (1) it has its principal place of business; and (2) it is incorporated.  If a state court wishes to exercise personal jurisdiction over an out-of-state corporation, it must do so under the specific-jurisdiction standards set forth in Int’l Shoe.

The California Supreme Court sought to evade Daimler by purporting to analyze and approve exerting “specific jurisdiction” rather than “general jurisdiction.”  But the applicable due-process limits cannot be so easily evaded.  By basing its jurisdictional finding on BMS’s substantial sales in California (as well as the presence of California-based legal claims that are the inevitable result of such sales), the court is effectively ruling that California courts may exercise personal jurisdiction over BMS with respect to any claim against the company, even claims that bear no relationship to the State and are filed by nonresidents.  Such a “grasping” assertion of jurisdiction by California courts fits the commonly understood definition of “general jurisdiction” pre-Daimler—and it is precisely what the U.S. Supreme Court disallowed in that case.  Indeed, if the BMS decision stands, any nationwide company that has substantial sales within California will be forced to defend all manner of suits there, even claims arising from sales of its products to nonresidents who cannot claim any connection to the State.

As WLF explained in the brief it filed in BMS, plaintiffs’ lawyers have an obvious motive for seeking to file tort claims in courts whose States bear no relationship to the litigation. Forum shopping is as an ancient art form designed to steer claims before a friendly judge who, attorneys hope, are hostile to corporate defendants.  But such forum shopping offends “traditional notions of fair play and substantial justice” when a defendant is haled before a distant court in a State that lacks any connection with either the plaintiff or the litigation.  As Justice Werdegar wrote (quoting from a recent U.S. Supreme Court decision) in her dissenting opinion on behalf of herself and two other justices, the High Court has “never accepted the proposition that state lines are irrelevant for jurisdictional purposes, nor could we, and remain faithful to the principles of interstate federalism embodied in the Constitution.”

Also published by Forbes.com on WLF’s contributor page.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s