In this case, DaimlerChrysler sought Supreme Court review of a Ninth Circuit decision which, in NELF’s view, dangerously and unconstitutionally expanded the exercise of general personal jurisdiction over an out-of-state parent based on the in-state activities of an indirect subsidiary. The case was brought by 22 residents of Argentina, who sued DaimlerChrysler, a German corporation, in the Northern District of California under the Alien Tort Statute of 1789 and the Torture Victim Protection Act of 1991, alleging that one of DaimlerChrysler’s subsidiaries, Mercedes-Benz of Argentina, engaged in human rights violations in Argentina during that country’s “Dirty War” in the 1970s and 1980s. The plaintiffs asserted general jurisdiction over DaimlerChrysler (i.e., that the foreign corporation could be sued in California for events happening anywhere in the world and completely unrelated to its activity within the forum state) on the basis that a wholly-owned, indirect subsidiary, Mercedes Benz USA (“MBUSA”), did business in California.
DaimlerChrysler moved to dismiss the case for lack of personal jurisdiction. It was apparently undisputed that DaimlerChrysler had observed all the formalities of corporate separateness. Indeed, on that basis the district court granted DaimlerChrysler’s motion. However, after initially upholding the district court’s dismissal, the Ninth Circuit reconsidered and reversed itself, holding that it had general personal jurisdiction over DaimlerChrysler based solely on the fact that MBUSA did business on Daimler’s behalf in California.
In reaching this decision, the Ninth Circuit ignored the fact that DaimlerChrysler and its subsidiary were separate corporate entities and did not engage in the usual analysis of whether or not DaimlerChrysler had sufficient contacts with the jurisdiction to warrant the exercise of general personal jurisdiction (as opposed to special jurisdiction, which might arise from a specific transaction in the forum). Rather, the Ninth Circuit imposed general jurisdiction based on the facts that DaimlerChrysler’s operating, indirect subsidiary performed a “sufficiently important” function (such that the parent or some other subsidiary would have had to fulfill the task if the existing subsidiary did not exist) and that DaimlerChrysler exercised some control over the subsidiary (i.e., that it had a standard General Distributorship Agreement with the subsidiary).
Because of the implications of the Ninth Circuit’s expansive jurisdictional holding for those of NELF’s supporters who do business in California, NELF filed an amicus brief in support of DaimlerChrysler’s petition for a writ of certiorari, urging the Supreme Court to grant certiorari in the case. NELF argued, inter alia, that the Ninth Circuit’s virtually limitless agency “test” between a parent and subsidiary corporation defeated the bedrock principle of corporate separateness and a corporation’s constitutionally protected, reasonable expectations concerning its amenability to suit in a remote jurisdiction and offended “traditional notions of fair play and substantial justice.”
After the Supreme Court granted certiorari on April 22, 2013, NELF expanded on these arguments in the amicus brief is filed on the merits.
In a unanimous judgment issued on January 14, 2014 (with Justice Sotomayor concurring in the judgment only, and eight Justices forming the majority), the Court reversed the Ninth Circuit’s jurisdictional decision. Consistent with NELF’s arguments in its amicus brief, eight members of the Court readily dismissed the Ninth Circuit’s agency “test” that would have imputed to DaimlerChrysler all of the California contacts of its indirect subsidiary, MBUSA, a Delaware corporation headquartered in New Jersey. As NELF had argued, the Court rejected as excessively overreaching the Ninth Circuit’s two-part “test” because it merely describes the ordinary parent-subsidiary relationship, in which the subsidiary performs important services for the parent and in which the parent reserves a certain degree of oversight of the subsidiary’s activities. As the Court pointed out, again consistently with NELF’s brief, the perversity of the Ninth Circuit’s “test” was that it would, in essence, establish general jurisdiction over virtually any foreign corporation based on its subsidiary’s forum contacts. This clearly would violate the most basis jurisdictional principles articulated by the Supreme Court, beginning with the seminal holding of International Shoe.
In a surprising move, the Court also addressed an issue that DaimlerChrysler had seemingly conceded below: whether, even if all of MBUSA’s in-state contacts could be attributed to its parent DaimlerChrysler, those MBUSA’s California contacts would be enough to establish general jurisdiction. (DaimlerChrysler, like NELF, had argued successfully that under the doctrine of corporate separateness, MBUSA’s contacts should not be attributed to its parent for jurisdictional purposes.) Apparently seizing the opportunity to clarify the law of general jurisdiction, the Court held that those forum contacts (high sales volume of Mercedes cars in California) were insufficientto establish general jurisdiction even over MBUSA, and that ordinarily general jurisdiction is limited to a corporation’s state of incorporation or principal place of business (headquarters). Thus, even if all of MBUSA’s California contacts could have been properly imputed to DaimlerChrysler, the Court held that general jurisdiction still could not lie against DaimlerChrysler in California.
This case is highly significant for the business community because the Court’s general jurisdiction cases are few and far between, and the decision provides clarity and predictability to corporations in their daily transactions. This decision firmly establishes that, absent extraordinary circumstances not evident here, a corporation is not amenable to general jurisdiction in a state other than its state of incorporation or principal place of business. Moreover, a parent corporation is generally free to rely on the services of its out-of-state subsidiary without risking “ownership” of the subsidiary jurisdictional contacts.