The availability of any forum aside from a defendant's state of incorporation or principal place of business will require a plaintiff to carefully consider the likelihood of obtaining specific jurisdiction because there is effectively no longer any general jurisdiction backstop.
Published in Corporation (July 17, 2017, Vol. LXXXVIII, No. 14, Section 2), produced by Wolters Kluwer, New York, NY, 1.800.638.8437, www.wklawbusiness.com.
What you learned in law school about general personal jurisdiction no longer applies. On May 30, the U.S. Supreme Court narrowed courts' ability to exercise personal jurisdiction over corporate defendants solely on the basis that they have some in-state presence. In BNSF Railway Co. v. Tyrrell, the Court settled that - absent exceptional circumstances - a corporate defendant is subject only to the general jurisdiction of courts within its state of incorporation or where it maintains its principal place of business. By doing so, the Court has significantly limited corporate exposure to litigation in states where companies were not incorporated and do not have their principal place of business. BNSF Ry. Co. v. Tyrrell, No. 16-405, slip op. at 11 (U.S. May 30, 2017).
Prior Decisions Addressing General Jurisdiction
For decades, the exercise of general personal jurisdiction was controlled by the Court's seminal decision in International Shoe Co. v. Washington, 326 U.S. 310 (1945), which resulted in the familiar "minimum contacts" test. In brief, International Shoe distinguished between a court's exercise of "specific jurisdiction" and "general jurisdiction" over a defendant. Specific jurisdiction is determined by the relationship between the plaintiff's claim and an out-of-state defendant's conduct in the forum, while general jurisdiction is dependent solely on the presence of the defendant in the forum.
Under International Shoe, the Fourteenth Amendment's Due Process Clause permitted courts to exercise personal jurisdiction over out-of-state defendants that had "certain minimal contacts with [the state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice" Id. at 316. If a corporation maintained a "continuous" and "substantial" presence in the forum, general jurisdiction was appropriate. Id. at 317. While vague, the Court viewed this as a balancing test designed to promote fairness. Id. at 319.
The International Shoe standard stood untouched for years, as the Court trained its eye on specific jurisdiction standards. Over time, however, the general jurisdiction standard became muddled, such that the Court revisited the issue in two recent cases: Goodyear Dunlop Tire Operations, S.A. v. Brown, 564 U.S. 915 (2011), and Daimler AG v. Bauman, 134 S. Ct. 746 (2014). In Goodyear, the Court addressed the question of whether a state court could exercise personal jurisdiction over the international subsidiaries of a U.S. parent corporation when the plaintiffs' claims arose from conduct outside the state (indeed, outside the country). Goodyear, 564 U.S. at 918. The Court held that it could not, clarifying that the exercise of general jurisdiction was only appropriate when a corporation's "affiliations with the State are so 'continuous and systematic' as to render them essentially at home in the forum State." Id. at 919 (emphasis added).
Three years later, in Daimler, the Court addressed a similar situation: whether a federal court in California could exercise personal jurisdiction over a foreign parent of a U.S. subsidiary when the claims arose outside the United States. The defendant, Daimler, was the foreign parent of Mercedes Benz USA, LLC, the largest supplier of luxury automobiles in California. The Supreme Court nonetheless held that Daimler was not "at home" in California. In doing so, the Court more firmly stated that the hallmarks of a corporation being "at home" were its state(s) of incorporation and principal place of business. Daimler, 134 S. Ct. at 760.
The Daimler Court left room for the exercise of general jurisdiction in other "exceptional" cases. Id. at 761 n.19. However, while not specifically overruling International Shoe, Goodyear and Daimler significantly narrowed the standard, requiring proof that the defendant was effectively "at home" before exercising general jurisdiction.
What that would mean for U.S. companies was somewhat in doubt, given that Goodyear and Daimler both involved internationally headquartered defendants being sued for conduct that occurred outside the United States. Indeed, the Daimler Court voiced particular concern about the damage to international comity that could flow from the U.S. courts' taking an "uninhibited approach to personal jurisdiction." Id. at 763. Thus, Daimler and Goodyear left open the questions of whether anything remained of the "minimum contacts" standard for general jurisdiction, and, if not, could a corporation be "at home" anywhere other than its state of incorporation and its principal place of business?
The BNSF Railway Decision
In BNSF Railway, two plaintiffs sued BNSF in Montana state court under the Federal Employers' Liability Act (FELA) for injuries allegedly suffered while working for the railway. Neither plaintiff resided or alleged injury in Montana. BNSF was not incorporated in Montana and did not maintain its principal place of business there, but it had a presence in the state that would seem certain to satisfy International Shoe standards: 2,061 miles of railroad track, 2,100 workers, an automotive facility and substantial revenue generated within the state. BNSF, slip op. at 1-2. The Montana Supreme Court held that that it was entitled to exercise jurisdiction over BNSF under both FELA (45 U.S.C. § 56) and the general jurisdiction powers of the Montana courts. Id. at 2. The U.S. Supreme Court reversed.
The Court first held that the applicable FELA statute addressed venue and subject matter jurisdiction, not personal jurisdiction. When stripped of this argument, the plaintiffs were left to defend the position that BNSF was subject to the general jurisdiction of the Montana courts. While the railway did not (because it could not) dispute that it maintained a continuous presence in Montana, it argued that it was not subject to general jurisdiction under Daimler.
The Court agreed. In an opinion authored by Justice Ginsburg, the Court explained that, on the facts presented, the exercise of general jurisdiction would have to be "exceptional" under Goodyear and Daimler because Montana was neither BNSF's (a) state of incorporation nor (b) its principal place of business. Id. at 10.
In evaluating the "exceptional" standard, the Court emphasized that due process required an assessment of the quality of BNSF's contacts with Montana, rather than the mere continuity of its operations there. In other words, BNSF's presence in Montana was required to be measured against the totality of BNSF's operations because "'[a] corporation that operates' in many places can scarcely be at home in all of them.'" Id. at 11 (quoting Daimler, 134 S. Ct. at 762 n.20).
While BNSF's operations in Montana were facially substantial, those operations represented a small percentage of the railroad's overall business. Id. at 1-2. Thus, exercising specific jurisdiction over claims that arose in Montana would have been appropriate, but exercising general jurisdiction was not. Id. at 11-12. Finally, lest there be any doubt, the Court stated that Daimler "applies to all state-court assertions of jurisdiction over nonresident defendants; the [due process] constraint does not vary with the type of claim asserted or business enterprise sued." Id. at 11.
What Our Clients Should Know, and Do, About the BNSF Railway Decision
BNSF Railway crystalizes the Roberts Court's narrow view of general jurisdiction. Plaintiffs are left with, at best, two safe places to sue a corporation on a general jurisdiction theory: the state of incorporation or the principal place of business (assuming these are different). While the Court has nominally left open the possibility of exceptions to that rule, the only example the Court has given of an "exceptional" case is a 1952 case where Ohio courts exercised general jurisdiction over an Philippines-based company that moved its headquarters to Ohio during World War II. Thus, as a practical matter, no exception exists.
The availability of any other forum will require a plaintiff to carefully consider the likelihood of obtaining specific jurisdiction because there is effectively no longer any general jurisdiction backstop. Forum shopping will be further curtailed because it is now clear that out-of-state defendants cannot be sued simply because they have some in-state presence.
Conversely, this is an obvious boon to corporate defendants as it reduces their exposure to being sued in known plaintiff-friendly forums, and correspondingly increases the likelihood that these defendants will be able to defend on their "home turf." Indeed, if it were not clear before, corporate defendants can and should consider aggressive jurisdictional challenges when sued outside of their state of incorporation or principal place of business.
From an international perspective, in the wake of BNSF, U.S.-based parties transacting with international entities should no longer assume that the mere scope of their counterpart's activities will be sufficient to subject it to jurisdiction in the United States. Obtaining U.S. jurisdiction - in an express manner in the contract - is now more critical than ever. At the same time, foreign businesses contemplating the structure of their business presence in the United States should consider the BNSF decision when identifying of pros and cons of incorporating and/or establishing a principal place of business in the United States.
Finally, as suggested above, if you find yourself as a potential plaintiff, think carefully about where you sue, so that you do not burn precious time and money litigating about forum. If you do not have a strong specific jurisdictional basis for suing in your preferred forum, think hard. A suit that looks more expensive in your opponent's principal place of business may prove to be far less expensive when it lacks a year of jurisdictional motion practice.
The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.