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Defendants score wins in high court personal jurisdiction rulings

The U.S. Supreme Court handed civil defendants a pair of victories in cases that raise the issue of when a party can be sued in federal court in a state far from home.

But some attorneys say that the decisions still leave uncertain terrain for litigants when it comes to establishing personal jurisdiction, and only Congress can provide true relief.

In the most recent case, Walden v. Fiore, No. 12-574, the justices ruled in favor of a defendant who was sued in Nevada based on an incident that occurred in Georgia. Earlier this term, the court sided with the defendant in Daimler AG v. Bauman, No. 11-965, where a wholly owned American subsidiary of a German company was sued in California over alleged atrocities committed by another subsidiary in Argentina.

The cases provided rare opportunities for the justices to take up the technical civil procedure issue of personal jurisdiction — a subject so thorny that it often splinters lower courts and confuses litigants, creating a situation that Stephen Sachs, a professor at Duke University School of Law in Durham, N.C., describes as “a mess.”

Sachs said the decisions made the jurisdictional landscape only a little clearer.

“In both cases, the court avoided opportunities to make broader pronouncement about personal jurisdiction,” he said. “It made relatively narrow rulings.”

But business-side attorneys said that the decisions reinforce traditional principles of personal jurisdiction that protect defendants from being hauled into court in distant places where they have few, if any, contacts.

The rulings “reaffirm the basic point that personal jurisdiction … protects business defendants’ reasonable expectations,” said Benjamin Robbins, senior staff attorney at the Boston-based New England Legal Foundation, which submitted amicus briefs in both cases.

Seized winnings and claims of torture

Walden involved a pair of professional gamblers who were stopped at a Transportation Security Administration checkpoint in Atlanta during a stopover on their trip from San Juan, Puerto Rico to Las Vegas.

The couple was questioned by a Drug Enforcement Administration agent about the $100,000 in their baggage, cash they said was from gambling winnings.

The agent seized the cash based on a suspicion that it was drug sale proceeds, and the couple was allowed to continue their trip without the money. An assistant U.S. attorney ultimately concluded that the government lacked probable cause to seize the funds, and they were returned about seven months later.

The couple filed a Bivens action against the DEA agent in federal court in Nevada, but the trial court dismissed the case for lack of personal jurisdiction. The 9th U.S. Circuit Court of Appeals reversed, holding that the defendant’s actions had a foreseeable effect in Nevada, where the couple lived, and that was enough to establish specific personal jurisdiction.

But the U.S. Supreme Court disagreed, concluding that mere contact between an agent and a passenger doesn’t make him subject to lawsuits in the passenger’s home state.

“[T]he plaintiff cannot be the only link between the defendant and the forum,” wrote Justice Clarence Thomas for a unanimous court. “Rather, it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over him.”

In Daimler, plaintiffs filed an Alien Tort Act claim in California against Mercedes-Benz USA, a wholly-owned subsidiary of German company Daimler, alleging violations of the Torture Victims Protection Act by another Daimler subsidiary in Argentina. The plaintiffs alleged that the sister subsidiary company collaborated in the kidnapping and torture Argentinian workers.

When Daimler challenged jurisdiction, the plaintiffs argued that the existence of subsidiary firms within the forum state acting on the parent company’s behalf established sufficient ties by the parent company to the state to establish general personal jurisdiction. The 9th Circuit agreed, holding that the subsidiary was an “agent” of the parent company for jurisdictional purposes, even though the subsidiary was neither headquartered nor incorporated in California.

But the Supreme Court held that such a reading exceeded the limits of due process.

“The Ninth Circuit’s agency theory thus appears to subject foreign corporations to general jurisdiction whenever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the sprawling view of general jurisdiction we rejected” in prior cases, wrote Justice Ruth Bader Ginsburg for the eight-justice majority. (Justice Sonia Sotomayor concurred with the judgment under different reasoning.)

The court then went even further, addressing an issue that was not directly presented in the case: whether ownership of a subsidiary that would be subject to personal jurisdiction in a state is enough to confer such jurisdiction on the foreign parent.

“Even if we were to assume that MBUSA is at home in California, and further to assume MBUSA’s contacts are imputable to Daimler, there would still be no basis to subject Daimler to general jurisdiction in California, for Daimler’s slim contacts with the State hardly render it at home there,” Ginsburg wrote.

Forum selection clauses

Attorneys had been closely watching the cases, and the trial lawyers’ group the American Association for Justice filed an amicus brief in Daimler urging the court to allow the suit to proceed in California.

Failing to do so, AAJ argued, would “insulate US, as well as foreign, corporate parents from suits in jurisdictions in which they are doing business through their wholly owned subsidiaries, even from claims by US citizens of that jurisdiction.”

“US corporations can avoid being sued in this country by doing all their business through a wholly-owned subsidiary, an arrangement over which they have total control and over which those whom they injure have no input or even knowledge,” the brief stated.

But Robbins said that the court followed traditional legal principles and recognized that a contrary finding would have resulted in “a sweeping, limitless and unpredictable standard where corporate defendants would find themselves … exposed to general jurisdiction in a remote forum in a dispute that has nothing to do with the forum itself.”

“I don’t know if the case changed anything,” Robbins said of Daimler. “If anything, it reinforces the principles that have always been the basis if general jurisdiction.”

Sachs suggested that the only solution may lie with Congress, which could pass legislation establishing a system of nationwide federal personal jurisdiction but leaving the issue of whether a particular court can hear a dispute to the more clearly-established rules of venue, which take into account factors such as the convenience of the parties.

In the meantime, attorneys say the best way to avoid potentially lengthy and expensive litigation fights over the issue of personal jurisdiction is by including forum selection clauses in contracts that allow parties to agree where any dispute will be settled.

That solution looks even more attractive in the wake of the court’s December ruling in Atlantic Marine Constr. Co. v. United States Dist. Court for Western Dist. of Tex., which held that valid forum selection clauses should be enforced in all but “extraordinary circumstances unrelated to the convenience of the parties.”

“Atlantic Marine said that forum selection clauses are going to be enforced pretty rigorously in federal courts,” Sachs said.

But the decision won’t help all litigants.

“That can work in contractual disputes,” Sachs said, “[but not] tort suits, where there usually is no plausible opportunity for the parties to agree beforehand as to jurisdiction.”

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