In Daimler AG v. Bauman, 134 S. Ct. 746 (2014), decided on January 14, 2014, the U.S. Supreme Court severely limited the states in which a corporation can be subject to general personal jurisdiction. Now a foreign corporation is subject to general jurisdiction only in a state in which it has sufficient contacts, compared to its contacts with all other states, that the forum state is equivalent to its principal place of business. A domestic corporation is subject to general personal jurisdiction in only two places: its state of incorporation and the state in which it has its headquarters.

The majority opinion was authored by Justice Ginsburg and joined by seven other Justices. Justice Sotomayor concurred in the judgment on different grounds. The case arose when a number of Argentine citizens sued Daimler AG, a German corporation headquartered in Germany, in California state court. The plaintiffs alleged that Daimler AG, which operated factories in Argentina, connived with the Government of Argentina to kidnap, torture, and kill their family members during the “Dirty War” of the late 1970's. The plaintiffs brought claims under both state and federal law. Daimler AG, the only defendant, moved to dismiss for lack of personal jurisdiction.

Because none of the alleged wrongful conduct had occurred in California, the plaintiffs invoked general jurisdiction over Daimler, pointing to the substantial contacts of Daimler’s U.S. subsidiary, Mercedes-Benz USA (MBUSA), with California.  MBUSA is a Delaware corporation with its principal place of business in New Jersey. However, it has  “multiple California-based facilities, including a regional office in Costa Mesa, a Vehicle Preparation Center in Carson, and a Classic Center in Irvine.” MBUSA is “the largest supplier of luxury vehicles to the California market,” with its sales accounting for “2.4% of Daimler’s worldwide sales.”¹

The District Court dismissed the Complaint, holding that the contacts of MBUSA should not be imputed to Daimler AG and that Daimler AG’s own contacts with California were insufficient to grant general jurisdiction. The Ninth Circuit panel, after initially affirming the District Court, reversed itself and reversed the dismissal. The Ninth Circuit held that MBUSA’s contacts, which the parties conceded were sufficient to grant general jurisdiction over MBUSA, should be imputed to the parent compnay, Daimler AG.

The U.S. Supreme Court granted cert on the issue of whether the Ninth Circuit correctly imputed MBUSA’s contacts to Daimler AG. The Court addressed this question by holding that MBUSA’s contacts should not be imputed to Daimler AG, but went on to exceed the scope of the issue presented by holding that “[e]ven 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.”²                           

By invoking the “at home” test, Justice Ginsburg refers to the holding in Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (2011) that created a new test for general jurisdiction – the “essentially at home” test. There, the Supreme Court held that a parent corporation’s contacts with the forum state could not be imputed to foreign subsidiaries for the purpose of granting general personal jurisdiction. Daimler AG presented the converse situation, in which a subsidiary’s contacts were sought to be imputed to the foreign parent.

Scholars had argued about the meaning of Goodyear’s “essentially at home” test, with some arguing that the test merely restated the traditional “continuous and systematic contacts” test for general jurisdiction, and others contending that the test was more revolutionary, limiting general jurisdiction to a corporation’s state of incorporation or principal place of business.

Daimler AG resolved that argument in favor of the more restrictive view of general jurisdiction. In a departure from what law students have learned for generations, the Supreme Court held that the plaintiffs’ argument that Daimler is subject to general jurisdiction “in every State in which a corporation ‘engages in a substantial, continuous, and systematic course of business’ . . . is unacceptably grasping.”³ The Court insists that the Goodyear test controls: “the inquiry under Goodyear is not whether a foreign corporation's in-forum contacts can be said to be in some sense ‘continuous and systematic,’ it is whether that corporation's ‘affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.’”⁴ Applying the Goodyear test to the case at bar, the Court finds that “neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there.”⁵  Thus, the Court’s use of the “essentially at home” test demonstrates that a corporation is subject to general jurisdiction only in those two states.

The Court’s rationale for this restrictive view of general jurisdiction is as follows:

If Daimler's California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA's sales are sizable. Such exorbitant exercises of all-purpose jurisdiction would scarcely permit out-of-state defendants “to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.”⁶

Justice Sotomayor concurred in the judgment on the ground that it would be unreasonable for the California court to exercise general personal jurisdiction over Daimler AG. She would leave intact the “continuous and systematic contacts” test, even if it would result in general jurisdiction in several (or all) states. She believed that the Argentine citizenship of the plaintiffs and the foreign setting of the wrongful conduct were relevant to reasonableness, but did not warrant adopting a totally new restrictive test for general jurisdiction.

Justice Sotomayor identifies four specific ways in which the decision will lead to “grave injustice.”⁷  First, the decision impugns state sovereignty by debarring states from adjudicating cases in which the defendant has substantial contacts in the state..⁸ Second, the decision discriminates against small businesses who have significant contacts with only one state and would therefore be subject to general jurisdiction there whereas a large corporation with significant contacts with many states would not.⁹ Third, the decision restricting general jurisdiction over corporations is inconsistent with the rule that an individual can be subject to general jurisdiction on the basis of a one-time visit.¹⁰ Finally, “the ultimate effect of the majority’s approach will be to shift the risk of loss from multinational corporations to the individuals harmed by their actions.”¹¹

The upshot of Daimler AG is that giant multi-national corporations are “too big for personal jurisdiction.”¹² Of course, both foreign and domestic corporations can still be subject to specific personal jurisdiction if they have minimum contacts with the forum state. However, if you represent a foreign corporation that has continuous and systematic contacts with a number of states, it will not be subject to general jurisdiction in any of them. If you represent a domestic corporation, it will be subject to general jurisdiction only in its state of incorporation and its principal place of business, which the Daimler AG Court identified as its “nerve center.”¹³

Conversely, if you represent a plaintiff who needs to sue a corporation in a state other than the one in which the harmful conduct occurred, you will have a limited choice of fora. Here are a few hypotheticals illustrating this new restriction on general jurisdiction. Justice Sotomayor points out that a Michigan resident who retired from GM and moved to Florida could previously sue GM in Florida over a dispute regarding her retirement benefits. Now, however, because Florida is neither GM’s state or incorporation or principal place of business, the retiree will have to sue in one of those states.¹⁴ Similarly, a dog owner living in New Mexico whose dog was poisoned by the melanine in a major manufacturer’s dog food would not be able to sue the major manufacturer in Tennessee if the dog owner moved to Tennessee from New Mexico before filing suit. The dog owner would either have to return to New Mexico to achieve specific jurisdiction or would have to sue in the manufacturer’s state of incorporation or headquarters state, even if the manufacturer did millions of dollars in business in Tennessee.

The Court’s severe restriction on general personal jurisdiction over corporations will change the way lawsuits are brought and the way corporations respond. Plaintiffs will be forced to choose specific jurisdiction even when general jurisdiction would be more efficient. Corporate defendants will have a personal jurisdiction defense any time they are sued in a state other than the state where the wrongful conduct occurred, the state of their incorporation, or their headquarters state.¹⁵