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Jurisdiction Over Corporations Quietly Restricted – Probably For Good

In a major, although widely unappreciated shift, the United States Supreme Court has significantly restricted the ability of courts to exercise jurisdiction over corporations.  This change reduces the likelihood that a corporation has to appear in a court to answer for alleged conduct that has little to do with their operations in that state.  No such shift goes down easily, however, and certain state courts, including in California, have tried to evade the Supreme Court’s rulings.  One of those attempts is now being reviewed by the Court, and its eventual ruling should be of interest to corporations everywhere.

First, a brief overview of how a corporation can be required to appear in court to defend itself:  There are two ways this is done, called “establishing jurisdiction,” one being “general” and the other “specific” jurisdiction.  Since a Supreme Court ruling in the International Shoe case in 1945, general jurisdiction could be established over a corporation using one of three tests — where it was incorporated, where it had its principal place of business, and in any other state where it had continuous and systematic contacts with the state, such as plants, offices or significant sales.

In two opinions written by Justice Ruth Bader Ginsburg and filed without dissent, however, the Supreme Court has essentially removed that third “test” for a court’s exercise of general jurisdiction.  In Goodyear Dunlop Tires Operations, S.A. v. Brown in 2011, and again in Daimler AG v. Bauman in 2014, the Court established that corporations are only subject to general jurisdiction where they are “at home,” essentially the first two “tests” for general corporate jurisdiction – where the corporation is incorporated or where it has its principal place of business.  With one possible small, and still theoretical, exception, a corporation is no longer subject to jurisdiction simply because it has a large operation in a particular state.  That possible exception is if a company has a predominant part of its business in a particular state that is neither its state of incorporation nor its principal place of business, an argument that hasn’t yet been tested.  Nevertheless, it would appear from the Court’s consistent rulings that corporations will no longer have to appear in a state’s court to defend itself against actions that may have occurred in other states, or especially foreign countries, unless it is subject to one of the two remaining general jurisdiction tests.

Some courts seem committed to getting around the Goodyear and Daimler rulings, however, which sets up yet another Supreme Court review of the issue.  Last year, the California Supreme Court, in Bristol-Meyers Squibb Co. v. Superior Court, ruled that although under the new Supreme Court rulings Bristol-Meyers Squibb couldn’t be subject to general jurisdiction of the California courts where plaintiffs were citizens of other states, it was subject to jurisdiction under “specific” jurisdiction — the second way of establishing jurisdiction over a defendant.  Specific jurisdiction exists when the potential defendant has purposefully directed its conduct at residents of the state, and the lawsuit arises out of or relates to those purposeful in-state activities.

The California Supreme Court, in a 4-3 decision in Bristol-Meyers Squibb, a mass tort case, held that the trial court had jurisdiction over the company not only for the California resident plaintiffs, but also for the non-resident plaintiffs, under the theory that their claims “related to” the company’s activities in California.  The Court reasoned that because the company had a nationwide marketing program for its product, and manufactured other drugs in California, though not the one at issue in the case, it had sufficient activities that “related to” the out-of-state plaintiffs to justify exercise of the state’s jurisdiction over them.

The United States Supreme Court has granted review of the California Supreme Court’s ruling which, if left to stand, would eviscerate the restriction the United States Supreme Court has placed on the exercise of general jurisdiction through the tightening of where a corporation is “at home.”  The chances that the California Supreme Court will be reversed appear to be good, since the U.S Supreme Court generally doesn’t appreciate what appears to be an attempt to get around its rulings.  If it does indeed strike down the ruling in Bristol-Meyers Squibb, corporations will be able to rely on the intended limitation on general jurisdiction over corporations.