The California Courts’ Limited Jurisdiction Over Non-Resident Corporations

Pursuant to the U.S. Constitution, a court may assert personal jurisdiction against a non-resident defendant in one of two circumstances: where a defendant has sufficient contacts within the forum state (i.e., general jurisdiction) or where the lawsuit arises out of or relates to the defendant’s contacts with the forum (i.e., specific jurisdiction).

Last year, the U.S. Supreme Court articulated a substantially more restrictive view of what is considered sufficient contacts within a state for purposes of exercising general jurisdiction over a non-resident corporation (Daimler AG v. Bauman (2014) 134 S.Ct. 746.). Historically, general jurisdiction was satisfied whenever a non-resident corporation maintained an office in the forum where it was named as a defendant in a lawsuit or conducted sizeable business within the forum. In Daimler, the Court held the inquiry is not whether a non-resident corporation’s in-forum contacts can be said to be in some sense continuous and systematic, but rather, whether that corporation’s affiliations with the forum render it at home in the forum. The Court further held the paradigmatic bases of general jurisdiction is a corporation’s place of incorporation and/or principal place of business and only in “exceptional” cases will general jurisdiction exist in a forum other than those locales.

In Daimler, plaintiffs, residents of Argentina, filed suit in California District Court against DaimlerChrysler Aktiengesellschaft (“Daimler”), a German company. Plaintiffs alleged that Daimler’s Argentine subsidiary, Mercedes-Benz Argentina (“MB Argentina”), collaborated with Argentinean state security and conducted tortious acts against them.

Daimler’s principal place of business and headquarters are located in Stuttgart, Germany. Daimler moved to dismiss for want of personal jurisdiction. Plaintiffs opposed by arguing that jurisdiction over Daimler could be founded on the California contacts of Daimler’s subsidiary, MBUSA – a Delaware corporation with its principal place of business in New Jersey. Plaintiffs also provided evidence that California sales by MBUSA accounted for 2.4% of Daimler’s worldwide sales, which were $192 billion in 2004. There were multiple MBUSA offices and facilities in California, including a regional headquarters.

The District Court dismissed the action for want of personal jurisdiction. The Ninth Circuit Court of Appeals reversed, finding MBUSA was an agent of Daimler with sufficient contacts in California and the exercise of jurisdiction in California was proper. The U.S. Supreme Court reversed the Ninth Circuit Court of Appeals, holding it was erroneous for the Ninth Circuit to conclude that Daimler (even with MBUSA’s contacts attributed to it) was “at home” in California, and therefore subject to suit in California on claims by foreign plaintiffs, having nothing to do with events that occurred or had a principal impact in California.

The court noted that if Daimler’s California activities (or those of MBUSA) were sufficient to hail it into court in California, when the case itself was rooted in Argentina, the “same global reach would presumably be available in every other State in which MBUSA’s sales are sizable.” Although MBUSA did significant business in California, sizable business and profits alone were insufficient to hail Daimler into court in California.

Following the Daimler decision, California courts have similarly limited the exercise of general jurisdiction over non-resident corporations. In Young v. Daimler (2014) 228 Cal.App.4th 855, plaintiff sued Daimler, the same company with the same contacts to California as discussed above, when their Jeep Cherokee rolled over causing plaintiff’s injuries. Plaintiff sued Daimler and DCC, its former subsidiary, based on a defective design claim. Daimler challenged general jurisdiction. The U.S. Supreme Court decision, Daimler v. Bauman, was referenced by the California court at length when reaching the same conclusion – that California could not exercise personal jurisdiction over Daimler.

More recently, in BNSF Railway Company v. Superior Court (2015) 185 Cal.Rptr.3d 39, the California Court of Appeal held a Delaware railroad corporation, with its principal place of business in Texas, was not subject to general jurisdiction in California. It was undisputed that BNSF transacted business in California; however, the court found that its business in California constituted a small portion of its overall operations and that the jurisdictional reach should be limited. These decisions establish a more limited framework in which courts will likely confer general jurisdiction over non-resident corporations. They make clear that the jurisdictional inquiry is not whether a non-resident corporation’s in-forum contacts are continuous, it is whether that corporation’s affiliations with the State renders it essentially at home in the forum state, i.e. whether the corporation’s place of incorporation or principal place of business is in the forum state.