US Supreme Court Limits Jurisdictions Where Non-US Businesses May Be Sued

The World in U.S. Courts: June 2017 - Special Issue | June.23.2017

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US Supreme Court Limits Jurisdictions Where Non-US Businesses May Be Sued

By Robert P. Reznick and Kathleen O’Connor

On June 19, the US Supreme Court decided Bristol-Myers Squibb Co. v. Superior Court of California, a case that may make efforts to litigate national product liability and consumer protection suits against non-US companies much more difficult to bring.

Here are the key facts: Eighty-six California residents and 592 residents from 33 other US States sued the drug make Bristol-Myers Squib (BMS) in a single action in California. All alleged injury from ingestion of a drug that they argued had been promoted and sold through a national marketing campaign. The drug was not developed or manufactured in California, and the campaign was neither designed nor implemented in that State. BMS argued that the claims of the 592 plaintiffs who were not California residents should be dismissed because they lacked any connection with California, and that a California court thus could not assert jurisdiction over the company for those claims under the Due Process Clause of the Fourteenth Amendment to the US Constitution. The California Supreme Court disagreed, but the US Supreme Court, which has the final say in this State case because a federal constitutional right is at issue, sided with the drugmaker and limited the case to the 86 California plaintiffs.

The decision turns on the peculiarly US concept of “personal jurisdiction”—the authority of a court to require a defendant to participate in a case and to order relief if warranted. Two types of personal jurisdiction exist. First, “general” personal jurisdiction over a defendant is hard to obtain but very broad in scope: it can support a claim brought by any plaintiff no matter where located and no matter where the conduct giving rise to a claim occurred. The parties in this case agreed that general personal jurisdiction over BMS did not exist in California because the US Supreme Court’s 2015 Daimler decision essentially limited that type of jurisdiction to States where a corporate defendant is considered to be “at home”—generally just where it is incorporated or maintains its principal place of business, neither of which was California in the case of BMS. By contrast, “specific” personal jurisdiction may generally be asserted over a defendant in any US State (i) with which the defendant had contacts satisfying minimum criteria established by courts and (ii) where the defendant engaged in conduct “giving rise” to the claim. (Forcing the defendant to defend against a claim must also satisfy a third “fairness” requirement, which usually is satisfied where the first two requirements are met.)

Specific personal jurisdiction concededly existed as to the claims of the California plaintiffs. But BMS argued that the non-California plaintiffs’ claims did not arise from the company’s contacts with California and thus requirement (ii) for jurisdiction described above was not met. The company acknowledged that it conducted research in the State, but maintained that work was unrelated to the drug or its marketing that allegedly caused the plaintiffs’ injuries. BMS likewise admitted that it had contracted with a California distributor to resell its drugs, but argued that neither the act of contracting nor the distributor’s subsequent activities in the other States established the required connection between California and the claims of out-of-State plaintiffs.

The California Supreme Court disagreed. It applied a “sliding scale” test under which the greater a defendant’s contacts with California, whether or not related to the plaintiff’s claims, the less factual connection would be required between the defendant’s activities in California and the injuries alleged for specific personal jurisdiction to exist. Applying this “sliding scale,” the court first concluded that BMS’s California research activities were substantial. That permitted a reduced showing to be made in order to establish the required connection between the out-of-State plaintiffs and California, and the court found that link in the fact that the claims of all plaintiffs, no matter where located, were based on the same alleged conduct.

In an 8-to-1 decision, the US Supreme Court rejected the California Supreme Court’s expansive “sliding scale” rule of specific personal jurisdiction. The highest US Court held that specific jurisdiction required each and every named plaintiff’s claims to have arisen from conduct by BMS in California, without reference to BMS’s unrelated research activities in the State. Because BMS did not develop or make the drug in California, and marketing of the drug likewise was implemented elsewhere, the 592 non-resident plaintiffs could not assert specific personal jurisdiction over BMS and their claims were dismissed. In reaching this conclusion, the Court did not specifically address what it means for a claim to have “arisen from” the contacts of a defendant, the standard for which has been the subject of disagreements in the courts of appeals. It did, however, reject the contention that specific personal jurisdiction could be based on BMS’s having engaged a California distributor, potentially for sales in States where non-California plaintiffs resided. Even if evidence showed that the distributor supplied the pills taken by the out-of-State plaintiffs, the “bare fact” that BMS contracted with a California company could not in any event fairly be said to have “give[n] rise to the claims,” nor could the distributor’s California conduct be attributed to BMS. The result, in the Court’s view, was that the only locations where BMS could only be sued by all of the plaintiffs together were the jurisdictions outside of California where BMS could be considered to be “at home.”

As relevant here, Justice Sotomayor, the lone dissenter, observed that the Court’s holding meant that a non-US defendant might not be subject to suit anywhere in the US in connection with a “nationwide mass action” brought in State court—a common venue for such claims. She observed that the Court’s holding would rule out specific personal jurisdiction in cases analogous to BMS and that, because of the Daimler ruling, general personal jurisdiction would not exist for non-US companies, as they are unlikely to be “at home” in any US jurisdiction. Justice Sotomayor also sought to limit the Court’s holding to cases, such as the one at bar, in which multiple individual plaintiffs had sued, leaving open the question whether a class action could be brought on behalf of a class including plaintiffs whose claims had no connection with the forum.

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Justice Sotomayor seems to be right that the BMS decision will make litigation against non-US companies in State courts more difficult because only specific personal jurisdiction would likely be available, and that would limit cases to those cases to States (if any) where the non-US company engaged in conduct giving rise to all of the plaintiffs’ claims nationally. Whether she is right that the case will be found not to control class actions as well as suits by groups of individual plaintiffs is less sure.

The Court’s majority also made a point of reserving judgment on whether a different rule for specific personal jurisdiction would apply to certain claims brought in federal court based on alleged violations of federal law. At least where the claim implicates a federal statute that provides for “nationwide service of process” (e.g., the securities and antitrust laws, and RICO, the statute targeting organized criminal activity), courts have historically recognized some differences in jurisdictional principles to be applied, as issues regarding the sovereign rights of individual States are not presented. In such cases, the relevant constitutional question is whether a defendant’s contacts with the US as a whole, not with the particular State, are sufficient to satisfy Due Process requirements of fairness. Whether and how the BMS opinion will be applied to federal claims remains to be seen, although there is much reasoning in the opinion itself that appears not geared toward claims under federal statutes with nationwide service of process. Companies incorporated and based outside the US should also bear in mind that a special federal rule already makes them amenable to suit anywhere in the US for alleged violations of federal law, if their contacts with the US in the aggregate satisfy the “minimum contacts” standard, and there is no other US forum where the contacts are sufficient to support jurisdiction.

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