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Aviation manufacturers considering targeting the US market have reason to structure their business with an eye on the US Supreme Court’s personal jurisdiction decisions, recent and upcoming

Many courts in the United States have been a desirable venue for foreign and domestic claims and, until recently, it has been extraordinarily difficult for a defendant corporation to successfully challenge jurisdiction. The US Supreme Court, in Daimler AG v. Bauman, 134 S.Ct. 746 (2014) (Daimler), took a fresh look at the Constitutional parameters of personal jurisdiction, which has caused defendant attorneys to take a fresh look at whether a corporation may avoid embarking on the long journey known as litigation.

Personal jurisdiction is the power of a court over the parties to a litigation to adjudicate a dispute. Although the Constitutional standards that govern the exercise of personal jurisdiction ostensibly are clear, recently, the Supreme Court has been granting certiorari in several cases to clarify these standards. In the US, there are two types of personal jurisdiction: general and specific.

General jurisdiction exists when a court has the Constitutional authority to adjudicate any dispute between the parties. Originally, general jurisdiction existed when a corporation had "continuous and systematic" activities in the forum state. However, the Supreme Court clarified in Daimler that a corporation is only subject to general jurisdiction in states where it is "essentially at home", meaning its state of incorporation and principal place of business, the two "paradigm all-purpose forums."

Daimler specifically rejected the proposition that courts may exercise "general jurisdiction in every State in which a corporation 'engages in a substantial, continuous, and systematic course of business.'" Id. at 749. "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.'" Id. at 761-62. This is precisely the situation that corporate defendants found themselves in pre-Daimler.

After Daimler, absent an "exceptional case",1 a corporation will be subject to general jurisdiction only in its state of incorporation and principal place of business. Nevertheless, it is still common to see complaints that allege general jurisdiction based upon the defendant's "continuous and systematic" contacts with the forum state, an allegation that pre-Daimler often withstood jurisdictional challenge.

Specific jurisdiction is analyzed differently and requires that: (1) defendant purposefully directed its activities at the forum state; (2) plaintiff's claims arise out of or relate to those forum activities; and (3) the exercise of jurisdiction is reasonable and does not offend traditional notions of fair play and justice. J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011). These are fact specific inquiries and are often hotly contested on a motion to dismiss for lack of personal jurisdiction.

In 2014, the same year that the Supreme Court decided Daimler, the Court also decided Walden v. Fiore, 134 S.Ct. 1115 (2014). With respect to the "arising out of" prong, the Court held that "the defendant's suit-related conduct must create a substantial connection with the forum State." Id. at 1121. The Court elaborated:

[M]ere injury to a forum resident is not a sufficient connection to the forum. Regardless of where a plaintiff lives or work, an injury is jurisdictionally relevant only insofar as it shows that the defendant has formed a contact with the forum State. The proper question is not where the plaintiff experienced a particular injury or effect but whether the defendant's conduct connects him to the forum in a meaningful way.

Id. at 1118.

This a hot topic, as reflected by the Supreme Court's interest – the Court just issued a decision on general jurisdiction in May 2017 in BNSF Railway Co. v. Tyrrell, 2017 WL 2322834 (May 30, 2017) (BNSF), and will issue a decision on specific jurisdiction in the coming months.

In BNSF, plaintiffs brought suit in Montana for injuries allegedly sustained while working for BNSF. BNSF was not incorporated in and did not maintain its principal place of business in Montana, but it did have about 2,000 miles of railroad track and employed approximately 2,000 employees in the State. None of the alleged injuries arose from or related to work performed in Montana. The Court began by noting that specific jurisdiction was not at issue "[b]ecause neither [plaintiff] allege[d] any injury from work in or related to Montana." The Court reaffirmed that under Daimler, because BNSF was not incorporated in and did not maintain its principal place of business in Montana, there was no general jurisdiction over BNSF.

The specific jurisdiction case is Bristol-Myers Squibb Company v. Superior Court, 1 Cal. 5th 783 (2016), cert. granted, 137 S.Ct. 827 (2017) (Bristol-Myers). The Supreme Court agreed to review a decision by the California Supreme Court that relaxed the requirement that a plaintiff's claim must directly arise out of or relate to a defendant's forum contacts. Instead, the California Court held that California uses a "'substantial connection test,' which is satisfied if 'there is a substantial nexus or connection between the defendant's forum activities and the plaintiff's claim.'" Under this sliding scale test, the "more wide ranging the defendant's forum contacts, the more readily is shown a connection between the forum contacts and the claim." Thus, the decision essentially adopted the "continuous and substantial" test for specific jurisdiction, a test specifically rejected by the Court in Daimler with respect to general jurisdiction. Id. at 800.

In Bristol-Myers, California resident plaintiffs and non-California resident plaintiffs filed complaints relating to the drug Plavix. Bristol-Myers argued that there was no jurisdiction with respect to the nonresident plaintiffs' claims. There were no allegations that the non-California plaintiffs were injured or treated in California. As Bristol-Myers is incorporated in Delaware and headquartered in New York City, there was no question that the court did not have general jurisdiction over the company. Id. at 790; 799.

Regarding specific jurisdiction, Bristol-Myers submitted evidence that: (1) it did not conduct any research and development relating to Plavix in California; (2) no work relating to Plavix's labeling, packaging, regulatory approval, or marketing occurred in California; (3) Bristol-Myers never manufactured Plavix in California; and (4) in the year prior to the filing of the lawsuits, Bristol-Myers' sales revenue from Plavix in California constituted 1.1 percent of the company's total nationwide sales revenue for all of its products. Id. at 790.

On the other hand, Bristol-Myers had arguably substantial contacts with California unrelated to Plavix: (1) five research and development laboratories that employed 164 people; (2) 250 sales representatives; and (3) a small office in Sacramento to represent the company in state government affairs. Id.

On these facts, the California Court concluded that Bristol-Myers' "California activities are sufficiently related to the nonresident plaintiffs' suits to support the invocation of specific jurisdiction, under which personal jurisdiction is limited to specific litigation related to the defendant's state contacts." Id. at 788. The Court reasoned:

Both the resident and nonresident plaintiffs' claims are based on the same allegedly defective product and the assertedly misleading marketing and promotion of that product, which allegedly caused injuries in and outside the state. Thus, the nonresident plaintiffs' claims bear a substantial connection to BMS's contacts in California. BMS's nationwide marketing, promotion, and distribution of Plavix created a substantial nexus between the nonresident plaintiffs' claims and the company's contacts in California concerning Plavix.

Id. at 804.

If Bristol-Myers is upheld by the US Supreme Court, nonresident plaintiffs can file actions in California against any company that markets and distributes its products nationwide, even if the company has not conducted any activities in California that relate to the particular product that allegedly harmed plaintiffs. This will have drastic implications for corporate defendants, fostering a stampede to California and other jurisdictions commonly viewed as "plaintiff-friendly." As the dissent noted,

As California holds a substantial portion of the United States population, any company selling a product or service nationwide, regardless of where it is incorporated or headquartered, is likely to do a substantial part of its business in California. Under the majority's theory of specific jurisdiction, California provides a forum for plaintiffs from any number of states to join with California plaintiffs seeking redress for injuries from virtually any course of business conduct a defendant has pursued on a nationwide basis, without any showing of a relationship between the defendant's conduct in California and the nonresident plaintiffs' claims.

Id. at 835-36.

This aggressive expansion of specific jurisdiction is not consistent with due process or the sentiments expressed by the US Supreme Court in Daimler or BNSF and blurs the distinction between general and specific jurisdiction – a distinction that the Supreme Court has taken pains in recent years to elucidate. A decision from the Supreme Court in Bristol-Myers could be issued as early as summer 2017. If the questions at oral argument provide any indication of the Court's inclination, it appears that the majority of Justices were not persuaded to revisit Daimler's rejection of the "continuous and systematic" contacts standard for personal jurisdiction.

A motion to dismiss for lack of personal jurisdiction once again is a powerful tool to challenge jurisdiction pre-litigation, i.e., before addressing liability and damages. The effect of Daimler and its progeny is particularly evident in aviation litigation, which often involves defendants hailing from multiple jurisdictions. Instead of opting to sue every entity of interest, and determining through discovery whether all defendants indeed are necessary for the plaintiff's recovery, plaintiff's counsel may start being more selective unless prepared to defend multiple actions in the various jurisdictions where the respective defendants are subject to personal jurisdiction.

  • To constitute an "exceptional case," a corporation's operations in a forum must be so substantial as to render the corporation at home in that state. The only such example cited by the Court was Perkins v. Benguet Consolidated Mining Company, 342 U.S. 437 (1952), which involved a Filipino corporation. During World War II, the corporation's president moved to Ohio and set up an office, where he maintained the company's files and oversaw its activities. On those unique facts, the Court held that Ohio had general jurisdiction over the corporation because Ohio was its principal, albeit temporary, place of business.