U.S. Supreme Court Draws the Line on Where Corporations Can Be Sued in the U.S.

This week the U.S. Supreme Court made strides for large nationwide and worldwide companies, protecting reasonable limits on where those companies may be sued in the U.S. In Daimler AG v. Bauman, No. 11-965 (U.S. January 14, 2014), the court unanimously held California state courts did not have jurisdiction over the international Daimler corporation based on the heavy market contacts of one of its subsidiaries in that state.

In the Daimler case, Argentinian citizens brought suit against the German Daimler corporation in California state court. They claimed the California court had jurisdiction over the German company because one of its subsidiaries, Mercedes-Benz USA, LLC, had an extensive business presence in California. The German corporation attempted to have the action dismissed, arguing California courts had no jurisdiction over it merely because one of its related companies regularly did business in California.

The Supreme Court in Daimler agreed with the German corporation. In doing so, it rejected two different jurisdictional theories by the Plaintiffs: the first, the “agency” theory, would have allowed parent corporations to be sued in any state in which it had subsidiaries or similar related operations; the second, the “continuous and systematic contacts” theory, had allowed corporations to be sued in any state where they had such continuous and systematic contacts through sales, marketing, or other economic activity. In rejecting those theories, the Supreme Court ruled, in general, a corporation can only be sued in a limited number of places: 1) where it is incorporated; 2) where it has its principal place of business; and 3) where it actually performs some alleged wrong.

The court’s decision in Daimler is significant because it will help to protect broad, even international, corporations from being sued in the far corners of the United States merely because they or their subsidiaries participate in the market there. The court has enunciated a much clearer standard — absent some exceptional circumstances, a corporation cannot be sued somewhere on the basis of its business activity there. Corporations can therefore use the Daimler decision as a shield when they are pulled into litigation in wide-ranging states on the sole basis that they do business in those states.

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For the Court’s full decision, click here.

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