Attention Manufacturers: Supreme Court Hears Oral Argument to Resolve Circuit Split on Scope of Personal Jurisdiction
Jun 9, 2017 | Raleigh, NC
Nora F. Sullivan
On April 25, 2017, the United States Supreme Court heard oral argument in a case that could finally clarify the scope of a court’s personal jurisdiction. The case is Bristol-Myers Squibb Company v. Superior Court of California (No. 16-466). It asks the Court to resolve a circuit split concerning the exercise of a court’s specific jurisdiction.
Two Bases of Personal Jurisdiction
Due process has long been the foundation of the Court’s personal jurisdiction analysis. In 1945, the Court delivered its landmark decision in International Shoe Co. v. Washington, 326 U.S. 310 (1945). There, the Court held that a defendant must have “minimum contacts” with a state in order to be sued there. Absent minimum contacts, haling a defendant into a foreign court would “offend traditional notions of fair play and substantial justice.”
Courts analyze “minimum contacts” in two ways: general jurisdiction and specific jurisdiction.
A court with general jurisdiction over a defendant may hear any claim involving that defendant, no matter where or how the claim arose. In recent years the Supreme Court has significantly narrowed the places in which corporate defendants are subject to general jurisdiction. Under the Court’s current analysis, general jurisdiction exists in only two places, absent extraordinary circumstances: (1) the state in which the corporation is incorporated, and (2) the state in which it has its principal place of business. Daimler AG v. Bauman, 134 S. Ct. 746, 761 (2014); BNSF Railway Co. v. Tyrrell, No. 16-405, __ S. Ct. __ , 2017 WL 2322834 (May 30, 2017).
When a court does not have general jurisdiction over a defendant, no judgment is binding unless the court has specific jurisdiction. As explained in detail below, specific jurisdiction requires a nexus between the plaintiff’s claims and the defendant’s activities within the forum state.
Specific Jurisdiction Doctrine
Specific jurisdiction is only appropriate when a plaintiff’s claims “arise out of or relate to” the defendant’s activities within the forum state. E.g., Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984). The Supreme Court has never elaborated on what it means for a claim to “arise out of or relate to” forum activities. Lower courts have adopted a variety of tests to apply the otherwise nebulous standard.
The first and most restrictive test is the “proximate cause” or “substantial relevance” test. O’Connor v. Sandy Lane Hotel Co., 496 F.3d 312, 318-19 (3d Cir. 2007). Courts articulate this test in a variety of ways. Some require that “the defendant’s in-state conduct gave birth to the cause of action.” Id. at 318 (quoting Mass. Sch. of Law at Andover, Inc. v. Am. Bar Ass’n, 142 F.3d 26, 35 (1st Cir. 1998)). Other courts ask “whether any of the defendant’s contacts with the forum are relevant to the merits of the plaintiff’s claim.” Id. at 319.
The second test — the “but for” test — “is satisfied when the plaintiff’s claim would not have arisen in the absence of the defendant’s contacts.” Id.
The third and least restrictive test is the “substantial connection” or “discernible relationship” test. Id. This test asks “whether the tie between the defendant’s contacts and the plaintiff’s claim is close enough to make jurisdiction fair and reasonable.” Id. Courts following this approach do not require a causal connection between the defendant’s contact and the plaintiff’s claims. Id. Instead, “[t]he degree of relatedness required in a given case is inversely proportional to the overall ‘intensity of [the defendant’s] forum contacts.’” Id. (quoting Vons Cos, Inc. v. Seabest Foods, Inc., 926 P.2d 1085, 1096 (Cal. 1996)). “[T]he relationship between the contacts and the suit can be weaker when the contacts themselves are more extensive.” Dudnikov v. Chalk & Vermilion Fine Arts, Inc., 514 F.3d 1063, 1078 (10th Cir. 2008).
Numerous courts have criticized this test for its “sliding scale” malleability. See, e.g., O’Connor, 496 F.3d at 322; RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1278 (7th Cir. 1997); Breathwit Marine Contractors, Ltd. v. Deloach Marine Servs., LLC, 994 F. Supp. 2d 845, 851 (S.D. Tex. 2014); Robinson v. Harley-Davidson Motor Co., 316 P.3d 287, 298 (Or. 2013). These courts argue the test “necessarily defies prediction” and thereby precludes defendants from anticipating the jurisdictional consequences of their actions. O’Connor, 496 F.3d at 322 (criticizing the substantial connection test as “unbounded” and formless”). The Seventh Circuit, rejecting the test, noted that “potential defendants should not have to wonder whether some aggregation of other past and future forum contacts will render them liable to suit there.” RAR, 107 F.3d at 1278.
A majority of courts have declined to adopt the substantial connection test. California is one of the few jurisdictions that follow it.
The Bristol-Myers Case
In Bristol-Myers, 575 out-of-state plaintiffs from 33 different states joined with 86 California residents to sue the manufacturer and distributor of Plavix, a prescription drug used to prevent blood clots. The plaintiffs strategically filed their complaints in sets of fewer than 100 to avoid removal under the Class Action Fairness Act.
Bristol-Myers moved to dismiss the claims of the non-resident plaintiffs for lack of personal jurisdiction. The company argued that jurisdiction was improper because the non-resident plaintiffs did not receive pills that were manufactured, distributed, marketed, or packaged in California. Moreover, those plaintiffs did not suffer any injury in California. Bristol-Myers argued those plaintiffs’ claims had no nexus to the company’s California activities.
The trial court denied Bristol-Myers’ motion. The California Supreme Court upheld the trial court’s decision. It reasoned that Bristol-Myers was subject to specific jurisdiction in California because of the company’s nationwide marketing and promotional effort. The court found that the non-residents’ claims were based on the same allegedly defective product and misleading marking and promotion as the California residents’ claims.
Bristol-Myers appealed to the United States Supreme Court. The company argues that “specific jurisdiction requires a causal connection between the defendant’s forum contacts and the plaintiff’s claim.” It urges the Court to sanction the most restrictive test adopted by some lower courts: the proximate cause test.
The plaintiffs, in contrast, ask the Court to depart from the “arising from or related to” standard. They argue jurisdiction is “fair and reasonable” given Bristol-Myers’ activities and assets in California. Moreover, they advocate for a return to the jurisdictional analysis first articulated in the Court’s 1978 Pennoyer v. Neff decision.
More than a dozen organizations, including DRI, filed amicus briefs. DRI’s brief, supporting Bristol-Myers, argues that California’s sliding-scale approach invites mass tort plaintiffs to forum-shop their way into a pro-plaintiff state court system.
Oral Argument Before the United States Supreme Court
Bristol-Myers and the plaintiffs each faced an active, engaged bench. Former U.S. Acting Solicitor General Neal Katyal, arguing for Bristol-Myers, barely introduced himself before Justice Kennedy inquired whether the company conceded that jurisdiction in California comported with the hallmarks of due process: fair play and substantial justice. After all, the company agreed it was subject to jurisdiction with respect to the California residents’ claims.
Several justices seemed to take a pragmatic approach to specific jurisdiction, departing from the doctrinal “arising from or related to” test repeatedly articulated in the Court’s precedent. Justice Sotomayor focused on the efficiency of allowing one state to adjudicate the claims of multiple similarly situated plaintiffs. She emphasized the importance of avoiding “piecemeal litigation.” Justice Sotomayor seemed particularly concerned about efficiency in cases involving foreign defendants, who are not subject to general jurisdiction in any state. Absent a broad approach to specific jurisdiction, she worried there were be “no place for plaintiffs to come together and sue that person.”
Justices Ginsburg and Kennedy, who authored four of the Court’s most recent opinions on personal jurisdiction, stepped in to assist Bristol-Myers. Justice Ginsburg pointed out that a manufacturer could be sued by multiple plaintiffs in any state where its products are manufactured. Justice Kennedy further noted that the doctrine of issue preclusion might streamline piecemeal litigation.
In addition to Justice Sotomayor, Justice Kagan was another early critic of Bristol-Myers’ argument. She challenged the company’s assertion that fairness considerations preclude California from exercising jurisdiction over the non-residents’ claims. In her view, there could be no unfairness given that Bristol-Myers agreed it could be sued in California.
In response, Bristol-Myers highlighted several procedural and evidentiary nuances of California law which make the state particularly attractive to forum shoppers. California courts rarely dismiss cases on summary judgment. In addition, the state has no Daubert rule, so limitations on expert testimony are very permissive. According to Bristol-Myers, the company expected to face these legal nuances only with respect to claims by California residents—not all Plavix users nationwide.
The justices were equally skeptical of the plaintiffs’ arguments. The plaintiffs advocated for a return to the Court’s long-abandoned analysis in Pennoyer v. Neff. They described the “Pennoyer basis of jurisdiction” as allowing a state to exercise jurisdiction up to the value of the defendant’s assets in the state. According to the plaintiffs, Bristol-Myers collected nearly a billion dollars from sales in California and deposited enormous assets there. It is not unfair, they argued, to subject the company to the jurisdiction of the California courts up to the extent of those assets.
The justices did not seem inclined to adopt any rule that would allow non-resident plaintiffs to sue in a state without establishing a connection between their claims and the defendants’ in-state conduct. They articulated a variety of concerns with such an approach. Most significantly, the plaintiffs’ proposed rule would undermine established notions of federalism by disregarding states’ sovereign interests in safeguarding their residents. For example, a defendant’s home state has an interest in protecting residents from being hauled into foreign jurisdictions. A plaintiff’s home state, likewise, has an interest in redressing its residents’ injuries. Allowing a plaintiff to sue in any state—without first establishing a connection between its claims and the defendant’s forum conduct—would deny both parties’ home states the opportunity to protect these sovereign interests.
The justices also seemed reluctant to adopt the plaintiffs’ piggy-backing rule, which would premise jurisdiction on the claims of a resident plaintiff. As Chief Justice Roberts pointed out, any test that requires a critical mass of local claims by local plaintiffs creates another unpredictable sliding-scale rule. How many California residents are required to support the claims of 98 non-residents? Could California assert jurisdiction over a case involving a single resident and 98 non-residents? The plaintiffs’ rule, according to the Chief Justice “depends upon some line between [a] handful and … hundreds.”
Trying to divine the Court’s ultimate opinion based on oral argument is, of course, a fool’s errand. However, the justices’ questions suggest they will carefully weigh pragmatic considerations against the predictability of a rigid doctrinal approach to specific jurisdiction.
Given the Court’s considerable narrowing of general jurisdiction, the Bristol-Myers opinion could have far-reaching implications for any substantial manufacturer of goods. Whether the Court broadens or narrows its approach to specific jurisdiction, manufacturers would be well-served by increased predictability in the jurisdictional analysis and uniformity among the lower courts.