In Search of the Illusive Exceptional Case for the Exercise of General Jurisdiction
Fourth in a series discussing the jurisdiction of courts of the United States
Previous Client Alerts have discussed developments over the past several years that have created significant obstacles to general jurisdiction over a corporation that is sued in a location outside of its state of incorporation or state in which it has its principal place of business. First in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011) and then in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the United States Supreme Court clarified the mandates of due process that enable a court to exercise general jurisdiction over a corporation. Before a court may exercise general jurisdiction, both the Goodyear and Daimler courts instructed, the corporation's contacts with the forum must be so continuous and systematic as to render it "at home" in the forum State. The "paradigm forums" for determining whether a corporation is at home in the jurisdiction are the state of incorporation and the state in which the corporation has its principal place of business.
Jurisdiction in the Exceptional Case
If a corporation could be sued only in the state of its incorporation or where it had its principal place of business, the general jurisdiction analysis would be simple and not open to debate. But the Daimler court held open the possibility that a court could also exercise general jurisdiction over a corporation in an "exceptional case," even if the forum is not the state of incorporation or location of its principal place of business. Relegated to a footnote in the opinion, the Court's "exceptional case" basis for general jurisdiction has spawned a considerable amount of litigation, in large measure because the court did not provide any guidance concerning what makes a case "exceptional" other than by reference to a decades-old decision that the court held out as a representative "exceptional case." The task has thus been left to the district courts and courts of appeal to give definition to what an exceptional case is. No uniform definition has emerged. Instead, courts have often resolved the question by simply saying what an exceptional case is not. And the overwhelming majority of courts that have addressed the issue have determined that the case under consideration was not exceptional. The near unanimity in the decisions confirm just how illusive the exceptional case is and the enormously high bar a litigant will have to clear before a case is determined to be exceptional.
The Exceptional Case Argument in the Lower Courts
Litigants are forced to argue that their cases are exceptional when the paradigm bases for exercising general jurisdiction - the state of incorporation and the state in which the corporation has its principal place of business - are absent. But when the paradigm forums are not available, those attempting to invoke the court's general jurisdiction are already at an enormous disadvantage because evidence that the forum is not the defendant's state of incorporation or location of its principal place of business strongly suggests that the corporation is not at home in the forum. Xilinx, Inc. v. Papst Licensing GmbH & Co.KG, 113 F. Supp. 3d 1027, 1036 (N.D. Cal. July 9, 2015) (the fact that defendant was not incorporated in California and did not have its principal place of business there was "strong evidence that [defendant] is not at home in California").
The intervening history since Daimler unequivocally confirms that courts will not find a case to be exceptional even when the defendant engages in a substantial, continuous, and systematic course of business in the forum. Courts have refused to label a case "exceptional" even though the defendant is a national or multinational corporation with significant operations in many, if not all, states, as cases against Ford, Pfizer, Credit Suisse, GlaxoSmithKline, Johnson & Johnson, Lockheed Martin, and others illustrate. The outcome of these cases is entirely consistent with Daimler's observation that a "corporation that operates in many places can scarcely be deemed at home in all of them." Moreover, a corporation's sales volume in the jurisdiction, even when substantial, will not make the case so exceptional that a court can assert general jurisdiction, unless the sales in the forum represents a disproportionate concentration of the corporation's overall business - something that courts have been hesitant to find to date.
The following cases illustrate the significant difficulty in establishing "exceptional case" general jurisdiction:
- Brown v. Lockheed Martin Corp., 814 F.3d 619 (2nd Cir. 2016). Connecticut courts could not exercise general jurisdiction over the defendant even though the company had a physical presence in that State since 1982. The defendant obtained a certificate to do business in Connecticut in 1995. It leased a 9,000 square foot building in Connecticut for a number of years and ran operations at three other leased locations in the State from 2008 through 2012. The defendant employed between approximately 30 and 70 workers in the State during the period 2008 through 2012, and over the same period, derived about $160 million in revenue for its work in Connecticut, and paid Connecticut taxes on that revenue. The defendant was incorporated in Maryland, where it also maintained its principal place of business. Thus, the defendant was subject to the general jurisdiction of the courts of Connecticut only if the evidence revealed this to be an "exceptional" case. Describing defendant's Connecticut business as "not insubstantial," the court nevertheless concluded that this was not an exceptional case that warranted the exercise of general jurisdiction because the Connecticut business constituted only a small portion of defendant's overall operations.
- Cahen v. Toyota Motor Corp., 2015 U.S. Dist. LEXIS 159595 (N.D. Cal. November 25, 2015). The case was not exceptional, and thus the court for the Northern District of California did not have general jurisdiction, even though plaintiff presented evidence that (i) defendant Ford Motor Company did business in all fifty states, (ii) more than 100,000 new Ford vehicles had been registered in California in 2015 alone, (iii) Ford's sales accounted for 10.5% of the new vehicle market in California, and (iv) Ford had a top five selling vehicle in nine of sixteen categories of cars and trucks sold in California. The court's conclusion was driven in large measure by the absence of the paradigm bases for exercising jurisdiction: "Ford is not incorporated in California, nor does it have its principal place of business here….These facts, alone, are strong evidence that Ford is not at home in California."
- Ritchie Capital Mgmt., L.L.C. v. Costco Wholesale Corporation, 2015 U.S. Dist. LEXIS 176994 (S.D.N.Y. September 21, 2015). Costco, a Washington corporation that was also headquartered in Washington, was not subject to the general jurisdiction of New York courts, despite evidence that Costco had New York sales of $2.8 billion, operated seventeen warehouses in New York, and had 3,400 New York employees. Each of these totals represented only a small percentage of Costco's worldwide totals and failed to "demonstrate that a disproportionate concentration of Costco's global business occurs in New York." Accordingly, the case was not so exceptional that the court could exercise general jurisdiction over Costco.
- Martinez v. Aero Caribbean, 764 F.3d 1062 (9th Cir. 2014). The California court could not assert general jurisdiction despite the defendant's numerous contacts with California, including contracts worth between $225 and $450 million to sell airplanes to a California corporation, contracts with eleven component part suppliers, promotion of its products in California, and advertising in trade publications in California. This was not an exceptional case, the court concluded, because the defendant, which was organized and headquartered in France, engaged in business throughout the world and its "California contacts are minor compared to its other worldwide contacts."
- In re: LIBOR-Based Financial Instruments Antitrust Litigation, 2015 U.S. Dist. LEXIS 147561 (S.D.N.Y. October 19, 2015). Neither the courts of New York nor the courts of Virginia had jurisdiction over a number of banks that were not headquartered and did not have their principal place of business in those states. Evidence relied upon by the plaintiffs in the New York litigation included defendants' representations to the Federal Reserve and the Federal Deposit Insurance Corporation that their New York operations are "significant to the activities of a critical operation or core business line." In addition, three of the New York defendants had obtained licenses from the New York State Department of Financial Services. With respect to the Virginia defendants, jurisdictional evidence included the defendants' close ties with Freddie Mac (headquartered in Virginia), "involving many financial transactions collectively valued in the billions or even hundreds of billions of dollars." The court described defendants' respective contacts with New York and Virginia as "continuous and systematic contacts, which were both substantial in an absolute financial sense, and significant to the defendant's business," but nevertheless concluded "without hesitation that none of these contacts with New York and Virginia comprises an 'exceptional case where [the defendant's] contacts with [those states] are so substantial as to render it 'at home' in that state.'"
Exceptions exist to the unmistakable trend of decisions refusing to find a case to be exceptional for purposes of exercising general jurisdiction, but those cases are rare, are readily distinguished, or have been roundly criticized in subsequent cases. Thus, for example, the court in Barriere v. Cap Juluca, 2014 U.S. Dist. LEXIS 21500 (S.D. Fla., February 19, 2014) concluded that it could assert general jurisdiction over a defendant that was not incorporated in Florida and did not have its principal place of business in Florida. Despite limited jurisdictional evidence, the court determined that the case was "exceptional" and that it could exercise jurisdiction. The defendant, however, contributed extensively to this result by failing to file any affidavits, testimony, or documents to support its motion to dismiss for lack of personal jurisdiction, prompting the court to observe that "it cannot be said that Defendant raised a 'meritorious' defense to personal jurisdiction."
In subsequent litigation, Barriere has provided no support for establishing a case as exceptional. For example, referring to Barriere, the court for the Southern District of Texas observed, "Demonstrating the difficulty of establishing general jurisdiction outside of a forum where a defendant is incorporated or maintains its headquarters, only one federal court has apparently found jurisdiction in that situation since Daimler (even though more than 75 federal cases have already cited Daimler)….That outlier is at odds with other courts' application of Goodyear and Daimler in similar situations." Gonzales v. Seadrill Americas, Inc., 2014 U.S. Dist. LEXIS 88150 (S.D. Tex., June 27, 2014). See also, Presby Patent Trust v. Infiltrator Systems, Inc., 2015 U.S. Dist. LEXIS 71562 (D. N.H. June 3, 2015). And even the judge who decided Barriere has since noted the opinion's very limited scope and has rejected a plaintiff's attempt to expand its application because the unique circumstances of the Barriere case - the defendant's failure "to respond to the allegations in plaintiff's complaint with affidavits" - that prompted the Barriere ruling were not present. Chimene v. Royal Caribbean Cruises Ltd., 2017 U.S. Dist. LEXIS 65965 (S.D. Fla. April 5, 2017).
Not long after the United States Supreme Court decided Daimler, the Fifth Circuit noted that in light of the paradigm bases for establishing general jurisdiction articulated in Daimler, "It is…incredibly difficult to establish general jurisdiction in a forum other than the place of incorporation or principal place of business." Monkton Ins. Servs., Ltd. v. Ritter, 768 F.3d 429, 432 (5th Cir. 2014). Subsequent history has confirmed the wisdom of this comment. The "exceptional case" has proven to be largely illusory.