On January 14, 2014, in Daimler AG v. Bauman, the US Supreme Court held the presence of a Daimler subsidiary in California was not enough to establish personal jurisdiction over Daimler in an action that involved conduct that took place abroad (No. 11-965, (S. Ct. Jan. 14, 2014)). The decision narrows the ability of plaintiffs to assert general jurisdiction over corporations that are not incorporated in, or do not have their principal place of business in, the relevant jurisdiction.

In 2004, 22 Argentinian residents brought suit against DaimlerChrysler Aktiengesellschaft (Daimler), a German company, in the US District Court for the Northern District of California. The complaint alleged that during Argentina's 1976-1983 "Dirty War," Daimler's Argentinian subsidiary Mercedes-Benz Argentina (MB Argentina) collaborated with state security forces to commit several human-rights abuses against MB Argentina workers. The plaintiffs sued under the Alien Tort Statute and the Torture Victim Protection Act, as well as Argentina and California tort law. Plaintiffs asserted that the California court had general jurisdiction over Daimler because its US subsidiary, Mercedes-Benz USA, LLC (MBUSA), a Delaware corporation headquartered in New Jersey, distributes its vehicles throughout the country, including in California. (Plaintiffs did not attempt to assert that the court had specific jurisdiction over Daimler. For more information about the distinction between specific and general jurisdiction, see Practice Note, Piercing the Corporate Veil: Proving Personal Jurisdiction.)

Daimler moved to dismiss for lack of personal jurisdiction, and the district court granted the motion. The district court found that Daimler's contacts with California through its US subsidiary were insufficient to support general jurisdiction over the company. It also disagreed with the plaintiffs' agency theory, finding that MBUSA did not act as Daimler's agent.

On appeal, the Ninth Circuit at first affirmed the district court's decision, holding that plaintiffs had not demonstrated the existence of a sufficient agency relationship to attribute MBUSA's contacts with California to Daimler. One judge dissented, reasoning that the agency test was satisfied. After granting a petition for rehearing, the Ninth Circuit vacated its initial opinion and replaced it with an opinion that reversed the district court based on the agency theory. The new opinion held that the agency relationship between the parent and subsidiary could establish general jurisdiction over the parent if the agent subsidiary performed services "sufficiently important" to the foreign parent that the parent would perform those services itself if it did not have the subsidiary to do so.

The Supreme Court reversed, holding that the Ninth Circuit's approach under the agency theory would impermissibly extend jurisdiction over foreign corporations. In the Supreme Court's view, this test would make any foreign corporation vulnerable to suit on any claims, including (as here) claims by foreign plaintiffs having nothing to do with anything that occurred or had its principal impact in the forum state, merely because the corporation had an in-state subsidiary or sizable sales in the state. The Supreme Court rejected this outcome as inconsistent with the requirements of due process.

Instead, the Supreme Court focused on the more traditional analysis of general jurisdiction, emphasizing the requirement under the 2011 Goodyear decision to show that the foreign corporation's contact with the forum state is so "continuous and systematic" as to render that corporation "at home" in the forum state (Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846, 2851 (2011)). In Bauman, the Supreme Court narrowed this test further, emphasizing that the "at home" test will frequently be met only if the corporation is incorporated, or has its principal place of business, in that state.

The Bauman decision substantially narrows, and simplifies, the test for a finding of general jurisdiction. The Supreme Court held that even a showing of "substantial, continuous, and systematic course of business" in the forum state may not suffice to establish general jurisdiction, absent that conduct's rising to the level of "at home," which in turn will typically be established only where the corporation is incorporated or has its principal place of business. The "substantial, continuous and systematic" test, on its own, is only appropriate for establishing specific jurisdiction under International Shoe.

As a result, the decision significantly weakens the ability of plaintiffs to establish jurisdiction over a parent corporation through the actions of its subsidiary.