Civil Procedure - Ninth Circuit Focuses on Importance of Subsidiary Rather Than Control to Impose General Jurisdiction over Foreign Corporation - Bauman V. DaimlerChrysler Corp

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Civil Procedure--Ninth Circuit Focuses on Importance of Subsidiary Rather Than Control to Impose General Jurisdiction over Foreign Corporation--Bauman v. DaimlerChrysler Corp., 644 F.3d 909 (9th Cir. 2011)

The Supreme Court of the United States has established that general personal jurisdiction allows a forum to exercise authority over a defendant to adjudicate claims that do not arise from the defendant's contacts within the forum state. (1) Since the advent of the modern corporation, plaintiffs have attempted to establish jurisdiction over a foreign corporation because of its subsidiary's contacts with a forum state. (2) In Bauman v. DaimlerChrysler Corp., (3) the Court of Appeals for the Ninth Circuit considered whether a state may exercise general jurisdiction over a foreign corporation because it has a subsidiary with extensive contacts in the United States. (4) The Ninth Circuit held that a subsidiary is a foreign corporation's agent for jurisdictional purposes if the subsidiary's services are sufficiently important to the parent corporation and the parent has the right to substantially control the subsidiary's activities. (5)

In 2004, twenty-three persons (Plaintiffs) filed a lawsuit against DaimlerChrysler Aktiengesellschaft (DCAG) in the United States District Court for the Northern District of California. (6) Plaintiffs alleged that DCAG's wholly owned subsidiary, Mercedes-Benz Argentina, collaborated with the Argentinean government to kidnap, torture, or kill the Plaintiffs or their relatives during Argentina's "Dirty War." (7) In response to the Plaintiffs' complaint, DCAG moved to dismiss for insufficient service of process and lack of personal jurisdiction. (8)

Plaintiffs argued that DCAG had sufficient contacts with California to warrant general jurisdiction by virtue of its wholly owned subsidiary, Mercedes-Benz United States, LLC (MBUSA). (9) To support this claim, Plaintiffs contended that MBUSA acted as DCAG's agent for the purpose of asserting jurisdiction over DCAG. (10) The district court tentatively granted DCAG's motion to dismiss for lack of personal jurisdiction but permitted limited jurisdictional discovery before issuing a final decision. (11) The district court reasoned that, because DCAG could create another subsidiary or use an independent distributor to distribute and sell its vehicles in the United States, MBUSA was not an agent of DCAG for jurisdictional purposes. (12)

After the jurisdictional discovery was complete, the district court confirmed its tentative ruling that the court lacked general jurisdiction over DCAG and granted DCAG's motion to dismiss. (13) The court based its reasoning on DCAG's past use of independent distributors before it created MBUSA and Toyota Motor Corporation's current use of independent distributors within the United States. (14) The court explained that, because the use of a subsidiary to distribute and sell vehicles in the United States is not necessary, MBUSA's purpose is not a task that "but for the existence of the subsidiary, [DCAG] would have to undertake itself." (15) On appeal, the Court of Appeals for the Ninth Circuit affirmed the district court's dismissal of the lawsuit for lack of personal jurisdiction. (16) Nine months later, the three-judge panel for the Ninth Circuit unanimously vacated its prior decision and reversed the finding of the district court, holding that MBUSA's business was sufficiently important to DCAG and that without MBUSA or another representative, it would have to distribute and sell its vehicles itself. (17) Additionally, because DCAG had the right to substantially control MBUSA's operations, the Ninth Circuit held that it meant MBUSA was DCAG's agent for the purpose of attributing general jurisdiction. (18) Five months after the Ninth Circuit filed its opinion, a majority of the circuit's active judges voted to deny DCAG's petition for rehearing en banc. (19)

Before International Shoe introduced the modern constitutional standards of personal jurisdiction, the concept of asserting jurisdiction over an out-of-state corporation had been uniformly based on the traditional "entity" approach to corporate law. …