This past January, the United States Supreme Court issued a significant ruling that will limit where companies may be sued for claims that do not relate to business they conduct in a particular state.

In Daimler A.G. v. Bauman, the United States Supreme Court ruled that DaimlerChrysler AG, located in Germany, could not be sued in California federal court based on the continuous and substantial business activities of its U.S. subsidiary where the legal claims at issue (human rights violations) were unrelated to the subsidiaries’ activities in California (sale and distribution of vehicles).

Unless a company’s headquarters or its principal place of business is located in a given state, before an individual company can be properly brought in as a defendant in that state, the court must find either that “specific” or “general” jurisdiction exists.

“Specific jurisdiction” exists where the legal claims underlying the lawsuit relate to the company’s activities in the state. For example, if a company allegedly breached its contract to provide services to a person in a given state, the company would be subject to “specific jurisdiction” in that state if the claim was a breach of contract action.

“General jurisdiction,” on the other hand, exists where a company’s contacts are so “continuous and systematic” that a particular defendant can be sued in the forum state for any claim whatsoever, whether it pertained to the defendant's activities in the forum state, or not.

In Daimler, the court clarified and limited the scope of “general jurisdiction” and held the phrase “continuous and systematic” contacts will only amount to “general jurisdiction” where the affiliations with the state essentially render the company “at home” in the forum state. Under this newly constrained view of the concept of “general jurisdiction,” contacts with the forum state that include significant sales of product, multiple forum-based facilities including a regional office and two product preparation centers, are not enough to permit a plaintiff to assert a claim against an out-of-state company that did not arise from any of those activities. In a footnote, the court added that it did not “foreclose the possibility” that general jurisdiction could exist “in an exceptional case” in states other than the company’s place of incorporation or principal place of business. However, the court declined to spell out the parameters of such exceptional cases.

What It Means to You

The decision in Daimler will most likely have a significant effect on U.S. litigation for years to come. At a minimum, the decision in Daimler suggests that simply because a company is licensed to do business, operates a branch, or has significant product sales in a state no longer means that the company may be sued in that state for claims that have nothing to do with the company’s actual activities in that state.