Kesselman: Multinational Corporate Jurisdiction & The Agency Test

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Multinational Corporate Jurisdiction & The Agency Test: Should the United States be a Forum for the Worlds Disputes?
JUSTIN KESSELMAN ABSTRACT

The modern proliferation of parent-subsidiary relationships has added layers of complexity to the question of whether a particular corporations contacts with a forum are continuous, systematic, and substantial enough to expose it to general jurisdiction. This Note examines one thorny variation that has split the Federal Circuit Courts: When is a nonresident, parent corporation subject to personal jurisdiction in the forum where its subsidiary sits when the parent is sued for a subsidiarys acts in a different forum? Two tests have emerged. The Second and Ninth Circuits apply the agency test, which asks whether the subsidiary is sufficiently important to the parent to justify jurisdiction. Every other circuit reaching this issue has turned to the alter-ego test, applying state-law, veilpiercing doctrine to the jurisdictional question. This Note argues that the agency test exceeds the parameters of the Supreme Courts general jurisdiction jurisprudence. Moreover, the agency test creates needless economic roadblocks to international comity. Such concerns are magnified by the agency tests application in two of the most prominent American commercial centers: New York and California. The alter-ego test should be uniformly adopted to minimize the negative public policy consequences of broad jurisdictional power, and more fundamentally, to comport with traditional notions of fair play and substantial justice by only subjecting
Candidate for Juris Doctor, New England Law | Boston (2013). B.A., History and Philosophy, cum laude, University of Massachusetts Amherst (2003). I would like to thank Professor Jordan Singer for his encouragement and for sparking my interest in this topic, the Law Review staff for their diligent and thoughtful editing, and most of all, my wife Katy for her enduring support and encouragement.
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a corporation to general jurisdiction where it is truly at home.
INTRODUCTION
n the United States, personal jurisdiction doctrine is inextricably linked with the concept of due process.1 It grew from the notion that courts only had authority over the people physically within their territories.2 Yet as society has grown more mobile and more interconnected, the Supreme Court has had to adapt personal jurisdiction requirements to honor the doctrines underlying principles.3 With each prospective change, the Court has struggled to balance the competing concerns for fairness between plaintiffs and defendants.4 The courts have once again arrived at a crossroads on the question of how far their authority reachesthis time as a result of the proliferation of multinational corporations.5 The Supreme Court recently addressed one aspect of multinational corporate jurisdiction in Goodyear Dunlop Tires Operations, S.A. v. Brown,6 but other variants continue to confound lower courts, resulting in the application of inconsistent legal standards in federal courts nationwide.7 One of these variantsand the subject of this Noteis whether a foreign or nonresident parent corporation is subject to personal jurisdiction in the forum where its subsidiary sits for the acts of its subsidiary sitting in a different forum.8 Two tests have emerged for determining whether that relationship is sufficient to warrant jurisdiction.9 The vast majority of circuits apply the alter-ego test, under which a parent company may be sued in a jurisdiction where its subsidiary sits if the subsidiary is a mere
See Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). Id. 3 See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 314 (1980) (Marshall, J., dissenting).
2 4 See, e.g., Intl Shoe, 326 U.S. at 325 (opinion of Black, J.) (expressing concern over the expanding scope of the Fourteenth Amendment); Shaffer v. Heitner, 433 U.S. 186, 217 (1977) (Powell, J., concurring) (calling into question the majoritys dismantling of quasi in rem jurisdiction). 5 See, e.g., Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2850 (2011) (discussing whether a state had jurisdiction over the foreign subsidiary of an American corporation).
Id. See generally John A. Swain & Edwin E. Aguilar, Piercing the Veil to Assert Personal Jurisdiction over Corporate Affiliates: An Empirical Study of Cannon Doctrine, 84 B.U. L. REV. 445, 447-48, 456-57 (2004). 8 See, e.g., Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 911-14 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965).
7 9
Id. at 920.
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instrumentality of the parent, and failure to disregard their separate entities would result in fraud or injustice.10 A minority of circuits permit variations of the agency test as an alternative, setting a much lower threshold for personal jurisdiction.11 This Note argues that the agency test goes too far and should be abandoned in favor of a uniform application of the alter-ego test. The alterego test is preferable because it limits the scope of general jurisdiction to only the clear situations where a foreign corporation is, for all intents and purposes, also at home in the forum state. It also gives multinational corporations a predictable guide as to what kind of behavior will warrant being haled into American courtsa guide that is required if the federal courts are to continue their commitment to fair play and substantial justice. Part I.A introduces the problem by explaining the development of personal jurisdiction. Part I.B discusses the principles of agency law that underlie each of the tests at issue. Part II.A presents a paradigmatic factual scenario to illustrate the context and ramifications of applying the agency test. Parts II.B-C explain the differences between the alter-ego and agency tests for general personal jurisdiction. Part III argues that the agency test is an unconstitutional expansion of the Supreme Courts modern personal jurisdiction doctrine. Part IV contends that, in addition to its incongruence with due process principles, the agency test unnecessarily impinges on the sovereignty of other nations and creates economic burdens on the states by: (1) forcing states to bear the cost of litigation in which they have no substantive interest; and (2) discouraging multinational corporations from setting up subsidiaries within their jurisdictions. I. Background A. Jurisdictional Foundations 1. Traditional Principles
The power of personal jurisdiction is the power to hale a person
10 See, e.g., id.; Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008); Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 648-49 (8th Cir. 2003); Andresen v. Diorio, 349 F.3d 8, 12 (1st Cir. 2003); Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 218 (5th Cir. 2000); Consol. Devel. Corp. v. Sherritt, Inc., 216 F.3d 1286, 1293-94 (11th Cir. 2000); Great Lakes Overseas, Inc. v. Wah Kwong Shipping Grp., 990 F.2d 990, 996-97 (7th Cir. 1993); Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 62-63 (4th Cir. 1993).
See, e.g., Bauman, 644 F.3d at 920; Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000). A number of the alter-ego test jurisdictions call their test an agency test, while applying the alter-ego standard. See infra text accompanying notes 205-14.
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however defined12into court.13 A federal courts jurisdictional power must have some basis for authority over the person.14 The scope of a courts authority to exercise personal jurisdiction has undergone a dramatic transformation over the past 150 years.15 While the ancient roots of jurisdictional authority have been hotly debated,16 the traditional principles of personal jurisdiction in the United States were famously pronounced in Pennoyer v. Neff.17 In that case, the Supreme Court stated that a courts jurisdiction is limited to the territorial limits of the state in which it sits.18 The problem in Pennoyer was that although the defendant, Neff, owned land in Oregon, he resided in California.19 Neffs land ownership in Oregon would have given the court jurisdiction over the land for purposes of an in rem action, if the land been the subject of the dispute.20 But because the plaintiff proceeded directly against Neff, the Court reasoned that allowing Oregon to assert jurisdiction over a California resident who was not present in Oregon would impinge on Californias sovereignty.21 Pennoyer identified three ways to establish personal jurisdiction: (1) residency in the forum; (2) personal service within the forum; or (3) through consent.22 In 1877, these limits did not impose an excessive restraint on the nations citizenry.23 Yet Pennoyer was a harbinger of problems to come as important technological innovations in subsequent years led to a more mobile society that became more prone to interstate disputes.24 Pennoyers rigid jurisdictional rules proved incompatible with
See, e.g., Citizens United v. Fed. Election Commn, 130 S. Ct. 876, 899-900 (2010). World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) (The defendants conduct and connection with the forum state are such that he should reasonably anticipate being haled into court there.); Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (defining personal jurisdiction as an absent defendant having minimum contacts with the forum state).
13 14 See generally CHARLES ALAN WRIGHT & ARTHUR R. MILLER, 4 FEDERAL PRACTICE AND PROCEDURE 1064 (3d ed. 2002). 15 Id. 1065. 16 Compare Nathan Levy, Jr., Mesne Process in Personal Actions at Common Law and the Power Doctrine, 78 YALE L.J. 52, 52, 56 (1969) (defending Justice Oliver Wendell Holmess assertion that [t]he foundation of jurisdiction is physical power), with Albert A. Ehrenzweig, The Transient Rule of Personal Jurisdiction: The Power Myth and Forum Conveniens, 65 YALE L.J. 289, 296 (1956) (attacking Holmess physical power theory). 17 18 19 20 21 22 23 24
12
95 U.S. 714, 722-24 (1877). Id. at 722-23. Id. at 717. See id. at 727-28. Id. at 732-33. Id. at 720. See WRIGHT & MILLER, supra note 14, 1066. See World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 314 (1980) (Marshall, J.,
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these innovations by creating a built-in immunity mechanism for mobile defendants.25 2. The Modern Approach
By 1945, the situation had reached a tipping point, and the Supreme Court took the opportunity to address the issue in International Shoe Co. v. Washington.26 There, Washington State sued a Delaware corporation that had its principal place of business in Missouri, and employed salesmen who worked and resided in Washington, for failing to pay into the states unemployment system.27 The company had no offices in Washington, nor did it conduct manufacturing or enter into contracts there.28 The company argued that because it was not present in the jurisdiction, the states courts had no authority over it.29 The Supreme Court disagreed, famously holding that:
[D]ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.30
The Court explained that when a corporation invokes the privileges of doing business in the forum state it not only enjoys the protections of the states laws, but it also incurs obligations under those laws.31 Therefore, when a corporations activities within a state give rise to a cause of action there, procedures requiring the corporation to respond to a suit within the state are not undue.32 This principle has developed over time into the concept of specific jurisdiction.33 International Shoe also laid the foundation for a second permissible basis for personal jurisdictionnow known as general jurisdictionby suggesting that when a non-resident corporate defendant has substantial and continuous contacts with the forum state, it may justify suit against it on causes of action arising from dealings entirely distinct from its
dissenting). 25 See Shaffer v. Heitner, 433 U.S. 186, 199 (1977). 26 326 U.S. 310, 311 (1945). 27 Id. at 311-12. 28 Id. at 313-14. 29 Id. at 315. 30 Id. at 316 (citation omitted). 31 Id. at 319. 32 Intl Shoe, 326 U.S. at 319. 33 See RICHARD C. GODFREY ET AL., BUSINESS AND COMMERCIAL LITIGATION IN FEDERAL COURTS 2:25 (Robert L. Haig ed., 3d ed. 2011).
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activities therein.34 The theory is the same as that underlying traditional personal jurisdictionthat it is fair to subject a corporation to jurisdiction where it is essentially at home.35 In addition to establishing sufficient contacts, the Supreme Court also requires courts to conduct a reasonableness inquiry, the determining factors of which were laid out in Asahi Metal Industry Co. v. Superior Court of California:
[(1)] the burden on the defendant, [(2)] the interests of the forum State, [(3)] the plaintiffs interest in obtaining relief. . . . [(4)] the interstate judicial systems interest in obtaining the most efficient resolution of controversies; and [(5)] the shared interest of the several States in furthering fundamental substantive social policies.36
The Supreme Court announced the modern formulation of general jurisdiction in Helicopteros Nacionales de Colombia v. Hall, which required that a corporate defendant have continuous, systematic, and substantial business contacts with the forum state.37 Helicopteros set a high standard for meeting general jurisdiction requirements.38 That case involved a wrongful death action over a helicopter crash in Peru that claimed the lives of four United States citizens.39 The defendant helicopter owner was a Colombian company.40 The plaintiffs sought general jurisdiction in the U.S. District Court in Texas based on the defendants following contacts with the state: (1) the American decedents who died in the defendants helicopter worked for Consorcioa Peruvian company formed as an alter-ego of a Texasbased joint venture to comply with Peruvian contract law; (2) the defendant negotiated the helicopter contract with Consorcio at the joint ventures headquarters in Texas; (3) the defendant purchased 80% of its helicopter fleet from a Texas company in transactions over a seven-year period totaling over four million dollars; (4) the defendants managers and pilots were trained in Texas; and (5) the defendant received payments from Consorcio drawn from a Texas bank.41 The Supreme Court held that these contacts were not systematic and continuous enough to establish general jurisdiction over the international defendant.42
Intl Shoe, 326 U.S. at 318. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011). 36 480 U.S. 102, 113 (1987) (quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292 (1980)).
35 37 38 39 40 41 42
34
See 466 U.S. 408, 416 (1984). Fields v. Sedgwick Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986). Helicopteros, 466 U.S. at 410. Id. at 409. Id. at 410-12. Id. at 418-19.
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While the standard for general jurisdiction has not changed since Helicopteros, applying it has become increasingly difficult.43 The analysis becomes particularly complex in lawsuits involving parent corporations and their subsidiaries.44 In the most common scenario, a plaintiff seeks to sue a parent for the subsidiarys actions, because the parent likely has deeper pockets with which to satisfy a judgment.45 A more subtle motivation might be that the jurisdiction where the parent sits has more favorable law than the jurisdiction of the subsidiary.46 A thornier dilemma presents itself where the subsidiary sits in a preferable jurisdiction, but the plaintiff still hopes to sue the parent to ensure a full judgment.47 Depending on the circumstances, the plaintiff may be able to sue the parent in the subsidiarys forum state.48 Additionally, there may be situations where a plaintiff seeks to sue a foreign subsidiary based on the existence of its domestic parent49 or where a plaintiff wishes to sue a parent in the jurisdiction of one subsidiary for the action of another subsidiary in a different jurisdiction or even country.50 Presently, whether and where the plaintiff can accomplish any of these feats depends on the relationship between the parent and its subsidiary, and in some instances, on the particular federal court where the plaintiff files suit.51 B. Corporate Agency in Parent-Subsidiary Relationships Understanding the agency relationship between parent corporations and their subsidiaries is essential to jurisdictional analysis because that relationship may provide the foundation for haling a nonresident
See, e.g., Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2849 (2011). See Helicopteros, 466 U.S. at 409-10. 45 See Lucia Ann Silecchia, Pinning the Blame & Piercing the Veil in the Mists of Metaphor: The Supreme Courts New Standards for the CERCLA Liability of Parent Companies and a Proposal for Legislative Reform, 67 FORDHAM L. REV. 115, 135 (1998).
44
43
Cf. Piper Aircraft Co. v. Reyno, 454 U.S. 235, 240-41 (1981) ([T]he action against Piper and Hartzell was filed in the United States because its laws regarding liability, capacity to sue, and damages are more favorable to her position than . . . Scottish law [which] does not recognize strict liability in tort.). See generally 36 C.J.S. Federal Courts 32 (2011). E.g., Frummer v. Hilton Hotels Intl, Inc., 227 N.E.2d 851, 854 (N.Y. 1967). 49 E.g., Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2849 (2011). 50 E.g., Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965).
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Compare id. (applying the agency test), with Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008) (applying the alter-ego test).
51
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corporation into court.52 Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.53 Agents have the power to bind the principal, and it is fundamental to agency law that a principal may be liable for the acts of its agent performed within the scope of the agency relationship.54 Agency relationships can arise in a variety of contexts, including employer employee, franchisorfranchisee, partnershippartner, corporationofficer, and parent corporationsubsidiary corporation.55 A corporation is an entity having authority under law to act as a single person distinct from the shareholders who own it.56 Because corporations are distinct legal entities, they, like their human counterparts, are subject to legal obligations and liability when they fail to meet those obligations.57 However corporations, unlike people, cannot act for themselvesthey must act through agents, and when those agents transgress the law, the corporation is responsible.58 One benefit of the corporate form is that, unlike partnerships, the owners of a corporation its shareholdersare ordinarily not liable for the actions of the corporation or its agents.59 The exception to the rule of shareholder immunity is the doctrine of piercing the corporate veil, which allows a plaintiff to hold a shareholder personally liable for the corporations actions.60 To invoke the doctrine, a litigant must typically satisfy the alter-ego test, which requires: (1) that a unity of interest and ownership such that the individual personalities of the owner and the corporation cease to exist; and (2) that adherence to the corporate fiction would sanction a fraud or promote injustice.61 If the veil is pierced, then the owner can be liable as principal for the actions of the agent corporation.62 Piercing the corporate veil is not limited to actions against individual
See Swain & Aguilar, supra note 7, at 453-54. RESTATEMENT (SECOND) OF AGENCY 1 (1958) (current version at RESTATEMENT (THIRD) OF AGENCY 1.01 (2006)). 54 Id. 12, 140. 55 See RESTATEMENT (THIRD) OF AGENCY 1.01 cmt. b-c (2006). 56 BLACKS LAW DICTIONARY 391 (9th ed. 2009). 57 Id. 58 See STEPHEN B. PRESSER, PIERCING THE CORPORATE VEIL 1:2 (2012). 59 Id. 1:1. 60 Id. 61 WILLIAM MEADE FLETCHER, FLETCHER CYCLOPEDIA OF THE LAW OF C ORPORATIONS 41.10 (2011).
53 62
52
PRESSER, supra note 58, 1:11.
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shareholders; courts have also applied the doctrine in the context of parentsubsidiary relationships.63 A parentsubsidiary relationship arises when one corporation, the parent, controls another corporation, the subsidiary, through the formers ownership of a majority of the latters stock.64 The parent corporation enjoys the same protections as any other shareholder, only becoming subject to liability if the corporate veil is pierced.65 However, when courts apply the alter-ego test to parent subsidiary relationships, they look at a number of different factors to determine whether the parent had substantial domination over the subsidiary, including: whether the parent and subsidiary share directors and officers; whether the parent and subsidiary file consolidated financials and tax returns; whether the parent finances the subsidiary; whether the subsidiary operates with grossly inadequate capital; whether the subsidiary fails to observe basic corporate formalities; and whether the parent exercises control over the subsidiarys day-to-day operations.66 The logic behind the analysis is that corporations should not be able shirk legal obligations by setting up dummy corporations that are completely under their controlespecially when allowing them to do so would sanction a fraud or injustice.67 The Supreme Court has not spoken at great length about the application of the piercing doctrine to the personal jurisdiction analysis.68 The archetypal case is Cannon Manufacturing Co. v. Cudahy Packing Co.69 Although it pre-dates the Supreme Courts modern personal jurisdiction jurisprudence, Cannon is instructive on the problem of corporate jurisdiction, particularly because courts continue to follow it.70 The case involved a North Carolina corporation (Cannon) suing a Maine corporation (Cudahy-Maine) in North Carolina on the basis of CudahyMaines relationship with its subsidiary, Cudahy Packing Company of Alabama (Cudahy-Alabama).71 Cudahy-Alabama had offices in North Carolina and did business there, but Cudahy-Maine did not.72 While
Id. FLETCHER, supra note 61, 26. 65 Id. at 1:1, 1:11. 66 In re Silicone Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1452 (N.D. Ala. 1995). 67 See id. at 1453. 68 Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 705-06 n.* (1988). 69 See generally 267 U.S. 333, 336, 338 (1925) (holding that a North Carolina court did not have personal jurisdiction over a parent company incorporated in Maine even though its subsidiary had an office in North Carolina).
64 70 71 72
63
Swain & Aguilar, supra note 7, at 483. Cannon, 267 U.S. at 334-35. Id. at 334-36.
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Cudahy-Maine was Cudahy-Alabamas sole shareholder, exercised substantial control over it, and had a close identity of interest, the two companies maintained separate books and engaged in formal commercial transactions.73 The Court denied North Carolina jurisdictional authority over Cudahy-Maine, using language that has become popularized as the Cannon Doctrine: [U]se of a subsidiary does not necessarily subject the parent corporation to the jurisdiction . . . . The corporate separation, though perhaps merely formal, was real. It was not pure fiction.74 Although several courts and commentators have questioned whether the Cannon Doctrine survived the Supreme Courts subsequent procedural due process holdings,75 Cannon remains persuasive to many courts on the parent-subsidiary jurisdiction question.76 Since it was decided in 1925, courts have cited the Cannon Doctrine at least 645 times in judicial opinionsonly thirty-two of which have negative citing references, and the Supreme Court issued none of these thirty-two.77 Cannon has become increasingly important with the proliferation of parent-subsidiary relationships: between 2001 and 2011, American courts cited Cannon 113 times, but only approximately 13 times between 1925 and 1935.78 Furthermore, the fact that the Supreme Court cited Cannon approvingly as recently as 1988, in Volkswagenwerk Aktiengesellschaft v. Schlunk, suggests that neither Erie nor International Shoe completely overruled the Cannon Doctrine.79
Id. at 335. Id. at 336-38; see also Swain & Aguilar, supra note 7, at 455-56 (documenting the emergence of the Cannon Doctrine and how it established an even higher standard than the traditional pierce the veil doctrine). 75 See, e.g., Curtis Publg Co. v. Cassel, 302 F.2d 132, 137 (10th Cir. 1962) (noting that Cannon was decided at a time when the presence doctrine was invoked); PHILIP I. BLUMBERG, THE LAW OF CORPORATE GROUPS: PROCEDURAL PROBLEMS IN THE LAW OF PARENT AND SUBSIDIARY CORPORATIONS 3.03 (1983) (The star of Cannon is unmistakably on the wane.). There have been two principal objections leveled at Cannons viability as precedent: (1) that Cannon was overruled by Erie v. Tompkins, Michael H. Cardozo, A New Footnote in Erie v. Tompkins: Cannon Is Overruled, 36 N.C. L. REV. 181, 185 (1958), and (2) that Cannon was undermined by the International Shoe line of cases, see, e.g., Energy Reserves Grp., Inc., v. Superior Oil Co., 460 F. Supp. 483, 504-05 (D. Kan. 1978) (holding that Cannon relied on Pennoyers territorial jurisdiction theory and was thus overruled by International Shoe); see also Daniel G. Brown, Comment, Jurisdiction over a Corporation on the Basis of the Contacts of an Affiliated Corporation: Do You Have to Pierce the Corporate Veil?, 61 U. CIN. L. REV. 585, 601, 613 (1992). 76 See Swain & Aguilar, supra note 7, at 455-57. 77 See generally Cannon, 267 U.S. at 333. 78 See generally id. 79 See Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 706 n.* (1988); see also Intl Shoe Co. v. Washington, 326 U.S. 310, 321 (1945); Erie R.R. Co. v. Tompkins, 304 U.S. 64,
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II. Competing Tests for Parent-Corporation Jurisdiction A. Factual Underpinnings Consider the following scenario: twenty-two Argentinean residents are kidnapped and tortured in Argentina.80 The residents all worked at Mercedes-Benz Argentina (MBA).81 They suspect MBAs involvement and want to bring suit.82 Where can they sue? Argentina seems like an obvious choice.83 Consider, however, that MBA is a subsidiary of DaimlerChrysler AG (DCAG), a German corporation.84 The victims, therefore, might choose to sue DCAG instead, in which case they could choose to litigate in Germany.85 In the actual case, Bauman v. DaimlerChrysler Corp.,86 twenty-two Argentinean plaintiffs sued in the United States under American law for torts that occurred in Argentina at the hands of an Argentinean subsidiary of a German corporation.87 The Ninth Circuit held that asserting general jurisdiction over DCAG was reasonable because a different DCAG subsidiary, Mercedes-Benz USA (MBUSA), did significant business in California.88 While MBUSA was not a party to the lawsuit, and played no role in the underlying cause of action, the court reasoned that MBUSAs presence and activities in California were substantial enough to subject DCAG to a lawsuit in the state under the Alien Tort Claims Act.89 Jurisdiction was possible in California because the Ninth Circuit is one of a minority of jurisdictions that allow arguments under the agency test to determine whether the court may assert general jurisdiction over a parent corporation in its subsidiarys forum.90 The clear majority of circuits only
79-80 (1934). 80 Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 911-12 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965). Id. at 911. Id. at 912. 83 Id. at 911-12. 84 Id. at 913. 85 Id. at 912. 86 644 F.3d at 909, petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965). 87 Id. at 911-12. 88 Id. at 931. MBUSA, a Delaware LLC with principal place of business in New Jersey, was actually a subsidiary of DaimlerChrysler North America Holding Corporation, which itself was a subsidiary of DCAG. Id. at 913. 89 Id. at 912, 931; see generally 28 U.S.C. 1350 (2006) (setting forth the Alien Tort Claims Act cause of action).
82 90 81
See, e.g., Bauman, 644 F.3d at 920.
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apply the alter-ego test to this question.91 The agency test does not require the court to pierce the corporate veil in order to hale the nonresidentparent into court.92 Rather, the jurisdictional determination hinges on a showing of the special importance of the services performed by the subsidiary.93 B. The Jurisdictional Alter-Ego Test Typically, a plaintiff seeking to sue a nonresident corporation in the jurisdiction of its resident subsidiary must pierce the corporate veil between the two.94 This requires a two-step analysis: first, whether the distinction between the parent and subsidiary was illusory; and second, whether adhering to the distinction would sanction fraud or injustice.95 The principle underlying the alter-ego test is that a corporation should not be able to insulate itself from the jurisdiction of the states in which it does business by the simple expedient of separately incorporating its sales force and other operations in each state.96 In Bauman v. DaimlerChrysler Corp., jurisdiction would not have attached under the alter-ego test.97 While DCAG had broad policy authority over MBUSA and shared two directors with MBUSA, there was not a sufficient identity of interests to disregard the corporate form because MBUSA observed its own corporate formalities; purchased vehicles from DCAGrather than having them supplied to it; was not financed by DCAG; and was not grossly undercapitalized.98 Finally, DCAG did not exercise control over MBUSAs day-to-day operations.99 In addition, preserving the corporate veil between DCAG and MBUSA would not sanction a fraud or injustice because MBUSA was in no way involved in
91
See, e.g., Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008); Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 648-49 (8th Cir. 2003); Andresen v. Diorio, 349 F.3d 8, 12 (1st Cir. 2003); Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 218 (5th Cir. 2000); Consol. Dev. Corp. v. Sherritt, Inc., 216 F.3d 1286, 1293 (11th Cir. 2000); Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 62-63 (4th Cir. 1993); Great Lakes Overseas, Inc. v. Wah Kwong Shipping Grp., 990 F.2d 990, 996-97 (7th Cir. 1993).
92 93 94
See Bauman, 644 F.3d at 920.
Bauman, 644 F.3d at 920. Id. See 1 PHILLIP I. BLUMBERG ET AL., BLUMBERG ON CORPORATE GROUPS 25.04[A-C], 25.07.08 (2d ed. 2005 & Supp. 2012-2) (All American jurisdictions subscribe to either the instrumentality or alter-ego models of classic three-factor piercing [requiring control, fraud/injustice, and causation].).
95 96 97 98 99
Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565, 569-70 (7th Cir. 1985). IDS Life Ins. Co. v. SunAmerica Life Ins. Co., 136 F.3d 537, 541 (7th Cir. 1998). 644 F.3d at 920. See id. at 915, 917, 920. See id. at 922, 924.
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this lawsuit.100 Merely because a plaintiff prefers Californias laws to those of Argentina or Germany does not accord the plaintiff an inherent right to litigate there under the alter-ego test.101 C. The Jurisdictional Agency Test Rather than requiring a piercing of the corporate veil, the Second and Ninth Circuits allow general jurisdiction over nonresident corporate defendants under the agency test.102 In the Second Circuit, a court can assert jurisdiction over a foreign corporation when it affiliates itself with a resident representative entity that renders services on behalf of the foreign corporation that . . . are sufficiently important enough to the foreign entity that the corporation itself would perform equivalent services if no agent were available.103 The defendant need not exercise[] direct control over its putative agent,104 and thus [a]lthough termed agency by the courts . . . [i]t is manifestly not a common law agency relationship.105 The Ninth Circuits agency test differs slightly from that of the Second Circuit in that it incorporates the sufficiently important sub-test as its first prong and adds a right of control sub-test as a second prong.106 The second prong differs from the actual control necessary to establish jurisdiction under the alter-ego test;107 it draws from agency law the principle that, to form an agency relationship the agent must manifest consent to the principals right to control it.108 After establishing an agency relationship, the court then examines whether jurisdiction is reasonable.109 While more exacting than the Second Circuit, it is also considerably more relaxed than the majority rule and produces results inconsistent with traditional notions of fair play and substantial justice.110
100 See Bauman v. DaimlerChrysler Corp., 644 F.3d 909 (9th Cir. 2011), rehg en banc denied, 676 F.3d 774, 776 (9th Cir. 2011) (OScannlain, J., dissenting).
Bauman, 644 F.3d at 920. See, e.g., id.; Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000). 103 See Wiwa, 226 F.3d at 95. 104 Id. 105 BLUMBERG ET AL., supra note 94, 29.03[B] (2d ed. 2005 & Supp. 2006). 106 See Bauman, 644 F.3d at 920-21. 107 Id. at 920. 108 Id. at 923. 109 Id. at 924. 110 Compare Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 113 (1987) (holding that the exercise of personal jurisdiction over a foreign corporate entity would offend fair play and substantial justice in violation of due process), with Bauman, 644 F.3d at 923.
102
101
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ANALYSIS II. The Federal Circuit Courts Should Uniformly Adopt the Alter-Ego Test Because the Agency Test Impermissibly Expands Fourteenth Amendment Due Process. A. The Agency Test Fails to Establish the Continuous, Systematic, and Substantial Contacts Necessary for General Jurisdiction. As explained in Goodyear, [a] court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so continuous and systematic as to render them essentially at home in the forum State.111 An important minority of jurisdictions interpret this standard to permit general jurisdiction over a foreign parent upon a threshold showing of agency between the parent and its resident subsidiary.112 These jurisdictions diverge from mainstream corporate jurisdictional theory insofar as their standard for asserting general jurisdiction over a parent corporation does not meet the general standards for piercing the corporate veil.113 1. The Second Circuit Test
As Wiwa v. Royal Dutch Petroleum Co. demonstrates, the Second Circuit permits general jurisdiction over a foreign corporation if that corporation is doing business in the state with a fair measure of permanence and continuity.114 The foreign corporation, however, need not do business within the state directly: jurisdiction is proper where the corporations agent is performing services in the forum state that are sufficiently important to the foreign entity that the corporation itself would perform equivalent services if no agent were available.115 Although the Second Circuit describes this affiliated actor as an agent, the court is clear that the plaintiff need not establish a formal agency agreement . . . nor that the defendant exercised direct control over its putative agent.116 The Second Circuit pledges that this standard comports with Fourteenth Amendment Due Process, but closer analysis reveals inherent
Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011). See, e.g., Bauman, 644 F.3d at 920; Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000).
112 113 114 115 116
111
Cf. BLUMBERG ET AL., supra note 94, 25.08. Wiwa, 226 F.3d at 95 (quoting Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 267 (1917)). Id. Id.
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inconsistencies with the Supreme Courts general jurisdiction jurisprudence.117 First, the doing business standard fails to ensure the continuous and systematic business contacts necessary for general jurisdiction.118 The Second Circuits broad interpretation of doing business is a response to the revolution in international transportation and commerce and reflects a decision to expand New Yorks jurisdiction . . . to approach the constitutional limits.119 For instance, in Landoil, the court suggested that renting a hotel room to solicit business on a systematic and regular basis might be the functional equivalent of an office in New York and therefore might be sufficient to establish presence in the state.120 This tenuous connection between corporation and forum not only approach[es] the constitutional limits,121 it far exceeds them.122 Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.123 Thus, the majority of circuits require a showing of direct control by the parent over the subsidiary to establish an agency relationship.124 Moreover, because there is generally a strong presumption of limited liability for shareholders,125 most courts demand additional elements before piercing the corporate veil: (1) that there is a unity of interest and ownership such that the individual personalities of the owner and the corporation cease to exist; and (2) that
Compare id. at 98-99, with Helicopteros Nacionales de Colom. v. Hall, 466 U.S. 408, 41819 (1984) (refusing to recognize general jurisdiction for less than a liberal showing of systematic and continuous contacts). Compare Helicopteros, 466 U.S. at 416, 418-19, with Wiwa, 226 F.3d at 95. Aquascutum of London, Inc. v. S.S. Am. Champion, 426 F.2d 205, 211 (2d Cir. 1970). 120 Landoil Res. Corp. v. Alexander & Alexander Servs., Inc., 918 F.2d 1039, 1045 n.10 (2d Cir. 1990); see also Garrett J. Fitzpatrick & Stephanie N. Brie, Personal Jurisdiction Over Parent Corporations, BRIEF, Summer 2009, at 42 (advising foreign companies to keep business trips to a minimum in order to avoid agency jurisdiction).
119 118
117
Aquascutum of London, 426 F.2d at 211. See infra notes 133-39 and accompanying text. 123 RESTATEMENT (SECOND) OF AGENCY 1(1) (1958) (emphasis added). 124 See, e.g., Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008) (quoting Danton v. Innovative Gaming Corp., 246 F. Supp. 2d 64, 72 (D. Me. 2003)); Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 648-49 (8th Cir. 2003); Andreson v. Diorio, 349 F.3d 8, 12 (1st Cir. 2003); Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 218 (5th Cir. 2000); Consol. Dev. Corp. v. Sherritt, Inc., 216 F.3d 1286, 1293-94 (11th Cir. 2000) (quoting Portera v. Winn Dixie of Montgomery, Inc. 996 F. Supp. 1418, 1423 (M.D. Ala. 1998)); Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 62-63 (4th Cir. 1993); Great Lakes Overseas, Inc. v. Wah Kwong Shipping Grp., 990 F.2d 990, 996-97 (7th Cir. 1993) (quoting SeaLand Servs., Inc. v. Pepper Source, 941 F.2d 519, 520 (7th Cir. 1991). 125 See Richard v. Bell Atl. Corp., 946 F. Supp. 54, 61 (D.D.C. 1996) (quoting Frank v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir. 1996)).
122
121
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adherence to the [corporate] fiction . . . would sanction a fraud or promote injustice.126 Even this was not enough to impose liability when the Supreme Court touched on the issue in Cannon.127 There, despite complete dominion over the subsidiary, the Court did not pierce because the two companies adhered to corporate formalities.128 The Second Circuits agency standard is clearly at odds with the overwhelming weight of authority.129 The Second Circuit has also failed to articulate a workable standard for determining when a subsidiary is sufficiently important to a parent that it would perform the subsidiarys function itself if no subsidiary existed.130 With no control or corporate formality requirements, the Second Circuits test is an exceedingly vague inquiry predisposed to promulgating a de facto presumption favoring jurisdiction over the parent because parent corporations will only maintain subsidiary relationships from which they derive some benefit.131 This emits the odor of circular reasoning: subsidiaries are agents of parents if they are sufficiently important, and the proof that they are sufficiently important is the existence of the parentsubsidiary relationship.132 Yet the Supreme Court has stated that the mere existence of a parent-subsidiary relationship is insufficient in itself to support jurisdictional piercing.133 The sufficiently important test fails to establish the systematic, continuous, and substantial business contacts between a parent corporation and the forum state necessary to satisfy the Fourteenth Amendment.134 Unlike the majority of circuits, the Second Circuit does not employ the piercing condition that adhering to the corporate fiction would sanction a fraud or promote injustice.135 This distinction is critical, as the contacts to support jurisdiction must be sufficient to ensure that maintenance of the
126 E.g., Sea-Land Servs., Inc. v. Pepper Source, 941 F.2d 519, 520 (7th Cir. 1991) (quoting Van Dorn Co. v. Future Chem. & Oil Corp., 753 F.2d 565, 569-70 (7th Cir. 1985)). 127 128 129
Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 336-37 (1925). Id. See supra notes 123-27 and accompanying text; see infra notes 129-30 and accompanying
text. See Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 96 (2d Cir. 2000). Compare id. at 95 (questioning whether a subsidiary was important enough to assert jurisdiction over its parent), with Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362-63 (6th Cir. 2008) (examining ten factors to determine whether a parent was at home in the forum state by virtue of its alleged alter-ego subsidiary). 132 See Wiwa, 226 F.3d at 95. 133 Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 706 n.* (1988) (citing Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 336-37 (1925)).
131 134 135 130
See Helicopteros Nacionales de Colom. v. Hall, 466 U.S. 408, 415-17 (1984). E.g., Wiwa, 226 F.3d at 95.
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suit does not offend traditional notions of fair play and substantial justice.136 A traditional notion of fairness and justice in the context of parent-subsidiary relationships is limited liability: the veil is not pierced unless failing to pierce would sanction a fraud or promote injustice.137 The Second Circuit seems to argue that if an agency relationship exists, it is per se fair and just to assert jurisdiction over the parent.138 This argument may have clear application in the context of specific jurisdictionfor instance, where the parent is being sued for a subsidiarys actions in that subsidiarys jurisdiction: (1) the forum state would have a legitimate interest in the litigation; (2) the plaintiffs would have a strong interest in obtaining relief; (3) the forum would provide an efficient resolution to the controversy due to readily accessible evidence and witnesses; and (4) the shared interest of the states in furthering substantive policies would be satisfied (i.e., holding parent corporations liable for the acts of the subsidiaries created within the state).139 Yet its application is much cloudier in the context of general jurisdiction and, in particular, cases where the parent corporation is being sued in the jurisdiction of a subsidiary for the acts of a different subsidiary.140 In the latter, jurisdiction is obtained over the parent corporation through a subsidiary that is completely unrelated to the lawsuit, and the only Asahi factor in favor of a plaintiff would be its own interest in obtaining relief.141 The court in Wiwa recognized this assertion, admitting that it is true that certain factors normally used to assess the reasonableness of jurisdiction do favor the defendants.142 Yet the court found it fair to assert jurisdiction essentially on the basis of their enormous resources.143 This should not be surprising, for the agency tests foundation is economic, not conceptual.144 This is far too slender a reed on which to rest general jurisdiction.145 If
Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). FLETCHER, supra note 61. 138 See, e.g., Wiwa, 226 F.3d at 99. 139 Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 113 (1993). 140 E.g., Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965).
137
136
See generally id. at 920; Asahi, 480 U.S. at 113. Wiwa, 226 F.3d at 99. 143 Id. 144 BLUMBERG ET AL., supra note 94, 29.03[B] (2d. ed. 2005 & Supp. 2006). 145 Compare Helicopteros Nacionales de Colom. v. Hall, 466 U.S. 408, 416, 418-19 (1984) (finding that only a few purposeful, but limited contacts with Texas were not sufficient for general jurisdiction), with Wiwa, 226 F.3d at 95, 99 (finding that pervasive continual contacts with New York were sufficient for general jurisdiction). Furthermore, the Supreme Court
142
141
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the Supreme Court thought financial convenience were sufficient to make jurisdiction constitutionally reasonable, it would have expressed such an intention.146 Rather, the Court enumerated a number of factors that the Second Circuit eschews in favor of its own perception of reasonableness.147 Because the Second Circuit omits the majority fraudinjustice requirement, ignores the Supreme Courts reasonableness factors, and allows general jurisdiction through an overly broad conception of agency, overall, it works to deprive due process under the Fourteenth Amendment.148 2. The Ninth Circuit Test
The Ninth Circuit applies a different permutation of the agency test, although litigants are given a choice between the majority alter-ego test and an agency test.149 The Ninth Circuits two-prong agency test requires that: (1) the subsidiarys services are sufficiently important to the parent that in the absence of the subsidiary the parent would perform the services itself; and (2) the parent maintains a right of control over the subsidiary.150 Once an agency relationship is established, the court then examines whether the assertion of jurisdiction is reasonable.151 The Ninth Circuits sufficiently important test is derived from, and is substantially similar to, the test applied by the Second Circuit.152 The Ninth Circuit, however, has attempted to avoid the Second Circuits circular reasoning by elaborating on what important means and by adding a right of control prong.153 In Bauman, for example, the court held that because MBUSAs sales in California alone accounted for 2.4% of DCAGs
questioned this line of reasoning in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298 (1980) ([I]t is contended that jurisdiction can be supported by the fact that petitioners earned substantial revenue from goods used in Oklahoma. The Oklahoma Supreme Court so found, [but] . . . we need not question the courts factual findings in order to reject its reasoning.). Cf. Asahi, 480 U.S. at 113 (stating which factors the Supreme Court will consider in determining if jurisdiction is appropriate and not including financial convenience).
147 Wiwa, 226 F.3d at 95 (listing the contacts the Second Circuit found sufficient in its reasonableness analysis). 148 Compare id. at 95, 99 (holding that allowing personal jurisdiction in New York would not be unreasonable), with Helicopteros, 466 U.S. at 418-19 (finding that the contacts with the forum state did not support a finding of personal jurisdiction). See generally Wiwa, 226 F.3d at 95, 99; see also John B. Bellinger III, Op-Ed., The U.S. Cant Be the Worlds Court, WALL ST. J., May 27, 2009, http://online.wsj.com/article/SB124338378610356591.html#printMode. 149 150 151 152 153 146
Fitzpatrick & Brie, supra note 120, at 40-41. Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011). Id. at 924. Id. at 921-22. Id. at 923.
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total worldwide sales, DCAG would have had to assume the operation itself without MBUSA.154 This contention is consistent with neither common sense nor the facts of that case.155 First, it is far from obvious that 2.4% of an organizations revenue represents an indispensible portion of its business.156 Second, DCAG did not rely exclusively on subsidiaries to sell and distribute its vehicles within the United States: Before DCAG created MBUSA, DCAG and its predecessors used two independent distributors to distribute Mercedes-Benz vehicles in the United States.157 Therefore, in the absence of MBUSA, it is conceivable that DCAG would use an independent distributor rather than conduct the service itself.158 The upshot is that although the Ninth Circuit provides more insight into what constitutes sufficiently important, the bar is set so low that its sub-test is indistinguishable from that of the Second Circuit.159 The right-to-control sub-test, however, does represent an improvement over the Second Circuit standard.160 Indeed, the Ninth Circuit itself expressed this to be its intention: The Second Circuit relies on the sufficient importance test without requiring any control. We do not go so far, however.161 The foundation for the Ninth Circuits position is that an agency relationship does not generally require actual control, but rather only a right to control.162 While this is true, it is not how the law governing parentsubsidiary relationships developed.163 Agency law diverged from tradition in reaction to the general rule that shareholders are immune from liability for a corporations actions.164 To break from this rule, a court must pierce the corporate veil, which requires a dual showing that the two legal separate entities are in fact one and the same and that upholding the separateness would result in a fraud or injustice.165 The strong presumption against shareholder liability has led most courts to look beyond the mere right to control to whether the parent has in fact dominated the
Id. at 922. See infra notes 156-61 and accompanying text. 156 Cf. Bauman, 644 F.3d at 922 (discussing MBUSAs sales presence in the United States). 157 Id. at 914. 158 See id. 159 Compare id. at 920-23, with Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000) (comparing the Ninth Circuits agency test with the Second Circuits agency analysis). 160 See Bauman, 644 F.3d at 923. 161 Id. 162 Id. 163 See, e.g., In re Silicone Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1452 (N.D. Ala. 1995).
155 164 165
154
PRESSER, supra note 58, 1:1. FLETCHER, supra note 61.
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subsidiary.166 In the context of general jurisdiction, the presumption of corporate separateness represents a traditional notion of fair play and substantial justice.167 In Cannon, the Supreme Court held that because the distinction between a parent and subsidiary was not pure fiction, it was improper to pierce the corporate veil to assert jurisdiction.168 Although the Cannon Doctrine arose prior the Supreme Courts modern personal jurisdiction jurisprudence, its underlying principles have retained their force.169 The factors that the Court later identified in Asahi are also influential in determining whether the assertion of jurisdiction is fair and reasonable.170 While the Ninth Circuit essentially ignores the Cannon Doctrine, it does apply seven Asahi-style factors:
[(1)] the extent of purposeful interjection; [(2)] the burden on the defendant; [(3)] the extent of conflict with sovereignty of the defendants state; [(4)] the forum states interest in adjudicating the suit; [(5)] the most efficient judicial resolution of the dispute; [(6)] the convenience and effectiveness of relief for the plaintiff; and [(7)] the existence of an alternative forum.171
These factors suggest a totality-of-the-circumstances approach, but their practical application puts the Ninth Circuits reasonableness inquiry on par with that of the Second Circuit.172 The Ninth Circuits analysis in Bauman supports this conclusion: (1) as evidence of purposeful interjection, the court referred to the 2.4% of sales that occur in California; (2) with respect to burden on the defendant, the court admitted that there is some burden in having to litigate in a foreign country, but qualified this by stating it is not a particularly significant factor; (3) with respect to
E.g., United States v. Jon-T Chems., Inc., 768 F.2d 686, 691-92 (5th Cir. 1985). See Escude Cruz v. Ortho Pharm. Corp., 619 F.2d 902, 905 (1st Cir. 1980) (There is a presumption of corporate separateness that must be overcome by clear and convincing evidence that the parent in fact controls the activities of the subsidiary.); see also United States v. Bestfoods, 524 U.S. 51, 61 (1998) (quoting William O. Douglas & Carrol M. Shanks, Insulation from Liability Through Subsidiary Corporations, 39 YALE L.J. 193, 193 (1929) (It is a general principle of corporate law deeply ingrained in our economic and legal systems that a parent corporation . . . is not liable for the acts of its subsidiaries.)). 168 Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 336-37 (1925). 169 Swain & Aguilar, supra note 7, at 483. 170 Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 113 (1993). 171 See Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 924-30 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965).
167 172 Compare id. at 930 (holding that personal jurisdiction was reasonable given a number of considerations applying with equal force), with Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 99 (2d Cir. 2000) (evaluating a variety of considerations to determine whether personal jurisdiction was reasonable given the defendants position).
166
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sovereignty conflicts, the court asserted that this factor is not dispositive and stated that although German courts have suggested that although the expansion of American general jurisdiction may be a threat to German sovereignty, there is no violation of sovereignty when a foreign parent company places itself at risk by doing business through U.S. subsidiaries; (4) although (a) the events giving rise to the cause of action occurred in Argentina, (b) the plaintiffs were Argentinean residents with no connection to the forum, (c) the allegedly responsible subsidiary was domiciled in Argentina, and (d) the allegedly responsible parent was domiciled in Germany, the court found that California had a strong interest in adjudicating and redressing international human rights abuses; (5) as to the most efficient judicial-resolution element the court held that because Argentinas statute of limitations had passed, the issue was a draw between the United States and Germany; and (6) and (7) the court examined the plaintiffs interest in relief in the forum and the availability of an alterative forum in unison and noted that [e]ven if Argentina and Germany were, as DCAG argues, both adequate fora for redressing any alleged wrongs, the availability of an alternative forum is not the deciding factor in the personal jurisdiction analysis.173 It is certainly a curious feature of the Ninth Circuits reasonableness analysis that whenever a factor seemed to favor the defendant, that factor was not . . . particularly significant (2), or not dispositive (3), or not the deciding factor (6 and 7).174 Furthermore, since factor (5) was a draw,175 the court essentially hung its hat on two factors: the 2.4% sales figure (1) and Californias alleged interest in righting international wrongs (4).176 Thus, according to the Ninth Circuit, it is reasonable for California to assert jurisdiction over a parent company for torts that occur anywhere in the world simply by virtue of having a California subsidiary that represents 2.4% of the parent companys sales.177 This conclusion is plainly at odds with Asahi.178 There, the incident giving rise to the cause of action actually occurred within the state and a
See Bauman, 644 F.3d at 924-29. See id. at 925-29. 175 Id. at 927-28. It is not entirely clear that this factor was a wash: although the court confined its analysis to the location of witnesses and evidence, judicial efficiency is a broader concept that considers the comparative burdens in bringing the lawsuit, including the procedural and substantive policies of other nations whose interest are affected by the assertion of jurisdiction [and] . . . the Federal interest in Governments foreign relations policies . . . . Asahi, 480 U.S. at 115.
174 176 177 178
173
See Bauman, 644 F.3d at 924-30. See id. Asahi, 480 U.S. at 113-14.
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product sold within the state caused the incident.179 In finding against specific jurisdictionan easier standard to meet because the states interest is greater where the cause of action relates to the contactsthe Supreme Court held that because the plaintiff was not a California resident, the forums interest was slight and considerably diminished.180 The Court rejected Californias argument that it had an interest in protecting consumers from foreign manufacturers as overly broad.181 Surely if its interest in protecting its own consumers can be overly broad, then Californias interest in protecting the world from human-rights abuses is overly broad as well.182 Additionally, whereas the Bauman Court downplayed DCAGs burden of litigating abroad and stated that this factor was not dispositive, the Asahi Court held that [t]he unique burdens placed upon one who must defend oneself in a foreign legal system should have significant weight in assessing the reasonableness of stretching the long arm of personal jurisdiction over national borders.183 In fact, the Court found that the burden on the foreign defendant was severe, before warning that [g]reat care and reserve should be exercised when extending our notions of personal jurisdiction into the international field . . . .184 The Ninth Circuit has failed to exercise such care and reserve.185 Rather, it has opened its doors as a forum for the worlds disputes and in doing so has exceeded the limits on nonresident jurisdiction imposed by the Due Process Clause.186
Id. at 105-06. Id. at 114. 181 Id. 182 Compare id., with Bauman, 644 F.3d at 927. 183 Asahi, 480 U.S. at 114. 184 Id. at 115 (quoting United States v. First Natl City Bank, 379 U.S. 378, 404 (1965) (Harlan, J., dissenting)).
180
179
E.g., Bauman, 644 F.3d at 930. See Helicopteros Nacionales de Colom. v. Hall, 466 U.S. 408, 416 (1984); see also Sarei v. Rio Tinto, PLC, 671 F.3d 736, 797-98 (9th Cir. 2011) (Kleinfeld, J., dissenting).
186
185
Now that our court has adopted universal jurisdiction to grant tort damages for violations by foreigners against foreigners in foreign lands of the law of nations, in a plethora of opinions that cannot agree on what the law of nations prohibits, we on the Ninth Circuit now exercise jurisdiction over all the earth, on whatever matters we decide are so important that all civilized people should agree with us. Id.
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B. The Alter-Ego Test Comports with the Due Process Clause. The Due Process Clause gives a degree of predictability to the legal system that allows potential defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.187 Yet, the current discrepancies in federal jurisdictional law provide anything but predictability.188 The general jurisdiction standard is so loose in the Second and Ninth Circuits that structuring a corporation-subsidiary relationship to avoid personal jurisdiction based solely on the subsidiarys location is all but impossible.189 This is problematic because legal separateness is a central feature of parentsubsidiary relationships and is generally the rule, rather than the exception.190 The alter-ego test satisfies the predictability principle underlying the Due Process Clause, as it was developed for an analogous function: to provide a predictable guideline for an exception to the rule of corporate separateness for the purpose of assigning liability.191 Thus, piercing the corporate veil to hold a parent corporation liable for the acts of a subsidiary is fair and just where there is really no distinction between the two companies.192 A sophisticated and exhaustive set of indicia ensures that one is the alter-ego of the other.193 The majority of courtsincluding the Supreme Court in Cannonhave applied the same reasoning to piercing for jurisdictional purposes: it is fair and just to consider a corporation at home in the forum on the basis of a subsidiary therein if there is really no
187 World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980); see also U.S. CONST. amend. XIV, 1, cl. 2. 188 See Friedrich K. Juenger, Forum Shopping, Domestic and International, 63 TUL. L. REV. 553, 558-60 (1989) (highlighting the different outcomes caused by discrepant jurisdictional rules and suggesting that certainty, predictability, and uniformity of result[s] are achieved through evenhanded, forum-proof rules). 189 See, e.g., Bauman, 644 F.3d at 921-22 (holding that 2.4% of sales by the subsidiary meets the sufficient importance test). 190 See United States v. Bestfoods, 524 U.S. 51, 61 (1998). 191 See Cent. States, Se. & Sw. Areas Pension Fund v. Reimer Express World Corp., 230 F.3d 934, 944 (7th Cir. 2000) (Where corporate formalities have been observed, a companys owners . . . do not reasonably anticipate being hailed into a foreign forum to defend against liability for the errors of the corporation.) (emphasis added). Activities that will cause an alter-ego finding are well defined, though not free from debate. See generally 114 AM. JUR. 3D Proof of Facts 403 (2010). But see Stephen M. Bainbridge, Abolishing Veil Piercing, 26 J. CORP. L. 479, 514 (2001). 192 See In re Silicone Gel Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1453 (N.D. Ala. 1995). 193
114 AM. JUR. 3D, supra note 191, at 438.
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distinction between the two.194 By honoring the principle of corporate separateness, the jurisdictional alter-ego test furthers traditional notions of fair play and substantial justice.195 The Supreme Court has called corporate separateness a principle of corporate law deeply ingrained in our economic and legal systems.196 In Cannon, the Court applied this principle in the context of personal jurisdictionrefusing to assert jurisdiction unless the corporate separateness is pure fiction.197 The alter-ego test analysis is designed to ferret out purely fictitious distinctions and preserve those that the principle was designed to protect.198 Thus, the separateness is pure fiction when a number of the following factors are met: the parent and subsidiary share directors and officers; the parent and subsidiary file consolidated financials and tax returns; the parent finances the subsidiary; the subsidiary operates with grossly inadequate capital; the subsidiary fails to observe basic corporate formalities; and the parent exercises control over day-to-day operations.199 This type of analysis gives corporations a predictable set of guidelines for maintaining corporate separateness and thereby avoids the jurisdictional power of the courts.200 Contrast this with the agency tests of the Second and Ninth Circuits, where a corporation is subject to general jurisdiction when its subsidiary conducts business that is sufficiently
194 See Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 337-38 (1925); Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008) (Normally, courts apply the alter-ego theory of personal jurisdiction to parentsubsidiary relationships.). 195 See Brief for New England Legal Foundation as Amicus Curiae Supporting Petitioner, DaimlerChrysler AG v. Bauman, No. 11-965 (U.S. Mar. 8 2012), 2012 WL 826585, at *15 (distilling from the Supreme Courts decisions in Bestfoods and Cannon the proposition that [t]hese due process concerns for a corporate defendants reasonable expectations, based on its carefully chosen conduct, are harmonious with an essential purpose of corporate law: to allow either corporate or individual shareholders to separate themselves formally from the commercial enterprises they own and thereby control their exposure to liability or personal jurisdiction).
United States v. Bestfoods, 524 U.S. 51, 61 (1998) (quoting William O. Douglas & Carrol M. Shanks, Insulation from Liability Through Subsidiary Corporations, 39 YALE L.J. 193, 193 (1929)). 197 Cannon, 267 U.S. at 337-38. 198 See In re Silicone Gel Breast Implants Prods. Liab. Litig., 887 F. Supp. 1447, 1452 (N.D. Ala. 1995). Id. See Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008); Brief for New England Legal Foundation as Amicus Curiae Supporting Petitioner, DaimlerChrysler AG v. Bauman, No. 11-965 (U.S. Mar. 8 2012), 2012 WL 826585, at *15.
200 199
196
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important.201 There is no clear guideline for when a subsidiarys business is sufficiently important; thus this standard is highly susceptible to inconsistency, especially because the relationship itself implies some degree of importance to the parent company.202 However, since that relationship is not enough to pierce the corporate veil, the minority rule produces the perverse result of shielding corporations from liability when their in-state subsidiaries violate the law, while subjecting them to liability when their out-of-state subsidiaries do the same.203 The exclusive use of the alter-ego test in the clear majority of circuits further strengthens the reasoning in its favor.204 The First, Fifth, Sixth, Seventh, and Eighth Circuits explicitly demand a showing that the subsidiary is the alter ego of the parent before the courts assert general personal jurisdiction over the out-of-state parent.205 Other circuitssuch as the D.C., Fourth, and Eleventhclaim to use an agency test, while clearly requiring an alter-ego relationship before asserting jurisdiction.206 In Mylan, for instance, the Fourth Circuit applied Marylands socalled agency test in deciding whether to pierce the veil . . . for jurisdictional purposes.207 This agency testderived from Cannon examines whether the companies maintain separate books and records, employ separate accounting procedures, and hold separate directors meetings; whether the parent exerts considerable control; the interdependence between the parent and subsidiary; and whether there is some independent reason for its existence other than being under the complete dominion and control of another legal entity simply for the purpose of doing its act and bidding.208 In fact, the Fourth Circuit goes further than the majority of courts in requiring that the parent knew, or should have known, that its conduct would have some impact in [the
201 See, e.g., Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965); Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000).
See, e.g., Wiwa, 226 F.3d at 95. Compare Bauman, 644 F.3d at 920, with McKesson HBOC, Inc. v. N.Y. State Common Ret. Fund, 339 F.3d 1087, 1094-95 (9th Cir. 2003).
203
202
See, e.g., Estate of Thomson, 545 F.3d at 362. See, e.g., id.; Anderson v. Diorio, 349 F.3d 8, 12 (1st Cir. 2003); Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 648-49 (8th Cir. 2003); Alpine View Co. v. Atlas Copco AB, 205 F.3d 208, 218 (5th Cir. 2000); Great Lakes Overseas, Inc. v. Wah Kwong Shipping Grp., 990 F.2d 990, 996-97 (7th Cir. 1993).
205
204
See Consol. Dev. Corp. v. Sherritt, Inc., 216 F.3d 1286, 1293-94 (11th Cir. 2000); Mylan Labs. Inc. v. Akzo, N.V., 2 F.3d 56, 62-63 (4th Cir. 1993); Richard v. Bell Atl. Corp., 946 F. Supp. 54, 669-70 (D.D.C. 1996).
207 208
206
Mylan, 2 F.3d at 61. Id. (quoting Harris v. Arlen Props., Inc., 260 A.2d 22, 29 (Md. 1969)).
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forum].209 Likewise, D.C. courts have held that a parent-subsidiary relationship alone is insufficient to impute the subsidiarys contacts with the District to the parent, unless, (a) the parent and subsidiary are not really separate entities, or (b) the parent and subsidiary have an agency relationship.210 Option (a) applies Cannonif the parent and subsidiary observe corporate formalities, the separation is not pure fiction and jurisdiction will not attach.211 Option (b) is applied using the so-called agency test, which examines many of the same factors as the alter-ego test: whether the parent controls the subsidiarys day-to-day operations; whether the companies use the same work force; whether companies share directors, officers, and managers; whether the companies observe basic corporate formalities; whether the companies maintain separate bank accounts; and whether the parent and subsidiary file joint tax returns. Therefore, under either standard, D.C. courts respect corporate separateness as long as the parent and subsidiary do the same.212 The majority of circuits apply the alter-ego test because it is the most reliable method to ensure that jurisdiction over a parent corporation comports with the Due Process Clause.213 When a court asserts jurisdiction over a parent by virtue of the subsidiarys contacts with the forum, it should be the subsidiarys contacts that must be continuous, systematic, and substantial.214 If the subsidiarys contacts meet that standard, and the parent and subsidiary are, in reality, one and the same, then the parents contacts meet the standard as well.215 This is fundamentally distinguishable from the agency test, which says that a parents contacts are continuous, systematic, and substantial if it has a subsidiary in the forum that is sufficiently important.216 This latter approach not only glosses over the deeply ingrained principles of shareholder immunity, but it also broadens the standard for general jurisdiction to a degree such that it conflicts with
Id. at 61-62. Richard v. Bell Atl. Corp., 946 F. Supp. 54, 69 (D.D.C. 1996) (quoting I.A.M. Natl Pension Fund v. Wakefield Indus., Inc., 699 F.2d 1254, 1259 (D.C. Cir. 1983)). 211 See id. (citing Cannon Mfg. Co. v. Cudahy Packing Co., 267 U.S. 333, 337 (1925)). 212 See id. at 69-71. 213 U.S. CONST. amend. XIV, 1, cl. 2. 214 Cf. Estate of Thomson ex rel. Estate of Rakestraw v. Toyota Motor Corp. Worldwide, 545 F.3d 357, 362 (6th Cir. 2008) (quoting Patin v. Thoroughbred Power Boats, Inc., 294 F.3d 640, 653 (5th Cir. 2002) (explaining that Fifth Circuit jurisprudence recognizes general jurisdiction over the parent where the forum would otherwise have jurisdiction over the subsidiary)). 215 See id. (quoting Danton v. Innovative Gaming Corp., 246 F. Supp. 2d 64, 72 (D. Me. 2003)).
210 216
209
E.g., Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000).
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Supreme Court precedent.217 As the alter-ego test is well suited to satisfy both of these interests, the federal courts should uniformly adopt this test to achieve the consistency that the Due Process Clause requires.218 III. The Alter-Ego Test Adequately Safeguards Against the Public Policy Concerns Raised by the Agency Test. A. The Agency Test Is Economically Burdensome. Aside from its shaky constitutional footing, the agency testin either permutationhas significant, negative economic implications.219 The results place an immediate economic burden on the courts.220 General jurisdiction litigation, by its nature, is less efficient than specific jurisdiction litigation, and is thus prone to higher costs.221 Specific jurisdiction attaches when a companys contacts within the forum give rise to the cause of action.222 Therefore, geographical proximity mitigates the costs of producing evidence and witnesses.223 In contrast, the costs of a general jurisdiction dispute can be exponentially higher, especially when the underlying events occur in a foreign country.224 That said, the strict standards for general jurisdiction serve to limit its application and channel lawsuits into the most efficient jurisdiction.225 However, when jurisdictional rules loosen, litigation proliferates as the focus shifts away from due process and efficiency to plaintiff forum shopping.226 This not only amplifies the strain on the court system and the
See Fields v. Sedgwick Associated Risks, Ltd., 796 F.2d 299, 301 (9th Cir. 1986) (noting the high bar for general jurisdiction set by Helicopteros).
218 See United States v. Bestfoods, 524 U.S. 51, 61 (1998); World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980).
217
See discussion infra Part III.A. See Am. Dredging Co. v. Miller, 510 U.S. 443, 448 (1994) (quoting Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09 (1947) (Administrative difficulties follow for courts when litigation is piled up in congested centers instead of being handled at its origin.)).
220
219
Cf. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 484 (1985) ([I]nconvenience may at some point become so substantial as to achieve constitutional magnitude.).
222 See Austen L. Parrish, Sovereignty, Not Due Process: Personal Jurisdiction Over Nonresident Alien Defendants, 41 WAKE FOREST L. REV. 1, 16 (2006). 223 See Burger King, 471 U.S. at 484. 224 See World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297 (1980) (discussing the issue of burdensome litigation for out-of-state defendants).
221
See WRIGHT & MILLER ET AL., supra note 14, 1067.5, at 520. See Juenger, supra note 188, at 562 ([A]s a moth is drawn to light, so is a litigant drawn to the United States.). Since the Bauman decision was handed down in May of 2011, it has been a lightning rod for general jurisdiction disputescited in 36 judicial opinions and more than 150 trial and appellate court documents. See Bauman v. DaimlerChrysler Corp., 644 F.3d
226
225
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taxpayers who fund it, but it implicates the broader public policy issue of shifting the costs of another states or countrys legal system onto people with no stake in the particular litigation.227 The alter-ego test adequately resolves this dilemma by requiring a parent corporation to be the alter ego of its subsidiary before asserting general jurisdiction.228 Therefore, because the parent corporation is at home in the forum, the forums residents have an interest in the parent corporation abiding by the forums laws.229 This interest is lacking when courts apply the agency test because: (a) the underlying events did not occur in the forum; (b) the plaintiff is not a forum resident; and (c) the defendant is not a forum resident.230 The Supreme Court has even noted that [j]ury duty is a burden that ought not to be imposed upon the people of a community which has no relation to the litigation.231 Loose jurisdictional rules also place economic burdens on nonresident corporations with subsidiaries within the forum state.232 This is especially true of foreign companies, who incur additional costs because they cannot alter their corporate structures and behavior in ways that will insulate the parent corporation from jurisdiction . . . in a predictable manner. The uncertainty of outcomes . . . detracts from productivity and profit maximization for multinational corporations.233 The qualitative and quantitative increases in litigation costs attendant to the agency test further impacts profitability.234 For instance, a 2009 American Bar Association
909 (9th Cir. 2011) (Westlaw KeyCite performed Mar. 11, 2013); see, e.g., United States v. Pangang Group Co., Ltd., 879 F. Supp. 2d 1052, 1057-66 (N.D. Cal. 2012); Larsen v. Hyatt Intl Corp., No. CBA11-003, 2011 WL 6937366, at *4-6 (Guam Dec. 22, 2011); Brief of Appellants at 37-45, Crystal Cruises, Inc. v. Leroy-Somer S.A., No. 12-55338 (9th Cir. July 30, 2012); Plaintiffs Memorandum in Opposition to BPs Motion to Dismiss the First Amended Class Action Complaint, Glenn v. BP P.L.C. (In re BP P.L.C. Securities Litigation), No. 10MD02185 (S.D. Tex. Dec. 1, 2012). See Am. Dredging Co. v. Miller, 510 U.S. 443, 448 (1994) (quoting Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 508-09 (1947)). See BLUMBERG ET AL., supra note 94. Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011); see Gulf Oil Corp., 330 U.S. at 509. 230 Cf. Arthur T. von Mehren & Donald T. Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 HARV. L. REV. 1121, 1178-79 (1966) (suggesting that general jurisdiction be limited to the situs of the corporations main activities).
229 228 227
Am. Dredging Co., 510 U.S. at 448 (quoting Gulf Oil Corp., 330 U.S. at 508-09). See, e.g., Juenger, supra note 188, at 561-62. 233 Jennifer A. Schwartz, Piercing the Corporate Veil of an Alien Parent for Jurisdictional Purposes: A Proposal for a Standard that Comports with Due Process, 96 CALIF. L. REV. 731, 752 (2008).
232 234
231
See, e.g., Fitzpatrick & Brie, supra note 120.
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article written by practitioners in the Ninth Circuit advises foreign parent companies to avoid an agency determination for jurisdictional purposes by adding a
product that is different from the parents business or product to show a separateness of identity . . . [or] hiring an independent sales agent and/or distributor in other important markets to show that it would do so in the United States in the absence of the subsidiary rather than do the work itself.235
These factors discourage business within the forum by adding costs and thus decreasing profitsand it is a fundamental principle that corporations are organized and carried on primarily for the profit of the stockholders.236 The economic burdens on nonresident corporations will likely manifest as economic burdens on forum states in two ways.237 The first, more overt manifestation will be a growing unwillingness of small-to-medium sized corporations to use subsidiaries in the forum.238 As previously noted, the costs of litigating in a distant forum can easily spiral out of control.239 The result will be a reduction in investment and domiciled businesses in the forum, which will negatively impact job growth, tax revenues, and the incidental economic benefits from which they derive.240 A more subtlebut no less damagingmanifestation may arise from the fact that many businesses, particularly large, affluent multinationals, will continue to maintain subsidiaries within agency-test jurisdictions, while passing along their increased litigation costs to consumers in the form of higher prices.241 This is especially true in the context of productsliability actions, where plaintiff-friendly, strict-liability laws, such as those
Id. Dodge v. Ford Motor Co., 170 N.W. 668, 684 (Mich. 1919). 237 See infra text accompanying notes 238-45. 238 See Brief for Alliance of Auto. Mfrs., Inc. & Assn of Global Automakers as Amici Curiae Supporting of Petitioner, DaimlerChrysler AG v. Bauman, No. 11-965, 2012 WL 755083, at *4 (2012) (discussing the agency tests chilling effect upon business activity and investment); see also Pamela D. Tarr & Jackson Kelly, The World Turned Upside Down: Can Personal Jurisdiction Be Imputed to an Out-of-State Parent Because of Its In-State Subsidiary?, CHEMICAL INDUSTRY UPDATE (Dec. 18, 2012), http://chemical.jacksonkelly.com/ (noting the potential impact of Bauman on a broad spectrum of both litigation and commercial decisionmaking).
236
235
See Parrish, supra note 222, at 46. See Gary B. Born, Reflections on Judicial Jurisdiction in International Cases, 17 GA. J. INTL & COMP. L. 1, 24-25 (1987).
240
239
Cf. Vivian Bodey, Fast Food Products Liability: The Road to Change or Ruin? An Economic Market Structure Analysis, 15 TRINITY L. REV. 1, 13 (2008) (discussing cost spreading in the products-liability context).
241
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in California, make litigation in the forum particularly attractive.242 Thus, forum residents with practically no interest in the litigation will be forced to bear the costs of righting the worlds wrongs.243 As noted above, increased costs are inherent in general jurisdiction litigation.244 The alter-ego test provides the optimal analytical tool for containing those costs.245 First, the alter-ego test minimizes costs by homogenizing the jurisdictional standard.246 While agency-test proponents might argue that a uniform agency rule could accomplish the same, considering the amorphous nature of the agency test, the only consistent aspect of such a rule would be its inconsistency.247 The alter-ego test, on the other hand, provides a reliable set of indicia for achieving a just result.248 Corporations would not have to wonder whether a court would consider their subsidiary sufficiently important.249 Rather, they would be put on notice that if they disregard corporate formalities, undercapitalize the subsidiary, control day-to-day operations, and consolidate finances, they will be considered at home in the forum and subject to the courts jurisdiction.250 This type of consistency will allow corporations to plan more effectively and minimize litigation costs.251 The alter-ego test also directly minimizes litigation costs by curtailing the proliferation of expensive, general jurisdiction litigation.252 B. The Agency Test Undermines Foreign Policy and International Comity. In addition to the economic burdens placed on foreign corporations, the agency test impinges on the sovereignty of foreign nations.253 It is
242 See, e.g., Piper Aircraft Co. v. Reyno, 454 U.S. 235, 240 (1981). The impact of the broad jurisdictional authority granted by the agency test reaches beyond product-liability actions to include everything from alleged human-rights violations to intellectual-property disputes and even simple breach of contract claims. Petition for Writ of Certiorari, DaimlerChrysler AG v. Bauman, No. 11-965, 2012 WL 379768, at *25 (U.S. Feb. 6, 2012). 243 See World-Wide Volkswagen v. Woodson, 444 U.S. 286, 297 (1980) (discussing the possibility of shifting costs onto consumers in the face of distant-forum litigation costs). 244 245 246 247 248 249 250 251 252 253
See supra text accompanying notes 220-29. See infra text accompanying notes 246-54. See Brown, supra note 75, at 620. See Schwartz, supra note 233. See 114 AM. JUR. 3D, supra note 191, at 430-31. See Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000). See 114 AM. JUR. 3D, supra note 191, at 426-27. Brown, supra note 75, at 620. See supra text accompanying notes 245-54. Bauman v. DaimlerChrysler Corp., 644 F.3d 909 (9th Cir. 2011), rehg en banc denied, 676
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insufficient to argue that American jurisdiction is justified when a foreign sovereign fails to provide a means for relief, for it is nonetheless within the purview of each nation to construct its own legal systemincluding procedural rights, causes of action, and liability standardsas it sees fit.254 American courts appeal to foreign plaintiffs because they offer procedural advantages beyond those of foreign forums: the existence of civil juries, the availability of broad discovery, easier access to courts and lawyers, contingent fee arrangements, and the absence of loser-pay-all cost-shifting rules.255 This perception has the concurrent effect of engendering resentment, not only among foreign defendants, but also among foreign nations.256 The Solicitor General has noted, foreign governments objections to our state courts expansive views of general personal jurisdiction have in the past impeded negotiations of international agreements . . . [and] potentially threatens particular harm to the United States foreign trade and diplomatic interests.257 Specifically, the perception that the United States overreaches jurisdictionally has frustrated international agreements providing mutual recognition and enforcement of judgments or restricting exorbitant jurisdictional claims by foreign states.258 This has reaped a number of undesirable results, including refusals to honor certain American judgments, as well as the implementation of retaliatory jurisdictional laws allowing courts to assert jurisdiction over a United States parent corporation based on that courts jurisdiction over a wholly owned [foreign] subsidiary.259 Other international responses to
F.3d 774, 777 (9th Cir. 2011) (OScannlain, J., dissenting).

254 Contra Esther E. Garcia, Note, Promoting International Human Rights: A States Interest to Finding Jurisdiction for Transnational Corporations on the Basis of Resolving Common Procedural Issues in ACTA and TVPA Litigation, 17 SW. J. INTL LAW 285, 288-89 (2011). 255 Parrish, supra note 222, at 44. 256 See, e.g., Brief for the Federal Republic of Germany as Amicus Curiae Supporting Respondents, Kiobel v. Royal Dutch Petroleum Co., No. 10-1491 (U.S. Feb. 2, 2012), 2012 WL 379578, at *13 (2012) (requesting that the United States courts exercise judicial restraint, under the principle of international comity, and take into account the availability of venues with more significant nexus before applying the ATS to torts committed on foreign soil by foreign tortfeasors that injured foreign victims and have no nexus to the United States). 257 Bauman v. DaimlerChrysler Corp., 644 F.3d 909 (9th Cir. 2011), rehg en banc denied, 676 F.3d 774, 779 (9th Cir. 2011) (OScannlain, J., dissenting) (quoting Brief for the U.S. as Amicus Curiae Supporting Petitioner at 12, 33, Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011) (No. 10-76)).
Parrish, supra note 222, at 47 (quoting Born, supra note 240, at 29). Bauman, 644 F.3d 909, rehg en banc denied, 676 F.3d at 779 (OScannlain, J., dissenting) (quoting Born, supra note 240, at 15); see SARAH JOSEPH, CORPORATIONS AND TRANSNATIONAL HUMAN RIGHTS LITIGATION 96-97 (2004).
259
258
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excessive general jurisdiction in the United States have included diplomatic protests and commercial retaliation.260 Retaliation is most common where the United States supplies the forum for litigation involving foreign plaintiffs injured in their own nations.261 When a U.S. court provides an alternate forum for a foreign citizen injured in his home nation, it undercuts the policies of that nationincluding trade policies, which are interconnected with the rules of decision that they adopt to govern tort recoveries in their courts.262 For instance, Australias decision to apply a negligence standardrather than strict liabilityto product-liability actions encourages foreign manufacturers to export products into the country.263 However, that policys purpose is nullified when American courts allow an injured Australian plaintiff to sue under American strict-liability law.264 The Supreme Court has repeatedly stressed that the United States must speak with one voice when regulating commercial relations with foreign governments.265 This admonition recognizes not only that inconsistent jurisdictional rules hinder international trade, but also that regulation must of necessity be national in its character when it affects a subject which concerns our international relations, in regard to which foreign nations ought to be considered and their rights respected.266 In light of the growing importance of this policy in an expanding global economy, Gary Born, the worlds preeminent authority on international commercial arbitration and international litigation,267 has suggested that the Supreme Court institute a standard of heightened constitutional scrutiny for jurisdictional issues.268 One response to foreign policy fears over expansive general jurisdiction is to claim that they are greatly exaggerated.269 Gary Haugen, a
Born, supra note 240, at 29. Parrish, supra note 222, at 49. 262 Raymond Paretzky, A New Approach to Jurisdictional Questions in Transnational Litigation in U.S. Courts, 10 U. PA. J. INTL BUS. L. 663, 680 (1988). 263 Id. at 679. 264 Id. 265 Michelin Tire Corp. v. Wages, 423 U.S. 276, 285 (1976); see also Itel Containers Intl. Corp. v. Huddleston, 507 U.S. 60, 76 (1993) (citing Michelins one voice requirement).
261 266 Japan Line, Ltd. v. County of L.A., 441 U.S. 434, 448-49 n.13 (1979) (quoting Henderson v. Mayor of N.Y.C., 92 U.S. 259, 273 (1876)). 267
260
Gary Born, WILMERHALE, http://www.wilmerhale.com/gary_born/ (last visited Mar. 15,
2013). See Born, supra note 240, at 34-35. Gary A. Haugen, Personal Jurisdiction and Due Process Rights for Alien Defendants, 11 B.U. INTL L.J. 109, 127 (1993).
269 268
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former trial attorney with the Department of Justice, argues that [a] personal jurisdiction requirement is certainly not required under accepted notions of international law and that, in fact, many nationsincluding France, Luxemburg, and the Netherlandsdo not require personal jurisdiction over alien defendants.270 Rather, Haugen asserts that the only real distinction between international and domestic cases lies in the degree of conveniencea consideration easily outweighed by a forums interest in protecting American consumers from dangerous products.271 By arguing for expanded jurisdictional powers, Haugen suggests that limiting jurisdictional power on the basis of international sovereignty is a regression to the territorial analysis of Pennoyer.272 Haugens minimization of the effects of expansive jurisdiction ignores the fact that the foreign policy implications run deeper than concerns over armed conflict.273 As previously noted, broad assertions of jurisdiction undermine the policy judgments of other nations, and in so doing, strain the relationship between those nations and the United States.274 While sovereignty encroachments may not lead to war, they may lead to lost opportunities for treaties and other international agreements.275 Characterizing the additional financial toll inherent in international litigation as a matter of convenience trivializes not only the burdens placed on individual defendants, but also the collateral effects those burdens have on commerce.276 This is particularly important given the fact that the states with the loosest jurisdictional rules are California and New Yorkmajor commercial centers whose rules will undoubtedly impact the international business community.277 Moreover, while Haugen is correct in affixing importance to a forums interest in protecting its residents from
Id. at 127-28. Id. at 127. 272 Id. at 129. 273 See supra notes 268-71 and accompanying text. But see Born, supra note 240, at 29; Joe R. Paul, Comity in International Law, 32 HARV. INTL L.J. 1, 72-73 (1991).
271 274 Brief for the Federal Republic of Germany as Amicus Curiae Supporting Respondents at 15, Kiobel v. Royal Dutch Petroleum Co. (U.S. Feb. 2, 2012) (No. 10-1491), 2012 WL 379578, at *15 (There should be a strong presumption against allowing courts of the United States to project U.S. law into foreign countries through the de facto fashioning of federal common law. . . . To rule otherwise would create serious risk of interference with a foreign nations ability to independently regulate its own commercial affairs. (citing F. Hoffman-La Roche Ltd. v. Empagran, 542 U.S. 155, 165 (2004)).
270
Parrish, supra note 222, at 6. See id. at 42-44. 277 See, e.g., Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 919-20 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965); Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir. 2000).
276
275
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non-resident products, it is unclear how that reasoning applies to situationslike those in Bauman or Asahiin which the plaintiff is also a non-resident.278 The present jurisdictional dilemma is also readily distinguishable from that facing the court in International Shoe, which departed from a strict standard that no longer produced a result consistent with its underlying purpose.279 From Pennoyer to Goodyear, the fundamental principle underlying general personal jurisdiction has not changed: defendants are subject to a courts power when they are essentially at home in the forum.280 All that has changed is the test for ensuring that this traditional notion[] of fair play and substantial justice is carried out.281 The alter-ego test is simply a procedure for discerning whether the defendant is truly at home in the forum.282 By contrast, the agency test hypothesizes that a nonresident parent corporation could or would be at home in the forum if some other condition was satisfied, namely what the parent would do in the absence of the subsidiary.283 Such broad jurisdictional standards are not within the ambit of traditional notions of fair play and substantial justice.284 Haugens apparent justification is that the largest, most prosperous economies . . . should . . . have more to say about the ground rules for legal recourse against foreign entities seeking to ride in the wake of their success.285 This line of reasoning was also on display in the Wiwa and Bauman decisions.286 Additionally, some commentators have noted approvingly that the richest corporations are more likely than other corporations to fall within the personal jurisdiction of US courts, as the exercise of such jurisdiction is less likely to be unfair and thus unconstitutional.287 Yet while the burden on the defendant is one factor in the Asahi reasonableness inquiry, when examining this factor, the Supreme
278 Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 106 (1987); Bauman, 644 F.3d at 912. 279 Intl Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). 280 Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011); Pennoyer v. Neff, 95 U.S. 714, 720 (1877).
Intl Shoe, 326 U.S. at 316. See Dalton v. R & W Marine, Inc., 897 F.2d 1359, 1363 (5th Cir. 1990) (citing Hargrove v. Fibreboard Corp., 710 F.2d 1154, 1160 (5th Cir. 1983)).
282
281
See, e.g., Bauman v. DaimlerChrysler Corp., 644 F.3d 909, 920 (9th Cir. 2011), petition for cert. filed, 2012 WL 379768 (U.S. Feb. 6, 2012) (No. 11-965); Wiwa v. Royal Dutch Petroleum Co. 226 F.3d 88, 95 (2d Cir. 2000).
284 285 286 287
283
Intl Shoe, 326 U.S. at 316-17. Haugen, supra note 269, at 130. Bauman, 644 F.3d at 921; Wiwa, 226 F.3d at 95. JOSEPH, supra note 259, at 87.
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Court has focused on the comparative burdens of international and domestic litigation, rather than the net worth of the corporate defendant.288 Furthermore, this type of justification glosses over the fact that the costs of encouraging this type of litigation will ultimately be born by consumers with no dog in the fight.289
CONCLUSION
Personal jurisdiction is the power to hale a person or entity into court. This Note has examined just how far that power extends. The traditional conception of general jurisdiction in the United States derives from a defendants residence in the forum. However, as society has changed, so has the notion of residency. Thus, although a parent corporation may be domiciled in Indiana or Indonesia, it may be considered at home in Illinois if it maintains a subsidiary there that is essentially its alter ego. Under the doctrine of piercing the corporate veil, corporations may not escape liability by simply hiding behind dummy corporations completely under their control. Similarly, corporations should not be able to escape unfavorable laws in a particular jurisdiction by doing the same. Thus, the piercing doctrine should apply with equal force in that context. Yet because the principle of corporate separateness is deeply ingrained in American law, it should not be easily sidestepped to remedy perceivedand often very realinjustices. While broad jurisdictional standards such as the agency test perhaps increase opportunities for litigants to obtain just results, they also run the grave risk of pushing personal jurisdiction doctrine beyond the boundaries of the Due Process Clause. Moreover, the agency test has negative public policy implications that will manifest more overtly over time if unchecked. The tests broad scope imposes American policy decisions on foreign sovereigns and adversely impacts international comity. Additionally, it engenders uncertainty and inconsistency, which in turn increases strain on both communities and commercial enterprise. Although alter-ego tests vary from state to state, each state has one, and each asks the same essential question: are the parent and subsidiary truly distinct entities? By uniformly applying the alter-ego test of the jurisdictions in which they sit, the federal courts will maintain the integrity of the Due Process Clause while speaking
Asahi Metal Indus. Co. v. Superior Court of Cal., 480 U.S. 102, 114-16 (1987). See Brief for Alliance of Auto. Mfr., Inc. & Assn of Global Automakers as Amici Curiae in Support of Petition for a Writ of Certiorari, DaimlerChrysler AG v. Bauman, No. 11-965, 2012 WL 755083, at *23-24 (U.S. filed Mar. 7, 2012) (chronicling congressional and presidential intent that the Alien Tort Statute not be used to embroil U.S. courts in disputes which have nothing to do with the U.S. . . . and waste already overburdened judicial resources).
289
288
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to the world in a singular voice.

Kesselman: Multinational Corporate Jurisdiction &amp; The Agency Test

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a corporation to general jurisdiction where it is truly at home.

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Multinational Corporate Jurisdiction & The Agency Test

The power of personal jurisdiction is the power to hale a person

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Multinational Corporate Jurisdiction & The Agency Test

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New England Law Review

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Multinational Corporate Jurisdiction & The Agency Test

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New England Law Review

PRESSER, supra note 58, 1:11.

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Multinational Corporate Jurisdiction & The Agency Test

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New England Law Review

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Multinational Corporate Jurisdiction & The Agency Test

See, e.g., Bauman, 644 F.3d at 920.

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New England Law Review

See Bauman, 644 F.3d at 920.

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Multinational Corporate Jurisdiction & The Agency Test

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New England Law Review

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Multinational Corporate Jurisdiction & The Agency Test

361 KESSELMAN FINAL (DO NOT DELETE)

New England Law Review

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Multinational Corporate Jurisdiction & The Agency Test

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New England Law Review

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Multinational Corporate Jurisdiction & The Agency Test

PRESSER, supra note 58, 1:1. FLETCHER, supra note 61.

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Multinational Corporate Jurisdiction & The Agency Test

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Multinational Corporate Jurisdiction & The Agency Test

114 AM. JUR. 3D, supra note 191, at 438.

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Multinational Corporate Jurisdiction & The Agency Test

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New England Law Review

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Multinational Corporate Jurisdiction & The Agency Test

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See, e.g., Fitzpatrick & Brie, supra note 120.

Kesselman: Multinational Corporate Jurisdiction & The Agency Test

Kesselman: Multinational Corporate Jurisdiction & The Agency Test