Jamin S. Soderstrom 2014-12-23 14:45:54
What the Bauman decision really means. The U.S. Supreme Court effected a sea change in general jurisdiction jurisprudence on Jan. 14, 2014, when it issued its decision in Daimler AG v. Bauman.1 Discarding nearly 70 years of black-letter law dating back to the famous International Shoe case,2 the Bauman court held that, except in “exceptional” circumstances, a court can only exercise general (all-purpose) jurisdiction over an individual in his or her state of domicile and over a corporation in its state of incorporation or principle place of business. No longer are a nonresident defendant’s continuous and systematic contacts within a forum sufficient; only the defendant’s continuous and systematic “affiliations” that render it “essentially at home” in the forum can support general jurisdiction. Commentators agree that Bauman will limit plaintiffs’ forum selection options, particularly when suing corporate defendants with offices and operations across the country or around the world. Yet limiting plaintiffs’ forum choices will not be Bauman’s most enduring legacy. General jurisdiction plays a limited role in modern litigation, and most plaintiffs already rely on specific jurisdiction to hale nonresident defendants into court. Instead, Bauman’s greatest impact will be shrinking the scope of jurisdictional discovery for future litigants—saving millions of dollars in unnecessary discovery costs. THE BAUMAN DECISION Speaking for eight justices, Justice Ruth Bader Ginsburg rejected the traditional continuous and systematic contacts test and announced that only a limited set of affiliations with a forum can subject a defendant to a court’s general jurisdiction. Lifting up the exemplars of an individual’s state of domicile and a corporation’s state of incorporation and principal place of business, Justice Ginsburg noted that such affiliations had the virtue of providing one clear and certain forum where defendants can always expect to be haled into court and where plaintiffs can always go to seek relief. Only Justice Sonia Sotomayor disagreed with the majority’s analysis, concurring in judgment only. Justice Sotomayor argued that the decision strayed from longstanding precedent requiring analysis of a defendant’s continuous and systematic contacts, and she forecasted that the decision will create unpredictability and radically expand the scope of jurisdictional discovery. Justice Ginsburg responded by stating in footnote 20 that the majority’s new rule would actually result in less jurisdictional discovery because “it is hard to see why much in the way of discovery would be needed to determine where a corporation is at home.” In fact, eight justices explicitly intended the new rule to promote expeditious and efficient resolution of jurisdictional questions and to avoid long and expensive jurisdictional discovery battles. BAUMAN ’S IMPACT ON TEXAS LITIGANTS Since the Supreme Court issued the decision, only three Texas appellate courts have had occasion to cite to or rely on Bauman, and none of those opinions analyze the decision in any real depth, let alone through the prism of jurisdictional discovery. Nevertheless, the decision will have a direct impact on future Texas litigants because the Texas long-arm statute3 extends personal jurisdiction to the full extent authorized by the Due Process Clause of the U.S. Constitution. Bauman is binding precedent in Texas and will directly impact every Texas court’s consideration of its general jurisdiction and the proper scope of jurisdictional discovery. TODAY’S REALITY: LOPSIDED JURISDICTIONAL DISCOVERY Texas Rule of Civil Procedure 120a authorizes jurisdictional discovery when a nonresident defendant challenges a Texas court’s personal jurisdiction. Jurisdictional discovery includes requests for disclosure, requests for production, requests for admissions, interrogatories, taking depositions, subpoenaing witnesses, and filing discovery motions. Yet only the defendant’s contacts and affiliations with Texas are relevant, so the vast majority of jurisdictional discovery time, costs, and expenses (including attorneys’ fees) fall on the defendant. This lopsided discovery balance causes many plaintiffs to automatically plead that both specific and general jurisdiction exist and to seek discovery on every fact that could arguably constitute a contact with Texas, whether or not such contacts are related to the parties’ dispute. Specific jurisdiction requests are narrow and targeted at discovering the defendant’s contacts that relate directly to the allegations in the petition, and the resulting discovery often comprises what would be proper merits dis covery if the special appearance is overruled. Thus, little effort or expense is wasted. In stark contrast, general jurisdiction requests are broad and specifically designed to capture every conceivable contact between the defendant and Texas over a decade or longer. Such requests—and the results—have no meaningful connection to the parties’ actual dispute. Because it has no merits-related purpose or benefit, general jurisdiction discovery is wasted time, effort, and money for both parties (but mostly the defendant) whenever a special appearance is sustained. THE SHRINKING SCOPE OF JURISDICTIONAL DISCOVERY Prior to Bauman, a plaintiff was incentivized to discover every possible contact with Texas that a defendant may have, no matter how random, fortuitous, or irrelevant. This is because establishing general jurisdiction depended on the plaintiff accumulating evidence of continuous and systematic contacts, including each email, phone call, mailing, meeting, advertisement, contract, sale, office, facility, or employee that touched Texas. The longer the list, the more likely the court would be to exercise general jurisdiction. The whole process was stacked against the defendant because, under pre-Bauman jurisprudence and Rule 120a(3), every single contact the defendant had with Texas was arguably essential for the plaintiff to establish general jurisdiction. Bauman changes everything. Discarding the continuous and systematic contacts inquiry, it focuses on whether the nonresident defendant has had any continuous and systematic “affiliations” that could render the defendant “at home” in Texas. A plaintiff must now find a link that connects the defendant to Texas as strongly as would the paradigms of domicile, incorporation, and principal place of business. Following Bauman’s logic and reasoning, emails, phone calls, meetings, or contracts with Texas residents or companies—or any other common business or personal contacts within the state—should no longer be relevant to personal jurisdiction unless they are related to the underlying dispute (i.e., unless they help the plaintiff to establish specific jurisdiction). Moreover, the mere presence of permanent offices or other facilities or a massive amount of sales in Texas is no longer outcome determinative, as the nonresident defendant in Bauman had at least three major offices and $4.6 billion in annual sales in the forum and still was not considered “at home.” THE NEW PARADIGM OF JURISDICTIONAL DISCOVERY While the Bauman decision has started to shift what has long been a jurisdictional discovery balance favoring plaintiffs, it remains to be seen what “exceptional” circumstances could render a nonresident defendant “at home” in Texas. The decision cited Perkins v. Benguet Consolidated Mining Co.4—a 62-year-old case where the Japanese occupation of the Philippines during World War II forced a company to temporarily relocate its headquarters to Ohio—as a “textbook” example of when a nonresident defendant’s affiliations may support general jurisdiction. But Bauman clearly teaches that such instances will constitute the rare exception rather than the rule. Litigators should heed Bauman’s instruction and conform their old discovery practices to the new era of jurisdictional discovery. Plaintiffs should plead their cases and draft their discovery to focus on the affiliations that make the defendant essentially at home in Texas. This will be a more difficult effort than it used to be but is necessary to avoid blanket objections and unsuccessful motions to compel. For their part, defendants should have confidence in taking a more aggressive stand against overly broad and unduly burdensome discovery requests that clearly have no relation to the dispute and are not aimed at establishing an affiliation with Texas. Such a stance is bolstered by a recent decision from the U.S. Court of Appeals for the 9th Circuit which, in connection with a jurisdictional discovery dispute, cited Bauman and noted that “nothing plaintiffs could discover about [the defendant’s] contacts with California would make [the defendant] ‘essentially at home’ in California.”5 Future general jurisdiction discovery battles should focus on identifying certain types of affiliations that will or will not satisfy the new Bauman rule. For example, is an individual who lives on the Arkansas side of Texarkana but who works on the Texas side of Texarkana essentially at home in Texas? What about a New Yorker who owns a large ranch in Texas and spends two months each year on his ranch? Where is the principal place of business for a corporation with half of its officers working virtually in California and the other half working virtually in Texas? These would all be worthy legal battles. But none of them will depend upon extensive discovery into a nonresident defendant’s otherwise irrelevant contacts with Texas. Nor are they likely to be comprised of factual squabbles over the relevance of one contact or another. Bauman has seemingly put such arguments to rest. NOTES 1. 134 S. Ct. 746, 2014 WL 113486 (Jan. 14, 2014) (Ginsburg, J.). 2. 326 U.S. 310 (1945). 3. Tex. Civ. Prac. & Rem. Code ¤ 17.042. 4. 342 U.S. 437 (1952). 5. Martinez v. Aero Caribbean, 764 F.3d 1062, 1070 (9th Cir. Aug. 21, 2014); see also Simon v. Republic of Hungary, F. Supp. 2d, 2014 WL 1873411, at *36-42 (D.D.C. May 9, 2014) (rejecting jurisdictional discovery as unwarranted where it could not establish a basis for general jurisdiction); AstraZeneca AB v. Mylan Pharm., Inc., F. Supp. 3d, 2014 WL 5778016, at *4 n.4 (D. Del. Nov. 5, 2014) (same). JAMIN S. SODERSTROM is an attorney with the Houston firm of Reynolds Frizzell, where he concentrates on complex commercial litigation. He can be reached at firstname.lastname@example.org.
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