Too big to be sued? US Supreme Court further limits corporate human rights litigation

By Joanna Kyriakakis

In 2013, the major story on big business and human rights was the US Supreme Court’s decision in Kiobel. For decades, US federal courts have provided victims of corporate related human rights abuses a rare forum to have their complaints heard. These cases often relate to corporate activity in the developing world when the victims have little chance of a trial elsewhere. As I previously blogged here, here and here, Kiobel significantly curtailed these extraterritorial corporate law suits by finding that the relevant law under which these cases are often brought, the Alien Tort Statute, does not, as a general rule, cover events outside of the US.

With less fanfare, the US Supreme Court last month delivered another devastating blow to the prospects of corporate human rights litigation in the US. The Daimler AG v Bauman suit was brought in California by Argentinian residents against Daimler, a German publicly listed company, alleging that its Argentinian subsidiary had collaborated with state security forces during Argentina’s Dirty War (1976-1983) to kidnap, detain, torture, disappear, and kill Argentinian workers.

Without determining the merits of the allegations, the US Supreme Court considered whether the Californian federal courts had ‘personal jurisdiction’ to hear this case. Quite apart from the jurisdictional reach of a law, personal jurisdiction is a procedural hurdle in US civil litigation that requires a court to be satisfied that it has the authority to hear a case against the defendant in question.

When considering personal jurisdiction, a court must determine whether a corporate defendant’s activities in the state where the case is being heard – in this case California – are sufficiently ‘continuous and substantial’ so as to justify law suits of any kind against it there. This has been described as determining whether a company is ‘at home’ in the forum state. In the present case, the Court had to consider whether a Californian court could have jurisdiction over German incorporated Daimler on the basis of the activities of its US subsidiary, Mercedes Benz USA (MBUSA), in California.

The question of whether a subsidiary’s activities can be attributed to a parent company is a core challenge in most transnational corporate litigation. Corporate law orthodoxy rarely permits courts to look behind the legally distinct status of various corporate entities in a multinational enterprise. However a growing view in legal scholarship is that an enterprise approach should be adopted in civil litigation cases in the interest of substantive justice. This means courts should focus more on the reality of economic integration within a corporate group, rather than strictly upholding distinct legal forms.

The earlier Ninth Circuit decision in Daimler certainly moved in that direction. The Court found that MBUSA was an agent of Daimler, that MBUSA had the requisite level of activity in California, and hence that Daimler was ‘at home’ in California and could be sued there. The majority of the Supreme Court were however very critical of the lower court’s overly ‘sprawling’ basis for jurisdiction (p 17) but didn’t decide the case on this point.

Instead, the majority held that even accepting that MBUSA was an agent of Daimler and that all of its contacts with California could be attributed to Daimler, personal jurisdiction was still not satisfied.

The majority held that rather than looking solely at the magnitude of Daimler’s (though MBUSA’s) activities in California, these activities must be considered relative to Daimler’s overall corporate activities ‘in their entirety, nationwide and worldwide’ (p 21). In this sense, the larger and more multinational a commercial enterprise, then the less likely that its relative presence in the forum state, however large, would satisfy personal jurisdiction.

The majority do not clarify what proportion of a multinational’s global activities would be sufficient. Paradigmatically, they state, a corporation is ‘at home’ in its place of incorporation or principal place of business, but presumably something less than this may suffice. Ultimately, the majority were concerned to reduce the exposure of multinational corporations to the economic costs of potential lawsuits in multiple jurisdictions and to avoid the tensions in US foreign relations that can occur where US courts hear cases involving the interests of other countries.

While that may seem reasonable on its face, the justice implications are considerable. Winding back the capacity of US courts to hear these matters needs to be understood in the context of a global governance gap in respect of multinational corporate activity. The current situation has been described by the UN Special Representative as a ‘permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation’. The problem, to date, has tended not to be too many countries competing to claim jurisdiction over a case, but rather too few.

Justice Sotomayor, in her separate judgment, comments on what she describes as the ‘deep injustice’ produced by the majority’s line of reasoning. The proportionality test for jurisdiction unfairly differentiates, and favours, big corporations that operate in multiple places relative, not only to individuals, for whom personal jurisdiction can be achieved through a one-time visit to the forum, but also relative to small business, whose forum activity may be smaller in magnitude but relatively more significant when viewed against their overall operations. Further, she argues, the new rule has the effect of ‘shifting the risk of loss from multinational corporations to the individuals harmed by their actions’ (p 18).

Justice Sotomayor sums up the injustice produced by the majority in Daimler . “In recent years, Americans have grown accustomed to the concept of multinational corporations that are supposedly ‘too big to fail’”; she wrote. “Today the Court deems Daimler ‘too big for general jurisdiction.’”

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