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Major U.S. Supreme Court decision dramatically cuts back the scope of personal jurisdiction

In recent years, the United States Supreme Court has seemed ready to pare back the geographical reach of U.S. law. In Morrison v National Australia Bank, Ltd,1 and Kiobel v Royal Dutch Petroleum Co,2 the court reinvigorated the presumption against extraterritoriality, holding that neither the federal securities laws nor the Alien Tort Claims Act apply to foreign transactions or to conduct overseas.

In Daimler AG v Bauman,3 issued in January 2014, the Court continued this trend, narrowing the circumstances under which U.S. courts may exercise jurisdiction over foreign corporations. The decision will be of interest to banks and other multinationals that face claims in the U.S. for conduct undertaken elsewhere.
Before Daimler, many U.S. states exercised personal jurisdiction over foreign corporations if they were "doing business" in the state, such as by operating a branch in the state, even though the claims arose from conduct undertaken elsewhere. (This form of "general" jurisdiction is to be distinguished from "specific" jurisdiction, where the claim arises from the defendant's contacts with the forum state.) Therefore, a U.K.-headquartered bank might find itself sued in New York because it operated a New York branch, even though the dispute had nothing to do with the New York branch. The bank might be able to get the case dismissed in favor of some other more convenient forum, but that is a largely discretionary matter for the trial judge.
In Daimler, plaintiffs invoked those apparently well-established principles to sue a German corporation, DaimlerChrysler AG (Daimler), in California, for conduct allegedly undertaken by its Argentinean subsidiary in Argentina. They argued that Daimler was subject to jurisdiction in California because its Delaware-incorporated subsidiary had several facilities and did substantial business in California, amounting to 10% of Daimler group's U.S. sales and 2.4% of its worldwide sales. The Supreme Court roundly rejected that argument, holding that, even if the Delaware subsidiary's business in California was attributed to Daimler, this jurisdictional theory was "exorbitant," and "unacceptably grasping." Id. at 751, 761.
Post-Daimler, at least absent exceptional circumstances, a foreign corporation is "at home" and, therefore, subject to general jurisdiction only in its state of incorporation and in the state where it has its principal place of business. The court explicitly disapproved earlier cases that permitted general jurisdiction on the basis that a foreign corporation was doing business through a local branch office. Id. n.18. Further, rejecting the notion that a corporation that operates in many places can be "at home" in all of them, Daimler requires "an appraisal of the corporation's activities in their entirety, nationwide and worldwide," apparently inviting an analysis of the significance of the defendant's business in the forum state relative to its business elsewhere. Id. n.20. Finally, echoing the theme that underlay Morrison and Kiobel, the court held that this new, restrained approach to general jurisdiction is mandated, in the transnational context, by considerations of international comity and avoidance of conflict with other nations. Id. at 762-63.
To date, there have been few lower court cases applying Daimler, but it is clear that the decision effects a major rethinking of and limitation on personal jurisdiction. As the sole dissenting Justice noted, the Daimler decision rejects the jurisdictional principles that have been taught to "generations of first-year law students." Id. at 770. (Sotomayor, J., dissenting).
In a related vein, in Mashreqbank PSC v Ahmed Hamad Al Gosaibi & Brothers Co,4 the New York Court of Appeals invoked the forum non conveniens doctrine to dismiss a fraud action between foreign parties arising from transactions in U.S. dollars. The court held that the fact that U.S. dollars flowed through banks in New York in the course of the allegedly fraudulent transaction did not give New York any real interest in adjudicating the dispute. As the Court put it, although New York has a compelling interest in the integrity of its banking system, "[t]hat does not mean that every major fraud case in the world in which dollars are involved belongs in the New York courts." These decisions from the highest courts in the U.S. and of the State of New York provide welcome additional arguments and defenses for foreign corporations that find themselves embroiled in U.S. litigation arising from conduct and transactions that took place elsewhere.
Legal and Regulatory Risk Note
United States