Saturday, January 18, 2014

2013-2014 Supreme Court Term: Court's Decision in Daimler AG v. Bauman, No. 11-965: Implications for the Birth Control Mandate Cases?

On January 14, 2014, the Supreme Court issued its decision in favor of Daimler AG (the maker of Mercedes-Benz), ruling that the federal courts in California lacked personal jurisdiction over Daimler to adjudicate claims for human rights violations arising in Argentina. The ruling of the Court may have implications for the birth control mandate cases pending before the Court in Hobby Lobby Stores and Conestoga Wood Specialties. The Court's slip opinion in Daimler AG v. Bauman is available here.

Daimler AG is a German corporation that does not do business in the United States. One of its wholly-owned subsidiaries, Mercedes-Benz USA (MBUSA), distributes Daimler automobiles in California. Mercedes-Benz Argentina, another wholly-owned Daimler subsidiary doing business in Argentina, allegedly was involved in human rights violations in Argentina, targeting workers who were arrested and “disappeared” by government security forces during Argentina’s “Dirty War.” The parent company to both subsidiaries was sued in California federal court under the Alien Tort Statute and the Torture Victim Protection Act. The question that arose in this case was whether it was constitutional under the Due Process Clause for the federal courts to exercise personal jurisdiction over Daimler AG in this case. The trial court ruled in favor of Daimler, but the Ninth Circuit reversed, finding that the actions of MBUSA in California could reasonably be imputed to Daimler AG and that it was not unreasonable to require Daimler to litigate this matter in California. In its ruling a few days ago the Supreme Court held that Daimler could not be sued in California for the actions of MB-Argentina. 

There are two kinds of "personal jurisdiction" -- "special jurisdiction" and "general jurisdiction." Special jurisdiction over the defendant exists when the defendant's actions in the forum state injured the plaintiff, giving rise to the lawsuit. There is no "special jurisdiction" in this case over Daimler AG because neither it nor its subsidiary that does business in California, MBUSA, committed human rights violations in California.

The other type of personal jurisdiction is "general jurisdiction" that was first recognized in the case of International Shoe v. Washington, 326 U.S. 310 (1945). The essential holding of International Shoe is that a state (or a federal court within a state) may exercise personal jurisdiction over a corporation that is "at home" in that state. For example, if a corporation is incorporated within a state or has its principal headquarters there, it may be sued in that state on account of its actions anywhere in the world. Writing on behalf of the Court in Daimler and quoting two other cases, Justice Ginsburg stated:
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. (p. 8)
Justice Ginsburg ruled that neither Daimler AG nor MBUSA were "at home" in California. Although they sell a lot of cars in California, neither the subsidiary nor the parent is incorporated or headquartered in California. Furthermore, the Court ruled that even if MBUSA were "at home" in California, that does not mean that Daimler AG was, and it would still be wrong for a court in California to exercise personal jurisdiction over the parent company.

What's the connection to the birth control mandate cases? In those cases the owners of two private, for-profit business corporations contend that their individual rights to freedom of religion "pass through" to the corporation -- that the corporations are in effect the "agents" of the principal shareholders, and that this is why the corporations have the right to deny their employees health insurance coverage for birth control.

In Daimler the Ninth Circuit Court of Appeals had held that MBUSA was the "agent" of Daimler AG, and that the substantial business presence of MBUSA in California could be imputed to Daimler AG. The Supreme Court was not persuaded by this agency analysis. (pp. 15-17) Instead the Court respected the separate corporate personhood of the parent company:
Even if we were to assume that MBUSA is at home in California, and further to assume MBUSA's contacts are imputable to Daimler, there would still be no basis to subject Daimler to general jurisdiction in California, for Daimler's slim contacts with the State hardly render it at home there. (p. 18)
It would be anomalous for the Court to adhere to corporate identity for purposes of personal jurisdiction and liability for tort, and yet to ignore corporate identity to give effect to the personal religious choices of stockholders. If corporations are legal fictions -- if they are in essence simply the shareholders -- then shareholders should be liable for corporate torts, debts, and taxes. Corporations are either separate and independent legal entities or they are not. For-profit business entities may or may not have the right to freedom of religion; but they are not the same "persons" as their stockholders, directors, officers, or employees.

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