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Class Actions Mergers and Acquisitions United States Supreme Court

Supreme Court Limits Forum Shopping with Plavix Lawsuit Decision

On June 19, the U.S. Supreme Court upended years of jurisprudence to hand corporations a gift: a far more stringent definition of specific jurisdiction that will force plaintiffs to bring suit in multiple state courts rather than join their claims to those in far-flung jurisdictions.

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Class action plaintiffs often aggregate their claims to sue a defendant based on that defendant’s tortious course of conduct, on the basis that it has adversely affected all plaintiffs in a similar fashion. That’s basically the textbook definition of a class-action lawsuit. But on June 19, the U.S. Supreme Court upended years of jurisprudence to hand corporations a gift: a far more stringent definition of specific jurisdiction that will force plaintiffs to bring suit in multiple state courts rather than join their claims to those in far-flung jurisdictions.

In Bristol-Myers Squibb Co. v. Superior Court of California, 2017 U.S. LEXIS 3873 (U.S. 6/19/17), the court held that a corporation that engages in a nationwide course of conduct cannot be sued in a state court by anyone not injured within that jurisdiction, unless the corporation has significant contacts there, such as conducting much of its business therein. Eight justices formed the majority, with only one, Sonya Sotomayor, dissenting.

The BMS case was brought by more than 600 users of the drug Plavix against its manufacturer, Bristol-Myers Squibb Co. (BMS), in state court in San Francisco. Eighty-six of the plaintiffs were California residents, but the remaining 592 plaintiffs were residents of 33 other states. All plaintiffs asserted 13 claims under California law, though none of the out-of-state plaintiffs had any relationship to California: They did not buy Plavix there, were not prescribed it there, were not treated with it there, etc. The claims included negligent misrepresentation, misleading advertising and other product–liablity-related causes of action.

BMS is incorporated in Delaware and is headquartered in New York. It also conducts most of its business operations in New York and New Jersey, although it does employ 160 people in its California research and laboratory facilities. BMS also employs about 250 sales representatives in California. Because BMS is a company that sells its products nationwide, its advertisements reach all 50 states, and its products are sold in all 50 states, Plavix included. Between the years of 2006 and 2012, BMS sold almost 187 million Plavix pills in California and took in more than $900 million from those sales, which represents about 1% of its nationwide sales revenue.

The Motion to Quash

BMS moved to quash service of the summons regarding the non-resident’s claims, asserting that the California court lacked personal jurisdiction over the company. The California Superior Court denied this motion after concluding that it had general jurisdiction over the claims because BMS engages in extensive business activities in California. This was in line with what many lawyers learned way back in law school: A company that does substantial business in a given state has probably opened itself up to service of process by that state’s courts. BMS petitioned the State Court of Appeal for a writ of mandate, but it was denied.

Then came the Supreme Court’s decision concerning general jurisdiction in Daimler AG v. Bauman, 571 U. S. ___, 134 S. Ct. 746, 187 L. Ed. 2D 624 (2014) (Daimler). Based on Daimler, the California Supreme Court ordered the Court of Appeal to vacate its order denying mandate and to instead issue an order to show cause why BMS’s motion to quash should not be granted.

Daimler AG v. Bauman

To understand what happened next, it is instructive to look at the Daimler case. It was filed in Federal District Court in California by Argentinian plaintiffs alleging tortious conduct by an Argentinian subsidiary of the auto manufacturer DaimlerChrysler Aktiengesellschaft, predecesor to Daimler AG. The complained-of conduct took place in the 1970s during what has become known as Argentina’s “dirty war.” The plaintiffs alleged that the manufacturer, hoping to put down a labor movement fomenting in its factory in the town of

González Catán, Argentina, reported labor leaders to the right-wing junta as “subversives.” The junta were allowed into the factory to police the workers.

During this time period, 22 factory employees “disappeared,” and were reportedly tortured and murdered. The police chief in charge of this operation was later charged with human rights violations, but the car manufacturer hired him as its security chief and financed his defense. The plaintiffs sought damages for, among other claims, violations of the Alien Tort Statute and the Torture Victim Protection Act of 1991. Daimler challenged the district court’s jurisdiction, and the court agreed that general jurisdiction was lacking. However, on appeal, the U.S. Court of Appeals for the Ninth Circuit reversed.

When the case reached the Supreme Court, the Court observed that “[t]he canonical opinion in this area remains International Shoe Co. v. Washington, 326 U. S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945),” in which the Court had held that a state may authorize its courts to exercise personal jurisdiction over an out-of-state defendant if the defendant has certain minimum contacts with the state such that the maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” Years later, in Goodyear Dunlop Tires Operation, S.A. v. Brown, 131 S. Ct. 2846 (2011), the Court clarified that courts may exercise general jurisdiction over an out-of-state business if the company’s operations within that state are sufficiently “continuous and systematic” that they render the company “at home” in the state.

In Daimler, the Court found that the defendant was not “at home” in California, despite the fact that it had a regional headquarters there, dealerships in California, sold many cars there, advertised there, etc. These things did not make the company “at home” in California for the purposes of establishing general jurisdiction (the plaintiffs had not alleged specific jurisdiction); therefore, Daimler was not amenable to suit in California for actions taken by a subsidiary outside of that jurisdiction. The outcome was agreed to by all nine Justices, though Sonia Sotomayor did not join in the majority opinion but wrote her own concurrence.

Justice Sotomayor agreed with the rest of the Court’s decision, but only because, as she wrote, “no matter how extensive Daimler’s contacts with California, that State’s exercise of jurisdiction would be unreasonable given that the case involves foreign plaintiffs suing a foreign defendant based on foreign conduct, and given that a more appropriate forum is available.” In the interest of constitutional due process, California could not exercise jurisdiction over the plaintiff’s complaints, she agreed.

However, the wider implications of the Daimler decision troubled Sotomayor. “The Court holds that [Daimler's contacts with California] are not [sufficient to make it amenable to general jurisdiction], for a reason wholly foreign to our due process jurisprudence,” she wrote. “The problem, the Court says, is not that Daimler’s contacts with California are too few, but that its contacts with other forums are too many. In other words, the Court does not dispute that the presence of multiple offices, the direct distribution of thousands of products accounting for billions of dollars in sales, and continuous interaction with customers throughout a State would be enough to support the exercise of general jurisdiction over some businesses. Daimler is just not one of those businesses, the Court concludes, because its California contacts must be viewed in the context of its extensive ‘nationwide and worldwide’ operations. … In recent years, Americans have grown accustomed to the concept of multinational corporations that are supposedly ‘too big to fail’; today the Court deems Daimler ‘too big for general jurisdiction.’”

Justice Sotomayor continued, “[T]he Court’s focus on Daimler’s operations outside of California ignores the lodestar of our personal jurisdiction jurisprudence: A State may subject a defendant to the burden of suit if the defendant has sufficiently taken advantage of the State’s laws and protections through its contacts in the State; whether the defendant has contacts elsewhere is immaterial.”

In the California Courts: Remand, Reconsideration and Appeal

On remand, and in light of the intervening Daimler decision by the Supreme Court, the Court of Appeal of California changed its decision in the Bristol-Myers Squibb Co. v. Superior Court of California matter, holding that general jurisdiction over BMS was lacking. However, it went on to find that California courts had specific jurisdiction over the nonresident claimants’ causes of action. 228 Cal. App. 4th 605, 175 Cal. Rptr. 3d, at 425-439.

California’s Supreme Court upheld that decision, first unanimously agreeing that the California courts could not exercise general jurisdiction in light of Daimler, then affirming that specific jurisdiction was present, though the court was divided on this issue. The majority found that a “sliding scale” should be applied to the analysis of specific jurisdiction, so that “the more wide ranging the defendant’s forum contacts, the more readily is shown a connection between the forum contacts and the claim.” The basis of the majority’s holding was that specific jurisdiction over the California plaintiffs’ claims was present and uncontested; the non-California residents’ claims were similar to those of the California plaintiffs, involving the same allegedly defective product and the same advertising for that product; and BMS conducted significant amounts of drug research and development within California’s borders (though not research and development of Plavix).

The three dissenting judges saw too little connection between the State of California and the sale and use of Plavix by other people in other states, and concluded that the majority’s holding expanded “specific jurisdiction to the point that, for a large category of defendants, it becomes indistinguishable from general jurisdiction.”

The Supreme Court granted certiorari.

Before the High Court

Justice Samuel Alito, writing for the eight-justice majority, began by noting that California law permits its courts to exercise jurisdiction “on any basis not inconsistent with the Constitution … of the United States.” Cal. Civ. Proc. Code Ann. § 410.10 (West 2004). Therefore, the ultimate question for the Supreme Court was whether it violated the Due Process Clause of the Fourteenth Amendment for the California courts to exercise jurisdiction in the case of the non-California-resident plaintiffs against Bristol-Myers Squibb Co.

Citing to Goodyear, the Court observed that “Since our seminal decision in International Shoe, our decisions have recognized two types of personal jurisdiction: ‘general’ (sometimes called ‘all-purpose’) jurisdiction and ‘specific’ (sometimes called ‘case-linked’) jurisdiction.” General jurisdiction, the Court explained here, attaches when a person or entity is “at home” within the state, and in such a case any claim can be brought against that person or entity in the home state, whether the circumstances leading to the claim occurred there or not. Specific jurisdiction, on the other hand requires the events that are the basis of the claim to have occurred within the forum state. Or, as the Court stated in Goodyear, for specific jurisdiction to be exercised by a state, “the suit” must “aris[e] out of or relat[e] to the defendant’s contacts with the forum” (internal quotation marks omitted).

There are several purposes for the requirements for specific jurisdiction, the Court observed, including “the interests of the forum State and of the plaintiff in proceeding with the cause in the plaintiff’s forum of choice.” Kulko v. Superior Court of Cal., City and County of San Francisco, 436 U. S. 84 (1978). Regarding specific jurisdiction, the main reason for limiting a plaintiff’s right to choose the court in which his claim will be heard, however, is the burden that would be placed on the defendant should it have to fight a lawsuit in a place far from its domicile and from the things that will be necessary in making a defense, such as physical evidence, witnesses, etc. World-Wide Volkswagen Corp. v. Woodson, 444 U. S. 286 (1980).

Because defendants are subject to a state’s power when they are brought into its courts, a state court’s assertion of jurisdiction is subject to review to see if it offends the defendant’s constitutional right to due process. Goodyear Dunlop Tires Operations, S. A. v. Brown, 564 U. S. 915,(2011). And, the defendant’s relationship to the forum state is the primary inquiry for assessing whether the defendant’s due process rights are being upheld. See Walden v. Fiore, 571 U. S. ___, ___-___, 134 S. Ct. 1115, 188 L. Ed. 2d 12 (2014) (slip op., at 5-8); Phillips Petroleum Co. v. Shutts, 472 U. S. 797 (1985).

So, what was this hybrid sort of jurisdictional test the California courts had devised? As it did to the dissenters on California’s Supreme Court, this new test appeared to the Supreme Court to offer something new —€ and not authorized by law or precedent. “Under the California approach,” stated the opinion, “the strength of the requisite connection between the forum and the specific claims at issue is relaxed if the defendant has extensive forum contacts that are unrelated to those claims. Our cases provide no support for this approach, which resembles a loose and spurious form of general jurisdiction.” The Court continued: “The present case illustrates the danger of the California approach. The State Supreme Court found that specific jurisdiction was present without identifying any adequate link between the State and the nonresidents’ claims. As noted, the nonresidents were not prescribed Plavix in California, did not purchase Plavix in California, did not ingest Plavix in California, and were not injured by Plavix in California. The mere fact that other plaintiffs were prescribed, obtained, and ingested Plavix in California —€ and allegedly sustained the same injuries as did the nonresidents —€ does not allow the State to assert specific jurisdiction over the nonresidents’ claims.”

The missing component — without which specific jurisdiction would not lie —€ was a direct connection between the State of California and the non-resident plaintiffs’ claims. Absent that direct connection, BMS’s due process rights would be infringed upon should California courts be permitted to assert jurisdiction over the non-residents’ claims. The Supreme Court therefore reversed and remanded.

Justice Sotomayor: Deep Reservations

The majority concluded its opinion by asserting that its decision would not lead to the “parade of horribles” the BMS plaintiffs had “conjure[d] up” in their brief to the court. Judge Sotomayor was not convinced: “I fear the consequences of the Court’s decision today will be substantial,” she said. “The majority’s rule will make it difficult to aggregate the claims of plaintiffs across the country whose claims may be worth little alone. It will make it impossible to bring a nationwide mass action in state court against defendants who are ‘at home’ in different States. And it will result in piecemeal litigation and the bifurcation of claims. None of this is necessary.”

In BMS, unlike in Daimler, Judge Sotomayor dissented the holding, not just the reasoning behind it. In explaining her opposition, she laid out the magnitude of Fortune 500 company BMS’s worldwide activities, to include its employment of 25,000 people; its annual revenues of over $15 billion; its single nationwide advertising campaign for Plavix, using television, magazine, and Internet ads; and its distribution of Plavix through a small number of wholesalers, which moved Plavix to sales locations throughout the country. One of those distributors was the California-based McKesson Corporation, which was named as a defendant in BMS, and which was responsible for helping to generate nearly a quarter of Bristol-Myers’ revenue worldwide.

Justice Sotomayor noted that the Supreme Court had set out three conditions for a court to exercise specific jurisdiction over a non-resident defendant. They are:

  1. That the defendant has “purposefully availed itself of the privilege of conducting business in the forum State” or has “purposefully directed its conduct into the forum State.” J. McIntyre Machinery, Ltd. v. Nicastro, 564 U. S. 873 (2011) (quoting Hanson v. Denckla, 357 U. S. 235, 253 (1958));
  2. That the plaintiff’s claim must “arise out of or relate to” the defendant’s forum conduct. Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U.S. 408 (1984); and
  3. That the exercise of jurisdiction is reasonable under the circumstances. Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U. S. 102 (1987); Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985).

Bristol-Myers had not disputed that requirements one and three were met by the plaintiffs. Only number two concerned the company: that the non-residents’ claims did not “arise out of or relate to” its conduct within California. The majority sided with Bristol-Myers, based on what it called the Court’s own “settled principles of specific jurisdiction,” but Sotomayor countered that precedent was not on Bristol-Myers’ side. Specifically, the majority had dismissed the plaintiffs’ reliance on Keeton v. Hustler Magazine, Inc., 465 U. S. 770 (1984), a case in which a New York resident brought suit in New Hampshire against Ohio magazine company Hustler Magazine Inc. The plaintiff there alleged that the magazine’s nationwide publication of defamatory statements about her —€ its nationwide course of conduct —€ had injured her in every state, including New Hampshire.

The Supreme Court had unanimously agreed, dismissing the defendant’s complaint that it should not be subjected to “nationwide damages,” when only a small portion of those damages arose in New Hampshire. The rationale given was that the defendant had left itself open to suit in New Hampshire by “continuously and deliberately exploit[ing] the New Hampshire market.” Sotomayor explained why this case should have served as precedent to permit California courts to take the BMS case: “The majority today dismisses Keeton on the ground that the defendant there faced one plaintiff’s claim arising out of its nationwide course of conduct, whereas Bristol-Myers faces many more plaintiffs’ claims. But this is a distinction without a difference: In either case, a defendant will face liability in a single State for a single course of conduct that has impact in many States. Keeton informs us that there is no unfairness in such a result.”

The real reason for the BMS decision, said Sotomayor, was federalism, and its goal of limiting the power of the several states to their own territories. Here, she argued, BMS would have suffered little harm in having to defend claims brought by nationwide plaintiffs in the California courts, since all the in- and out-of-state plaintiffs had the same complaints about Plavix. “I would measure jurisdiction first and foremost by the yardstick set out in International Shoe —€ ‘fair play and substantial justice,’ 326 U. S., at 316, 66 S. Ct. 154, 90 L. Ed. 95 (internal quotation marks omitted). The majority’s opinion casts that settled principle aside.”

Conclusion

The Court specifically left open the question of whether the Fifth Amendment imposes similar restrictions on federal courts to those imposed on the state court in BMS. And it offered comfort to future plaintiffs by pointing out that they can still combine together to sue companies like BMS in their “at-home” states. “Alternatively,” said the Court, “the plaintiffs who are residents of a particular State — for example, the 92 [BMS] plaintiffs from Texas and the 71 from Ohio —€ could probably sue together in their home States.” Justice Sotomayor had an answer for this, too: “Not to worry, says the majority: The plaintiffs here could have sued Bristol-Myers in New York or Delaware; could ‘probably’ have subdivided their separate claims into 34 lawsuits in the States in which they were injured; and might have been able to bring a single suit in federal court (an ‘open … question’). Even setting aside the majority’s caveats, what is the purpose of such limitations? What interests are served by preventing the consolidation of claims and limiting the forums in which they can be consolidated? The effect of the Court’s opinion today is to eliminate nationwide mass actions in any State other than those in which a defendant is ‘essentially at home.’ See Daimler, 571 U. S., at ___, 134 S. Ct. 746, 187 L. Ed. 2d 624 (slip op., at 8). Such a rule hands one more tool to corporate defendants determined to prevent the aggregation of individual claims, and forces injured plaintiffs to bear the burden of bringing suit in what will often be far flung jurisdictions.”

*****
Janice G. Inman is Editor-in-Chief of Medical Malpractice Law & Strategy.

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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