The Significant of Daimler v Bauman

History

On the 14h of January, 2014 the Supreme Court of the United States (SCOTUS) unanimously voted to dismiss Daimler v. Bauman on the grounds that the initial court in the Northern District of California did not have general jurisdiction over Daimler AG’s actions. Bauman were a group of 23 survivors and relatives of Mercedes-Benz Argentinian’s Gonzalez Catan plant employees. Daimler is the parent company of Mercedes-Benz. During the Argentinian Dirty War (1974–1983), a one-sided anti-communist government operation, the 4000 workers at the Gonzalez Catan plant took to striking. MB Argentina allegedly reported the strikers to the Argentinian Anti-Communist Alliance (AAA) and 115 workers were arrested, 14 of which were never seen again. The plaintiffs, Bauman accused MB Argentina of knowing that the AAA would torture, murder, and imprison the captives. In 2004, the plaintiffs filed suit in California against the parent company of MB Argentina, Daimler. To many it would seem strange that events that and individuals who have nothing to do with California are being implicated in a lawsuit and that the case should be dismissed. However, it is not as simple as the facts would make it out to be and the Supreme Court’s decision clarifies a controversial topic in jurisdiction.

The Supreme Court and Precedence

Precedence is the binding notion in common law that earlier lawsuits that were ruled on in higher courts bind the lower courts to apply the same rule of law. Circuit courts have precedence over the district courts in their circuits. For example, Ninth Circuit rulings bind the Northern District of California, but NOT the Middle District of California. The Supreme Court is the nation’s highest and most powerful court, which can rule on any constitutional issues. All decisions by the SCOTUS binds the entire nation and are referred to as “black-letter” law. Therefore, the reason, procedure, and rationale that SCOTUS used in dismissing Daimler v Bauman are now the law.

General and Specific Jurisdiction

In order to initiate a lawsuit in any court for criminal, contract, anti-trust, tort, or property crimes the condition of jurisdiction must be satisfied. There are two kinds of jurisdiction, specific and general. Specific jurisdiction is very clear and simply requires the action to have a relation to the forum of the court. Bauman is unable to satisfy the condition of general jurisdiction as there is no relation of any kind and must therefore sue under general jurisdiction. General jurisdiction requires the defendant to be “at home” in the forum. This would mean Daimler would have to have sufficient contacts in the state of California in order for the case to proceed. The Supreme Court has traditionally voted against sweeping general jurisdiction in order to require higher plea standards by plaintiffs. There has been a movement towards limiting access to the courts in the sake of saving on costs and having timelier processing.

Bauman used two statutes in an attempt to establish jurisdiction, the Californian Long Arm Statute and the Alien Tort Statute. The long-arm statute states that, [C.C.P.§410] “ A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.” Therefore, as long as the lawsuit does not violate any of the constitution’s amendments the lawsuit may proceed. The Alien Tort Statute [28 U.S.C. § 1350] states, “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.” Clearly, the acts that MB Argentina are implicated in violate the law of nations and it may be reasonable to sue Daimler under these statutes. Therefore, the only question to answer is whether or not it violates the constitution to sue Daimler in Northern California for these acts or as Judge Ginsburg put it, “Does the 14th amendment’s due process clause prohibit the district court from maintaining general jurisdiction over Daimler in a case where there is no Californian connection to the atrocities?” The answer to this issue would go a ways in defining general jurisdiction.

Ruling

Daimler petitioned for the Northern District of California to dismiss, which was granted. Bauman appealed to the Ninth Circuit and Judge Reinhardt was joined by two judges in reversing the dismissal and remanding it to the lower court. Reinhardt used a tool known as the “agency test” in assessing whether or not violated the due process of Daimler. Daimler passed the agency test in his eyes as they had sufficient business contacts in California to justify the application of general jurisdiction. 2.4% of Daimler’s sales where in California and MB USA has offices in the state. Furthermore, it has initiated lawsuits in the state previously. For these reasons, Reinhardt believes that if MB USA did not exist it would be in Daimler’s interest to fulfill the same operations in MB USA’s place. Thus, they are one in the same.

Daimler petitioned for a writ of certiorari to the Supreme Court, which was granted. The court unanimously reversed Reindhart’s ruling and held that the District court did not have general jurisdiction. Joined by 7 other justices, Justice Ginsburg penned the opinion, which held that the agency test was not valid and it was too wide-spread in its application. Under such a rule, any multinational with business in the Ninth Circuit would pass and be liable amenable to suit. General jurisdiction would be far too sweeping. The Court and the Attorney General of the United States were in agreement that this could harm foreign relations. Thus, the definition of “at home” has been effectively narrowed to the location of the main office placing an additional burden on plaintiffs.

Implications

While all 9 justices of the SCOTUS agreed to reverse, only 7 agreed with Justice Ginsburg’s reasoning. Justice Sotomayor completely disagreed with the courts rationale and only agreed on the decision. She believed that under the new precedence multinational firms where now too large to sue, similarly to how they are “too big to fail” in the post Great Recession economy. This puts small businesses at a disadvantage and forces consumers to shoulder the entire risk of any potential faults a multinational may be implicated in. Furthermore, it limits the state’s ability to hold firms liable in suit; which is not the intention of the due process clause.

Sotomayor’s reasoning has sound economic reasoning. Small businesses are more easily susceptible to suit and must build in “insurance” into the price of their products, while large multinationals are less susceptible as they are shielded by this rule and can take out less “insurance”, lowering their prices. This creates an unfair advantage and a larger barrier to entry. For example, Tesla can be sued in California for any defect in its vehicles, but Mercedes can only be sued for actions that occurred in California. It is unreasonable to think that plaintiffs would have to fly to Germany in order for general jurisdiction to apply. More importantly, the risk of loss to consumers as a result of a firm’s action is completely shifted onto consumers from the corporation. This allows firms to adopt a “zero liability” rule where they do not take out efficient precaution in their methods of business. Consumers would have to shoulder the entire burden of precaution leading to high social costs as accidents and loss that could have been avoided will occur more readily. This leads to what economists would refer to as an inefficient market.

Summary

The SCOTUS made a landmark decision in how general jurisdiction is defined, limiting the powers of the district courts. Large and ambiguous multinational firms are protected by this “bright-line” rule, so long as a reasonable argument can be made that they are not “at home” in the forum. This raises the social cost of accidents on the public and limits the competitiveness of smaller businesses that have a simpler structure.

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