New Frontiers in Personal Jurisdiction and The Future of Class Actions

Monday, August 21, 2017

The US Supreme Court limits venues and reshapes the definition of jurisdiction. 

In one of a series of recent decisions relating to personal jurisdiction, the US Supreme Court issued a ruling on June 19 limiting the venues where plaintiffs from multiple states may collectively file suit against the same defendant. In Bristol-Myers Squibb Co. v. Superior Court, No. 16-466, the Supreme Court found that California courts could hear only claims by Californians against the company in a lawsuit alleging injuries caused by the company’s blood-thinner, Plavix. The case involved nearly 700 plaintiffs, including 592 from states other than California. The Supreme Court of California ruled that the claims by the non-resident plaintiffs may proceed in California courts, finding that the plaintiffs all had similar claims and that Bristol-Myers Squibb Company sold the drugs nationwide. The US Supreme Court, however, reversed that ruling in an 8-1 decision, finding that California cannot assert jurisdiction over the nonresidents’ claims.

Morgan Lewis partners Allyson Ho and Steven Reed recently weighed in on the implications of the ruling, how it may impact class actions, and what companies should know to prepare themselves for a litigation landscape that continues to be reshaped by such decisions.

In the wake of Bristol-Myers Squibb Company, what is the status of traditional “minimum contacts” analysis as a means of establishing personal jurisdiction?

Little remains of the mode of “minimum contacts” analysis that simply counted up and weighed a defendant’s contacts with a forum state to determine whether that defendant could be sued in that state for any and all purposes. The court has been actively re-shaping minimum contacts analysis (generally through the pen of Justice Ruth Bader Ginsburg) since at least 2011, when it decided J. McIntyre Machinery, LTD v. Nicastro, 564 U.S. 873 (2011) and Goodyear-Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011); that process continued in the 2013-14 term with Daimler AG v. Bauman, 571 U.S. __ (2014) and Walden v. Fiore, 571 U.S. __ (2014). Daimler, relying on Goodyear-Dunlop, pointed out that even substantial commercial activity or an extensive aggregation of contacts could not alone establish “general” personal jurisdiction. Bristol-Myers Squibb Company adds the limitation that where there are multiple plaintiffs and “specific” personal jurisdiction (i.e., personal jurisdiction based upon the defendant’s case-linked contacts with the forum state) at issue, such jurisdiction must be established as to the claims of each plaintiff —even assuming the claims are properly joined as a procedural matter.

Is Bristol-Myers Squibb Company likely to have a significant impact on class certification in state and federal courts?

Yes, although the effect of the decision is likely to be much greater in state court, because a number of federal laws that frequently form the basis for class litigation provide for nationwide service of process. These include the Clayton Act, the Racketeer Influenced and Corrupt Organization Act (RICO), and the Employee Retirement Income Security Act (ERISA). But in state courts, and in federal actions where service of process tracks state law (see Fed. R. Civ. P. 4(k)(1)(A)), Bristol-Myers Squibb Company will have an impact. Unless an action is brought in a state where the defendant is subject to general personal jurisdiction (in all or nearly all circumstances, that will be true only in the defendant’s state of incorporation, or where it has its principal place of business), personal jurisdiction over the defendant will be limited to the claims of class members that are sufficiently connected to the state to justify specific personal jurisdiction—which is to say that each plaintiff’s claim must be related to the defendant’s conduct in or directed to the forum state. Personal jurisdiction as to the claim of one plaintiff (say, an out-of-state plaintiff) will not exist simply because a defendant is subject to personal jurisdiction as to the claims of another plaintiff (say, an in-state plaintiff); the court in Bristol-Myers Squibb Company essentially rejected what might be called “pendent party personal jurisdiction.”

After Bristol-Myers Squibb Company, should defendants from the outset be challenging personal jurisdiction in every putative class action that would include class members from multiple states?

Not necessarily, although personal jurisdiction should be considered at the outset in every case. There will be cases where Bristol-Myers Squibb Company has no application, and there may be circumstances in which it makes sense to waive a personal jurisdiction defense. But where a decision is made to raise the defense, care should be taken to raise it timely and properly in accordance with the applicable procedural rules.

Does Bristol-Myers Squibb Company raise questions regarding the exercise of personal jurisdiction over multiple defendants?

Not directly, but it will cause such questions to assume greater importance. We anticipate that plaintiffs will continue to turn increased attention to “derivative” theories of personal jurisdiction, under which personal jurisdiction over one defendant is argued to justify personal jurisdiction over a second defendant, by reason of an actual or alleged relationship between the two—for example, by agency, or by reason of being alleged co-conspirators. These issues will be particularly important to multinational corporations that strive to limit their exposure to lawsuits in the United States. Observation of corporate formalities remains an important part of such efforts.

Did the US Supreme Court issue other opinions during the recently completed term that are likely to affect class action practice?

Yes, one in particular:

Microsoft Corp. v. Baker, No. 15-457 (June 12, 2017), addressed a line of authority that had developed in the US Court of Appeals for the Ninth Circuit under which a named plaintiff could appeal a denial of class certification (even where interlocutory review under Rule 23(f) had been denied) by voluntarily dismissing its claims with prejudice and taking an appeal as of right from the resulting “final decision” under 28 U.S.C. § 1291. The questions before the court were whether there was truly a “final decision” in this scenario, given the plaintiff’s intention to revive its claims if class certification was denied and, if so, whether there was an ongoing case or controversy for Article III purposes if the plaintiff had indeed “finally” dismissed its claims. The court concluded that there was no appealable order in these circumstances.

Microsoft will be important to class action defendants because it preserves the symmetry of review of class action determinations. The Ninth Circuit rule had given plaintiffs a tool for review of such rulings that defendants did not have, by essentially constructing a way around Rule 23(f). Left unresolved by the Supreme Court, however, is the question of how the lower courts should proceed—although Justice Clarence Thomas’s concurring opinion concluding that Article III was no longer satisfied would have required dismissal of the action for lack of subject matter jurisdiction.