Into the Lions’ Dens

Originally published by Barry Barnett.

Location

The place of suit matters a lot in civil cases. Suing at home helps the plaintiff — by keeping her costs low, giving her comfort that local judges and juries will give her fair treatment, and throwing out-of-town defendants off balance. All of that bigly boosts the plaintiff’s chances of success.

But a pair of recent U.S. Supreme Court rulings promise to make plaintiffs’ home fields more like patches of weeds than acres of sweet verdance.

Patent

In the first case, the Court voted 8-0 to trim venue options for patent holders.

The appeal turned on the reach of the venue statute for patent cases. An old ruling by the Court held that “reside” in the statute referred to where a corporate defendant got its charter.* Changes in the venue statutes since then, Justice Clarence Thomas wrote for the Court, did not alter the rule. “As applied to domestic corporations,” he concluded, “’reside[nce]’ in [28 U.S.C.] § 1400(b) refers only to the State of incorporation.” TC Heartland LLC v. Kraft Foods Group Brands LLC, No. 16-341 (U.S. May 22, 2017) (overruling VE Holding Corp. v. Johnson Gas Appliance Co., 917 F. 2d 1574 (Fed. Cir. 1990)).

Personal jurisdiction

The second decision by the Court involved the power of state courts over out-of-state companies. By 8-1, the Court mowed down an effort by the Supreme Court of California to hale a drug-maker into a San Francisco trial court over harm that its Plavix product may have caused to non-Californians.

Although Bristol-Meyers would still have to defend against claims by 86 Golden Staters, Justice Sam Alito wrote, the absence of real harm to the company did not matter:

As we explained in World-Wide Volkswagen, “[e]ven if the defendant would suffer minimal or no inconvenience from being forced to litigate before the tribunals of another State; even if the forum State has a strong interest in applying its law to the controversy; even if the forum State is the most convenient location for litigation, the Due Process Clause, acting as an instrument of interstate federalism, may sometimes act to divest the State of its power to render a valid judgment.”

Bristol-Meyers Squibb Co. v. Superior Court of California, No. 16-466, slip op. at 7 (U.S. June 19, 2017). He went on:

In order for a court to exercise specific jurisdiction over a claim, there must be an “affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State.” . . . When there is no such connection, specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the State.

Id. (quoting Goodyear Dunlop Tires Operations, S. A. v. Brown, 564 U. S. 915, 919 (2011)).

Implications

Both cases narrow the state court options for plaintiffs. TC Heartland confines patent cases to either the defendant’s state of incorporation or where the defendant has a place of business and commits acts of infringement and excludes courts that simply have personal jurisdiction over the defendant.

As for personal jurisdiction in state courts, the Court had already trimmed the scope of “general” jurisdiction — the “all-purpose” kind that allows a plaintiff to sue in a forum even if her claims have no links to the forum. General jurisdiction, the Court decided, exists only where “fairly regarded as at home.” Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014) (quoting Goodyear Dunlop, 564 U. S. at 924). Because “’only a limited set of affiliations with a forum will render a defendant amenable to’ general jurisdiction in that State”, plaintiffs must invoke specific jurisdiction in cases they bring outside the defendant’s state of incorporation or the state in which it has its headquarters. Bristol-Meyers Squibb, slip op. at 5 (quoting Daimler, 134 S. Ct. at 760).

Bristol-Meyers Squibb goes further. The idea of fairness to the defendant as a key factor in assessing due process gets a demotion. The necessity of a more or less direct linkage between the claim and the forum comes to the fore.

As Justice Sonia Sotomayor pointed out in her dissent, the Court’s rule will prevent mass actions in state courts except on a defendant’s home turf and may make a single mass action against more than one defendant no longer viable. She might have said the same about state-court class actions.

The rulings will likely drive cases to states that companies tend to get their charters from (Delaware ranks at the top) and to cities that host a lot of corporate headquarters. Costs will rise, and the value of cases will fall. And plaintiffs will need to engage counsel who has the presence and resources necessary to take cases to trial far from home.

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* Fourco Glass Co. v. Transmirra Products Corp., 353 U. S. 222, 226 (1957).

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