United States: Post-BMS: Jurisdiction Over Subsidiary ≠ Jurisdiction Over Parent

Last Updated: April 11 2018
Article by James Beck

The personal injury decisions Daimler AG v. Bauman, 571 U.S. 117 (2014), and Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), are gifts that keep on giving. The latest development is Wilson v. Nouvag GmbH, 2018 WL 1565602 (N.D. Ill. March 30, 2018), where the plaintiff went to the "home" state of an overseas defendant's United States distributor and unsuccessfully sought to obtain personal jurisdiction over the parent as well.

Wilson was a wrongful death case filed almost exactly two years after the death at issue. Id. at *1. That suggests, although it isn't stated, that it was filed on eve of the running of the statute of limitations (two years is a common limitations period for personal injury claims, and "death" is often an absolute date for the calculation of limitations periods in death cases). We'll come back to that.

The corporate structure of the defendant medical device manufacturer in Wilson is hardly uncommon. The parent manufacturer is located overseas. It sells its product, still overseas, to an affiliated distributor that the parent also owns. The overseas affiliated distributor then sells the products to a similar affiliated distributor in the United States. That United States distributor then sells the products throughout the country. Only the United States distributor knows about, and sells to, particular United States customers. Wilson, 2018 WL 1565602, at *1.

Bauman held that personal jurisdiction rules are intended to "permit out-of-state defendants to structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit." 571 U.S. at 762 (citation and quotation marks omitted). In Wilson that happened. The corporate structure described above is sufficient to preclude the overseas parent from being sued in product liability anywhere in the United States.

The plaintiff in Wilson, a resident of Virginia, brought suit in Illinois, where the defendant's United States distributor was undisputedly "at home." 2018 WL 1565602, at *3. While that was certainly sufficient to reach the distributor, it did not confer specific "case-linked" jurisdiction (plaintiff conceded no general jurisdiction existed) over the overseas parent or its overseas distributor.

First, although the parent "intentionally directed distribution of its [device] into the United States through an Illinois company," that didn't establish specific jurisdiction in Illinois. Id. at *4. The product simply passing "through Illinois" into the rest of the country was not enough. The parent defendant "had no knowledge or influence" over where its products were sold by its American distributor. Id. Mere knowledge of its distributor's location was insufficient. Id. (FDA filings with Illinois address did not "provide any information about the distribution of the product in the United States").

Second, the plaintiff "ha[d] not established that [the overseas parent] itself had any contacts with the State of Illinois, as is required to establish specific jurisdiction." Id. at *5. "The Supreme Court has 'consistently rejected attempts to satisfy the defendant-focused 'minimum contacts' inquiry by demonstrating contacts between the plaintiff (or third parties) and the forum State.'" Id. (quoting Walden v. Fiore, 134 S. Ct. 1115, 1122 (2014)).

The fact that [the overseas parent's] customer distributed its product through a subsidiary based in Illinois is not enough to indicate that [the parent] purposefully availed itself of the privilege of conducting activities within Illinois.

Wilson, 2018 WL 1565602, at *5.

Third, personal jurisdiction could not be based on a stream of commerce theory. "The 'stream of commerce' is a metaphor for the concept of purposeful availment." Id. Stream of commerce without purposeful availment has never commanded a Supreme Court majority. Id.

[T]his leaves the "stream of commerce" concept of questionable significance in resolving questions of personal jurisdiction. . . . [A] majority of the Court has never held that jurisdiction premised on the placement of a product into the stream of commerce is, without more, sufficient to establish a constitutionally adequate connection to the forum State.

Id. (citation omitted). Further, the foreign parent "had no contractual arrangement with" its United States distributor – only its overseas distributor did. Id. Thus, there was no basis for stream of commerce jurisdiction "even [under] the more relaxed standard." Id. Finally, the plaintiff produced no evidence that the particular product that caused injury "actually passed through Illinois on [its] way to Virginia." Id. at *6. The mere fact that a distributor was located in Illinois was not proof that any particular unit of the device passed through Illinois in the stream of commerce. Id.

Fourth, plaintiff couldn't establish personal jurisdiction through agency, either. Plaintiff offered only "conclusory allegations." Id.

To plead the existence of an agency relationship, a plaintiff must allege some facts that support the inference of agency. Furthermore, unsupported allegations by a plaintiff are insufficient to support personal jurisdiction.

Wilson, 2018 WL 1565602, at *6 (citation omitted). "The test for agency is whether the alleged principal has the right to control the agent, and whether the alleged agent can affect the legal relationships of the principal." Id. (citation and quotation marks omitted). The overseas parent's FDA submissions did not speak at all to the elements of agency. Id. As an overseas parent, two steps removed from its United States distributor, the parent "has no knowledge or influence over what happens to the [devices] after they are sold," in Europe, to its overseas distributor. Id.

Fifth, even if the plaintiff had proven that the overseas parent had some sort of "contacts" with Illinois, plaintiff failed to establish that the "alleged connection with the State of Illinois has any relation to the claims in this lawsuit" as required by BMS. Id. at *7.

[Plaintiff] does not allege that any specific conduct related to his claims took place in Illinois. Specific jurisdiction exists only if there is "an affiliation between the forum and the underlying controversy, principally, an activity or an occurrence that takes place in the forum State."

Id. (quoting BMS, 137 S. Ct. at 1781). BMS was "particularly relevant," as it also involved product liability claims against a prescription medical product. Wilson, 2018 WL 1565602, at *7. Under BMS, "a defendant's contract with a distributor in the forum State is not itself enough to establish personal jurisdiction in the State." Id. The overseas parent "did not design, manufacture, label, or sell its [devices] in Illinois," therefore product liability allegations about such conduct were not case-related contacts with the state. Id.

Finally, plaintiff was "not entitled to jurisdictional discovery because he has not made a prima facie showing of personal jurisdiction." Id. at *8. Plaintiff's attempt to harass the overseas parent with "interrogatories, requesting documents, and conducting depositions on 17 wide-ranging topics" also failed. Id. Any discovery along those lines would have to be directed to the United States distributor over which jurisdiction existed. Id.

In sum, the plaintiff utterly "fail[ed] to establish that any suit-related conduct, by [the overseas distributor] or other defendants, took place in the State of Illinois." Wilson, 2018 WL 1565602, at *8 (emphasis added). That holding means that even the United States distributor was not subject to specific, case-linked jurisdiction (although general jurisdiction existed as to the Illinois-based company) for failure to establish that its purportedly injury-causing product passed through the forum state.

[T]his Court cannot exercise specific jurisdiction over a foreign defendant for claims that have no connection to Illinois. [Plaintiff] has not shown any affiliation between the forum and the underlying controversy to allow the exercise of specific jurisdiction in Illinois over [the overseas parent].

Id.

* * * *

Wilson is thus a successful example of what Bauman held was proper – "out-of-state defendants [being able] to structure their primary conduct" so as to avoid suit in the United States. If an overseas parent cannot be subject to jurisdiction in the only state where its United States distributor is actually located, it can hardly be subject to jurisdiction anywhere else in the country. See also Fed. R. Civ. P. 4(k)(2) (providing relief in this situation only for claims "aris[ing] under federal law"). A corporation's vertical integration: (1) overseas parent selling to (2) overseas distributor selling to (3) a viable (we are not addressing alter ego claims not raised in Wilson) United States distributor – is thus a model for other overseas entities selling products into the American market that wish to structure their affairs so as to limit their product liability exposure to the assets of the American entity. Indeed, Bauman/BMS also provides a degree of insulation from excessive American discovery, at least as a party to litigation.

Furthermore, as we mentioned earlier, the plaintiff in Wilson was apparently up against the statute of limitations when suit was filed. The Bauman/BMS limits on personal jurisdiction have another beneficial effect. The statute of limitations is often considered "procedural" for choice of law purposes (in the absence of a forum "borrowing statute"), which has in the past allowed otherwise time-barred plaintiffs to flock to those jurisdictions with longer statutes of limitations or broader tolling exceptions to their statutes. No longer. Due process in personal jurisdiction now precludes tardy plaintiffs from filing belated claims in states with no "case-related" contacts simply because those states have more permissive statutes of limitations.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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