Client Alert: Agency Theory Does Not Impute Subsidiary’s Minimum Contacts to Parent Company for Purposes of Personal Jurisdiction

On July 7, 2014, in Young v. Daimler AG, Case No. A135999, the California Court of Appeal, First Appellate District, affirmed the trial court’s order quashing service of summons on Daimler AG, a German public stock company, for lack of personal jurisdiction. In applying the bedrock personal jurisdiction opinion, International Shoe Co. v. Washington, and the United States Supreme Court’s most recent opinion in Daimler AG v. Bauman, the Court of Appeal held that the contacts of Daimler AG’s former and indirect subsidiary, Mercedes Benz USA, did not impute to Daimler AG for purposes of personal jurisdiction. Personal jurisdiction over an entity cannot be established by its agent’s minimum contacts in California.

In the action, Plaintiffs Kimberly Patrice Young and Keyona Chester filed a products liability suit against, inter alia, Daimler AG, and DaimlerChrysler Corporation after sustaining injuries in a rollover in a 2004 Jeep Cherokee. Daimler AG is a German public stock company that designs and manufactures Mercedes-Benz vehicles in Germany and has its principal place of business in Stuttgart. Daimler AG uses its indirect subsidiary, Mercedes Benz USA, as the sole distributor for Mercedes-Benz vehicles in the United States. Mercedes Benz USA has multiple California-based facilities and is the largest supplier of luxury vehicles to the California market. Plaintiffs argued that the trial court had personal jurisdiction over Daimler AG based on its relationship with Mercedes Benz USA and Mercedes Benz USA’s contacts with California.

Recently, the United States Supreme Court’s decision in Daimler AG v. Bauman addressed whether the United States District Court for the Northern District of California had personal jurisdiction over Daimler AG. The Ninth Circuit held that it did, and based personal jurisdiction on Daimler AG’s relationship with Mercedes Benz USA, and Mercedes Benz USA’s California contacts.

The United States Supreme Court reversed the Ninth Circuit’s decision in Bauman, refusing to so extend International Shoe. The Supreme Court noted that a corporation’s place of incorporation and principal place of business are the paradigms of personal jurisdiction. The Supreme Court further noted that in an exceptional case, a corporation’s operations may be “so substantial and of such a nature to render the corporation at home in that state;” however, “a corporation that operates in many places can scarcely be deemed at home in all of them.” Daimler AG’s mere placing of a product into the stream of commerce was insufficient for a finding of personal jurisdiction. The Supreme Court thus held in Bauman that the District Court in California did not have personal jurisdiction over Daimler AG.

Based on these principles, and holding that Bauman was controlling, the Young Court affirmed the trial court’s order granting Daimler’s Motion to Quash service of summons.

The import of this case and Bauman highlights plaintiff’s burden in establishing jurisdiction over a foreign corporation. A plaintiff may not impute the minimum contacts of a foreign corporation’s local subsidiary to the foreign parent corporation, and must still make a showing that the foreign corporation itself had sufficient California contacts to establish personal jurisdiction.

This document is intended to provide you with information about product liability and general liability law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

August 6, 2014