Supreme Court

Originalism and Personal Jurisdiction: Some Hard Questions

What original principles would say about this term's big case.

|

I promised quite a while ago to say more about Ford Motor Co. v. Montana Eighth Judicial District Court, the personal jurisdiction case heard this term. (Transcript here; Howard Wasserman's SCOTUSBlog summary here.) The Justices seemed to find the case difficult, which it is—both under modern doctrine and under the original rules.

At oral argument, the parties declined (alas!) to argue for abandoning International Shoe and returning to first principles. Under the prior rules of personal jurisdiction, the plaintiffs might have had a way to win. But it would have involved very different arguments than the ones they put before the Court, which under the traditional rules ought to lose. That makes it hard to say which party's victory is more compatible with first principles. And it reminds us that fixing personal jurisdiction is going to be a task for Congress, not only for the courts.

* * *

What's going on in Ford Motor?

Ford Motor strikes at a fissure between two lines of modern caselaw. Most specific jurisdiction cases fall in the first line: they allow for jurisdiction only where a defendant's "relevant conduct occurred". So, a consumer's "unilateral activity" in driving cross-country isn't relevant conduct by a New York dealership; a passenger's connecting flight to Nevada isn't relevant conduct by an officer who seizes her cash in Georgia; and a drug manufacturer's offices and sales in California might be conduct, but not relevant conduct, for personal-injury suits by Texas customers. Specific jurisdiction depends on the specific things you did, not on what someone else did.

The second line is the "stream of commerce" cases, which allow for jurisdiction over manufacturers who don't themselves act in the state, but whose products are resold there by independent distributors. If a manufacturer "targets" a particular state to encourage sales there, and the product indeed makes its way there and injures the customer, these cases treat that "targeting" as a contact from which the suit arises. Exactly how the targeting connects to the eventual injury is never fully spelled out; courts will note that a "British manufacturer had no office in New Jersey; it neither paid taxes nor owned property there; and it neither advertised in, nor sent any employees to, the State," without explaining why the taxes or property were supposed to be relevant. But if the manufacturer "purposefully availed itself of the New Jersey market," then the place of injury is thought to be contact enough.

The Ford Motor case crosses these streams, because here the consumer and the independent redistributor are the same person. Cars get sold and resold all the time, and manufacturers know it: they charge more for new cars with better resale value. So when a car winds up in a state after a series of out-of-state sales and resales, is that redistribution within the stream of commerce? Or is it just unilateral activity by the consumers?

The plaintiffs picked the former option, which seems to call for a semi-general jurisdiction over suits involving the same product line. If you sell Explorers in Montana, then Montana can decide any case involving an Explorer accident within its borders, regardless of how it got there. (If a Montana resident buys an Explorer out-of-state, and later resells it to a Californian, who later has a crash in Montana during a cross-country trip…) On this picture, the exact relationship between the crash and Ford's contacts is pretty much irrelevant. All that matters is that Ford sells Explorers there. If they sell the Escape and the Edge there, but not the Explorer, then the suit would violate the Constitution of the United States.

This theory sounds rather odd, though it has some support in previous cases: World-Wide Volkswagen seemed to think the manufacturers might be liable wherever Audis were sold, and Bristol-Meyers Squibb made sure to note that the plaintiffs "did not ingest Plavix in California," as if that fact should have mattered. (If a Texan brings his pills on a California vacation, why would the pharmaceutical company's California contacts have anything to do with it?) The Court has never really spelled out its thinking here, and it quickly runs into problems, not least because the Fourteenth Amendment doesn't distinguish among product lines. (What if they sell the Explorer base model there, but not the Explorer XLT or Explorer Limited? Etc.) Throwing all these problems into a post-hoc, kitchen-sink "fair and reasonable" inquiry doesn't help much either, not least because people disagree on what's fair and reasonable.

As it happens, the Fourteenth Amendment doesn't mention any distinctions between manufacturing and distributing either—or between final products or components, between resale as a hobby or as a business, or between reselling cars to Montana or driving them there. That's why many of the Ford Motor briefs tie themselves in knots trying to parse language from post-1945 judicial opinions. If you see post-1945 judicial opinions as the ultimate source of law on these questions, that may strike you as a good use of time; if not, not.

* * *

What is the source of law on these questions? And what does that law say?

Corporate jurisdiction is one of my many unfinished research projects, so what follows are tentative conclusions, not firm answers.

As I've argued before, the relevant source of law here isn't the Fifth or Fourteenth Amendments, but general and international law. (For more on why, see the sources in my previous post.) In the nineteenth century, for jurisdiction over an individual, those rules usually required in-state service of process. Except for weird cases like diplomats or invading armies, people within a state's borders owed that state's government a temporary allegiance. They had to listen to what that government said, which included what its courts said—and other governments would usually hold them to it, even after they left town. By contrast, most people outside a state's borders didn't have to listen to what its government said. If you were a citizen or resident who happened to be abroad, you might owe your home jurisdiction a permanent allegiance; if its statutes allowed for something other than in-state service, you might be bound by those statutes too. But an absent nonresident (like Marcus Neff) wasn't bound to come when called, and in the meantime he wasn't obliged to submit to the courts' decisions.

For corporations, the rules were more complicated, because corporations were creatures of law. If six Montanans wanted to form a single entity to own Montana property, enter Montana contracts, or sue or be sued in Montana courts, it was up to Montana corporate law whether to let them. (And often the answer was "no": corporate franchises were hard to come by.) That's what distinguished the Ford Motor Company from, say, the Corleone Family: the shareholders, but not the Family members, had the legal right to act together as a unit. The same people could form corporations in multiples states at once–and often did, if they wanted to exercise these corporate privileges in more than one place.

By default, then, a State A corporation could only sue or be sued in State A, because that's the only place where it really existed as a legal entity with corporate privileges. Everywhere else, it was just a group of individuals. But other states could choose to recognize the corporation and to extend it privileges by comity—and they generally would, absent some local rule to the contrary. If an out-of-state citizen like Henry Ford wanted to buy a plot of land in Montana and sell cars there, or to send agents into Montana to enter contracts on his behalf, he could; a law forbidding him on the basis of his out-of-state citizenship would have violated Art. IV's Privileges and Immunities Clause. But corporations weren't guaranteed any privileges and immunities, so they had to get the state's permission, express or implied. And this permission could be conditioned on various things, including a consent to be sued in its courts.

The "implied" part was what made things confusing. What if an out-of-state corporation tried to exercise corporate privileges in Montana, for which Montana required corporate registration? One response might be to hold the acts ultra vires and invalid, or perhaps to treat them as the acts of the individual shareholders, unsheltered by limited liability. But another was to recognize the corporation by comity, serve process on their in-state agent, and to apply what the Court in Old Wayne Mutual Life called a kind of estoppel. If a corporation claimed to exercise corporate privileges in another state, "it will be deemed to have assented to any valid terms prescribed by that commonwealth as a condition of its right to do business there, and it will be estopped to say that it had not done what it should have done in order that it might lawfully enter that commonwealth and there exert its corporate powers." In other words, Ford can't claim to be a real corporation in Montana when it comes to forming contracts, but turn around and claim that they're not a real corporation in Montana when it comes to getting sued on those contracts.

* * *

How did we get from there to here?

Over time, this consent/estoppel picture got muddied in three different ways. First, courts began to replace the language of consent and estoppel with that of corporate "presence." Turn-of-the-century courts held that out-of-state corporations had a constitutional right to act in other states, because stopping them might violate the dormant Commerce Clause. (This was pretty strange, because the right to act as a single entity isn't about commerce at all, let alone commerce among the several states. Out-of-state corporations aren't always engaging in out-of-state commerce; if six Montana citizens decide to incorporate their backyard wheat farm under the laws of Delaware, their Commerce Clause treatment shouldn't change. And any federal right to engage in cross-border commerce isn't a right to do so as a corporation: who can act as a unit when buying Montana property or entering Montana contracts is up to Montana, not Delaware.) Once the states lost their ability to say "no," the courts had to come up with a different explanation for why states could force out-of-state corporations into their courts. The one they came up with was corporate "presence"—you're subject to Montana's courts if you're "present" there, and not otherwise. But what it meant for a corporation to be "present" was quite poorly defined, and it was an obvious target for realist scorn—making it easy for the Court to abandon the "fiction" in International Shoe.

The second way the picture was muddied had to do with "doing business," which is both a technical and a colloquial phrase. Individuals could "do business" in both senses; if Henry Ford made all his Model T's by hand, and then toured the country selling them personally, he'd be doing business in lots of states, but he wouldn't have been subject to any special rules of jurisdiction. What made corporate business-doing special, on my reading, was that it involved the exercise of corporate privileges, which a state could grant or withhold. When a corporation merely sent contractors into a state to solicit offers, which were then sent out-of-state for acceptance and fulfillment, it was held not to be "doing business" in the state: it didn't actually make the contracts there, so it didn't need any corporate privilege to make contracts, and its conduct wouldn't raise an estoppel in suits over those contracts. But if an insurance company sent appraisers into the state to adjust losses under its policies, that was doing business, because it claimed to give the appraisers the in-state authority to bind the corporation. Modern stream-of-commerce theories would never have flown on this picture; selling goods into a stream of commerce involves no corporate privileges in the downstream state, and it makes no agents available for service of process. But International Shoe adopted the colloquial rather than the technical sense, treating the out-of-state shoe company as conducting "a large volume of interstate business," even though it was engaged in what prior courts would have called mere "solicitation."

The third way the picture was muddied involved the scope of consent. Suppose a state conditioned its business licenses on a blanket consent to jurisdiction, even in cases that had nothing to do with the state. Would the out-of-state corporation, by doing business in-state, be deemed to have consented to this? If it did consent explicitly, by taking out a license, that was probably fine; a corporation can weigh the benefits of registration against the costs. (Today, some courts have held such consent invalid under Daimler, turning International Shoe's loosening of the rules into a new source of constraint.) But if the consent were merely implicit, based on the in-state exercise of corporate privileges, would the estoppel go so far as to include out-of-state suits? Some state courts said yes, but federal courts generally said no: the corporation's consent was limited to the "business there transacted by it," or to "suits on such contracts" as were there made. In the solicitation cases, the fact that a corporation had rented in-state offices didn't open the door to suits generally. Rather, each particular suit had to arise from whichever in-state activities would have required the defendant to exist as a corporation.

* * *

So what's the right answer?

Clearing away these confusions, the original picture is relatively simple. Corporations are subject to suit where they're incorporated, where they've registered to do business (if that registration involves consent to suit), and where they've tried to exercise corporate privileges (on suits arising from the attempted exercise).

Applying this framework to Ford Motor, it seems that Ford would have been subject to jurisdiction under the original rules—but not for the reasons advanced by the plaintiffs. Ford Motor Company is a corporation registered to do business in both Montana (#F006241) and Minnesota (#3121). Having registered voluntarily, and having appointed a registered agent in each state, Ford is amenable to jurisdiction under the general law (and, thus, under the Fourteenth Amendment) if the state statutes say it is. But that doesn't seem to be the theory the plaintiffs have pursued, at least not in the Supreme Court. So it's not clear to me if this argument is still available to them.

And if jurisdiction by consent wouldn't work, it doesn't seem that any other source would. Ford advertises in these states, but it isn't being sued over its ad contracts by an irate billboard owner. It makes contracts with dealerships, but it isn't being sued by a dealer. And so on. Had the ads all been taken out by an independent marketing firm, hired by Ford from the safety of Dearborn, Mich., Ford plainly wouldn't be exercising corporate privileges in Montana. So for these plaintiffs, Ford's extensive in-state marketing presence is no more helpful than the ticket solicitors or insurance circulars that courts previously rejected as insufficient.

* * *

Can we really talk about the "general law" of jurisdiction anymore? And why should anyone care?

Now that everyone's been applying International Shoe for the last 75 years, you might doubt that there's any general law left to apply. The Fourth Restatement of Foreign Relations, for example, takes the view that there are no more international-law constraints on jurisdiction—that by the practice of nations, anything goes. I'm not sure that's quite right: for example, the old French-style jurisdiction based on the Frenchness of the plaintiff is still frowned upon quite broadly. More generally, the test for unwritten law isn't what's generally done nowadays—the output of a 50-state survey—but what would be done, absent the written rules that have occupied the field. (For example, in 1934, the Supreme Court held that the Eighteenth Amendment's repeal abated all pending Prohibition cases, even though Congress and most states had adopted savings statutes to keep post-repeal prosecutions going. The common-law principle was the one that governed the repeal, and "these state statutes themselves recognize the principle which would obtain in their absence." Indeed, we still use the phrase "at common law, . . . " to describe what the law would be if it were unmodified by statute—e.g., "at common law, burglary had to be of a dwelling at night.") Written rules can change the custom in other ways; International Shoe might have influenced our practice, which might then change the general sense of what's allowable, and so on. But since at least 1945 (and likely somewhat before), U.S. courts hearing personal jurisdiction cases haven't been trying to articulate principles of general law; so we might have to look to the period before International Shoe, when last they toiled in the fields of general law, to know what rules were left in place.

Even assuming there's some general law to apply, we still might wonder why anyone should care. If a Montana plaintiff is injured at home, why should she have to travel to another state to sue? What possible purpose can that serve, when Ford sells cars to Montana all the time, and has plenty of Montana law firms on retainer? The answer is that personal jurisdiction is about power, not just convenience. A case in Montana's courts is heard exclusively by Montana judges—who are elected exclusively by Montana citizens, and who proceed exclusively under the Montana legislature's chosen procedures. If Ford weren't bound to obey Montana's courts on this question, if it didn't consent to Montana's authority here (expressly or by implication), and if the money will ultimately be coming out of Dearborn, why shouldn't the citizens of Michigan get a vote, too? The plaintiffs say Ford is liable, and Ford disagrees; so why should the plaintiffs get to pick the factfinder?

If the concern is that a local plaintiff shouldn't have to sue in a distant state, or that we need a single jurisdiction that can get multiple defendants before the court, Congress has an easy fix: it can decide to have these diversity cases heard in federal courts, and can put those courts wherever it wants, including in Minnesota or Montana. Congress hasn't yet seen fit to do that, but its shortsightedness isn't the Court's fault, and warping the jurisdictional rules is the wrong response.

* * *

Upshot:

There's no one "original answer" in Ford Motor. A ruling for the plaintiffs would move us closer to the original jurisdictional world; but an opinion adopting the plaintiffs' arguments would push us further away. The right disposition probably depends on which arguments have been waived by which parties. And until the Court puts personal jurisdiction on a sounder footing, and until Congress gets its act together, these hard choices won't be going anywhere.