Due Process Protects Businesses From Forum-Shopping Trial Attorneys

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By Clark Hedger and Jasmine Y. McCormick

Trial lawyers who make their money suing businesses often decide to file lawsuits in states with a political or judicial atmosphere hostile to business, a practice called “forum shopping.” Forum-shopping trial lawyers often file lawsuits in states that have nothing to do with the parties or the situation underlying the lawsuit. This practice raises an important constitutional issue: personal jurisdiction. Personal jurisdiction is a court’s power to exercise control over the parties, and that power is limited by the due process rights of the parties. One of the first fights in litigation against businesses is whether the court has jurisdiction over the business.

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Clark Hedger is an officer in the St. Louis office of Greensfelder, Hemker & Gale PC. His practice encompasses a range of matters including complex commercial litigation, internal investigations, products liability and business torts. He serves clients in the pharmaceutical, health care, biotechnology, automotive and trucking industries, among others. He can be reached at ch1@greensfelder.com.

The Missouri Supreme Court issued an important opinion about personal jurisdiction on Feb. 28, 2017, reaffirming the due process rights of businesses that operate in several states. The Oregon Supreme Court issued a similar opinion on March 2, 2017. These opinions protect businesses from lawsuits filed in far-flung places that have nothing to do with the underlying conflicts and give businesses solid legal precedent for getting such cases dismissed in their early stages.

Under the U.S. Supreme Court’s 1945 ruling in International Shoe Co. v. Washington, courts could exercise “general” personal jurisdiction over a business if the business had “continuous” and “systematic” activities in the state where the court was located, even if the lawsuit had nothing to do with those activities. The problem? Many businesses continuously and systematically operate on a nationwide basis, subjecting them to general jurisdiction in several states. Such nationwide operations are increasingly common, especially with the growth of the internet. Businesses were forced to incur the additional expense and burden of litigating in faraway places, pressuring companies to settle cases that they may have fought closer to home.

The U.S. Supreme Court recognized the changing scope of the economy in 2014 in Daimler AG v. Bauman. The court clarified that general jurisdiction is appropriate in a business’s home state or a state where a business’s activities are so substantial that the business is “essentially at home.”

The Missouri Supreme Court’s February opinion in Norfolk Southern Railway Co. v. Dolan illuminates how substantial those contacts have to be for a business to be “at home.” While Norfolk’s activities in Missouri were significant — over 600 employees and more than $230 million in revenue — it was not subject to general jurisdiction because Missouri accounted for only 2 percent of its operations. The court also stated that merely registering to do business or appointing an agent for receiving service of process was not consenting to jurisdiction in Missouri. The Oregon Supreme Court’s opinion in Barrett v. Union Pacific Railway Co. used the same analysis. Union Pacific had over 1,000 employees and generated over $645 million in revenue in Oregon, but its operations were much larger in many other states.

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Jasmine Y. McCormick is an associate with Greensfelder in St. Louis. Her litigation practice focuses on helping businesses enforce noncompete and nonsolicitation agreements with former employees or franchisees. She also handles general franchise litigation, class actions and product liability cases. She can be reached at jmccormick@greeensfelder.com.

In light of these recent decisions, general jurisdiction over a business will typically be limited to two places: the state where the business is incorporated and the state where it maintains its principal place of business. For example, a company incorporated in Delaware that has a principal place of business in Missouri could be sued in Delaware and Missouri even if the lawsuit is unrelated to those states. The same business could not be forced to defend a lawsuit in Alaska unless the lawsuit was directly related to its Alaska activities or its activities in Alaska were so substantial that Alaska was practically another home for the business.

Businesses may waive certain jurisdictional arguments if they are not raised promptly. Any Missouri businesses currently enmeshed in out-of-state lawsuits should immediately determine whether these recent opinions could result in dismissal, and jurisdiction should be one of the first topics that business owners should discuss with their attorneys when hit with an out-of-state lawsuit.

 

 

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