First Line of Defense: Bauman’s Significant Impact on Enforcement Proceedings Against Foreign Corporation Judgment Debtors
February 04, 2014
Daniel B. Goldman and Adam W. Braveman
On January 14, 2014, the Supreme Court decided Daimler AG v. Bauman, 571 U.S. __ (2014) (slip op.), holding that general jurisdiction over a foreign corporation exists only when “that corporation’s affiliations with the State are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.’” 571 U.S. __ (2014) (slip op. at 20) (citation omitted). Not only does the Court’s decision drastically change the landscape of general personal jurisdiction, but it also has an immediate and significant impact on the ability of a judgment creditor to enforce a judgment against a foreign corporation.
In Bauman, the Court held that general jurisdiction did not exist over a foreign corporation in California based on the in-state activities of the corporation’s subsidiary. Id. at 18. According to the Court, “only a limited set of affiliations with a forum” satisfies the general jurisdiction standard. Id. at 18. These affiliations include “the place of incorporation and principal place of business” for a corporation, id. at 18-19, as well as the “exceptional case [where] a corporation’s operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State.” Id. at 20 n.19. Because neither the foreign corporation nor its subsidiary were incorporated or had its principal place of business in California, and sales of the foreign corporation’s product in California only accounted for 2.4% of the foreign corporation’s worldwide sales, the Court found that the foreign corporation was not “at home” in the state. Id. at 18, 20-21.
This decision substantially impacts a judgment creditor’s ability to enforce its judgment against a foreign corporation. In the enforcement context, so long as a court has personal jurisdiction over a judgment debtor, the court can enforce a judgment against that judgment debtor. This is true even if the court enforcing the judgment is different from the court that rendered the judgment. As a result, a judgment creditor may “shop around” and seek to enforce the judgment in states with favorable enforcement statutes, including states which allow for the turnover of a judgment debtor’s assets located outside of the state (or outside of the country). In many instances, a judgment debtor’s first line of enforcement defense is lack of personal jurisdiction.
Before Bauman, many states, including New York and California, found that under “agency” jurisdiction, a foreign corporation with no direct in-state contacts could be subject to general jurisdiction based on the corporation’s relationship with and activities by a subsidiary or independent contractor. According to courts in those states, general jurisdiction existed over the foreign corporation if the subsidiary or independent contractor performed activities that were “sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation’s own officials would undertake to perform substantially similar services.” See, e.g., Jazini v. Nissan Motor Co., Ltd., 148 F.3d 181, 184 (2d Cir. 1998).
Under this jurisdictional theory, it was possible for a judgment creditor to enforce the judgment in any state where the foreign corporation had subsidiaries or independent contractors, provided that the agency test was satisfied. This is no longer the case. Courts must now look to the foreign corporation’s actual contacts with the state when determining whether general jurisdiction exists, and a foreign corporation with no direct in-state contacts will most likely not be subject to personal jurisdiction in that state. Accordingly, Bauman significantly strengthens a judgment debtor’s first line of defense against enforcement, and severely restricts a judgment creditor’s ability to cherry pick states with the most favorable enforcement statutes.