As published in Reuters – By Philip Federico and Chase Brockstedt
July 27, 2021 – The U.S. Supreme Court’s recent ruling in Ford Motor Company v. Montana Eighth Judicial District Court has renewed interest in the importance of personal jurisdiction disputes.
Previously, when it came to product liability and mass tort cases, the playing field was seen as tilted toward defendants, with recent decisions restricting jurisdiction over out-of-state defendants.
Accordingly, plaintiffs had been more reluctant to exercise all available resources in pursuing these out-of-state defendants, seeking to avoid sinking resources into an inevitably adverse outcome.
With the Ford ruling, the Supreme Court provided new certainty on thwarting efforts by defendants to further restrict where they can be sued.
The holding in the case addressed the connection between plaintiffs’ product-liability claims arising from car accidents that had occurred in various states and whether Ford’s actions in those states were enough to support specific jurisdiction in respective state courts since the vehicles involved in the accidents were manufactured and sold elsewhere.
n the plaintiff’s world, we are used to seeing how corporations structure their subsidiaries to escape liability. But a corporate structure that appears impenetrable may not be.
Because general jurisdiction only applies to companies incorporated in, or whose primary place of business is in, a certain state, it cannot be used in every case.
Specific jurisdiction, which allows an out-of-state defendant to be held liable if their acts led to the conduct in the local jurisdiction, should also be considered.
Specific jurisdiction is often difficult to prove because the parent company keeps itself separate from its subsidiaries, but difficult does not mean impossible.
For example, some states’ long-arm statutes permit the exercise of specific jurisdiction over a nonresident defendant when a plaintiff’s claim “arises from” the in-state acts of a nonresident who, in person or through an agent, transacts business, performs work, enters into contractual agreements, causes tortious injury through its acts and omissions, regularly does and solicits business, derives revenue and has an interest in, uses, and possesses real property.
On the surface, a parent corporation may appear to have done everything right to shield itself from liability for its subsidiaries in other states. But it is possible that the culture of the company has undermined its corporate structure.
By thoroughly investigating, attorneys may find that the companies’ leadership has a hand in major decision-making or that the Boards of the “separate” companies are almost identical, which renders meaningless the structure put in place to protect the company.
Jurisdiction discovery involves a demand for evidence from the defendant that the defendant engaged in conduct in a jurisdictionally relevant forum that contributed to the cause of action. It is typically used to oppose defendants’ Rule 12(b)(2) dismissal motions.
Too often, however, attorneys fail to exercise their right to jurisdiction discovery, as it can be expensive and time-consuming. In a case in which the authors’ firms represented plaintiffs alleging that wastewater management and disposal practices by a chicken processing plant had polluted the community of Millsboro, Delaware, jurisdiction discovery enabled the parties to gain valuable information such as Board meeting minutes, local tax records, and a local airstrip’s flight records for members of the parent company’s leadership. Cuppels et al. v Mountaire Corporation et al., Civil Action No. S18C-06-009 CAK, Delaware Superior Court (resulting in $205 million settlement, approved April 12, 2021).
While it’s not uncommon to be thwarted by an “object, obstruct, delay” defense for months and even years on end, over time through dogged motion practice it is possible to gain access to the evidence that shows that the parent company was making decisions on how the subsidiaries operated and how the money flowed between them.
Without going through the personal jurisdiction discovery process, though, attorneys will not be able to pursue the corporate parent and are likely to see a much less successful outcome.
When litigating against a major corporation, attorneys often want the “smoking gun” that will help establish a defendant’s liability.
While of course these sometimes exist, more often a case is built by relying on foundational documents that tell the story of the defendant’s misconduct.
As part of jurisdiction discovery, one should first consider the importance of the basic documents corporations are required to keep: Board meeting minutes, agendas, and financial records.
This more traditional discovery, with the assistance of experts in forensic accounting, can demonstrate the direct financial channels between companies.
For example, those types of records can show how money made by a subsidiary was sent directly to the parent corporation; that the parent effectively comingled its own assets and the assets of its subsidiaries to secure loans to finance its operations; and that the parent paid the compensation for its subsidiary’s management team.
They can also show the cross-pollination of executives in both the parent company and its subsidiaries. That can be a key part of demonstrating a corporation’s knowledge of the tortious acts and decision-making that led to them.
In short, while discovery often entails reviewing tens of thousands of emails, an initial review of elementary corporate documents may tell the story on the jurisdictional front.
Publicly available government documents, particularly at the state level, can also be a tremendous resource, especially when starting the investigation or when discovery is bogged down.
To start, searching property records can show the parent company owning or mortgaging property in the court’s jurisdiction. FOIA (Freedom of Information Act) requests can be submitted to places like local airstrips in which corporate leadership has flown in and out of the state.
By combing through political campaign finance and lobbying records, one can demonstrate how much the parent corporation has spent to influence state policy.
Combined, those types of details help paint a picture to the court as to why it has jurisdiction over the parent company in question.
If a business’ corporate structure has failed to shield it from liability, all of the information uncovered in discovery can go a long way in proving that the parent manages and directs business in the state, that its subsidiaries are not kept separate in any real way, and in reality, it is operating as one entity.
It will also help satisfy the agency theory of a principal directing agents to take certain actions. Many of our experiences have served as important reminders to not reflexively believe that a structure operates as it looks on paper.
Time is a big factor in proving personal jurisdiction, and it can seem daunting to invest years into a part of the litigation that does not seem to get to the heart of the claims. But it is often the difference between the case’s success and failure.
By focusing on this usually mundane part of the case even before drafting the complaint based on what is in the public record, you can lay the groundwork for overcoming this potent — but not insurmountable — defense.
Phil Federico is a partner at Baird Mandalas Brockstedt & Federico where he helps lead the Mass Tort / Class Action and Environmental Law practices, transitioning into these areas after beginning his career as a medical malpractice litigator.
Phil has led and been involved in historic and groundbreaking litigation with verdicts and settlements exceeding one billion dollars.
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