Bauman v. DaimlerChrysler Corp.

Citations: 579 F.3d 1088; 2009 U.S. App. LEXIS 19360; 2009 WL 2634795Docket: 07-15386

Court: Court of Appeals for the Ninth Circuit; August 28, 2009; Federal Appellate Court

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Barbara Bauman and 22 other Argentinian citizens filed a lawsuit against DaimlerChrysler AG under the Alien Tort Claims Act, alleging human rights violations by its subsidiary, Mercedes Benz Argentina (MBA), during Argentina's military regime from 1976 to 1983. The plaintiffs claimed they or their family members were kidnapped, detained, or tortured by Argentinian state security forces directed by MBA, which maintained close ties with military officials to eliminate perceived subversives from its plant. 

In 2004, the plaintiffs filed their complaint in the Northern District of California, seeking relief from DaimlerChrysler AG, a German stock company. In April 2005, DaimlerChrysler AG successfully moved to dismiss the case for lack of personal jurisdiction, leading to this appeal. The court affirmed the dismissal. 

DaimlerChrysler AG's principal seat is in Stuttgart, Germany, while its U.S. subsidiary, Mercedes Benz USA, LLC (MBUSA), operates in New Jersey and has offices in California, where it is subject to jurisdiction. However, MBUSA does not design or produce vehicles but markets and distributes them in California. The court noted that DCAG could not distribute vehicles in California without significant changes to its business model and substantial investments. The previous distribution arrangements were through independent entities, underscoring the lack of direct involvement by DaimlerChrysler AG in California.

The relationship between DCAG and MBUSA is governed by a General Distributor Agreement, which outlines mutual objectives for MBUSA prior to each Sales Period. Either party may terminate the Agreement for good cause with notice, resulting in immediate payment of amounts owed and requiring DCAG to repurchase all vehicles and parts. DCAG has no control over the final destination of products in the U.S. Historically, MBUSA opted not to purchase DCAG G-Class vehicles in California, selling them instead to an unrelated company. Upon DCAG's request, MBUSA must provide pertinent information regarding financial conditions, management, ownership, business practices, and corporate reputation of authorized resellers, along with relevant agreements and marketing plans. MBUSA is also obligated to comply with DCAG's binding standards, which require a year’s notice for any changes. Marketing and advertising strategies must align with DCAG's directives. DCAG holds the right to approve or reject Authorized Reseller appointments, management position combinations, and key personnel replacements. Additionally, MBUSA must follow DCAG’s instructions regarding agreements with resellers and maintain offices and facilities at approved locations. The District Court, on November 22, 2005, tentatively granted a motion by DCAG, determining that DCAG lacked continuous and systematic contacts with MBUSA for agency jurisdiction, and that asserting jurisdiction was unreasonable due to various factors including the interests of Argentina and Germany. The Court ordered limited jurisdictional discovery to explore the existence of an agency relationship and the possibility of pursuing claims in Germany or Argentina. Following discovery, appellants addressed these points and sought jurisdiction based on DCAG's overall U.S. contacts or alternatively requested a case transfer to Michigan if personal jurisdiction was lacking. On February 12, 2007, the court reaffirmed its dismissal, concluding MBUSA was not DCAG's agent for jurisdiction purposes and that both Germany and Argentina were adequate forums for the claims. The court did not consider the alternative arguments as they were beyond the scope of the supplemental order. The appellants subsequently appealed, claiming jurisdiction errors and procedural defects in the lower court's ruling. There is also a dispute regarding subject matter jurisdiction related to the Alien Tort Claims Act and the Torture Victims Protection Act, with the District Court deciding to address personal jurisdiction first.

Federal courts have discretion in determining the order of addressing jurisdictional issues. Dismissals for lack of personal jurisdiction are reviewed de novo, while decisions to dismiss or transfer under 28 U.S.C. § 1406(a) are reviewed for abuse of discretion. The burden is on the plaintiff to prove the court's personal jurisdiction over a defendant. When a district court relies on affidavits and discovery materials without an evidentiary hearing, dismissal is warranted only if the plaintiff fails to show a prima facie case for personal jurisdiction, with any factual conflicts resolved in favor of the plaintiff.

Personal jurisdiction over a nonresident defendant involves a two-part analysis: compliance with the state’s long-arm statute and adherence to federal due process. California's long-arm statute aligns with due process requirements, allowing the court to focus solely on due process. Due process necessitates that a nonresident defendant have minimum contacts with the forum state, ensuring the exercise of jurisdiction aligns with fair play and substantial justice. Specific jurisdiction applies when the claim arises from the defendant's contacts, while general jurisdiction requires substantial, continuous, and systematic activities within the forum.

In the context of agency jurisdiction, the appellant's argument that the contacts of a subsidiary (MBUSA) should be attributed to its parent (DCAG) is insufficient on its own to establish personal jurisdiction. The relationship between a parent and its subsidiary does not automatically confer jurisdiction based on the subsidiary's contacts. To apply the agency doctrine, the plaintiff must demonstrate that the subsidiary’s activities are significant enough that the parent would have to perform those services if the subsidiary did not exist.

The Unocal court differentiated between the agency relationship of a parent company to its subsidiary and that of a holding company to its subsidiary, noting that a holding company can merely hold another type of subsidiary. If the parent's business is purely investment-related, the subsidiaries act independently and do not serve as agents. However, if subsidiaries are formed for tax or corporate finance reasons, their business is seen as aligned with the parent’s operations, thus justifying the exercise of jurisdiction when the local subsidiary aids the parent's business. Parental involvement can include monitoring performance, supervising financial decisions, and setting policies. 

The issue of control was initially contested, with appellants later agreeing that pervasive control is essential for establishing agency jurisdiction. The Unocal decision's reference to control created some confusion, as it initially indicated that control over a subsidiary’s operations was necessary for an agency relationship, but did not elaborate further. In contrast, the Modesto City School v. Riso Kagaku Corp. case indicated that control was not required, leading to inconsistencies with other Ninth Circuit rulings. 

To clarify, establishing agency jurisdiction involves a two-step analysis: the parent must exert significant control over the subsidiary beyond typical ownership, and the subsidiary must be crucial enough that the parent would perform similar functions in its absence. Historically, control has been a key element in agency determinations, with the parent-subsidiary relationship often simplifying this analysis. However, the facts presented do not support a finding of an alter ego or agency relationship, as none of the companies involved managed the internal affairs or daily operations of the others.

A high degree of control is required to establish agency jurisdiction, as indicated by Rutsky and reinforced by common law principles where control is essential for an agency relationship. Other circuit courts have similarly acknowledged the importance of control in agency jurisdiction, though the extent of its role varies. In this case concerning DCAG and MBUSA, it is necessary to examine the terms of their Agreement to determine if DCAG exercises sufficient control to classify MBUSA as its agent. The Agreement allows for monitoring and general policy articulation but indicates that MBUSA retained significant autonomy, including the ability to independently decide on vehicle purchases. This lack of pervasive control means that MBUSA cannot be viewed as an agent of DCAG. Furthermore, evidence suggests that DCAG would not undertake similar marketing and distribution activities in California without MBUSA, as it had previously utilized independent distributors. Consequently, the limited control and absence of an agency relationship imply that MBUSA's actions cannot be attributed to DCAG.

Regarding jurisdiction, the assertion must be reasonable, and since DCAG lacked continuous and systematic contacts, the question of reasonableness is moot. Additionally, the appellants claim that the District Court improperly changed the motion to dismiss for lack of personal jurisdiction into one based on forum non conveniens, as the final order only addressed alternative forums.

Appellants incorrectly interpret the record, as the District Court, while only discussing the agency relationship and alternative fora in its final order, had previously considered other reasonableness factors in a tentative ruling. As established in Litchfield v. Spielberg, a final judgment appeals all prior non-final orders and rulings relevant to that judgment. The District Court did not treat DCAG's motion as a forum non conveniens motion. 

Furthermore, the District Court did not address appellants' claims regarding personal jurisdiction under Fed. R. Civ. P. 4(k)(2) or their transfer request because these exceeded the scope of the supplemental briefing order. According to Northern District of California Local Rules, once a reply is submitted, no further documents can be filed without court approval. The court cited Spacey v. Burgar, which denied a motion to reconsider based on a failure to include the argument timely. As per Palmer v. IRS, any issues raised in a motion that the court deems untimely are waived if not appealed.

The District Court only requested supplemental briefing on the agency relationship and adequacy of alternative fora, rendering the 4(k)(2) argument and transfer request non-compliant with local rules. Appellants' reiteration of their substantive argument without addressing the procedural ruling further resulted in waiver. Consequently, the District Court lacked personal jurisdiction over DCAG, leading to the affirmation of its order.

Dissenting, Circuit Judge Reinhardt critiqued the majority's stringent test for establishing agency relationships for personal jurisdiction, arguing it unduly protects foreign corporations from U.S. litigation while restricting plaintiffs' access to justice, particularly in cases involving serious human rights violations. He emphasized that existing precedent allows for personal jurisdiction over foreign parent companies through their subsidiaries based on minimum contacts, highlighting the 'alter ego' test that requires demonstrating control and the potential for fraud or injustice if separate identities are not disregarded.

The agency test for establishing personal jurisdiction focuses on the significance of the subsidiary's services to the parent corporation rather than on the degree of control exercised by the parent. A subsidiary satisfies the agency test if it acts as the parent’s representative, performing essential services that the parent would otherwise undertake. Control is acknowledged as a factor but is not the primary determinant; rather, it serves a secondary role. The majority opinion's emphasis on "pervasive and continual" control blurs the distinction between agency and alter ego tests, complicating the analysis of personal jurisdiction. Notably, an agency relationship can exist even if the parent does not exert control over the subsidiary's daily operations, as long as the parent possesses the right to control. The Restatement (Third) of Agency supports the view that control can vary in scope and that the mere right to control is sufficient for agency, regardless of whether it is exercised. The threshold for establishing personal jurisdiction should require a less stringent showing of control, as the tests for agency relationships outside jurisdictional contexts do not necessitate demonstrating the special importance of services.

The majority has established a stringent test for agency relevant to personal jurisdiction, contrasting it with the less rigorous test applicable for liability. The focus is on determining if DCAG has sufficient "minimum contacts" with the forum state to ensure that maintaining the suit aligns with "traditional notions of fair play and substantial justice," as defined by the International Shoe case. The tests for agency and alter ego in jurisdictional matters serve as tools to assess fairness under due process considerations, particularly in parent-subsidiary relationships. 

The excerpt argues against a rigid test emphasizing control, particularly in the context of multinational corporations that generate significant profits from the U.S. market through subsidiaries. DCAG, for instance, derived 45% of its annual revenue from U.S. sales, with a small percentage in California. The author critiques the majority's formalistic approach, advocating for a more flexible assessment that reflects economic realities rather than strict legal definitions of control. 

Different control structures exist within multinational companies, and the nature of control should vary depending on the subsidiary's function. For example, day-to-day control may be applicable for a manufacturing subsidiary but not for a sales and marketing subsidiary. The author contends that evidence could demonstrate sufficient control by DCAG over MBUSA to establish personal jurisdiction, citing specific requirements placed on MBUSA, such as adherence to DCAG's promotional standards and the need for DCAG's approval of advertising plans.

DCAG possesses 100% ownership of MBUSA and retains the 'Mercedes-Benz' trademark. MBUSA is obligated to utilize the DCAG financial system and adhere to its record-keeping and reporting standards. Prior approval from DCAG is necessary for MBUSA to enter agreements with 'Authorized Resellers,' including approvals for retail outlet locations and key personnel changes. DCAG defines warranty terms for vehicles and restricts MBUSA from making any vehicle modifications without consent, except for customer-specific alterations. Repairs and maintenance must use only parts supplied by DCAG. Additionally, DCAG can mandate MBUSA's participation in advertising and merchandising programs. MBUSA is required to keep DCAG informed about its promotional materials and comply with specific marketing guidelines, including signage. Senior decision-making roles in MBUSA's Board of Directors are held by DCAG employees. MBUSA is also tasked with collecting customer data and providing periodic reports as requested by DCAG. The strong oversight and control exerted by DCAG over MBUSA indicate a significant agency relationship, which may support personal jurisdiction despite the existence of independent distributors. The viability of DCAG selling vehicles without MBUSA remains disputed, and prior unsuccessful attempts by DCAG's predecessor to utilize independent distributors add to this uncertainty. The legal interpretation suggests that a subsidiary acts as an agent if the parent company would perform the services itself if no representative were available, and independent contractors may qualify as such representatives under certain conditions.

MBUSA's services are deemed essential to DCAG, such that if MBUSA were to cease operations, DCAG would either directly manage sales or find alternative representatives. This establishes the agency relationship necessary for personal jurisdiction. Both parties agree that MBUSA's extensive contacts with California justify general jurisdiction, as these contacts are substantial enough to support legal actions unrelated to those activities. The inquiry centers on whether it is fair to attribute MBUSA's contacts to DCAG, which is confirmed by the significance of MBUSA's operations to DCAG's business in California. 

There is a strong public perception that a major multinational like DCAG should be subject to jurisdiction in California, especially given its significant market presence and sales in the state. The court emphasizes the absurdity of not being able to hold DCAG accountable in federal court in California, considering the widespread visibility of Mercedes-Benz vehicles and dealerships. Furthermore, with nearly half of DCAG’s sales occurring in the U.S., including a considerable portion in California, the rationale for personal jurisdiction is reinforced. 

Additionally, the court addresses the reasonableness of asserting jurisdiction over DCAG, noting that the burden shifts to the defendant to prove that exercising jurisdiction would be unreasonable. Seven factors are considered in this assessment, including purposeful interjection, the burden on the defendant, potential conflicts with the defendant's sovereignty, the forum state's interest, efficiency of judicial resolution, convenience for the plaintiff, and the availability of alternative forums. A preliminary evaluation of these factors indicates that exercising personal jurisdiction over DCAG in this context is both reasonable and justifiable.

DCAG's extensive involvement in California markets through its agent, MBUSA, justifies the exercise of general jurisdiction, indicating that it should reasonably anticipate litigation in California. The burden of litigating in California for DCAG, a large corporation, is not significant due to modern transportation and communication advancements, and prior litigation in California supports this position. The potential conflict with German sovereignty does not preclude jurisdiction, as DCAG has willingly engaged in extensive business operations in the U.S., thus accepting litigation risks. Although the events in question occurred outside California and the plaintiffs are not residents, California has a strong interest in adjudicating the case, particularly under the Alien Tort Statute and Torture Victim Prevention Act, which aim to address international human rights violations. This aligns with broader U.S. interests in providing a forum for such claims, reinforcing the reasonableness of asserting personal jurisdiction over DCAG.

The fifth, sixth, and seventh factors in this case hinge on the plaintiffs' ability to litigate in Germany or Argentina. Bauman claims that Germany does not permit human rights lawsuits against corporations and does not allow for equitable tolling. In Argentina, he argues that there are no legal avenues for redress against corporations linked to the Dirty War, and the statute of limitations would bar the suit. Argentina appears to be the most appropriate forum since the events occurred there. However, Bauman's assertion that Argentina may not be a fully adequate forum is compelling, particularly following a recent Argentine Supreme Court ruling that imposed a two-year statute of limitations on human rights cases from the Dirty War, effectively rendering this suit barred. 

Although pursuing the case in Argentina may offer logistical advantages regarding evidence and witnesses, significant barriers to effective relief exist, including credible allegations of intimidation against the judiciary and plaintiffs. While there is conflicting expert testimony on whether equitable tolling exists under German law, the district court indicated that claims from 1976 and 1977 might not necessarily be time-barred. Given the unclear legal status in Germany, it cannot be confidently deemed an adequate forum. Ultimately, the presence of alternative forums is only one factor in determining the fairness of asserting jurisdiction over DCAG, a foreign corporation with a consistent presence in California, rather than the sole determinant in the jurisdiction analysis.

DCAG has significant connections to California through its agent, MBUSA, and there is a strong interest from both California and federal courts in addressing vital human rights issues. There are substantial doubts regarding the adequacy of Germany or Argentina as alternative forums. Therefore, exercising personal jurisdiction over DCAG is deemed reasonable and compliant with due process. The dissenting opinion argues against dismissing Bauman's claims due to lack of personal jurisdiction, criticizing the majority's strict agency test that allows foreign corporations benefiting from U.S. markets to avoid legal accountability through complex corporate structures. This decision is seen as contradictory to the principles of fair play and due process fundamental to personal jurisdiction. 

Additionally, the document notes that while DCAG lacks "continuous and systematic" contacts with California to establish general jurisdiction, the dissent points out that established case law, such as Modesto, does not require strict control for agency relationships. It critiques the reasoning that denies agency based on the possibility of using independent contractors instead of subsidiaries, arguing that such a standard is illogical in a global economy where outsourcing is common. The dissent emphasizes that agents can include independent corporations or individuals, and as multinational corporations dominate the economy, it is vital to consider the substantive relationships between parent companies and their subsidiaries when determining jurisdiction.