The U.S. Supreme Court this week heard argument in DaimlerChrysler AG v. Bauman, a case arising out of the Dirty War in Argentina. The plaintiffs allege that Daimler, the German automaker, is responsible for the disappearance and torture of workers at a Mercedes-Benz plant in Argentina, because plant managers identified union leaders and others as “subversives” who were then targeted for persecution. This case is worth watching, because it could herald broad new protections for multinational corporations that enjoy the privilege of doing business in the United States.
The focus of the Supreme Court hearing, however, was not on the substance of the claims, but on whether Daimler can be sued in the United States at all. The Ninth Circuit Court of Appeals ruled that Daimler could be sued in California because its subsidiary Mercedes-Benz USA (MBUSA) does extensive business in California, and MBUSA’s activities could be attributed to Daimler. My organization, EarthRights International, submitted an amicus brief on the side of the Bauman plaintiffs, arguing that the Constitution does not require courts to treat corporations and their subsidiaries separately for jurisdictional purposes, especially where they are economically integrated.
Several justices seemed hostile to the victims of torture and disappearance, but they did not suggest a coherent rationale for dismissing the case. Few seemed to want to constitutionalize a rule of corporate separateness, but most expressed some discomfort with the case.
What’s at stake here is essentially whether Congress, or any U.S. state, has the power to tell a corporation: “If you do business here, even if it’s through a subsidiary, victims of your crimes in other countries can sue you here.” In this case, the abuses are torture and disappearance; in another case it might be selling chemical weapons. Do we really want to establish a constitutional rule that a company that sells chemical weapons to a foreign regime can exercise the privilege of doing business in the United States without submitting to justice from its victims?
For centuries, dating back to English common law, the courts have ruled that if they can exercise “general” jurisdiction over someone, that person can be sued for any injury arising anywhere in the world. And since the 19th Century, U.S. courts – including the Supreme Court – have ruled that corporations are subject to general jurisdiction wherever they have a continuous and substantial business presence. It shouldn’t matter that Daimler chose to structure its U.S. operation through a subsidiary; it is still doing business here – a lot of business.
Nonetheless, Justice Kagan questioned the basic premise of general jurisdiction, suggesting that it “has got to be wrong” that a large corporation could be subject to jurisdiction in every U.S. state, and could be sued there for injuries arising elsewhere. (See transcript.) In fact, that’s been the rule for a very long time.
Some of the justices also seemed to think that, even if the Constitution would allow a state to exercise jurisdiction over a foreign corporation doing business through a subsidiary, the California legislature surely did not intend that. (California’s “long-arm” statute applies here because the Federal Rules of Civil Procedure allow federal courts to exercise jurisdiction according to principles of state law.) But it’s hard to see how California could have been any clearer – its law allows courts to “exercise jurisdiction on any basis not inconsistent with the Constitution.” Despite this plain text, Justice Breyer, in particular, seemed to think that the California law surely does not mean what it says, because that would be a bad rule – to eliminate boundaries between corporate parents and subsidiaries would cause “a big problem to get investment in that State.”
Justice Sotomayor suggested a sensible approach – to simply use the test that the Supreme Court has allowed in tax cases, in which a state can tax a corporation’s subsidiaries if they are “functionally and economically tied together and . . . the parent controls the subsidiary.” By the end of the case, however, even Sotomayor was asking Daimler’s lawyer: “Do you care how you win?” No one seemed to think that there was a problem with a constitutional rule that could prevent Congress from giving rights to victims to obtain remedies against foreign companies that are allowed the privilege of doing business in the United States.
The justices would do well to remember that their role here is to state what the Constitution requires, not what they think the best rule would be. Ironically enough, they actually do have the power to set the best rule, but this case is not the vehicle for it. If they think that California’s statute reaches too far, the Supreme Court has the authority to change the Federal Rules of Civil Procedure, and to limit the permissible bases for the exercise of jurisdiction in federal court (at least with respect to federal statutes such as the ATS). They can create policy if they want to, but they shouldn’t do so through a willful interpretation of the Constitution.