Renewed emphasis on personal competence can level the playing field in litigation
July 27, 2021 – The recent United States Supreme Court ruling in Ford Motor Company v. Montana Eighth Judicial District Court has rekindled interest in the importance of personal jurisdictional disputes. Previously, when it came to product liability and mass tort cases, the rules of the game were seen to be tilted in favor of defendants, with recent rulings restricting jurisdiction over defendants outside the court. ‘State. As a result, plaintiffs had been more reluctant to use all available resources to prosecute these defendants out of state, seeking to avoid sinking resources into an inevitably unfavorable outcome.
With the Ford ruling, the Supreme Court has provided new certainty about defendants’ efforts to further thwart places where they can be sued. The judgment in the case dealt with the connection between the plaintiffs’ product liability claims arising from car accidents in various states and whether Ford’s actions in those states were sufficient to warrant specific jurisdiction in the states. respective state courts since the vehicles involved in the crashes were manufactured and sold elsewhere.
In an 8-0 opinion written by Judge Elena Kagan, the court ruled in favor of the plaintiffs, stating “When a company like Ford serves a market for a product in a state and that product causes injury in the State to any of its residents, the state courts can hear the resulting action. “
In the aftermath of this decision, it is important to return to the fundamental legal questions at stake in matters of personal jurisdiction. The difficulties of prosecuting defendants out of state, while increasingly complicated in some ways, have also been overestimated, with the best approaches requiring a return to basics.
In the world of complainants, we are used to seeing how companies structure their subsidiaries to escape their liability. But a business structure that seems impenetrable may not be.
Since the general jurisdiction only applies to companies incorporated or having their principal registered office in a certain state, it cannot be used in all cases. A specific jurisdiction, which allows an out-of-state defendant to be held liable if their actions led to the conduct in the local jurisdiction, should also be considered. Specific competence is often difficult to prove because the parent company is kept separate from its subsidiaries, but difficult does not mean impossible.
For example, the long gun laws of some states allow the exercise of specific jurisdiction over a non-resident defendant where a plaintiff’s claim “arises” from acts in a non-resident’s state that , in person or through an agent, carries on business, performs work, enters into contractual agreements, causes tort by acts and omissions, regularly does and solicits business, earns income and has a interest in, use and own real estate.
At first glance, a parent company may appear to have done everything to avoid the liability of its subsidiaries in other states. But it is possible that the corporate culture has undermined its corporate structure. Upon further investigation, lawyers may discover that the management of companies has a stake in major decision-making or that the boards of directors of “separate” companies are almost identical, rendering the structure in place meaningless. to protect the business.
The discovery of jurisdiction involves a request from the defendant for proof that the defendant engaged in conduct in a jurisdictional forum that contributed to the cause of action. It is typically used to oppose Defendants’ Rule 12 (b) (2) defeat motions.
Too often, however, lawyers do not exercise their right to find jurisdiction, as it can be costly and time consuming. In a case in which the authors’ companies represented plaintiffs alleging that wastewater management and disposal practices by a chicken processing plant had polluted the community of Millsboro, Delaware, the discovery of the jurisdiction enabled the parties obtain valuable information such as board meeting minutes, local tax records, and flight records from a local airstrip for members of parent company management. Cuppels et al. v Mountaire Corporation et al., Civil Action # S18C-06-009 CAK, Delaware Superior Court (resulting in a $ 205 million settlement, approved April 12, 2021).
While it is not uncommon to be thwarted by an “object, obstruct, delay” defense for months and even years, over time, through relentless practice of the movement, it is possible to gain access to evidence that shows the parent company was making decisions about how subsidiaries operated and how money went between them.
Without going through the process of finding personal competence, however, lawyers will not be able to sue the parent company and will likely see a much less positive outcome.
When arguing against a large corporation, lawyers often want the “smoking gun” that will help establish defendant liability. While this does of course sometimes exist, more often than not a case is built based on foundational documents that tell the story of the defendant’s misconduct.
As part of the discovery of jurisdiction, one must first consider the importance of the basic documents that companies are required to keep: minutes of board meetings, agendas and financial records. This more traditional discovery, with the help of forensic accounting experts, highlights the direct financial channels between companies.
For example, these types of records can show how money earned by an affiliate was sent directly to the parent company; whereas the parent company has effectively combined its own assets and the assets of its subsidiaries to guarantee loans intended to finance its operations; and that the parent company paid the remuneration of the management team of its subsidiary. They can also show cross pollination of executives both in the parent company and its subsidiaries. This can be a key element in demonstrating a company’s knowledge of the wrongdoing and the decision-making that led to it.
In short, while discovery often involves examining tens of thousands of emails, an initial examination of elementary business documents can reveal the jurisdictional story.
Government documents available to the public, especially at the state level, can also be a tremendous resource, especially when starting an investigation or when the discovery gets bogged down.
For starters, searching the property records may show that the parent company owns or mortgages property within the jurisdiction of the court. FOIA (Freedom of Information Act) requests can be submitted to places like local airstrips where business executives have entered and exited the state. By combing through political campaign finance and lobbying records, one can demonstrate how much the parent company has spent to influence state policy. Combined, these types of details help describe to the court why it has jurisdiction over the parent company in question.
If a company’s corporate structure has failed to protect it from liability, any information uncovered upon discovery can go a long way in proving that the parent company is managing and running the business in the state, that its subsidiaries are not really separated. , and in reality, it functions as a single entity. It will also help satisfy the agency theory of a senior managing agent to take certain actions. Many of our experiences have served as important reminders not to reflexively believe that a structure works as it looks on paper.
Time is a big factor in proving personal competence, and it can seem daunting to invest years in part of the litigation that doesn’t seem to go to the heart of the claims. But that’s often the difference between business success and failure. By focusing on this usually mundane part of the case before you even draft the complaint based on what’s on the public record, you can lay the groundwork for overcoming this powerful – but not overwhelming – defense.
The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the principles of trust, is committed to respecting integrity, independence and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.