Suing Transnational Enterprises in U.S. Courts

Over the past few years, the Supreme Court has made it harder for plaintiffs to sue foreign corporations in U.S. courts. A foreign company won’t be subject to general (“all-purpose”) jurisdiction unless it has so many contacts with the forum that it is “essentially at home” there[1]—and won’t be subject to jurisdiction in a lawsuit arising out of forum activities unless its business specifically targeted the particular state in question.[2] In addition, jurisdictional law takes an entity-based approach: jurisdiction over a specific company must be based on that company’s own contacts with the forum, no matter how extensive the forum contacts of other entities within the same transnational enterprise might be. There are some exceptions to that last rule—for instance, courts have used agency principles to attribute the jurisdictional contacts of one company to another within the same corporate group. But the Supreme Court recently cut back on that exception as well.[3]

Would it ever make sense to take an enterprise approach to jurisdiction, assessing the forum contacts of an entire transnational group rather than those of individual companies within that group? Some corporate law scholars think so,[4] and one of the Court’s recent decisions mentioned (although didn’t ultimately address) the possibility.[5] Given the mismatch that is now emerging between the scope of judicial authority over individual entities and the scale of transnational business activity, it’s time to take a close look at that question.

In a forthcoming article, I consider the viability of enterprise jurisdiction. Can some enterprises—whether held together by ownership ties, as in transnational corporate groups, or by other linkages, as in transnational franchise networks—fairly be characterized as unified businesses? If so, are there circumstances under which the objectives of jurisdictional law would be better served by an approach considering enterprise-wide contacts? Would such an approach be compatible with due process?

The article addresses these questions through a case study of the Big Four accounting firms. Each of the Big Four is structured as a network of independently-owned offices. As the article describes, though, their multinational operations are highly integrated, particularly with respect to the core service area of auditing. In each network, member firms around the world operate using the brand of their umbrella organization, as well as its proprietary, standardized audit methodology. They enjoy shared resources (including professional liability insurance) and develop cross-firm knowledge networks to support their operations. And their audits of multinational clients are carried out through highly integrated processes that often involve teams in multiple offices. For these reasons, although the financial results of each member firm are independent of activity in other offices, the economic interest of each firm is heavily dependent on other entities within its network.

Litigation against the Big Four shows courts grappling with the realities of their cross-border business model, and reveals some of the weaknesses of current entity-based jurisdictional analysis in addressing those realities. The article concludes that an enterprise approach to jurisdiction could be made compatible with constitutional requirements, and would channel more fairly and effectively the judicial response to corporate activity in the global arena.

ENDNOTES

[1] Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851-53 (2011).

[2] J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).

[3] Daimler AG v. Bauman, 134 S. Ct. 746, 748 (2014).

[4] See, e.g., PHILLIP I. BLUMBERG, THE LAW OF CORPORATE GROUPS: PROCEDURAL PROBLEMS IN THE LAW OF PARENT AND SUBSIDIARY CORPORATIONS chs. 3–5 (1983).

[5] Goodyear, supra, at 2857.

The preceding post comes to us from Hannah L. Buxbaum, the John E. Schiller Chair in Legal Ethics at the Maurer School of Law, Indiana University. The post is based on her recent article, which is entitled “The Viability of Enterprise Jurisdiction: A Case Study of the Big Four Accounting Firms” and available here.