Rethinking Personal Jurisdiction

Rethinking Personal Jurisdiction

Dan Klerman

USC Law School

Faculty Workshop

Harvard Law School

October 28, 2013

5 Goals

Sketch a possible pragmatic justification for main features of current personal jurisdiction doctrine

Show how that pragmatic justification helps resolve difficult or open jurisdictional issues

Explore empirical assumptions underlying that pragmatic justification

Show how doctrine would change if empirical assumptions were wrong

Outline strategy for testing those empirical assumptions

“Jurisdictional Competition and the Evolution of the Common Law” U. Chi L. Rev. (2007)

Two characteristics of common law before 1799

Judges kept court fees

S

o

had

incentive

to hear more cases

Plaintiff choice of forum, so chose pro-plaintiff court

Result was that English judges competed for litigation by making the law more pro-plaintiff

Implications for jurisdiction more generally

Plaintiff choice leads to pro-plaintiff law

Role for constitutional constraints on jurisdiction

Think about incentives that jurisdictional rules create for litigants and judges

Two Effects of Jurisdictional Rules

Litigation costs

Bias

Litigation Costs

Jurisdiction primarily affects distribution of costs

N

ot total costs

Costs probably less affected by location of forum than usually thought

Recent changes in communication, transportation, and structure of legal profession (Brennan)

Improvements in technology likely to lessen further the impact of forum on litigation costs

Video conference

technology

Helps explain current doctrine, which largely ignores litigation costs

Two Kinds of Bias

Pro-plaintiff bias / forum selling

Pro-resident

b

ias

Forum Selling

Plaintiff jurisdictional choice leads to jurisdictional competition and pro-plaintiff law

At least a few jurisdictions will find it advantageous to attract litigation

They will do so by making the forum more

pro-plaintiff

Forum shopping leads to forum

selling

Most suits will be brought in those pro-plaintiff

fora

Example

: Patents and

E.D.Texas

Helps explain constitutional constraints on jurisdiction

Helps resolve open jurisdictional issues

Narrow interpretation of general jurisdiction

Daimler v Bauman

(SCOTUS oral argument 10/15/2013)

Narrow interpretation of related contacts in purposeful

availment

Fiore

v

Walden

(SCOTUS oral argument next Monday)

Pro-Resident Bias

Suit where defendant resides leads to a pro-defendant bias

Judges

and juries can use adjudication to protect

local defendants from

having to pay money to

out-of-state plaintiffs

States can attract business and employment through pro-defendant rules and adjudication

Suit where plaintiff resides leads to pro-plaintiff bias

Because

judges and juries can use adjudication to redistribute wealth from out-of-state

defendants to local plaintiffs

Evidence:

Tabarrok

& Helland (1999, 2002

)

Damages

against out-of-state

defendants are

30% higher in states with partisan-elected judiciaries

Market Constraints

Sometimes market provides incentives for state to moderate or eliminate pro-resident bias

Consider employment disputes

State that had significant pro-plaintiff bias would discourage

businesses from locating in-state

Fear of losing employment gives incentive to fair adjudication

Helps

explain purposeful

availment

requirement

Helps guide application of purposeful

availment

McIntyre

v

Nicastro

(2011) wrong

Suit where product manufactured or sold to distributor likely to lead to pro-defendant bias

Reformulation of purposeful

availment

requirement

Purposeful

availment

should apply also to plaintiff

Purposeful

availment

not appropriate for federal court

Issue relevant to, but not argued in,

Fiore

v

Walden

Diversity Jurisdiction

Pro-resident bias problem could be almost entirely eliminated by expanding or re-focusing diversity jurisdiction

Federal courts seem largely immune from pro-resident bias

State court bias only possible only if hear cases with out-of-state parties

Two possible implications

Eliminate complete diversity rule

But would require expansion of federal judiciary

F

ocus diversity jurisdiction on cases where market incentives for states to provide unbiased adjudication are weak

Diversity jurisdiction

for stranger torts (e.g. defamation, pollution)

No

diversity jurisdiction

for contracts or torts arising out of contracts (e.g. employment discrimination,

medmal

)

Litigation Costs

Bias

Personal jurisdiction rule

Cost of

adjudication

Pro-plaintiff bias

(forum

selling)

Pro-resident

Bias

Plaintiff’s choice

Bad

Worst

OK

Plaintiff’s residence

Good

Best

Worst

Defendant’s headquarters

Good

Best

Worst

Purposeful

availment

OK

Good

Good

Lowest cost

OK

OK

Bad

Expanded diversity jurisdiction +

plaintiff

residence personal

jurisdiction rule

Good

Best

Best

Retargeted diversity

jurisdiction +

plaintiff

residence personal jurisdiction rule

Good

Best

Very good

Best Rule Depends on Empirical Issues

Litigation costsPro-plaintiff biasPro-resident biasBest rule✔Plaintiff’s residence or defendant’s HQ✔✔✔✔Purposeful availment or expanded/retargeted diversity jurisdiction ✔ ✔✔✔✔✔✔No constitutional constraints on jurisdiction

Empirical Strategies

Litigation costs

NY retainer / contingent fee data

General counsel data

Bias

Pro-

p

laintiff bias / forum selling

Case studies

Patent, bankruptcy

Mass torts before CAFA / “judicial hellholes”

ICANN domain name dispute resolution (UDRP)

Pro-resident bias

Jury verdict data

Choice of law

Reformulation of Purposeful Availment

State X can assert jurisdiction over an out-of-state defendant based on action Y, if:

(1) Action Y conferred substantial benefit on the residents of state X, and

(2) The defendant could have refrained from action Y without significantly harming itself

1

st

requirement gives state incentive to moderate bias

2

nd

requirement ensures that defendant has credible threat to exit state

If only way

mfg

can avoid suit in Oklahoma is to stop selling cars anywhere in North America, then threat to withdraw benefits from Oklahoma is hollow. See

World-Wide Volkswagen

(1980)

Litigation Costs

Intuitive that more expensive to litigate away from individual

’

s residence or corporate headquarters

Surprisingly little evidence

Most lawyers I spoke to said that litigating out-of-state added at most 2% to cost of litigation

Defendant represented by insurance company

Large defendant with established network of local counsel

Plaintiff lawyers on contingent fee

Possible exception: mid-sized companies with established relationships with lawyers in one location

Even if litigation costs vary with distance, that provides little reason to favor one forum over another

Most plausible forum in most cases is either plaintiff

’

s residence (or headquarters) or defendants

’

residence (or headquarters)

Both likely to lead to roughly similar total litigation costs

Plaintiff

’

s forum: cheaper for plaintiff, more expensive for defendant

Defendant

’

s forum: cheaper for defendant, more expensive for plaintiff

Quality of Law – Extreme Hypothetical

From Bruce Hay (1992)

Suppose there are no rules about jurisdiction

Plaintiffs can sue wherever they want

Judgments are automatically enforced where defendant has assets

State or country can enrich itself by being biased in favor of plaintiff

Since plaintiff chooses forum, plaintiff chooses pro-plaintiff forum

So state which offered double damages, one-way fee shifting, favorable choice of law, favorable substantive law, lenient evidentiary rules, etc. would gets lots of litigation

Enrich local lawyers, hotels, and restaurants

State could charge court fees (perhaps 10% of judgments) which more than compensated state for cost of running courts

Since all states would have the same incentive

Race to the bottom

All states compete to offer pro-plaintiff forum

Not so far fetched

England 1600-1800

ICANN Domain Name Dispute Resolution System

Would Nevada or Cayman Islands restrain themselves?

Shows that unconstrained jurisdiction can encourage biased adjudication

Potential Bias of Simple Jurisdictional Rules

Jurisdiction where plaintiff resides gives courts incentive to be biased in two ways

I. Ad hoc bias in favor of local residents when litigating against foreigners

Transfer wealth from foreigners to locals

Evidence of local (

“

hometown

”

) bias in some US states

II. Pro-plaintiff bias in rules of general application

E.g. pro-plaintiff procedural, evidentiary, choice of law, or substantive rules

May not be attractive, because hurt local defendants too

But if foreigners dominate some types of cases (e.g. product liability), then might be attractive

Even if lots of local defendants

Gains and losses to parties in purely local disputes may be (incorrectly) perceived to net to zero, but net gain to local litigants in disputes with foreign defendants

May help explain why defendants generally prefer federal court

Jurisdiction where defendant resides gives courts incentive to be biased in opposite way -- in favor of defendant

3 Ways to Constrain Court Bias

I. Fairness rules

Invalidate judgments produced by biased state

E.g. Due Process challenge to state judgment

Enforcement?

By superior court (e.g. US Supreme Court)

Only possible when such court exists (e.g. in federal states)

By enforcing court

Only possible where insufficient assets in forum state

Requires difficult examination of fairness

II. Federalize/internationalize adjudication

If all litigation involving diverse parties were in neutral forum, then states would have no incentive to be biased

Possible in U.S. -- abolish complete diversity rule in federal court

International civil court for disputes between citizens of different states?

III. Jurisdictional rules

Properly designed jurisdictional rules can reduce or eliminate incentive to be biased

Jurisdictional Rules that Constrain Bias I

Employment discrimination

Jurisdiction where plaintiff employed

If forum biased in favor of locals, then employers locate factories in other states

Forum has incentive to be fair to encourage employers to locate in state

Contracts

Jurisdiction where plaintiff or defendant resides or is headquarters

If forum biased in favor of locals, then out-of-state parties will not want to enter into contracts with locals or will charge higher prices

Forum has incentive to be fair to encourage contracts between locals and out-of-state parties

Suits relating to the internet sales

Suit in place where goods shipped

If defendants doesn

’

t want to be sued in forum state, then just blocks transaction or raises price

Since state wants its citizens to have access and low prices, has incentive to moderate bias

Defamation in printed publication

Jurisdiction where publication distributed

If forum biased, then no distribution or higher prices in forum

Policy and Empirical Issues

Best rule depends on empirical questions

If bias effects are small, then can focus just on litigation costs

Allow litigation wherever defendant resides?

Allow litigation wherever plaintiff resides?

If litigation cost effects are small, then can focus just on bias

If danger of jurisdictional competition (forum selling) is strong, but danger of interstate bias is low

Then any rule which restricts jurisdictional choice is fine

Or can legislate ad hoc to restrict jurisdictional choice when problems arise

Class Action Fairness Act (2005)

If danger of bias against out-of-state parties is high

Then purposeful availment or expanded/retargeted diversity jurisdiction is optimal

If both litigation cost and bias effects are small

Then deconstitutionalize personal jurisdiction

Like choice of law

Jurisdictional Rules that Constrain Bias II

Car accident

Jurisdiction where accident occurred

If forum biased in favor of locals, then people avoid driving in state?

Suits relating to internet postings (e.g. defamation)

If defendant has ability to block access based on user

’

s location

Then jurisdiction where website accessed (usually plaintiff

’

s residence)

If defendant doesn

’

t want to be sued in forum state, then just blocks access or transaction

Technologically possible?

If defendant does not have ability to block access based on user

’

s location

Then neither plaintiff

’

s state nor defendant

’

s state likely to be unbiased

Jurisdiction in randomly chosen other state or federal jurisdiction

Pure cross-border torts (e.g. pollution)

Both state where action and where damage have incentive to be biased

Jurisdiction in randomly chosen other state or federal jurisdiction

Purposeful Availment

Rules on previous 2 slides are largely consistent with Supreme Court

’

s

“

purposeful availment

”

requirement

Except jurisdiction in randomly selected state other than plaintiff

’

s or defendant

’

s residence

Suggests that purposeful availment may have economic, ex ante justification

Unfair to subject defendant to foreign jurisdiction, unless

“

purposefully availed

”

self of that forum, because if no purposeful availment, then insufficient constraint on court bias.

Could reformulate

“

purposeful availment

”

requirement to maximize constraints on court bias:

State X can assert jurisdiction over an out-of-state defendant based on action Y, if:

Action Y conferred substantial benefit on the residents of state X, and

The defendant could have refrained from action Y without significantly harming itself

1

st

requirement gives state incentive to moderate bias

2

nd

requirement ensures that defendant has credible threat to exit state

If only way mfg can avoid suit in Oklahoma is to stop selling cars anywhere in North America, then threat to withdraw benefits from Oklahoma is hollow. See

World-Wide Volkswagen

(1980)

Choosing Best Jurisdictional Rules

Rules that minimize litigation cost

Suit in defendant

’

s state

Suit in plaintiff

’

s state

But both give states incentives to be biased against out-of-state parties

Rule that improve quality of law

Purposeful availment

But likely to be more expensive

Because sometimes will select state which is neither plaintiff

’

s nor defendant

’

s state

Because more ambiguous, so more expensive to litigate

If think quality of law effects are large and/or litigation costs effects are small

Choose purposeful availment

If think quality of law effects are small and/or litigation cost effects are large

Choose suit in defendant

’

s or plaintiff

’

s state

Other Issues

Random selection rules

Multiparty litigation

International litigation

Diversity jurisdiction

Focus diversity jurisdiction on cases where purposeful

availment

likely to fail

Abolish complete diversity requirement

Concern that high litigation costs will deter potential plaintiffs from suing

Personal jurisdiction of federal courts