Rethinking Personal Jurisdiction
Dan Klerman
USC Law School
Faculty Workshop
Harvard Law School
October 28, 2013
5 Goals
1. Sketch a possible pragmatic justification for main
features of current personal jurisdiction doctrine
2. Show how that pragmatic justification helps
resolve difficult or open jurisdictional issues
3. Explore empirical assumptions underlying that
pragmatic justification
4. Show how doctrine would change if empirical
assumptions were wrong
5. 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
1. Judges kept court fees
• So had incentive to hear more cases
2. 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
1. Litigation costs
2. Bias
Litigation Costs
• Jurisdiction primarily affects distribution of costs
– Not 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
1. Pro-plaintiff bias / forum selling
2. Pro-resident bias
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
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
1. Eliminate complete diversity rule
• But would require expansion of federal judiciary
2. Focus 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
Pro-resident Bias
(forum selling)
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 costs
Pro-plaintiff bias
Pro-resident bias
Best rule
✔
✔
✔
Plaintiff’s residence
or
defendant’s HQ
✔
✔
✔
✔
✔
✔
✔
✔
✔
Purposeful availment
or
expanded/retargeted
diversity jurisdiction
No constitutional
constraints on
Empirical Strategies
• Litigation costs
– NY retainer / contingent fee data
– General counsel data
• Bias
– Pro-plaintiff 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
• 1st requirement gives state incentive to moderate bias
• 2nd 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 WorldWide 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 outof-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
– 1st requirement gives state incentive to moderate bias
– 2nd 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