Rethinking Personal Jurisdiction Dan Klerman

USC Law School

Faculty WorkshopHarvard Law School

October 28, 2013

5 Goals1. Sketch a possible pragmatic justification for main

features of current personal jurisdiction doctrine2. 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 wrong5. 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• 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

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 (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 IssuesLitigation 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 jurisdiction

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 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 – 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