Rethinking Personal Jurisdiction

1. Rethinking Personal Jurisdiction Dan Klerman USC Law School Faculty Workshop Harvard Law School October 28, 2013

2. 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

3. “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 • So 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

4. Two Effects of Jurisdictional Rules • Litigation costs • Bias

5. 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

6. Two Kinds of Bias • Pro-plaintiff bias / forum selling • Pro-resident bias

7. 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)

8. 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

9. 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

10. 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 • 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)

12. Best Rule Depends on Empirical Issues

13. 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

14. 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)

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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)

23. 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

24. 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