Bauman v. DaimlerChrysler Corp.

579 F.3d 1088, 2009 U.S. App. LEXIS 19360, 2009 WL 2634795

Opinions

D.W. NELSON, Senior Circuit Judge:

Barbara Bauman and 22 other Argentinian residents filed a lawsuit under the Alien Tort Claims Act against Daimler-Chrysler AG for human rights violations allegedly committed by Mercedes Benz Argentina, its subsidiary, in Argentina during the 1970s military regime. DaimlerChrysler AG filed a successful Rule 12(b)(2) motion, the lawsuit was dismissed for lack of personal jurisdiction, and this appeal ensued. We affirm.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Appellants are 23 Argentinian citizens and residents¹ who allege, inter alia, that they (or their family members) were kidnapped, detained, or tortured by Argentinian state security forces acting at the direction of their former employer, Mercedes Benz Argentina (“MBA”). Appellants allege that during the military regime that governed Argentina from 1976 to 1983, MBA officials maintained close ties with high-ranking members of the military, and utilized these forces to rid its plant of individuals MBA itself viewed as subversive.

In 2004, appellants filed a complaint in the District Court for the Northern District of California against DaimlerChrysler AG (“DCAG”), MBA’s parent company, requesting relief. In April 2005, DCAG filed a Motion to Dismiss for Lack of Personal Jurisdiction in California.

DCAG is a German stock company with its principal seat in Stuttgart, Germany. Mercedes Benz USA, LLC (“MBUSA”) is a Delaware limited liability company with its principal place of business in New Jersey. MBUSA is a wholly-owned subsidiary of the DaimlerChrysler North America Holding Corporation, a holding company, which, in turn, is a subsidiary of DCAG. MBUSA has two offices in California, and it is undisputed that MBUSA is subject to general jurisdiction in the state.

DCAG manufactures Mercedes Benz motor vehicles and related component parts. MBUSA is not involved in the design or production of the vehicles. Rather, MBUSA is responsible for the marketing and distribution of the vehicles in California, in addition to providing service and sales support. DCAG sells its vehicles, manufactured in Germany, to MBUSA in Germany, where title passes.

Between 1952 and 1957, an independent distributor named Max Hoffman was the sole distributor of Mercedes Benz vehicles in the United States. In 1958, Hoffman was replaced by an independent subsidiary of the Studebaker-Packard Corporation. In 1964, that company went out of business, and distribution was subsequently undertaken by the predecessor-in-interest to MBUSA.

According to the Vice-President of DCAG, DCAG could not distribute vehicles in California without revising its business model, employing a considerable number of individuals, making massive investments in new facilities, and incurring significant tax exposure. DCAG also presented evidence that the most profitable Toyota distributor in the United States, Southeast Toyota Distributors, is a wholly independent, nonsubsidiary distributor.

The DCAG-MBUSA relationship is governed by a General Distributor Agreement (“the Agreement”). Under the Agreement, both parties agree upon objectives to be reached by MBUSA prior to each Sales Period. Either company may terminate the Agreement for good cause and with notice to the other party. In the event of termination, all amounts owed by either party would be immediately due, and DCAG would be required to repurchase all vehicles and parts.

DCAG has no control over the product’s ultimate destination within the United States. Until 2001, MBUSA independently decided against buying DCAG G-Class vehicles in California, and those automobiles were therefore sold to an independent and unrelated company.

Upon request by DCAG, MBUSA must provide all information relevant to the financial condition, management, ownership, business practices, and corporate reputation of authorized resellers, as well as copies of all relevant agreements, its comprehensive advertising and marketing plan, and its balance sheets.

MBUSA must also comply with the standards designated by DCAG as binding, although any change requires one year’s notice. Marketing strategy and advertising must be consistent with applicable standards, brand representation, and DCAG directives, standards, and processes.

DCAG may reject proposed appointments of Authorized Resellers, must consent before MBUSA management positions can be combined, and must approve the replacement of key personnel. Furthermore, MBUSA must comply with DCAG instructions to modify or alter any of their agreements with Resellers. Offices, sales, and service facilities must be at approved locations and must comply with DCAG requirements. Finally, DCAG reserves the right to approve or disapprove of the type, design, and size of signage.

On November 22, 2005, the District Court issued an order tentatively granting DCAG’s Motion. The court found that (1) DCAG did not have continuous and systematic contacts via the contacts of MBUSA under agency jurisdiction; and (2) the exercise of jurisdiction would be unreasonable, considering (a) the extent of DCAG’s purposeful interjection, (b) the burden on DCAG, (e) conflicts with the sovereignty of Argentina and Germany, (d) California’s interest in adjudicating the dispute, (e) the availability of alternative fora, (f) efficient judicial resolution, and (g) the need to give convenient and effective relief to the plaintiffs.²

The court’s ruling, however, was tentative and it ordered limited jurisdictional discovery on: (1) whether an agency relationship existed between DCAG and MBUSA, and (2) the ability of the appellants to pursue their claims in Germany or Argentina. In its Supplemental Opposition to the Motion, after discovery, appellants addressed the agency relationship and alternative fora as requested. They also argued that jurisdiction should be conferred upon DCAG because of its contacts with the United States as a whole, pursuant to Fed.R.Civ.P. 4(k)(2), and requested, in the alternative, that the District Court transfer the case to Michigan if it found that it did not have personal jurisdiction over DCAG.

On February 12, 2007, the court concluded that its earlier ruling was correct and granted the motion to dismiss. In its final order, it found that (1) MBUSA was not DCAG’s agent for the purpose of conferring general jurisdiction, and (2) both Germany and Argentina provided an adequate forum for appellants’ claims. The court did not consider the 4(k)(2) and change of venue arguments because both exceeded the scope of its supplemental briefing order. The appellants timely appealed, asserting that the District Court erred in finding that it lacked jurisdiction over DCAG, and alleging various procedural defects in the lower court’s ruling.

JURISDICTION

The parties dispute whether there is subject matter jurisdiction over appellants’ claim pursuant to the Alien Tort Claims Act and the Torture Victims Protection Act. 28 U.S.C. § 1350. The District Court held that it would resolve the question of personal jurisdiction first. This exercise of discretion was proper. See Sinochem Int’l Co. v. Malaysia Int’l Shipping Corp., 549 U.S. 422, 431, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007) (“There is no mandatory sequencing of jurisdictional issues.... [A] federal court has leeway to choose among threshold grounds for denying audience to a case on the merits.”) (internal quotations omitted); see also Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 588, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999).

STANDARD OF REVIEW

This court reviews a dismissal for lack of personal jurisdiction de novo. Butcher’s Union, Local No. 498 v. SDC Inv., Inc., 788 F.2d 535, 538 (9th Cir.1986). The district court’s decision to dismiss or transfer a case pursuant to 28 U.S.C. § 1406(a) is reviewed for abuse of discre tion. See King v. Russell, 963 F.2d 1301, 1304 (9th Cir.1992).

“It is the plaintiffs burden to establish the court’s personal jurisdiction over a defendant.” Doe v. Unocal Corp., 248 F.3d 915, 922 (9th Cir.2001). When, as here, the district court “ ‘reifies] on affidavits and discovery materials without holding an evidentiary hearing, dismissal is appropriate only if the plaintiff has not made a prima facie showing of personal jurisdiction.’ ” See Am. Tel. & Tel. Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 588 (9th Cir.1996) (quoting Fields v. Sedgwick Assoc. Risks, Ltd., 796 F.2d 299, 301(9th Cir.1986)). “[Conflicts between the facts contained in the parties’ affidavits must be resolved in ... [plaintiffs] favor.” Id. (internal quotations omitted).

DISCUSSION

“Personal jurisdiction over a nonresident defendant is tested by a two-part analysis.” Chan v. Soc’y Expeditions, Inc., 39 F.3d 1398, 1404 (9th Cir.1994). “First, the exercise of jurisdiction must satisfy the requirements of the applicable state long-arm statute.” Id. “Second, the exercise of jurisdiction must comport with federal due process.” Id. at 1404-05. “[B]ecause California’s long arm statute is coextensive with the limits of due process, the court need only consider the requirements of due process.” Synopsys, Inc. v. Ricoh Co., 343 F.Supp.2d 883, 886 (N.D.Cal.2003).

Due process requires that a nonresident defendant have certain minimum contacts with the forum state so that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. Int’l Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). Where the claim does not arise out of a defendant’s contacts with the forum, there is no specific jurisdiction. However, “[i]f the defendant’s activities in the forum are substantial, continuous and systematic, general jurisdiction is available.” Unocal, 248 F.3d at 923. “In addition to establishing the requisite contacts, the assertion of jurisdiction must be found reasonable.” In re Phenylpropanolamine Prods. Liab. Litig., 344 F.Supp.2d 686, 690(W.D.Wash.2003).

A. AGENCY JURISDICTION

Appellants argue that the continuous and systematic contacts of MBUSA, a subsidiary, should be attributed to DCAG, its parent, because MBUSA was its agent for purposes of personal jurisdiction.

“The existence of a relationship between a parent company and its subsidiaries[, however,] is not sufficient to establish personal jurisdiction over the parent on the basis of the subsidiaries’ minimum contacts with the forum.” Unocal, 248 F.3d at 925. “[A] parent corporation may be directly involved in the activities of its subsidiaries without incurring liability so long as that involvement is consistent with the parent’s investor status.” Id. at 926 (internal quotations omitted).

1. AGENCY DOCTRINE

In Unocal, we described our agency doctrine, by which the contacts of a subsidiary may be imputed to the parent. Id. at 928-31. “To satisfy the agency test, the plaintiff must make a prima facie showing that the subsidiary represents the parent corporation by performing services ‘sufficiently important to the [parent] corporation that if it did not have a representative to perform them, the [parent] ... would undertake to perform substantially similar services.’ ” Harris Rutsky & Co. Ins. Servs., Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1135 (9th Cir.2003) (quoting Chan, 39 F.3d at 1405). The “test permits the imputation of contacts where the subsidiary was ‘either established for, or is engaged in, activities that, but for the existence of the subsidiary, the parent would have to undertake itself.’ ” Id. (internal quotations omitted).

The Unocal “court distinguished an agency relationship between a parent and its subsidiary from that of a holding company and its subsidiary, explaining that in the case of a holding company the parent could simply hold another type of subsidiary.” 248 F.3d at 929 (citing Gallagher v. Mazda Motor of Am., Inc., 781 F.Supp. 1079, 1085 (E.D.Pa.1992)) (emphasis added). If “the business of the parent is the business of investment,” then the subsidiaries do not conduct business as agents. Id. (internal citations omitted). “Where, on the other hand, the subsidiaries are created by the parent, for tax or corporate finance purposes, there is no basis for distinguishing between the business of the parent and the business of the subsidiaries.” Id. “The doctrine supports the exercise of jurisdiction when the local subsidiary performs a function that is compatible with, and assists the parent in the pursuit of, the parent’s own business.” Sonora, 83 Cal.App.4th at 543, 99 Cal.Rptr.2d 824.

To that end, “[appropriate parental involvement includes: monitoring of the subsidiary’s performance, supervision of the subsidiary’s finance and capital budget decisions, and articulation of general policies and procedures.” Unocal, 248 F.3d at 926 (internal quotations omitted). “[I]t is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability.” Id. Similarly, consolidated reports are not dispositive. Id. at 929.

& THE ISSUE OF CONTROL

Although appellants later conceded that pervasive control is also necessary to confer agency jurisdiction, the parties initially disputed this issue. This court’s decision in Unocal, read in isolation, has given rise to some confusion. The beginning of the opinion refers to the need for control. See, e.g., id. at 926 (“An alter ego or agency relationship is typified by parental control of the subsidiary’s internal affairs or daily operations.”) (emphasis added). The opinion, however, did not discuss control further. See id. In Modesto City Sch. v. Riso Kagaku Corp., the District Court for the Eastern District of California found that control was not required by Unocal. 157 F.Supp.2d 1128, 1133 (E.D.Cal.2001) (“Read in isolation, certain phrases suggest that such may be the case; however, read in context and in relation to other Ninth Circuit decisions, the court finds that day-to-day control is not an element of the general agency test in the Ninth Circuit.”). Other district courts, citing Modesto, have followed suit. See, e.g., In re W. States Wholesale Natural Gas Litig., 605 F.Supp.2d 1118, 1134-38 (D.Nev.2009); Synopsys, 343 F.Supp.2d at 887; see also Phenylpropanolamine, 344 F.Supp.2d at 694 (recognizing the conflict between Unocal and Modesto).

We write to clarify our law in the area of agency jurisdiction because the Modesto court misinterpreted Unocal. A determination of agency jurisdiction requires a two-step analysis. First, the parent must exert control that is so pervasive and continual that the subsidiary may be considered an agent or instrumentality of the parent, notwithstanding the maintenance of corporate formalities. Control must be over and above that to be expected as an incident of ownership. Second, the agent-subsidiary must also be sufficiently important to the parent corporation that if it did not have a representative, the parent corporation would undertake to perform substantially similar services. See Rutsky, 328 F.3d at 1135.

As an initial matter, a review of our cases reveals that control has always been relevant to an agency determination. See Wells Fargo & Co. v. Wells Fargo Express Co., 556 F.2d 406, 419 (9th Cir.1977) (“[Establishment of the requisite ‘agency’ control may be even easier when a parent-subsidiary relationship is involved.”) (emphasis added); Kramer Motors, Inc. v. British Leyland, Ltd., 628 F.2d 1175, 1177(9th Cir.1980) (“These facts are insufficient to make ... [the parent] an ‘alter ego’ or ‘agent’ ... [because] [n]one of the ... companies controls the internal affairs ... or determines how it operates on a daily basis.”) (emphasis added); Rutsky, 328 F.3d at 1135(“Such activity might well be properly characterized as inconsistent with the parent corporation’s investor status, and more like control over day-to-day activities.”) (emphasis added). Thus, before Unocal and consistent with it, this court had already indicated that a high degree of control is necessary to confer agency jurisdiction.

Secondly, under common law principles, control is the sine qua non of agency. See Restatement (Third) of Agency § 1.01 cmt. c (2006) (“A relationship is not one of agency within the common-law definition unless ... the principal has the right ... to control the agent’s acts.”).

Finally, other circuits considering the issue have held that the right to control is of consequence to agency jurisdiction, although the cases vary as to what precise role it plays. See, e.g., Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 788 (7th Cir.2003) (Plaintiff “has not demonstrated that ... [defendant] exerts an unusually high degree of control.”); Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d Cir.1998) (control as one of several factors); Hargrave v. Fibreboard Corp., 710 F.2d 1154, 1160 (5th Cir.1983) (conflating agency and alter ego jurisdiction but requiring control for both).

3. APPLICATION TO DCAG

We now turn to the facts of this ease. In determining whether or not DCAG exerts control that is so pervasive and continual that MBUSA may be considered an agent of DCAG, it is necessary to turn to the terms of the Agreement. The requirements that MBUSA provide detailed information and comply with general marketing standards are consistent with the “monitoring” and “articulation of general policies” permitted under our law. See Unocal, 248 F.3d at 926. Furthermore, although DCAG articulates some specific policies for MBUSA, the Agreement was terminable, MBUSA goals are negotiated by both parties, and title to the cars passes in Germany. DCAG has no control over the product’s ultimate destination within the United States, and the evidence shows that MBUSA had the power to independently decide against buying DCAG G-Class vehicles in California. This is not pervasive and continual control.

Even if DCAG did exert- pervasive control, appellants have also failed to make a prima facie showing that DCAG would undertake to perform substantially similar services in the absence of MBUSA. It is true that the question is close. Although DCAG points to the costs of distribution and the accompanying tax exposure, “[w]here ... subsidiaries are created by the parent[] for tax or corporate finance purposes, there is no basis for distinguishing between the business of the parent and the business of the subsidaries.” Id. at 929. DCAG does not appear to own MBUSA solely as an investment; rather, MBUSA markets and sells cars produced by DCAG, thus “perform[ing] a function that is compatible with, and assists ... [DCAG] in the pursuit of ... [its] own business.” See Sonora, 83 Cal.App.4th at 543, 99 Cal.Rptr.2d 824. The evidence that DCAG has previously used indepen dent distributors, however, along with Toyota’s successful use of autonomous distributors, militates against a finding that without MBUSA, DCAG would personally market and distribute vehicles in California.

Because there is insufficient control and because MBUSA does not serve as DCAG’s representative, the contacts of MBUSA cannot be imputed to DCAG.

B. REASONABLENESS OF JURISDICTION

“In addition to establishing the requisite contacts, the assertion of jurisdiction must be found reasonable.” Phenylpropanolamine, 344 F.Supp.2d at 690. Because we find that DCAG did not have continuous and systematic contacts sufficient to confer general jurisdiction, we need not reach the question of reasonableness. We also need not reach DCAG’s request that some of the evidence bearing on reasonableness be disregarded.

C. PROCEDURAL ISSUES

1. IMPROPER CONVERSION OF DCAG’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION INTO A MOTION TO DISMISS BASED ON FORUM NON CONVE-NIENS

Appellants assert that the District Court improperly converted the defendant’s motion to dismiss for lack of personal jurisdiction into a de facto dismissal on forum non conveniens grounds because its final order discussed only the adequacy of alternative fora.

Appellants mischaracterize the underlying record. Although the final order' only discussed the agency relationship and the alternative fora, the District Court considered the other reasonableness factors in its earlier tentative ruling. Because “[a]n appeal from a final judgment draws in question all earlier, non-final orders and rulings which produced the judgment,” Litchfield v. Spielberg, 736 F.2d 1352, 1355(9th Cir.1984), the District Court did not convert DCAG’s motion into a de facto forum non conveniens motion.

2. REFUSAL TO CONSIDER APPELLANTS’ ARGUMENT FOR A FINDING OF PERSONAL JURISDICTION PURSUANT TO FED. R. CIV. P. 400(2) OR ITS REQUEST FOR TRANSFER TO MICHIGAN

The District Court did not address either appellants’ assertion that the court had jurisdiction over DCAG pursuant to Fed.R.Civ.P. 4(k)(2), or their request for transfer, because both exceeded the scope of the supplemental briefing order.

According to the Local Court Rules for the Northern District of California, “once a reply is filed, no additional memoranda, papers or letters may be filed without prior Court approval.” N.D. Cal. Civ. R. 7 — 3(d); see also Spacey v. Burgar, 207 F.Supp.2d 1037, 1053-54 (C.D.Cal.2001) (denying plaintiffs motion to reconsider due to newly presented evidence of 4(k)(2) jurisdiction “because ... [plaintiff] made a deliberate choice not to include the argument in his initial opposition to Defendant’s Motion”).

Furthermore, if a party first raises an issue “in a motion which the district court refused to consider because it was untimely and in contravention of local rules,” and does not appeal the district court’s procedural ruling, the issue is waived. Palmer v. IRS, 116 F.3d 1309, 1312-13(9th Cir.1997) (emphasis added).

When the District Court issued its tentative ruling in favor of DCAG, it requested supplemental briefing solely on the agency relationship and the adequacy of alternative fora. The 4(k)(2) argument and request for transfer were, therefore, in contravention of the local rules. See N.D. Cal. Civ. R. 7 — 3(d). Regardless, because appellants repeated their substantive argument rather than address the procedural ruling in their brief, this argument is waived. See Palmer, 116 F.3d at 1312-13.

CONCLUSION

For the foregoing reasons, we find that the District Court did not have personal jurisdiction over DCAG. We therefore AFFIRM the District Court’s order.

AFFIRMED.

Footnotes

1

. One appellant is a citizen of Chile, although he also resides in Argentina.

2

. The court also found that DCAG did not, in and of itself, have "continuous and systematic” contacts with California sufficient to confer general jurisdiction. This finding was not appealed.