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Logo Icon BUSINESS LITIGATION: California Can Haul Out of State Businesses Into Court With Minimal Contacts

Corporations and companies have something new to worry about when they conduct any business in California. Due to the decision handed down in Bristol-Myers Squibb Company v. The Superior Court of San Francisco County, 2016 WL 4506107, any company that conducts business in California is subject to the specific jurisdiction of a California court, even if sued by a non-resident of California. As the amount of business Bristol-Myers Squibb (BMS) conducted in California in this case was minimal, the effects of the California Supreme Court's decision are concerning for any company currently conducting business or wishing to expand their business into California.

There is legitimate reason for that concern, as California's Supreme Court has expanded the boundaries of jurisdiction set by the US Supreme Court in International Shoe and Daimler. Under Daimler AG v. Bauman (2014) 571 U.S. ___, personal jurisdiction required a corporation to be "at home" in that state, meaning it is incorporated or has its principal place of business within that state's borders. Further, International Shoe Co. v. Washington (1945) 326 U.S. 310 provided that a non-resident corporation may be subject to specific jurisdiction if it has "minimum contacts" in that state, meaning: 1) it purposefully directed its activities at the forum state; 2) the plaintiffs' claims arise out of/are related to the forum directed activities; and 3) jurisdiction over the non-resident corporation does not offend "traditional notions of fair play and substantial justice."

In Bristol-Myers however, the California Supreme Court stretched International Shoe and specific jurisdiction to its limits. 678 plaintiffs sued BMS for its product, Plavix, 592 of which were not residents of California who purchased the drug outside of California. In BMS' motion to quash service by the non-resident plaintiffs, the evidence showed that BMS was incorporated in Delaware, had its headquarters in New York City, and had substantial operations in New Jersey. Moreover, of BMS' 6500 employees, California housed only 164 people in research and development and 250 sales representatives, and absolutely no research and development of Plavix took place within California.

Despite this evidence, the California Supreme Court found that specific jurisdiction applied to BMS. The Court adopted Plaintiffs' position, and held that BMS engaged in a nationwide effort to market, promote, and ultimately distribute its products, including California. The Court noted that BMS failed to show that it would be unreasonable to require it to litigate in California, as it offered no evidence comparing the cost of litigating in California as opposed to other forums. Ultimately, the Court held that the fact that the resident and non-resident plaintiffs' claims were based on the same product and were marketed nationwide were sufficient to create minimum contacts between BMS and California.

This new development considerably changes the business landscape for any corporation or company looking to do business in California. Resident and non-resident Plaintiffs can use the ruling in Bristol-Myers to sue non-resident companies in California, a traditionally pro-plaintiff forum. Companies that wish to grow nationally through marketing and distribution are subjected to a quid-pro-quo, availing themselves to jurisdiction in California despite how little business they actually conduct in the state. Corporations and their counsel should prepare to face this new decision by gathering evidence to show how unreasonable it would be to force them to litigate in California due to additional litigation costs, as opposed to litigating in the forum states of non-resident plaintiffs. In addition, corporate counsel may benefit from echoing the dissent's concerns regarding multiplicity of litigation and multiple class actions in different states.

The California Supreme Court has added another risk factor for corporations to consider when expanding their business nationally. The split decision of 4-3 in Bristol-Myers in favor of exercising jurisdiction over BMS should raise the awareness of companies doing business in California of possibility of being subject to California jurisdiction in court. However, corporations should not throw out the old International Shoe, and should keep the concepts of fairness and substantial justice in mind when opposing jurisdiction in California.

If you have any questions or concerns about the effects of this change on your business, contact our experienced attorneys at Poole & Shaffery, LLC.