KF&C California Law Blog

March 13, 2023 | Business Litigation

California Appellate Court Warns “Real Limits” to Specific Jurisdiction Over Out-of-State Defendants in California

Personal jurisdiction continues to be a surprisingly evolving area of procedural law despite the U.S. Supreme Court having first addressed it more than three quarters of a century ago in Int’l Shoe Co. v. State of Washington. 326 U.S. 310 (1945). The modern evolution of the concept has continued with important U.S. Supreme Court decisions like Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011), in 2011, Daimler AG v. Bauman, 571 U.S. 117 (2014), in 2014 and, more recently, BNSF Ry. Co. v. Tyrrell, 581 U.S. 402 (2017), in 2017. And, as more cases apply these SCOTUS decisions at the state and federal trial-court level each year, the nuances grow in California and elsewhere.

A recent California appellate court decision, Preciado v. Freightliner Custom Chassis (2023) 304 Cal.Rptr. 209, does just this by refining the legal standards and burden of proof necessary for California courts to exercise personal jurisdiction over out-of-state defendants.

In Preciado, survivors of a bus accident in San Diego, California sued Freightliner Custom Chassis Corporation (“Freightliner”) and others based on various theories of product liability. Defendant Freightliner, a Delaware corporation with its principal place of business in South Carolina, manufactured the bus’ chassis. It moved to quash service of summons (the California procedural mechanism for challenging jurisdiction akin to Fed. R. Civ. P. 12(b)(2) based on lack of personal jurisdiction). The trial court granted Freightliner’s motion, finding the California court lacked personal jurisdiction. The plaintiffs appealed.

On January 24, 2023, California’s Court of Appeal for the Fourth Appellate District issued a comprehensive opinion affirming the trial court’s jurisdictional ruling.

General Framework for Personal Jurisdiction

As explained in Preciado, courts recognize two types of personal jurisdiction: general jurisdiction and specific jurisdiction. Preciado, 304 Cal.Rptr. at 219 (quoting Ford Motor Co. v. Montana Eighth Judicial Dist. Court (2021) 141 S.Ct. 1017, 1024).

A court can exercise general jurisdiction to adjudicate all claims against a defendant, no matter where the claims arise, “only when a defendant is ‘essentially at home’ in the State.” Id. (cleaned up); see also Daimler, 571 U.S. 117. Typically, an individual will be subject to general jurisdiction in his or her place of domicile, whereas a corporation will be subject to general jurisdiction only in “its place of incorporation and principal place of business.” Preciado, 304 Cal.Rptr. at 220 (cleaned up); see also Daimler, 571 U.S. 117. “[I]n an exceptional case, a corporation’s operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State,” id. at 220 (quoting Daimler, 571 U.S. at 139, fn. 19), but that circumstance, in our experience in California and elsewhere is exceedingly rare today, if not unheard of.

By contrast, the more nuanced and common question of specific jurisdiction “covers defendants less intimately connected with a State, [and] only as to a narrower class of claims.” Id. (cleaned up). For specific jurisdiction to exist, plaintiffs must establish that: (1) “the defendant has purposefully directed his activities at residents of the forum”; and (2) unlike general jurisdiction, “the litigation results from alleged injuries that ‘arise out of or relate to’ those activities.” Id. at 221 (quoting Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 472-73). Preciado principally sheds additional light on California courts’ ability to exercise specific personal jurisdiction over out of state defendants.

Lack of Personal Jurisdiction in Preciado

The plaintiffs in Preciado alleged, as many plaintiffs do, that the court had both general and specific jurisdiction. The Court of Appeal made short work, as many courts do, of plaintiffs’ general jurisdiction argument, reasoning as follows:

Here, the undisputed facts are that [Freightliner] is a Delaware corporation, and its principal place of business is in South Carolina. It does not have any offices or facilities in California. Plaintiffs have submitted website printouts suggesting that some of [Freightliner]’s products are sold and serviced in California (through independent dealers), but those types of contacts do not establish that [Freightliner] is “at home” in California. As the Supreme Court has made clear, general jurisdiction requires more than a showing that “a corporation ‘engages in a substantial, continuous, and systematic course of business’” in a state. (Daimler AG, supra, 571 U.S. at pp. 137-138.) Instead, the state must hold the particular position of being the location where the corporation is “at home.” (Id. at p. 139, fn. 20 [“A corporation that operates in many places can scarcely be deemed at home in all of them.”].)

Id. at 220.

The Court of Appeal then rejected plaintiffs’ specific jurisdiction arguments as well. The court held plaintiffs were required to establish both that Freightliner “purposefully availed itself of the privilege of conducting activities within California” and that their claims against Freightliner “arise out of or relate to [Freightliner]’s contacts with” California. Id. at 221-23.

As for the “purposeful availment” prong, the Preciado court explained that “a nonresident manufacturer purposefully avails itself of the benefits of California [or purposefully directs itself to California residents] when it takes actions designed to consummate a business arrangement in which it would profit financially by selling its product for use in California, and both knows and intends that its product will enter California and be used in this state.” Id. at 221 (cleaned up). While the appellate court noted that the “sparse evidence provided by Plaintiffs” (i.e. two website printouts) made it difficult to “analyze whether [Freightliner] has, indeed, purposefully availed itself of the privilege of doing business in California,” it assumed, for the sake of argument, “that Plaintiffs have established that [Freightliner], at least to some extent, sells and provides service for its chassis in California, and that the purposeful availment prong of the specific jurisdiction analysis has therefore been met.” Id. at 222.

However, the court was less forgiving on the second prong of the specific jurisdiction analysis: whether the claims “arise out of or relate to” [Freightliner]’s contacts with California. The “first half of that standard asks about causation; but the back half, after the ‘or,’ contemplates that some relationships will support jurisdiction without a causal showing.” Id. at 223 (citing Ford Motor, 141 S.Ct. at 1026). The court warned, however, “[t]hat does not mean anything goes”: “the phrase ‘relate to’ incorporates real limits, as it must to adequately protect defendants foreign to a forum.” Id.

With these principles in mind, the Court of Appeal found that plaintiffs failed to establish that their claims “arise out of or relate to” Freightliner’s California contacts:

Here, Plaintiffs’ sparse evidentiary submission in opposition to [Freightliner]’s motion to quash did not establish the type of facts that Ford Motor relied upon to conclude that the plaintiffs’ claims arose out of or were related to the defendant’s contacts with the forum states. In Ford Motor, an important factor was that “Ford had systematically served a market in [the forum states] for the very vehicles that the plaintiffs allege malfunctioned and injured them in those States.” (Ford Motor, supra, 141 S.Ct. at p. 1028, italics added.) Specifically, the cars that caused the injuries alleged by plaintiffs were an Explorer and a Crown Victoria. The evidence showed that Ford “advertised, sold, and serviced those two car models in both [forum] States for many years.” (Ibid., italics added.) In contrast, the website printouts provided by Plaintiffs do not establish that [Freightliner] has ever advertised, sold, or serviced the model of chassis at issue in this lawsuit in California. At most, the printouts from the website of Velocity Truck Centers suggests that two models of [Freightliner]’s chassis are sold in California (the “Freightliner Custom Chassis MT” and the “Freightliner Custom Chassis MT50e”), but not the “2014 Freightliner S2 chassis” at issue in this case. Moreover, there is no evidence that authorized service centers in California have serviced the model of chassis involved in this lawsuit.

Id. at 224-25.

Practice Tips

Preciado appears to heighten the bar for hailing out-of-state defendants into California courts under the specific jurisdiction test. After this decision, simply coming forward with evidence to show some business activity in California would not be sufficient to establish the defendant “purposefully availed” itself of the privilege of conducting activities within California; rather, Plaintiffs must develop at an early stage of the litigation facts about the nature and extent of sales, advertising efforts, contracts, and other relevant contacts with the state that relate directly to the plaintiff’s claims to carry their burden. See id. at 222.

Preciado also highlights the distinction between casual and non-causal connections to California under the state’s “arise out of or relate to” standard. For example, in the products liability context, plaintiffs may need to establish that the specific product that caused the harm (or a substantially identical one) were manufactured in California, that the defendant caused the product to be sold in or otherwise enter California, or that the defendant serviced the product in California. See id. at 226. The fact that products merely make their way to and cause harm in California may not be enough and, in fact, were not enough in Preciado.

The decision underscores that the existence of personal jurisdiction in California is a case-specific inquiry that depends on jurisdictional facts, rather than mere allegations. But Preciado has added nuance to the analysis that all out-of-state defendants should consider when facing litigation in California.

* * * * *

Kibler Fowler & Cave has successfully litigated jurisdictional issues in California courts on behalf of several out-of-state defendants. For example, in Carlson, et al. v. NW Congress Center Owner, et al. (Orange County Superior Court Case No. 30-2018-00982195-CU-MC-CXC), the Firm represented an out-of-state portfolio company of a private equity client in a dispute arising out a real estate investment trust with property in Chicago. KF&C moved to quash for lack of personal jurisdiction on the grounds that the portfolio company was a Delaware limited liability company with its principal place of business in New York, and that none of the conduct at issue in the complaint “arose out of or related to” the company’s contacts in California. The trial court agreed that neither general nor personal jurisdiction existed, and quashed service of summons on our client, dismissing it because plaintiff failed to establish either general or specific jurisdiction in California. In other cases, the Firm’s initial jurisdictional challenges resulted in early stipulated dismissals of claims even prior to the trial court’s decision.

Given our experience in this constantly evolving field, KF&C is well situated to defend companies and individuals “foreign” to the State of California. If you have questions or comments on the content of this post, please email Michael Kibler at [email protected]fc.law, Kevin Cammiso at [email protected], or Zien Halwani at [email protected].

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Michael D. Kibler

Managing Partner

(310) 409-0400

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Kevin J. Cammiso

Senior Associate

(310) 409-0476

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Zien Halwani

Associate

(917) 909-6479

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