The case against vicarious jurisdiction.

• Jurisdiction: United States
• Date: 01 January 2004
• Author: Hoffman, Lonny Sheinkopf
• Published date: 01 January 2004
• Author: Hoffman, Lonny Sheinkopf

INTRODUCTION

The law of adjudicatory jurisdiction, or personal jurisdiction as it is more commonly called, concerns a court's power to render judgments enforceable in the forum and by other sovereign states. For U.S. courts, both state and federal, judicial jurisdiction is as essential to institutional existence as oxygen is to human beings. Without it, courts are unable to render binding judgments; without it, they are paper tigers.

Measuring the breadth of judicial power under modern jurisdictional doctrine is not a formulaic undertaking, to be sure, but most of the time all that is required is to take into account the acts or omissions of a single defendant in relation to the forum. That is, we frequently need look no further than to see whether the defendant's own conduct makes her amenable to suit. If I travel to collect a debt from one who has taken up residency in a distant state and, in the collection process, inflict physical injury on the debtor, there is little question that I must be prepared to defend myself in that forum against a civil suit, under penalty of default if I do not appear. Even when a defendant does not personally commit any acts in or directed at the forum, modern statutes and constitutional doctrine render the absent actor amenable to suit. Following the procedural revolution of International Shoe Co. v. Washington, (1) defendants are no longer able to evade the jurisdictional grasp of a court merely by taking the expedient step of retreating from the forum before being served or, for that matter, not setting foot within the state at all but instead acting from a safe distance. Thus, I cannot avoid being subject to suit by hiring someone else and instructing her to use all means necessary to collect the debt in the forum state on my behalf. Upon a close examination of modern jurisdictional doctrine, we may discover two different rationales to explain why the exercise of jurisdiction would be upheld.

Jurisdiction may be predicated on the actions I personally took in hiring someone to find and arrest the debtor in the forum state. For jurisdictional purposes, my actions have both statutory and constitutional relevance. These were purposeful acts that were directed to cause injury in the forum. (2) I personally retained someone to act on my behalf and either knew or should have known that if kneecaps were broken the injury would be felt (painfully) by the debtor in the forum. The Supreme Court has recognized that in these circumstances the forum state may exercise jurisdiction without violating due process. (3)

In the situation in which one hires someone else to collect a debt, the first explanation for the exercise of state court power over her is similar to the rationale that justifies jurisdictional amenability when she personally travels to the forum: in both instances, jurisdiction is triggered by her own actions. While we may conceive of jurisdiction as based on the personal conduct of the named defendant, a second, alternative rationale may justify the exercise of judicial jurisdiction by the forum court over a nonresident. Unlike the prior basis, which focuses exclusively on what one personally did in the forum or on what actions she personally took outside of the forum that she knew or should have known would cause injury within the state, it is also possible to base the exercise of state court power on the attribution of her agent's forum contacts to her. Under this second formulation, jurisdiction may be understood as triggered not by one's own contacts with the forum, but by the jurisdictionally sufficient contacts or forum nexus of another. Of course, to make this jurisdictional leap, a valid basis is needed for treating another person or entity's jurisdictionally sufficient contacts as though they were the defendant's. That is, there must be some substantive legal rule that permits the court to disregard a juridical entity's otherwise separate legal existence.

In the example above, agency law may be called upon to justify the imputation of contacts. When one, a principal, hires and instructs another, an agent, to act on her behalf by traveling to the forum to collect a debt, she creates an agency relationship between them. (4) When the agent carries out the job, she is acting within the course and scope of her agency; that is, she is acting as the principal intended her to act. If the principal is liable for any injuries the agent causes in the forum as a matter of substantive law, then it may be argued correspondingly that, as an a priori matter, under modern jurisdictional doctrine the principal is amenable to any suit in the forum state arising out of those injuries.

There is nothing especially remarkable about this second explanation for why the forum court would be able to exercise jurisdiction over the principal for having instructed an agent to collect the debt on her behalf. The attribution of contacts of one person or entity to another for jurisdictional purposes is a frequently seen and often invoked form of traditional jurisdictional argument. Indeed, this rationale is necessary for engaging in jurisdictional analysis for any case involving nonnatural entities, such as corporations, which cannot act except through others. In International Shoe, which rejected the old "presence" theory of jurisdiction, Justice Harlan Stone noted, in one of the most important passages of the opinion, that to ask whether the corporation is present in the forum so as to satisfy due process "is to beg the question to be decided." (5) Corporate presence, he observed, "can be manifested only by activities carried on in its behalf by those who are authorized to act for it." (6) We measure jurisdiction over a corporation by the extent and kind of activities "of the corporation's agent within the state which courts will deem to be sufficient to satisfy the demands of due process." (7) Justice Felix Frankfurter made a similar point three years later in his concurring opinion in United States v. Scophony Corp. of America. (8) In upholding service of process and the exercise of jurisdiction over a foreign corporate parent based on in-state service on its domestic affiliate, he wrote: "What was done in the Southern District of New York on behalf of [the parent] ... establishes that the corporation was there transacting business and was found there in the only sense in which a corporation ever 'transacts business' or is 'found.'" (9)

Even though the use of vicarious jurisdiction for nonnatural entities is a recognized and unremarkable application of jurisdiction, the incorporation of substantive law into the measure of adjudicatory jurisdiction can be problematic. While reliance on such law may be useful to identify forum contacts, agency law, and other similar substantive law doctrines--such as respondeat superior, civil and criminal conspiracy, and especially, the corporate law doctrine of veil piercing--it may be misused in a manner that produces jurisdictional determinations that are neither sound nor necessary. The line between reasoned analysis and rudderless doctrine is difficult to identify and easy to cross. Veil piercing and agency theory are the areas of substantive law most frequently invoked to justify the exercise of vicarious jurisdiction. As a result, this Article concentrates on the intersection of these two doctrines of substantive law with the law of judicial jurisdiction. (10)

To better understand how the substantive law of veil piercing is used to measure judicial jurisdiction, consider a common fact pattern one encounters in case law. A lawsuit is brought against a company that is chartered and headquartered outside of the forum state and is not subject to that forum's jurisdiction based on its own contacts. If the named defendant is the corporate parent of a wholly owned subsidiary that is amenable to suit in the forum, the plaintiff might borrow from the substantive corporate law of veil piercing to assert that the two corporations should be regarded as one and the same for jurisdictional purposes. The veil-piercing doctrine typically provides that a subsidiary corporation and its otherwise separate owner (whether a natural person or a corporate affiliate) will be treated as one if the corporate form has been "misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf" (11) or where the corporate form has been "used as a mere agency or instrumentality of the owning company." (12) If the two corporations are treated as one for substantive liability purposes, the plaintiff would argue that the forum contacts of the subsidiary may be imputed to the parent so as to bring it within the forum court's reach.

As we shall see, the use of veil-piercing law for jurisdictional purposes occurs frequently in our modern case law, yet its origins may be traced to a convergence of paths that occurred more than three quarters of a century ago. At issue in Cannon Manufacturing Co. v. Cudahy Packing Co. (13) was the reach of the territorial jurisdiction of the United States District Court for the Western District of North Carolina over a Maine corporation whose principal place of business was in Illinois. (14) The plaintiff argued that the activities of its wholly owned affiliate in North Carolina were sufficient to bring the nonresident parent within the court's jurisdictional ambit. (15) The plaintiff maintained that attributing the presence of the subsidiary to the out-of-state parent was appropriate for jurisdictional purposes because the two corporations, as a matter of substantive corporate law, should be regarded as one and the same. (16)

In many respects, Cannon reads very much like a decision from a bygone age. At that time, the law regarding the limited liability protections of the corporate form was inchoate and uncertain. Moreover, when Cannon was decided the jurisdictional rules were premised on a theory of state court...