Beginning in February 2003, several independent class action suits were filed in California state court against various car manufacturers, dealers, and trade associations on behalf of consumers who purchased new vehicles in California that were manufactured or distributed by one of the defendants. These suits alleged that the defendants violated California’s antitrust and unfair business practices laws by conspiring to prevent Canadian distributors from exporting cars to California in order to maintain a higher price for those cars in California. In July 2003, California’s Judicial Case Coordination Panel consolidated these suits. Honda Motors Co., Ltd. of Japan (“Honda”), Volkswagen AG of Germany (“Volkswagen”), Nissan Motor Ltd. of Japan (“Nissan”), and the Canadian Automobile Dealers’ Association (“CADA”), all non-U.S. entities, were among the defendants in this action. Each of these parties, all of whom were served in their respective home countries, made a special appearance in California court in order to move to quash service of summons for lack of personal jurisdiction. In December 2004, the trial court concluded that it did indeed lack personal jurisdiction over these foreign defendants. In In re Automobile Antitrust Cases I and II, 135 Cal. App. 4th (2005), handed down on December 22nd, California’s First Appellate District upheld this ruling on appeal.

Beginning in February 2003, several independent class action suits were filed in California state court against various car manufacturers, dealers, and trade associations on behalf of consumers who purchased new vehicles in California that were manufactured or distributed by one of the defendants. These suits alleged that the defendants violated California’s antitrust and unfair business practices laws by conspiring to prevent Canadian distributors from exporting cars to California in order to maintain a higher price for those cars in California. In July 2003, California’s Judicial Case Coordination Panel consolidated these suits. Honda Motors Co., Ltd. of Japan (“Honda”), Volkswagen AG of Germany (“Volkswagen”), Nissan Motor Ltd. of Japan (“Nissan”), and the Canadian Automobile Dealers’ Association (“CADA”), all non-U.S. entities, were among the defendants in this action. Each of these parties, all of whom were served in their respective home countries, made a special appearance in California court in order to move to quash service of summons for lack of personal jurisdiction. In December 2004, the trial court concluded that it did indeed lack personal jurisdiction over these foreign defendants. In In re Automobile Antitrust Cases I and II, 135 Cal. App. 4th (2005), handed down on December 22nd, California’s First Appellate District upheld this ruling on appeal.

California’s long-arm statute permits California courts to exercise jurisdiction to the fullest extent allowed by the state and federal Constitutions. As explained in Internat. Shoe Co. v. Washington, 326 U.S. 310 (1945), and its progeny, an exercise of jurisdiction by a state court complies with the due process standard of the federal Constitution if the defendant had such minimum contacts with the state that the assertion of jurisdiction does not violate traditional notions of fair play and substantial justice. More specifically, a court may exercise general jurisdiction over a defendant if its contacts in the state are substantial, continuous, and systematic. Alternatively, a defendant is subject to specific jurisdiction if there is a sufficient nexus among the defendant, the state, and the litigation. The First Appellate District noted that courts must be especially cautious in exercising personal jurisdiction over defendants from foreign nations due to the interests of other nations, the U.S. interest in foreign relations, and the serious burdens on alien defendants of international litigation.

The plaintiffs proffered two theories of personal jurisdiction with respect to Honda, Volkswagen, and Nissan, all of whom are foreign car manufacturers. First, the plaintiffs argued that these defendants were subject to jurisdiction in California under the stream of commerce test. A defendant is subject to specific jurisdiction under this test if (1) it purposefully availed itself of the privilege of conducting activities in the state, (2) the underlying dispute is substantially connected to or arises out of the defendant’s contacts with the state, and (3) exercise of jurisdiction would be reasonable and fair and consistent with notions of fair play and substantial justice. The auto manufacturers asserted that there was no purposeful availment because they did not sell cars in California, only their American subsidiaries did. The court, however, concluded that the purposeful availment prong was satisfied because a nonresident’s indirect sales through its California distributors constitutes economic activity in California when the defendant earns substantial gross income from that activity and the manufacturers’ clearly earned such income from sales of their vehicles in California.

In addition to purposeful availment, plaintiffs must also show a substantial connection between the defendant’s contacts with the state and the litigation. The manufacturers argued there was no such connection between the litigation and the defendants’ California contacts because the plaintiffs’ allegations had to do with products that the defendants allegedly withheld from California rather than the products the defendants actually placed in California. The First Appellate District reasoned, however, that if a defendant’s contacts to a state are based on products sold in that state and the defendant is alleged to have joined in a conspiracy to prevent more of the same products from entering the state, there is a substantial connection between the alleged conspiracy and the defendant’s contacts because the result of the conspiracy is the illegally maintained price of defendant’s products in the state.

Nevertheless, the First Appellate District upheld the trial court’s ruling on this jurisdictional theory. Despite the court’s acknowledgment of the connection between the manufacturers’ California contacts and the lawsuit, the court stated, “In a case such as the one before us, we find it appropriate to require the plaintiffs to demonstrate some evidence tending to connect each parent manufacturer to the alleged conspiracy.” That is, the court imposed a requirement that the plaintiffs must show a connection between the defendants themselves and the acts alleged in the lawsuit in addition to a connection between the defendant’s contacts and the allegations in the lawsuit. The court recognized that the plaintiffs need not prove the merits of their case in order to show jurisdiction, but held that they must at least “offer some evidence that persuades the trial court that there is reason to believe that each of the named nonresident defendants might be linked to the alleged conspiracy, sufficient to allow us to fairly call Honda, Volkswagen and Nissan before California courts.” The plaintiffs had adduced some evidence tending to implicate other car manufacturers in a conspiracy and urged the court to infer that Honda, Volkswagen and Nissan were involved. However, the court cited the principle that facts supporting jurisdiction must be shown for each defendant individually, even in conspiracy cases. Since the plaintiffs presented no evidence tending to show that Honda, Volkswagen or Nissan in particular committed any acts in furtherance of a conspiracy, the court concluded that the plaintiffs had not demonstrated a sufficient connection between the manufacturers and the acts alleged in the lawsuit. As such, California courts did not have jurisdiction over the manufacturers on a stream of commerce theory.

The plaintiffs’ second theory of personal jurisdiction over Honda, Volkswagen, and Nissan was that California courts had general jurisdiction over these defendants under the representative services doctrine. Under this doctrine, the contacts of a local agent through which a foreign principal acts may be imputed to the foreign principal. According to California case law, mere ownership or control of an in-state subsidiary by a foreign defendant will not suffice to show a principal-agent relationship for purposes of this doctrine. Rather, the foreign defendant must exercise a “highly pervasive degree of control” that includes day-to-day management. The plaintiffs pointed out that Honda, Volkswagen, and Nissan all own American subsidiaries that sell and distribute their cars in California. However, representatives from all three parent manufacturers signed declarations stating that the parent manufacturers did not exercise any day-to-day control over the American subsidiaries. Since the plaintiffs did not refute this evidence or produce any evidence that the foreign manufacturers exercised a high degree of control over their American subsidiaries, the First Appellate District concluded that the representative services doctrine did not apply to this case.

The plaintiffs also asserted two theories of jurisdiction over CADA, a trade organization for franchised Canadian auto dealers. The plaintiffs’ first theory was that California courts had specific jurisdiction over CADA under the effects test. Under the effects test, a plaintiff may establish purposeful availment of the privilege of conducting business in the state based on the in-state effects of the defendant’s out-of-state conduct. Foreseeability of the effects in the forum state is not sufficient to establish jurisdiction under the effects test; the plaintiff must also show that the defendant “expressly aimed or targeted its tortious conduct” toward the state and that the brunt of the harm stemming from the wrongful conduct was felt in the state. Since the plaintiffs were only able to show that CADA was aware than an export ban would have effects in California, not that CADA purposely targeted the state, the court found that there was no jurisdiction under the effects test.

The plaintiffs also argued that California had specific jurisdiction over CADA because it committed acts in furtherance of the alleged conspiracy while in the state. The plaintiffs produced evidence that CADA representatives attended a meeting of the American auto dealer trade association in California at which CADA’s president raised the issue of Canadian car exports to the U.S. as an issue of concern to both Canadians and Americans. CADA’s president testified at his deposition that his discussion of this topic and others at the meeting took no more than five minutes. There did not appear to be an established agenda prior to the meeting. The trial court found that this evidence was insufficient to show an agreement or any other element of a conspiracy. The First Appellate District agreed that this evidence did not show conspiratorial acts in California. Thus, CADA’s attendance at the meeting in California could not be the basis for specific jurisdiction.

In sum, then, the court rejected all of the plaintiffs’ various theories of jurisdiction. The opinion in this case clearly demonstrates the hesitancy of California courts to exercise jurisdiction over non-U.S. defendants. Perhaps most significantly, by acknowledging the connection between the manufacturers’ California contacts and the allegations of the complaint but nevertheless imposing the additional requirement that the plaintiffs produce some evidence of the defendants’ participation in the alleged conspiracy, the First Appelate District appears to have added a new burden on plaintiffs seeking jurisdiction over nonresident defendants, at least in some circumstances. In any case, the jurisdictional issues raised by suits against foreign defendants in California state courts are clearly complex. A careful, nuanced analysis of the evidence and jurisdictional facts pertaining to each particular non-U.S. defendant is necessary to determine whether that defendant is subject to jurisdiction in California courts.

Anik Banerjee
213-617-4124
abanerjee@sheppardmullin.com