ERI brief to Supreme Court: Human rights victims can sue foreign corporations through a domestic subsidiary

On Monday, ERI filed an amicus curiae brief with the U.S. Supreme Court in DaimlerChrysler AG v. Bauman (docket 11-965) arguing that courts do not violate the Constitution when they assert jurisdiction over foreign corporations that carry out their business in the state where the suit is brought through a subsidiary. This argument was a response to DaimlerChrysler’s position that the due process clause prevents attribution of the subsidiary’s contacts to the (foreign) parent corporation for the purpose of jurisdiction under principles of “corporate separateness” even if  the subsidiary is doing the parent’s business on the parent’s behalf.

ERI’s brief argues that there is no such constitutional right to corporate separateness. Looking to the history of the corporate form before and after the Founding, ERI’s brief argues that, at the time of the passage of the due process clauses, corporations were expressly prohibited from owning other corporations. Thus, there could have been no original understanding that corporate separateness between a parent and a subsidiary would be afforded constitutional protections. To the contrary, ERI’s brief shows that corporations have always been understand to act through agents, and that attribution of an agent’s contacts for the purpose of jurisdiction comports with both history and commonsense, even when the agent in question is a subsidiary corporation. This understanding of jurisdiction is reflected not only in United States history, but also in numerous countries around the world, including Germany - where DaimlerChrysler is based.  

The Bauman case involves claims brought by former employees and family members of deceased employees of the González Catán Mercedes-Benz plant in Argentina against DaimlerChrysler, a German corporation that now wholly owns the plant. The claims arose during Argentina’s “Dirty War” in the 1970’s and 1980’s – a period of terror that involved the murder, torture and disappearances of thousands of activists and political dissidents. According to the plaintiffs, during that horrific period, Mercedes-Benz Argentina identified workers within its plant as “subversives” to state security forces, knowing full well that, as a result, those workers would be abducted, tortured, murdered or “disappeared”. According to plaintiffs, after they or their loved ones were targeted and tortured or disappeared, Mercedes-Benz Argentina hired the very police chief responsible for the raid against the workers as its Chief of Security and provided him with legal representation.

Plaintiffs brought suit in California, where DaimlerChrysler conducts business through a wholly owned subsidiary, Mercedes-Benz USA (MBUSA). The claims were brought under the Alien Tort Statute (ATS), Torture Victim Protection Act (TVPA), and state law, alleging that DaimlerChrysler should be responsible for the acts of its Argentine subsidiary and that suit was properly brought in California because DiamlerChrysler conducted substantial and systematic business in that state through its wholly owned subsidiary, MBUSA.

Although technically legally “separate” corporate entities, MBUSA and DaimlerChrysler shared the same chairman; MBUSA sold cars solely for DaimlerChrysler; and DaimlerChrysler set prices for the cars and had authority over virtually all aspects of MBUSA’s operations. Moreover, all of MBUSA’s profits went to DaimlerChrysler.

In response to the suit, DaimlerChrysler objected that the court in California lacked jurisdiction over the company. The issue was litigated for several years before a 9th Circuit appeals panel  upheld jurisdiction as proper. DaimlerChrysler petitioned for review by the Supreme Court, and in April of 2013, the Supreme Court granted certiorari, shortly after releasing its decision in Kiobel v. Royal Dutch Shell.

Like Kiobel, Bauman is an ATS case involving claims that arise in another country. But the issue here is in some ways, much broader. Whereas Kiobel addressed only the question of whether an ATS claim could be brought in a case involving foreign conduct, this case raises the question of when any claim can be brought against a foreign defendant. The defendant’s argument that there is a constitutional right for a parent to be treated as separate from its subsidiary – which has never been recognized before – could, if accepted here, cast doubt on a number of federal and state laws in fields as diverse as tax, pensions and anti-trust.