By Seungwon Chung. Full text here.
Increasingly, corporations are moving away from a centralized corporate structure toward decentralization and fragmentation of corporate functions. At the same time, the corporate general jurisdiction doctrine functions anachronistically—assuming that corporations exist solely as centralized structures. The Supreme Court’s recent decision in Daimler AG v. Bauman reflects this assumption. By drawing upon the principal place of business test from Hertz Corp. v. Friend, the Court focused the general jurisdiction inquiry on the location of the corporate headquarters. This view does not account for the variety of ways corporations actually organize the traditional functions of the headquarters. This Note offers the first examination of corporate organizational structure in the context of general jurisdiction. So, this Note challenges the assumption of corporate general jurisdiction law and highlights the weaknesses of the doctrine.
First, the current approach to general jurisdiction does not align with modern corporate structure. The Supreme Court in Daimler, and by extension Hertz, assumes that corporations are monolithic beings which always adopt a centralized form. This is not the case. Increasingly corporations are becoming more decentralized, separating their command and control functions from their management of day-to-day operations. So, as corporations diversify in structure, the corporate general jurisdiction doctrine falls behind. This mismatch results in unpredictable application of jurisdictional rules and forces courts to shoehorn a corporation into inappropriate descriptions simply to apply a test.
A second problem concerns state sovereignty. By limiting general jurisdiction to the principal place of business, as understood by the Hertz test, the Supreme Court has superimposed a statutory limitation, crafted by Congress for an entirely different purpose (diversity jurisdiction), upon the states’ ability to exercise general jurisdiction. However, only the Constitution, through the Due Process Clause, can restrict the exercise of general jurisdiction. This limitation constitutes judicial overreach. If the courts would not allow Congress to legislate the confines of state personal jurisdiction explicitly, then why should the court adopt the implicit legislation of the doctrine?
What can be done about this mismatch between theory and practice? This Note argues that the corporate general jurisdiction doctrine should be changed to reflect how corporations are actually structured. Given that corporations often divide traditional corporate functions between different offices, this Note suggests that if a corporation maintains any activity that serves a traditional function of a corporate headquarters, then general jurisdiction is proper. This Note concludes that this “corporate functions” test properly aligns the general jurisdiction doctrine with the reality of corporate organization.