Opinion ID: 216921
Heading Depth: 1
Heading Rank: 22

Heading: Application of the Agency Test

Text: 1. Sufficient Importance Our agency test for personal jurisdiction over a foreign corporation on the basis of its subsidiary's operations has its origins in case law from the Second Circuit. See Wells Fargo & Co. v. Wells Fargo Exp. Co., 556 F.2d 406, 423 (9th Cir.1977) (adopting agency theory of personal jurisdiction, with extensive reliance on case law from the Second Circuit). The purpose of examining sufficient importance is to determine whether the actions of the subsidiary can be understood as a manifestation of the parent's presence. Int'l Shoe Co. v. Wash., 326 U.S. 310, 318, 66 S.Ct. 154, 90 L.Ed. 95 (1945); Wells Fargo, 556 F.2d at 423. Presence is a well-established basis for general jurisdiction: an individual who is physically present in a state is subject to the jurisdiction of its courts on any matter. Int'l Shoe, 326 U.S. at 316, 66 S.Ct. 154 (1945). Our starting point for the sufficient importance prong is that a subsidiary acts as an agent if the parent would undertake to perform the services itself if it had no representative at all to perform them. Unocal, 248 F.3d at 928 (finding agency if the services are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services) (quoting Chan, 39 F.3d at 1405) (emphasis added). [13] As the Second Circuit explained, a court may assert jurisdiction over a foreign corporation when it affiliates itself with a local entity whose services are sufficiently important to the foreign entity that the corporation itself would perform equivalent services if no agent were available. Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88, 95 (2d Cir.2000) (emphasis added). Selling Mercedes-Benz vehicles is a critical aspect of DCAG's business operations; DCAG's charter defines its goals as the development, manufacture, and sales of products. (emphasis added). When this suit was filed, the United States market accounted for 19% of the sales of Mercedes-Benz vehicles worldwide, and MBUSA's sales in California alone accounted for 2.4% of DCAG's total worldwide sales. DCAG simply could not afford to be without a U.S. distribution system. The services that MBUSA currently performs are sufficiently important to DCAG that they would almost certainly be performed by other means if MBUSA did not exist, whether by DCAG performing those services itself or by DCAG entering into an agreement with a new subsidiary or a non-subsidiary national distributor for the performance of those services. As we held in Wells Fargo, it is clear that whether the alleged general agent was a subsidiary of the principal or independently owned is irrelevant. 556 F.2d at 423. Independent contractors may be considered representatives, and contracting with an independent contractor to achieve the same enddistributing cars in the United Statesmeans, in practice, obtaining a representative to undertake . . . substantially similar services. Unocal, 248 F.3d at 928 (quoting Chan, 39 F.3d at 1405). Therefore, the plaintiffs have established the importance to DCAG of the services performed by MBUSA and met the sufficiently important test, because even if DCAG were to replace MBUSA with an independent entity, that entity would still be considered a representative for purposes of that test. 2. Control We turn now to an examination of the element of control. As we have stated, supra, the principal focus of our agency test for purposes of personal jurisdiction is the importance of the services provided to the parent corporation. In Unocal, we conducted a thorough analysis of a potential agency relationship and based our decision solely on the failure to meet the sufficient importance test. Id. at 928-31. We then added that control alone was insufficient to overcome that failure. Control nevertheless plays a role in determining whether personal jurisdiction is established because control is a traditional element of agency under common law principles. DCAG contends that a right to control is not sufficient, and that the parent must actually exercise control over the operations of its subsidiary on a day-to-day basis in order to meet the agency test. This argument is in error because it conflates the agency and alter ego tests. We have previously explained that these two tests are distinct and involve considerations of distinct factors. Wells Fargo, 556 F.2d at 425. [14] As explained in the Restatement (Third) of Agency: A principal's right to control the agent is a constant across relationships of agency, but the content or specific meaning of the right varies. Thus, a person may be an agent although the principal lacks the right to control the full range of the agent's activities, how the agent uses time, or the agent's exercise of professional judgment. A principal's failure to exercise the right of control does not eliminate it, nor is it eliminated by physical distance between the agent and principal. . . . § 1.01 cmt. c. (emphasis added). As we recently held, [t]o form an agency relationship, both the principal and the agent must manifest assent to the principal's right to control the agent. United States v. Bonds, 608 F.3d 495, 506 (9th Cir.2010) (emphasis added). We went on to make clear that actual control was not necessary by noting that a principal must either actually control[ ] the agent, or the principal and the agent must agree that the principal has the right to do so. Bonds, 608 F.3d at 506. We can think of no clearer manifestation of assent to the principal's right to control than the comprehensive written agreement between DCAG and MBUSA. [15] Even at common law, agents may exercise a considerable amount of discretion in performing their functions. See Restatement (Third) of Agency § 2.01, cmt. d (2006). A principal has control when it has the right to give interim instructions or directions to the agent once their relationship is established. § 1.01 cmt. f (emphasis added). Indeed, the principal need not exercise control at all in order to preserve an agency relationship; the relevant inquiry, rather, is whether the principal has the right to control. See, e.g., Bonds, 608 F.3d at 506; In re Coupon Clearing Service, Inc., 113 F.3d 1091, 1099 (9th Cir.1997) (holding that [t]he right to control, rather than its exercise, is sufficient to meet [the agency] standard under California law). The Second Circuit's test does not require that the defendant exercise[ ] direct control over its putative agent. Wiwa, 226 F.3d at 95. In fact, the Second Circuit relies on the sufficient importance test without requiring any control. Id. We do not go so far, however. For the reasons explained above, it is necessary in this circuit that the principal have the right of control with respect to the agent. We must remember that we are considering the contours of the test for agency to be applied in the context of personal jurisdiction. We are not examining the rules governing the test for vicarious liability, or for holding DCAG financially liable for the actions of MBUSA. Moreover, when we consider control here, it is as part of a test that primarily considers whether the services are of sufficient importance. See Unocal, 248 F.3d at 928. Outside the context of personal jurisdiction, we do not require a double showing in order to establish an agency relationship: in other circumstances, the tasks to be performed by the agent on behalf of the principal need not be of any special importance. See, e.g., Batzel v. Smith, 333 F.3d 1018, 1036 (9th Cir.2003); Restatement (Third) of Agency § 1.01. 3. DCAG's Right to Control The degree of control that DCAG exercises over MBUSA is more than sufficient for the purpose of establishing personal jurisdiction. To repeat, we must take plaintiffs' alleged facts as true, because plaintiffs need make only a prima facie showing of personal jurisdiction here. DCAG contends that the General Distributor's Agreement is evidence of an arms-length relationship with MBUSA. We do not read the agreement as DCAG appears to. DCAG has the right to control nearly all aspects of MBUSA's operations including: the number of vehicles that MBUSA must sell; the approval of MBUSA's Authorized Resellers, as well as the location of each retail sales outlet, showroom and service facility; the dealership standards that MBUSA must comply with; the business systems that MBUSA uses; the type of customer information that MBUSA must collect; which management personnel are appointed to run MBUSA; which management personnel positions shall exist at MBUSA; the standards and requirements MBUSA must meet for vehicle servicing; whether MBUSA is required to establish a Service Coordination Center, and if so, what tasks that Center will perform; the warranty terms applicable to MBUSA's customers; whether MBUSA can alter or modify any vehicle; what technical service publications MBUSA shall have in its library; the content and scope of MBUSA's advertising and marketing strategy; the type, design and size of MBUSA's signs; the prices that MBUSA must pay to DCAG; the prices that MBUSA may charge to its Authorized Resellers; the working capital level and financing capability level that MBUSA must maintain; what other goods MBUSA may sell or manufacture; whether MBUSA must assist in vehicle homologation; and the sales numbers of various Authorized Resellers. If that exhaustive list were not enough, DCAG also has the right to require MBUSA to execute  any agreement relating to . . . any other matter related to this Agreement in the form from time to time adopted by [DCAG] as long as those new Agreements are not an unreasonable burden on MBUSA. (emphasis added). MBUSA must comply with all of DCAG's current requirements and all future requirements that may be set forth in any future document promulgated by DCAG. DCAG also receives notice about nearly all of MBUSA's actions, including personnel changes, customer information, and marketing strategy. Because MBUSA's services were sufficiently important to DCAG and because DCAG had the right to substantially control MBUSA's activities, we conclude that MBUSA was DCAG's agent for general jurisdictional purposes. B. Reasonableness Because we hold that there is ample evidence of an agency relationship between DCAG and MBUSA, and, thus, that MBUSA's contacts with California may be imputed to DCAG, we now must turn to the second part of our test: whether the assertion of jurisdiction is reasonable. See Unocal, 248 F.3d at 925. Once plaintiffs have made the requisite showing of minimum contacts in the forum state, [t]he burden . . . shifts to the defendant to present a compelling case that jurisdiction would be unreasonable. Sinatra v. Nat'l Enquirer, Inc., 854 F.2d 1191, 1198 (9th Cir.1988) (citing Burger King Corp. v. Rudzewicz, 471 U.S. 462, 477, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985)) (emphasis added); see also Tuazon v. R.J. Reynolds Tobacco Co., 433 F.3d 1163, 1175 (9th Cir.2006). We weigh seven factors in resolving this question: the extent of purposeful interjection; the burden on the defendant; the extent of conflict with sovereignty of the defendant's state; the forum state's interest in adjudicating the suit; the most efficient judicial resolution of the dispute; the convenience and effectiveness of relief for the plaintiff; and the existence of an alternative forum. Sinatra, 854 F.2d at 1198-99. No one factor is dispositive; nor is the answer dictated by whether the majority of factors favors one side or the other. Rather we take into consideration all seven factors and then conduct an overall evaluation of the question. See Harris Rutsky, 328 F.3d at 1132. 1. The Extent of Purposeful Interjection DCAG has purposefully and extensively interjected itself into the California market through MBUSA. The district court found that DCAG had purposely availed itself of the California market, primarily through its design of cars to meet California's air quality standards, its manufacture of a fuel cell for the California Fuel Cell Partnership, and the fact that DCAG built a prototype fuel cell vehicle specifically for the United Parcel Service (UPS) to use in California. Bauman I, 2005 WL 3157472, at . The district court also found that DCAG had purposefully interjected itself into California by initiating lawsuits in California courts to challenge the state's clean air laws and to protect DCAG's patents and other business interests. Id. at . Moreover, it found that the sale of DCAG's vehicles in California is not an isolated occurrence but arises from the efforts of DCAG to serve the California market. Id. In addition, we note that DCAG established DaimlerChrysler Research and Technology North America and headquartered the company in the heart of Silicon Valley. Researchers at the Research and Technology Center in Palo Alto have focused on such products as fuel cell vehicles and vehicle-to-vehicle communication for DCAG brands including Mercedes-Benz. The district court also found it relevant that DCAG has retained permanent counsel in California and is listed on the Pacific Stock Exchange located in San Francisco. Bauman I, 2005 WL 3157472, at . DCAG also answered a complaint in a different case in the Northern District of California and filed a cross-complaint after waiving service of process. See id. (discussing case). Next, the district court found that the patent and clean air DCAG instituted lawsuits were likely central to DCAG's business functions. Id. at . Finally, according to DCAG's own figures, MBUSA's sales in California alone account for 2.4% of DCAG's total worldwide sales. The first factor, therefore, weighs heavily in favor of reasonableness, as a corporation that has continuously and deliberately exploited the [California] market . . . must reasonably anticipate being haled into court there. . . . Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 781, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984). 2. The Burden on the Defendant The burden on the defendant, a large international corporation, to litigate the case in California is not so weighty as to preclude jurisdictionparticularly since modern advances in communications and transportation have significantly reduced the burden of litigating in another country. Sinatra, 854 F.2d at 1199. In 1990, we held that [i]n this era of fax machines and discount air travel, requiring the partnership to defend itself in California . . . would not be so unreasonable as to violate due process. Sher, 911 F.2d at 1365. Today, for better or for worse, we have moved past that era of fax machines to the current era of electronic-filing in which judges of this court must make a special request if we wish to receive the paper copy of some documents filed with our court. Now, in addition to discount airline travel, parties have the option of conducting video conferences with their clients, and can even, in some instances, conduct video depositions. These technological advances significantly lower the costs, financial and otherwise, of foreign corporations litigating cases in American courts. Here, the burden on the defendant of producing records and witnesses in California, when the events in question took place in Argentina, would be no greater than if the case were instead litigated in Germany. Moreover, DCAG's official language is English, so it will not be disadvantaged in that respect by litigating in the forum selected by the plaintiffs. This factor weighs slightly in DCAG's favor, because there is some burden in having to litigate in a foreign country. It is not, however, a particularly significant factor, in part because the burden for an international corporation is ordinarily slight, and in part because the Supreme Court has preferred non-jurisdictional methods of lessening the inconvenience faced by defendants. Sinatra, 854 F.2d at 1199. 3. The Extent of Conflict with Sovereignty of the Defendant's State Third, we have held that the extent of the conflict with the sovereignty of the defendant's state is not dispositive because, if given controlling weight, it would always prevent suit against a foreign national in a United States court. Id. (quoting Gates Learjet Corp. v. Jensen, 743 F.2d 1325, 1333 (9th Cir.1984), cert. denied, 471 U.S. 1066, 105 S.Ct. 2143, 85 L.Ed.2d 500 (1985)). Although it is true that [g]reat care and reserve should be exercised when extending our notions of personal jurisdiction into the international field, Asahi Metal Indus. v. Superior Court, 480 U.S. 102, 115, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987) (quoting United States v. First Nat'l City Bank, 379 U.S. 378, 404, 85 S.Ct. 528, 13 L.Ed.2d 365 (1965) (Harlan, J., dissenting)), that same consideration will always be present in claims under the ATS and the TVPA. Although German courts have expressed some concern that this suit may impinge upon German sovereignty, we do not agree. In applying this factor, we examine the presence or absence of connections to the United States in general, not just to the forum state. Core-Vent Corp. v. Nobel Indus. AB, 11 F.3d 1482, 1489 (9th Cir.1993). Here, DCAG has manifested an intent to serve and to benefit from the United States market. See Sinatra, 854 F.2d at 1200. Therefore, sovereignty considerations weigh less heavily than if no United States-based relationships were established. Id. When this suit was filed, nearly 50% of DCAG's overall revenue came from the U.S., and sales of DCAG vehicles in the United States accounted for 1% of this country's GDP. It is obvious that this magnitude of sales requires extensive relationships in the United States. In addition to its relationship with MBUSA discussed at length above, DCAG was the product of a merger between Chrysler and Daimler-Benz AG. One of the products of that merger, the DaimlerChrysler Corporation (DCC), was one of the Big Three automobile companies in the United States at the time the suit was filed. Although DCAG insists that it did not have headquarters in the U.S. and that the employee payroll figures that plaintiffs repeatedly cite refer to DCC employees rather than DCAG employees, [16] we need not decide for the purposes of examining this factor whether this is correct. It is clear that DCAG had a strong general presence in the United States through MBUSA and DCC. It is not an infringement on the corporate form to count DCC as a large asset in the United States that DCAG owned. It is irrelevant whether DCC's employees also counted as employees of DCAG. DCAG has manifested an intent to serve and to benefit from the United States market. Sinatra, 854 F.2d at 1200. It has chosen to place itself at risk of litigation by engaging in extensive business in the United States through the operations of its agent MBUSA and its asset DCC. We do not violate Germany's sovereignty by exercising jurisdiction to hear this suit, even though it involves a German citizen corporation. This factor again weighs only slightly in DCAG's favor. 4. The Forum State's Interest in Adjudicating the Suit Fourth, although the events at issue did not take place in California and although the plaintiffs are not California residents, the forum state does have a significant interest in adjudicating the suit. California partakes in the shared interest of the several States in furthering fundamental substantive social policies. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 292, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980). Here, as the claims are predicated upon the ATS and TVPA, that policy is providing a forum to redress violations of international law by defendants who have enough connections with the United States to be brought to trial on our shores, even though the injury is to aliens and occurs outside our bordersa small but important step in the fulfillment of the ageless dream to free all people from brutal violence. Filartiga v. Pena-Irala, 630 F.2d 876, 890 (2d Cir.1980). American federal courts, be they in California or any other state, have a strong interest in adjudicating and redressing international human rights abuses. As the Second Circuit held shortly after the turn of the century: The new formulations of the Torture Victim Protection Act convey the message that torture committed under color of law of a foreign nation in violation of international law is our business, as such conduct not only violates the standards of international law but also as a consequence violates our domestic law. In the legislative history of the TVPA, Congress noted that universal condemnation of human rights abuses provide[s] scant comfort to the numerous victims of gross violations if they are without a forum to remedy the wrong. This passage supports plaintiffs' contention that in passing the Torture Victim Prevention Act, Congress has expressed a policy of U.S. law favoring the adjudication of such suits in U.S. courts. Wiwa v. Royal Dutch Petroleum Company, 226 F.3d 88, 106 (2d Cir.2000) (internal citations and quotation marks omitted). We agree and have previously cited Wiwa with approval for this exact point. Sarei v. Rio Tinto, 550 F.3d at 831. The policy of the TVPA is that these suits should not be facilely dismissed on the assumption that the ostensibly foreign controversy is not our business. Wiwa, 226 F.3d at 106. In light of the important interest we have recognized, this factor weighs in favor of the reasonableness of exercising personal jurisdiction. 5. The Most Efficient Judicial Resolution of the Dispute The fifth factor, which examines which forum is most efficient, involves a comparison of alternative forums. Amoco Egypt Oil Co. v. Leonis Nav. Co., Inc., 1 F.3d 848, 852 (9th Cir.1993). Because we have primarily looked to where the witnesses and evidence are located in order to determine the most efficient forum, see, e.g., Core-Vent, 11 F.3d at 1489, there is no difference between the United States and Germany insofar as this factor is concerned. Here, the witnesses and evidence are located primarily in Argentina. Therefore, if that forum were an available alternative forum as discussed below, it would likely be the most efficient. Of course, if a forum is not an available alternative, it cannot be the most efficient in the comparison of alternative forums. In any event, this factor is `no longer weighed heavily given the modern advances in communication and transportation.'  Harris Rutsky, 328 F.3d at 1133 (quoting Panavision Int'l v. Toeppen, 141 F.3d 1316, 1323 (9th Cir.1998)). In the end, the factor is a draw; there is no difference insofar as the efficiency factor is concerned between the United States and Germany, and Argentina is not a truly available forum as discussed below.