Bylined Articles

Consultant Contracts Can Create California Connection

By Anne Gruner
November 17, 2017
Law360

Anne A. GrunerIn a recent decision in a DePuy ASR hip system case (DellaCamera et ux. v. DePuy Orthopaedics Inc. et al., No. CJC-10-004649, Proceeding No. 4649 (Calif. Super. Ct., San Francisco Cty. Nov. 1, 2017), a California Superior Court held that it has specific personal jurisdiction over nonresident defendants DePuy Orthopaedics Inc. (DePuy), Johnson & Johnson and Johnson & Johnson Services Inc. (Johnson & Johnson) for nonresident Connecticut-based plaintiffs’ claims on the basis that DePuy and Johnson & Johnson entered into consulting contracts with two California-resident surgeons on the design of the metal-on-metal hip implant device at issue.

This ruling bears noting in the wake of recent landmark personal jurisdiction decisions, including Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco Cty., 582 U.S. ___, 137 S. Ct. 1773 (2017), BNSF Ry. Co. v. Tyrell, 581 U.S. ___, 137 S. Ct. 1549 (2017), and of course Daimler v. Bauman, 134 S. Ct. 746 (2014), which have armed defendants with tools to limit plaintiff forum shopping by obtaining favorable dismissals for lack of both specific and general personal jurisdiction.

In DePuy, the court latched onto the fact that the nonresident defendants intentionally contracted with in-state consultants who participated in the design of the hip implant product at issue, and that design was part and parcel of plaintiffs’ product liability causes of action. DePuy is not necessarily a novel approach to questions of specific jurisdiction, but it is a relative outlier in the context of the overall trend of cases restricting the ability of plaintiffs to “forum shop” and litigate outside of jurisdictions where defendants are not located and plaintiffs were not actually injured.

Thus, DePuy may foreshadow a new area of focus in which plaintiffs seek to subject defendants to suit in jurisdictions where consulting agreements and other targeted activities are directed, and which are alleged to give rise to plaintiffs’ causes of action.

Overview of Personal Jurisdiction and Evolution of the Current Jurisdictional Landscape

Determining where a corporation can be sued is often a thorny but critical issue. Recent U.S. Supreme Court decisions have shifted this analysis and narrowed the places where multinational corporations may be sued in the past few years.

Broadly speaking, in order to subject a defendant to suit in a particular forum, plaintiffs must establish that the exercise of jurisdiction over that defendant meets constitutional due process requirements. There are two types of jurisdiction for the due process inquiry: general jurisdiction and specific jurisdiction, and the due process requirements differ for each.

General, or all-purpose jurisdiction, allows a court to hear any and all claims against a defendant, regardless of whether the claims are related to the defendant’s contacts with the forum. In order to be proper, the defendant’s contacts with the forum must be so “continuous and systematic as to render [it] essentially at home in the forum.” Goodyear Dunlop Tires Operations SA v. Brown, 131 S. Ct. 2846, 2851 (2011) (internal quotation and citation omitted).

The concept of general jurisdiction has evolved significantly over recent years, culminating in the Supreme Court’s decision in Daimler. There, the court held that a corporation is typically only “at home” in its state of incorporation and where its principal place of business is located. This drastically reduced the possibility of obtaining all-purposes jurisdiction over corporations outside of these two limited locations, absent exceptional circumstances.

Specific personal jurisdiction, in contrast, exists over a defendant in a forum when the suit arises out of or relates to the defendant’s contacts with that forum. Under the Bristol-Myers Squibb (BMS) decision handed down in June, the Supreme Court solidified that in order for the exercise of specific personal jurisdiction to be proper, there must be a direct connection between the forum and the specific claims brought.

The court found that such a connection was lacking where claims of non-California plaintiffs were brought against nonresident multinational corporation Bristol-Myers for products that — while sold in California — were not sold to or taken by the particular plaintiffs in California and did not cause those plaintiffs’ injuries in California.

The DePuy Court’s Holding and Analysis

On the coattails of the BMS decision, the nonresident multinational defendants in the DePuy case moved to quash service for lack of specific personal jurisdiction, on the basis that the claims of two Connecticut plaintiffs do not arise out of the defendants’ conduct in California. At first blush, the circumstances appear similar to those in BMS.

Plaintiffs Debra and James DellaCamera filed their case in California Superior Court in the California DePuy ASR coordinated proceeding for claims including the device’s defective design, which utilized a configuration which puts a metal femoral ball in contact with a metal acetabular liner. The plaintiffs are Connecticut residents, and Debra DellaCamera’s original hip implant surgery and subsequent revision surgery occurred in Connecticut. DePuy is deemed an Indiana resident, and the Johnson & Johnson defendants are deemed New Jersey residents.

The court analyzed whether, under BMS, there was an “affiliation between the forum and the underlying controversy” that would subject these defendants to California’s jurisdiction. (See BMS, supra, at 1780.) The court’s decision hinged on the plaintiffs’ argument that “a significant portion of the design work for the DePuy ASR hip implant was either conducted in California or otherwise tied to California, and the alleged defective ‘metal-on-metal’ design of the ASR implant is a focal point of this lawsuit.” DellaCamera et ux. v. DePuy Orthopaedics Inc. et al., No. CJC-10-004649, Proceeding No. 4649, slip op. at 4 (Calif. Super. Ct., San Francisco Cty. Nov. 1, 2017).

Unlike the defendant in BMS, the activities that DePuy and Johnson & Johnson were alleged to have participated in in California through consulting on the design of the hip product were related to the DePuy plaintiffs’ claims. Specifically, the plaintiffs presented evidence that DePuy and Johnson & Johnson chose to collaborate with Dr. Thomas P. Schmalzried and Dr. Thomas P. Vail, both California residents, regarding the design of the DePuy ASR, and testimony and documents including service agreements between the defendants and surgeons confirmed that these individuals were designing surgeons on the DePuy ASR project team.

Neither DePuy nor Johnson & Johnson rebutted this information. As such, the court held that the plaintiffs’ claims “arise out of” the nonresident defendants’ conduct in California in order for the court to exercise specific personal jurisdiction over those claims.

DePuy argued that, under BMS, Bristol-Myers’ act of contracting with an in-state distributor was insufficient to confer specific personal jurisdiction, which should similarly foreclose the plaintiffs’ argument here.

The court disagreed, citing the fact that Bristol-Myers’ contract with California-based distributor McKesson to distribute its products — the alleged contact in California — was wholly unrelated to the BMS plaintiffs’ claims (it was not even possible to trace whether any of the plaintiffs’ products were ever distributed by McKesson). Moreover, it was evident that Bristol-Myers did not engage in activities in California regarding the development, manufacturing, labeling, packaging or marketing of the products alleged to have caused the plaintiffs’ injuries.

In contrast, the DePuy court placed emphasis on DePuy and Johnson & Johnson’s choice in collaborating with these specific California surgeons on the design of the ASR hip implant, and the fact that it was that very design that was “at the heart of [the] lawsuit.” (DePuy, supra, slip. op. at 6.) Based on these minimum contacts with California, the DePuy plaintiffs were entitled to litigate in California.

Takeaways From the DePuy Decision

While the trend in emerging cases has been to limit plaintiffs’ ability to subject defendants to defending lawsuits in a multitude of jurisdictions of their choosing, DePuy is a reminder that decisions like BMS do not uproot the specific personal jurisdiction analysis — which examines a defendant’s contacts with a state pertinent to the underlying conduct at issue.

Finding ways to establish specific personal jurisdiction may be an area of renewed focus for plaintiffs searching for a few additional options in an era of shrinking jurisdictional flexibility. As such, it will continue to be important for companies engaged in consulting relationships to consider the jurisdictional implications of such agreements.

For example, plaintiffs may view DePuy as a hook to try to uncover important ties defendants may have to certain unfavorable jurisdictions and frame claims in a way that makes those contacts appear significant to the litigation. Specific personal jurisdiction will remain a fact-sensitive inquiry, and the DePuy holding does provide some possible room for defendants in future cases with consulting agreements at issue to successfully contest specific personal jurisdiction by (1) demonstrating that the alleged contacts in the state are minimal, or (2) demonstrating that the nexus between the contacts and the plaintiffs’ claims is minimal.

Did the consultant at issue actually play a role in activities relevant to the plaintiffs’ claims? Were the services actually performed, or decisions made, in that consultant’s home state? Are the contracted services a “but for” cause of the plaintiffs’ claims? These and other factual nuances may provide avenues for escaping spurious attempts at “forum shopping.”

To avoid the unpredictability of fact-based outcomes, companies would be wise to consider the potential jurisdictional implications of choosing to engage services outside of the paradigm locations of their principal place of business and place of incorporation. Where possible, it may also benefit corporations to structure performance of services under contracts at the company’s headquarters (i.e., hosting of important meetings, maintenance of documents, conducting of research, etc.).

Of course, it is not always possible for large multinational corporations to insulate the services they outsource through distribution or consulting contracts to certain geographic arenas. As these contracts extend more and more into other jurisdictions, the importance of other procedural mechanisms including motions to dismiss for forum non conveniens[1] become more significant.

As plaintiff-friendly jurisdictions are increasingly bogged down with claims brought by nonresident plaintiffs, the likelihood of a successful forum non conveniens motion may increase. And in the era of multinational corporations with increasingly far-ranging service contracts, forum non conveniens may become a more robust area of litigation relied on for dismissing actions from the jurisdiction of plaintiff’s choice, even if there is an apparent argument that specific personal jurisdiction may be proper there.


Anne A. Gruner is an attorney in Duane Morris’ Philadelphia. She practices in the area of litigation and has experience with complex commercial litigation, class actions and products liability.

Notes

  1. DePuy and Johnson & Johnson filed a concurrent Motion to Dismiss for Forum Non Conveniens arguing that Connecticut was a more appropriate forum, which was also denied. The basis for that ruling should also be viewed in light of the specific facts of the case: namely, the court noted that several of plaintiffs’ key witnesses agreed to travel to California for trial, and California is the location of the coordinated DePuy ASR hip implant proceedings where approximately 2,000 similar claims against DePuy and Johnson & Johnson remain pending. 


Reprinted with permission of Law360.