Two recent cases addressing jurisdiction over corporations in California:
Davis v. Best Buy Stores, L.P.
A national business, Best Buy Stores, was sued in California state court in a class action for consumer protection claims. Best Buy removed the action to federal court based on diversity jurisdiction, and plaintiffs resisted federal court on the basis that Best Buy is deemed a California business (negating diversity) by the large size of its sales, employment and property in California. In response, Best Buy argued that as a national business, its proportion of California activity is naturally large because California is the nation’s leading consumer market by population and sales.
The Ninth Circuit holds that if not actually formed or headquartered in California, “a nationwide retailer with operations spread across many states will be a citizen of California only when a substantial predominance of its activities are located in California; it will not be a citizen of California merely because its operations in California cater to California’s larger population.” Accordingly, such a national operation is still entitled to remove state court cases to federal court based on diversity jurisdiction. (Davis v. Best Buy Stores, L.P., Ninth Circuit No. 08-57062, February 26, 2009.)
Healthmarkets, Inc. v. Superior Court
A parent corporation which was not itself established or operating in California, but functions only as a holding company for its operating subsidiaries in California, successfully quashed service of process seeking to make it appear in a California court to defend consumer claims over the insurance sales practices of an operating subsidiary. A California Court of Appeal held that the mere ownership of the corporate subsidiary provides no basis for personal jurisdiction over a parent company based on the subsidiary’s actions in California. The court specifically disapproved comments from some other cases that principles of “alter ego” or corporate agency are sufficient to find personal jurisdiction over a parent company, calling these “unnecessary” and “an imprecise substitute for the appropriate jurisdictional question”, which is “whether the defendant [parent corporation] has purposefully directed its activities at the forum state by causing a separate person or entity to engage in the forum contacts”. (Healthmarkets, Inc. v. Superior Court, California Court of Appeal No. B211881, March 9, 2009.)