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Carl Kanowsky: A German company, an Argentinian war and a California court

It's the Law

Posted: May 20, 2011 1:55 a.m.
Updated: May 20, 2011 1:55 a.m.
 

We all know that Germany was soundly defeated in World War II. It was so badly trounced that it needed the Marshall Plan just to get back on its feet to become self-sufficient.

As any watcher of world news knows, Germany’s recovery from the vast destruction and humiliation of the global battle has been quite successful. It has been a leader in the European Union, and is widely viewed as the strongest financially of all European countries.

In a recent 9th Circuit Federal Court of Appeals decision, the reality that German companies have great influence in American lives became clearer.

In Bauman v. DaimlerChrysler Corp., “22 Argentinian residents, (brought) suit against DaimlerChrysler Aktiengesellschaft (DCAG) alleging that one of DCAG’s subsidiaries, Mercedes-Benz Argentina (MBA), collaborated with state security forces to kidnap, detain, torture and kill the plaintiffs and/or their relatives during Argentina’s ‘Dirty War.’ 

“Some of the plaintiffs are themselves former employees of MBA, and the victims of the kidnapping, detention, and torture, while others are close relatives of MBA workers who were ‘disappeared,’ and are presumed to have been murdered.”

Apparently, the plaintiffs found that the court system in Argentina was closed to them because of laws passed in that country to effectively prevent lawsuits regarding the so-called Dirty War. According to Wikipedia, the Dirty War happened between 1976 and 1983, and was allegedly sponsored by the government, targeting union advocates, among others.

Without going into the details of the Bauman case (the opinion alone exceeds 40 pages), one crucial question exists: whether DCAG, the German company, could be hauled into California courts based on its control of its subsidiary Mercedes Benz USA LLC (MBUSA).

MBUSA is the authorized reseller of Mercedes Benz products in the USA.  The contractual basis of the relationship between MBUSA and DCAG is found in the general-distributor agreement.

DCAG argued in federal court that it was not subject to jurisdiction of the California courts, because, essentially, California is an inconsequential portion of its market, and it does not exercise significant control over MBUSA. After reviewing the general distributor agreement, the 9th Circuit disagreed with DCAG’s characterization.

The 9th Circuit found that the German company’s control over the American one was extensive. 

“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 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. 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.”

You’re free to draw your own conclusions. The Court of Appeals ruled that the evidence of control by DCAG, and the fact that the U.S. market accounts for almost 20 percent of DCAG’s sales worldwide combined (and California alone accounts for more than 2 percent), to render DCAG subject to the jurisdiction of the California courts.

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at cjk@kanowskylaw.com. Kanowsky’s column represents his own views, and not necessarily those of The Signal. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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