Throwback Thursday: Insurance Corp. of Ireland v. Compagnie des Bauxites

Bauxite Factory by Eelke de Blouw (CC BY-NC 2.0)

In the Supreme Court’s end-of-Term personal jurisdiction case, Mallory v. Norfolk Southern Railway (2023) (prior coverage here, here, and here), Justice Jackson wrote separately to explain why she found “particularly instructive” the Court’s prior decision in Insurance Corp. of Ireland v. Compagnie des Bauxites (1982). Bauxites, a case about jurisdictional discovery and discovery sanctions, is not a decision that most civil procedure professors teach. Now that Justice Jackson has brought Bauxites back, this post provides a refresher on that transnational case and connects its themes of individual fairness and consent to recent trends in personal jurisdiction doctrine.

Mining, Insurance, and Discovery Sanctions

The business arrangements underlying Bauxites are a quintessential example of the transnational economy—indeed, the case is more often taught today in International Business Transactions than in Civil Procedure.

Compagnie des Bauxites de Guinee was a Delaware corporation with its principal place of business in the Republic of Guinea, where it owned bauxite mines and processing facilities. It in turn had two owners: the Republic of Guinea owned 49% of the mining company, and the other 51% was owned by Halco Inc., a mining company that operated in Pennsylvania. In 1973, Halco engaged an insurance broker to arrange $20 million worth of business interruption insurance on behalf of Compagnie des Bauxites. The first $10 million of that coverage was sold by the Insurance Company of North America (INA) through a contract arranged in Pennsylvania. The second $10 million (called the “excess insurance”) was obtained on the London insurance market and was provided by 21 foreign insurance companies. Significantly, these excess insurers did not issue separate policies; rather, they adopted the INA policy “as far as applicable.”

Compagnie des Bauxites subsequently experienced losses of more than $10 million allegedly due to mechanical difficulties. When the excess insurers refused to indemnify the company, Compagnie des Bauxites sued all of its insurers in the Western District of Pennsylvania in December 1975. Most of the excess insurers challenged the court’s personal jurisdiction, so Compagnie des Bauxites requested copies of all their business interruption insurance policies issued between 1972 and 1975 (it later narrowed that request to policies delivered in Pennsylvania or that covered a risk located in Pennsylvania). In the heady days of “doing business” jurisdiction as a form of general jurisdiction, such evidence of Pennsylvania transactions would have sufficed to establish personal jurisdiction. The excess insurers refused to comply, however, even after the district court ordered them to do so. Finally, in December 1978, the district court judge warned the defendants that if they did not comply within 60 days, he would assume under Federal Rule of Civil Procedure 37(b) that personal jurisdiction was established.

Rule 37(b) authorizes federal courts to sanction noncompliance with a court order regarding discovery. Those discovery sanctions “may include” treating noncompliance as contempt of court, rendering a default judgment against the noncompliant party, dismissing the action in whole or in part, striking pleadings, preventing the disobedient party from introducing certain evidence or making certain arguments, or—as relevant here—“directing that the matters embraced in the order … be taken as established for purposes of the action.”

When the excess insurers had still not complied with the discovery order four months later, the district court carried through with its threat, finding that personal jurisdiction was established over them for purposes of the litigation. But it also held that personal jurisdiction was independently established on two other grounds: because the record otherwise showed that the excess insurers had sufficient contacts in Pennsylvania, and because the excess insurers had implicitly consented to personal jurisdiction in Pennsylvania when they adopted the terms of INA’s policy, which was a Pennsylvania insurance contract.

The Third Circuit affirmed the finding of personal jurisdiction for fourteen of the excess insurers based solely on the Rule 37(b) sanction. Those fourteen defendants took the case to the Supreme Court.

The Supreme Court’s Decision

At the Supreme Court, eight Justices agreed that a finding of personal jurisdiction was a permissible use of discovery sanctions, at least in the circumstances of this dispute. (Justice Powell concurred only in the judgment for reasons to which we will return.) Justice White’s opinion for the Court made two key moves.

First, the Court rejected the excess insurers’ chicken-and-the-egg argument. The excess insurers argued that until the district court established its personal jurisdiction over them, it did not have the power to order them to do anything. Not so, Justice White explained. The excess insurers had submitted the question of personal jurisdiction to the district court, and they had therefore accepted the court’s jurisdiction as to that question. This is undoubtedly correct. As the Court explained, the excess insurers could have taken a different route: “A defendant is always free to ignore the judicial proceedings, risk a default judgment, and then challenge that judgment on jurisdictional grounds in a collateral proceeding.” A party cannot raise an issue before a court—even a jurisdictional challenge—and then argue that the court does not have the power to fully determine that issue.

Second and more significantly, the Court held that a finding of personal jurisdiction as a discovery sanction did not violate the defendants’ constitutional rights. It did so on a theory of waiver. The entire idea of discovery sanctions is based on a legal fiction that a recalcitrant party is effectively conceding the facts or issues about which they are unwilling to disclose information. The only question, then, is whether personal jurisdiction is something that a party could choose to concede.

The answer must be yes, Justice White reasoned, because the courts had already recognized that defendants can waive personal jurisdiction objections across a range of circumstances: by voluntarily showing up before a court when summoned, by invoking a state’s court system against another party, by contractual agreement, by agreement to arbitrate, or by stipulation. Even the Federal Rules warn defendants that they will waive their personal jurisdiction objections if those objections are not raised in time. “In sum, the requirement of personal jurisdiction may be intentionally waived, or for various reasons a defendant may be estopped from raising the issue.” Similarly, Justice White explained, the lower court’s finding of personal jurisdiction as a discovery sanction “is nothing more than … a finding of a constructive waiver.”

This is the passage of Bauxites that Justice Jackson invoked in her Mallory concurrence. At issue in Mallory was Pennsylvania’s corporate registration statute that required out-of-state businesses that wish to do local business within Pennsylvania to waive their personal jurisdiction rights as to any dispute before a Pennsylvania court (whether or not related to that in-state business). For Justice Jackson, this was just another instance to add to Bauxites’s list of examples of personal jurisdiction waivers. Under Bauxites, Justice Jackson bluntly concluded, “the due process question that [Mallory] presents is easily answered.”

Personal Jurisdiction as an Individual Liberty Interest

If Bauxites solves Mallory so easily, why did Justice Jackson write only for herself? I presume her concurrence did not garner additional votes because of the strong language in Bauxites declaring personal jurisdiction to be solely an individual right and not an aspect of state sovereignty. As Justice White explained in Bauxites, the idea of constructive waiver fits uneasily with a conception of personal jurisdiction as protecting state sovereignty because individuals cannot “waive” powers or limits of sovereignty.

Fully embracing the waivability of personal jurisdiction, then, meant disclaiming the then-emerging idea that personal jurisdiction also protects federalism. Just a couple of Terms earlier, in World-Wide Volkswagen Corp. v. Woodson (1980), Justice White had written on behalf of the Court that limits on personal jurisdiction “perform two related, but distinguishable, functions”: to protect defendants and “to ensure that the States, through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system.” In Bauxites, Justice White himself tried to limit that language. World-Wide Volkswagen’s invocation of state sovereignty, he explained, “must be seen as ultimately a function of the individual liberty interest preserved by the Due Process Clause.”

Only Justice Powell expressed concern about limiting this language in World-Wide Volkswagen that linked personal jurisdiction to state sovereignty (hence his separate concurrence). The other Justices who had joined Justice White’s opinion in World-Wide Volkswagen also joined his efforts to limit that language in Bauxites (as did, unsurprisingly, the World-Wide Volkswagen dissenters). Bauxites could not have been more clear or emphatic:

“The requirement that a court have personal jurisdiction flows not from Art. III [(like subject-matter jurisdiction, which cannot be waived)], but from the Due Process Clause. The personal jurisdiction requirement recognizes and protects an individual liberty interest. It represents a restriction on judicial power not as a matter of sovereignty, but as a matter of individual liberty.”

For better or for worse (and I think for worse), this effort to disentangle federalism from personal jurisdiction was short-lived. The Roberts Court has consistently treated personal jurisdiction as protecting both individual fairness and state sovereignty. As Justice Kagan recently wrote on behalf of the Court in Ford Motor Co. v. Montana Eight Judicial District Court (2021), the rules for personal jurisdiction “derive from and reflect two sets of values—treating defendants fairly and protecting ‘interstate federalism’” (quoting World-Wide Volkswagen). Indeed, Bauxites has fallen from the core personal jurisdiction cannon (and the 1L curriculum) precisely because subsequent cases have so thoroughly interred Bauxites’s strong embrace of personal jurisdiction as purely an individual liberty interest.

Federalism vs. Consent

Coming back to Mallory, the Justices’ disparate approaches at oral argument and in their opinions can be traced back to the tension identified (and resolved) in Bauxites. If you accept that personal jurisdiction is a personal right that defendants can knowingly waive, then Mallory fits comfortably within that bucket—as Justice Jackson’s brief opinion illustrates. But if you want personal jurisdiction to do the work of policing state overreach, then resolving Mallory requires something more than just a theory of constructive waiver.

Justice Alito would use another tool to limit state overreach: the dormant Commerce Clause. No other Justice expressed interest in making that doctrinal switch (perhaps not surprising after their equally splintered decision in the dormant Commerce Clause case decided earlier in the Term). The four dissenting Justices in Mallory would have resolved the tension by analyzing state registration statutes within the framework of International Shoe, which the Court has developed over time to incorporate both fairness and federalism interests (though under that framework, as the dissenting Justices concluded, broad registration statutes like Pennsylvania’s likely couldn’t survive). Justice Gorsuch’s plurality opinion avoided the question by invoking precedent that simply predates the Court’s efforts to grapple with jurisdictional overreach. In that sense, it is the jurisprudential equivalent of sticking one’s head in the sand. Indeed, if all that was needed was Supreme Court precedent that had not explicitly been overturned, there was no need to reach back more than 100 years—Bauxites, as Justice Jackson cogently argued, would be an even better fit.

Conclusion

Bauxites is a goldmine (slight pun intended) of transnational litigation tidbits: there’s the underlying foreign direct investment, the structure of the international insurance market, efforts (however unsuccessful) at cross-border discovery, an anti-suit injunction, and even a failed invocation of forum non conveniens. Justice Jackson’s concurrence in Mallory, however, highlights how the Supreme Court is still struggling to articulate a coherent theory of personal jurisdiction some forty years later.