Federal Court Rejects Nicastro Analysis of Personal Jurisdicition

We don't often post on orders denying a motion for reconsideration, but it's worth noting that a federal trial court recently reaffirmed its earlier rulings of lack of personal jurisdiction in a products case.  Leja v. Schmidt Manufacturing Inc., No. 01-5042, (D.N.J. 10/19/10).  The court, in so doing, questioned the reasoning of the New Jersey Supreme Court opinion on personal jurisdiction that was recently accepted for review by the U.S. Supreme Court.  Nicastro v. McIntyre Machinery America Ltd., 987 A.2d 575 (N.J. 2010).

In the underlying industrial accident, plaintiff alleged he suffered severe injuries when he attempted to open a bulk sandblasting unit manufactured by Schmidt while it was still pressurized. The machine was custom-built by Schmidt Co. for the Sylvan Equipment Corporation, which acts as a machinery distributor and has its primary place of business in New York. In doing so, Schmidt assembled various component parts that were produced by other manufacturers. Included among those parts was a "camlock closure," which was designed and manufactured by yet another company, Sypris, a Kentucky company.  This was the allegedly defective part.

Sylvan leased the machine to L&L Painting Company, a New York company, for use in the removal of paint from bridges. When it proved inadequate for that task, Sylvan took the machine back from L&L and sold it to plaintiff's employer, the West Virginia Paint and Tank Company. The day of the accident, Mr. Leja attempted to open the camlock closure without first releasing the pressure inside the machine by activating the blow-down valve. The result was that pressure stored inside the machine apparently caused an explosion that propelled the lid off.

Plaintiff sued manufacturer Schmidt in state court, who removed to federal court and brought in component part maker Sypris. Arguing that it lacked the minimum contacts with New Jersey necessary for the court to exercise jurisdiction, Sypris moved to dismiss the third-party claims asserted against it by Schmidt pursuant to Federal Rule of Civil Procedure 12(b)(2).

In its original ruling, the court granted granted the motion.  In doing so, it first distinguished between the two types of personal jurisdiction – specific and general – stating that specific personal jurisdiction would exist if the cause of action arises out of or is related to Sypris's contacts with New Jersey. Sypris' conduct and connection with New Jersey must be such that it could reasonably anticipate being haled into court here. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980). Additionally, Sypris must have purposefully availed itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws.

Where the cause of action does not arise out of the defendant's forum activities, a court may exercise another variety of personal jurisdiction known as general personal jurisdiction, if the defendant has engaged in “continuous and systematic” contacts with the state, here New Jersey. Such general jurisdiction requires “a very high threshold of business activity.”

In this case, the court had previously found that the cause of action did not arise out of, and was not related to, Sypris' contacts with New Jersey. Sypris did not purposefully sell or direct the top closure, which allegedly caused the injuries, to New Jersey. In fact, the Sandblaster to which the part was attached arrived in New Jersey only after multiple transactions and travels to interim locations outside of New Jersey. The travels and eventual resting place of the Sandblaster in New Jersey was not the result of Sypris' purposeful conduct. Rather, the eventual sale of the Sandblaster to plaintiff's employer in New Jersey was a “random, fortuitous, or attenuated contact” that was insufficient to exercise specific personal jurisdiction.

As to general jurisdiction, the court had found that Sypris had no daily or regular contact with New Jersey that was central to the functioning of its business.  The percentage and absolute amount of sales to New Jersey is generally irrelevant.  Rather, the focus of analysis should be on whether the nature of defendant's contacts with the forum state was central to the conduct of its business, and here they were not. All of the defendant's activities were better characterized as sporadic, intermittent contacts rather than substantial and continuous.

Then along comes Nicastro.  The motion for reconsideration relied on Nicastro's holding that: the stream-of-commerce theory supports the exercise of jurisdiction if the manufacturer knew or reasonably should have known of the distribution system through which its products were being sold in the forum state. According to the NJ Supreme Court, due process permits the state to provide a judicial forum for its citizens who are injured by dangerous and defective products placed in the stream of commerce by a foreign manufacturer that has targeted a geographical market that includes New Jersey.  Here, Sypris had stipulated during the prior proceedings that it was aware that Schmidt generally distributed its machines throughout the nation.

There were procedural problems with the motion, and in addition, on the issue of the "intervening law," the court noted that the question of whether New Jersey's long-arm statute allows this federal court to assert personal jurisdiction over Sypris turns on the interpretation of the United States Constitution – an area that is uniquely the province of the federal courts.

On the merits of the reconsideration argument, the court said that the NJ holding was at odds with the decisions of the Supreme Court of the United States in World-Wide Volkswagen and Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987).  The former ruled that, “the foreseeability that is critical to due process analysis is not the mere likelihood that a product will find its way into the forum State. Rather, it is that the defendant's conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.”  World-Wide Volkswagen, 444 U.S. at 297. The mere foreseeability that a product one sells may end up in the forum state does not render the seller amenable to suit in the forum state.  Justice Brennan's opinion in Asahi – the less restrictive of the two plurality decisions in that case – included a similar requirement, stating that the stream of commerce theory only creates personal jurisdiction over a foreign manufacturer if it “delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.” Asahi, 480 U.S. at 119-20. In doing so, Justice Brennan noted the contrast between “the foreseeability of litigation in a State to which a consumer fortuitously transports a defendant's product (insufficient contacts) and the foreseeability of litigation in a State where the defendant's product was regularly sold (sufficient contacts).”

The court concluded that this case falls under the “insufficient contacts” category identified by Justice Brennan in Asahi, and the fortuitous series of events by which the machine found its way to New Jersey is illustrative of that point. In light of the fact that Sypris custom-built the type of closure at issue in this case according to Schmidt's specifications and did not sell similar closures to other manufacturers, Sypris cannot be said to have introduced those closures “into the stream of commerce with the expectation that they w[ould] be purchased by consumers” in New Jersey. See Asahi, 480 U.S. at 119-20. Therefore, the court reaffirmed its earlier rulings that it lacked specific personal jurisdiction over Sypris, and the Motion for Reconsideration was denied.

We will see if the Supreme Court agrees as it reviews Nicastro directly.

 

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