State Supreme Court Approves Exercise of Jursidiction - Again

Regular readers of MassTortDefense know that one issue we try to keep an eye on is the exercise of personal jurisdiction over foreign product sellers in the U.S. courts, particularly following the Supreme Court decisions in Nicastro and Goodyear.  Readers may recall from our earlier posts that Nicastro resulted in a plurality opinion which tracked Justice O'Connor's plurality opinion in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987), concurring in the notion that the foreign product manufacturer lacked sufficient minimum contacts to allow a New Jersey court to exercise jurisdiction over it, but concluding that because this case did not present the new and special issues arising from recent changes in commerce and communication, it was unnecessary to get into full analysis of the steam of commerce issue as it might be applied to 21st century marketing. Rather, the outcome of the case could be determined by the Court’s existing precedents, which have held that a single isolated sale, even if accompanied by the kind of sales effort indicated in the record in the case, is not sufficient.

Last Fall, we posted on an Oregon case involving an allegedly defective wheel chair, in which the state court had exercised jurisdiction over the foreign manufacturer. The case arose from a fire allegedly caused by a battery charger manufactured by CTE, a Taiwanese company; the battery charger was incorporated into a motorized wheelchair. Plaintiffs allege that the fire began in the chair, because of a defect in the charger. CTE sought dismissal on the grounds the state court lacked personal jurisdiction. The trial court denied the motion, and the Oregon Supreme Court denied defendant's petition for a writ of mandamus on the issue. But the Supreme Court granted review, vacated the Oregon opinion denying the manufacturer's challenge to jurisdiction, and remanded the case for further consideration in light of J. McIntyre Machinery, Ltd. v. Nicastro.

We mused: "On remand, it will be interesting to see what the state court does, given what many observers see as their recent resistant approach on directions from the high Court on remands."

We now have an answer, as the state court again held that the sale of the battery chargers in Oregon via an Ohio wheelchair manufacturer was sufficient to establish minimum contacts with Oregon, subjecting the foreign company to personal jurisdiction there.  See Willemsen v. Invacare Corp., No. SC S059201 (Ore., 7/19/12).


Plaintiffs relied on the specific jurisdiction branch of personal jurisdiction, which depends on an
affiliation between the forum and the underlying controversy, principally, activity or an occurrence that takes place in the forum State and is therefore subject to the State's regulation. In contrast to general, all-purpose jurisdiction, specific jurisdiction is confined to adjudication of  issues  deriving from, or connected with, the very controversy that establishes jurisdiction.

In this case, plaintiffs argued that the sale of Invacare wheelchairs and CTE battery chargers in Oregon provided sufficient minimum contacts with this state for Oregon courts to assert specific jurisdiction over CTE for injuries that its battery chargers allegedly caused there. One difficult issue in this case arose from the fact that CTE sold its battery chargers to Invacare in Ohio, not Oregon, and with the expectation that Invacare would sell its wheelchairs together with CTE's battery chargers nationwide, not just Oregon. Defendant contended that, because Invacare (and not CTE) is the one that targeted Oregon, CTE had not purposefully availed itself of the privilege of doing business in Oregon and, as a result, the Oregon courts may not assert jurisdiction over it. The argument was that the the mere fact that it may have expected that its battery chargers might end up in Oregon is not sufficient to give Oregon courts specific jurisdiction over it.

Defendant relied heavily on the Nicastro plurality's view that the mere fact that it was foreseeable that a defendant's products might be distributed in one or all of the 50 states was not enough; rather, the plurality would have required evidence that the out-of-state defendant had "targeted" the forum state in some way. But the Oregon court focused on Justice Breyer's concurring opinion in Nicastro, which it read to mean only that nationwide distribution of a foreign manufacturer's products is not sufficient to establish jurisdiction over the manufacturer when that effort results in only a single sale in the forum state. In this case, the record showed that, over a two-year period, Invacare sold 1,102 motorized wheelchairs with CTE battery chargers in Oregon. In the court's view, the sale of over 1,100 CTE battery chargers within Oregon over a two-year period showed a regular flow or regular course of sales in Oregon.

Defendant argued that these sales figures in Oregon were a miniscule fraction -- both in sheer numbers, as well as the proportion of end product sales in the forum -- of what a Supreme Court
majority would have found to be insufficient in Asahi. But the court concluded that the decision in Asahi "provides little assistance to CTE."

It would not be a surprise if this case found its way back to the US Supreme Court again.
 

Another Federal Court Weighs In On Meaning of Nicastro

We have tried to keep an eye out for lower court cases interpreting the Supreme Court decision in J. McIntyre Machinery Ltd. v. Nicastro, as the lower courts parse through plurality, concurring and dissenting views on the exercise of personal jurisdiction over foreign defendants -- with mixed results.   Now comes another decision weighing in on what standard should be applied to the proposed  exercise of personal jurisdiction over nonresident defendants. Smith v. Teledyne Continental Motors Inc., No. 9:10-cv-02152 (D.S.C., 1/3/12).
 

In 2010, a vacationer was jogging on the beach at Hilton Head, South Carolina, when he was struck and killed -- by an airplane.  The plane, operated by Smith, was a single-engine aircraft
Smith had made from a kit. As he was flying the plane up the Atlantic coast about ten miles offshore, the propeller fell off the plane and into the sea. Smith attempted to make the Hilton Head airport, but came up short, crash landing on the beach and fatally striking the 38-year-old stockbroker who left behind his wife and two small children, according to the opinion.

The widow sued the pilot, the manufacturer of the airplane’s engine, the manufacturer of the airframe, a company which had serviced the plane prior to the crash; and the manufacturer of the propeller. Smith, the pilot, also sued the manufacturers. The cases were then consolidated, and eventually Teledyne, the engine maker, and a citizen of Delaware and Alabama, challenged personal jurisdiction in South Carolina.

The district court held that jurisdiction was proper.  This case did not involve the general jurisdiction that arises from pervasive contacts with a forum, but specific jurisdiction based on Teledynes' alleged contacts and purposeful availment of the forum.  And when one looks at the facts described, the conclusion may not come as a great surprise: Over the past ten years,
Teledyne sold at least 400 engines directly to South Carolina purchasers at a cost of about $40,000 apiece for a total revenue of approximately $1,600,000. Further, its engines were installed in approximately one-third of general aviation aircraft based in South Carolina. It maintained a continuous relationship with the owners of these engines through its warranty programs. Further, it advertised in South Carolina through aviation magazines. It maintained a distributor there until 2004. It directly sold parts for its engines in the forum state through interactive websites. Significantly, Teledyne maintained ongoing relationships with at least eleven “fixed base operators” --  stores/service centers located at South Carolina airports.  Teledyne had a contract with each FBO which required them to display Teledyne’s logos and actively promote the sale of its products. Teledyne maintained a continuing interactive Internet relationship with these FBOs, through which it provides them with technical support in repairing Teledyne products. Teledyne warranty work must be performed by these FBOs. Teledyne both buys and sells products over the Internet and through retailers to South Carolina residents. It admitted it had derived over $1 million in revenue from its sales to South Carolina residents over the past 10 years.  

This certainly was NOT the most narrow list of contacts we have seen litigated.  What was more intriguing about the opinion was the test the court adopted. The court concluded that the recent decision of the Supreme Court in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), and existing Fourth Circuit precedents were dispositive of the issue at bar.  The court observed that the decision was "somewhat difficult to interpret because no single opinion was adopted by a majority of the Justices. Rather, there are three opinions which must be synthesized."  But rather than, as some courts have done, looked for the grounds upon which the concurring justices agreed with the plurality, this court saw as the “common denominator of the Court’s
reasoning,” a "position approved by at least five Justices who support the judgment” -- the “stream-of-commerce plus” rubric previously enunciated in an opinion by Justice O’Connor in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 112 (1987). This view has come to be known as the “stream-of-commerce plus” test. Although it did not win the support of a majority of the Court in Asahi, or since, in the view of this court, it has now done so. 

In his concurring opinion, Justice Breyer rejected the notion that a non-resident defendant could be subjected to suit in a state based solely on foreseeability, agreeing with the plurality that personal jurisdiction required purposeful availment of a particular forum. He further explained that the standard of purposeful availment, the correct legal standard, may still require further explication in the context of modern global commerce, but that the facts of that case did not present an adequate vehicle for crafting any new rules. Although the concurrence and the plurality differed as to what might constitute “purposeful availment” in the context of national or global marketing, they both firmly embraced the continuing significance of individual state sovereignty and, on that basis, noted that specific jurisdiction must arise from a defendant’s deliberate connection with the forum state.  

Here, the court saw more overlap with the dissent. When the concurring Justices expressed the view that the case could be resolved by existing precedents, this meant Justice O’Connor’s opinion in Asahi, according to this district court.   

The court read the Fourth Circuit precedents as having already adopted this view and, therefore, the long-arm cases in the Fourth Circuit were not affected by Nicastro.

In applying this test, the court felt that plaintiffs had enumerated many significant contacts by which Teledyne targeted or purposefully directed commercial activities at South Carolina, as noted above.  Regarding whether the exercise of jurisdiction based on those minimum contacts would offend traditional notions of fair play and substantial justice, the court decided that the additional burden on the defendant was relatively slight as compared to the cost of litigating the matter in its home state because Teledyne had a national presence and organization. The interests of the forum state were extremely strong, in that South Carolina, located on a major coastal air corridor, had a compelling interest in protecting its citizens and visitors and their property from damage from falling airplanes.  

Motion denied, case to proceed in South Carolina.

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.

 

State Supreme Court Issues Noteworthy Personal Jurisdiction Opinion

The New Jersey Supreme Court has recently ruled that a New Jersey court can exercise jurisdiction in a product liability action over a foreign manufacturer based on the manufacturer's relationship with a nationwide distributor and on its presence at national trade shows. Nicastro v. McIntyre Machinery America Ltd.,  No. A-29-08 (N.J. 2/2/10).

Personal jurisdiction addresses the reach of the court’s power over a party, and without such jurisdiction, any ruling by the court is not binding on the party. Plaintiff lawyers focus on personal jurisdiction as part of the equation where they can sue; defendants as part of where they can be sued properly. The rules governing personal jurisdiction are well described in numerous reference works. As a general matter, a defendant can only be sued where it has sufficient minimum contacts with the state such that a suit there does not offend traditional notions of fair play and substantial justice.

In 2001, plaintiff was injured while operating the McIntyre Model 640 Shear, a recycling machine used to cut metal. The Model 640 Shear was manufactured by J. McIntyre Machinery, Ltd., a company incorporated in the United Kingdom, and then sold, through its exclusive United States distributor, McIntyre Machinery America, to the employer.  Plaintiff sued, alleging that the shear machine was defective in that it did not have a safety guard that allegedly would have prevented the accident. The trial court granted the foreign defendant's motion to dismiss the action, finding that the English manufacturer did not have sufficient minimum contacts with New Jersey to justify the state’s exercise of personal jurisdiction. The Appellate Division reversed, concluding that the exercise of jurisdiction by New Jersey “would not offend traditional notions of fair play and substantial justice” and was justified “under the ‘stream-of-commerce plus’ rationale."  Under that test, the actions of a defendant must be “purposefully directed toward the forum State” for a court of that state to exercise personal jurisdiction. Acknowledging that the English company had no presence in, or minimum contacts with, New Jersey, the state Supreme Court said plaintiff's argument for jurisdiction “must sink or swim with the stream-of-commerce theory of jurisdiction.”
 

New Jersey has a long-arm rule that permits service of process on a non-resident defendant “consistent with due process of law.”  Therefore, its courts may exercise jurisdiction over a non-resident defendant “to the uttermost limits permitted by the United States Constitution.” The Supreme Court seemed influenced by the view  that we live in a global marketplace. It also noted that a state has a strong interest in protecting its citizens from defective products as well as a paramount interest in ensuring a forum for its injured citizens who have suffered catastrophic
injuries due to allegedly defective products in the workplace. While its conception of jurisdiction must surely comport with traditional notions of fair play and substantial justice, the court noted it must also reflect modern truths – the radical transformation of the international economy.

Accordingly, the court held that a foreign manufacturer will be subject to this state’s jurisdiction if it knows or reasonably should know that through its distribution scheme its products are being sold in New Jersey. A manufacturer that knows or reasonably should know that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states must expect that it will be subject to the state’s jurisdiction if one of its defective products is sold to a New Jersey consumer, causing injury. The focus under this approach is not on the manufacturer’s control of the distribution scheme, but rather on the manufacturer’s knowledge of the distribution scheme through which it is receiving economic benefits in each state where its products are sold. A manufacturer cannot shield itself merely by employing an independent distributor – a middleman – knowing the predictable route the product will take to market. If a manufacturer does not want to subject itself to the jurisdiction of a New Jersey court while targeting the United States market, then, the court said, it must take some reasonable step to prevent the distribution of its products in that state.

The power of the state to subject a person or business to the jurisdiction of its courts has evolved with the changing nature of the American economy, said the court. As the nation is part of a global economy driven by startling advances in the transportation of products and people and instantaneous dissemination of information, the expanding reach of a state court’s jurisdiction, as permitted by due process, has reflected those historical developments.

The stream-of-commerce doctrine of jurisdiction is particularly suitable in product-liability actions, opined the court. It will not necessarily be a substitute for other jurisdictional doctrines -- such as minimum contacts -- that will apply in contract and other types of cases. Within the confines of due process, jurisdictional doctrines must reflect the economic and social realities of the day. The exercise of jurisdiction by New Jersey in this case was called "a reasoned response" to the globalization of commerce that permits foreign manufacturers to market their products through distribution systems that bring those products into the state. With the privilege of distributing products to consumers comes the responsibility of answering in a New Jersey court if one of those consumers is injured by a defective product, concluded the majority.

A lengthy dissent argued that the majority had ignored the fact that the original stream of commerce idea had included the element of a manufacturer's expectation that its products will be purchased in the forum state.  It also criticized an apparent shift in focus from the defendant to the plaintiff, including the severity of injuries.

The majority's test may come to have implications for manufacturers selling to other states as well, outside New Jersey. Many foreign and out-of-state manufacturers reasonably should know that their products are distributed through a nationwide system that might result in sales in any given state. It is quite possible the U.S. Supreme Court will want to clarify the reach of the so-called stream of commerce test, which was mentioned in Justice O’Connor’s plurality opinion in
Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987).