Federal Court Rejects Jurisdiction Over French Manufacturer

A federal court in Mississippi has rejected the assertion of personal jurisdiction over a French medical device company.  See Arnoult v. CL Med. Sarl, No. 14-00271 (S.D. Miss. 9/21/15).

In this product liability case. plaintiff (a Mississippi resident) alleged that the product, a mid-urethral sling for treatment of stress urinary incontinence, caused her to suffer injuries. The I-STOP was manufactured in France by defendant CLMS, a French corporation. CLMS exported the device to the United States, where it was distributed by defendant Uroplasty. Plaintiffs brought design and warning defect claims under the Mississippi Products Liability Act, as well as claims for negligence, breach of express and implied warranties, fraud, fraud by concealment,  negligent  misrepresentation, negligent infliction of emotional distress, and loss of consortium.

Various motions were filed, including a motion to dismiss by CLMS.

The court noted that when a nonresident defendant moves to dismiss for lack of personal jurisdiction, the plaintiff bears the burden of establishing the district court’s jurisdiction over the nonresident. A plaintiff must satisfy this burden by presenting a prima facie case for personal jurisdiction. E.g.,  Unified Brands, Inc. v. Teders, 868 F. Supp. 2d 572, 577 (S.D. Miss. 2012).  The district court is not limited to consult only the assertions in the plaintiff’s complaint; rather, the district court may consider the contents of the record at the time of the motion, including affidavits.

The Due Process Clause, said the court, permits the exercise of personal jurisdiction over a nonresident defendant when (1) that defendant has purposefully availed himself of the benefits and protections of the forum state by establishing minimum contacts with the forum state; and (2) the exercise of jurisdiction over that defendant does not offend traditional notions of fair play and
substantial justice. Unified Brands, 868 F. Supp. 2d at 577. Plaintiffs argued that CLMS had enough contacts with Mississippi to confer specific jurisdiction. Specific jurisdiction exists when the defendant has purposefully directed his activities at residents of the forum, and the litigation results from alleged injuries that arise out of or sufficiently relate to those activities. Clemens v. McNamee, 615 F.3d 374, 378 (5th Cir. 2010).

In this circuit, the court is to apply a three-step analysis to determine specific jurisdiction: (1) whether the defendant has minimum contacts with the forum state; (2) whether the plaintiff’s cause of action arises out of or results from the defendant’s forum related contacts; and (3) whether the exercise of personal jurisdiction is fair and reasonable. See Jackson v. Tanfoglio Guiseppe S.R.L., 615 F.3d 579, 585 (5th Cir. 2010).  The court’s inquiry thus focuses on the relationship among the defendant, the forum, and the litigation.  Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014). The relationship must arise out of contacts that the defendant himself creates with the forum state, and the contacts must be with the forum state itself, not the defendant’s contacts with persons who reside there.  Further, a
defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction. Due process requires that a defendant be haled into court in a forum based on his own
affiliation with the state, not based on the random, fortuitous, or attenuated contacts he makes by interacting with other persons affiliated with the state.

Plaintiffs here apparently relied on a stream-of-commerce theory of specific jurisdiction, the controversial and yet to be clarified branch of cases involving a product sold or manufactured by a foreign defendant, and plaintiffs argue that the minimum contacts requirement is met so long as the court finds that the defendant delivered the product into the stream of commerce with the expectation that it would be purchased by or used by consumers in the forum state.  Not all courts accept this approach, and some part of the Supreme Court are skeptical.  Even under this approach, the defendant’s contacts must be more than random, fortuitous, or attenuated, or of the unilateral activity of another party or third person.

Here, plaintiffs argued that it was foreseeable to CLMS that its products would end up in Mississippi because it entered into a distribution agreement with Uroplasty to market and sell those products in the United States. But plaintiffs failed to prove the terms of the actual distribution agreement between CLMS and Uroplasty – to show it provided the foreign manufacturer with adequate notice that its products were being marketed in the forum.  Furthermore, there was no evidence here of a product specifically manufactured for an industry located in the state of Mississippi. Finally, plaintiffs alleged that only four of the devices were sold to patients in Mississippi.


For these reasons, the court found that plaintiffs’ allegations fell short of the mark. Plaintiffs'  argument was more attenuated, relying on inference-upon-inference without sufficient evidence to connect CLMS to the state of Mississippi.

Since plaintiffs alleged that only four of the devices were sold to patients in Mississippi, this case was very close to – if not within – the category of cases governed by the plurality opinion in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011) (a single, isolated sale is not sufficient to confer personal jurisdiction, even if it was anticipated). 

The court concluded that plaintiffs had not carried their burden.

 

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.

Fifth Circuit Given Opportunity to Clarify Impact of Nicastro

Another federal appeals court will have an opportunity to assess the reach of the U.S. Supreme Court's decision in J. McIntyre Machinery Ltd. v. Nicastro. In Ainsworth v. Cargotec USA Inc., No. 2:10-cv-00236 (S.D. Miss., 12/15/11), the district court certified for interlocutory appeal its opinion finding personal jurisdiction over a foreign defendant in a forklift case.

Readers will recall that Nicastro resulted in a 6-3 decision with a plurality opinion by Justice Anthony Kennedy. Justices Breyer and Alito concurring in the judgment; and Justices Ginsburg, Sotomayor and Kagan dissenting. Justice Kennedy addressed the stream of commerce notion, stating that no “stream-of-commerce” doctrine can displace that general rule of purposeful availment, even for products liability cases. He acknowledged that the standards for determining state jurisdiction over an absent party have been a bit unclear because of decades-old questions left open in Asahi Metal Indus. Co. v. Superior Court of California, 480 U.S. 102 (1987).  This imprecision arising from Asahi, for the most part, resulted from its statement of the relation between jurisdiction and the notion of placing a product in the “stream of commerce.” That concept, like other metaphors, has its "deficiencies as well as its utilities." A defendant’s placement of goods into commerce “with the expectation that they will be purchased by consumers within the forum State” may sometimes indicate purposeful availment. But that does not swallow the general rule of personal jurisdiction. The principal inquiry in cases of this sort is still whether the defendant’s activities manifest an intention to submit to the power of a sovereign. Justice Breyer, joined by Justice Alito, agreed in the result, but concluded 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.

Since then, lower courts have continued to grapple with the meaning of the decision, with most recognizing that merely depositing goods in the stream of commerce, with knowledge that some will end up in the forum state, is not enough to satisfy the minimum contacts standard for personal jurisdiction.

Here, plaintiffs were the survivors of a Mississippi resident who was struck and killed by a forklift designed and manufactured by defendant Moffett Engineering, an Irish corporation, with its principal place of business is in Dundalk, County Louth, Ireland. (This is a "wee county" steeped in myth and legend, named for a Celtic pagan god.)  Moffett has never maintained a physical presence in Mississippi. It does not own, possess, or use any property in Mississippi. It has never had any officers, employees, or agents stationed in Mississippi, and it has never sent any of its employees to Mississippi for business purposes. It has never directly shipped or sold any of its products to customers there, and it has never directly solicited business from any company located in Mississippi. Moffett sold all of its products to defendant Cargotec, which had the exclusive right to market and sell Moffett’s products pursuant to a contract which specifically defines the U.S. as Cargotec’s sales territory. Cargotec sells or markets Moffett products in all fifty states. Moffett does not attempt to limit the territory in which Cargotec sells its products. Further, Moffett does not communicate with the end-purchasers of its products in any fashion, and it is not aware of their identities or locations. Cargotec sold 203 of those forklifts to customers in Mississippi, about 1.55% of Moffett’s United States sales.

The district court previously denied Moffett’s Motion to Dismiss for lack of personal jurisdiction.
Ainsworth v. Cargotec USA, Inc., 2011 U.S. Dist. LEXIS 49665, at *21 (S.D. Miss. May 9, 2011). After that decision, the Supreme Court issued its opinion in J. McIntyre Machinery, Ltd. v. Robert Nicastro, 131 S. Ct. 2780 (2011). Moffett filed a Motion for Reconsideration, arguing that decision controlled this dispute.

The district court denied the motion again, and concluded that Justice Breyer’s Nicastro opinion was only applicable to cases presenting the same factual scenario as that case.

But the court did agree the decision involves a controlling question of law as to which there is substantial ground for difference of opinion (noting at least one decision employing the stricter analysis from Justice Kennedy’s plurality opinion, Keranos, LLC v. Analog Devices, Inc., 2011 U.S. Dist. LEXIS 102618, at *29-*30 (E.D. Tex. Sept. 12, 2011)).  Review would materially advance the litigation, concluded the court, certifying it to the Fifth Circuit.  A case to keep our eye on.

 


 

Appeals Court Rejects Personal Jurisdiction Over Foreign Manufacturer

As we have noted for reader, lower courts continue to work to interpret and apply the Supreme Court's decision in J. McIntyre Machinery Ltd. v. Nicastro.  Earlier this week, a California appeals court found that the lower court should not have exercised personal jurisdiction over a Canadian unit of Dow Chemical Co. See Dow Chemical Canada ULC v. The Superior Court of Los Angeles County, No. B222609 Cal. Ct. App. 2d Dist.) (unpubl.).

The court noted that this case presented a question left open in Asahi Metal Industry Co., Ltd. v.
Superior Court, 480 U.S. 102 (1987), but now resolved by J. McIntyre Machinery, Ltd. v. Nicastro, 131 S.Ct. 2780 (2011):  whether merely placing products into the stream of commerce in a foreign country (or another state), aware that some may or will be swept into the forum state, is enough to subject a defendant to personal jurisdiction—or whether due process requires that the defendant have engaged in additional conduct, directed at the forum, before it can be
found to have purposefully availed itself of the privilege of conducting activities within
the forum state.  The court concluded that  defendant Dow Chemical Canada ULC was not subject to jurisdiction because it did not  purposefully avail itself of the privilege of conducting activities within the forum state.

Plaintiffs were allegedly injured in an accident involving a 1996 Sea-Doo watercraft. This product liability action was subsequently brought against Dow Chemical Canada ULC (Dow), among others, based on an alleged defect in the fuel tank.  Dow appeared specially and moved to
quash service of the summons on the ground that it lacked the requisite minimum contacts with California to justify the state’s assertion of personal jurisdiction. Its principal place of business was Calgary, Alberta, Canada; it had never advertised any products in California. The gas tanks and gas filler tank necks that were the subject of this litigation were sold exclusively in Canada pursuant to purchase order agreements entered into in Canada. Plaintiff contended, however, that the court had specific jurisdiction because Dow allegedly knew that its gas tanks were being installed in products that would be sold in the United States, including California.

The trial court rejected Dow’s motion; the court of appeals denied Dow’s petition for writ of
mandate; the California Supreme Court denied Dow’s timely petition for discretionary
review. But the United States Supreme Court granted Dow’s petition for certiorari on June
28, 2011, ordered that the judgment be vacated and remanded the matter for further consideration in light of J. McIntyre Machinery, Ltd. v. Nicastro.

On remand, the court said it was facing the question whether merely depositing goods in the stream of commerce, with knowledge that some will end up in a finished product manufactured
by another and sold in the forum state, is enough to satisfy the minimum contacts standard for personal jurisdiction.  The Due Process Clause of the Fourteenth Amendment limits the power of a state court to exert personal jurisdiction over a nonresident defendant.  The  constitutional touchstone of the determination whether an exercise of personal jurisdiction comports with due process remains whether the defendant purposefully established “minimum contacts” in the forum state.

In Asahi, the United States Supreme Court split on the impact of placing a product into the stream of commerce, with a fractured set of opinions, expressing separate standards for deciding the issue, none of which received the support of a majority of the Court.  Under Justice O’Connor’s view, placement of a product into a stream of commerce with awareness that it may be carried into a forum state would not, by itself, be adequate for the exercise of jurisdiction over a defendant. A defendant’s awareness that the stream of commerce may or will sweep the product into the forum state does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum state.  But Justice Brennan expressed the position that a chain of distribution carrying a product into the forum could be adequate to permit the exercise of jurisdiction over foreign defendants, because the stream of commerce refers not to unpredictable currents or eddies, but to the regular and anticipated flow of products from manufacture to distribution to retail sale.

According to the California court on remand here, in J. McIntyre Machinery v. Nicastro, the Supreme Court resolved the question in Asahi left unresolved by the competing opinions. The stream of commerce, like other metaphors, has its deficiencies as well as its utility. It refers to the movement of goods from manufacturers through distributors to consumers, yet beyond that descriptive purpose its meaning is far from exact. The principal inquiry in cases of this sort, said the plurality, is whether the defendant’s activities manifest an intention to submit to the power of a
sovereign. In other words, the defendant must purposefully avail itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections
of its laws. The concurrence in Nicastro noted no evidence of a “regular course” of sales into the state, so there was no "something more," such as special state-related design, advertising, advice, marketing, or anything else.

Here, at no time did Dow engage in any activities in California that revealed an intent to invoke or benefit from the protection of its laws. Nor was there any evidence that the design of Dow’s product was in any way California-specific. It was not sufficient for jurisdiction in this case that the
defendant might have predicted or known that its products would reach California.  Defendant never undertook to ship its components to California; it supplied its gas tanks and filler necks exclusively in Canada. It matters not whether it knew or could have predicted that another party would sell the finished Sea-Doos incorporating the gas tanks in California. Dow did not advertise or market products in California; it never sold products in, or directly to customers in, California; it never maintained an office or other facility of any kind in California; it had never been qualified to do business in California; and  it had no agent for service of process in California.

Due process requires that Dow would have engaged in more than that, in additional conduct directed at the forum, before it could be found to have purposefully availed itself of the privilege of conducting activities within California. 
 

 

Lower Courts Grapple With Meaning of Nicastro (Part II)

Last post we talked about a federal district court attempting to apply the Supreme Court's decision in J.McIntyre Machinery Ltd. v. Nicastro.  This time, a state court.

In Soria v. Chrysler Canada Inc., No. 2-10-1236 (App. Ct. Ill., 10/24/11), the court modified an earlier opinion to account for Nicastro. But it still concluded that a Canadian automobile assembler was properly subject to personal jurisdiction in Illinois, regardless of the new decision.

This suit arose out of a vehicle collision in which plaintiff alleged that she was a passenger in a 1998 Plymouth Voyager minivan assembled by Chrysler Canada in Windsor, Canada. Plaintiff alleged she suffered a severe eye injury after the door to a passenger airbag module fractured during airbag deployment, sending out plastic fragments. Plaintiff alleged that Chrysler
Canada was negligent in its manufacture, assembly, design, testing, inspection, and sale of the airbag module doors.

Regarding jurisdictional contacts, plaintiff alleged that Chrysler Canada knew that thousands of minivans and vehicles it manufactured were sold in the United States, including thousands in Illinois; about 85% of its production was exported to the United States in some years; it allegedly delivered its minivans and vehicles into the stream of commerce with the expectation that a certain percentage would be sold in Illinois; it did business in Illinois within the meaning of the Illinois long-arm statute; and it (along with Chrysler United States) designed, developed, assembled, manufactured, distributed, and transferred into the stream of commerce the Plymouth Voyager in which plaintiff was a passenger during the collision.

In contrast, Chrysler Canada argued that it was incorporated in Canada, had its principal place of
business in Canada, and never transacted business, entered into contracts, owned real estate,
maintained a corporate presence, telephone number, tax identification number, employees or agents in Illinois. Further, it contended that it did not ship, deliver, distribute, or sell the minivan in
Illinois. Finally, Chrysler asserted that its website was not directed to or interactive with Illinois
residents. 

The trial court denied defendant's motion to dismiss.

The appellate court noted the defendant's argument that mere awareness that vehicles it assembled might be distributed by Chrysler United States to Illinois did not show sufficient minimum contacts. Plaintiff responded that Chrysler Canada had sufficient minimum contacts and was subject to specific personal jurisdiction in Illinois because it knew that the vehicles it assembled for Chrysler United States entered Illinois through the stream of commerce and because it intentionally served the United States market, including Illinois, by indirectly shipping its vehicles to the forum.

Chrysler urged that beyond its mere awareness that some of the vehicles it assembled “may”
be swept into Illinois through the stream of commerce, there were no purposeful contacts (and,
therefore, no sufficient minimum contacts) by Chrysler Canada directed at Illinois. Specifically,
Chrysler Canada contended that it did not engage in commercial activities or other purposeful
contacts in Illinois. Further, it did not receive vehicle orders from United States customers or
dealerships; did not sell (or have control over the distribution of) vehicles to United States
customers or dealerships; and did not ship vehicles to United States customers or dealerships.
 

The court reviewed the Supreme Court jurisprudence on personal jurisdiction, and in particular, the debate over the so-called "stream-of-commerce" theory of jurisdiction, which has commanded the approval of as many as 4 Justices at various times.  The court concluded that under either a broad or narrow version of the stream-of-commerce theory, the trial court correctly found that sufficient minimum contacts exist to exercise personal jurisdiction over Chrysler Canada.

Chrysler Canada was not only aware that its products are distributed in Illinois (thus, the court thought, satisfying the narrow stream-of-commerce theory), but it had also purposefully directed its activities toward Illinois.  While it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws, when a commercial actor’s efforts are purposefully directed toward residents of a state, the absence of physical contacts does not alone defeat personal jurisdiction there, concluded the court.

The court found persuasive that the United States market, including Illinois, was Chrysler Canada’s primary market. Deposition testimony reflected that Chrysler Canada is aware that 82%
of its production (albeit not all of which consists of Plymouth Voyager minivans) was distributed,
through an established distribution channel, within the United States. During the relevant period,
Chrysler Canada indirectly shipped products into the American market, including Illinois, through
Chrysler United States, its parent corporation. The court agreed with plaintiff’s assertion that Chrysler Canada continuously and intentionally served or targeted this market and was set up to manufacture vehicles for (and derived significant revenue from) the United States market, including Chrysler dealerships throughout Illinois.

Much of that analysis skipped over the very thorny issue of the distinction between efforts to target the US market, in general, but including the forum state, and those that target a specific state, the forum state.  Perhaps the court was influenced by the fact that Chrysler Canada conceded that, during 2008 and 2009, Chrysler United States ordered 28,000 vehicles of various makes and models, including minivans, for its independently-owned dealerships in Illinois. Also, unlike some product sellers, Chrysler Canada was specifically aware of the final destination of every product (i.e., vehicle) that it assembled. Thus, according to the court, Chrysler Canada had an expectation that its products would be purchased by Illinois consumers and, given the continuous nature of its assembly relationship with Chrysler United States, its contacts with Illinois were not random, fortuitous, or attenuated.

 

Lower Courts Grapple With Nicastro Meaning

We have posted before about the thorny and important issue of U.S. courts exercising personal jurisdiction over foreign product sellers.  Earlier this year, the Supreme Court decided two important personal jurisdiction cases, J.McIntyre Machinery Ltd. v. Nicastro, U.S., No. 09-1343, and Goodyear Luxembourg Tires SA v. Brown, U.S., No. 10-76, the first high court opinions on this issue in two decades.  But because the former was a plurality decision, lower courts have continued to struggle.

In the past few weeks, two courts have confronted what type of conduct may subject a foreign product maker to personal jurisdiction.  The first today, and the second in a later post.

In Windsor v. Spinner Industry Co., No. 1:10-cv-00114 (D.Md., 10/20/11), plaintiffs alleged that the front wheel of their bicycle dislodged, causing him and his toddler son, Tyler, to be thrown to the ground. Defendant  Joy is a Taiwanese corporation that designs and manufactures bicycle components, including a mechanism called a “quick release skewer,” which is used to hold wheels in place. Plaintiffs alleged that their bicycle contained one of Joy’s quick release skewers and that a defect in the skewer contributed to the cause of their accident.

The parties agreed that Joy sells its products to distributors, manufacturers, and trading companies who then market them in every state in the U.S., but that Joy has no direct contacts with the forum state of Maryland. Plaintiffs contended that the nationwide marketing of Joy’s products by intermediaries created sufficient minimum contacts between Joy and Maryland to subject Joy to specific jurisdiction there. Joy moved to dismiss.

The district court noted that the Due Process Clause of the Fourteenth Amendment sets the outer boundaries of state judicial authority. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846, 2853 (2011). Consistent with due process, jurisdiction over non-resident defendants exists only to the extent that the defendants have certain minimum contacts with the state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.

Readers know that such contacts, if they exist, can give rise to one of two species of personal jurisdiction: general or specific. General jurisdiction exists where a non-resident maintains “continuous and systematic” contacts with the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984). Under these conditions, courts of the forum state may exercise jurisdiction over the defendant in any suit properly before them, even if the subject matter is completely unrelated to the defendant’s activities in the forum. Specific jurisdiction arises where a non-resident lacks continuous and systematic contacts with the forum, but has nonetheless purposefully availed itself of the privilege of conducting activities within the forum state. Hanson v. Denckla, 357 U.S. 235, 253 (1958). Under these latter circumstances, courts of the forum state may exercise jurisdiction over the defendant only with respect to claims that arise out of the defendant’s activities in the forum.

The issue presented in this case was the extent to which a state may exercise specific jurisdiction over a non-resident manufacturer whose only connection to the forum is that its products were sold there by third-party distributors. Although the idea that jurisdiction automatically travels with the chattels has long been rejected, some courts have at times endorsed a so-called “stream of commerce” doctrine, approving the assertion of personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum state.

The Supreme Court in  McIntyre addressed, but split, on how to handle these issues. The deciding votes were cast by Justices Breyer and Alito, who concurred in the judgment reversing the New Jersey Supreme Court. 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.

With that understanding, the facts alleged, even if proven, would be insufficient to demonstrate jurisdiction over Joy, said the court. First, although plaintiffs made much of the Internet marketing of Joy’s products, the web presence of Joy or its distributors in Maryland was immaterial because plaintiffs did not purchase their bicycle on the Internet. Further, plaintiffs offered no details about the particular chain of distribution that brought the allegedly defective skewer to the end seller.  At best, plaintiffs’ theory of jurisdiction amounted to no more than the “knew or should have known” standard that the Supreme Court explicitly rejected in McIntyre.

The court also rejected the plaintiffs' arguments that jurisdiction was proper because certain of the manufacturers and distributors to whom Joy sold its products not only market their products in Maryland, but maintain established channels of distribution there.  The argument was that where a foreign manufacturer sells its products to large national retail chains that have an established and ongoing presence in every state in the U.S., such a relationship evinces more than the mere foreseeability, but an actual intent to serve the forum market, and hence purposeful availment. But the court found this line of reasoning indistinguishable from the clearly rejected position  that jurisdiction lies in a forum when a defendant places its product in the stream of commerce with the expectation that it will be sold there. 

State Supreme Court Directed to Reconsider Jurisdiction Over Foreign Defendant

The U.S. Supreme Court earlier this month instructed Oregon's supreme court to reconsider the state court's exercise of jurisdiction over a Taiwanese manufacturer.  See China Terminal & Electric Corp. v. Willemsen, No. 10-1262 (U.S.; order issued 10/3/11).

In the short order, the 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.

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), and two other 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.

The Oregon case arise 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, bacuase 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.

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.

Ninth Circuit Affirms Dismissal of Helicopter Crash Case

The Ninth Circuit recently decided a products case that raised issues of the government contractor defense, and a seldom litigated federal Rule of Civil Procedure. Getz v. Boeing Co., et al., No. 10-15284 (9th Cir. 8/2/11). The appeals court affirmed the district court's dismissal of one defendant for lack of personal jurisdiction and the trial court’s summary judgment in favor of the other defendants.

The suit arose from the crash of an Army-operated MH-47E Chinook helicopter in the Kabul Province of Afghanistan. The helicopter was transporting military personnel to Bagram Airbase when it encountered snow, rain, and ice. An initial Army investigation suggested that the aircraft’s engine control system unexpectedly shut down, causing the engine to fail. According to these investigators, the engine’s Digital Electronic Control Unit (DECU)—the onboard computer
that controls fuel flow to the engine—malfunctioned due to some kind of electrical anomaly. A different investigation suggested  that the aircraft’s engine flamed out because it ingested an inordinate amount of water and ice during the inclement weather. This other investigation further suggested, however, that the flameout might have been avoided if the MH-47E’s ignition system had been equipped with a continuous or automatic relight feature, which would have allowed the engine to restart automatically in the event of a water- or ice-induced flameout.

Plaintiffs sued the designers and manufacturers of the aircraft, and ATEC, a British company that designed the hardware and software for the DECU. Defendants removed the action to federal court pursuant  to the Federal Officer Removal Statute, 28 U.S.C. § 1442(a), which allows federal officers and agents to remove state-law claims to federal court by asserting a federal defense.

The court addressed first the dismissal of ATEC for lack of personal jurisdiction. According to plaintiffs, ATEC was subject to personal jurisdiction in California pursuant to Federal Rule of Civil Procedure 4(k)(2). This rule, which is commonly known as the federal long-arm statute, permits federal courts to exercise personal jurisdiction over a defendant that lacks contacts with any single state if the complaint alleges federal claims and the defendant maintains sufficient contacts
with the United States as a whole. The Ninth Circuit concluded that the arising-under-federal-law element of Rule 4(k)(2) is limited to substantive federal claims, a federally created cause of action. See World Tanker Carriers Corp. v. M/V Ya Mawlaya, 99 F.3d 717, 722 (5th Cir. 1996); United States v. Swiss Am. Bank, Ltd., 191 F.3d 30, 45 (1st Cir. 1999).

Whereas foreign defendants lacking sufficient contacts with any single state could previously avoid responsibility for civil violations of federal laws, the revised rule allows federal courts to exercise jurisdiction over these defendants, subject only to the limitations of the Fifth Amendment’s due process clause. Rule 4(k)(2) provides aggrieved plaintiffs with a mechanism for vindicating their federal rights in cases involving defendants that lack single-state contacts, but who possess minimum contacts with the United States as a whole.  However, Rule 4(k)(2) was narrowly tailored so as to avoid conflict with the Fourteenth Amendment’s jurisdictional limits in cases alleging only state-law claims.

Here, none of the purely state law claims by plaintiffs alleged any violation of a federal right and none sought the enforcement of federal law. The invocation of removal jurisdiction by a federal officer/agent does not revise or alter the underlying law to be applied. The only federal interest at issue—the contractors’ eligibility for a federal defense—had no bearing on plaintiffs’ ability to vindicate a federal right and it did not constitute an essential element of plaintiffs’ well-pleaded complaint.

The government contractor defense protects government contractors from tort liability that arises as a result of the contractor’s compliance with the specifications of a federal government contract. To invoke the defense successfully, the contractor must establish three elements: (1) the United States approved the specifications; (2) the equipment conformed to those specifications; and (3) the supplier warned the United States about the dangers in the use of the equipment that were known to the supplier but not to the United States.

On the first, a contractor must demonstrate that the government  approved reasonably precise specifications, meaning more  than a cursory “rubber stamp” approving the design. Plaintiffs argued that the necessary specifications were lacking, but the court was confident that the United States Army approved reasonably precise specifications. Among other things, the Army’s specification included diagrams and drawings for engine controls; engine configuration requirements; and tests for the engine’s ignition system. The government specifically reviewed defendant’s design analyses, reports, and test plans, and attended multiple formal design meetings. The contractor's discretion was limited to “implementation” of the specific design requirements contained within the approved specifications and this did not defeat the government contractor defense. See, e.g., McKay v. Rockwell Int’l Corp., 704 F.2d 444, 450 (9th Cir. 1983) (government contractor defense may still apply if the specifications leave some “discretion to the supplier in the formulation of the product’s design”); Oliver v. Oshkosh Truck Corp., 96 F.3d 992, 999 (7th Cir. 1996) (fact that Oshkosh may have retained some discretion to position the fuel tanks and exhaust system within the envelope permitted by the specifications, standing alone, does not defeat the government contractor defense),

The court also concluded that it makes no difference, for purposes of the government contractor analysis, that a similar engine control system had previously been developed for Great Britain’s Royal Air Force.  If the court were to hold otherwise, the potential for increased liability could dissuade contractors from providing the United States with sophisticated military equipment that they had initially designed for another nation’s armed forces. This ultimately would put the United States military at a competitive disadvantage: either the government would be unable to obtain necessary equipment or it would be forced to pay higher prices to offset the contractor’s increased risk of liability.

Second, the court held that the operative test for conformity with reasonably precise specifications
turns on whether the alleged defect existed independently of the design itself. To say that a product generally failed to conform to specifications is just another way of saying that it was defectively manufactured. Harduvel v. Gen. Dynamics Corp., 878 F.2d 1311, 1321 (11th Cir. 1989). Therefore, absent some evidence of a latent manufacturing defect, a military contractor can establish conformity with reasonably precise specifications by showing extensive government involvement in the design, review, development and testing of a product and by demonstrating extensive acceptance and use of the product following production. Here, the MH-47E conformed with the approved specifications for both the ignition system and the DECU. The government contractor defense does not depend upon satisfaction of some general performance goal. Otherwise, a product involved in a design-induced accident would, as a definitional matter, always be deemed not to comply with such generalities since no performance specifications approved by the government would purposely allow a design that would result in an accident. Kleemann v. McDonnell Douglas Corp., 890 F.2d 698, 703 (4th Cir. 1989). For the defense to have any substance, non-conformance to precise specifications must mean more than that the design does not work in compliance with some general admonition against an unwanted condition.

Third, the contractors satisfied the final requirement. With respect to the potential for a water- or ice-induced flameout, it is clear that the Army was already aware of this particular risk. And, at most, plaintiffs’ evidence suggests that the contractors should have been aware of the alleged defect, but the defense does not require a contractor to warn about dangers of which it merely should have known.

 


 

Supreme Court Decides Two Personal Jurisdiction Cases

At the end of the term, the Supreme Court decided two important personal jurisdiction cases, J.McIntyre Machinery Ltd. v. Nicastro, U.S., No. 09-1343, and Goodyear Luxembourg Tires SA v. Brown, U.S., No. 10-76.  The first opinions on this issue in two decades. Readers may recall we posted on these cases before, including on the grant of cert and the oral arguments.

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. 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.

The issue framed in Nicastro was: Whether, consistent with the Due Process Clause and pursuant to the stream-of-commerce theory, a state may exercise in personam jurisdiction over a foreign manufacturer when the manufacturer targets the U.S. market for the sale of its product and that product is purchased by a forum state consumer. The corresponding issue in Brown was: Whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant.

Let’s start with Brown. Plaintiffs were North Carolina residents whose sons died in a bus accident outside Paris, France. They filed suit for wrongful death in North Carolina state court. Alleging that the accident was caused by a tire failure, they named as defendants Goodyear USA, an Ohio corporation, and petitioners, three Goodyear USA subsidiaries, organized and operating, respectively, in Luxembourg, Turkey, and France. The tires at issue were manufactured primarily for European and Asian markets and differ in size and construction from tires ordinarily sold in the United States. The foreign subs affiliates were not registered to do business in North Carolina; had no place of business, employees, or bank accounts in the State; did not design, manufacture, or advertise their products in the state; and did not solicit business in the State or sell or ship tires to North Carolina customers. But, a small percentage of their tires were redistributed in North Carolina by other Goodyear USA affiliates.

The state court denied defendants’ motion to dismiss the claims against them for want of personal jurisdiction. A unanimous Supreme Court reversed.

The Court first reviewed the general principles: The Fourteenth Amendment’s Due Process Clause sets the outer boundaries of a state tribunal’s authority to proceed against a defendant. International Shoe (you remember that one from law school) provides that state courts may only exercise personal jurisdiction over an out-of-state defendant who has certain minimum contacts with a state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. The Court has recognized that jurisdiction could be asserted where the corporation’s in-state activity is “continuous and systematic” and gave rise to the episode-in-suit. The commission of “single or occasional acts” in a state may also be sufficient to render a corporation answerable in that state with respect to those acts, though not with respect to matters unrelated to those forum connections. These became known as “specific jurisdiction.” This notion is distinguished from cases in which the continuous corporate operations within a state are so substantial and of such a nature as to justify suit against it on causes of action even arising from dealings entirely distinct from those activities, “general jurisdiction.” Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U. S. 408.

Here, defendants lacked the kind of continuous and systematic general business contacts necessary to allow North Carolina to entertain a suit against them unrelated to anything that connects them to the state. The so-called stream-of-commerce cases on which the North Carolina court relied relate to exercises of specific jurisdiction in products liability actions, in which a nonresident defendant, acting outside the forum, places in the stream of commerce a product that ultimately causes harm inside the forum. Many state long-arm statutes authorize courts to exercise specific jurisdiction over manufacturers when the events in suit, or some of them, occurred within the forum state. The North Carolina court’s stream of commerce analysis ignored the essential difference between specific and general jurisdiction. Flow of a manufacturer’s products into the forum may or may not bolster an affiliation germane to specific jurisdiction, but here North Carolina was not a forum in which it would be permissible to subject petitioners to general jurisdiction.

[Finally, plaintiffs failed to preserve the possible argument that the courts should disregard petitioners’ discrete status as subsidiaries and treatment of all Goodyear entities as a “unitary business,” so that jurisdiction over the parent would draw in the subsidiaries as well.]

More contentious and complex were the issues in Nicastro, which resulted in a 6-3 decision with a plurality opinion by Justice Anthony Kennedy. Justices Breyer and Alito concurring in the judgment; and Justices Ginsburg, Sotomayor and Kagan dissenting.

Plaintiff injured his hand while using a metal-shearing machine that petitioner/defendant J. McIntyre Machinery, Ltd. manufactured in England, where the company is incorporated and operates. Nicastro filed a products liability suit in a state court in New Jersey, where the accident occurred. Defendant argued there was no personal jurisdiction. Nicastro’s jurisdictional claim was based on three primary facts:

1) a U. S. distributor agreed to sell J. McIntyre’s machines in this country;

2) J. McIntyre officials attended trade shows in several states, although not in New Jersey; and

3) exceedingly few J. McIntyre machines (the record suggested only one), ever ended up in New Jersey.

The NJ state court held that jurisdiction could be exercised as long as the manufacturer knew or reasonably should have known that its products were distributed through a nationwide distribution system that might lead to sales in any of the states-- even though at no time had it advertised in, sent goods to, or in any relevant sense targeted this specific state. This is a version of the so-called “stream-of-commerce” doctrine of jurisdiction, discussed by a plurality of the court in Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U. S. 102.

The Supreme Court reversed. The exercise of jurisdiction here would violate due process when the defendant never engaged in any activities in New Jersey that revealed an intent to invoke or benefit from the protection of the state’s laws. The plurality’s due process analysis is intriguing, and very traditional. A court may subject a defendant to judgment only when the defendant has sufficient contacts with the sovereign such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. But, “free-form” fundamental fairness notions divorced from traditional practice cannot transform a judgment rendered without authority into law. That some might argue subjecting the defendant to suit is “fair” is not enough. As a general rule, the sovereign’s exercise of power still requires some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws. In cases like this one, it is the defendant’s purposeful availment that would make jurisdiction consistent with “fair play and substantial justice” notions.

Justice Kennedy then went on to address the stream of commerce notion, stating that no “stream-of-commerce” doctrine can displace that general rule of purposeful availment, even for products liability cases. He acknowledged that the standards for determining state jurisdiction over an absent party have been a bit unclear because of decades-old questions left open in Asahi. This imprecision arising from Asahi, for the most part, resulted from its statement of the relation between jurisdiction and the notion of placing a product in the “stream of commerce.” That concept, like other metaphors, has its "deficiencies as well as its utilities."  A defendant’s placement of goods into commerce “with the expectation that they will be purchased by consumers within the forum State” may sometimes indicate purposeful availment. But that does not swallow the general rule of personal jurisdiction. The principal inquiry in cases of this sort is still whether the defendant’s activities manifest an intention to submit to the power of a sovereign. And the conclusion in this case that the authority to subject a defendant to judgment depends on purposeful availment is consistent with Justice O’Connor’s Asahi opinion, not that of Justice Brennan.

Nicastro did not establish below that J. McIntyre engaged in conduct purposefully directed at New Jersey. The company had no office in New Jersey; it neither paid taxes nor owned property there; and it neither advertised in, nor sent any employees to, the State. Indeed, the trial court found that petitioner did not have a single contact with the State apart from the fact that the machine in question ended up there. That’s not enough.

Justice Breyer, joined by Justice Alito, agreed that the New Jersey Supreme Court’s judgment must be reversed, but concluded 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 here, is not sufficient. Here, the relevant facts showed no “regular flow” or “regular course” of sales in New Jersey, nor any special state-related design, advertising, advice, or marketing.

So what dies it all mean? It is significant for foreign companies that the Court corrected the mistake of some lower courts which have blended the concepts of specific and general jurisdiction. And a majority of the Court feels that the mere fact that your product ends up in a state and injures someone there is not, by itself, sufficient to confer jurisdiction on that state’s courts. Both the plurality and the concurrence seem to agree that a rule like that adopted by the NJ court would erroneously permit every state to assert jurisdiction in a products liability suit against any domestic manufacturer who sells its products (made anywhere in the United States) to a national distributor, no matter how large or small the manufacturer, no matter how distant the forum, and no matter how few the number of items that end up in the particular forum at issue. But there is no majority agreement so far on whether there can ever be a proper exercise of jurisdiction when a case presents “contemporary commercial circumstances” regarding the sale of a product – presumably things like use of Internet marketing. And if a foreign defendant directs his conduct at the entire United States, the plurality suggests that conceivably the defendant may in principle be subject to the jurisdiction of the courts of the United States but not of any particular state, but it is not clear if the rest of the Court agrees. The plurality thought this might be rare in that foreign corporations will often target or concentrate on particular states, and it might depend on the product/industry.

 

State Appeals Court Finds Personal Jurisdiction Over Foreign Part Maker

An Illinois appeals court recently held that Illinois courts may exercise jurisdiction over a French manufacturer of helicopter parts. Russell v. SNFA, No. 1-09-3012 (Ill. App. Ct.,  3/31/11).  The court reversed the trial court's decision to dismiss the case for lack of personal jurisdiction.

Readers know that the issues of personal jurisdiction over foreign product manufacturers is currently pending before the U.S. Supreme Court as we have posted before. This case underscores the importance of Supreme Court guidance in this area.

Plaintiff’s brother died during a helicopter crash in Illinois. He was the pilot and sole occupant, and was working for Air Angels, a medical air service that did business primarily in Illinois and, in particular, Cook County.  Defendant SNFA, a French company, made a part for that helicopter, which plaintiff claims was defective and the cause of the crash. Specifically, plaintiff alleged that the crash was caused by  the failure of one of the helicopter’s tail-rotor drive-shaft bearings, which defendant manufactured. Plaintiff alleged that, as a result of this failure, the drive shaft fractured, leaving the tail rotor inoperable; and the helicopter spun out of control.

Defendant moved to dismiss on the ground that Illinois had no jurisdiction over it.  Illinois has a jurisdictional statute, like many states, with a catchall provision which permits Illinois courts to exercise jurisdiction on any other basis now or hereafter permitted by the Illinois Constitution
and the Constitution of the United States. This permits an Illinois court to exercise personal jurisdiction to the extent permitted by the due process clause of the 14th Amendment to the United States Constitution.

General jurisdiction exists when defendant’s general business contacts with the forum state are continuous and systematic. Specific jurisdiction exists when the cause of action arose out of defendant’s contacts with the forum state.  Here, the court of appeals found that the state court had specific jurisdiction over defendant.  One relevant factor is whether the litigation results from alleged injuries that arise out of or relate to the defendant's activities in the state or directed to the state. For a tort action, the state in which the injury occurs is often considered to be the state in which the tort occurred. In the case at bar, the injury occurred in Illinois, and thus Illinois was deemed the state in which this tort occurred.  Numerous prior cases had noted that tortfeasors must expect to be haled into Illinois courts for torts where the injury took place there.

The court of appeals was also persuaded by the fact that the defendant was the same, and indeed many of the facts alleged the same, as in Rockwell International Corp. v. Costruzioni Aeronautiche Giovanni Agusta, S.P.A., 553 F.Supp. 328 (E.D. Pa. 1982).  The federal court there had held that the forum state, which was the site of the crash, could exercise specific personal jurisdiction over defendant SNFA. In both cases defendant had allegedly custom-made bearings for an A-109 helicopter; a subsequent owner replaced the tail-rotor drive-shaft bearings, with ones also manufactured by defendant. In both cases plaintiff alleged that the bearings and the drive shaft
failed, causing the helicopter to crash.

The Illinois court also determined that a relevant sale occurred in the state, despite the fact that the defendant sold the parts outside the U.S. It found that the cause of action could be traced from the sale of the ball bearings by SNFA, through its chain of distribution, to the apparent malfunction that allegedly caused the helicopter to crash. As a result, the court concluded that the “sale, malfunction and injury all occurred within” the forum state.

Defendant argued against minimum contacts claiming that its sales of ball bearings to the helicopter-maker Agusta were confined to Europe and that a court should not blur the distinction between Agusta.  But the court stressed that because the ball bearings were custom-made, SNFA intended its products to be an inseparable part of the marketing plan of Agusta.  That is, the bearing was uniquely designed for incorporation into Agusta’s helicopter, and SNFA had to
distribute its product through Agusta’s distributions system.  Agusta provided defendant with precise specifications, and defendant manufactured the bearings according to those specifications. Defendant acknowledged that it knows that its custom-made tail-rotor bearings are
incorporated by Agusta into helicopters and also sold as individual replacement parts.

SNFA did not deny that it knew that Agusta helicopters were sold throughout the United States, and that Agusta had an American subsidiary for the purpose of American distribution. Given the distribution system, SNFA had ample reason to know, said the court, and expect, that its bearing, as a unique part of a larger product, would be marketed in any or all states, including the forum state. By virtue of having a component specifically designed for the Agusta helicopter, SNFA had a "stake in" and expected to derive definite benefit from sales of the Agusta A-109 (and replacement parts) in the United States.

In essence, Agusta was the marketer and distributor to the consumer of their joint and ultimate product. SNFA has chosen to leave to Agusta the marketing and distribution to the consumer. Agusta was thus called the conduit through which this SNFA product, custom-made for Agusta, reached the ultimate consumers.

Finally, because the court found that SNFA designed and manufactured a component that was incorporated into a product which was intended to be, and was in fact, sold in the United States, it also concluded that where that component allegedly fails and causes injury in the very market in which the product was expected to be sold, it is not unreasonable or unfair to require the defendant to be subject to suit in that forum.

In one respect, this case does not present the most aggressive application of specific jurisdiction, in that the facts suggest something beyond mere stream of commerce jurisdiction, something more than just plain having sold a product that found its way into the forum.  But of great concern for foreign manufacturers would be the analysis of the nationwide distribution scheme, and the notion that by selling a part to a customer that has a national distribution system, a manufacturer thereby exposes itself to tort suits everywhere in the U.S.

 


 

Supreme Court Hears Argument in Personal Jurisdiction Cases

Continuing our Supreme Court theme.  We have posted before about two cases involving personal jurisdiction over foreign corporations in state courts, now pending in SCOTUS.  McIntyre Machinery Ltd. v. Nicastro, U.S., No. 09-1343 (certiorari petition granted 9/28/10); Goodyear Luxembourg Tires SA v. Brown, U.S., No. 10-76 (certiorari petition granted 9/28/10). The former involves the assertion by New Jersey courts of jurisdiction over a European manufacturer of a machine that allegedly injured a state resident; the latter involves the assertion by North Carolina courts of general jurisdiction over the European affiliates of the manufacturer of tires allegedly responsibly for a vehicle accident in Europe injuring state residents on vacation there.

NICASTRO ORAL ARGUMENT
Several members of the Supreme Court were active in questioning the advocates in the Nicastro oral argument.  The defendant kept its argument focused on the “purposeful availment” branch of the prior case law on personal jurisdiction, the rule that a foreign company needs to intentionally take advantage of doing business in a state, and arguing that it matters whether the manufacturer directed the distributor to go to a certain state or controlled the relationship with customers in that state.

Several of the justices asked hypothetical questions about a variety of fact patterns beyond those presented by the case.  As difficult as the individual case may be per se, the Court recognizes that whatever rules it lays down here will have a potentially dramatic impact on foreign and domestic corporations, including small business, and the economy. Accordingly, a number of  questions were asked to help explore how the rules might impact other factual scenarios as well. Justice Kagan asked defense counsel to explain the difference between targeting the “United States” with your product and targeting one or more individual states, and whether targeting the country meant that you were automatically targeting each state within the country. (Traditionally, of course, the case law had focused on contacts with the individual state in which the defendant was being sued.) Justice Scalia asked whether the same issue arises for a domestic corporation; that is, a U.S. manufacturer could thus be sued in every state if it simply targeted the country as a whole.

Justice Ginsburg expressed concern about the whether plaintiff would be left with no forum (other than England) if New Jersey was not available, which led to a lengthy debate about Ohio, the home of the U.S. distributor, and the importance of the distributor contract. Justice Scalia returned to the notion of targeting the country, as opposed to a state, and wondered if the federal courts could be given jurisdiction over such cases by Congress, to which Justice Kennedy wondered aloud whether it would be “odd” to have federal courts but no state courts having jurisdiction over a state law-based product claim. This even led to a brief mention of the pending foreign manufacturer legislation in Congress, which we have posted on.

Justice Sotomayor asked about the facts in the record that the English company traveled to trade shows in the U.S., “approved” the marketing efforts of the distributor, or “suggested” certain advertising, and whether that would be enough to make it reasonable to be hauled into court where the product then has been sold. (Justice Kagan later asked plaintiff’s counsel about this, seemingly trying to get at whether the manufacturer knew and expected that people from all 50 states might attend the trade shows).  Chief Justice Roberts asked plaintiff’s counsel about what a manufacturer has to do to not be targeting a specific state, getting plaintiff to concede that both intent and conduct on the part of the manufacturer is needed to purposefully avail oneself. Justice Breyer and Justice Scalia seemed to observe that “availment” doesn’t mean much at all if the conduct of the English manufacturer here was sufficient.
 

Justice Breyer expressed the policy concern about subjecting every small business, even in developing countries, to the products liability law of each of the 50 states simply because they agreed to sell to an independent company that was going to sell in the U.S. generally. Justice Kagan and Justice Ginsburg prompted plaintiff’s counsel to say that a U.S. company doing the same thing in Europe as the English company did in this case would be subject to suit in the foreign country (implying that it was fair for the U.S. courts to do to foreign companies what foreign courts allegedly do to U.S. companies abroad). Chief Justice Roberts asked a hypothetical designed to address the issue of a plaintiff who lives in state A and commutes into state B to use the product at work, and whether he can also sue in his home state A, stating that “the stream of commerce doesn’t wash over the United States evenly.”

C.J. Roberts and Justice Kagan then asked about component parts makers. Plaintiff answered that there should be a different test for a component part maker and acknowledged that mere knowledge that the part would go into a machine to be sold in the U.S. was insufficient for the exercise of jurisdiction.

Justice Alito brought up the difficult issue of Internet websites, and Justices Breyer, Ginsburg, and Kennedy all later chimed in on this topic. Plaintiff drew a distinction (as some lower courts have) between a passive website, and an active site at which a plaintiff may have conducted the transaction for the product from his home computer. Plaintiff argued that the actual conduct of the sale was purposeful availment sufficient to be hauled into court there.


BROWN ORAL ARGUMENT
The Court then heard argument in the Brown case. Here, the argument generated far fewer questions.  While Justice Ginsburg seemed to ask the defendant difficult question in the New Jersey case, here she found “troubling” the North Carolina court’s apparent and questionable blending of the concepts of general and specific jurisdiction. Indeed, the argument focused on general jurisdiction as opposed to specific jurisdiction.

Much of the early part of the argument also involved a discussion of the relationship between the foreign subsidiary defendants and the parent U.S. corporation, which here had consented to jurisdiction. There were numerous questions about the subsidiaries and parent as a joint enterprise, the parent as agent of the subsidiaries, and whether the actions of the parent could be attributed to the subsidiaries for purposes of establishing jurisdiction over the subsidiaries. Justice Sotomayor asked whether plaintiff’s argument really was nothing more than a reverse of the typical principal-agent theory.

The federal government appeared in the case as amicus curiae and argued on behalf of defendants, against the finding of jurisdiction. It argued that even if the contacts of the parent could be attributed to the subsidiaries, those contacts still did not rise to the level necessary for the finding of general jurisdiction; and that the consent to jurisdiction of the parent would not extend to every corporation in the corporate family. Justice Scalia, in particular, seemed to be expressing some doubt that the level of coordination between the defendants demonstrated a unitary enterprise. The last part of the argument concerned policy issues, such as whether the finding of jurisdiction would cause companies to move all operations out of the U.S. for fear that even the actions of a separate entity in the corporate family would keep them in the U.S. courts.

Both cases were submitted for consideration, with decisions expected late in the spring of 2011.

Update on Jurisdiction Cases Pending in Supreme Court

We alerted readers recently that the Supreme Court had granted review in two product liability cases that raise cutting edge personal jurisdiction issues that may not only impact foreign manufacturers but and may also alter due process/personal jurisdiction jurisprudence generally. See J. McIntyre Machinery Ltd. v. Nicastro, U.S., No. 09-1343 (certiorari petition granted 9/28/10); Goodyear Luxembourg Tires SA v. Brown, U.S., No. 10-76 (certiorari petition granted 9/28/10).

Personal jurisdiction, of course, 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. As a very 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.

The issue framed in Nicastro is: Whether, consistent with the Due Process Clause and pursuant to the stream-of-commerce theory, a state may exercise in personam jurisdiction over a foreign manufacturer when the manufacturer targets the general, overall U.S. market for the sale of its product and that product is purchased by a forum state consumer. The corresponding issue in Brown is: Whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant.

"Stream of commerce" personal jurisdiction, debated frequently in the lower courts, if recognized by the Supreme Court, might allow any state to assume jurisdiction over any product manufacturer whose product found its way into the state, no matter how many independent, separate distributors the product had passed through in separate legal transactions. The original stream of commerce idea had included the element of a manufacturer's expectation that its products will be purchased in the specific forum state. Many foreign and out-of-state manufacturers reasonably should know that their products are distributed through a system that might result in sales in any given state. Should that be enough? Readers may recall that the Supreme Court took a look at "stream of commerce" jurisdiction over 20 years ago, and split with no majority decision. But a plurality rejected the "stream of commerce" concept in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987).

The foreign companies appealing the two state court rulings in two product liability cases recently filed merits briefs. See J.  McIntyre Machinery Ltd. v. Nicastro, No. 09-1343 (U.S. brief submitted 11/12/10); Goodyear Luxembourg Tires SA v. Brown,  No. 10-76 (U.S. brief submitted 11/12/10). There's a link to the Goodyear brief from the ABA Supreme Court Preview, and the McIntyre brief. Also, amici curiae filed briefs, including PLAC, Dow Chemical Canada ULC, the former ATLA now know as American Association for Justice, the Chamber of Commerce of the United States of America, and  the Organization for International Investment and Association of International Automobile Manufacturers Inc. 

In the NJ case, the defendant asks how a “new reality” of “a contemporary international economy” permits a state to exercise in personam jurisdiction over a foreign manufacturer pursuant to the stream of commerce theory solely because the manufacturer targets the US market for the sale of its product and the product is purchased by a forum state consumer?  The petitioner argues that the analysis in Justice O’Connor’s concurring opinion in Asahi is the better view; first, it embodies the requirement of active engagement, of personal agency, that the Supreme Court has made the centerpiece of its formulations of personal jurisdiction limits under the Constitution. Second, it avoids the subjectivity that inheres in the test of mere awareness advanced by
Justice Brennan on the other side of the Asahi split. A concrete formulation is especially valuable in giving out-of-state actors the fair notice that the Court  has  deemed essential in allowing persons to conform their behavior to avoid, if they choose, the possibility of being haled into the courts of a state.  A defendant must intentionally act and direct that action at, and sufficiently in, the very state that seeks to exercise power over that person. Only through purposeful availment a producer will have a fair opportunity to conform its conduct so as to avoid state power if the producer chooses. To predicate jurisdiction on anything less leads to a rule where every seller of chattels would in effect appoint the chattel his agent for service of process and his amenability to suit would travel with the chattel.

 
The Goodyear brief notes that, unlike specific jurisdiction—which inherently must adapt to the permutations raised by varying claims—general jurisdiction, which does not vary from claim to claim, is more susceptible to precise rules. Indeed, one of its primary functions is to provide a certain and predictable place where a person can be reached by those having claims against him. No Supreme Court decisions have held that a manufacturer’s mere participation in the stream of
commerce could create general jurisdiction wherever the manufacturer’s products were distributed. To the contrary, most courts have repeatedly indicated that injecting a product, even in substantial volume, into a forum’s stream of commerce, without more, does not support general jurisdiction. General jurisdiction based on the stream of commerce theory violates traditional notions of fair play and substantial justice because essentially universal jurisdiction would exist in every state’s courts over every significant seller of goods, foreign or domestic. Because general jurisdiction must be justified solely by reference to the relationship between the state and the defendant, that relationship must be so significant — sufficiently substantial and of such a nature — as to give the state a basis for global judicial authority over all of the defendant’s conduct, wherever it occurs.
 

The Supreme Court has set argument in the two cases for Jan. 11, 2011. They will be argued separately.

 

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.

 

Supreme Court Grants Cert in Important Personal Jurisdiction Cases

Last week, the Supreme Court granted review in two product liability cases that raise cutting edge personal jurisdiction issues that may not only impact foreign manufacturers but and may also alter due process/personal jurisdiction jurisprudence. See J. McIntyre Machinery Ltd. v. Nicastro, U.S., No. 09-1343 (certiorari petition granted 9/28/10); Goodyear Luxembourg Tires SA v. Brown, U.S., No. 10-76 (certiorari petition granted 9/28/10).  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.  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.

The issue framed in Nicastro is: Whether, consistent with the Due Process Clause and pursuant to the stream-of-commerce theory, a state may exercise in personam jurisdiction over a foreign manufacturer when the manufacturer targets the U.S. market for the sale of its product and that product is purchased by a forum state consumer.  The corresponding issue in Brown is: Whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant.

Readers may recall our previous post on Nicastro. The state court held that a foreign manufacturer will be subject to its jurisdiction if it knows or reasonably should know that through its distribution scheme its products are being sold in the state. 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 consumer, causing injury, said the state court. 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.  If a manufacturer does not want to subject itself to the jurisdiction of a state 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 supposedly permitted by due process, has reflected those historical developments, found the state court.

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. 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, indirectly, 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 in Nicastro

"Stream of commerce" personal jurisdiction, if recognized, would allow any state to assume jurisdiction over any product manufacturer whose product found its way into the state, no matter how many independent, separate distributors the product had passed through in separate legal transactions. A lengthy dissent in Nicastro 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.  Many foreign and out-of-state manufacturers reasonably should know that their products are distributed through a system that might result in sales in any given state.  As applied in this case, it seems to eliminate any requirement of intentional state-specific activity by the defendant. And in that respect, has potential implications for lots of entities besides foreign product manufacturers. 

You may recall that the Supreme Court took a look at "stream of commerce" jurisdiction over 20 years ago, and split with no majority decision. But a plurality rejected the "stream of  commerce" concept in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987). 

The Court called for these cases to be argued in tandem.  The Brown case arises from a bus accident in France that killed two North Carolina residents whose families sued foreign affiliates of Goodyear Tires.  Again this case raises the issue whether activities on the part of the foreign manufacturer should subject them to personal jurisdiction in the U.S., and whether there is "purposeful availment" just because the product is sold in a state -- that is, as long as the defendant intentionally placed their products into the stream of commerce without attempting to exclude a specific state. Brown also raises the issue whether the state court confused "specific jurisdiction"--which applies only in suits arising out of or related to the defendant’s contacts with the forum--  with "general jurisdiction," which, where applicable, permits a defendant to be haled
into court in the state on any claim whatsoever, but only when the defendant’s activities in a state are so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities.

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).