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.

 

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.

 

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.

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.

 

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.

 

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).