Supreme Court Issues General Jurisdiction Opinion

The U.S. Supreme Court rued last week that defendant DaimlerChrysler Corp. could not be sued in in California over an Argentine subsidiary’s alleged tortious conduct under the theory of general jurisdiction.  See Daimler AG v. Barbara Bauman et al., No. 11-965 (U.S. 1/14/14).

Plaintiffs were twenty-two residents of Argentina who filed suit in California Federal District Court, naming as a defendant DaimlerChrysler Aktiengesellschaft (Daimler),a German public stock company that is the predecessor to the petitioner, Daimler AG.  Their complaint alleged that Mercedes-Benz Argentina (MB Argentina), an Argentinian subsidiary of Daimler, engaged in various illegal conduct respecting unions from 1976 to 1983 in Argentina. Personal jurisdiction over Daimler was predicated on the California contacts of Mercedes-Benz USA, LLC (MBUSA), yet another Daimler subsidiary, one incorporated in Delaware with its principal place of business in New Jersey.  (MBUSA distributes Daimler-manufactured vehicles to independent dealerships throughout the United States, including California.)  

Daimler moved to dismiss the action for want of personal jurisdiction. Opposing that motion, plaintiffs argued that jurisdiction over Daimler could be founded on the California contacts of MBUSA. The District Court granted Daimler’s motion to dismiss. Reversing the District Court’s judgment, the Ninth Circuit held that MBUSA, which it assumed to fall within the California courts’ all-purpose jurisdiction, was Daimler’s “agent” for jurisdictional purposes, so that Daimler, too, should generally be answerable to suit in that State. Daimler moved for cert.

The Supreme Court held that Daimler was not amenable to suit in California for injuries allegedly caused by conduct of MB Argentina that took place entirely outside the United States.

California’s long-arm statute allows the exercise of personal jurisdiction to the full extent permissible under the U. S. Constitution. Thus, the inquiry here became whether the Ninth Circuit’s holding comported with the limits imposed by federal due process. International Shoe distinguished exercises of specific, case-based jurisdiction from a category known as “general jurisdiction,” exercisable when a foreign corporation’s continuous corporate operations within a state are so substantial and of such a nature as to justify suit against it even on causes of action arising from dealings entirely distinct from those activities. Since International Shoe, specific jurisdiction has become the centerpiece of modern jurisdiction theory. The Supreme Court’s general jurisdiction opinions, in contrast, have been few.

The Court said that even assuming, for purposes of this decision, that MBUSA qualifies as at home in California, Daimler’s affiliations with California were not sufficient to subject it to the general jurisdiction of that State’s courts. Whatever role "agency" theory might play in the context of general jurisdiction, the Court of Appeals’ analysis in this case could not be sustained. The Ninth Circuit’s agency determination rested primarily on its observation that MBUSA’s services were “important” to Daimler, as gauged by Daimler’s hypothetical readiness to perform those services itself if MBUSA did not exist. But if  mere “importance” in this sense were sufficient to justify jurisdictional attribution, observed the Court, foreign corporations would be amenable to suit on any or all claims wherever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the sprawling view of general jurisdiction the Court has rejected in cases like Goodyear.  

Even assuming that MBUSA was at home in California and that MBUSA’s contacts were imputable to Daimler, there would still be no basis to subject Daimler to general jurisdiction in California, said the Court. The paradigm all-purpose forums for general jurisdiction are a corporation’s place of incorporation and principal place of business.  Plaintiffs’ reasoning, however, would reach well beyond these exemplar bases to approve the exercise of general jurisdiction in every State in which a corporation engages in a substantial, continuous, and systematic course of business. The Court felt that the words “continuous and systematic,” were misread by plaintiffs and the Court of Appeals; they were used in International Shoe to describe situations in which the exercise of specific jurisdiction would be appropriate. See 326 U. S., at 317. With respect to all-purpose jurisdiction, International Shoe spoke instead of  instances in which the continuous corporate operations within a state were so substantial and of such a nature as to justify suit on causes of action arising from dealings entirely distinct from those activities.  Id., at 318. Accordingly, the proper inquiry, the Court explained, was whether a foreign corporation’s affiliations with the State are so continuous and systematic as to render it essentially at home in the forum State.

Neither Daimler nor MBUSA was incorporated in California, nor did either entity have its principal place of business there. If Daimler’s California activities sufficed to allow adjudication of this Argentina-rooted case in California, the same global reach would presumably be available in every other State in which MBUSA’s sales were sizable. No decision of the Supreme Court ever sanctioned a view of general jurisdiction so grasping. The Ninth Circuit, therefore, had no warrant to conclude that Daimler, even with MBUSA’s contacts attributed to it, was at home in California, and hence subject to suit there on claims by foreign plaintiffs having nothing to do with anything that occurred or had its principal impact in California.

The Court referred to the "transnational context" of the dispute, essentially making the point that U.S. courts are not suppose to be widely open to cases being brought against foreign companies when the underlying facts of the case have essentially nothing to do with the U.S.  The Supreme Court now has confirmed that general jurisdiction is typically limited to a jurisdiction companies can expect to be sued in, essentially where they are at home.

 

Judge Nominated for Vacant State Supreme Court Slot

For our readers with litigation in Pennsylvania:

Pennsylvania Governor Tom Corbett announced last week that he will nominate state Superior Court (appeals) Judge Correale F. Stevens to fill the vacancy on the Pennsylvania Supreme Court created by the resignation of former Justice Orie Melvin.

Judge Stevens is a graduate of Dickinson Law School and has been President Judge of the Superior Court since 2011. If confirmed by the state Senate, he would serve on the Supreme Court until January 2016, with an election to fill the vacancy taking place in November 2015.

Currently, the Supreme Court is split 3-3 between Republican and Democratic justices.  There are a number of important issues before the Court, including the possible adoption of the Third Restatement of Torts in the Tincher case.

 

Supreme Court Decides Comcast

The Supreme Court weighed back in on the issues of class certification last month in Comcast v. Behrend, No. 11-864 (U.S. 3/27/13). Writing for the majority, Justice Scalia stated that the class had been improperly certified under Fed. R. Civ. P. 23(b)(3)'s predominance prong, in an opinion that bears careful scrutiny for our readers, but probably did not cover as much ground as some thought it would when cert was granted (no further guidance on Daubert at the class stage).

Plaintiffs brought a class action antitrust suit, under Rule 23(b)(3), claiming Comcast subscribers in the Philadelphia area were harmed because of a specific Comcast strategy that allegedly lessened competition and would lead to higher prices. Comcast allegedly “clusters” their cable television operations within a particular region by swapping their systems outside the region for competitor systems inside the region.  Plaintiffs offered several theories as to why this alleged approach harmed them: it allowed Comcast to withhold local sports programming from its competitors, resulting in decreased market penetration by direct broadcast satellite providers; it allegedly reduced the level of competition from “over-builders,” companies that build competing cable networks in areas where an incumbent cable company already operates; it reduced the level of “benchmark” competition on which cable customers rely to compare prices; and it allegedly increased Comcast’s bargaining power relative to content providers.

The District Court ruled that plaintiffs had to show that the “antitrust impact” of the violation could be proved at trial through evidence common to the class and that the damages were measurable on a class-wide basis through a “common methodology.” The trial court then certified the class, but accepted only one of the four proposed theories of antitrust impact. The Third Circuit affirmed, noting again its artificial separation of class and merits issues:  we "have not reached the stage of determining on the merits whether the methodology is a just and reasonable inference or speculative." The court of appeals concluded that Comcast's attacks on the merits of the methodology had "no place in the class certification inquiry.”

Of course class certification is a procedural step, not the occasion to decide which side has the winning case, but in recent years the Supreme Court has been telling the lower courts that the line between merits and certification is not such a bright line.  The Third Circuit ran afoul of this admonition when it refused to entertain arguments against the damages model that bore on the propriety of class certification simply because they might also be pertinent to the merits determination. A certifying court may have to probe behind the pleadings before coming to rest on the certification question; certification is proper only if the trial court is satisfied, after a rigorous analysis, that Rule 23’s prerequisites have been satisfied. Such an analysis will frequently overlap with the merits of the plaintiff ’s underlying claim because a class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff ’s cause of action. A District Court cannot refuse to evaluate evidence at the class certification stage just because that same evidence relates to the merits of the claims. In so doing, the Court made clear that the rigorous analysis discussed in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), applies to both the Rule 23(a) factors and the Rule 23(b) prerequisites. 

The figures that plaintiffs' expert used were calculated assuming the validity of all four theories of antitrust impact originally proposed, and did not delineate the differences between the allegedly supra-competitive prices prices attributable to over-builder deterrence, and the prices caused by other economic factors.  To ignore that would reduce the Rule 23(b)(3) predominance requirement to a nullity. The questions of individual damages calculations here would inevitably overwhelm questions common to the class in this antitrust case; the plaintiffs' model fell far short of establishing that damages were capable of measurement on a class-wide basis. Thus, the Court made clear that plaintiffs must offer a method sufficient to calculate damages on a class-wide basis in Rule 23(b)(3) class actions or risk losing certification.

 

Federalists Debate Business in Supreme Court

Let's get out of the weeds today and think lofty thoughts. The Federalist Society's 2012 National Lawyers Convention was held earlier this month in Washington, D.C.  Readers may know that the society is an organization of 40,000 lawyers, law students, scholars, and other individuals "who believe and trust that individual citizens can make the best choices for themselves and society."

The topic of this year's convention was: The Future of U.S. Constitutional Law in the Supreme Court. The Convention addressed the fact that, at the present time, the Supreme Court seems closely divided on many foundational topics in constitutional law, such as federalism, separation of powers, and religious liberties.

One interesting panel was - Litigation: Business Cases in the Roberts Court: Perception and Reality,  which included practitioners, professors, and judges.  Some participants argued that this Court has issued pro-business decisions in nearly every major case, while others noted that the issue was a bit more complex.  For example, was Citizens United v. Federal Election Commission, 558 U.S. 50 (2010), a pro-business decision, or better seen as a victory for free speech?   Other speakers observed that a significant part of the Court's docket is in fact business v. business cases, so, by definition, a business will prevail.  

Still other panelists noted that many of the pro-business decisions arose in the class action context, which the Court had left inadequately tended and which saw numerous splits in the lower courts.  It will be interesting to see what the Court does in Comcast on Daubert, and in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 81 U.S.L.W. 3258 (U.S. argued 11/13/12) on materiality.

Supreme Court Grants Cert in CAFA Case

Here is one to watch, especially for our readers with a class action practice. The U.S. Supreme Court granted certiorari last week in a case raising the issue whether class plaintiffs may stipulate to a damages amount below the jurisdictional threshold of the Class Action Fairness Act to avoid removal of the case to federal court. See Standard Fire Insurance Co. v. Knowles, No. 11-1450, U.S., certiorari granted 8/31/12).

Since the Act was passed in 2005, as surely as one end of a balloon expands when you squeeze the other end, litigants have reacted to the Congressional effort to expand federal jurisdiction over class actions by seeking exceptions and loopholes to keep the cases in state court.  This case will be the first time the Supreme Court considers a case arising under CAFA, and one of those creative efforts to avoid its reach.

Readers will recall that CAFA allows for removal of class actions in which just minimal diversity exists and the amount in controversy exceeds $5 million. A number of class plaintiffs have attempted to defeat the defendant's removal under the Class Action Fairness Act by filing a stipulation that purports to limit the damages sought to less than the $5 million threshold for federal jurisdiction.  A key question is whether that stipulation can be binding on absent class members, and thus possibly impact federal jurisdiction, when the Court recently reaffirmed that in a putative class action "the mere proposal of a class ... could not bind persons who were not parties." Smith v. Bayer Corp., 131 S. Ct. 2368, 2382 (2011).  In light of that holding, the question presented in this case is:

When a named plaintiff attempts to defeat a defendant's right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a "stipulation" that attempts to limit the damages he "seeks" for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the "stipulation," exceeds $5 million, is the "stipulation" binding on absent class members so as to destroy federal jurisdiction?


The facts of the case involve a putative class action in Arkansas state court alleging that defendant Standard Fire Insurance Co. breached homeowners insurance policies by failing to fully  reimburse losses.  Standard Fire attempted to remove the case under CAFA but the federal district court remanded the case pursuant to the stipulation that plaintiffs would not seek damages above $5 million.   The Eighth Circuit denied Standard Fire's petition to appeal the remand order. Defendant then petitioned the Supreme Court for certiorari.  The U.S. Chamber of Commerce weighed in with an amicus brief in favor of the petition.


The petition argued that putative class members are not bound by such actions taken by the named plaintiffs before class certification. Such a limitation, if effective at the time suit is filed, would violate the due process rights of the proposed class members.  The Chamber echoed that district courts must conduct a meaningful analysis to determine with legal certainty whether the stipulation will truly limit the ability of absent class members to recover no more than the stipulated amount, and whether the stipulation is consistent with due process. If allowed to stand, the lower court's decision could result in an enormous CAFA loophole allowing plaintiffs to drag businesses into class action-friendly state court systems.  Plaintiff argued that the petition was premature because the issue could be considered at the class certification stage within the adequacy of representation prong. 

Definitely one to watch.

Cameras in the Supreme Court?

While we at MassTortDefense usually focus on the results of appellate advocacy, earlier this  week saw an interesting debate about a process issue: whether the  U.S. Supreme Court  should be required to televise oral arguments.

Attorneys and judges with strong views on putting cameras in the high court  testified at a hearing before the U.S. Senate Judiciary Committee on Tuesday.  Speakers included The Honorable Mark Cady, Chief Justice of the Iowa Supreme Court, and The Honorable Anthony Scirica, Chief Judge
United States Court of Appeals for the Third Circuit.

Judge Scirica is not in favor of the Cameras in the Courtroom Act, which was introduced by Sens. Dick Durbin, D-Ill., and Chuck Grassley, R-Iowa.  He addressed three concepts that merit consideration in this discussion—transparency, accessibility, and the respect among the branches that allows each to govern its own deliberations.  He argued that the Court is sufficiently transparent: it explains its decisions in detail. Traditionally this was done through the printed word; now it is done through the electronic word as well, with opinions available on-line as soon as the decision is announced. These opinions constitute are binding precedent on questions of federal law.  Dissenting and concurring opinions by other Justices highlight for the public precisely, and at times quite forcefully, where the members of the Court disagree. Even before a final disposition, where certiorari has been granted, its website links to the lawyers’ briefs so the public may read and download them. Of course, all Court sessions have always been open to the public. But the Court now provides same-day transcripts of oral arguments on its website.

Judge Scirica noted how some lower court judges feel that televisions in the court disrupt courtroom proceedings at least to some extent, while others believe it makes lawyers more theatrical (is that possible?).  Others suggested it may cause judges to alter their questioning during arguments. Many district court judges have also expressed concern over cameras’ effect on witnesses and jurors.

Bottom line, he suggested that the complexities of this issue underscore the considerable latitude that should be afforded the Supreme Court in determining its own internal procedures. Determining whether to televise proceedings goes to the heart of how the Court deliberates and conducts its proceedings.

Senator Leahy, however, stated that the time has come for the Supreme Court to voluntarily open their proceedings to the American people. The high court's upcoming review of the Affordable Care Act, is a significant moment in our nation's history and our understanding of our fundamental charter. This decision will affect every one of us in this country. "The American people deserve to know what is being said as it is being said," he urged.  

The publisher of the outstanding SCOTUSblog wryly noted that the Justices are among the few people in Washington not trying to get on television.  He suggested that televising proceedings would ultimately be good for the Supreme Court, but favored the approach of the Sunshine in the Courtroom Act of 2011, a bill he said demonstrates critical respect for the separation of powers by respecting the judiciary’s autonomy in choosing whether to implement cameras for use.

Amicus Urges Supreme Court to Reverse Causation Junk Science Decision

DRI (the Defense Research Institute) last week submitted an amicus brief urging the Supreme Court to review a federal appeals court decision that threatens to undermine the gatekeeper role of the trial courts on expert testimony. United States Steel Corp. v. Milward v. Acuity Specialty Products Group Inc., No. 11-316 ( U.S., amicus petition filed 10/12/2011).

Most of our readers know that DRI is an international organization that includes more than 23,000 attorneys involved in the defense of civil litigation.  DRI has long been a voice in the ongoing effort to make the civil justice system more fair, efficient, and—where national issues are involved—consistent. (Your humble blogger is a member.)

In this case, the plaintiff alleged that he contracted a rare form of cancer, acute promyelocytic leukemia (APL), through exposure to benzene or benzene contaminants. The plaintiff’s expert acknowledged that science has not determined what causes or can cause APL, but opined that, based on his own "judgment," the "weight of evidence" supported a conclusion that APL could be caused by benzene exposure. After a four-day hearing, the district court excluded the expert testimony as unreliable under Daubert, and Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997)(district courts need to exclude proof that is connected to the data only by the ipse dixit of an expert), finding that it amounted to no more than a plausible hypothesis. The U.S. Court of Appeals for the First Circuit reversed and reinstated the case, holding that it was an abuse discretion to exclude this evidence as to possible causation.

The First Circuit in this case appeared to think that district courts not only may but must admit speculative expert testimony that rests on nothing more than the expert’s subjective judgment that an untested hypothesis is supported by the “weight of the evidence.”  That decision conflicts with Supreme Court guidance and with the decisions of other circuits holding that expert testimony is admissible only when it rests on a reliable scientific foundation, and that a district court is not required to accept an expert’s ipse dixit but must instead carefully examine the methods and data underlying the expert’s opinion to ensure that the expert has reliably applied valid scientific principles. Without such an inquiry, the “gatekeeper” function the Federal Rules of Evidence envision for the district court judge becomes meaningless.

DRI correctly points out that the weight-of-the-evidence methodology the court of appeals endorsed does not satisfy the criteria Daubert adopted for assessing the reliability of expert testimony. It is neither testable nor falsifiable; it is not governed by any objective standards; and it has not been generally accepted by the scientific community as a means to assess medical causation absent an observed association between the substance and disease at issue. The fact that some regulatory agencies use an arguably similar, lower bar, methodology to assess risks to public health based on the available data does not mean that it yields “scientific knowledge” admissible under the very different standards governing a court proceeding.

Moreover, the district court’s essential gate-keeping role is particularly important on the issue of medical causation. That issue is often dispositive in toxic tort and product liability cases, which can involve enormous stakes not only for the parties, but also for the national economy. The lay jurors who decide these complicated issues are likely to be greatly influenced by testimony that appears to be scientific in nature coming from a witness whom the court has admitted as an "expert." The decision by the First Circuit undermines the critical screening function district courts perform to prevent juries from being misled by speculation masquerading as scientific knowledge.

 

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.

 

Supreme Court Decides Global Warming Case

In the third of our trilogy this week, let's take a look at the Supreme Court's decision in  American Electric Power Co. v. Connecticut, No. 10-174 (U.S. 6/20/11).

Readers may recall from our previous posts that in 2004, two groups of plaintiffs, one consisting of eight states and New York City, and the other consisting of three land trusts, sued six electric power corporations that own and operate fossil-fuel-fired power plants, seeking abatement of defendants' alleged ongoing contributions to the "public nuisance of global warming." Plaintiffs claimed that global warming, to which the defendants allegedly contributed as large emitters of carbon dioxide, is causing, and will continue to cause serious harm affecting human health and natural resources.

Plaintiffs brought these actions under the federal common law of nuisance to force defendants to cap and then reduce their carbon dioxide emissions. The district court held that plaintiffs' claims presented a non-justiciable political question and dismissed the complaints. On appeal, plaintiffs argued that the political question doctrine does not bar adjudication of their claims; that they had standing to assert their claims; that they had properly stated claims under the federal common law of nuisance; and that their claims were not displaced by any federal statutes.

In a lengthy opinion, the Second Circuit held that the district court erred in dismissing the complaints on political question grounds; that all of plaintiffs had standing; that the federal common law of nuisance governs their claims; that plaintiffs had stated claims under the federal common law of nuisance; that their claims were not displaced. In a very minimalist interpretation of what is needed for standing, the Second Circuit distinguished multiple precedents of the Supreme Court which held that to have standing a plaintiff must allege an injury that is concrete, direct, real, and palpable -- not abstract. Injury must be particularized, personal, individual, distinct, and differentiated -- not generalized or undifferentiated.

An equally divided Court affirmed the Second Circuit’s exercise of jurisdiction. (Justice Sotomayor took no part in the consideration or decision of this case because of her participation in the 2d Circuit.). But the Court then held that  the Clean Air Act displaces any federal common law right to seek abatement of carbon-dioxide emissions from fossil-fuel fired power plants. It was an academic question whether, in the absence of the Clean Air Act and the EPA actions the Act authorizes, the plaintiffs could state a federal common law claim for curtailment of greenhouse gas emissions because of their alleged contribution to global warming -- because any such claim would be displaced by the federal legislation authorizing EPA to regulate carbon-dioxide emissions.

When Congress addresses a question previously governed by a decision rested on federal common law, the Court explained, the need for such an unusual exercise of law making by federal courts disappears. Legislative displacement of federal common law does not require the same sort of evidence of a clear and manifest Congressional purpose demanded for preemption of state law.  The Court thus held that the Clean Air Act, and the EPA actions it authorizes, displace any federal common law right to seek abatement of carbon-dioxide emissions from fossil-fuel fired power plants. Precedent made plain that emissions of carbon dioxide qualify as air pollution subject to regulation under the Act, and it was equally plain that the Act “speaks directly” to emissions of carbon dioxide from the defendants’ plants.

If EPA did not set emissions limits for a particular pollutant or source of pollution, States and private parties could always petition for a rulemaking on the matter, and EPA’s response would be reviewable in federal court. The Act itself thus provides a means to seek limits on emissions of carbon dioxide from domestic power plants—the same relief the plaintiffs were seeking by invoking federal common law. The Court saw no room for "a parallel track."

The plaintiffs argued that federal common law should not be displaced until EPA actually exercises its regulatory authority, i.e., until it sets standards governing emissions from the defendants’ plants. The Court disagreed. The critical point was that Congress delegated to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants; the delegation is what displaces federal common law.

Interestingly, although the split-court did not change the jurisdictional ruling, the Court did note that the appropriate amount of regulation in any particular greenhouse gas-producing sector cannot be prescribed in a vacuum: as with other questions of national or international policy, informed assessment of competing interests is required. Along with the environmental benefit potentially achievable, our Nation’s energy needs and the possibility of economic disruption must weigh in the balance.  The Clean Air Act entrusts such complex balancing to EPA in the first instance, in combination with state regulators. It was "altogether fitting" that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse gas emissions. "The expert agency is surely better equipped to do the job than individual district judges issuing ad hoc, case-by-case injunctions."  A statement that sounds alot like defendant's jurisdictional argument. 

The Court went on: federal judges lack the scientific, economic, and technological resources an agency can utilize in coping with issues of this order. Judges may not commission scientific studies or convene groups of experts for advice, or issue rules under notice-and-comment procedures inviting input by any interested person, or seek the counsel of regulators in the States where the defendants are located. Rather, judges are confined by a record comprising the evidence the parties present. Moreover, federal district judges, sitting as sole adjudicators, lack authority to render precedential decisions binding other judges. 

Notwithstanding these disabilities, the plaintiffs proposed that individual federal judges determine, in the first instance, what amount of carbon-dioxide emissions is “unreasonable,” and then decide what level of reduction is “practical, feasible and economically viable.” These determinations would be made for the defendants named in the litigation, and then similar suits could be mounted against thousands of other defendants fitting the plaintiffs' description “large contributors” to carbon-dioxide emissions.

Thus, since the decision turned on the displacement by Congressional designation of EPA as the prime decision-maker on regulation of emissions, if efforts underway in Congress to take away EPA's authority succeed, this may affect future global warming cases.  The Court also declined to decide the plaintiffs’ state-law claims, leaving that battle for another day.  Nevertheless, the issues of judicial competence and discretion highlighted by the Court may serve to deter federal judges from making environmental policy under any substantive law.  Also left open is whether a State may sue to abate any and all manner of pollution originating outside its borders.

Supreme Court Declines To End Multiple Class Action Mischief

The second of our Supreme Court trilogy for the week.  The Court ruled last week in Smith v. Bayer Corp., No. 09-1205, that a federal district court was prevented by the the Anti-Injunction Act from enjoining a state court from entertaining plaintiff's motion to certify a class action even when that federal court had earlier denied a similar motion to certify an overlapping class in a closely related case.

Generally, the Anti-Injunction Act bars a federal court from granting injunctions to stay proceedings in state courts except where specifically authorized by Congress, or "where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."  Most of our readers hoped that the Court would agree with the lower courts' ruling that this was just such an exception.

The Smith case involved the issue whether a federal court can enjoin class members from bringing a product liability class suit in a state court after the federal court declined to certify a similar class. Specifically, the Baycol MDL court in Minnesota had denied class certification, and the court of appeals upheld the injunction barring plaintiffs from bringing virtually the same suit in West Virginia state court. The federal court of appeals in fact unanimously affirmed, holding that the injunction was authorized by the All Writs Act and the re-litigation exception to the Anti-Injunction Act, and that petitioners did not have a due process right to re-litigate class certification.

The Supreme Court, unfortunately, reversed, in a decision that may encourage forum shopping.

-The decision encourages "creative" case structuring strategies by the plaintiffs' bar to give themselves a second bite at the apple (or more) in class claims, even after the federal court properly denies certification, and even when the state class law mirrors Federal Rule 23; here, the Court found that an application of West Virginia's Rule 23 did not present the same exact issue as the application of the federal rule version, even though the language of the rules is nearly identical.

-The decision highlights the double-edged sword that is federalism; now, the preclusive effect of a certification denial, if any, will be decided by state courts applying the notions of res judicata rather than by the enjoining court.  This comports with the general notion that the second court looking back decides the impact, not the first court looking forward.  But readers are well aware of the hard-to-fathom preclusion decisions some state courts have fashioned in the class action context.  E.g., the Engle class in Florida. And, as plaintiffs told Justice Ginsburg in oral argument of the case, a state has the right to apply and interpret a rule of civil procedure "as it sees fit to manage its own docket and administrate its own docket as it sees fit."

-As a practical matter, it invites "if at first you don't succeed, try, try again," with plaintiffs seeking to bring similar cases again and again, shopping for a forum or judge that will finally agree to certify something. Plaintiffs will recruit a new named plaintiff, and recreate the risks associated with class certification, even after the defendant has seemingly won that important battle. Justice Alito asked petitioners at oral argument whether after a class certification denial is entered in one federal court, a plaintiff's attorney could simply substitute the name of a new named plaintiff and file the same complaint in another federal court. Plaintiffs answered that an attorney could do that.

-Note that petitioners had not been foreclosed from seeking relief on their individual claims, but only from seeking to represent other people through a class action. Whether a class should be certified had been fully and fairly litigated in proceedings that ought to be binding on petitioners and in which petitioners’ interests were adequately represented by an identically situated named plaintiff -- one whom plaintiff's counsel promised was an adequate representative, was typical, with common claims and no adverse interests. The Court apparently did not consider the possible argument that an absent class member who is adequately represented might be in sufficient privity with the named plaintiff such that he can be precluded from litigating the certification decision a second time.

-Even though in dicta, the Court discouraged the application of preclusion to absent class members.   It may be of little comfort to defendants faced with the costs and risks of serial class claims that, as the Court put it, the "legal system generally relies on principles of stare decisis and comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs."

-The Court agreed that the policy concerns were the defendant's "strongest argument, " and seemingly recognized the mischief it was permitting, because the opinion noted that nothing in this holding forecloses legislation to modify established principles of preclusion should Congress decide that CAFA does not sufficiently prevent re-litigation of class certification motions. Nor does the opinion at all address the permissibility of a change in the Federal Rules of Civil Procedure pertaining to this question.  The Court said the trial court could not call on the "heavy artillery" of an injunction, but perhaps an even mightier weapon is needed.

 


 

Supreme Court Decides Class-wide Arbitration Issue

In recent years, corporate defendants facing consumer class actions in California and several other states have been unable to enforce arbitration agreements prohibiting class actions. Under the California Supreme Court’s ruling in Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-63 (2005), class action waivers were unenforceable if the waivers were in “a consumer contract of adhesion,” in disputes that “predictably involve small amounts of damages,” when the “party with superior bargaining power" allegedly has harmed large numbers of consumers. 

Last week, the U.S. Supreme Court, in a 5-4 decision in AT&T Mobility LLC v. Concepcion, No. 09-893, held that the Federal Arbitration Act (“FAA”) preempted the Discover Bank rule. Significantly, the Supreme Court also held that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Slip Op. at 9. This decision will significantly enhance corporate defendants’ ability to enforce arbitration provisions in California and the many other states with similar limitations on class action waivers.

This decision may have a substantial impact in consumer product markets, enabling businesses to enforce contractual individual arbitration agreements and thereby very significantly narrow the occasions for certain consumer class actions. Many companies had changed their standard contracts to take the Discover Bank rule into account, and they may now want to consider modifying those standard agreements back to include class action waivers. Although the California rule was the only state law at issue in the case, Concepcion likely will impact other similar state law rules that have rendered class action waivers unenforceable and that similarly created impermissible “‘obstacle[s] to the accomplishment and execution of the full purposes and objectives of Congress,” in enacting the FAA. Id. at 18 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).

Climate Change Case Update

A quick update to one of the key climate change cases pending in the federal courts. Readers may recall that the U.S. Supreme Court announced late last year that it will indeed hear the challenge to a court of appeals decision allowing several states to pursue a public nuisance suit against various utilities for their greenhouse gas emissions. See American Electric Power Co. v. Connecticut, No. 10-174 (U.S. certiorari petition granted 12/6/10).

Last week the federal government weighed in and asked the Court to overturn the court of appeals' decision in this public nuisance suit against American Electric Power Co. and other utilities for their greenhouse gas emissions, but on relatively narrow grounds. The brief filed by the Acting Solicitor General argues that the plaintiffs lacked “prudential standing” and that their suit should therefore be dismissed.  We have noted here before that a central issue is whether the EPA will be the primary regulator of greenhouse gas emissions or whether private parties will be permitted to go directly to court. Should a single judge set emissions standards for regulated utilities across the country—or, as here, for just that subset of utilities that the plaintiffs have arbitrarily chosen to sue? Judges in subsequent cases could set standards for other utilities or industries, or conflicting standards for these same utilities.  A second issue is whether controlling power plant emissions' alleged effects on the climate is a political question beyond the reach of the courts. Recall that the Southern District of New York dismissed the suit in 2005, holding that the claims represented a political question. Connecticut v. American Electric Power Co., 406 F. Supp. 2d 265.

The government position is that plaintiffs bring claims under the federal common law of public nuisance against six defendants alleged to emit greenhouse gases contributing to climate change. But if plaintiffs' theory is correct, virtually every person, organization, company, or government across the globe also emits greenhouse gases, and virtually everyone will also sustain climate-change-related injuries. Principles of prudential standing do not permit courts to adjudicate such generalized grievances absent statutory authorization, particularly because EPA, which is better-suited to addressing this global problem, has begun regulating greenhouse gases under the CAA. As a result, plaintiffs’ suits must be dismissed.  EPA began regulating greenhouse gas emissions from certain sources in January, although members of Congress are moving to delay or block EPA's authority to do so, which we will post on later this week.

The federal government brief concedes that plaintiffs have Article III standing based on their interest in preventing the loss of sovereign territory for which they are also the landowners.  It asks that the Court not decide whether plaintiffs’ suits are barred by the political question doctrine, although noting that this case does indeed raise separation-of powers concerns highlighted by the second and third factors used in Baker v. Carr, 369 U.S. 186 (1962), to describe the political question doctrine: a lack of judicially discoverable and manageable standards for resolving it; or the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion.

The AEP brief is available for interested readers.


 

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.

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.

Supreme Court Passes On Chance to Clarify Punitive Damages Issue

We posted before about an important punitive damages issue, hoping the Supreme Court would take a look.  However, last week the Court declined to review the federal appeals court decision ordering a re-trial on punitive damages. Wyeth LLC v. Scroggin, U.S., No. 09-1123, review denied 6/21/10.

The case involves a woman who allegedly developed cancer after taking hormone therapy drugs. (The FDA continues to approve the drugs as safe and effective.) The plaintiff contended that Wyeth was negligent in failing to include a stronger warning on its label, and that she would not have taken the drug if the warning had been stronger. The district court conducted a bifurcated trial
before a single jury, with liability determined first and punitive damages determined second. In the first phase, the jury found for plaintiff and awarded $2.7 million in compensatory damages. In the second phase, the same jury determined that defendant was liable for punitive damages of $19.4 million. Wyeth LLC v. Scroggin, 554 F.Supp.2d 571 (E.D. Ark. 2008). On appeal, the U.S. Court of Appeals for the Eighth Circuit overturned the punitive damages award, ruling that the award was tainted by the admission of improper evidence during the punitive damages phase of the trial. But rather than ordering an entirely new trial, the appeals court ordered a partial new trial limited to punitive damages only. Scroggin v. Wyeth, 586 F.3d 547 (8th Cir.2009).

We would argue that the Seventh Amendment prohibits such partial retrials limited to punitive damages. The Seventh Amendment “right to trial by jury” has long been understood to constitute those jury trial rights that existed under the English common law when the Seventh Amendment was adopted in 1791. At common law there was no practice of setting aside a verdict in part. If the verdict was erroneous as to any issue, a new trial was directed as to all issues, so that all related issues could be decided by a single jury. Where the issue to be re-tried is related to issues already decided by the first jury, partial re-trials create a danger that the second jury will be confused when told that some issues have already been decided. Moreover, there is considerable empirical evidence suggesting that permitting partial re-trials regarding punitive damages exacerbates the unpredictability of punitive damages awards.

Chief Justice John G. Roberts Jr. took no part in the consideration or decision of the petition.
 

Supreme Court Approves Proposed Amendments to Rule 26

Last week, the Supreme Court approved the proposed amendments to Federal Rules of Civil Procedure 8, 26, and 56, and Illustrative Form 52, and transmitted them to Congress. The amendments were approved by the Judicial Conference of the United States last fall (as covered earlier here).

Readers will recall that with regard to Rule 26, the amendments would extend work-product protection to the discovery of draft reports by testifying expert witnesses and, with three important exceptions, to the discovery of communications between testifying expert witnesses and retaining counsel. The amendments also provide that a lawyer relying on a witness who will provide expert testimony but is not required to provide a Rule 26(a)(2)(B) report – because the witness is not retained or specially employed to provide expert testimony and is not an employee who regularly gives expert testimony – must disclose the subject matter of the witness’s testimony and summarize the facts and opinions that the witness is expected to offer. The prior 1993 amendments to Civil Rule 26 have been interpreted by some courts to allow discovery of all draft expert witness reports and all communications between counsel and testifying expert witnesses. The experience under those amendments revealed significant practical problems in the eyes of many litigators.

Absent congressional intervention, the amendments will become effective on Dec. 1, 2010.
 

 

 

Court Should Review Punitive Damages Re-Trial Issue

Readers concerned about punitive damages law have their eyes on Wyeth LLC v. Scroggin.  The case involves a woman who allegedly developed cancer after taking hormone therapy drugs. (The FDA continues to approve the drugs as safe and effective.) The plaintiff contends that Wyeth was negligent in failing to include a stronger warning on its label, and that she would not have taken the drug if the warning had been stronger. The district court conducted a bifurcated trial
before a single jury, with liability determined first and punitive damages determined second. In the first phase, the jury found for plaintiff and awarded $2.7 million in compensatory damages. In the second phase, the same jury determined that defendant was liable for punitive damages of $19.4 million. Wyeth LLC v. Scroggin, 554 F.Supp.2d 571 (E.D. Ark. 2008). On appeal, the U.S. Court of Appeals for the Eighth Circuit overturned the punitive damages award, ruling that the award was tainted by the admission of improper evidence during the punitive damages phase of the trial. But rather than ordering an entirely new trial, the appeals court ordered a partial new trial limited to punitive damages only. Scroggin v. Wyeth, 586 F.3d 547 (8th Cir.2009).

Wyeth is seeking Supreme Court review of the denial of its request for an entirely new trial.  Permitting a tort plaintiff to preserve his compensatory damages award at the same time that he pursues punitive damages before a separate jury is unfair to defendants, and it is likely to lead to increases in punitive damages awards. Partial retrials limited to punitive damages violate jury trial rights protected by the Seventh Amendment. The Petition for Cert here, 78 USLW 3566 (3/16/10), describes in detail the sharply conflicting views of the federal appeals courts regarding the circumstances under which partial retrials in jury cases are consistent with the Seventh Amendment, both generally, and specifically with respect to partial retrials confined to punitive damages. It is fair to say some lower courts have struggled to apply the Seventh Amendment standards set forth in Supreme Court precedent, and that the appeals courts have adopted divergent and irreconcilable approaches.

The Washington Legal Foundation submitted an amicus brief on this issue. In its brief urging the Supreme Court to grant review, WLF argued that the Seventh Amendment prohibits such partial retrials limited to punitive damages. WLF argued that the Seventh Amendment “right to trial by jury” has long been understood to constitute those jury trial rights that existed under the English common law when the Seventh Amendment was adopted in 1791. At common law there was no practice of setting aside a verdict in part. If the verdict was erroneous as to any issue, a new trial was directed as to all issues, so that all related issues could be decided by a single jury. Where the issue to be re-tried is related to issues already decided by the first jury, partial retrials create a danger that the second jury will be confused when told that some issues have already been decided.  WLF has argued that in this case the principal issue at any retrial on punitive damages (whether defendant acted sufficiently culpably in failing to provide stronger cancer warnings to merit a punitive award) is substantially similar to an issue decided in the first trial (whether it acted sufficiently culpably in failing to provide stronger cancer warnings to merit an award of compensatory damages).  The similarity of the two issues creates a significant danger of jury confusion, and the Seventh Amendment requires the plaintiff either to accept $2.7 million as her total compensation or to retry her entire case before a new jury.

WLF notes that considerable empirical evidence suggests that permitting partial retrials regarding punitive damages exacerbates the unpredictability of punitive damages awards. Moreover, the evidence suggests that permitting such partial retrials is a considerable disadvantage to tort defendants, who on average are likely to face larger monetary judgments than if a single jury considers all related tort claims.

Supreme Court Grants Cert. In Vaccine Case

A case to watch:  earlier this month the Supreme Court granted certiorari in Bruesewitz v. Wyeth, 2010 WL 757696, which raises important issues under the National Childhood Vaccine Injury Act of 1986 (“Vaccine Act”) , 42 U.S.C. §§ 300aa-1 et seq.  The Act expressly preempts state law claims against vaccine manufacturers if the injury or death giving rise to such a claim results from side effects that were unavoidable even though the vaccine was properly prepared and was accompanied by proper directions and warning. 

But the lower courts have split on the meaning of that provision. Does the Vaccine Act preempt all design defect claims against vaccine manufacturers, or must the preemption of particular design claims be decided on a case-by-case basis?

In this case, the 3rd Circuit correctly held that the Vaccine Act preempts all design defect claims,  including negligence and strict liability design claims. 561 F.3d 233 (3d Cir. 2009). The Georgia Supreme Court, by contrast, is  one court that had previously held that a design defect claim is not preempted unless the manufacturer demonstrates, on case-by-case basis, that there was no safer design that could have avoided the injury giving rise to the claim. Am. Home Prods. Corp. v. Ferrari, 668 S.E.2d 236 (Ga.2008).

One of the many ways that the Ferrari court's construction is contrary to the structure of the Act and intent of Congress is that it does not necessarily bar any design defect claims. If the court interpret the Vaccine Act to allow case-by-case analysis of whether particular vaccine side effects are avoidable, then every design defect claim is subject to evaluation by a court, and theoretically every one of them could be found not-preempted by the state courts around the country. That clearly is not what Congress meant. 
 

Federal Rule of Civil Procedure 26: Amendment Update

We love to hear from our faithful readers, and one recently asked us to update the status of the proposed amendments to Rule 26. We posted on them last year, noting that there would be public comment opportunities throughout 2009.

Below, a review of those comments.  But first a reminder of the proposed changes. The amendments would extend work-product protection to the discovery of draft reports by testifying expert witnesses and, with three important exceptions, to the discovery of communications between testifying expert witnesses and retaining counsel. The amendments also provide that a lawyer relying on a witness who will provide expert testimony but is not required to provide a Rule 26(a)(2)(B) report – because the witness is not retained or specially employed to provide expert testimony and is not an employee who regularly gives expert testimony – must disclose the subject matter of the witness’s testimony and summarize the facts and opinions that the witness is expected to offer. The 1993 amendments to Civil Rule 26 have been interpreted by some courts to allow discovery of all draft expert witness reports and all communications between counsel and testifying expert witnesses. The experience under those amendments revealed significant practical problems in the eyes of many litigators.

The comments? First, the arguments in favor:

• Lawyers and expert witnesses take elaborate and costly steps to avoid creating any discoverable draft report or any discoverable communications between the lawyer and expert. These steps can include hiring two sets of experts, one to testify and one to consult; avoiding any note-taking by the expert; and avoiding the creation of any draft report. At the same time, lawyers take elaborate and
costly steps to attempt to discover all of the other side’s drafts and communications.


• Experience has shown that the elaborate steps to avoid creating discoverable drafts or communications result in inefficient, costly, and wasteful litigation behavior. At the same time, experience has also shown that extensive, time-consuming, and costly efforts to discover every change in draft reports by experts and every communication between experts and retaining counsel rarely produces information that bears on the strengths or weaknesses of the experts’ opinions.

• Many experienced lawyers routinely stipulate that they will not seek to discover draft reports from each other’s experts or communications between the experts and the retaining lawyers. That good lawyers stipulate to avoid the present rule indicates problems with it.

• Some states have implemented procedures similar to the proposed amendments.  State  practitioners representing both plaintiffs and defendants report a degree of consensus about the success of these procedures in improving the ability to use expert witnesses and to discover the basis for their opinions.


• The proposed amendments would not limit discovery into the areas that are genuinely important for learning the strengths and weaknesses of a testifying expert’s opinion. The proposed amendments specifically allow discovery into communications between a lawyer and testifying expert about: (1) the compensation for the expert’s study or testimony; (2) the facts or data provided
by the lawyer that the expert considered in forming opinions; and (3) the assumptions provided by the lawyer that the expert relied upon in forming an opinion.

Opposing Views:

• The proposed amendments limit discovery that could show the extent of the retaining lawyer’s influence on the testifying expert’s opinions. That could make it easier for lawyers to influence the opinions their testifying experts present.

• The proposed amendments only limit discovery of draft reports and certain communications. They do not apply to inquiries into such matters at the trial itself. It may be unclear whether the draft reports and communications will be protected from disclosure at trial. As a result, the amendments may not eliminate the costly and wasteful steps to avoid creating draft reports or records of attorney/expert communications. (MassTortDefense wonders how many lawyers will venture into these issues at trial without the benefit of any discovery.)

Overall, comments received during the notice-and-comment period made it appear that the vast majority of practitioners, on both the plaintiff and defense sides, support the proposed rule amendments. Interestingly, lots of academics spoke up against the rule.

So what's the status? On September 15, 2009, the Judicial Conference met and approved the recommendations of the Committee on Rules of Practice and Procedure and approved the proposed rules. The rules were then transmitted to the Supreme Court in December with a recommendation that they be approved and transmitted to Congress in accordance with the Rules Enabling Act.  The schedule would still have them taking effect, if not rejected by the Court or Congress, on December 1, 2010.

 

Supreme Court Orders State Court Justice Recusal

In a 5-4 decision, the U.S. Supreme Court yesterday issued an extraordinary decision that has potential impact not only on products liability and mass torts, but all litigation. The Court held that due process require a state supreme court justice to recuse himself from an appeal involving a major campaign contributor. Caperton v. A. T. Massey Coal Co., Inc., (U.S. S.Ct. 6/08/09).

After a West Virginia jury found Massey liable for $50 million in damages, West Virginia held its 2004 judicial elections. Massey’s chairman and principal officer supported the eventual winning candidate for the state supreme court with $3 million in contributions. Caperton moved to disqualify new-Justice Benjamin under the Due Process Clause and the State’s Code of Judicial Conduct, based on the alleged conflict caused by this campaign involvement. Justice Benjamin denied the motion, indicating that he found nothing showing bias for or against any litigant. The West Virginia court then reversed the $50 million verdict in a 3-2 vote. During the rehearing process, Justice Benjamin refused twice more to recuse himself, and the state court once again reversed the jury verdict. Four months later, Justice Benjamin filed a concurring opinion, defending the court’s opinion and his recusal decision.

Caperton petitioned the U.S. Supreme Court. Writing for the majority, Justice Kennedy noted first that because the objective standards implementing the Due Process Clause do not require proof of actual bias, the Court did not have to review Justice Benjamin’s subjective findings of impartiality and propriety and did not need to determine whether there was actual bias. Rather, the question is whether, under a realistic appraisal of psychological tendencies and human weakness, the interest poses such a risk of actual bias or prejudgment that the practice must be forbidden if the guarantee of due process is to be adequately implemented. There is a serious risk of actual bias, wrote the majority, when a person with a personal stake in a particular case had a significant and disproportionate influence in placing the judge on the case by raising funds or directing the judge’s election campaign when the case was pending or imminent. The proper inquiry centers on the contribution’s relative size in comparison to the total amount contributed to the campaign, the total amount spent in the election, and the apparent effect of the contribution on the outcome. It is not whether the contributions were a necessary and sufficient cause of Benjamin’s victory. In an election decided by fewer than 50,000 votes, the campaign contributions—compared to the total amount contributed to the campaign, as well as the total amount spent in the election—had a significant and disproportionate influence on the outcome. The temporal relationship between the campaign contributions, the justice’s election, and the pendency of the case was also critical, for it was reasonably foreseeable that the pending case would be before the newly elected justice. There is no allegation of a quid pro quo agreement, but the extraordinary contributions were made at a time when the party had a vested stake in the outcome. Just as no man is allowed to be a judge in his own cause, similar fears of bias can arise when—without the other parties’ consent—a man chooses the judge in his own cause. Applying this principle to the judicial election process, there was here a serious, objective risk of actual bias that required Justice Benjamin’s recusal.

The dissent authored by Chief Justice Roberts argued that the Court’s new “rule” provides no guidance to judges and litigants about when recusal will be constitutionally required. This will inevitably lead to an increase in allegations that judges are biased, however groundless those charges may be. He lists more than 40 questions that are raised, not answered, by the majority’s analysis, noting lower courts will now have to determine things like: How much money is too much money? What level of contribution or expenditure gives rise to a “probability of bias”? How do we determine whether a given expenditure is “disproportionate”? Disproportionate to what? Are independent, non-coordinated expenditures treated the same as direct contributions to a candidate’s campaign? How long does the probability of bias last? Does the probability of bias diminish over time as the election recedes? Does it matter whether the judge plans to run for reelection? What if the “disproportionately” large expenditure is made by an industry association, trade union, physicians’ group, or the plaintiffs’ bar? Must the judge recuse in all cases that affect the association’s interests? Must the judge recuse in all cases in which a party or lawyer is a member of that group? Does it matter how much the litigant contributed to the association?

The dissent argues that the majority’s only answer -- that the present case is an “extreme” one, so there is no need to worry about other cases (“this is an exceptional case….our decision today addresses an extraordinary situation…. rule will be confined to rare instances”) – is just insufficient.