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.

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.

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.