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U.S. Supreme Court Shifts Basic Personal Jurisdiction Rules

By M. Derek Harris, Litigation News Associate Editor – August 22, 2011

The rivers of commerce took a turn in favor of product manufacturers at the end of the current term of the U.S. Supreme Court. In two June opinions, the Court rejected a quarter century old notion that placement of products in the “stream of commerce” can subject foreign manufacturers to personal jurisdiction in state court product liability cases.


In J. McIntyre Machinery, Ltd. v. Nicastro [PDF], Justice Kennedy, joined by three other Justices, delivered a plurality opinion. The opinion clarifies the “rules and standards for determining when a State does or does not have jurisdiction over an absent party,” declaring they “have been unclear because of decades-old questions left open in Asahi Metal Indus. Co. v. Sup. Ct. of Cal., Solano Cty.”


Following the 1987 Asahi decision, the primary question left open was: “If a defendant knows its product will end up in a forum and defendant benefits from it, can the defendant be subjected to jurisdiction in the forum without more conduct specifically directed toward the forum?” explains Cassandra Burke Robertson, Cleveland, a member of the ABA Section of Litigation’s International Litigation Committee. (Burke is an Associate Professor of Law at Case Western Reserve University specializing in International Civil Litigation and Civil Procedure.)


In Asahi, the Supreme Court split 4 to 4 on this question, with Justice Brennan and Justice O’Connor writing competing plurality opinions. Justice Brennan “thought it was enough that a defendant knew its product was going to a forum and that the defendant benefitted from it,” while Justice O’Connor rejected this approach in favor of “a heightened test requiring more evidence that the defendant was intentionally trying to serve the forum.” Although neither Justice was supported by a majority, “the Justice O’Connor view in Asahi is the leading view after Nicastro,” observes Robertson.


The Facts in Nicastro
The plaintiff’s severe injuries in Nicastro were caused by “a three-ton metal shearing machine” manufactured by McIntyre that “severed four fingers on Robert Nicastro’s right hand.” The accident occurred in Saddle Brook, New Jersey, and Nicastro filed a product liability action against McIntyre in state court.


McIntyre, a British corporation, had “no office in New Jersey; it neither paid taxes or owned property there; and it neither advertised in, nor sent any employees to, the State.” Rather, McIntyre’s only contact with New Jersey was the metal shearing machine itself.


An independent distributor sold the machine to Nicastro’s employer. McIntyre sought dismissal for want of personal jurisdiction.


Nicastro Prevails in State Court
The Supreme Court of New Jersey ruled McIntyre was subject to jurisdiction, relying in part on the “stream of commerce” doctrine set forth by Justice Brennan in Asahi. It held “New Jersey’s courts can exercise jurisdiction over a foreign manufacturer of a product so long as the manufacturer ‘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.’” This holding was despite its finding that, “[A]t no time had [McIntyre] advertised in, sent goods to, or in any relevant sense targeted the State.”


Justice Kennedy Embraces “Purposeful Availment” as the Decisive Factor
The Supreme Court reversed. The plurality found that at no time did McIntyre “engage in any activity in New Jersey that reveal[ed] an intent to invoke or benefit from the protection of its laws.” Thus, New Jersey’s exercise of jurisdiction over McIntyre violated due process.


In Nicastro, Justice Kennedy retreated from Justice Brennan’s test that made “foreseeability the touchstone of jurisdiction.” He pronounced that, “[I]t is the defendant’s purposeful availment that makes jurisdiction consistent with ‘fair play and substantial justice’ notions,” and that, “[n]o ‘stream of commerce’ doctrine can displace that general rule for products-liability cases.” Justice Kennedy declared that, “[I]it is the defendant’s actions, not his expectations, that empower a State’s courts to subject him to judgment.”


Reaction to Nicastro
Justice Kennedy’s purposeful availment approach “makes the most sense in today’s international trade environment,” says Edward M. Mullins, Miami, cochair of the Section of Litigation’s International Litigation Committee. “With the global economy increasing, it is becoming more important to have established rules as to when a defendant can be hauled into a foreign court,” he adds.


While Justice Kennedy’s approach may make sense, it also raises concerns. The opinion “is ostensibly a roadmap for how a foreign entity can avoid liability in the U.S., even when it knows its products are being marketed here,” contends Andrew S. Pollis, Cleveland, cochair of the Section’s Civil Rights Litigation Committee.


Ultimately, Justice Kennedy’s opinion in Nicastro is not as significant as it could have been because it is not a majority opinion. “We have a plurality opinion and a concurrence that agreed with the judgment. That tells us something significant, but it does not shape the contours of the doctrine,” cautions Robertson.


Stream of Commerce Rejected as the Sole Basis for Exercising Jurisdiction
Nicastro was not the onlyattack on the stream of commerce doctrine this term. In a second opinion issued the same day as Nicastro, the Court unanimously declared that a foreign manufacturer’s placement of its goods in the stream of commerce cannot be the sole basis for exercising jurisdiction. Goodyear Dunlop Tires Operations, S.A. v. Brown [PDF].


In Goodyear, the Court reversed the North Carolina Court of Appeals’ decision holding that foreign subsidiaries of Goodyear were amenable to general jurisdiction in North Carolina. The product liability action arose out of a bus accident in Paris, France, that killed two teenage boys from North Carolina. The North Carolina court found jurisdiction existed because “[s]ome of the tires made abroad by the foreign subsidiaries . . . reached North Carolina through the stream of commerce.”


The Supreme Court disagreed holding, “[a] connection so limited between the forum and the foreign corporation . . . is an inadequate basis for the exercise of general jurisdiction.” Instead, Justice Ginsburg explained that, “continuous and systematic affiliation” with a forum is required for a state court to entertain claims against a foreign corporation unrelated to the corporation’s contacts with the state.


Although the Supreme Court gave Goodyear (and its tires) a free ride, in view of Nicastro, this is not a surprise. “There is not much room for debate with regard to Goodyear. This case came out the way you would expect based on established personal jurisdiction doctrine,” says Pollis. General jurisdiction over manufacturers does not flow with their products through the stream of commerce.


Keywords: litigation, Supreme Court, personal jurisdiction, products liability, Nicastro


 
Related Resources

  • » J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).
  • » Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011).
  • » Asahi Metal Indus. Co. v. Sup. Ct. of Cal., Solano Cty., 480 U.S. 102 (1987).

 

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