August 17, 2011
For the first time in more than two decades, the U.S. Supreme Court has weighed in on issues of personal jurisdiction. On June 27, 2011, the Court addressed the constitutional limits of "general" and "specific" jurisdiction in Goodyear Luxembourg Tires, S.A. v. Brown, No. 10-76, 564 U.S. __ (June 27, 2011), and J. McIntyre Mach., Ltd. v. Nicastro, No. 09-1343, 564 U.S. __ (June 27, 2011).
In Goodyear Luxembourg Tires, S.A. v. Brown, a unanimous Court held that a court may only exercise general jurisdiction over a foreign defendant where the defendant's contacts in the forum state are "continuous and systematic." Importantly, the Court held that merely placing a product in the "stream of commerce" with the expectation that the product might be bought or sold in the forum state falls "far short" of the continuous and systematic contacts necessary to establish general jurisdiction.
In J. McIntyre Mach., Ltd. v. Nicastro, a majority of the Court agreed that a foreign defendant whose product was distributed throughout the United States and ended up in New Jersey, where it caused injury, was not subject to jurisdiction in New Jersey. Although there was no majority opinion, six justices agreed that a state court cannot exercise specific jurisdiction over a foreign manufacturer solely because it knew or should have known that its product "might" be sold in New Jersey.
1. Goodyear Luxembourg Tires, S.A. v. Brown
In Goodyear, Justice Ginsburg, writing for a unanimous Court, addressed the limits of a state court's general jurisdiction over foreign subsidiaries of a U.S. parent corporation. The Court reaffirmed its decision in International Shoe and stressed the importance of "continuous and systematic" contacts for the exercise of general jurisdiction. The case arose from a bus accident outside Paris in which two boys from North Carolina were killed. The boys' parents commenced an action for wrongful death damages in North Carolina state court. The parents alleged that the bus accident was caused by a tire failure and named as defendants The Goodyear Tire & Rubber Company ("Goodyear USA"), an Ohio corporation, and three of its subsidiaries, which were organized and operated in Turkey, France, and Luxembourg, respectively.
The subsidiaries manufactured tires primarily for European and Asian markets. These tires differ in size and construction from tires ordinarily sold in the United States. Moreover, the foreign subsidiaries 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. However, other Goodyear USA affiliates distributed a small percentage of their tires within North Carolina, generally in response to custom orders. Goodyear USA did not contest the North Carolina court's jurisdiction over it, but Goodyear USA's foreign subsidiaries maintained that North Carolina lacked adjudicatory authority over them. The foreign subsidiaries moved to dismiss the claims against them for want of personal jurisdiction. The North Carolina trial court denied the motion, and the North Carolina Court of Appeals affirmed. The North Carolina courts held that the court had jurisdiction over the foreign subsidiaries because the companies had placed their tires into the stream of commerce and allowed them to be sold in North Carolina. The North Carolina Supreme Court denied discretionary review and the U.S. Supreme Court granted certiorari.
The Court held that the connection between the foreign subsidiaries and North Carolina was limited and that it was an inadequate basis for the exercise of general jurisdiction. The Court first reviewed its decisions in Perkins v. Benguet Consol. Mining Co., 342 U.S. 437 (1952), and Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984), in which the Court addressed general jurisdiction over a foreign corporation. Based on these holdings, the Court concluded that the foreign subsidiaries' "attenuated connections to [North Carolina] fall far short of the 'the continuous and systematic general business contacts' necessary to empower North Carolina to entertain suit against them on claims unrelated to anything that connects them to the State."
The Court also reviewed the "stream-of-commerce metaphor," which is typically invoked when "a nonresident defendant, acting outside the forum, places in the stream of commerce a product that ultimately causes harm inside the forum." The Court held that the North Carolina court's stream-of-commerce analysis elided the essential difference between specific and general jurisdiction. The Court explained that the flow of a manufacturer's products into the forum may bolster an affiliation germane to specific jurisdiction, but that these ties do not warrant a determination that, based on these ties, the forum has general jurisdiction over a defendant.
Notably, the Court declined to address the respondents' alternate ground for affirming the decision below — that jurisdiction over the foreign subsidiaries was appropriate because Goodyear USA and the subsidiaries were a "unitary business."
2. J. McIntyre Mach., Ltd. v. Nicastro
In McIntyre, by a 6-to-3 vote, the Court reversed a finding of jurisdiction by the New Jersey Supreme Court over a foreign manufacturer. Justice Kennedy wrote the plurality opinion, which Chief Justice Roberts, and Justices Scalia and Thomas joined. Justices Breyer and Alito agreed that the New Jersey Supreme Court's decision should be reversed, but limited their concurrence to the Court's prior precedent and cautioned that the Court should not set down any new law until its contemporary implications are discussed. Justice Ginsburg wrote a dissenting opinion, which was joined by Justices Sotomayor and Kagan.
This case arose from injuries sustained by Nicastro, a New Jersey worker who lost four fingers while using a metal shearing machine. Nicastro commenced a products liability action against J. McIntyre Machinery, Ltd. (J. McIntyre), the manufacturer of the machine, in New Jersey state court. J. McIntyre was incorporated in England, and sold the subject machine through its exclusive U.S. distributor, McIntyre Machinery America, Ltd., which is headquartered in Stow, Ohio, to the plaintiff's employer.J. McIntyre moved to dismiss, asserting that the court lacked personal jurisdiction over it. Nicastro argued that the court had jurisdiction over J. McIntyre and primarily relied on three 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) at most, four J. McIntyre machines ended up in New Jersey. The trial court granted J. McIntyre's motion, finding that the English manufacturer did not have sufficient minimum contacts with New Jersey to justify the state's exercise of personal jurisdiction over it. The Appellate Division reversed and permitted the parties to conduct discovery to establish whether New Jersey had the authority to exercise jurisdiction over J. McIntyre. At the conclusion of jurisdictional discovery, the trial court again granted J. McIntyre's motion to dismiss for lack of personal jurisdiction. The Appellate Division again reversed.
The New Jersey Supreme Court granted J. McIntyre's petition for certification and held that New Jersey courts could exercise jurisdiction over J. McIntyre. In particular, the New Jersey Supreme Court found that 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." Applying that test, the court concluded that the manufacturer was subject to jurisdiction in New Jersey. The U.S. Supreme Court granted certiorari.
In Justice Kennedy's plurality opinion, he addressed "[w]hether a person or entity is subject to the jurisdiction of a state court despite not having been present in the State either at the time of the suit or at the time of the alleged injury, and despite not having consented to the exercise of jurisdiction." Justice Kennedy explained that, "[t]he principal inquiry in cases of this sort is whether the defendant's activities manifest an intention to submit to the power of a sovereign. In other words, the defendant must 'purposefully avail' itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." This "purposeful availment," the plurality explained, can mean advertising in the forum, shipping goods there, or otherwise "targeting" a state.
Justice Kennedy rejected Justice Brennan's theory of personal jurisdiction based on "general notions of fairness and foreseeability," which was raised in Justice Brennan's concurring opinion in Asahi. Rather, the plurality held that the touchstone of personal jurisdiction is the defendant's activities targeted at the forum state. As such, according to Justice Kennedy, a defendant's transmission of goods will only permit the exercise of jurisdiction when the defendant targeted the forum. "As a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State."Justice Kennedy emphasized that, "it is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment," and that personal jurisdiction "requires a forum-by-forum, or sovereign-by-sovereign, analysis." He recognized that this rule would allow for the possibility that "a litigant may have the requisite relationship with the United States Government but not with the government of any individual State."
Applying this rule to the matter at bar, Justice Kennedy concluded that J. McIntyre had not engaged in conduct purposefully directed at New Jersey. Therefore, New Jersey's courts lacked jurisdiction over this foreign manufacturer. Justices Breyer and Alito agreed that the New Jersey Supreme Court's decision should be reversed, but they declined to join Justice Kennedy's opinion. Rather, they found that New Jersey lacked jurisdiction by simply relying on the Court's prior decisions, none of which, they emphasized, held "that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient" to establish personal jurisdiction. Justices Breyer and Alito explained, "the relevant facts found by the New Jersey Supreme Court show no 'regular . . . flow' or 'regular course' of sales in New Jersey; and there is no 'something more,' such as special state-related design, advertising, advice, marketing, or anything else." The Justices found that Nicastro failed to demonstrate any specific effort by J. McIntyre to sell in New Jersey. Thus, the Court had no need to establish "strict rules that limit jurisdiction where a defendant does not 'inten[d] to submit to the power of a sovereign' and cannot 'be said to have targeted the forum.'" Justices Breyer and Alito expressed concern about changing the law as suggested by the plurality without a better understanding of the relevant contemporary commercial circumstances. They urged the Court to revisit these kinds of "contemporary commercial circumstances" in the appropriate personal jurisdiction case, and with the participation of the solicitor general.
Justice Ginsburg filed a dissenting opinion, which was joined by Justices Sotomayor and Kagan. The dissenters would have held that the New Jersey courts did have jurisdiction over J. McIntyre. In their view, the goal of the company was "simply to sell as much as it can, wherever it can" and "to avoid product liability litigation in the United States" if at all possible. The rest of the Court, they felt, had effectively allowed foreign manufacturers to avoid the jurisdiction of state courts simply by hiring an independent distributor. Here, they contended J. McIntyre "availed itself of the market of all States in which its products were sold by its exclusive distributor," and it therefore should be subject in any of them to suits arising out of events occurring there.
Conclusion
It is significant for foreign companies that the Court addressed lower court decisions blending the concepts of specific and general jurisdiction. The Court's decision in Goodyear demonstrates that general jurisdiction requires that a corporation have "continuous and systematic" contacts with the state and that the "stream of commerce" analysis is not relevant in this context.
The Court's decision in J. McIntyre is arguably more ambiguous. For now, it is apparent that the mere use of an independent distributor to sell goods in the United States, without more, will not create personal jurisdiction over a foreign manufacturer. Consequently, this holding will make it more difficult for a plaintiff to assert jurisdiction over a component part manufacturer whose product ends up in a larger product that is sold by a distributor in a foreign state.
The Court, however, left many questions unanswered. There is still no majority agreement on the proper exercise of jurisdiction when a case presents "contemporary commercial circumstances" regarding the sale of a product. It is similarly unclear if a foreign defendant who directs his conduct at the entire United States may in principle be subject to the jurisdiction of the courts of the United States but not of any particular state, as the plurality suggests.
It should be expected that we will see more about these fundamental and important issues in the future, in the lower courts and again soon in the Supreme Court. While the Court has denied certiorari in four other personal jurisdiction cases, on June 28, 2011, the Court granted certiorari, vacating and remanding a personal jurisdiction case, Dow Chem. Canada ULC v. Fandino, No. 10-250 (U.S. June 28, 2011), to the California Court of Appeal for further consideration in light of the Court's decision in J. McIntyre. The California court's interpretation of the Court's decision in J. McIntyre will be the first of many grappling with the questions left unanswered in J. McIntyre.
If you wish to receive copies of these opinions or wish to contact me, you may do so at miamipandi@comcast.net or motero@houckanderson.com.
