The Supreme Court Speaks Again On When A State Court Can Exercise Jurisdiction Over A Foreign Defendant In A Products Liability Suit: Very Clearly In One Case And Not So Clearly In Another

September 16, 2011

By: Martha S. Helmreich

Products liability cases often involve out-of-state or out-of-the-country defendants, and a recurring question in such cases is whether the defendant is subject to the jurisdiction of the court in which the case is brought. Near the end of the Supreme Court’s recently completed term, the Court issued opinions in two such cases, which were argued in tandem: Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (June 27, 2011) and J. McIntyre Machinery, Ltd. v. Nicastro, 2011 WL 2518811, 131 S.Ct. 2780 (June 27, 2011).

The first case involved a question of general jurisdiction and was decided by a unanimous court, reversing the judgment below, in an opinion authored by Justice Ginsburg.

The second case involved a question of specific jurisdiction but was decided by a split court with six Justices voting in favor of reversal and three against. Justice Kennedy authored the plurality opinion for the reversal, joined by Chief Justice Roberts and Justices Scalia and Thomas; Justice Breyer, joined by Justice Alito, filed an opinion concurring in the judgment; Justice Ginsburg, joined by Justices Sotomayor and Kagan, dissented.

In both cases, the state court had ruled that jurisdiction was proper, based on a so-called “stream of commerce” theory of jurisdiction.

Goodyear Dunlop Tires arose out of an accident that occurred in France, resulting in the deaths of two young soccer players from North Carolina, and involved a bus outfitted with tires manufactured by foreign subsidiaries of Goodyear USA for foreign markets. What united the Court in Goodyear Dunlop Tires was its conclusion that a North Carolina state court could not exercise general or all-purpose jurisdiction, where the petitioner-defendants, all foreign, indirect subsidiaries of a United States parent, had no ties with North Carolina other than the fact that some of their tires, but not the tires at issue, had reached North Carolina through “the stream of commerce.” The Court emphasized that, unlike the parameters for the exercise of specific jurisdiction, those for general jurisdiction had remained relatively static over the years and that what was required was that a defendant have a “continuous and systematic presence” in the state, unrelated to the underlying controversy.

Reversing the judgment of the North Carolina Court of Appeals, the Supreme Court held that the state court erred in using a stream of commerce analysis to decide a question of general jurisdiction, which required a finding that the defendant was essentially “at home in the forum state,” thus impermissibly “elid[ing] the essential difference between case-specific and all-purpose (general) jurisdiction.”

What split the Court in Nicastro was how a “stream of commerce’ analysis should be applied to decide a question of specific jurisdiction; that is when a state court can, consistent with due process, exercise “adjudicatory authority” over a foreign defendant, based on contacts growing out of the underlying controversy. Anticipatorily touted as a case which could resolve the differences among members of the Court evident in Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U.S. 102 (1987), with its 4-4-1 opinions authored by Justices O’Connor, Brennan and Stevens respectively, Nicastro ended up producing not unanimity but significant differences.

Nicastro arose out of an injury suffered by a resident of New Jersey while using a metal shearing machine manufactured in England by J. McIntyre Machinery, Ltd. In their opinions, Justices Kennedy, Breyer and Ginsburg each focused on the same three primary facts stressed by Nicastro’s counsel at oral argument: 1) the machine was sold in the United States by an independent distributor, not under J. McIntyre’s direct control; 2) J. McIntyre officials attended trade shows in the United States to promote the sale of their machines in the United States, alongside the distributor; and 3) no more than four (and maybe only one) machine(s), including the machine that caused the injury, ended up in New Jersey.

According to Justice Kennedy, “in products liability cases like this one, it is the defendant’s purposeful availment [of the privilege of conducting activities within the forum state] that makes jurisdiction consistent with ‘traditional notions of fair play and substantial justice,’ ” the due process standard enunciated by the Court in 1945. The “principal inquiry in cases of this sort is whether the defendant’s activities manifest an intention to submit to the power of a sovereign,” that is to the forum state, here, New Jersey. Justice Kennedy held that the New Jersey Supreme Court’s conclusion that jurisdiction was proper because J. McIntyre knew or reasonably should have known that its products could be sold in any of the 50 states, including New Jersey, did not meet this test — although it might be that a federal court sitting in New Jersey could, consistent with the 14th Amendment, exercise jurisdiction on such facts, if Congress authorized it.

Justice Breyer found that Nicastro did not, in the end, present an occasion, as anticipated, to reexamine the Court’s precedents “in light of the increasingly fast-paced globalization of the world economy” and the ever-expanding use of new methods of communication. The “three facts” found by the New Jersey Supreme Court showed “no regular flow” of sales to New Jersey or a specific effort by J. McIntyre to sell in New Jersey, as required by the Court’s prior “stream of commerce” cases, and there was nothing more on which to hang a jurisdictional analysis.

Justice Breyer did, however, question the apparent strictness of the rules stated by Justice Kennedy. What do those standards, of “intent to submit” and “targeting the forum,” mean “when a company targets the world by selling products from its Website,” or consigns its products through an intermediary like Amazon, or markets its products through advertisements it knows will be viewed in a forum? On the other hand, is it fair, asked Justice Breyer, to adopt a rule, like the New Jersey Supreme Court’s rule, which would appear to permit any state to assert jurisdiction in a products liability suit over a domestic, or a foreign, manufacturer who sells its products to a national distributor, no matter how large or small the manufacturer, how distant the forum, or how many products are actually sold in the forum?

Justice Ginsburg responded that it is fair where, as in the case before the Court, the “foreign industrialist seeks to develop a market in the United States for machines it manufactures [and] hopes to derive substantial revenue from sales it makes to United States purchasers,” regardless of what state they live in. In her view, such a manufacturer should not be able to avoid the jurisdiction of a state court simply by having an independent distributor market its products. Jurisdiction, in Justice Ginsburg’s view, is appropriate in New Jersey given that “[t]he machine arrived at Nicastro’s New Jersey workplace not randomly or fortuitously, but as a result of the U.S. connections and distribution system that McIntyre UK deliberately arranged,” a “now prevalent pattern” in product distribution, which courts in a number of cases, described in an Appendix, found supported the exercise of specific jurisdiction.

In her opinion Justice Ginsburg pointed out that Nicastro did not raise an issue of allocation of adjudicatory authority among the states, an issue likely resolvable by a venue statute in any event, and emphasized that “constitutional limits on a state court’s adjudicatory authority derive from considerations of due process, not state sovereignty.” Nor should “consent” to jurisdiction be “the animating concept,” as Justice Kennedy’s plurality opinion would have it.

Although Justices Breyer and Alito concurred in the judgment of the Court reversing the holding of the New Jersey Supreme Court, and did not view the facts presented through the same lens as the dissenting Justices, it is a safe assumption that all five of those Justices will look for another case in which newer or more “modern” methods of product sales and distribution in a global economy will be present and thus provide an opportunity to visit again the not so simple questions raised by Nicastro.

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