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Personal jurisdiction – a casualty of global commerce?

Personal jurisdiction – a casualty of global commerce?

Assessing where jurisdiction lies, and under what circumstances, is a consideration of primary importance to businesses and their insurers. For the past twentyfive years following the plurality decision of the United States Supreme Court in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1986), it appeared that product manufacturers were headed toward a rule by which they were subject to jurisdiction wherever their products were sold and/or used. This issue has been exacerbated by global expansion of manufacturing and the demagoguery against foreign-made goods. On June 27, 2011, the Supreme Court of the United States issued two decisions, in J. McIntyre Machinery, Ltd. v. Nicastro1 and Goodyear Dunlop Tires Operations, S.A. v. Brown,2 which offer much needed relief to those concerned about the expansion of personal jurisdiction.

Overview of personal jurisdiction

Central to the determination of personal jurisdiction is the Due Process Clause of the Fourteenth Amendment to the United States Constitution. In International Shoe Co. v. Washington, 326 U.S. 310 (1945), the Supreme Court confirmed that pursuant to the Due Process Clause a state court may exercise personal jurisdiction over a non-resident defendant only if there exists “minimum contacts” between the defendant and the forum state. Id. at 316. These “minimum contacts” must rise to a sufficient level so that subjecting the defendant to jurisdiction in the forum state does not offend “traditional notions of fair play and substantial justice.” Id. As the Supreme Court later affirmed, affording foreign defendants fair warning that a particular activity may subject them to the jurisdiction of a particular sovereign permits those entities to structure their conduct “with some minimum assurance as to where the conduct will and will not render them liable to suit.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985). Jurisdiction over a nonresident is classified as either specific or general. Specific jurisdiction exists where the lawsuit arises out of, or is related to, the defendant’s contacts with the forum. General jurisdiction exists when the activities of a nonresident in the forum state are substantial, continuous and systematic. Typically, specific jurisdiction is easier to assess and comprehend, and general jurisdiction much more difficult to establish.

The Asahi problem

The erosion of confidence in assessing jurisdiction in the global marketplace dates to the decision in Asahi. The facts of that case seemed innocuous enough. A Japanese component part manufacturer sold tire valve assemblies (in Japan) to a Japanese ire manufacturer, which sold the tires throughout the world, including the United States. One such tire was alleged to have caused a motorcycle accident in California. What remained when the case went to the Supreme Court was a third party action between the tire manufacturer and the component part supplier. Although the Supreme Court unanimously agreed that there was no jurisdiction over the component part manufacturer in California, the Court could not agree on the proper test to assess jurisdiction. Delivering the opinion of the Court, Justice O’Connor wrote that “the placement of a product into the stream of commerce, without more, is not an act of the defendant purposely directed toward the forum state.” 480 U.S. at 112. However, in his concurring opinion, Justice Brennan held that “as long as a participant in this process is aware that the final product is being marketed in the forum state, the possibility of a lawsuit there cannot come as a surprise.” Id. at 117. Courts struggled to assess jurisdiction in the uncertainty created by the plurality decision in Asahi, with some courts following the O’Connor “stream of commerce plus” test and others simply requiring the Brennan “stream of commerce only” test. This conundrum reached a crescendo in a pair of state court decisions from New Jersey and North Carolina which threatened exposing manufacturers to unbridled jurisdiction.

Nicastro V.J. Mcintyre machinery

Nicastro involved a worker who was injured while using a recycling machine manufactured by a UK company in England. The machine was sold and shipped to an unaffiliated exclusive distributor in Ohio, which sold it to the plaintiff’s New Jersey employer. Although the product could be sold in any state, there was no evidence that the manufacturer targeted New Jersey. The New Jersey Supreme Court held that jurisdiction exists over “a foreign manufacturer that places a defective product into the stream of commerce through a distribution scheme that targets a national market, which included New Jersey.” Nicastro v. McIntyre Machinery America, Ltd., 201 N.J. 48, 987 A.2d 575, 589 (2010). The Court affirmed its intent to shape jurisdictional law to reflect the “new reality” that in the global marketplace, trade knows few boundaries. Further, the Court advised that foreign manufacturers would simply have to procure insurance to cover this “new reality.” The United States Supreme Court flatly rejected the expansion of personal jurisdiction portended by the New Jersey decision. More importantly, the majority rejected the stream of commerce test enunciated in Asahi, which had elevated foresee ability as the “touchtone of jurisdiction.” Instead, the Nicastro Court returned to the International Shoe understanding of personal jurisdiction, mandating that the principal inquiry “is whether the defendant’s activities manifested an intention to submit to the power of a sovereign.” 131 S.Ct. at 2788. Thus, it is the defendant’s action, not his expectations, which empower a Court to subject it to jurisdiction. Since the UK manufacturer in Nicastro had not engaged in conduct purposely directed at New Jersey, there could be no jurisdiction over that entity in New Jersey. Unfortunately, Justices Breyer and Alito did not believe Nicastro presented a good opportunity for the Court to fully address the implications of global commerce on the personal jurisdiction issue, and concurred only in the result. The larger issue remains undecided.

Brown V. Goodyear Dunlop tires operations, S.A.

Brown involved two minors from North Carolina who were killed in a bus accident in France, which was allegedly caused by a defective tire manufactured by a Goodyear affiliate in Turkey. Plaintiffs filed suit in North Carolina against Goodyear Tire and Rubber Company and a number of its foreign affiliates, including Goodyear Turkey. The affiliates each challenged personal jurisdiction. Since the incident did not occur in North Carolina, the North Carolina Court of Appeals had to assess whether there was general jurisdiction over the Goodyear affiliates. Each of the affiliates is a wholly owned subsidiary of Goodyear Tire and Rubber Company (which consented to jurisdiction) and use the Goodyear distribution system to sell tires. Although their tires were primarily manufactured for foreign markets, some of their tires were distributedin North Carolina. Boldly going where none had gone before, the Court applied the Asahi “stream of commerce” to general jurisdiction and held that the affiliated were subject to suit in North Carolina. Writing for a unanimous Supreme Court, Justice Ginsberg rejected the notion that a foreign corporation is subject to general jurisdiction merely because other entities distribute, in the forum state, products placed into the stream of commerce by the defendant. The decision reaffirmed that in order to find general jurisdiction over an entity, there must be “continuous and systematic general business contacts” between the entity and the forum.

Conclusion

Nicastro and Brown confirm that the constitutional underpinnings of personal jurisdiction remain intact and have not fallen prey to the loud claims of the plaintiff’s bar. Unfortunately, Nicastro, like Asahi before it, is only a plurality decision. Although the Supreme Court has rejected the Asahi stream of commerce test, there is no conclusive determination of the effect of global manufacturing and sales. Litigating jurisdictional issues can be expensive and tedious. Since this fight is waged at the beginning of the lawsuit, recordkeeping is essential. Manufacturers need to know where they do business, not only with respect to manufacturing, marketing and sales, but also where their employees travel. The more information available to defense counsel and the Court, the easier the decision will be.

J. Michael Kunsch is a partner at Sweeney & Sheehan in Philadelphia, where his practice involves the defense of matters involving product liability and commercial litigation. He currently serves on the USLAW Board of Directors and is the past Chair of the USLAW product liability practice group.

 

 

Re-published courtesy of USLAW Magazine, Fall/Winter 2011

1 131 S.Ct. 2780 (2011).
2 131 S.Ct. 2486 (2011).

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