Supreme Court Refines Rules of Personal Jurisdiction in Products Liability Cases

Do you produce products that enter the "stream of commerce" that end up being distributed to foreign jurisdictions?  Do you fear you may be subject to personal jurisdiction in a location in which you do not maintain an office, do not pay taxes, do not advertise, and do not have any employees?  Are you wary that you may have to litigate products liability cases in foreign jurisdictions as a result of your global and international presence?  Two recent Supreme Court decisions bear consideration when assessing such exposure.

In June, the United States Supreme Court issued two opinions rejecting the long standing precedent subjecting foreign manufacturers to personal jurisdiction in state court products liability cases where products are placed in the "stream of commerce":  (1) Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), and (2) J. McIntyre Machinery, Ltd. V. Nicastro, 131 S. Ct. 2780 (2011).  These two decisions benefit product manufacturers.

In Goodyear, the issue was whether foreign subsidiaries of a United States parent corporation are amendable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum State.  The Supreme Court unanimously declared that a foreign manufacturer's placement of goods in the stream of commerce cannot be the sole basis for exercising jurisdiction.  Respondents, North Carolina residents whose sons died in a bus accident outside of Paris, France, filed suit in North Carolina state court seeking damages for wrongful death claiming negligence in the design, construction, testing, and inspection of a failed tire that allegedly caused the accident.  Respondents named as defendants Goodyear USA, an Ohio corporation, and three Goodyear USA subsidiaries in Luxembourg, Turkey, and France.  Goodyear USA did not contest the North Carolina court's jurisdiction over it as it had plants in the state and engages in commercial activity in North Carolina.  Goodyear USA's subsidiaries, however, claimed that North Carolina lacked jurisdiction because the subsidiaries were not registered to do business in North Carolina; have no place of business, employees, or bank accounts in North Carolina; do not design, manufacture, or advertise their products in North Carolina; and do not solicit business in North Carolina or sell or ship tires to North Carolina customers.  The type of tire involved in the accident was never distributed in North Carolina.

The lower court asserted jurisdiction over the foreign subsidiaries based on the "stream of commerce" doctrine.  The Supreme Court, however, ruled that the subsidiaries were not subject to general jurisdiction because their connections to the State did not constitute continuous and systematic business contacts that would subject them to jurisdiction on claims unrelated to any activity that connected them to the State.  The Court held that foreign subsidiaries of a United States parent corporation are not amenable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum state.

In McIntyre, the Court reversed the Supreme Court of New Jersey's holding under the "stream of commerce" doctrine that the Fourteenth Amendment's Due Process Clause was not violated by the New Jersey court’s exercise of jurisdiction over a foreign manufacturer.  This products liability action was filed in New Jersey state court and involved an accident, which injured Robert Nicastro's hand while he was using a metal shearing machine manufactured by J. McIntyre Machinery, Ltd.  The accident occurred in New Jersey, but the machine was manufactured in England, where McIntyre is incorporated and operates.  The question was whether the New Jersey courts had jurisdiction over McIntyre, notwithstanding the fact that McIntyre did not have an office in New Jersey and it did not pay taxes, own any property, advertise in, or send employees there.  McIntyre's only contact with New Jersey was the metal shearing machine.  McIntyre, a British manufacturer, sought dismissal for lack of personal jurisdiction based primarily on the fact that an independent distributor sold the machine to Nicastro's employer.

The New Jersey court ruled in favor of Nicastro based on the "stream of commerce" doctrine.  That court reasoned that jurisdiction was proper because (1) the injury occurred in New Jersey, (2) the petitioner knew or reasonably should have known that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states, and (3) the petitioner failed to take some reasonable step to prevent the distribution of its products in New Jersey.  The United States Supreme Court, however, reversed and found that McIntyre did  not "engage in any activity in New Jersey that reveal[ed] an intent to invoke or benefit from the protection of its laws."  As such, New Jersey’s exercise of jurisdiction over McIntyre violated due process.  In rejecting the "stream of commerce" doctrine, the Supreme Court announced that "the defendant's purposeful availment" is the important factor to consider and that "[n]o 'stream of commerce' doctrine can displace that general rule for products-liability cases."  As Justice Kennedy wrote, "[I]t is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment."  The Supreme Court made clear that the stream of commerce argument cannot supersede either the mandate of the Due Process Clause or the limits on judicial authority that Clause ensures.  Because petitioner never engaged in any activity in New Jersey that revealed an intent to invoke or benefit from the protection of its laws, exercising jurisdiction would violate due process.  Although states have strong policy interests in protecting its citizens from defective products, those interests cannot survive Constitutional scrutiny as the Supreme Court will not discard "liberty in the name of expediency."

Although the Supreme Court rejected the "stream of commerce" theory of personal jurisdiction in these products liability cases, both cases underscore that personal jurisdiction is a highly fact-specific inquiry best done on a case-by-case basis.  While the decisions are noteworthy for product manufacturers, personal jurisdiction remains a highly fact-specific test.

In light of these two recent Supreme Court decisions, foreign manufacturers now have additional weapons in their arsenal for fighting lawsuits.  If you or your business place products into the stream of commerce, which results in the products being located in jurisdictions that your business is not incorporated, does not pay taxes, does not own property, and has few contacts, then the Goodyear and McIntyre cases seem to strengthen arguments to dismiss a lawsuit based on the lack of personal jurisdiction.  However, if you purposefully avail yourself to foreign jurisdictions, then you most likely will not prevail on dismissing a case for lack of jurisdiction.  So, keep track of your products and know your distributors.  Ask yourself important questions like:  Where do my products end up?  To whom are my distributors selling my products?  Do my products have a global impact?  What contacts do I have in other jurisdictions?  Simply put, understanding the pipeline of your product distribution, not only in the first instance but also (where feasible) in the aftermarkets, may help reduce product liability.