Originally published in In-House Defense Quarterly - Fall 2011
Despite two end-of-term U.S. Supreme Court rulings in favor of product manufacturers, J. McIntyre Machinery, Ltd. v.
Nicastro, 131 S. Ct. 2780, 180 L. Ed. 2d 765 (2011), and Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2845, 180 L. Ed. 2d 796 (2011), these opinions offer little definitive guidance to help manufacturers understand how courts should determine issues of jurisdiction in the future. While the Supreme Court reversed the decisions of two state appellate courts that had permitted plaintiffs to sue foreign manufacturers for allegedly defective products even though the manufacturers did not have the traditional minimum contacts with those states, the justices could not reach a majority consensus on the parameters for state courts to use in the future in determining whether jurisdiction is proper in a product liability case.
Because the Supreme Court didn't offer clear guidance to the lower courts, courts will most certainly apply these jurisdictional principles inconsistently and largely unpredictably. While in these cases plaintiffs originally sued foreign rather than U.S. manufacturers, the rulings have a much greater scope as they apply to all manufacturers selling products outside of their home states. In short, product manufacturers worldwide cannot expect these rulings to be the end of U.S. state court litigation over issues of how and where plaintiffs may sue them. While Goodyear clarified existing law on when a state court may exercise general or all-purpose jurisdiction over a corporation, the McIntyre decision perhaps left more questions than answers for product manufacturers.
This article highlights the major points of the two cases, suggests what manufacturers and their counsel may learn from the opinions, and predicts what they should be prepared to address in future litigation involving similar issues. For a detailed discussion of the jurisdictional principles at issue and the factual and procedural history of these two cases, see Harris Neal Feldman, "A Summer of Change Expected for Manufacturers," In-House Defense Quarterly, Summer 2011, 18.
J. McIntyre Machinery, Ltd. v. Nicastro
In McIntyre, the Supreme Court addressed whether state courts, in this instance in New Jersey, may exercise personal jurisdiction over a foreign manufacturer by interpreting and then applying the Court's stream-of- commerce theory when (1) the foreign manufacturer sold its products through an independent, U.S. distributor in the broad U.S. market as a whole including in the state, New Jersey, and (2) participated in trade shows in Las Vegas and other U.S. venues other than the state, in this case, New Jersey. Nearly a quarter century after the last Supreme Court pronouncement on this particular personal jurisdiction issue in Asahi, 107 S. Ct. 1026 (1987), in which the Supreme Court issued two competing four-justice opinions, the current Supreme Court could not garner a majority opinion either. The plurality opinion in McIntyre explains that the Supreme Court of New Jersey apexistplied the stream-of- commerce "metaphor" incorrectly but recognizes that the Supreme Court's plurality decisions in Asahi may have been partly responsible for the error.
A six-justice majority did agree to reverse the Supreme Court of New Jersey's decision but the reasoning among the justices differed. The New Jersey court had opined that "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" then "[d]ue process permits this State to provide a judicial forum for its citizens who are injured by dangerous and defective products placed in the stream of commerce by a foreign manufacturer that has targeted a geographical market that includes New Jersey." But the Supreme Court rejected this application of the stream of commerce theory.
While the Supreme Court's plurality opinion does not resolve how state courts should properly apply the stream-of- commerce theory, if at all, it does offer some guidance for businesses. The Court squarely places the burden of defending litigation resulting from a foreign manufacturer's allegedly defective product on U.S. distributors unless a contractual agreement specifies otherwise. However, while a foreign manufacturer without a "presence" in a state can expect that its U.S. distributor will have to defend product liability litigation in that state, the manufacturer by no means escapes free and clear. Parties will continue to litigate personal jurisdiction issues at least until the Supreme Court hears another compelling case. Note that the Court previously decided the last one almost 25 years ago. Although a manufacturer and a distributor can agree to contractual indemnification, it will not prevent someone from suing the manufacturer in a state court.
While the judicial branch may not have resolved these issues, the McIntyre plurality appears to have sent a green light to Congress to pass legislation empowering the federal courts to hear such product liability disputes, even though it would raise multiple other legal questions and would undesirably expand the state courts' jurisdiction over foreign manufacturers just as affirming the Supreme Court of New Jersey's decision in McIntyre would have. Those following personal jurisdiction issues know that legislators have proposed and discussed such legislation in Congress each year for a number of years now, but it has not yet gained adequate traction. The statements from the Supreme Court may fuel a resurgence of this legislation in the next session. Manufacturers and their defense counsel should keep a watchful eye on renewed efforts to expand the state courts' jurisdiction over foreign manufacturers through legislation.
Another big question left unresolved by McIntyre is how a manufacturer's Internet presence, including sales and marketing, affect personal jurisdiction. A separate two-justice concurring opinion written by Justice Breyer and joined by Justice Alito mentioned that question but determined that the cases before the Court did not involve it so it was best to leave it for another day.
Goodyear Dunlop Tires Operations, S.A. v. Brown
The Supreme Court's unanimous reversal of the North Carolina Court of Appeal's decision in Goodyear is exactly right and follows Supreme Court precedent. The North Carolina appellate court found that plaintiffs could sue foreign subsidiaries of Goodyear in North Carolina state courts even though the tires at issue in the case were not even sold in the United States. Indeed, the North Carolina appellate court found that general, all-purpose jurisdiction existed over these foreign entities, meaning that plaintiffs could sue them in North Carolina state courts over any type of dispute involving any claims or other parties because (1) the tires at issue had U.S. Department of Transportation markings on them indicating that they could have been sold in the United States even though they were not; (2) the foreign entities sold approximately 40,000 other tires that made their way to North Carolina over a three-year period; and (3) those other tires generated "substantial revenue" for the foreign entities.
The Supreme Court ruled that the North Carolina appellate court had incorrectly concluded that the above actions made the foreign Goodyear entities' connection to North Carolina so "'continuous and systematic' as to render them essentially at home in the forum State." The Supreme Court explained that the North Carolina court had incorrectly reasoned that it properly had jurisdiction, and the Court's clarification in Goodyear should assure manufacturers that a state court should typically have a hard time finding that it had general, all-purpose jurisdiction over a foreign entity when the entity did not have a local "home."
Conclusions
In-house counsel for manufacturers need to understand jurisdiction legal principles and how the courts may apply them to manage litigation risks associated with selling products in the United States. Manufacturers' in-house counsel should consult counsel to identify the jurisdictions where plaintiffs may sue them and to discuss ways to limit their exposure as soon as possible. Defense counsel should recognize that collectively these decisions lend support to motions to dismiss state court product liability claims against foreign product manufacturers for lack of jurisdiction under certain circumstances, but the flood of litigation on complex jurisdictional issues is far from over. At minimum, manufacturers' in-house counsel and defense counsel should expect more intensive discovery of jurisdiction-related facts. Skilled defense counsel may better defend litigation raising jurisdiction issues by understanding these opinions and may help shape future case law to better protect manufacturers from being haled into unfriendly courts.
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