United States: Pennsylvania District Court Finds Supreme Court Failed To Adopt Clear Personal Jurisdiction Standard Over Foreign Defendant

A foreign manufacturer sued in the U.S. District Court for the Middle District of Pennsylvania recently prevailed in its motion to dismiss for lack of personal jurisdiction even though it did not dispute that its consumer product was used by the injured Pennsylvania plaintiffs. In an opinion that gives essentially no credit to a 2011 U.S. Supreme Court decision on personal jurisdiction — noting "the failure of a Supreme Court majority to adopt clearly one of the two [stream-of-commerce theory] standards" — the District Court in Sieg v. Sears Roebuck & Co., No. 3:10-606 (Feb. 24, 2012), concluded that a foreign defendant was not subject to personal jurisdiction under either of the two standards for the stream-of-commerce theory despite the fact that it has a presence in the United States and previously defended other lawsuits in Pennsylvania.

In Sieg, the plaintiffs sued Sears Roebuck and Leviton Manufacturing for property damage and personal injuries caused by a fire in their house. The plaintiffs alleged that a defective power tap, or power strip, started the fire. Plaintiffs purchased the power tap from Sears and alleged that Leviton manufactured or distributed the product. The power tap, however, was manufactured by Taiwan-based Primax Electronics, whom Leviton promptly joined in a third-party action. Primax moved to dismiss for lack of personal jurisdiction on the theory that it did not purposefully avail itself to Pennsylvania's markets.

The Court conducted the standard three-part inquiry to dispose of the motion — whether the defendant purposefully directed its activities at the forum; whether the litigation arises out of or relates to at least one of those activities; and whether the exercise of jurisdiction comports with traditional notions of fair play and substantial justice. Leviton argued that personal jurisdiction was proper under the stream-of-commerce theory. This theory has been addressed twice by the Supreme Court — first in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987) and most recently in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011) — but neither case established a definitive approach for its application. As a result, the stream-of-commerce theory remains potentially subject to two standards, one more stringent than the other because a majority of the U.S. Supreme Court has yet to agree on one standard. The less stringent approach dictates that personal jurisdiction is proper so long as the defendant places goods into the stream of commerce. This standard was, at minimum, questioned by the Nicastro Court and arguably rejected. In the more stringent approach — called "stream of commerce plus" — the plaintiff must establish something in addition to placing the product into the stream of commerce to show that the defendant intended to serve the specific foreign market. Prior to Nicastro, the Third Circuit analyzed personal jurisdiction under both standards as pronounced in Asahi, so the court in Sieg followed suit.

The Sieg court concluded that Leviton failed to meet even the less stringent stream-of-commerce standard despite the factual record establishing that Primax:

  • had sales offices in the United States since 1990,
  • honored a 2001 Leviton purchase order for thousands of products that Leviton shipped from California to New York, and
  • participated in litigation in Pennsylvania state court cases in 2002 and 2003.

While Leviton argued that these facts were sufficient to establish that Primax was aware its products were being delivered to Pennsylvania, sold in Pennsylvania and used by residents in Pennsylvania, the court was not swayed. In particular, the sales offices were of no value because there was no allegation that any of those sales offices were in Pennsylvania; the 2001 purchase order did not indicate if the products sold in that order included the allegedly defective power tap at issue in this case; there was no indication that any of the products in the purchase order were shipped to Pennsylvania; and there was nothing to suggest that the earlier state court litigation involved the same products at issue in this case.

The court reasoned that Leviton failed to establish that Primax's products regularly flowed through the stream-of-commerce into Pennsylvania and did not even allege how the specific product at issue was delivered to Pennsylvania. Perhaps the most telling comment in the opinion is that "evidence that a few products made their way into the forum state, in itself, is insufficient to establish personal jurisdiction," especially where there remained the possibility that Primax was not aware its specific power tap was sold in Pennsylvania.

This decision is important, and serves to reemphasize the need for U.S. manufacturers, distributors and retailers to take action to protect themselves in product liability suits involving goods made abroad. Although Sieg involved a foreign manufacturer, these personal jurisdictional principles apply equally to domestic manufacturers whose products are sold in other states. Domestic manufacturers, distributors, and retailers who partner with foreign manufacturers should learn from Sieg and consult with knowledgeable defense counsel when communicating with a foreign manufacturer so as to protect themselves and help establish the requisite facts needed to satisfy the evolving stream-of-commerce theories. Additional protection can take the form of contractual indemnification provisions, technical assistance guarantees in the event of litigation, and/or provisions containing consent to suit and venue clauses. Insurance can be furnished, with appropriate vendor's endorsements. At minimum, these efforts will lay the groundwork for jurisdictional discovery when seeking to include a foreign manufacturer in product liability litigation. Product liability litigation is difficult enough to defend, but when a global "chase" component is added just to reach the real manufacturer the costs of product defense can become acute.

Foreign manufacturers should likewise be guided by Sieg and take the necessary measures to limit their exposure in U.S. markets. Foreign manufacturers seeking dismissal on personal jurisdiction grounds should consider following the guidance in Sieg and the handful of other decisions post-Nicastro.

In order to manage risk and anticipate potential litigation, foreign and domestic manufacturers and domestic distributors and retailers all need to understand the jurisdictional rules that are somewhat in flux and how these rules might be applied to them. Manufacturers, distributors and retailers should consult with counsel to discuss what actions may limit their exposure in various jurisdictions.

www.schnader.com

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