Since the Illinois Supreme Court’s landmark decision over half a century ago, in Gray v. Am. Radiator & Standard Sanitary Corp., 22 Ill. 2d 432, 441-43,
The jurisdictional questions posed by the distribution and marketing of products across state lines—and even across national borders—can be traced back to the dawn of modern product liability law; they predate the Supreme Court’s decision in World-Wide Volkswagen, and continued to last year’s decisions in Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. ___,
Personal jurisdiction is a particularly crucial issue in product liability litigation because the target defendants, product manufacturers, are frequently not residents of the forum. The more liberal the rules for personal jurisdiction, the more choice that plaintiffs may have to choose a forum not merely more convenient for the plaintiff, but which also may have more favorable juries or rules governing recovery. Thus, the outcome of product liability claims against nonresident manufacturers frequently depends on the permissible reach of long-arm statutes.
However, the jurisdictional issue affects far more than the plaintiff’s search for the proverbial deep pocket. As traditional joint and several liability rules have been supplanted in many states by new rules for allocation among parties and non-parties, new issues can arise concerning whether the fault of persons or entities beyond the jurisdiction of the forum will adversely affect the plaintiff’s recovery or the defendant’s liability exposure. Limitations on the scope of personal jurisdiction can also dramatically affect the ability of a local retailer, as well as a distributor or original equipment manufacturer (OEM), to obtain contribution or indemnity from another entity that may be primarily at fault but beyond the jurisdiction of the court. See, e.g., Sieg v. Sears Roebuck & Co.,
Furthermore, the scope of personal jurisdiction may also affect business relationships. A large retailer may understandably insist on new conditions for selling goods manufactured by someone otherwise beyond the jurisdiction of the states in which the retailer may be sued. Likewise, OEMs may insist on more stringent terms for dealing with component suppliers or even choose suppliers more amenable to jurisdiction.
Recent Decisions
Courts have long been divided over a number of important jurisdictional issues. Among the most significant were these two: 1) what showing must a plaintiff make to establish general jurisdiction over a non-resident defendant (so that the defendant may be sued there, whether or not the forum has any specific connection with the tort); and 2) whether plaintiffs can establish specific personal jurisdiction in the forum merely by showing a non-resident defendant’s placement of goods into the stream of commerce “with the expectation that they will be purchased by consumers within the forum State.” The latter was suggested in dictum in World-Wide Volkswagen Corp. v. Woodson,
It was hoped that the Supreme Court would resolve the issue once and for all when it granted certiorari in two cases decided in 2011: J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. ___,
General Jurisdiction
The Goodyear Court made its clearest statement yet about the limited circumstances under which non-resident defendants may be subject to general jurisdiction. The case arose from North Carolina plaintiffs’ attempt to bring suit in their home state for injuries sustained in France, arising from alleged defects in Goodyear tires manufactured in Turkey. There was no nexus between the Turkish subsidiary’s manufacture, distribution, or sale of the tire in Europe and the forum, but plaintiffs argued the pattern of distribution of other, similar tires from the Turkish subsidiary to North Carolina was sufficient to subject it to general jurisdiction and, therefore, it could be sued in North Carolina.
The North Carolina courts agreed with plaintiffs, but the United States Supreme Court unanimously disagreed: “For an individual, the paradigm forum for the exercise of general jurisdiction is the individual’s domicile; for a corporation, it is an equivalent place, one in which the corporation is fairly regarded as at home.” Goodyear, 131 S. Ct. at 2853-54. However, contacts, such as placing goods in the stream of commerce into the forum, “serving to bolster the exercise of specific jurisdiction do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant.” Id., at 2855.
Shortly thereafter, in a breach of warranty case, the Eighth Circuit rejected a claim of general personal jurisdiction that was based upon a similar “stream-of-commerce” argument. Plaintiff contended that the defendant, a foreign manufacturer, was subject to general jurisdiction because it “heads a distribution network, thus ‘realizing the much greater economic benefit of multiple sales in distant forums.’ Viasystems, Inc. v. EBM-Papst St. Georgen GmbH & Co., KG,
More recently, the Arkansas Supreme Court reversed a $2.5 million judgment rendered against a foreign manufacturer concluding, based on Goodyear, that, “while the flow of a manufacturer’s goods into the forum may support an affiliation pertinent to specific jurisdiction, it does not warrant a determination that, based on those ties, the forum has general jurisdiction.” Yanmar Co. v. Slater, 2012 Ark. 36, 10 (2012), reh’g denied (Mar. 8, 2012).
Although Goodyear clarified the limited circumstances under which general jurisdiction may be applied in product liability cases, some claimants have pursued alternate theories in support of general jurisdiction: by attributing the contacts of one corporation to another through claims of agency or veil-piercing. In Goodyear, the Court rejected a “belated” attempt to assert a “single enterprise” theory of treating various related Goodyear companies as a single entity for purposes of general jurisdiction. Although the Court did not address the untimely contention on the merits, it cited a law review article suggesting that the standard for such purposes required “an inquiry ‘comparable to the corporate law question of piercing the corporate veil.’” Goodyear, at 2857.
After Goodyear and Nicastro had been argued, but while they were still under advisement, a panel of the Ninth Circuit reconsidered a prior decision, reversed itself, and issued an opinion that took an expansive view of “agency” as a basis to impose general jurisdiction over a foreign corporation based on an asserted “agency” relationship between the foreign defendant and a local subsidiary. Bauman v. DaimlerChrysler Corp.,
Several commentators have recognized the abuses of veil-piercing and agency theory as a means of circumventing the due process limitations on personal jurisdiction. Even in the limited form in which it was conceived, agency theory has been criticized as “vague and ill-defined principally because it is based on a distorted application of the traditional law of agency.” Michael G. Albano, Agency As A Means of Obtaining Jurisdiction in New York Over Foreign Corporations: A Failed Theory, 20 Brook. J. Int’l. L. 169, 197 (1993). Another commentator notes, “The general jurisdiction veil-piercing cases reflect the worst abuses of modern jurisdictional doctrine.” Lonny Sheinkopf Hoffman, The Case Against Vicarious Jurisdiction, 152 U. Pa. L. Rev. 1023, 1090 (2004) (emphasis supplied). Professor Hoffman adds:
[E]xercising jurisdiction merely because a foreign corporate defendant has an ownership relationship with a forum affiliate—even where the cause of action does not arise from any actions taken by the defendant or its affiliate in the forum—stretches the boundaries of jurisdictional theory beyond any discernible limit. Id., at 1092-93.
Daimler filed a petition for certiorari in Bauman on February 6, 2012. On February 29, the SCOTUS blog featured the Bauman certiorari petition as the “Petition of the Day.” http://www.scotusblog.com/2012/02/petition-of-the-day-254/. So stay tuned.
Not surprisingly, a few other courts have recently refused to impose general jurisdiction based on loosely-defined agency or veil-piercing theories. See, e.g.,
Mikuni Corp. v. Foster
,
Specific Jurisdiction
A majority of the Court in Nicastro rejected the “stream of commerce” approach as a sufficient basis for specific jurisdiction. The common denominator of the plurality and concurring opinions in Nicastro was rejection of the “stream-of-commerce” rubric of Justice Brennan’s plurality opinion in Asahi. Six justices in Nicastro held that the mere placement of a product in the stream of commerce, with the expectation that the product might be sold and used in the forum state, was insufficient to justify specific personal jurisdiction in the forum state over a foreign manufacturer.
Nicastro’s plurality opinion, authored by Justice Kennedy, emphasized that jurisdiction is “a question of authority rather than fairness.” Nicastro, 131 S. Ct. at 2789. The defendant must target the forum before it is deemed to have submitted to the jurisdiction of the forum. Id. It is insufficient “that the defendant might have predicted that its goods will reach the forum.” Id. at 2790. “[I]t is the defendant’s actions, not [its] expectations, that empower a State’s courts to subject [it] to judgment.” Id. at 2789.
Justice Kennedy’s opinion noted that “stream of commerce” is simply a “metaphor” to describe the “purposeful availment” analysis of the constitutional due process limits on the exercise of personal jurisdiction in the context of the sale of goods. Nicastro, 131 S. Ct. at 2788, 2791. Yet, the metaphor has limits. “[T]he stream-of-commerce metaphor cannot supersede either the mandate of the Due Process Clause or the limits on judicial authority that Clause ensures.” Id. at 2791. It also rejected “foreseeability” as a determinant of jurisdiction: “But Justice Brennan’s rule based on general notions of fairness and foreseeability is inconsistent with the premises of lawful judicial power under this Court’s precedents.” Id., at 2783-2784. It further explained:
It must be remembered, however, that although this case and Asahi both involve foreign manufacturers, the undesirable consequences of Justice Brennan’s approach are no less significant for domestic producers. The owner of a small Florida farm might sell crops to a large nearby distributor, for example, who might then distribute them to grocers across the country. If foreseeability were the controlling criterion, the farmer could be sued in Alaska or any number of other States’ courts without ever leaving town. Id., at 2790.
According to the plurality, due process protects the defendant’s right not to be coerced “except by the exercise of lawful power.” Id. at 2783. Justice Kennedy noted how the “stream of commerce” metaphor had led some state courts astray in their consideration of the constitutional limits of due process:
The imprecision arising from Asahi, for the most part, results from its statement of the relation between jurisdiction and the `stream of commerce.’ That concept, like other metaphors, has its deficiencies as well as its utilities. It refers to the movement of goods from manufacturers through distributors to consumers, yet beyond that descriptive purpose its meaning is far from exact. A defendant’s placement of goods into the stream of commerce `with the expectation that they will be purchased by consumers within the forum State’ may indicate purposeful availment. World-Wide Volkswagen Corp. v. Woodson,
In the plurality opinion’s view, “The defendant’s transmission of goods permits the exercise of jurisdiction only where the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State. Nicastro, 131 S. Ct. at 2788. It “requires a forum-by-forum, or sovereign-by-sovereign, analysis. Id., at 2789. It restricts judicial power “‘not as a matter of sovereignty, but as a matter of individual liberty,’ for due process protects the individual’s right to be subject only to lawful power.” Id., citing Ins. Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee,
Justice Breyer, joined by Justice Alito, concurred in the decision that the evidence in the record did not justify jurisdiction over a non-resident manufacturer in the state where the product was purchased, and in which it caused injury to a local user. Id. at 2791-2794. They wrote separately to declare that Nicastro could be decided under existing precedents, including Justice O’Connor’s plurality opinion in Asahi. Id. at 2791.
Justice Breyer wrote: “None of the Court’s precedents finds that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient” to support an assertion of personal jurisdiction by a state court. Id. at 2792. “Rather, this Court’s previous holdings suggest the contrary.” Id. Citing Justice O’Connor’s opinion in Asahi, Justice Breyer noted that the Court has:
strongly suggested that a single sale of a product in a State does not constitute an adequate basis for asserting jurisdiction over an out-of-state defendant, even if that defendant places his goods in the stream of commerce, fully aware (and hoping) that such a sale will take place. Id.
This statement strongly indicates that these two justices, like the plurality, rejected foreseeability as a sufficient criterion to establish personal jurisdiction over a manufacturer.
Justice Breyer’s concurrence expressed reservations about articulating a rule of broad applicability when it was impossible to anticipate the variables that could arise in a new era of interstate and international internet sales:
I do not doubt that there have been many recent changes in commerce and communication, many of which are not anticipated by our precedents. But this case does not present any of those issues. So I think it unwise to announce a rule of broad applicability without full consideration of the modern-day consequences. Id. at 2791.
He expressed concern that indiscriminate application of the stream-of-commerce theory would force an “Appalachian potter, who sells his product (cups and saucers) exclusively to a large distributor, who resells a single item (a coffee mug) to a buyer from a distant State (Hawaii)” to defend as a lawsuit brought in Hawaii. Id., at 2793.
Such a result would not satisfy “the constitutional demand for ‘minimum contacts’ and ‘purposefu[l] avail[ment],’ each of which rest upon a particular notion of defendant-focused fairness.” Id. Justice Breyer had expressed similar concerns during oral argument, hypothesizing if an independent buyer or distributor walked into a small shop, bought some pots that ended up being sold and used in a remote location. Supreme Court Oral Argument Transcript, pp. 34-35 (http://www.supremecourt.gov/oral_arguments/argument_transcripts/09-1343.pdf).
Justices Scalia and Ginsburg observed that, given the U.S.’s “very neighborly view about recognizing and enforcing foreign judgments,” and reciprocity principles, an expansive interpretation of what constitutes a proper jurisdictional basis could subject American citizens and companies to liability for judgments rendered in foreign countries on similarly tenuous contacts with those countries. Id., at 35-37.
Like the plurality opinion, Justice Breyer’s concurrence applied the “stream-of-commerce-plus” test to the facts in Nicastro, concluding that the relevant facts “show no ‘regular … flow’ or ‘regular course’ of sales in New Jersey… and there is no ‘something more.’ ” Id. He wrote that plaintiff did not meet his burden of proving jurisdiction, because he “has shown no specific effort” by the foreign manufacturer to sell in New Jersey (Id., 131 S. Ct. at 2792). Plaintiff did not show that the foreign manufacturer “‘purposefully avail[ed] itself of the privilege of conducting activities’ within New Jersey” (Id.); and did not show that the manufacturer “delivered its goods in the stream of commerce ‘with the expectation that they will be purchased’ by New Jersey users.” Id.
Justice Breyer’s concurrence cited Justice O’Connor’s opinion in Ashai with approval, as “requiring ‘something more’ than simply placing ‘a product into the stream of commerce,’ even if the defendant is ‘awar[e]’ that the stream ‘may or will sweep the product into the forum State.’” Id. at 2792. Justice Breyer rejected the application of the “stream of commerce” approach advocated by Justice Brennan’s plurality opinion in Asahi, which would have compelled the opposite result. He wrote: “[T]hough I do not agree with the plurality’s seemingly strict no-jurisdiction rule, I am not persuaded by the absolute approach adopted by the New Jersey Supreme Court.” Nicastro, 131 S. Ct. at 2793.
Justice Breyer’s concurrence advocated a decision on narrower grounds because, contrary to the lower court’s “broad understanding of the scope of personal jurisdiction based on its view that “[t]he increasingly fast-paced globalization of the world economy has removed national borders as barriers to trade,” id., at 2791, the case before the Court did not present any of those issues. Id. The specific concerns identified in the concurrence were “the consequences of selling products from a company’s website, through the website of an intermediary such as www.amazon.com, or via popup advertisements that it knows will be viewed in the forum.” Id., at 2793.
Justice Ginsberg’s dissent disagreed with the result but acknowledged the far-reaching effect of the decision the majority reached: “[S]ix justices of this Court, in divergent decisions, tell us that the manufacturer has avoided the jurisdiction of our state courts, except perhaps in States where its products are sold in sizeable quantities.” Id. at 2795. Justice Ginsburg wrote that she “took heart” that the plurality opinion does not speak for the Court because it undermines International Shoe Co. v. Washington,
However, several important issues remain unresolved. First, although the Court clearly appears to have rejected the sufficiency of the “stream of commerce” approach, its 4-2-3 split failed to produce any clear consensus about what criteria should apply instead. Most of the product liability decisions rendered in the lower appellate courts during the brief period since Nicastro have rejected the stream-of-commerce theory, even when there is evidence of extensive distribution and sale of the product throughout the United States. See, e.g., Dow Chemical Canada ULC v. Superior Court,
, supra (although the Texas Court of Appeals noted that Texas already subscribed to the stream-of-commerce-plus theory espoused by Justice O’Connor’s plurality opinion in Asahi).
Thus far, the one jurisdiction most resistant to the effect of Nicastro is Illinois, where the stream-of-commerce theory of jurisdiction originated. Its intermediate courts have twice rejected challenges to specific jurisdiction in the wake of Nicastro. See Russell v. SNFA, 408 Ill. App. 3d 827,
The Soria decision involved a chain of distribution by a large product manufacturer (Chrysler), which had gone bankrupt, and so the claim was brought against the Canadian subsidiary that assembled the vehicle. Plaintiffs alleged that it knew that “minivans and vehicles it manufactured were sold in the United States, including thousands in Illinois; about 85% of its production was exported to the United States in 2008; it delivered its minivans and vehicles into the stream of commerce with the expectation that a certain percentage would be sold in Illinois.” 354 Ill. Dec., ¶ 5, at 545; see also, ¶ 29 at 554.
In addition, Chrysler Canada admitted that it was “aware of the number of vehicles it assembled that contained Illinois addresses on the ‘Ship To’ fields of the vehicles’ Monroney labels or shipping orders and that it ‘expected’ that some of its vehicles would be sold in Illinois.” Id., ¶ 30, at 554-555. Thus, the court concluded, “Chrysler Canada had an expectation that its products would be purchased by Illinois consumers and, given the continuous nature of its assembly relationship with Chrysler United States, its contacts with Illinois were not random, fortuitous, or attenuated.” Id.
Despite these factors, the four-justice plurality in Nicastro would almost certainly have rejected personal jurisdiction. Under Justice Kennedy’s opinion, Chrysler Canada’s awareness that many of its vehicles would be sold in the forum would be deemed immaterial because “it is not enough that the defendant might have predicted that its goods will reach the forum State.” Nicastro, 131 S. Ct. at 2788. Rather, the defendant’s placement of goods into the stream of commerce is a sufficient basis for specific jurisdiction “only where the defendant can be said to have targeted the forum.” Id.
As the concurrence observed, the plurality opinion set “strict rules that limit jurisdiction where a defendant does not “inten[d] to submit to the power of a sovereign” and cannot “be said to have targeted the forum.” Id., at 2793 (Breyer, J., concurring). One would infer that, under the plurality’s analysis, the fact that a large foreign manufacturer elects to have its goods distributed in the United States—or even that a domestic manufacturer chooses to have a corporate subsidiary distribute goods in a particular state—is evidence that the manufacturer itself does not intend to submit to the forum; it has chosen someone else to do so instead.
Although it is less clear, Soria seems inconsistent with the concurring opinion in Nicastro as well. The Soria court’s justification that the defendant’s contacts with the forum were not “random, fortuitous, or attenuated,” is closer to a metaphor for “foreseeability” than to “purposeful availment.” And, although Justice Breyer’s concurrence in Nicastro refused to endorse either the plurality’s “seemingly strict no-jurisdiction rule” or the “absolute approach adopted by the New Jersey Supreme Court” (Nicastro, at 2793), a number of clues in the concurrence suggest that these justices might have rejected jurisdiction in cases such as Soria as well.
First, the concurring opinion points out that “the British Manufacturer permitted, indeed wanted, its independent American Distributor to sell its machines to anyone in America willing to buy them.” Nicastro, 131 S. Ct. at 2791. Yet this fact was not sufficient to convince Justices Breyer and Alito that they purposefully availed themselves of the benefits of New Jersey law, even when the machine they manufactured was distributed and sold in New Jersey and caused injury to a New Jersey resident. Second, the concurrence stated that “the relevant facts found by the New Jersey Supreme Court show no ‘regular … flow’ or ‘regular course’ of sales in New Jersey; and there is no ‘something more,’ such as special state-related design, advertising, advice, marketing, or anything else.” Id., at 2792 (emphasis supplied). In Soria, plaintiffs established the former (i.e., a “regular flow”), but not the latter (additional special actions targeting the forum).
A few lower courts have seized on the language of the concurrence concerning the small volume of machines sold by the manufacturer in Nicastro. Although there were suggestions that “up to four machines ended up in New Jersey,” the record showed that the only sale of the product in the forum was of the unit on which plaintiff was injured. Id., at 2790. The dissent treated the quantity of products sold in the jurisdiction as significant, suggesting that the plurality’s rule would govern unless, perhaps, the product had been sold in “sizeable quantities.” Id., at 2795. Since Nicastro, the lower courts have differed as to the jurisdictional significance of the quantity of products sold in the jurisdiction. Compare Dow Chemical Canada, Mikuni Corp., Gardner, supra (rejecting argument that quantity of goods sold was sufficient to infer purposeful availment) with the Illinois cases: Russell, at ¶ 44 (upholding jurisdiction supported by Nicastro “where there was only one sale to the forum state”), Soria, supra (thousands of vehicles assembled by Canadian defendant sold in Illinois by independent dealers). But in Nicastro, each such machine had sold in the United States for $24,900. Id., at 2795 (Ginsberg, J., dissenting). Should the analysis and outcome be any different had a manufacturer sold 25,000 candy bars in the forum for a dollar each, rather than one machine for $25,000?
Another issue not explicitly addressed concerned the status of component suppliers, which are often one or more steps further removed from control over the OEM’s distribution and sale of the finished product. Nicastro presented a situation in which an OEM had provided a product to a domestic distributor, and the domestic distributor had been directly responsible for dealing with the retailer in the forum.
What about the situation in which a non-resident component manufacturer sells screws or rivets, which another manufacturer incorporates into the finished product? Courts tended to treat the situation the same as cases such as Nicastro as long as the touchstone of “stream of commerce” analysis was foreseeability. Now that mere “foreseeability” is no longer the appropriate determinant of personal jurisdiction, it is far more difficult to justify jurisdiction over the component supplier, which may well “foresee” its component winding up in any and every state, but is not otherwise purposefully availing itself of the benefit of each state’s laws. See, e.g., Gardner, supra, ¶ 28, at *7:
[U]nlike J. McIntyre [the manufacturer in Nicastro], Schneider Canada ‘was a component-part manufacturer with ‘little control over the final destination of its products once they were delivered into the stream of commerce.’ ”
See J. McIntyre, 131 S. Ct. at 2803 (Ginsburg, J., dissenting) (quoting A. Uberti & C. v. Leonardo, 181 Ariz. 565,
Conclusion
The Supreme Court’s decisions in Goodyear and Nicastro clarified several important issues relating to personal jurisdiction in product liability litigation. However, it would not be surprising to see the Court accept review of other jurisdiction cases in the near future, to address issues not yet decided.
Learn more about Bloomberg Law or Log In to keep reading:
Learn About Bloomberg Law
AI-powered legal analytics, workflow tools and premium legal & business news.
Already a subscriber?
Log in to keep reading or access research tools.