Nicastro and its Progeny: Did the U.S. Supreme Court Usher in a New Liability Landscape 25 Years After Asahi?

When the United States Supreme Court agreed to review Nicastro v. McIntyre Mach. Am., Ltd.
¹987 A.2d 575 (N.J. 2010). in 2010, many in the legal community hoped that it would clarify a quarter century of discord regarding the proper standard for establishing personal jurisdiction over foreign defendants. The Supreme Court’s 1987 ruling in Asahi Metal Indus. Co. v. Superior Court
²480 U.S. 102 (1987). resulted in a federal circuit split over the appropriate test for conferring such jurisdiction. Specifically, lower courts were divided over whether a defendant’s mere placement of a product into the so-called “stream of commerce” was adequate for purposes of establishing jurisdiction.

To the chagrin of many legal commentators, however, the Supreme Court in J. McIntyre Machinery, Ltd. v. Nicastro
³131 S. Ct. 2780 (2011). issued a divided opinion, leaving its precedential value unclear.

The court held in a plurality decision June 27, 2011, that an injured worker cannot sue a British manufacturer of metal-shearing equipment in New Jersey courts because the company lacked sufficient contact with the state to give the state’s courts jurisdiction (J. McIntyre Machinery, Ltd. v. Nicastro, U.S., No. 09-1343, 6/27/11; 41 OSHR 572, 6/30/11).

In the months following the Nicastro ruling, numerous federal and state courts analyzed its holding in determining the proper standard for personal jurisdiction. This article examines several lower court decisions in the wake of Nicastro. In particular, it discusses whether the decision has shifted the legal landscape with respect to personal jurisdiction over foreign defendants with no connection to a particular forum other than the fact that their products have been sold in that forum.

The personal jurisdiction exposure for such defendants has ranged from divided and muddied waters created by two plurality Supreme Court decisions, to calmer waters created by lower courts that have embraced a more restrictive view of jurisdiction, to more troubled waters created by courts that have applied a broader standard. The developing case law suggests that until the Supreme Court issues a relevant jurisdictional decision joined by a majority of justices, the jurisdictional landscape will contain a sea of changing and likely inconsistent results.

The Asahi Precedent: Divided Waters

In its 1987 Asahi opinion, the Supreme Court considered whether a foreign manufacturer could be hauled into court merely because its product had been sold in a particular jurisdiction. The petitioner, Asahi Metal Industry Corp,, was a Japanese tire valve manufacturer whose products had been sold in California through a foreign distributor of automobile parts.

After review of the California Supreme Court’s decision to permit jurisdiction over the defendant corporation, the Supreme Court issued a fractured opinion. A four-justice plurality, led by Justice O’Connor, held that “a defendant’s awareness that the stream of commerce may or will sweep the product into the forum state does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum state.” ⁴Asahi, 480 U.S. at 112. In other words “something more” than a mere expectation that a product might end up in a particular jurisdiction is necessary to confer jurisdiction. ⁵Id. at 111–12 (opinion of O’Connor, J.). Justice O’Connor’s opinion embodied what has come to be known as the “stream of commerce plus” theory of jurisdiction, requiring that a defendant be aware that a product might be sold in a particular jurisdiction and engage in some degree of intentional marketing or sales directed at the forum state.

Justice Brennan, writing for a second four-justice plurality, concurred in the result, but disagreed with Justice O’Connor’s requirements for establishing personal jurisdiction. According to Justice Brennan, as long as a defendant could “foresee” that the final product might end up in the forum state, jurisdiction premised on the placement of a product into the stream of commerce is consistent with the Due Process Clause, and a showing of additional conduct is not required. ⁶See id. at 117 (opinion of Brennan, J.). Justice Brennan ultimately concluded that Asahi had not purposefully availed itself of the California market, but disagreed with Justice O’Connor’s conclusion that the exercise of jurisdiction over the corporation would not comport with Due Process. ⁷See id. Justice Stevens authored a separate concurrence, holding that an evaluation of whether a defendant has “purposefully availed” itself of a state’s laws should take into account the “volume, the value, and the hazardous character” of the manufacturer’s products, but declined to expressly reject or adopt stream of commerce arguments. ⁸Id. at 122 (opinion of Stevens, J.).

The Asahi ruling resulted in a patchwork of lower court decisions concerning the proper standard for conferring jurisdiction over foreign defendants. A majority of lower courts subsequently adopted Justice O’Connor’s “something more” standard, although a substantial minority embraced Justice Brennan’s “foreseeability” standard. ⁹See, e.g., Angela M. Laughlin, This Ain’t the Texas Two Step Folks: Disharmony, Confusion, and the Unfair Nature of Personal Jurisdiction Analysis in the Fifth Circuit, 37 Cap. U. L. Rev. 681, 727–28 app A. (2009). As a consequence of Asahi, a foreign defendant may be sued in one jurisdiction based on the fact that its product was sold in the forum and avoid suit in another jurisdiction based on the same set of facts.

The Nicastro Decision: Muddied Waters

In 2011, the U.S. Supreme Court revisited the issue of jurisdiction with respect to foreign defendants in Nicastro.

The Supreme Court of New Jersey had ruled that jurisdiction over defendant J. McIntyre Machinery, a British manufacturing company, was appropriate because the defendant knew or reasonably should have known that its products might be sold in New Jersey. ¹⁰Nicastro v. McIntyre Mach. Am., Ltd., 987 A.2d 575, 577 (N.J. 2010). In short, the court relied on stream-of-commerce arguments in determining that jurisdiction was proper.

On review, a fractured Supreme Court reversed New Jersey’s high court, finding that the court did not have jurisdiction over the defendant. A four-justice plurality rejected New Jersey’s “stream of commerce” approach and embraced a more restrictive view of jurisdiction. Justice Kennedy, writing for the plurality, concluded that while the defendant corporation’s marketing and sales efforts had been directed at the United States, they had not been “purposefully directed” toward New Jersey. ¹¹131 S. Ct. at 2790 (opinion of Kennedy, J.). Justice Breyer authored a concurring opinion, arguing that it would be “unwise to announce a rule of broad applicability without full consideration of the modern-day consequences” of the majority’s opinion. ¹²Id. at 2792 (Breyer, J., concurring). Justice Ginsburg, joined by Justices Sotomayor and Kagan, issued a dissenting opinion embracing Justice Brennan’s “foreseeability” approach to personal jurisdiction. ¹³Id. at 2794 (Ginsburg, J., dissenting).

Although six justices agreed that J. McIntyre should be dismissed from the lawsuit, only four of the nine justices flatly rejected stream of commerce as a valid legal argument. Immediately following the ruling, many foreign manufacturers hailed Nicastro as a victory. The developing case law, however, suggests that the ruling has failed to remedy the current federal court split.

Stream of Commerce Foreclosed:
Calming Waters

A significant number of lower courts have interpreted Nicastro as permanently foreclosing “foreseeability” or “stream of commerce” arguments. In Windsor v. Spinner Industry Co., Ltd., ¹⁴825 F. Supp. 2d 632 (D. Md. 2011). for example, plaintiffs brought a product liability action against a Taiwanese manufacturer of bicycle parts. Although the evidence demonstrated that the defendant’s products had been sold in Maryland, the record revealed that they had been distributed to the state via third-party intermediaries. ¹⁵Id. at 634. The court construed Nicastro as rejecting the “foreseeability” approach to personal jurisdiction, and concluded that the mere placement of a product into the stream of commerce could not be used to establish jurisdiction. ¹⁶Id. at 638. In making its determination, the court said that Nicastro merely confirmed the “status quo” and looked to prior Fourth Circuit precedent to guide its decision. ¹⁷Id.

Similarly, in Askue v. Aurora Corporation of America, ¹⁸No. 1:10-cv-0948-JEC, 2012 BL 56456 (N.D. Ga. Mar. 12, 2012). a personal injury action involving a paper shredder manufactured by a foreign defendant and later sold to Aurora Corp., the court found that Nicastro was limited in its applicability, writing that “the only inference that one can properly draw from the Nicastro holding is that the decision is limited to its own facts.” ¹⁹Id. at *18. The court ultimately held that while the facts in Askue bore a “striking similarity” to those of Nicastro, Aurora Corp. arguably had less contact with the state of Georgia than did the defendant in Nicastro. In granting the defendant’s motion to dismiss, the court noted that the Eleventh Circuit remained divided about the appropriate jurisdictional test, ²⁰Id. at *14. but disagreed with defendant’s argument that Nicastro precluded stream-of-commerce arguments. ²¹See id. at *19.

In Lindsey v. Cargotec USA Inc., ²²No. 4:09CV-00071-JHM., 2011 BL 250317 (W.D. Ky. Sept. 30, 2011). the court considered Nicastro and determined that it could not assert jurisdiction over an Irish forklift manufacturer (41 OSHR 902, 10/20/11).

The court looked to Nicastro and Sixth Circuit precedent in adopting Justice O’Connor’s jurisdictional theory from Asahi. It found that, in light of Nicastro, Justice O’Connor’s “stream of commerce plus” theory remained good law. ²³See id. at *9-11. In analyzing pre-Nicastro Sixth Circuit precedent, the court found that the contacts between the forklift manufacturer and Kentucky were “too random, fortuitous, and attenuated for a finding of purposeful availment.” ²⁴Id. at *20.

In sum, several lower courts have interpreted Nicastro as leaving the legal landscape unchanged and have chosen to follow the pre-Nicastro precedent of their own jurisdiction, developed over the years following Asahi.

Some Courts Discount
Nicastro: Troubled Waters

While some courts have interpreted Nicastro as maintaining the status quo, other courts have expressly or implicitly discounted the impact of the decision.

In Russell v. SNFA, ²⁵2011 IL App (1st) 093012-B, 2011 IL App (1st) 093012. the Illinois Court of Appeals found stream-of-commerce arguments sufficient to assert jurisdiction over a foreign defendant. A French company, SNFA, had manufactured a helicopter part, and plaintiffs sued after a helicopter crash, claiming the part’s malfunction contributed to the crash.

The Illinois Supreme Court had remanded the lawsuit to be reviewed in light of the Nicastro decision. Based on the fact that the defendant had designed its product in anticipation of sales in the forum state, the Court of Appeals ultimately reaffirmed its earlier holding that Illinois could maintain jurisdiction over the foreign defendant.

In reaching its decision, the court noted that all of the Nicastro opinions embraced Asahi
²⁶Id. at *14. and that several justices had found foreseeability and stream of commerce arguments appropriate. ²⁷Id. at *15–16. In addition, the court distinguished itself from Nicastro based on the number of sales in Illinois. ²⁸Id. at *22–23. It held that jurisdiction was proper because the defendant had designed a component part for inclusion in a product that it “knew” could ultimately end up in Illinois. ²⁹Id. In other words, the Nicastro holding did not foreclose the stream-of-commerce approach to jurisdiction.

In Ainsworth v. Cargotec USA, Inc., ³⁰No. 2:10-CV-236-KS-MTP, 2011 BL 316671 (S.D. Miss. Dec. 15, 2011). the Southern District of Mississippi found Nicastro’s “applicability [to be] limited by its facts.” ³¹Id. at *7–8. Because the Supreme Court had declined to choose between Justice Brennan’s and Justice O’Connor’s Asahi plurality opinions, the court concluded that Nicastro “has little to no precedential value.” ³²Id. at *8. Thus, the court followed Fifth Circuit precedent and applied Justice Brennan’s stream-of-commerce approach in determining that jurisdiction over the defendant was appropriate.

What Lies Ahead: Uncharted Waters

Unfortunately, Nicastro does not appear to offer the uniform approach to personal jurisdiction that many in the legal community had desired. Although a four-justice plurality rejected the “stream of commerce” test, a majority of justices did not reject the doctrine outright. It is not surprising, therefore, that lower courts continue to be divided over its precedential value.

Presumably, a new case will make its way to the Supreme Court within the next decade. Until the Supreme Court issues a decision in such a case that is joined by a majority of justices, the jurisdictional landscape in the United States will contain a sea of changing and likely inconsistent decisions. It behooves a foreign entity that places products into the United States through the “stream of commerce” to track jurisdictional case law developments in assessing its litigation risk.