Stream of commerce doctrine rejected

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The U.S. Supreme Court has rejected the “stream of commerce” doctrine for conferring personal jurisdiction over a foreign defendant, effectively overruling Wisconsin case law adopting the doctrine.

The June 27 opinion from the Court failed to produce a majority opinion. Nevertheless, both the four-justice plurality opinion by Justice Anthony Kennedy and a two-justice concurrence by Justice Stephen Breyer reject the doctrine.

As a result, merely placing goods into the stream of commerce is insufficient to subject a party to a lawsuit in whatever jurisdiction those goods may cause an injury.

The plaintiff, Robert Nicastro, was seriously injured while using a metal-shearing machine manufactured by J. McIntyre Machinery Ltd. The injury occurred in New Jersey, but the machine was manufactured in England, where J. McIntyre is incorporated and operates.

J. McIntyre has never marketed goods in New Jersey or shipped them there. The machine that injured Nicastro appears to be the only one ever to end up in the state.

The New Jersey Supreme Court held that it had personal jurisdiction over J. McIntyre, because it placed the machine into the stream of commerce, knowing that it could be sold in any of the 50 states.

The U.S. Supreme Court reversed, holding that it would violate due process to subject J. McIntyre to suit in New Jersey.

The plurality opinion began with the general rule that specific jurisdiction exists where the defendant “purposely avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.”

The court acknowledged its responsibility for lower courts’ adoption of the stream of commerce doctrine.

In World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298 (1980), it stated that a defendant’s placing goods into the stream of commerce with the expectation that they will be purchased by consumers within the forum state may indicate purposeful availment.

That statement later led to a split in Asahi Metal Industry Co. v. Superior Court of Ca., Salono Cty., 480 U.S. 102 (1987), with four justices concluding that the mere placement of goods into the stream of commerce is sufficient to confer jurisdiction wherever they cause injury, and four other justices concluding that is insufficient.

In the case at bar, the plurality adopted the latter view. While J. McIntyre may have revealed an intent to serve the U.S. market, the court concluded that it did not purposely avail itself of the New Jersey market.

The court explained, “Here the question concerns the authority of a New Jersey state court to exercise jurisdiction, so it is petitioner’s purposeful contacts with New Jersey, not with the United States, that alone are relevant.”

Breyer wrote a concurrence, joined by Justice Samuel Alito, declining to join the plurality opinion, because it adopted a broad rule without fully considering modern consequences.

The concurrence agreed that the stream of commerce doctrine was too broad in conferring jurisdiction. “None of our precedents finds that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient.”

But the concurrence opined that the court need go no further than that. Because this case does not involve “modern concerns,” the concurrence said it was an unsuitable case for adopting broad rules regarding jurisdiction.

Breyer asked, “The plurality seems to state 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.’ But what do those standards mean when a company targets the world by selling products from its Web site? And does it matter if, instead of shipping the products directly, a company consigns the products through an intermediary (say, Amazon.com) who then receives and fulfills the orders? And what if the company markets its products through popup advertisements that it knows will be viewed in a forum? Those issues have serious commercial consequences but are totally absent in this case.”

Breyer concluded, “I would not work such a change to the law in the way either the plurality or the New Jersey Supreme Court suggests without a better understanding of the relevant contemporary commercial circumstances.”

Justice Ruth Bader Ginsburg dissented, in an opinion joined by Justices Sonia Sotomayor and Elena Kagan, approving the stream of commerce doctrine.

Ginsburg opined, “McIntyre UK, by engaging McIntyre America to promote and sell its machines in the United States, ‘purposefully availed itself’ of the United States market nationwide, not a market in a single State or a discrete collection of States. McIntyre UK thereby availed itself of the market of all States in which its products were sold by its exclusive distributor.”

Analysis

The opinion effectively overrules Wisconsin case law adopting the stream of commerce doctrine, Kopke v. A. Hartrodt, S.R.L., 2001 WI 99, 245 Wis.2d 396, 629 N.W.2d 662.

In Kopke, the plaintiff opened a cargo container in Wisconsin and was injured as a result of negligent loading of the container in Italy by employees of the defendant.

The Wisconsin Supreme Court held that the defendant was subject to suit in Wisconsin as a result.

The court said, “We believe the stream of commerce theory as set forth by Justice Brennan [in Asahi] is the correct analysis to apply.” Id., 245 Wis.2d at 423.

However, it is not so clear how the opinion should be applied in cases involving the “modern concerns” raised by Breyer.

In recent years, the bulk of the published personal jurisdiction cases that lower courts have considered involved the Internet. State of Illinois v. Hemi Group, LLC, 622 F.3d 754 (7th Cir. 2010)(court has jurisdiction in state’s suit against out-of-state Internet cigarette vendor for sales tax); Tamburo v. Dworkin, 601 F.3d 693 (7th Cir., 2010)(court has jurisdiction in suit against out-of-state defendants for defamation over the Internet); Ubid Inc. v. The Godaddy Group Inc., 623 F.3d 421 (7th Cir., 2010)(court has jurisdiction in cybersquatting suit against out-of-state defendant that advertised nationally); Mobile Anesthesiologists Chicago LLC. v. Anesthesia Associates Of Houston Metroplex, 623 F.3d 440 (7th Cir., 2010)(court lacks jurisdiction in cybersquatting suit against out-of-state doctor who did not practice in state); and Jennings v. AC Hydraulic, 383 F.3d 546 (7th Cir., 2004)(court lacks jurisdiction in suit against out-of-state defendant who maintained a passive website).

The question is how much precedential value the Supreme Court’s opinion will have in these sorts of cases.

On the one hand, the Breyer concurrence can be cited to show that there is no majority on the court that supports application of the opinion to cases involving the Internet.

On the other hand, in both Hemi Group and Tamburo, the 7th Circuit made a point of stating that no unique rules govern personal jurisdiction in Internet cases, and that the same general rules regarding personal jurisdiction apply.

In federal court, therefore, the Supreme Court’s opinion would appear to be applicable to Internet cases, notwithstanding the absence of a majority opinion. In Internet cases in state court, however, it may be that the lead opinion would be considered inapplicable.

What the Court Held

Case: J. McIntyre Machinery, Ltd., v. Nicastro, No. 09-1343

Issue: Is a defendant who placed a product into the stream of commerce subject to personal jurisdiction in any state the product may end up?

Holding: No. Placing a product into the stream of commerce generally is not purposeful availment of any particular state’s laws.

David Ziemer can be reached at [email protected].