U.S. Supreme Court creates confusion on foreign product liability

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Two recent U.S. Supreme Court rulings that state courts did not have the authority to hear product liability cases against foreign manufacturers could spell the end of the “stream of commerce” theory of personal jurisdiction.

The theory is often asserted by plaintiffs seeking damages for injuries caused by products made outside the country.

“At the moment, it looks like it does” mean the end, said Thomas Gowen, a partner at the Locks Law Firm in Philadelphia who coauthored an amicus brief for the American Association for Justice in one of the cases.

But a divided ruling in one case, which left the Court without a majority on the standard for determining when foreign firms are subject to specific jurisdiction, is likely to cause enough confusion that the justices will almost certainly be asked to consider the issue again.

“It does seem fairly clear that you need some sort of purposeful action directed toward a particular state” to establish specific jurisdiction, said Meir Feder, a partner in the New York office of Jones Day. “What (the Court) is very unclear about is what is going to qualify as purposeful action.”

Stream of commerce

The rulings in Goodyear Dunlop Tires Operations v. Brown, and J. McIntyre Machinery. v. Nicastro, both handed down on the last day of the Court’s term, dealt with the issue of state courts’ personal jurisdiction over foreign product manufacturers.

Brown was a wrongful death case filed in North Carolina against a foreign tire manufacturer by parents whose sons died in a bus accident in France. The Court unanimously held that introducing goods into the stream of commerce in a state was not a sufficient basis for a court to exercise general jurisdiction over a company.

The Nicastro ruling was also a win for the defense, but the case was a bit more complicated. The Court held in a divided ruling that the stream-of-commerce theory did not give a state court specific jurisdiction over a claim filed by a worker injured by a machine manufactured by a foreign company but sold by a U.S. distributor .

In a four-justice plurality opinion, Justice Anthony Kennedy explained that because the foreign company never engaged in any activities in the forum state that revealed an intent to invoke or benefit from the protection its laws, the state lacked the power to adjudge the company’s rights and liabilities and its exercise of jurisdiction would violate due process.

Essentially, Kennedy reasoned, a foreign company must target sales within a certain state to be subject to personal jurisdiction in its courts.

In a concurrence in the judgment, Justice Stephen Breyer, joined by Justice Samuel Alito, declined to endorse that rule. Breyer noted that no previous Court precedent had found that a single isolated sale, even if accompanied by in-state sales efforts, was sufficient for personal jurisdiction.

Defining ‘purposeful availment’

Feder suggested that the Nicastro ruling could be the nail in the coffin of the stream-of-commerce theory of personal jurisdiction. (He represented the defendant in Brown and declined to comment specifically about that ruling.)

“A lot depends on the how you define the stream of commerce theory,” Feder said. “(Nicastro) certainly ends the notion that if your product is going to end up somewhere through the stream of commerce, you will be subject (to personal jurisdiction) if your product causes harm. … But there are all sorts of cases that the Court seems to have left open.”

“The magic words,” he said, “seem to be ‘purposeful availment.’”

Now, attorneys and courts are left to read the tea leaves in the cases to discern what “purposeful availment” means.

In his plurality opinion in Nicastro, Kennedy noted that the company did market its products in the United States. However, he stated, “it is petitioner’s purposeful contacts with New Jersey, not with the United States, that alone are relevant.”

In Gowen’s view, that distinction is hard to understand.

“You can’t sell into the American market without selling into one or … many particular states,” he said.

Plaintiffs’ attorneys assert that raising the bar for personal jurisdiction will hurt individuals injured by imported products sold in the United States.

“Simply put, foreign companies that market and sell their products in our country should not be able to evade accountability,” said Gibson Vance, outgoing president of the American Association for Justice, in a statement after the decisions were announced.  “(T)his … will allow foreign manufacturers to sell their products without adhering to our safety standards.”

Congress may act

Lawmakers are expected to again introduce legislation that would make it easier to bring suit against foreign companies in state courts.

Last Congress, the Foreign Manufacturers Legal Accountability Act was introduced in the House and the Senate. The AAJ-backed measure would require foreign manufacturers to establish registered agents within the United States. Those agents would be authorized to accept service of process. The bill would also require foreign importers to agree to be sued in U.S. courts.

Gowen, who testified before Congress in 2009 in support of the legislation, said the Brown and Nicastro rulings make passage of the law more crucial.

“Basically the Supreme Court has given corporations a roadmap for avoiding responsibility,” he said.

He acknowledged, however, that large foreign manufacturers have enough contacts in most states to constitute the necessary purposeful availment for personal jurisdiction.

“Really big sellers – like the Hondas and the Toyotas – they are obviously doing business in all 50 states,” Gowen said. “Jurisdiction as to those companies is not likely to be affected.”

Waiting for an Internet-based case?

Lower courts will almost surely have difficulty applying the new, confusing precedent, which means the justices may be confronted with the issue again soon.

“I think it’s difficult to even look at the facts in these cases and to determine what additional facts might have been shown in order to establish jurisdiction,” Gowen said.

Feder said the Breyer concurrence basically allowed the Court to punt on the issue of a standard for now.

“He really just says: ‘Well, what we have here isn’t enough, and I don’t want to address what is enough until we get another case,’” Feder said.

But Breyer did acknowledge the difficulty of applying the ruling to one huge area of foreign-based commerce: Internet sales.

“What do (the plurality’s) standards mean when a company targets the world by selling products from its website?” Breyer asked in his concurrence. “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? … Those issues have serious commercial consequences but are totally absent in this case.”

Gowen noted that the U.S. Chamber of Commerce’s amicus brief on the manufacturer’s behalf in Nicastro urged the Court to rule that Internet sales are not a basis for personal jurisdiction.

“The Internet creates all sorts of cases that the Court seems to have left open,” Feder said.