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July 2011

U.S. Supreme Court Limits Jurisdiction Over Defendants From Outside Forum State

The United States Supreme Court issued two decisions during the last week of June rejecting state court jurisdiction over defendants where the defendants did not take acts to "purposefully avail" themselves of the "privilege of conducting activities within the forum State" or did not have "continuous and systematic contacts" with the forum. The Court limited the circumstances under which the often-used "stream of commerce" metaphor can be used to justify jurisdiction, holding that it is not enough that a defendant's products merely entered the "stream of commerce" and ended up in the forum state, even when the defendant might have predicted that his product would end up there.  In order to exercise jurisdiction, the defendant must have targeted the forum.


In J. McIntyre Machinery, Ltd. v. Nicastro, 2011 U.S. LEXIS 4800, the Court held that New Jersey courts had no jurisdiction over a British product liability defendant that had no contacts with New Jersey – no employees, no property, no marketing activities -  other than "the machine in question ending up in [the] state."  Absent "purposeful availment," the Court held, due process prohibited a finding of personal jurisdiction.  The Court rejected the argument that jurisdiction could be grounded on whether it was "foreseeable" that a manufacturer's product could be present in the forum state.  "[I]t is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment."

The Court noted that the result would apply to "domestic producers" as well.  "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. And the issue of foreseeability may itself be contested so that significant expenses are incurred just on the preliminary issue of jurisdiction. Jurisdictional rules should avoid these costs whenever possible."  The Court recognized that this result might seem unfair to domestic plaintiffs, but "jurisdiction is in the first instance a question of authority rather than fairness."

In Goodyear Dunlop Tires Operations, S.A. v. Brown, 2011 U.S. LEXIS 4801, the Court held that North Carolina courts had no jurisdiction over foreign subsidiaries of a U.S. corporation, where the subsidiaries made a product alleged to have contributed to the injury of two North Carolina citizens in France.  The subsidiaries were not registered to do business in North Carolina, nor did they advertise or solicit business there.  The North Carolina Court of Appeals reasoned that because "[s]ome of the tires made abroad by Goodyear's foreign subsidiaries ? had reached North Carolina through 'the stream of commerce,'" that was enough "for the exercise of general jurisdiction over the foreign corporations."   The Supreme Court rejected this argument, holding that while it might be enough to establish "specific jurisdiction" if one of those imported tires had caused the injury in North Carolina, it was not enough to establish "general jurisdiction" with respect to other activities elsewhere.  "A connection so limited between the forum and the foreign corporation, we hold, is an inadequate basis for the exercise of general jurisdiction. Such a connection does not establish the 'continuous and systematic' affiliation necessary to empower North Carolina courts to entertain claims unrelated to the foreign corporation's contacts with the State."

These are both product liability cases, but the rationale applies to other defendants as well – though perhaps not, J. McIntyre suggested, with respect to intentional torts.  As J. McIntyre also noted, these holdings do not "resolve many difficult questions of jurisdiction."   They do, however, provide a powerful weapon for defendants facing court actions in jurisdictions where they do not customarily do business. 

Click on the case names above for a full copy of the decisions.

Appellate

Kathryn J. LaFevers
Michael J. Pietrykowski
Don Willenburg


Appellate
Commercial Litigation
Environmental/Toxic Tort
Product & General Liability