With Two Products Liability Cases, U.S. Supreme Court Clarifies, then Muddles, the “Stream of Commerce” Theory of Personal Jurisdiction

On June 27, 2011, the U.S. Supreme Court confronted personal jurisdiction in two decisions: J. McIntyre Machinery, Ltd. v. Nicastro and Goodyear Dunlop Tires Operations, S.A. v. Brown. The results were mixed: while Goodyear created a bright-line rule in a unanimous decision, Nicastro, in a 4-2-3 split decision, kept the issue as cloudy as ever.

Before exploring these two cases, it is necessary to examine the stream of commerce theory, a metaphor developed by the Supreme Court in the case of Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987). There, a Japanese company, Asahi, manufactured valves that were inserted into tires manufactured by a Taiwanese company, which were later sold in the U.S. When a California motorist suffered an injury allegedly caused by a tire, Asahi was haled into California state court, whereupon it contested the court’s jurisdiction. Upon review the U.S. Supreme Court split 4-4-1. The opinion authored by Justice Brennan allowed for an expansive application of personal jurisdiction based on foreseeability. If the defendant manufacturer places a product into the stream of commerce and is “aware that the final product is being marketed in the forum State, the possibility of a lawsuit cannot come as a surprise.” The opinion authored by Justice O’Connor, on the other hand, stated that putting a product into the stream of commerce alone is not enough; the defendant must engage in some additional conduct that demonstrates “an intent or purpose to serve the market in the forum State.” Such conduct could be advertising, specific design for the forum, a marketing campaign, etc. These competing views of the stream of commerce theory have divided and confused lower courts.

In Goodyear, two American children visiting France were killed in a bus accident. Their parents alleged that the accident was caused by a defective tire and sued Goodyear USA, an Ohio company, and three of its foreign subsidiaries in North Carolina state court. While Goodyear USA did not contest jurisdiction, the subsidiaries maintained that the North Carolina court lacked authority over them.

The Supreme Court reiterated the distinction between specific and general bases of jurisdiction. Specific jurisdiction depends on an “affiliation between the forum and the underlying controversy.” General jurisdiction, on the other hand, allows a court to hear claims against a foreign (sister-state or foreign-country) entity only when that entity has affiliations with the state that are “so continuous and systematic as to render them essentially at home” in the forum state. When an accident occurs wholly outside the forum such that the forum court lacks specific jurisdiction, the forum court must apply the more rigorous general jurisdiction principles.

In Goodyear, there clearly was no nexus between the accident and the state; the question therefore was whether North Carolina could exercise general jurisdiction over the subsidiary companies. The subsidiary companies had no place of business, employees, or bank accounts in North Carolina, nor were their products designed, manufactured, marketed, or advertised there. A small number of their products were distributed within the state by other Goodyear USA affiliates for custom orders on specialized equipment. The type of tire involved in the accident, however, was never distributed in North Carolina. The Supreme Court rejected the North Carolina courts’ finding of jurisdiction, stating that the existence of the subsidiaries’ products in the forum state, even when sold by related corporate entities, was insufficient to meet the “continuous and systematic” standard needed for general jurisdiction. The Court held that the stream of commerce theory is applicable only to inquiries into specific jurisdiction.

In Nicastro, a man working at a New Jersey scrap yard was injured by a metal shearing machine designed and built by an English corporation, J. McIntyre, but sold to the scrap yard by an independent distributor. The man sued J. McIntyre, and the New Jersey courts, applying Justice Brennan’s stream of commerce opinion from Asahi, found that they had jurisdiction over the English corporation. In fact, the New Jersey Supreme Court wrote, jurisdiction was proper because J. McIntyre “knew or reasonably should have known that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states.” With the combined votes of the plurality and concurring opinions, the Supreme Court rejected this expansive reading of Asahi.

Justice Kennedy, writing the plurality opinion, rejected Justice Brennan’s earlier Asahi opinion as “inconsistent with premises of lawful judicial power” and reaffirmed Justice O’Connor’s Asahi opinion. As a general rule, it is insufficient that a defendant might have predicted that its goods will reach the forum state. For a state to have jurisdiction, the defendant’s conduct must demonstrate that it was aiming to get its product to that specific state or, in the Justice Kennedy’s words, its action must “manifest an intention to submit to the power of a sovereign.” As such, personal jurisdiction requires a forum-by-forum analysis. To exercise jurisdiction over a foreign manufacturer, for instance, it is not enough for the court to find that the manufacturer directed marketing and sales efforts at the United States generally; rather, it must find that the manufacturer engaged in conduct purposefully directed at that particular state.

Justice Breyer wrote the concurring opinion on behalf of himself and Justice Alito. The opinion agrees with Justice Kennedy’s holding, but not its reasoning. Justice Breyer felt that the case could be decided on Supreme Court precedent alone. The concurrence, while rejecting the New Jersey Supreme Court’s expansive reading of Justice Brennan’s Asahi opinion, felt that the plurality’s opinion was too narrow. Specifically, the concurrence expressed concern that in a world of Internet marketing and global transactions, it might not be appropriate to limit jurisdiction only to those forums where the defendant intends to “submit to the power of a sovereign.”

The Nicastro plurality opinion would be a tremendous victory for defendant manufacturers, but it is only a plurality opinion and it does not carry the binding power of a majority opinion by the Supreme Court. There is a majority holding, however, that New Jersey over-reached in its interpretation of the Asahi “stream of commerce” language. As a result, we anticipate increased litigation concerning specific jurisdiction in light of the Goodyear and Nicastro opinions.

How these decisions will affect air carriers and manufacturers remains unclear. Arguably, if a carrier or manufacturer does not “manifest its intention” to submit to the jurisdiction of a particular state, that state may not have jurisdiction over the foreign carrier or manufacturer.