U.S. Supreme Court Decisions Limit Jurisdiction for Suits against Foreign Suppliers

By John L. Watkins, Partner, Barnes & Thornburg LLP

On June 27, 2011, the United States Supreme Court issued two decisions that limit the ability of U.S. courts to assert jurisdiction against foreign manufacturers if their contacts with the state in which suit is brought are limited. Although these cases involve the highly mind-numbing procedural area of personal jurisdiction (probably my least favorite subject as first year law student many years ago), they are very important, so please bear with me through the discussion!

In Goodyear Dunlop Tires Operations, S.A. v. Brown, [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law] the Supreme Court unanimously agreed that the North Carolina courts improperly asserted jurisdiction over foreign subsidiaries of a U.S. corporation. The claim was based on an accident in which two 13-year old boys from North Carolina were killed in an accident outside of Paris, France, allegedly due to a defective tire manufactured in Turkey by a foreign subsidiary of Goodyear Tire and Rubber Company, an Ohio corporation.

The subsidiaries did not do business in North Carolina and the tires in question were not actively marketed in North Carolina, although a relatively small number of tires found their way to North Carolina through special orders.

As a general rule of federal due process (Constitutional protection), the Supreme Court requires that a defendant have sufficient "minimum contacts" with the forum state (the state where suit is brought) to comport with "traditional notions of fair play and substantial justice." More recent Supreme Court decisions have led to the recognizing the concepts of "general jurisdiction" and "specific jurisdiction."

For general jurisdiction, the company's contacts with the forum must be so "continuous and systematic" that the company is effectively at home in the forum. If general jurisdiction is established, the company is potentially subject to a suit on any matter in the forum.

For specific jurisdiction, the jurisdictional facts must relate to the issues con connected with the controversy. For example, the fact that an accident occurred in the forum would be relevant to -- although not determinative -- regarding the exercise of specific jurisdiction.

In Goodyear, the North Carolina courts recognized that specific jurisdiction did not exist because the accident was unrelated to North Carolina and the tires were manufactured abroad. Nevertheless, the North Carolina Courts exercised general jurisdiction over the case, finding the fact that the subsidiaries put other tires in the "stream of commerce" that reached North Carolina and without any limitation on the tires being sold in North Carolina.

It did not take the Supreme Court long to reject this reasoning. In an opinion written by Justice Ginsburg (a member of the liberal wing of the Court), the Court explained that the "stream of commerce" analysis is generally relevant only to the exercise of specific jurisdiction, such as when a manufacturer places products in the stream of commerce that result in an accident occurring the forum. Merely placing products in the stream of commerce, however, does not establish the continuous and systematic contacts necessary to establish general jurisdiction. Thus, the Court reversed the North Carolina court's exercise of jurisdiction.

In J. McIntyre Machinery, Ltd. v. Nicastro, [enhanced version  / unenhanced version ] the Court found that the New Jersey courts improperly exercised jurisdiction over an English machinery supplier of shears used in the scrap metal industry. The plaintiff sustained severe injuries while using a machine manufactured by the supplier. The accident occurred in New Jersey.

In a fractured opinion (with four Justices in the plurality opinion, two concurring, and three dissenting), the Court ruled that the New Jersey courts lacked jurisdiction to hear the matter. In this case, the Court was dealing with whether the New Jersey courts could assert specific jurisdiction over the case.

The supplier did not target New Jersey for sales. The supplier had an independent U.S. distributor, but its goal was to sell in the U.S. generally, not New Jersey in particular. The supplier also attended trade shows in the U.S., but not in New Jersey. There was evidence suggesting (although it appeared disputed) that as many as four of the supplier's machines were located in New Jersey.

The plurality found that the transmission of goods into a jurisdiction permits the exercise of jurisdiction only where the defendant is said to have targeted, or purposefully availed itself of, the forum. The mere fact that the defendant is aware that its product may enter a state is not enough.

The concurring Justices agreed with the result, but cautioned against making general rules based on the limited facts of the case. The concurring opinion specifically noted that the case did not involve modern sales methods, such as Internet sales.

The results in Goodyear and McIntyre clearly change the landscape of the exercise of personal jurisdiction. They make it more difficult for U.S. plaintiffs to sue international suppliers in the U.S.

The result in Goodyear is not surprising. It will limit the ability of plaintiffs to bring suit in the U.S. for accidents and injuries that occurred elsewhere unless the defendant meets the somewhat demanding standards for establishing general jurisdiction.

The result in McIntyre was, at least to me, surprising and is not what I would have predicted before the opinion was released. It had previously become almost conventional wisdom that if a manufacturer placed products in the stream of commerce and that product caused injury in a state, a court would probably find a way (as the New Jersey courts did here) to subject the manufacturer to suit in the state where the injury occurred.

McIntyre changes the landscape and will provide many international suppliers with arguments for avoiding suit in particular states, or perhaps even in the U.S. generally. For domestic suppliers, McIntyre will provide arguments for avoiding suit in states in which they have only attenuated business connections.

The precise effect of McIntyre, however, remains to be seen. Because there is no majority opinion, its influence remains to be seen. It does seem, however, that six of the nine Justices have agreed that merely placing a product in the stream of commerce with knowledge that it might reach a forum, and without more, is not enough to meet the "minimum contact" requirements to establish specific jurisdiction.

How much more is required to establish specific jurisdiction will undoubtedly be hotly contested for many years to come.

John L. Watkins is a partner with Barnes & Thornburg LLP in Atlanta, Georgia. Mr. Watkins practices primarily in the area of litigation, with an emphasis on insurance coverage matters and matters involving trade secrets and confidential information. With respect to insurance coverage, Mr. Watkins currently represents policyholders in coverage and bad faith litigation with insurers. In the past, Mr. Watkins has represented insurers in such claims. Mr. Watkins has been involved in coverage matters involving losses ranging several hundred thousand dollars to several hundred million dollars in Georgia and many other jurisdictions. Mr. Watkins received his law degree from the University of Georgia, summa cum laude, and has practiced for over twenty-five years.

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