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Keller & Heckman Alert: Supreme Court Rules On Exercise Of Personal Jurisdiction Over Foreign Companies

On June 27, 2011, the Supreme Court of the United States issued opinions in Goodyear Luxembourg Tires v. Brown, 564 U.S. ___[1], [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law]  and J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. [enhanced version  / unenhanced version ]   ___[2]. Both cases explored limits on the exercise of personal jurisdiction over foreign companies.

In Goodyear, the Court addressed whether "foreign subsidiaries of a United States parent corporation [are] amenable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum state." The Court concluded that the Goodyear foreign subsidiary petitioners are not amenable to suit in North Carolina.

In Nicastro, the Court considered the question of whether J. McIntyre Machinery, Ltd. (J. McIntyre), a UK company, is subject to the jurisdiction of New Jersey courts when J. McIntyre did not market goods in New Jersey or ship them there. A divided Supreme Court ruled that J. McIntyre is not subject to the jurisdiction of New Jersey Courts.

Goodyear Luxembourg Tires v. Brown

Respondents, the parents of two teenagers who died in a bus accident in France, claimed that one of the bus' tires failed. Respondents filed suit in North Carolina state court against Goodyear USA and petitioners, various subsidiaries of Goodyear USA including Goodyear Lastikleri T.A.S. (Goodyear Turkey), Goodyear Luxembourg Tires, SA, and Goodyear Dunlop Tires France, SA. Petitioners did not "solicit business in North Carolina," and did not have a "place of business, employees or bank accounts in North Carolina." Nor did petitioners "design, manufacture, or advertise their products in North Carolina." While other Goodyear USA affiliates distributed a small percentage of petitioners' tires in North Carolina, petitioners claimed and respondents did not deny that the kind of tire involved in the accident was never distributed in North Carolina.

The trial court denied petitioners' motion to dismiss for lack of personal jurisdiction. The North Carolina Court of Appeals affirmed and held that the exercise of general jurisdiction over petitioners was proper. The Court of Appeals found that tires manufactured by petitioners were placed into the "stream of interstate commerce without any limitation on the extent to which those tires could be sold in North Carolina."[3]

In a unanimous opinion, the Supreme Court reversed the judgment of the North Carolina Court of Appeals.

The Court distinguished between general and specific jurisdiction [4] and recognized that the exercise of general, not specific, jurisdiction was at issue in the case. The Court found that general jurisdiction is proper when "'continuous corporate operations within a state [are] so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities.' "[5]

In their analysis of general jurisdiction, the North Carolina courts relied on the petitioners' placement of tires in the "stream of commerce." The Supreme Court, however, explained that the "[f]low of a manufacturer's products into the forum . . . may bolster an affiliation germane to specific jurisdiction . . . But ties serving to bolster the exercise of specific jurisdiction do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant."

Accordingly, the Court held that petitioners' attenuated connections to North Carolina "fall far short of 'the continuous and systematic general business contacts' necessary to empower North Carolina to entertain suit against them on claims unrelated to anything that connects them to the State." (citation omitted). The Court stated that "[u]nder the sprawling view of general jurisdiction urged by respondents and embraced by the North Carolina Court of Appeals, any substantial manufacturer or seller of goods would be amenable to suit, on any claim for relief, wherever its products are distributed."

The Court's refusal to adopt the broad view adopted by the North Carolina Court of Appeals and urged by the respondents provides important guidance for foreign companies and will undoubtedly assist in the assessment of litigation risk and the development of company objectives. Companies can better assess their litigation risk by proactively evaluating their connections with various forum states and the likelihood that they will be amenable to suit in a particular forum in light of the Goodyear decision.

J McIntyre Machinery, Ltd. v. Nicastro

Nicastro, an employee of Curcio Scrap Metal, was injured while using a metal-shearing machine. Nicastro sued the manufacturer of the machine, J. McIntyre Machinery, Ltd. (J. McIntyre), a company incorporated in the United Kingdom. Nicastro also sued McIntyre Machinery America, Ltd. (McIntyre America), the exclusive American distributor for J. McIntyre. McIntyre America and J. McIntyre were distinct corporate entities.

J. McIntyre challenged the exercise of personal jurisdiction over it by New Jersey courts. The Supreme Court of New Jersey found that J. McIntyre was properly subject to the jurisdiction of New Jersey courts.[6]

The United States Supreme Court reversed. The Court, however, did not issue a majority opinion. Rather, Justice Kennedy, joined by Chief Justice Roberts, Justice Scalia and Justice Thomas, announced the judgment of the Court and delivered the plurality opinion. Justice Breyer, joined by Justice Alito, issued a concurring opinion. Justice Ginsburg, joined by Justice Sotomayor and Justice Kagan, dissented.

Justice Kennedy noted that "[a]s a general rule, the exercise of judicial power is not lawful unless the defendant 'purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.' " (citation omitted). He added, "The defendant's transmission of goods permits the exercise of jurisdiction only where the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum state."

Consequently, Justice Kennedy rejected Justice Brennan's opinion in Asahi which suggested a rule based on notions of "fairness and foreseeability." Justice Brennan's opinion contended that " 'jurisdiction premised on the placement of a product into the stream of commerce [without more] is consistent with the Due Process Clause,' for '[a]s long as a participant in this process is aware that the final product is being marketed in the forum State, the possibility of a lawsuit there cannot come as a surprise.' "[7]

Instead, Justice Kennedy found that the authority to exercise personal jurisdiction over a defendant depends on "purposeful availment, consistent with Justice O'Connor's opinion in Asahi." In Asahi, Justice O'Connor stated, in relevant part, "[t]he placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State."

Respondent contended that jurisdiction was proper because, (1) a distributor sold J. McIntyre's machines in the United States; (2) J. McIntyre officials attended trade shows in various states (but not New Jersey); and (3) up to four machines ended up in New Jersey. J. McIntyre, however, had no office in New Jersey and did not pay taxes or own property in New Jersey. Justice Kennedy concluded that J. McIntyre did not engage in activities in New Jersey that revealed "an intent to invoke or benefit from the protection of its laws." Respondent did not establish that J. McIntyre purposefully directed its conduct at New Jersey.

Justice Breyer's concurring opinion noted that the "Supreme Court of New Jersey adopted a broad understanding of the scope of personal jurisdiction . . . " However, Justice Breyer thought it "unwise to announce a rule of broad applicability without full consideration of the modern-day consequences." Instead, he indicated that the outcome of the case is decided by Supreme Court precedents. Accordingly, Justice Breyer found insufficient contacts to support the exercise of jurisdiction over J. McIntyre by New Jersey Courts: "None of our precedents finds that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient."

The dissent, authored by Justice Ginsburg, claimed that this case is an example of common marketing arrangements for sales in the United States. Justice Ginsburg further explained that "by engaging McIntyre America to promote and sell its machines in the United States, [J. McIntyre] 'purposefully availed itself' of the United States market nationwide, not a market in a single State or a discrete collection of States."

While the plurality and concurring opinions in Nicastro may help foreign companies better assess their litigation risk in the United States, it is important to note that no majority opinion was rendered in this case. As a result, it is unclear what impact this decision will have on lower courts' analysis of personal jurisdiction. It will not be long, however, before courts begin considering Nicastro. On June 28, 2011 the Supreme Court of the United States vacated a judgment in Dow Chemical Canada ULC v. Fandino, Carlos O., et al., U.S., No. 10-250 [enhanced version  / unenhanced version ]   , and remanded the case to the Court of Appeal of California, Second Appellate District for further evaluation in light of Nicastro.[8] Since six justices voted to reverse the judgment of the Supreme Court of New Jersey, lower courts may be more reluctant to expand the exercise of jurisdiction over foreign companies in situations akin to the facts in Nicastro, but the full impact of Nicastro remains to be seen.

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[3] See Client Alert: Supreme Court to Address Exercise of Personal Jurisdiction Over Foreign Companies

[4] The Court indicated that specific jurisdiction is proper when a "corporation's in-state activity is 'continuous and systematic' and that activity gave rise to the episode-in-suit." Moreover, "the commission of certain 'single or occasional acts' in a State" may be enough to exercise specific jurisdiction over a corporation with respect to those acts, but "not with respect to matters unrelated to the forum connections." Quoting International Shoe Co. v. Washington, 326 U.S. 310, 317-318 (1945) [enhanced version available to subscribers / unenhanced version available from lexisONE Free Case Law]   .

[5] Quoting International Shoe, 326 U.S. at 318. [enhanced version  / unenhanced version ]   

[6] See Client Alert: Supreme Court to Address Exercise of Personal Jurisdiction Over Foreign Companies

[7] Quoting Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U.S. 102, 117 (1987)