U.S. Supreme Court clarifies stream-of-commerce test: focus is on defendant's actions, not expectations

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Recent Cases: Industrial Products & Equipment

August/September 2011, Volume 30, No. 4

U.S. Supreme Court clarifies stream-of-commerce test: focus is on defendant's actions, not expectations 

J. McIntyre Mach., Ltd. v. Nicastro, ___ S. Ct. ___, 2011 WL 2518811 (June 27, 2011).

The fact that a foreign manufacturer could have predicted that its goods would end up in the forum state is not sufficient for that state’s exercise of jurisdiction where the defendant did not purposefully direct its conduct at the state, the U.S. Supreme Court held, clarifying its interpretation of the stream-of-commerce doctrine.

The ruling arose from a New Jersey state court lawsuit by Robert Nicastro, who suffered a hand injury while operating a metal-shearing machine manufactured by British company J. McIntyre Machinery, Limited. The machine was sold in the United States by an independent distributor, and no more than four machines—including the one that injured Nicastro—ended up in New Jersey. Although the company’s officials attended annual conventions in the United States to display their machines, none took place in New Jersey.

Based on this record, the New Jersey Supreme Court concluded that the state could exercise jurisdiction over the company because it knew or reasonably should have known that its distribution scheme could lead to its products being sold in all 50 states. In so holding, the state high court examined the two competing views of the stream-of-commerce test discussed in Asahi Metal Indust. Co. v. Super. Ct. of Cal., 480 U.S. 102 (1987). Under the “stream-of-commerce plus” theory outlined in the plurality opinion, a manufacturer must do more than merely place its product into the stream of commerce; it must engage in some other conduct indicating an intent to serve the market in the forum state. Under the competing view espoused by Justice Brennan in his concurring opinion, no other conduct is necessary, and jurisdiction is appropriate as long as the manufacturer was aware that its product was being marketed in the forum state. Analyzing both interpretations, the New Jersey Supreme Court concluded that under either test, a manufacturer might be susceptible to jurisdiction in every state that is part of its national distribution scheme. Thus, jurisdiction over J. McIntyre was appropriate because the defendant knew or should have known that its products might end up in New Jersey. Nicastro v. J. McIntyre Mach. Am., Ltd., 987 A.2d 575 (N.J. 2010), 29 PLLR 37 (June/July 2010).

The U.S. Supreme Court disagreed. Writing for a plurality, Justice Kennedy began by reiterating the general rule that jurisdiction over a defendant is appropriate only where the defendant “purposefully avails itself” of the privilege of conducting activities in the foreign state, thus invoking its benefits and protections. For a foreign defendant, contact with and activity directed at the forum may justify specific jurisdiction in a lawsuit arising out of the defendant’s contacts with the forum. Although placing goods into the stream of commerce with the expectation that they will be purchased by consumers in the forum state may indicate purposeful availment, the Court said, the central inquiry remains whether the defendant’s actions manifested an intention to submit to the sovereign power. Thus, a defendant’s transmission of goods may be the basis for jurisdiction only where the defendant targeted the forum, the Court said. It is not sufficient that the defendant merely predicted that its products would reach the state.

Justice Brennan’s approach in Asahi is incorrect, the Court reasoned, because it “discarded the central concept of sovereign authority in favor of considerations of fairness and foreseeability.” Instead, the Court said, it is a defendant’s actions, not its expectations, that empower a state’s courts to exercise jurisdiction.

Here, the Court noted, the record does not show that J. McIntyre purposefully directed its conduct at New Jersey, noting that the manufacturer had no offices or property there, never advertised there, and never sent any employees to the state. Citing the trial court’s finding that the defendant’s single contact with New Jersey was that its machine ended up there, the Court said the record fails to show that the defendant purposefully availed itself of the New Jersey market. As such, the Court found, the state’s exercise of jurisdiction would violate due process.

Comment: In Goodyear Dunlop Tires Operations, S.A. v. Brown, ___ S. Ct. ___, 2011 WL 2518815 (June 27, 2011), the Court held that foreign subsidiaries of a U.S. tire manufacturer were not subject to suit in North Carolina state court where the plaintiffs’ claims did not relate to any of the subsidiaries’ activities within the state.

The case involved the death of two 13-year-old boys from North Carolina who were killed in France when a bus overturned. The incident was allegedly caused by a defective tire that was manufactured in Turkey by a subsidiary of The Goodyear Tire and Rubber Company (Goodyear USA). The boys’ parents sued Goodyear USA, the Turkish subsidiary, and several other foreign subsidiaries of the U.S. parent company. The North Carolina courts determined that they lacked specific jurisdiction over the foreign subsidiaries because there was no link between the state and the underlying controversy. The state appellate court found, however, that North Carolina could assert general jurisdiction over the foreign subsidiaries because some of the tires they manufactured abroad had reached the state through the stream of commerce.

The Supreme Court reversed. Writing for a unanimous Court, Justice Ginsburg said that this limited connection was an inadequate basis for general jurisdiction because it did not establish the “continuous and systematic affiliation” with North Carolina needed for it to hear claims unrelated to the foreign companies’ contacts with the state. Unlike the U.S. parent company, the Court noted, the subsidiaries are not registered to do business in North Carolina; have no offices or employees there; do not design, manufacture, or advertise their products in the state; and do not solicit business in North Carolina or ship tires there. Moreover, although a small percentage of the subsidiaries’ tires were distributed in North Carolina by other affiliates of Goodyear USA, these were heavy-equipment tires—not the kind involved in the incident here.

While the flow of a manufacturer’s products into the forum state may bolster the case for specific jurisdiction, the Court said, such ties do not warrant a finding that general jurisdiction is appropriate. As such, the subsidiaries are not subject to jurisdiction in the state.

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