U.S. Supreme Court Decision Narrows Personal Jurisdiction Over Foreign Manufacturers

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On June 27, 2011, the Supreme Court of the United States delivered its decision in n J. McIntyre Machinery Ltd. v. Nicastro, No. 09-1343 [“Nicastro”] [pdf]. In Nicastro, the Respondent Nicastro injured his hand while using a metal-shearing machine manufactured in England by J. McIntyre Machinery, Ltd. (J. McIntyre), both incorporated and carrying on business there. Nicastro filed a product liability claim in the New Jersey state court where the accident happened, but J. McIntyre moved to dismiss  for lack of personal jurisdiction. Nicastro’s jurisdictional claim was based on three primary jurisdictional facts:

1. A U. S. distributor agreed to sell J. McIntyre’s machines in the U.S.;

2. J. McIntyre representatives attended trade shows in several States, albeit not in New Jersey; and

3. no greater than four J. McIntyre machines (the record indicates only one), including the alleged defective machine was shipped to New Jersey.

The State Supreme Court held that New Jersey’s courts may exercise jurisdiction over a foreign manufacturer without contravening the Fourteenth Amendment’s Due Process Clause, as long as the manufacturer knew or reasonably ought to have known that its products would be distributed through a nationwide distribution system potentially leading to sales in any of the States. Applying the “stream-of-commerce” doctrine of jurisdiction, the court partly relied on Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty., 480 U. S. 102. Applying this test, the court held  that the New Jersey court had personal jurisdiction over  J. McIntyre, notwithstanding that it had neither advertised in, nor delivered goods to, or in any relevant sense targeted the State.

By a margin of 6-3, the majority reversed (led by Justice Anthony Kennedy; Justices Breyer concurring in the judgment, which was joined by Justice Alito). Justice Ginsburg delivered a dissenting opinion, joined in by Justices Sotomayor and Kagan.

The majority of the U.S. Supreme Court concluded that a court may not exercise specific jurisdiction over a defendant that has not purposefully availed itself of doing business in the jurisdiction or placed goods in the stream of commerce with the reasonable expectation the goods would be purchased within the jurisdiction. The majority tacitly endorsed a product liability market theory based upon an  “expansive protection” goal of protecting foreign sellers from excessive liability for product defects (see, Henry Mather, Choice of Law for International Sales Issues Not Resolved by the Convention, 20 J.L. & Com. 155, 170 (Spring 2001)).  Justice Kennedy at pp. 11-12 concludes:

It is notable that the New Jersey Supreme Court appears to agree, for it could “not find that J. McIntyre had a presence or minimum contacts in this State—in any jurisprudential sense—that would justify a New Jersey court to exercise jurisdiction in this case.” 201 N. J., at 61, 987 A. 2d, at 582. The court nonetheless held that petitioner could be sued in New Jersey based on a “stream-of-commerce theory of jurisdiction.” Ibid. As discussed, however, the stream-of-commerce metaphor cannot supersede either the mandate of the Due Process Clause or the limits on judicial authority that Clause ensures. The New Jersey Supreme Court also cited “significant policy reasons” to justify its holding, including the State’s “strong interest in protecting its citizens from defective products.” Id., at 75, 987 A. 2d, at 590. That interest is doubtless strong, but the Constitution commands restraint before discarding liberty in the name of expediency.

* * *

Due process protects petitioner’s right to be subject onlyto lawful authority. At no time did petitioner engage in any activities in New Jersey that reveal an intent to invoke or benefit from the protection of its laws. New Jersey is without power to adjudge the rights and liabilities of J. McIntyre, and its exercise of jurisdiction would violate due process. The contrary judgment of the New Jersey Supreme Court is                                                                    Reversed. [emphasis added]

In his concurring opinion, Justice Breyer agreed with the plurality’s result, but would not go further:

The plurality seems to state strict rules that limit jurisdiction where a defendant does not “inten[d] to submit to the power of a sovereign” and cannot “be said to havetargeted the forum.” Ante, at 7. But what do those standards mean when a company targets the world by selling products from its Web site? And does it matter if, instead of shipping the products directly, a company consigns the products through an intermediary (say, Amazon.com) who then receives and fulfills the orders? And what if the company markets its products through popup advertisements that it knows will be viewed in a forum? Those issues have serious commercial consequences but are totally absent in this case.

B

But though I do not agree with the plurality’s seemingly strict no-jurisdiction rule, I am not persuaded by the absolute approach adopted by the New Jersey Supreme Court and urged by respondent and his amici. Under that view, a producer is subject to jurisdiction for a products-liability action so long as it “knows or reasonably shouldknow that its products are distributed through a nation-wide distribution system that might lead to those products being sold in any of the fifty states.” 201 N. J., at 76–77, 987 A. 2d, at 592 (emphasis added). In the context of this case, I cannot agree.

For one thing, to adopt this view would abandon theheretofore accepted inquiry of whether, focusing upon the relationship between “the defendant, the forum, and the litigation,” it is fair, in light of the defendant’s contacts with that forum, to subject the defendant to suit there.

For another, I cannot reconcile so automatic a rule with the constitutional demand for “minimum contacts” and “purposefu[l] avail[ment],” each of which rest upon aparticular notion of defendant-focused fairness. Id., at 291, 297 (internal quotation marks omitted)….A rule like the New Jersey Supreme Court’s would permit every Stateto assert jurisdiction in a products-liability suit against any domestic manufacturer who sells its products (made anywhere in the United States) to a national distributor, no matter how large or small the manufacturer, no matterhow distant the forum, and no matter how few the number of items that end up in the particular forum at issue. (per Breyer, J. at 4-5)

In dissenting reasons, Justice Ginsburg adopts a comparative law approach to the overall jurisdictional analysis. At page 17, Ginsburg, J. writes,

The Court’s judgment also puts United States plaintiffs at a disadvantage in comparison to similarly situated complainants elsewhere in the world. Of particular note,within the European Union, in which the United Kingdom is a participant, the jurisdiction New Jersey would have exercised is not at all exceptional. The European Regulation on Jurisdiction and the Recognition and Enforcement of Judgments provides for the exercise of specific jurisdic-tion “in matters relating to tort . . . in the courts for theplace where the harmful event occurred.” Council Reg.44/2001, Art. 5, 2001 O. J. (L. 12) 4.16 The European Court of Justice has interpreted this prescription to au-thorize jurisdiction either where the harmful act occurredor at the place of injury. See Handelskwekerij G. J. Bier B. V. v. Mines de Potasse d’Alsace S. A., 1976 E. C. R. 1735, 1748–1749.17.”

Canadian courts take a different approach to asserting jurisdiction in product liability claims over foreign defendant manufacturers. In Moran v. Pyle, the Supreme Court of Canada formulated a modern approach to product liability that focused on fairness:

[T]he following rule can be formulated: where a foreign defendant carelessly manufactures a product in a foreign jurisdiction which enters into the normal channels of trade and he knows or ought to know both that as a result of his carelessness a consumer may well be injured and it is reasonably foreseeable that the product would be used or consumed where the plaintiff used or consumed it, then the forum in which the plaintiff suffered damage is entitled to exercise judicial jurisdiction over that foreign defendant. This rule recognizes the important interest a state has in injuries suffered by persons within its territory. It recognizes that the purpose of negligence as a tort is to protect against carelessly inflicted injury and thus that the predominating element is damage suffered. By tendering his products in the market place directly or through normal distributive channels, a manufacturer ought to assume the burden of defending those products wherever they cause harm as long as the forum into which the manufacturer is taken is one that he reasonably ought to have had in his contemplation when he so tendered his goods. This is particularly true of dangerously defective goods placed in the interprovincial flow of commerce. [ Moran v. Pyle Nat’l (Canada) Ltd., [1975] S.C.R. 393, 409-10 (emphasis added).

Justice Dickson’s reasoning demonstrates a “narrow protection” market state approach to interprovincial product liability, subsequently enshrined in provincial consumer protection legislation.

In Hunt v. T & N plc, Justice La Forest stated that the assessment of the “reasonableness” of a foreign court’s assumption of jurisdiction was not a mechanical accounting of connections between a case and a territory, but a decision “guided by the requirements of order and fairness. [Hunt v. T & N plc, [1993] 109 D.L.R. (4th) 16, 42], which Justice La Forest in Tolofson v. Jensen prioritized as follows:

…it may be unfortunate for a plaintiff that he or she was the victim of a tort in one jurisdiction rather than another and so be unable to claim as much compensation as if it had occurred in another jurisdiction.  But such differences are a concomitant of the territoriality principle.  While, no doubt, as was observed in Morguard, the underlying principles of private international law are order and fairness, order comes first.  Order is a precondition to justice.Tolofson v. Jenssen, 120 D.L.R. (4th) 289, at 311 (LaForest, J.)(emphasis added).

In Beals v. Saldanha, the Supreme Court of Canada further held:

In Moran,[…] it was recognized that where individuals carry on business in another provincial jurisdiction, it is reasonable that those individuals be required to defend themselves there when an action is commenced:

By tendering his products in the market place directly or through normal distributive channels, a manufacturer ought to assume the burden of defending those products wherever they cause harm as long as the forum into which the manufacturer is taken is one that he reasonably ought to have had in his contemplation when he so tendered his goods.

That reasoning is equally compelling with respect to foreign jurisdictions.

[Beals v. Saldanha, [2003] 3 S.C.R. 416, 435-36, [2003] 234 D.L.R. (4th) 1 (Major, J.) (cited to S.C.R.) (emphasis added).]


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