ALERT - U.S. Supreme Court Further Defines Jurisdiction Standard

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June 30, 2011

On June 27, 2011, the U.S. Supreme Court issued a pair of decisions regarding a state court’s exercise of personal jurisdiction over nonresidents: Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. __ (2011), and J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. __ (2011). Both cases reject a state court’s exercise of personal jurisdiction pursuant to the “stream-of-commerce” theory and reaffirm that a court may only have jurisdiction over an out-of-state or foreign defendant if that defendant directs purposeful activity toward that state. Simply placing a product in the stream-of-commerce cannot confer jurisdiction if the product itself does not cause an injury within the forum state.

In Goodyear Dunlop Tires Operations, the Supreme Court determined that a foreign subsidiary of a U.S. corporation was not subject to suit in state court simply because the subsidiary’s products entered the state through the “stream of commerce.” Plaintiffs brought a defective design lawsuit in North Carolina state court against Goodyear Tire and Rubber Company (Goodyear USA) and three European Goodyear subsidiaries when their two 13-year-old sons were killed in a bus accident in France. Plaintiffs attributed the accident to a defective tire manufactured by a Goodyear subsidiary in Turkey. Although a small number of the European subsidiaries’ tires reached North Carolina through the so-called “stream of commerce,” none of the foreign subsidiaries operated in North Carolina. The trial court rejected the European subsidiaries’ motion to dismiss for lack of personal jurisdiction and the North Carolina high court affirmed, concluding that the state court had “general rather than specific jurisdiction” over the foreign subsidiaries.

A unanimous Supreme Court reversed. Although the “stream-of-commerce” analysis may give rise to specific jurisdiction when a product causes an injury inside the forum state, if the injury occurred elsewhere then the exercise of personal jurisdiction is proper only if the party had sufficiently continuous and systematic contacts with the forum state. Because the connection between the forum and the foreign corporation was “so limited” – neither the claimed injury nor the manufacture of the allegedly defective tire occurred in North Carolina – the “continuous and systematic affiliation necessary to empower North Carolina courts to entertain claims unrelated to the foreign corporation’s contacts with the state” was lacking.

In J. McIntyre Machinery, Ltd., the plaintiff brought a products-liability lawsuit in New Jersey state court for injuries to his hand from a metal-shearing machine made by British manufacturer J. McIntyre. J. McIntyre sought dismissal for want of personal jurisdiction. Applying the “stream-of commerce” doctrine, the New Jersey Supreme Court affirmed the propriety of jurisdiction because J. McIntyre both “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,” and “failed to take some reasonable step to prevent the distribution of its products” in New Jersey.

A six to three plurality of the Supreme Court reversed. Justice Kennedy, joined by Chief Justice Roberts and Justices Scalia and Thomas, reiterated that due process is satisfied only when a defendant “purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Concluding that the New Jersey Supreme Court carried the “stream of commerce metaphor” too “far afield,” the high court emphasized that the relevant inquiry is whether the defendant’s activities manifest an intention to submit to the power of the state. Because jurisdiction is “a question of authority rather than fairness,” the stream-of-commerce doctrine could not replace the general and well-established rule requiring purposeful activity directed at the forum state.

Justices Breyer and Alito concurred in the judgment but because the case did not present issues arising from recent changes in commerce and communication, disagreed with the pronouncement of a rule of broad applicability without full consideration of modern-day consequences, and would have simply disposed of the case with reference to the Court’s prior precedents. Justice Ginsburg filed a dissenting opinion, which was joined by Justices Sotomayor and Kagan.

For more information, contact your Briggs and Morgan attorney or a member of the Business Litigation Section.