Argument recap: Deciding when foreign companies can be haled into U.S. state court

At Tuesday’s oral arguments in J. McIntyre Machinery v. Nicastro and Goodyear v. Brown, the Court asked some doctrinal questions seeking to clarify the law of when a foreign company can be haled into U.S. state court.  But the Justices seemed most interested in figuring out the companies’ specific contacts and relationships with the United States in these two cases.  While a couple of Justices seemed sympathetic to the respondents’ claims that jurisdiction could be found because the foreign companies were closely affiliated with American companies, other Justices voiced concern over the practical effects of finding jurisdiction in these cases.

J. McIntyre Machinery v. Nicastro

At oral argument on Tuesday in J. McIntyre Machinery v. Nicastro, the Justices seemed most interested in how the J. McIntyre company targeted either the United States as a whole or any individual state, with substantially less interest in the doctrine.  Arguing for J. McIntyre, Arthur F. Fergenson began by pointing out that his British client did not actually explicitly direct any of its products to New Jersey.  And in response to questions from Justice Kagan, he reiterated that, although McIntyre wanted to use its U.S. distributor to sell as many of its products as possible, it made no attempt to target New Jersey.  And in Mr. Fergenson’s view, the Court’s jurisprudence makes clear that jurisdiction can only be found by “look[ing] toward a specific State,” not by asking whether a foreign company targeted the entire United States.

The Court also questioned what state, if not New Jersey, would be the proper forum for Mr. Nicastro’s suit.  Mr. Fergenson argued that either the United Kingdom or Ohio, where the U.S. distributor was based, would be the proper fora, but Justice Ginsburg questioned whether Ohio would be an appropriate forum for an accident that occurred in New Jersey.  She pressed Mr. Fergenson for the “basis for specific jurisdiction” in Ohio when the accident actually occurred in New Jersey, emphasizing that a state has specific jurisdiction when a claim arises within its territory.  He replied that Ohio could apply New Jersey law.  In response, Justices Kennedy and Scalia suggested that the company’s stronger argument is that even though the accident occurred in New Jersey, it only purposefully availed itself of Ohio law.

Justices Scalia and Kennedy next asked Mr. Fergenson whether the United States would be a better forum for Mr. Nicastro to have brought suit, if the United States had a statute that established jurisdiction for claims against foreign manufacturers who target the whole United States.  Mr. Fergenson acknowledged that, if such a federal statute existed, jurisdiction would have been proper.

Justices Kagan and Sotomayor then questioned Mr. Fergenson about the degree of coordination between J. McIntyre and its U.S. distributor.  First, Justice Kagan suggested that J. McIntyre instructed the U.S. distributor to sell as many units across the country as it could. Then Justice Sotomayor pointed out that J. McIntyre’s president attended trade shows in the United States with the U.S. distributor and had the right to approve U.S. marketing.  While Mr. Fergenson conceded that J. McIntyre had attended U.S. trade shows and did make advertising suggestions to the distributor, it did not expect to be haled into New Jersey state court given the nature of these contacts.

Justice Breyer posed a hypothetical, to which he later returned with the attorney for the respondents: what if a buyer walks into a small pottery shop either West Virginia or in a foreign country, buys a large number of pots, and tells the potter that he would sell the pots everywhere to as many people as possible.  The potter agrees, and a pot ends up in New Mexico. Could a New Mexico court find jurisdiction over the potter for allowing the pots to end up in the state?  In response to Justice Breyer’s question whether a finding of jurisdiction in the hypothetical would conflict with any cases, Mr. Fergenson named several: World-Wide Volkswagen Corp. v. Woodson (1980), Rush v. Savchuk (1980), Shaffer v. Heitner (1977), and Asahi Metal Industry Co. v. Superior Court (1987).  Justice Ginsburg, however, pointed out that Asahi is distinguishable from this case because it concerned a foreign manufacturer of a component part, who sold the part to another foreign manufacturer.  This case, she suggested, has a much stronger jurisdictional hook to the United States.  She then questioned accepting the United Kingdom as the proper forum due to its “trusted” legal system because other countries – China, Mexico, and Russia – may not have as venerable legal systems.

Arguing for the respondents, Alexander Ross began by emphasizing J. McIntyre’s desire to sell as many products as possible within the United States.  Chief Justice Roberts quickly asked him if it would have been possible for J. McIntyre to disclaim jurisdiction in certain states by telling the distributor that it did not want its product to end up in those states.  Mr. Ross appeared to concede that it would be possible to do so.  After questions from the Chief Justice and Justices Scalia and Breyer, Mr. Ross explained that the manufacturer must intend for his product to end up in the forum state and display some additional purposeful conduct – here, the manufacturer’s attendance at trade shows in Las Vegas and other areas of the United States.

Mr. Ross contended that this additional conduct could help to address one of Justice Breyer’s concerns from his earlier hypothetical – that a finding of jurisdiction in New Jersey will result in the prospect that small business owners throughout the world might be subjected to suits in U.S. courts if they agree to have their products distributed.  Mr. Ross also distinguished Justice Breyer’s hypothetical by arguing that J. McIntyre further purposefully availed itself of U.S. law by contacting the U.S. distributor – in Justice Breyer’s potter hypothetical, the distributor contacts the manufacturer. Justice Breyer seemed skeptical of the distinction.

Justices Ginsburg and Scalia both appeared concerned that finding jurisdiction in this case would encourage other countries to more aggressively assert jurisdiction over U.S. companies, with Justice Scalia describing the prospect that this ruling could provide courts in other nations with the jurisdictional means to issue dubious rulings against American businesses as “a little scary.”  Mr. Ross countered that this scenario is unlikely because there exists in this case “additional conduct” that shows that McIntyre intended to avail itself of U.S. and New Jersey law – its attendance at U.S. trade shows.  Not only did J. McIntyre target the entire United States, Mr. Ross argues, but it also likely had minimum contacts with New Jersey because it had contact with Nicastro’s New Jersey employer at the Las Vegas trade show.  Justice Scalia pushed back and asked whether contact with a customer is really the same thing as sufficient contact with the state government.

Finally, Mr. Ross and several Justices struggled to clarify what role the Internet might play in establishing jurisdiction.  While Mr. Ross indicated that in his briefs he had intentionally declined to identify scenarios in which a website is enough to establish jurisdiction, he characterized the main point as interactivity: if the customer can fill out an order form and complete a transaction, then there is jurisdiction. However, if the website is more like a “billboard” advertisement with a phone number but no order form, there is no jurisdiction.

During his brief rebuttal, Mr. Fergenson faced questions from Justice Sotomayor regarding whether J. McIntyre retained ownership of the units until they were sold by the independent distributor; Mr. Fergenson asserted that although this was a common practice, it did not matter in this case.  Finally, in response to a question from Justice Kagan regarding whether foreign automobile manufacturers like Toyota could be sued in any state, Mr. Fergenson contended that those companies were distinguishable from J. McIntyre given their size and sophistication.

Goodyear v. Brown

Arguing for the petitioners in Goodyear, Meir Feder began by emphasizing that the Goodyear subsidiaries are foreign corporations without any contacts in North Carolina.  In response to questions from Justices Ginsburg, Kagan, and Kennedy regarding whether North Carolina could assert general jurisdiction over the parent, Mr. Feder responded that it probably could not, but in any case, he explained, it doesn’t matter because this claim arose from the subsidiaries’ actions outside of the United States.  And he pointed to the Court’s jurisprudence holding that the mere sale of products in a forum state by a company is not enough to satisfy general jurisdiction for the company.  He recited a group of cases from his brief – Helicopteros v. Hall (1984), Perkins v. Benguet (1952), International Shoe v. Washington (1945) – to argue that, to establish general jurisdiction, a defendant must have quality contacts that are lacking in this case.

Justice Kennedy asked why there had to be a distinction drawn between the parent and its wholly owned subsidiaries.  Mr. Feder explained that there is a distinction between a corporation controlled by another and one acting as the agent of another.  And in any case, the respondents had waived the argument that the Goodyear parent and its subsidiaries were a single unit.

Assistant to the Solicitor General Benjamin Horwich argued on behalf of the United States as an amicus in support of the petitioners.  Mr. Horwich highlighted the need for “continuous and substantial” contacts that, in the view of the United States, were missing.  He also drew the same distinction as Mr. Feder between agency and control.

Arguing for the respondents, Collyn Peddie emphasized the integrated distribution scheme of the subsidiaries and the American parent and the similar products offered by both companies.  But Justice Scalia countered that the fact that the American distributor coordinates with the subsidiary does not mean that the subsidiary is an agent of the parent.  Justice Ginsburg then asked whether, if there is in fact general jurisdiction over the subsidiaries, a foreign plaintiff could sue the foreign subsidiaries in North Carolina.  Ms. Peddie responded in the affirmative, but added that such a suit would not actually occur in practice because of court controls on forum shopping.

Justice Kennedy then said that it would be difficult to justify a finding of general jurisdiction because the subsidiaries did not have a physical presence in the state. Ms. Peddie responded that the modern, proper test should be whether the contacts that the subsidiaries had with North Carolina were “continuous and substantial.”

Justice Ginsburg then asked Peddie if she could cite any case law that would support the argument that wherever a parent is subject to general jurisdiction, the subsidiary must be as well.  Ms. Peddie replied that she did not have any case law because that was not her argument – her argument, rather, was that given the highly integrated nature of the distribution system, the Court should find jurisdiction over the subsidiary.  She also emphasized that there would be no additional burden on the company for the subsidiaries to come into North Carolina court given their integration with the American parent.  Justice Scalia pushed back and said jurisdiction is not only about burden, but also the power of states.

In his rebuttal, Mr. Feder pointed out that the integrated distribution system only relates to the foreign tires that entered the United States – too small a number to constitute general jurisdiction over the foreign subsidiaries.  Justice Scalia asked why the court could not decide the case on “special jurisdiction” grounds – which would allow U.S. citizens to sue in the U.S. even though the action happened in a foreign country so long as there was sufficient “purposeful availment.”  Mr. Feder argued that this would not satisfy due process requirements. Justice Ginsburg pointed out that France has this jurisdiction rule, but “we consider that an exorbitant jurisdictional rule.”