Opinion analysis: No jurisdiction over foreign companies

By James Bickford
on Jun 30, 2011 at 3:07 pm

On Monday, the Court issued opinions in two cases involving different questions of personal jurisdiction, Goodyear Dunlop Tires Operations, S.A. v. Brown and J. McIntyre Machinery, Ltd. v. Nicastro.  And although six Justices were able to agree on the result in J. McIntyre, the different opinions expressed by those Justices all but promised that more decisions on the issue would follow.

In Goodyear, the Court addressed the limits of a state court’s jurisdiction over foreign subsidiaries of a U.S. parent corporation.  Justice Ginsburg wrote the opinion for a unanimous Court.  The case involved a fatal bus accident outside of Paris in which two boys from North Carolina were killed. The bus was using Goodyear tires manufactured in Turkey by a foreign subsidiary of the American company.  The boys’ parents brought suit in North Carolina, blaming defective tires for the deaths.  The North Carolina courts concluded that they had jurisdiction over the foreign subsidiaries because the companies had placed their tires into the stream of commerce and allowed them to be sold in North Carolina. 

A quick primer for anyone whose civil procedure has grown rusty: the Court has described two types of personal jurisdiction, general and specific.  General jurisdiction is the all-purpose form, allowing any claim to be brought against a defendant as long as the defendant has “systematic and continuous” contacts with that forum.  Specific jurisdiction, by contrast, arises from the connection between a forum and a particular controversy and is therefore limited to that controversy. 

In Goodyear, the Court first made clear that the only question before it was that of general jurisdiction:  because the site of the accident and the factory where the tires were made were both outside of North Carolina, no connection to the state allowed for specific jurisdiction there.  Turning to the question of whether North Carolina courts might nonetheless have general jurisdiction over the foreign subsidiaries, the Court focused on the “stream-of-commerce metaphor,” which is often invoked when “a nonresident defendant, acting outside the forum, places in the stream of commerce a product that ultimately causes harm inside the forum.”  Although that action, the Court explained, “may bolster an affiliation germane to specific jurisdiction,” it “do[es] not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant.”  After reviewing its precedents involving general jurisdiction over a foreign corporation, the Court concluded that the foreign subsidiaries’ connections to North Carolina – essentially that they had allowed their products to reach the state – “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.”  (The Court declined to consider an alternative ground for affirming the decision below – that jurisdiction was appropriate because the Goodyear parent and its subsidiaries were effectively a “unitary business” – because the argument was raised for the first time in the merits briefs.)

By contrast, the Court’s decision in J.McIntyre was far from unanimous.  In this case, the Court considered a lawsuit brought by a New Jersey worker who lost four fingers while using a metal-shearing machine against that machine’s British manufacturer.  The British company had hired a U.S. distributor, which sold the machine to a New Jersey firm.  The New Jersey Supreme Court held that the New Jersey courts did have jurisdiction over the worker’s lawsuit because J. McIntyre knew or reasonably should have known that its products were distributed nationwide and might reach any of the fifty states, where they could cause an injury. 

Six Justices voted to reverse the New Jersey Supreme Court’s decision.  Chief Justice Roberts and Justices Scalia and Thomas joined a plurality opinion authored by Justice Kennedy.   In his opinion, Justice Kennedy framed the question presented by the case in terms of courts’ jurisdiction over an entity that is not present in the forum and has not consented to the exercise of jurisdiction.  The Court has previously held that courts have specific jurisdiction over a defendant when it “purposefully avails itself” of the privilege of doing business somewhere; this “purposeful availment,” the plurality explained, can mean advertising in the forum, shipping goods there, or otherwise “targeting” a state.  As Justice Kennedy described it, “[t]he principal inquiry in cases of this sort is whether the defendant’s activities manifest an intention to submit to the power of a sovereign.”  But merely allowing merchandise to reach a forum will not meet this test: “as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State.”  The plurality emphasized that “it is the defendant’s actions, not his expectations, that empower a State’s courts to subject him to judgment,” and that personal jurisdiction “requires a forum-by-forum, or sovereign-by-sovereign, analysis” which notably allows for the possibility that “a litigant may have the requisite relationship with the United States Government but not with the government of any individual State.”  The plurality concluded that even if J. McIntyre had targeted the United States as a whole, New Jersey’s courts lacked jurisdiction because the company had not “purposefully availed itself of the New Jersey market.”

Justices Breyer and Alito agreed that the New Jersey Supreme Court’s decision should be reversed, but they would resolve the case simply by relying on the Court’s prior decisions – none of which, they emphasized, hold “that  a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient” to establish personal jurisdiction.  Rather, Justices Breyer and Alito explained, the Court “has strongly suggested that a single sale of a product in a State does not constitute an adequate basis for asserting jurisdiction over an out-of-state defendant, even if that defendant places his goods in the stream of commerce, fully aware (and hoping) that such a sale will take place.”  Thus, they continued, the Court had no need to establish “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 have targeted the forum.’”  Indeed, they asked, how would such rules apply to modern electronic commerce?  What if “a company targets the world by selling products from its Web site,” they posited, or “instead of shipping the products directly, a company consigns the products through an intermediary (say, Amazon.com) who then receives and fulfills the order”?  They urged the Court to revisit these kinds of “contemporary commercial circumstances” in the appropriate personal jurisdiction case, and with the participation of the Solicitor General.

Justice Ginsburg filed a dissenting opinion, which was joined by Justices Sotomayor and Kagan.  The dissenters would have held that the New Jersey courts did have jurisdiction over J. McIntyre.  In their view, the goal of the company was “simply to sell as much as it can, wherever it can” and “to avoid product liability litigation in the United States” if at all possible.  The rest of the Court, they argued, had effectively allowed foreign manufacturers to avoid the jurisdiction of state courts simply by hiring a distributor to ship the manufacturer’s products to the U.S.  (By shipping the products itself, the company might “target” particular states.)  Here, because McIntyre “availed itself of the market of all States in which its products were sold by its exclusive distributor,” it therefore should be subject in any of them to suits arising out of events occurring there.