The U.S. Supreme Court Narrows The Jurisdictional Reach Of U.S. Courts In Products-Liability Litigation

The Supreme Court's Two Recent Decisions Could Significantly Limit the Exposure of Foreign Corporations to Products-Liability Suits

In two highly anticipated decisions, the U.S. Supreme Court both clarified and reshaped how the law of personal jurisdiction applies to foreign corporations selling their products to customers in the United States. In Goodyear Dunlop Tires Operations, S.A. v. Brown, No. 10-76 (June 27, 2011), the Supreme Court reaffirmed that foreign companies are not subject to state courts' general jurisdiction — the power to decide claims unrelated to a company's activities in a state — unless the company's contacts with the state were "continuous and systematic." Specifically, the Court held that a foreign corporation's placement of goods in the stream of interstate commerce alone cannot support general jurisdiction in a state where those goods end up being sold. In J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343 (June 27, 2011), the Supreme Court imposed limits on a state court's specific jurisdiction — the power to decide claims related to activities occurring within or affecting the state. The majority of the justices concluded that a foreign corporation's targeting of the U.S. market as a whole for sales of its products through an independent distributor would not permit a state to exercise specific jurisdiction over the corporation unless it had also targeted that specific state.

Taken together, Goodyear and Nicastro suggest that foreign corporate defendants (and, possibly, even out-of-state U.S. corporate defendants, who are considered "foreign" from the perspective of state sovereignty) may be able to avoid state court jurisdiction — and thereby limit their products-liability exposure — by strategically structuring their sales activity in the United States.

Background

Goodyear and Nicastro came to the Supreme Court from the state courts of North Carolina and New Jersey, respectively. Goodyear resulted from a bus accident in France in which two North Carolina teenagers died. Attributing the accident to a defective tire manufactured in Turkey by a foreign subsidiary of The Goodyear Tire and Rubber Company ("Goodyear"), the boys' parents brought suit in a North Carolina state court against Goodyear and three of its foreign subsidiaries, which operated in Turkey, France, and Luxembourg. Goodyear's subsidiaries contested jurisdiction on the grounds that they conduct no business in North Carolina, do not design, manufacture, or advertise their products in that state, and neither solicit business in North Carolina nor sell their tires to North Carolina customers.

The North Carolina state courts, however, refused to dismiss the claims against Goodyear's foreign subsidiaries on the grounds that some of the tires manufactured by these subsidiaries — though not the type of tire involved in the accident — were distributed within North Carolina by other Goodyear affiliates. The North Carolina intermediate appellate court then found general jurisdiction over defendants because they "placed their tires 'in the stream of interstate commerce without any limitation on the extent to which those tires could be sold in North Carolina.'"1 The state court opined that defendants' tires reached North Carolina through a "highly-organized distribution process" that involved other Goodyear subsidiaries, and that defendants "made 'no attempt to keep these tires from reaching the North Carolina market.'"2

In Nicastro, an employee of a scrapmetal company sued J. McIntyre Machinery, Ltd. ("J. McIntyre"), a company incorporated and operating in the United Kingdom, for an injury he sustained while operating the company's metal-shearing machine. The accident occurred at a plant in New Jersey. J. McIntyre neither markets its machines in, nor ships them to, New Jersey. Rather, J. McIntyre sells its machines to U.S. customers exclusively through an independent distributor, and J. McIntyre did not direct or control the distributor's actions. J. McIntyre officials attended annual scrap recycling industry conventions...