'A Summer Of Change Expected For Manufacturers'

Originally published in In-House Defense Quarterly – Summer 2011

Product manufacturers should prepare for a likely shift in U.S. law on how and where they may be sued with this summer's highly anticipated Supreme Court rulings. On January 11, 2011, the United States Supreme Court heard argument in two companion cases, J. McIntyre Machinery v. Nicastro (No. 09-1343) and Goodyear Dunlop Tires Operations, S.A. v. Brown (No. 10-76). The Court is expected to issue a decision in both cases in June or July at the latest, and, for the first time in nearly a quarter of a century, should explain the circumstances and jurisdictional contours by which product manufacturers may be sued by personal injury plaintiffs in the United States. Manufacturers worldwide, and those that represent them, would be wise to consider these cases, the issues presented, and the anticipated changes to the litigation landscape.

The world marketplace is very different than it was 25 years ago, and the arguments raised by the litigants in these two cases address multiple issues relating to the increasing globalization of trade and how our courts should address the realities of an increasingly interconnected and globalized marketplace. These suits have given the U.S. Supreme Court an opportunity to articulate a clear jurisdictional standard that would ease the manufacturing community's fear that they can be sued anywhere that their products exist while recognizing an individual's need to know that there is at least some forum to bring a lawsuit for injuries allegedly caused by defective products.

In the first of these two cases before the Court, J. McIntyre Machinery v. Nicastro, the Supreme Court heard argument regarding whether a specific state (New Jersey) may exercise personal jurisdiction over a foreign manufacturer—pursuant to the Court's stream-of-commerce theory— solely because the manufacturer sought to sell its products in the broad U.S. market as a whole. In Goodyear Dunlop Tires Operations, S.A. v. Brown, the Court heard argument about whether a state court (North Carolina) may exercise general personal jurisdiction over a manufacturer which— despite lacking any traditional contacts with the state—had some of its products sold in that state after they were placed in the stream of commerce.

The concept of whether a court has the power to hear the dispute before it has not been widely discussed outside of law schools and heavily footnoted law journals for nearly 25 years. Oral argument before the U.S. Supreme Court this January revealed that all of the parties involved in this dispute agree that this decision has far-reaching implications.

The manufacturers (petitioners before the U.S. Supreme Court), offered two primary arguments in support of their position. First, they contended that it was fundamentally unfair for a company to have to defend itself in jurisdictions with which it has a tenuous relationship. This, notably, is a fairly conventional approach when disputing a jurisdiction claim. But, arguably more important, they also argued that absent Supreme Court action, the decisions of the New Jersey Supreme Court and the North Carolina Court of Appeals would weaken our nation's economic health because foreign corporations would be unwilling to conduct business in the United States, thus chilling direct foreign investment and undermining our nation's ability to conduct its foreign affairs.

The plaintiffs (respondents before the U.S. Supreme Court), however, argued that the two state court decisions reflected an effort—consistent with prior U.S. Supreme Court decisions—to address the harmful side-effects of globalization. In fact, both state court majority opinions noted that their decisions were, in part, influenced by several important public policy concerns, which included: protecting their citizens from defective products and providing their citizens with a forum where they can be compensated for injuries suffered. Both state courts also noted that by holding foreign manufacturers liable, i.e., making it absolutely clear that a manufacturer may not disclaim liability simply because a product was designed or manufactured overseas, a likely result would be the prevention of further off-shoring of U.S.-based manufacturers.

This article explains (1) the jurisdiction principles at issue; (2) the relevant facts and legal backdrop for both cases; and (3) the potential implications of the Court's rulings.

Jurisdiction: A Brief Review

In essence, few legal doctrines are more significant than that of jurisdiction, i.e., the power of a court to hear the disputes of those appearing before it. Without jurisdiction, a court has no legitimate basis for asserting any authority over the parties. Determinations of jurisdiction are based on the relationship between the parties, the forum and the underlying facts that led to the litigation. See Helicopteros Nacionales de Colombia, S. A. v. Hall, 466 U.S. 408, 414 (1984) (quoting Shaffer v. Heitner, 433 U.S. 186, 204 (1977)). One early U.S. concept of jurisdiction was quite simple: a state court's jurisdictional power was limited to its physical boundaries. Pennoyer v. Neff, 95 U.S. 714, 722 (1878). With the expansion of interstate (and ultimately international) commerce, courts began to test the boundaries of jurisdiction by asserting authority over individuals and businesses situated outside their state borders.

The landmark case of International Shoe Co. v. Washington, 326 U.S. 310 (1945) established the "minimum contacts" test for jurisdiction. In the case, the U.S. Supreme Court analyzed whether a Delaware corporation—based in Missouri— could be forced to defend a lawsuit in Washington State for failing to pay into the state's unemployment fund even though it had no physical presence in Washington. Indeed, International Shoe's only "presence" or "contacts" in Washington State was the company salesmen who showed prospective customers the company's catalog. While the terms "general" or "specific" jurisdiction were not used here, The Court nonetheless detailed the instances giving rise to a state's exercise of jurisdiction, and concluded that, under the facts, Washington State possessed personal jurisdiction over International Shoe on account of the company's contacts with the state.

Over the years, the U.S. Supreme Court sought to establish what constitutes "minimum contacts" with a forum state giving rise to jurisdiction. The Court's minimum contacts analysis later evolved to focus on the foreseeability and reasonableness of being sued in a given forum. The court-created tests of foreseeability and reasonableness are used to determine contacts with a forum state and thereby ensure that a court has an adequate, constitutional basis for entering a judgment against a foreign manufacturer. Absent such a basis, a court's decision violates a defendant's due process rights as the court's decision would not conform with traditional notions of fair play and substantial justice. Worldwide Volkswagen v. Woodson, 444 U.S. 286 (1980).

The Supreme Court continued to develop the concept of personal jurisdiction in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987), finding that fundamental fairness dictated that a Japanese...