Jordan Ramis pc. Attorneys at law
U.S. Supreme Court Decisions Limit Liability of Foreign Manufacturers
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This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

By Leta Gorman
Summer 2011

The U.S. Supreme Court issued two decisions this week protecting foreign manufacturers from lawsuits in jurisdictions in which the manufacturer has no purposeful connection or link.

In J. McIntyre Machinery, Ltd. v. Nicastro, the Supreme Court reversed the ruling by the Supreme Court of New Jersey concluding that a state may not exercise personal jurisdiction over a party unless that party has purposefully availed themselves to the jurisdiction, thus showing intent to benefit from the state's laws. In Goodyear Dunlop Tires Operations, S.A. v. Brown, the Court held that a foreign corporation's placement of products into the stream of commerce is insufficient for purposes of establishing general jurisdiction over a foreign defendant.

In Nicastro, the issue before the Court was "whether a person or entity is subject to the jurisdiction of a state court despite not having been present in the State either at the time of suit or at the time of the alleged injury, and despite not having consented to the exercise of jurisdiction." In this case, Nicastro had injured his hand while using a machine that J. McIntyre Machinery, Ltd. manufactured in England, where the company is incorporated and operates. Nicastro filed a product liability lawsuit in New Jersey state court, where the accident occurred, and J. McIntyre sought to dismiss the action on the ground that the court lacked personal jurisdiction. Despite the fact that J. McIntyre had at no time advertised in, sent goods to, or in any relevant sense targeted the state, the New Jersey Supreme Court invoked the "stream of commerce" doctrine of personal jurisdiction and concluded that New Jersey courts "can exercise jurisdiction over a foreign manufacturer of a product so long as the manufacturer ‘knows or reasonably should know that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states."'

In reversing the lower court's decision, the Supreme Court held that due process protects a defendant's right not to be coerced except by lawful judicial power. Consequently, the line of prior cases invoking a "stream of commerce analysis" were inconsistent with the notion of "fair play and substantial justice." The Court found that, even though a manufacturer may show "purposeful availment" by placing a good in the stream of commerce, that alone does not demonstrate that the manufacturer intended to submit to the power of a particular sovereign in exchange for the benefits and protections of the state's laws. Because J. McIntyre did not purposefully direct activity at New Jersey, the Supreme Court found that personal jurisdiction did not exist in that forum.

In Goodyear, the issue before the Court was whether or not foreign subsidiaries of a United States parent corporation were amenable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum state. In this case, North Carolina residents whose sons died in a bus accident in France filed a suit in North Carolina state court alleging that the Goodyear tires on the bus were defective. Defendant Goodyear USA is a U.S. corporation but three additional defendants (Goodyear USA subsidiaries) are organized and operate in Luxembourg, Turkey, and France. "The foreign defendants are not registered to do business in North Carolina; have no place of business, employees, or bank accounts in the State; do not design, manufacture, or advertise their products in the State; and do not solicit business in the State or sell or ship tires to North Carolina customers." Because a small percentage of their tires were distributed in North Carolina by other Goodyear USA affiliates, the North Carolina courts found they had jurisdiction over the foreign defendants because their project had reached North Carolina through "the stream of commerce." The Supreme Court reversed, noting that to justify the exercise of general jurisdiction over petitioners, the North Carolina courts relied on the petitioners' placement of their tires in the "stream of commerce." "Their attenuated connections to the State," said the Supreme Court, "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."