U.S. Supreme Court Overturns NJ Supreme Court's Extension of Long-arm Jurisdiction

On June 27, 2011, the U.S. Supreme Court issued a decision addressing personal jurisdiction over foreign manufacturers for product liability claims involving products shipped to and sold in the United States. In J. McIntyre Machinery, Ltd. v. Nicastro, 180 L. Ed. 2d 765 (June 27, 2011), Justice Kennedy authored a plurality opinion for four members of the Court that, combined with Justice Breyer's concurring opinion, overturned the Supreme Court of New Jersey's decision that had held a foreign manufacturer of an industrial recycling machine was subject to New Jersey's long-arm jurisdiction, in a New Jersey product liability case under the stream-of-commerce doctrine. The NJ Supreme Court had concluded that a foreign manufacturer that distributed its products through a nationwide distribution system that might cause those products to be sold in any of the 50 states was subject to personal jurisdiction in New Jersey.

The Case at Issue

The NJ Supreme Court posited that the foreign manufacturer should be subject to suit in New Jersey courts, even though the underlying facts revealed there was a total absence of traditional minimum contacts with New Jersey. Nicastro v. McIntyre Machinery America, Ltd., 201 N.j. 48, 987 A.2d 575 (2010). Although six members of the U.S. Supreme Court rejected that principle under the facts of the case at bar, the opinions of concurring Justices Breyer and Alito, and of dissenting Justices Ginsburg, Sotomayor and Kagan, left open the possibility that in the appropriate case, “the relevant contemporary commercial circumstances,” 180 L Ed. 2d at 782. could result in the Court's embracing a stream-of-commerce theory of personal jurisdiction.

The plurality opinion sought to clarify personal jurisdiction concepts that have remained unclear since Asahi Metal-Industry Co. v. Superior Court of Cal., Solano Cty., 480 U.S. 102 (1987), was decided in 1987. Justice Kennedy, as author of the plurality opinion, noted that the Due Process Clause of the U.S. Constitution protects a defendant's right “not to be coerced except by lawful judicial power” and that judicial power is not lawfully exercised unless a defendant “'purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'” Nicastro, 180 L. Ed. 2d at 774, citing Hanson v. Denckla, 357 U.S. 235, 253 (1958). Furthermore, the plurality opinion emphasized that it is a product manufacturer's conduct reflecting its “purposeful availment” that makes jurisdiction consistent with “traditional notions of fair play and substantial justice.” Id. at 774, citing International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).

Justice Kennedy placed emphasis on sovereign power as the basis for jurisdiction over a defendant, not the foreseeability that the defendant's products might be sold in the forum state. As he explained, product manufacturers that engage in business primarily outside a state have rights under the Due Process Clause “not to be subjected to judgment in its courts as a general matter.” Id. at 774. Justice Kennedy reiterated that the primary inquiry should be whether the product manufacturer's activities in placing goods into the stream of commerce “manifest an intention to submit to the power of a sovereign.” Id. at 775. Unless it can be determined on a factual record that the product manufacturer targeted the forum state in transmitting its goods, as opposed to merely foreseeing that its goods may reach an ultimate consumer in the forum state, the transmission of goods in such a manner cannot support the exercise of personal jurisdiction. Thus, Justice Kennedy concluded that the product manufacturer's actions, not merely its expectations, “empower a State's courts to subject him to judgment.” Id. at 776.

No Purposeful Targeting of New Jersey

The plurality also concluded that the product manufacturer had not purposefully targeted New Jersey when engaging in its distribution scheme; rather, the factual record established in discovery revealed only an intent by the product manufacturer to serve a national market. In light of the fact that the product manufacturer did not participate in any specific activities in or toward New Jersey that revealed “an intent to invoke or benefit from the protection of its laws[,] New Jersey is without power to adjudge the rights and liabilities” of the product manufacturer, and New Jersey's exercise of jurisdiction in this context violated due process. Id. at 778.

Global Economy

A concurring opinion by Justice Breyer, and joined by Justice Alito, agreed with the plurality's conclusion, but Justices Breyer and Alito opined that it was “unwise to announce a rule of broad applicability without fully considering modern-day consequences” of the majority opinion. Id. at 778. Specifically, upon evaluation of the underlying factual record, the Justices did not believe modern concerns were factually implicated in the context of the global economy. In particular, Justice Breyer noted that the underlying facts did not include, for example, the sale of products on the Web; the consignment of goods through an intermediary such as Amazon.com; or the marketing of products using pop-up Web advertisements intended for viewing in the forum state, which could all have considerable commercial consequences. Id. at 780. Since there was a dearth of facts in the underlying record, the concurring Justices agreed with the plurality's conclusion that the U.S. Supreme Court's existing personal jurisdiction precedents did not support a finding that New Jersey should exercise personal jurisdiction. Id. at 778-779. On the contrary, Justice Ginsburg's dissent opined that the stream-of-commerce theory ' where, as here, the foreign manufacturer specifically targeted the entire U.S. market, not individual states ' was consistent with the concept of fundamental fairness under the Due Process Clause as articulated in past personal jurisdiction jurisprudence. Id. at 789-790.

Personal Jurisdiction Jurisprudence

In Nicastro, a majority of the Justices rejected the NJ Supreme Court's holding that a product manufacturer's mere awareness that its products might be sold in New Jersey satisfied the purposeful-availment requirement of prior U.S. Supreme Court personal jurisdiction case law. Both the plurality and concurring opinions reject the notion that foreseeability alone is a sufficient basis to trigger personal jurisdiction. Rather, both those opinions focus upon state sovereign power in the context of the federal system as the basis for the authority of a court to exercise jurisdiction over a foreign defendant.

Although a plurality of the Justices would reject the stream-of-commerce theory as a viable basis for personal jurisdiction, five Justices of the Court recognized the possibility that another case could present factual matrix that warranted the application of a stream-of-commerce theory to assert personal jurisdiction over a nonresident manufacturer, based on the product manufacturer's minimum contacts with the forum state. Therefore, personal jurisdiction jurisprudence following Nicastro appears to remain rooted in a careful weighing and analysis of pertinent jurisdictional facts regarding, as articulated in Shaffer v. Heitner, 433 U.S. 186, 204 (1977), the relationship among “the defendant, the forum, and the litigation,” with particular focus on the defendant's conduct ' as opposed to its mere expectations ' as a key factor in the personal jurisdiction analysis.

Nicastro does not appear to set forth clear ground rules for the assertion of personal jurisdiction. The concurring opinion clarifies that the Nicastro facts did not establish purposeful availment. Those facts were limited to: 1) having an independent U.S. distributor; 2) the shipment of a single machine to the foreign state; and 3) attendance at out-of-state trade shows 180 L. Ed. 2d at 779. As Justices Breyer and Alito suggest in the concurring opinion, future cases are likely to present new kinds of jurisdictional facts to test the boundaries of personal jurisdiction jurisprudence. Justices Breyer and Alito intimate that a future case involving a foreign manufacturer utilizing the vast intricacies of the Web to sell, market or distribute its products to consumers in the United States could present an opportunity for the Court to apply the stream-of-commerce theory consistently with existing jurisprudence to assert personal jurisdiction over a foreign defendant.

The focus, however, will continue to be on whether, under the circumstances, the foreign manufacturer's conduct ' including its use of the Web to market and sell its products ' is tantamount to purposeful availment, which is necessary to comport with due process and to support jurisdiction. A number of potential factual scenarios could arise in which the Court might apply a stream-of-commerce theory to assert personal jurisdiction over a foreign manufacturer. Possible factual scenarios could include the following:

• A foreign manufacturer uses a distributor in the United States that has been engaged for the specific purpose of distributing products to certain designated states;
• A foreign manufacturer uses its own website through which customers from some or all states can and do purchase its products;
• A foreign manufacturer uses a third-party-run website to sell its products to customers in some or all states;
• A foreign manufacturer uses a third-party-run website to advertise its products to customers in all or some states, but the foreign manufacturer uses a separate distributor to sell its products to customers in those states; and
• A foreign manufacturer uses a United States-based distributor that it knows has a website that is used by consumers from some or all states to purchase the manufacturer's products.

Conclusion

Given the split among the Justices in Nicastro, it is unknown whether or how the stream-of-commerce theory would be applied as the basis for jurisdiction under each of these scenarios. Although the New Jersey Supreme Court's holding was reversed, its rationale ' that the evolution and concurrent globalization of our economy requires the coincident evolution of jurisdictional concepts ' was not rejected by a majority of the Justices in Nicastro.

It is apparent from Justice Breyer's concurrence that proper exercise of personal jurisdiction requires some kind of forum-related contacts beyond mere forseeability that the manufacturer's product might be sold in the forum state: “Under that view, a producer is subject to jurisdiction for a products-liability action so long as it '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 the context of this case, I cannot agree.” 180 L. Ed. 2d at 780 (emphasis in original). As Justice Breyer explained, the “accepted inquiry” focuses on “the defendant's contacts with that forum“' i.e., the forum state itself. Id. at 780-781 (emphasis in original)

Therefore, what is likely to be essential in each case is the development of a factual record showing the defendant's specific relationship with the forum state. Such facts could include multiple sales of the product to customers in the forum state, the forwarding of advertising or warranty materials directly to the forum state, service or marketing visits to the forum state, or evidence that the manufacturer was specifically targeting certain customers in the forum state. At this point, the basic facts connecting the defendant to the forum state in Nicastro provide little guidance for the level of factual connection with the forum state that will be required in a future case.

Conversely, Nicastro indicates that a foreign manufacturer may be able to shield itself from lawsuits in the United States through a product distribution system that minimizes the manufacturer's nexus with any particular states. The extent to which such limitations would be deemed effective in a purely e-commerce case ' which Nicastro was not ' is anybody's guess. Nevertheless, Nicastro clarifies that future courts addressing this issue in an e-commerce context would still need to analyze the issues through the prism of purposeful availment, rather than mere forseeability.

James J. “J.” Ferrelli is a partner in the Trial Practice Group of Duane Morris LLP in Cherry Hill, NJ, and may be reached at [email protected]. Paul M. da Costa is an associate in the Trial Practice Group at Duane Morris LLP in Newark, NJ, and may be reached at  [email protected]. Messrs. Ferrelli and da Costa concentrate their practices in the areas of products liability, complex business litigation, mass torts and class actions.

On June 27, 2011, the U.S. Supreme Court issued a decision addressing personal jurisdiction over foreign manufacturers for product liability claims involving products shipped to and sold in the United States. In J. McIntyre Machinery, Ltd. v. Nicastro , 180 L. Ed. 2d 765 (June 27, 2011), Justice Kennedy authored a plurality opinion for four members of the Court that, combined with Justice Breyer's concurring opinion, overturned the Supreme Court of New Jersey's decision that had held a foreign manufacturer of an industrial recycling machine was subject to New Jersey's long-arm jurisdiction, in a New Jersey product liability case under the stream-of-commerce doctrine. The NJ Supreme Court had concluded that a foreign manufacturer that distributed its products through a nationwide distribution system that might cause those products to be sold in any of the 50 states was subject to personal jurisdiction in New Jersey.

The Case at Issue

The NJ Supreme Court posited that the foreign manufacturer should be subject to suit in New Jersey courts, even though the underlying facts revealed there was a total absence of traditional minimum contacts with New Jersey. Nicastro v. McIntyre Machinery America, Ltd. , 201 N.j. 48, 987 A.2d 575 (2010). Although six members of the U.S. Supreme Court rejected that principle under the facts of the case at bar, the opinions of concurring Justices Breyer and Alito, and of dissenting Justices Ginsburg, Sotomayor and Kagan, left open the possibility that in the appropriate case, “the relevant contemporary commercial circumstances,” 180 L Ed. 2d at 782. could result in the Court's embracing a stream-of-commerce theory of personal jurisdiction.

The plurality opinion sought to clarify personal jurisdiction concepts that have remained unclear since Asahi Metal-Industry Co. v. Superior Court of Cal., Solano Cty. , 480 U.S. 102 (1987), was decided in 1987. Justice Kennedy, as author of the plurality opinion, noted that the Due Process Clause of the U.S. Constitution protects a defendant's right “not to be coerced except by lawful judicial power” and that judicial power is not lawfully exercised unless a defendant “'purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'” Nicastro , 180 L. Ed. 2d at 774, citing Hanson v. Denckla , 357 U.S. 235, 253 (1958). Furthermore, the plurality opinion emphasized that it is a product manufacturer's conduct reflecting its “purposeful availment” that makes jurisdiction consistent with “traditional notions of fair play and substantial justice.” Id . at 774, citing International Shoe Co. v. Washington , 326 U.S. 310, 316 (1945).

Justice Kennedy placed emphasis on sovereign power as the basis for jurisdiction over a defendant, not the foreseeability that the defendant's products might be sold in the forum state. As he explained, product manufacturers that engage in business primarily outside a state have rights under the Due Process Clause “not to be subjected to judgment in its courts as a general matter.” Id. at 774. Justice Kennedy reiterated that the primary inquiry should be whether the product manufacturer's activities in placing goods into the stream of commerce “manifest an intention to submit to the power of a sovereign.” Id. at 775. Unless it can be determined on a factual record that the product manufacturer targeted the forum state in transmitting its goods, as opposed to merely foreseeing that its goods may reach an ultimate consumer in the forum state, the transmission of goods in such a manner cannot support the exercise of personal jurisdiction. Thus, Justice Kennedy concluded that the product manufacturer's actions, not merely its expectations, “empower a State's courts to subject him to judgment.” Id. at 776.

No Purposeful Targeting of New Jersey

The plurality also concluded that the product manufacturer had not purposefully targeted New Jersey when engaging in its distribution scheme; rather, the factual record established in discovery revealed only an intent by the product manufacturer to serve a national market. In light of the fact that the product manufacturer did not participate in any specific activities in or toward New Jersey that revealed “an intent to invoke or benefit from the protection of its laws[,] New Jersey is without power to adjudge the rights and liabilities” of the product manufacturer, and New Jersey's exercise of jurisdiction in this context violated due process. Id. at 778.

Global Economy

A concurring opinion by Justice Breyer, and joined by Justice Alito, agreed with the plurality's conclusion, but Justices Breyer and Alito opined that it was “unwise to announce a rule of broad applicability without fully considering modern-day consequences” of the majority opinion. Id. at 778. Specifically, upon evaluation of the underlying factual record, the Justices did not believe modern concerns were factually implicated in the context of the global economy. In particular, Justice Breyer noted that the underlying facts did not include, for example, the sale of products on the Web; the consignment of goods through an intermediary such as Amazon.com; or the marketing of products using pop-up Web advertisements intended for viewing in the forum state, which could all have considerable commercial consequences. Id. at 780. Since there was a dearth of facts in the underlying record, the concurring Justices agreed with the plurality's conclusion that the U.S. Supreme Court's existing personal jurisdiction precedents did not support a finding that New Jersey should exercise personal jurisdiction. Id. at 778-779. On the contrary, Justice Ginsburg's dissent opined that the stream-of-commerce theory ' where, as here, the foreign manufacturer specifically targeted the entire U.S. market, not individual states ' was consistent with the concept of fundamental fairness under the Due Process Clause as articulated in past personal jurisdiction jurisprudence. Id. at 789-790.

Personal Jurisdiction Jurisprudence

In Nicastro, a majority of the Justices rejected the NJ Supreme Court's holding that a product manufacturer's mere awareness that its products might be sold in New Jersey satisfied the purposeful-availment requirement of prior U.S. Supreme Court personal jurisdiction case law. Both the plurality and concurring opinions reject the notion that foreseeability alone is a sufficient basis to trigger personal jurisdiction. Rather, both those opinions focus upon state sovereign power in the context of the federal system as the basis for the authority of a court to exercise jurisdiction over a foreign defendant.

Although a plurality of the Justices would reject the stream-of-commerce theory as a viable basis for personal jurisdiction, five Justices of the Court recognized the possibility that another case could present factual matrix that warranted the application of a stream-of-commerce theory to assert personal jurisdiction over a nonresident manufacturer, based on the product manufacturer's minimum contacts with the forum state. Therefore, personal jurisdiction jurisprudence following Nicastro appears to remain rooted in a careful weighing and analysis of pertinent jurisdictional facts regarding, as articulated in Shaffer v. Heitner , 433 U.S. 186, 204 (1977), the relationship among “the defendant, the forum, and the litigation,” with particular focus on the defendant's conduct ' as opposed to its mere expectations ' as a key factor in the personal jurisdiction analysis.

Nicastro does not appear to set forth clear ground rules for the assertion of personal jurisdiction. The concurring opinion clarifies that the Nicastro facts did not establish purposeful availment. Those facts were limited to: 1) having an independent U.S. distributor; 2) the shipment of a single machine to the foreign state; and 3) attendance at out-of-state trade shows 180 L. Ed. 2d at 779. As Justices Breyer and Alito suggest in the concurring opinion, future cases are likely to present new kinds of jurisdictional facts to test the boundaries of personal jurisdiction jurisprudence. Justices Breyer and Alito intimate that a future case involving a foreign manufacturer utilizing the vast intricacies of the Web to sell, market or distribute its products to consumers in the United States could present an opportunity for the Court to apply the stream-of-commerce theory consistently with existing jurisprudence to assert personal jurisdiction over a foreign defendant.

The focus, however, will continue to be on whether, under the circumstances, the foreign manufacturer's conduct ' including its use of the Web to market and sell its products ' is tantamount to purposeful availment, which is necessary to comport with due process and to support jurisdiction. A number of potential factual scenarios could arise in which the Court might apply a stream-of-commerce theory to assert personal jurisdiction over a foreign manufacturer. Possible factual scenarios could include the following:

• A foreign manufacturer uses a distributor in the United States that has been engaged for the specific purpose of distributing products to certain designated states;
• A foreign manufacturer uses its own website through which customers from some or all states can and do purchase its products;
• A foreign manufacturer uses a third-party-run website to sell its products to customers in some or all states;
• A foreign manufacturer uses a third-party-run website to advertise its products to customers in all or some states, but the foreign manufacturer uses a separate distributor to sell its products to customers in those states; and
• A foreign manufacturer uses a United States-based distributor that it knows has a website that is used by consumers from some or all states to purchase the manufacturer's products.

Conclusion

Given the split among the Justices in Nicastro, it is unknown whether or how the stream-of-commerce theory would be applied as the basis for jurisdiction under each of these scenarios. Although the New Jersey Supreme Court's holding was reversed, its rationale ' that the evolution and concurrent globalization of our economy requires the coincident evolution of jurisdictional concepts ' was not rejected by a majority of the Justices in Nicastro.

It is apparent from Justice Breyer's concurrence that proper exercise of personal jurisdiction requires some kind of forum-related contacts beyond mere forseeability that the manufacturer's product might be sold in the forum state: “Under that view, a producer is subject to jurisdiction for a products-liability action so long as it '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 the context of this case, I cannot agree.” 180 L. Ed. 2d at 780 (emphasis in original). As Justice Breyer explained, the “accepted inquiry” focuses on “the defendant's contacts with that forum“' i.e., the forum state itself. Id. at 780-781 (emphasis in original)

Therefore, what is likely to be essential in each case is the development of a factual record showing the defendant's specific relationship with the forum state. Such facts could include multiple sales of the product to customers in the forum state, the forwarding of advertising or warranty materials directly to the forum state, service or marketing visits to the forum state, or evidence that the manufacturer was specifically targeting certain customers in the forum state. At this point, the basic facts connecting the defendant to the forum state in Nicastro provide little guidance for the level of factual connection with the forum state that will be required in a future case.

Conversely, Nicastro indicates that a foreign manufacturer may be able to shield itself from lawsuits in the United States through a product distribution system that minimizes the manufacturer's nexus with any particular states. The extent to which such limitations would be deemed effective in a purely e-commerce case ' which Nicastro was not ' is anybody's guess. Nevertheless, Nicastro clarifies that future courts addressing this issue in an e-commerce context would still need to analyze the issues through the prism of purposeful availment, rather than mere forseeability.

James J. “J.” Ferrelli is a partner in the Trial Practice Group of Duane Morris LLP in Cherry Hill, NJ, and may be reached at [email protected]. Paul M. da Costa is an associate in the Trial Practice Group at Duane Morris LLP in Newark, NJ, and may be reached at  [email protected]. Messrs. Ferrelli and da Costa concentrate their practices in the areas of products liability, complex business litigation, mass torts and class actions.