The Supreme Court and Product Liability

The Supreme Court decided less than a handful of product liability cases last term. But those it did decide will have great significance in the areas of personal jurisdiction over foreign manufacturers, and federal preemption of state law. The Court also decided a number of non-product liability cases that could have a big practical impact in the field of product liability, including class actions, arbitration, pharmaceutical marketing practices, and proximate causation. This two-part article surveys those cases.

Personal Jurisdiction: The Goodyear Case

The Supreme Court decided two cases addressing when U.S. courts may exercise jurisdiction over foreign companies in product liability cases. In each, the Supreme Court found that U.S. courts could not assert jurisdiction over the foreign manufacturer, curtailing the ability of U.S. plaintiffs to sue foreign companies outside their home countries.

The first case, Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (2011), involved the question of general rather than specific jurisdiction. As the Supreme Court explained, general jurisdiction exists when a defendant's “affiliations with the state are so 'continuous and systematic' as to render [it] at home in the forum State.” Id. at 2851 (citation omitted). If general jurisdiction exists, defendants may be sued on “any and all claims against them,” even if the claim has nothing to do with the defendant's contacts with the state. Specific jurisdiction, on the other hand, arises when the defendant has only “minimum contacts” with the state. But in contrast to general jurisdiction, a court may assert specific jurisdiction only if the claim arises from that defendant's contacts with the state. Id.

In Goodyear, two boys from North Carolina were injured in a bus accident in France. The accident allegedly was caused by defective tires manufactured by a Turkish subsidiary of Goodyear USA. The injured boys sued not only Goodyear USA in North Carolina state court, but also three foreign Goodyear subsidiaries. The question presented, according to the Supreme Court, was as follows: “Are foreign subsidiaries of a United States parent corporation amenable to suit in state court on claims unrelated to any activity of the subsidiary in the forum State.” Id. at 2850.

The North Carolina Supreme Court had held that because the foreign subsidiaries had sold tires that reached North Carolina through the “stream of commerce,” those subsidiaries could be sued in North Carolina, even if the lawsuit did not arise out of those sales. Id. at 2851. The Supreme Court unanimously disagreed.

The Court's View

As an initial matter, the Supreme Court held that a state court could not obtain jurisdiction over a foreign subsidiary by virtue of its jurisdiction over the U.S. parent. Goodyear USA did not contest jurisdiction of the North Carolina courts, but the Supreme Court analyzed the ties of the foreign subsidiaries separately. This recognition of corporate separateness may be equally important when U.S. plaintiffs seek to sue foreign parents of U.S. subsidiaries. Either way, each corporation's jurisdictional contacts should be analyzed separately.

Second, the Supreme Court held that periodic sales into a state are insufficient to establish general jurisdiction. Although “tens of thousands” of the foreign subsidiaries' tires reached North Carolina between 2004 and 2007, this was only a small percentage of the subsidiaries' sales. Id. at 2852. Moreover, the foreign subsidiaries were not registered to do business in North Carolina; they had no place of business, employees or bank accounts there; and they did not advertise or solicit business in North Carolina or themselves ship any product there ' the limited sales being made through other Goodyear companies. As the Court explained: “A corporation's continuous activity of some sort within a state ' is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.” Id. at 2849. Under this reasoning, it will be difficult to obtain general jurisdiction over an out-of-state corporation, whether foreign or domestic, absent a significant physical presence in the state.

Personal Jurisdiction: The McIntyre Case

In contrast to Goodyear, specific rather than general jurisdiction was at issue in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011). Also in contrast to Goodyear, which produced a unanimous decision, McIntyre produced a splintered 4-2-3 opinion that makes its long-term significance more difficult to evaluate.

The plaintiff in McIntyre died from an accident involving a machine made by McIntyre UK, a British company. The accident occurred in New Jersey. McIntyre UK did not sell the machine in the U.S.; instead it sold its product to an independent U.S. distributor ' a not uncommon arrangement for foreign companies selling products here. The independent distributor was based in Ohio, but was authorized by McIntyre UK to sell throughout the U.S. However, only four McIntyre machines had been sold in New Jersey. Moreover, although McIntyre UK officials came to the U.S. for trade shows, where potential New Jersey customers could obtain information about and purchase McIntyre UK machines, none of the trade shows or advertising occurred specifically in New Jersey. Id. at 2781. The plaintiff sued in New Jersey state court.

General jurisdiction was lacking because McIntyre UK's contacts with New Jersey were extremely limited. Consequently, a New Jersey court could assert jurisdiction over McIntyre UK only if specific jurisdiction were present. The plaintiff argued that New Jersey had specific jurisdiction because the McIntyre UK machine involved in the accident had been shipped to New Jersey in the “stream of commerce” ' i.e., from McIntyre UK to the independent to the distributor to the plaintiff's employer in New Jersey ' and therefore it was “foreseeable” that it would be sued there in a lawsuit involving a New Jersey accident. The New Jersey Supreme Court adopted this stream-of-commerce/foreseeability theory and upheld jurisdiction. Once again, the Supreme Court disagreed, although without producing a majority opinion. Id. at 2783-84.

The Opinion

The plurality opinion, authored by Justice Kennedy and joined by Chief Justice Roberts and Justices Scalia and Thomas, severely restricted the “stream-of-commerce” theory of specific jurisdiction. According to the plurality, the mere fact that a corporation intends and expects its product to reach a particular state is not enough to establish the “minimum contacts” necessary to exercise jurisdiction over a defendant. “General notions of fairness and foreseeability” do not establish personal jurisdiction, which depend not only upon fundamental fairness, but on the exercise of “lawful judicial power.” Id. Therefore, “it is the defendant's actions, and not his expectations, that empower a State's courts to subject him to judgment.” Id. at 2789 Translating that into a practical formulation, “[t]he defendant's transmission of goods permits the exercise of jurisdiction only where the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State.” Id. at 2788.

The plurality opinion held that New Jersey did not meet this “targeting” requirement. Although McIntyre UK “directed marketing and sales efforts at the United States” as a whole (Id. at 2790), the relevant inquiry was whether New Jersey in particular was targeted because personal jurisdiction requires a “forum-by-forum, or sovereign-by-sovereign, analysis.” Id. at 2789. Because none of McIntyre UK's sales efforts targeted New Jersey in particular, and given the limited number of sales there, McIntyre's New Jersey contacts were deemed insufficient to confer even specific jurisdiction on the New Jersey courts.

Two Justices, Breyer and Alito, concurred in the result but not all of the reasoning. According to the concurring opinion, on the limited facts of the case, McIntyre UK's New Jersey contacts were so limited as not to permit the exercise of jurisdiction by the courts of that state. But the two Justices declined to espouse a rule that might apply to more modern methods of marketing within a state ' such as targeting a state's customers through the Internet ' on the ground that the case did not present those facts.

Three Justices, Ginsburg, Sotomayor and Kagan, dissented. These three Justices would have upheld the New Jersey Supreme Court's “stream-of-commerce/foreseeability” test, and permitted a state to exercise specific jurisdiction whenever an accident occurs involving a defendant's product that foreseeably reaches a particular state in the ordinary stream of commerce.

How McIntyre will be applied in cases involving different facts remains to be seen. At the one extreme, there is nothing in even Justice Kennedy's plurality opinion that would seem to call into question a state's exercise of specific jurisdiction over a large corporate defendant that “targets” a particular jurisdiction through extensive and continuous advertising and marketing in that particular state, even if the corporate defendant is not physically located in the state. A corporate defendant that markets through sales agents in a particular state ' or even one that does not have sales agents but which markets extensively and continuously through TV, radio, magazines, newspapers and the Internet ' will almost certainly remain subject to specific jurisdiction if products sold within a state cause injury there. On the other hand, at least five Justices have grave concerns over a state's imposition of personal jurisdiction involving a small manufacturer that sells nationally via large distributors ' for example, small farmers who sell their crops through large wholesalers. A majority of the Court expressed little appetite for subjecting small manufacturers to suits in distant forums under those circumstances.

The Real Test

The real test will come in the “in-between” circumstances involving either: 1) one-shot sales (or limited series of sales) in a particular state which, although perhaps large in dollar volume, do not reflect a continuous “targeting” of a particular state; or 2) continuous sales within the state, but by companies whose only targeting of the state is through internet marketing rather than through sales representatives or extensive media advertising. How those “in-between” cases are decided will depend on how Justices Breyer and Alito will vote. If either swings to the four-Justice plurality, there will be no jurisdiction in those circumstances; if both swing to the three Justice dissent, then specific jurisdiction will be asserted in those situations.

Federal Preemption

In Pliva, Inc. v. Mensing, 131 S. Ct. 2567 (2011), the Supreme Court held that state law failure-to-warn claims against manufacturers of generic drugs are preempted by federal law because federal law requires the labeling of generic drugs to be identical to the labeling of brand name drugs. Consequently, the Court held, it was impossible for generic manufacturers to unilaterally change their labels, preempting any state law requirement that a change be made.

Because my firm is involved in the Reglan litigation, which gave rise to Mensing, this article does not discuss the case in detail, or its potential impact on pharmaceutical product liability litigation involving either brand name or generic drugs.

But there is one way in which Mensing is significant even outside the context of pharmaceutical litigation. In particular, the Court squarely rejects a defense to a claim of preemption based on a theory that the defendant could have asked the government for permission to do something that the defendant was forbidden to do unilaterally. This arises frequently in the context of claims of preemption under Buckman v. Plaintiff's Steering Committee, 531 U.S. 341 (2001), which held that state law product liability claims were preempted by federal law to the extent that they were premised upon the alleged failure of a regulated entity to disclose safety information to the regulator. In Mensing, the Court held that even if a generic drug manufacturer had a duty to petition the FDA for permission to strengthen its label, that did not deprive the generic manufacturer of a preemption defense because, until the FDA acted, the generic manufacturer could not change the label. 131 S. Ct. at 2587-89. Without mentioning Buckman specifically, Mensing affirms Buckman's essential holding that state law claims based on speculation about how a regulator might respond to different information are inconsistent with federal law.

Part Two of this article, appearing next month, will discuss decisions involving class actions, pharmaceutical marketing practices, arbitration and proximate cause.

Steven Glickstein, a member of this newsletter's Board of Editors, is Chair of Kaye Scholer's Product Liability and Counseling Department, which was recognized as the best product liability practice in the country in June 2008 by Chambers and Partners, and in January 2006 by The American Lawyer, an ALM sister publication of this newsletter.

The Supreme Court decided less than a handful of product liability cases last term. But those it did decide will have great significance in the areas of personal jurisdiction over foreign manufacturers, and federal preemption of state law. The Court also decided a number of non-product liability cases that could have a big practical impact in the field of product liability, including class actions, arbitration, pharmaceutical marketing practices, and proximate causation. This two-part article surveys those cases.

Personal Jurisdiction: The Goodyear Case

The Supreme Court decided two cases addressing when U.S. courts may exercise jurisdiction over foreign companies in product liability cases. In each, the Supreme Court found that U.S. courts could not assert jurisdiction over the foreign manufacturer, curtailing the ability of U.S. plaintiffs to sue foreign companies outside their home countries.

The first case, Goodyear Dunlop Tires Operations S.A. v. Brown , 131 S. Ct. 2846 (2011), involved the question of general rather than specific jurisdiction. As the Supreme Court explained, general jurisdiction exists when a defendant's “affiliations with the state are so 'continuous and systematic' as to render [it] at home in the forum State.” Id. at 2851 (citation omitted). If general jurisdiction exists, defendants may be sued on “any and all claims against them,” even if the claim has nothing to do with the defendant's contacts with the state. Specific jurisdiction, on the other hand, arises when the defendant has only “minimum contacts” with the state. But in contrast to general jurisdiction, a court may assert specific jurisdiction only if the claim arises from that defendant's contacts with the state. Id.

In Goodyear, two boys from North Carolina were injured in a bus accident in France. The accident allegedly was caused by defective tires manufactured by a Turkish subsidiary of Goodyear USA. The injured boys sued not only Goodyear USA in North Carolina state court, but also three foreign Goodyear subsidiaries. The question presented, according to the Supreme Court, was as follows: “Are foreign subsidiaries of a United States parent corporation amenable to suit in state court on claims unrelated to any activity of the subsidiary in the forum State.” Id. at 2850.

The North Carolina Supreme Court had held that because the foreign subsidiaries had sold tires that reached North Carolina through the “stream of commerce,” those subsidiaries could be sued in North Carolina, even if the lawsuit did not arise out of those sales. Id. at 2851. The Supreme Court unanimously disagreed.

The Court's View

As an initial matter, the Supreme Court held that a state court could not obtain jurisdiction over a foreign subsidiary by virtue of its jurisdiction over the U.S. parent. Goodyear USA did not contest jurisdiction of the North Carolina courts, but the Supreme Court analyzed the ties of the foreign subsidiaries separately. This recognition of corporate separateness may be equally important when U.S. plaintiffs seek to sue foreign parents of U.S. subsidiaries. Either way, each corporation's jurisdictional contacts should be analyzed separately.

Second, the Supreme Court held that periodic sales into a state are insufficient to establish general jurisdiction. Although “tens of thousands” of the foreign subsidiaries' tires reached North Carolina between 2004 and 2007, this was only a small percentage of the subsidiaries' sales. Id. at 2852. Moreover, the foreign subsidiaries were not registered to do business in North Carolina; they had no place of business, employees or bank accounts there; and they did not advertise or solicit business in North Carolina or themselves ship any product there ' the limited sales being made through other Goodyear companies. As the Court explained: “A corporation's continuous activity of some sort within a state ' is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.” Id. at 2849. Under this reasoning, it will be difficult to obtain general jurisdiction over an out-of-state corporation, whether foreign or domestic, absent a significant physical presence in the state.

Personal Jurisdiction: The McIntyre Case

In contrast to Goodyear , specific rather than general jurisdiction was at issue in J. McIntyre Machinery, Ltd. v. Nicastro , 131 S. Ct. 2780 (2011). Also in contrast to Goodyear, which produced a unanimous decision, McIntyre produced a splintered 4-2-3 opinion that makes its long-term significance more difficult to evaluate.

The plaintiff in McIntyre died from an accident involving a machine made by McIntyre UK, a British company. The accident occurred in New Jersey. McIntyre UK did not sell the machine in the U.S.; instead it sold its product to an independent U.S. distributor ' a not uncommon arrangement for foreign companies selling products here. The independent distributor was based in Ohio, but was authorized by McIntyre UK to sell throughout the U.S. However, only four McIntyre machines had been sold in New Jersey. Moreover, although McIntyre UK officials came to the U.S. for trade shows, where potential New Jersey customers could obtain information about and purchase McIntyre UK machines, none of the trade shows or advertising occurred specifically in New Jersey. Id. at 2781. The plaintiff sued in New Jersey state court.

General jurisdiction was lacking because McIntyre UK's contacts with New Jersey were extremely limited. Consequently, a New Jersey court could assert jurisdiction over McIntyre UK only if specific jurisdiction were present. The plaintiff argued that New Jersey had specific jurisdiction because the McIntyre UK machine involved in the accident had been shipped to New Jersey in the “stream of commerce” ' i.e., from McIntyre UK to the independent to the distributor to the plaintiff's employer in New Jersey ' and therefore it was “foreseeable” that it would be sued there in a lawsuit involving a New Jersey accident. The New Jersey Supreme Court adopted this stream-of-commerce/foreseeability theory and upheld jurisdiction. Once again, the Supreme Court disagreed, although without producing a majority opinion. Id. at 2783-84.

The Opinion

The plurality opinion, authored by Justice Kennedy and joined by Chief Justice Roberts and Justices Scalia and Thomas, severely restricted the “stream-of-commerce” theory of specific jurisdiction. According to the plurality, the mere fact that a corporation intends and expects its product to reach a particular state is not enough to establish the “minimum contacts” necessary to exercise jurisdiction over a defendant. “General notions of fairness and foreseeability” do not establish personal jurisdiction, which depend not only upon fundamental fairness, but on the exercise of “lawful judicial power.” Id. Therefore, “it is the defendant's actions, and not his expectations, that empower a State's courts to subject him to judgment.” Id. at 2789 Translating that into a practical formulation, “[t]he defendant's transmission of goods permits the exercise of jurisdiction only where the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State.” Id. at 2788.

The plurality opinion held that New Jersey did not meet this “targeting” requirement. Although McIntyre UK “directed marketing and sales efforts at the United States” as a whole (Id. at 2790), the relevant inquiry was whether New Jersey in particular was targeted because personal jurisdiction requires a “forum-by-forum, or sovereign-by-sovereign, analysis.” Id. at 2789. Because none of McIntyre UK's sales efforts targeted New Jersey in particular, and given the limited number of sales there, McIntyre's New Jersey contacts were deemed insufficient to confer even specific jurisdiction on the New Jersey courts.

Two Justices, Breyer and Alito, concurred in the result but not all of the reasoning. According to the concurring opinion, on the limited facts of the case, McIntyre UK's New Jersey contacts were so limited as not to permit the exercise of jurisdiction by the courts of that state. But the two Justices declined to espouse a rule that might apply to more modern methods of marketing within a state ' such as targeting a state's customers through the Internet ' on the ground that the case did not present those facts.

Three Justices, Ginsburg, Sotomayor and Kagan, dissented. These three Justices would have upheld the New Jersey Supreme Court's “stream-of-commerce/foreseeability” test, and permitted a state to exercise specific jurisdiction whenever an accident occurs involving a defendant's product that foreseeably reaches a particular state in the ordinary stream of commerce.

How McIntyre will be applied in cases involving different facts remains to be seen. At the one extreme, there is nothing in even Justice Kennedy's plurality opinion that would seem to call into question a state's exercise of specific jurisdiction over a large corporate defendant that “targets” a particular jurisdiction through extensive and continuous advertising and marketing in that particular state, even if the corporate defendant is not physically located in the state. A corporate defendant that markets through sales agents in a particular state ' or even one that does not have sales agents but which markets extensively and continuously through TV, radio, magazines, newspapers and the Internet ' will almost certainly remain subject to specific jurisdiction if products sold within a state cause injury there. On the other hand, at least five Justices have grave concerns over a state's imposition of personal jurisdiction involving a small manufacturer that sells nationally via large distributors ' for example, small farmers who sell their crops through large wholesalers. A majority of the Court expressed little appetite for subjecting small manufacturers to suits in distant forums under those circumstances.

The Real Test

The real test will come in the “in-between” circumstances involving either: 1) one-shot sales (or limited series of sales) in a particular state which, although perhaps large in dollar volume, do not reflect a continuous “targeting” of a particular state; or 2) continuous sales within the state, but by companies whose only targeting of the state is through internet marketing rather than through sales representatives or extensive media advertising. How those “in-between” cases are decided will depend on how Justices Breyer and Alito will vote. If either swings to the four-Justice plurality, there will be no jurisdiction in those circumstances; if both swing to the three Justice dissent, then specific jurisdiction will be asserted in those situations.

Federal Preemption

In Pliva, Inc. v. Mensing , 131 S. Ct. 2567 (2011), the Supreme Court held that state law failure-to-warn claims against manufacturers of generic drugs are preempted by federal law because federal law requires the labeling of generic drugs to be identical to the labeling of brand name drugs. Consequently, the Court held, it was impossible for generic manufacturers to unilaterally change their labels, preempting any state law requirement that a change be made.

Because my firm is involved in the Reglan litigation, which gave rise to Mensing, this article does not discuss the case in detail, or its potential impact on pharmaceutical product liability litigation involving either brand name or generic drugs.

But there is one way in which Mensing is significant even outside the context of pharmaceutical litigation. In particular, the Court squarely rejects a defense to a claim of preemption based on a theory that the defendant could have asked the government for permission to do something that the defendant was forbidden to do unilaterally. This arises frequently in the context of claims of preemption under Buckman v. Plaintiff's Steering Committee , 531 U.S. 341 (2001), which held that state law product liability claims were preempted by federal law to the extent that they were premised upon the alleged failure of a regulated entity to disclose safety information to the regulator. In Mensing, the Court held that even if a generic drug manufacturer had a duty to petition the FDA for permission to strengthen its label, that did not deprive the generic manufacturer of a preemption defense because, until the FDA acted, the generic manufacturer could not change the label. 131 S. Ct. at 2587-89. Without mentioning Buckman specifically, Mensing affirms Buckman's essential holding that state law claims based on speculation about how a regulator might respond to different information are inconsistent with federal law.

Part Two of this article, appearing next month, will discuss decisions involving class actions, pharmaceutical marketing practices, arbitration and proximate cause.

Steven Glickstein, a member of this newsletter's Board of Editors, is Chair of Kaye Scholer's Product Liability and Counseling Department, which was recognized as the best product liability practice in the country in June 2008 by Chambers and Partners, and in January 2006 by The American Lawyer, an ALM sister publication of this newsletter.