Navigating the Stream of Commerce in the Wake of Nicastro

Justice O'Connor's opinion set forth the “Stream of Commerce Plus” test. To assert specific jurisdiction properly, the defendant must purposefully direct actions at the forum State sufficient to create a substantial connection between the defendant and the forum. Mere placement of a product into the stream of commerce, without more, was insufficient. Similarly, mere awareness that the product might land in the forum was not enough. Something more was required through which the defendant purposefully availed itself of the benefits and protections of the forum State's laws.

Justice Brennan disagreed: Although personal jurisdiction in this case was unreasonable, Asahi had purposefully availed itself of the California market simply by placing its product into the stream of commerce, aware that the final product would be marketed in the forum. No further act was necessary. Against this backdrop, Justice Kennedy wrote the plurality opinion in Nicastro, in which Chief Justice Roberts, Justice Scalia, and Justice Thomas joined. He criticized Justice Brennan's Asahi opinion: jurisdiction based upon simply placing a product into the stream of commerce while aware that it would be marketed in the forum state was inconsistent with lawful judicial power. Rather, personal jurisdiction was based on sovereign power, consistent with Justice O'Connor's opinion, not on fairness and foreseeability. By acting in a manner directed at the forum, a defendant submitted to the judicial power of a forum state as concerning those acts, thereby invoking the benefits and protections of its laws. It was the defendant's conduct that gave the sovereign the power to subject the defendant to judgment regarding that conduct.

Justices Breyer and Alito concurred. They agreed with the plurality that mere foreseeability was not enough to support personal jurisdiction. However, they disagreed with the plurality's strict rule limiting jurisdiction to situations in which the defendant intended to submit to the power of a sovereign and could be said to have targeted the forum. Moreover, they felt that Nicastro was an inappropriate case in which to announce broad, new jurisdictional rules; it did not present facts demonstrating the fast-changing globalization of the world economy that might necessitate such rules. Rather, Nicastro could be decided by strict adherence to the Court's existing precedents which established that jurisdiction should be based on whether, considering the relationship among the defendant, the forum State, and the litigation, it was fair to subject the defendant to suit in the forum.

Application of Nicastro: Different Tests, Same
Defendant, Conflicting Outcomes

As the lower courts begin to apply Nicastro to the facts before them, circuit court splits are already emerging. Every court of appeals, and most district courts to have considered the issue have held that, at a minimum, something more than “mere foreseeability” is required to establish specific personal jurisdiction. Most have held that Justice Breyer's concurring opinion states the precedential holding of Nicastro. Several have held that merely directing conduct at the United States in general is insufficient to establish specific personal jurisdiction in any one state.

The Fifth Circuit is an outlier. Its pre-Nicastro decisions had followed Justice Brennan's Asahi opinion. Thus, merely placing a product into the stream of commerce was sufficient as long as the defendant knew, or reasonably should have known, that the product would be marketed in the forum state. The Fifth Circuit Court of Appeals has yet to issue an opinion interpreting Nicastro, and although those district courts that have, have continued to hold to the “mere placement” test, the decisions of the Southern District of Texas, at least, hint that perhaps the test is becoming stricter. The Southern District of Mississippi's decision, however, clearly exemplifies the problems with Nicastro's splintered opinions and has been certified to the Fifth Circuit for review.

'Mere Foreseeablity' ' Plus?

On Jan. 18, 2012, Judge Ellison of the Southern District of Texas granted a motion to dismiss third-party defendant HL (USA), a California corporation, from a product liability case arising from a bicycle accident. Powell v. Profile Design LLC, No. 4:10-cv-2644, 2012 WL 149518 at *1 (S.D. Tex. Jan. 18, 2012). HL (USA) argued that it was not subject to personal jurisdiction because it was not registered to do business in Texas and had no product distributor, bank accounts, phone numbers, employees, offices, property, or registered agent in Texas.

Judge Ellison's opinion seemingly begins by accepting Justice O'Connor's “Stream of Commerce Plus” test in Asahi. He acknowledges that the litigation must arise out of actions by the defendant purposefully directed at the forum State such that the defendant had purposefully availed itself of the benefits and protections of Texas law. He notes that the Kennedy plurality in Nicastro had held that a defendant's ability to predict that its goods would reach the forum was insufficient for personal jurisdiction; purposeful availment was necessary.

However, Judge Ellison then recognized that the Fifth Circuit had declined to follow Justice O'Connor's “Stream of Commerce Plus” rule from Asahi. Justice Brennan's more relaxed “mere forseeability” test was the law of that jurisdiction. If the defendant placed a product into the stream of commerce with the expectation that it would be purchased or used in the forum state, personal jurisdiction could be exercised so long as the litigation arose out of harm caused by the product. No further act by the defendant directed at the forum was necessary and, in fact, personal jurisdiction could be exercised based on activities directed at a market broader than merely the state in which the initial or direct sale was made.

Nonetheless, Judge Ellison's holding appears to apply the Nicastro plurality's strict stream of commerce test. In Nicastro, the British manufacturer's intent to sell its machines to all willing purchasers in the U.S. was insufficient to establish personal jurisdiction. On that basis, Judge Ellison held that HL (USA)'s mere delivery of goods to a U.S. distributor, while desiring those goods to be distributed throughout the United States, without more, was similarly insufficient. There was no evidence of the “something more” to show that HL (USA) had undertaken any state-related advertising, marketing, design, or anything else to demonstrate it had purposefully availed itself of the privilege of conducting activities in Texas.

This holding would seem to raise the requirement for personal jurisdiction to something more than merely placing the product into the stream of commerce. However, Judge Ellison cabined his holding. Immediately after stating that there was no evidence of “something more” to indicate purposeful availment, he noted that there was also no evidence that HL (USA) had placed its product into the stream of commerce with the expectation that it would be purchased in Texas. The plaintiff had not met its burden of showing that HL (USA) was aware that its product was being marketed in the forum state.

Mississippi and Kentucky: One Defendant,
Two Outcomes

Nowhere has the hazards of a split Supreme Court opinion been more clear than in Lindsey v. Cargotec USA, Inc., No. 4:09CV-00071-JHM, 2011 WL 4587583 (W.D.Ken. Sept. 30, 2011), and Ainsworth v. Cargotec USA, Inc., 2011 WL 4443626 (S.D.Miss. Sept. 23, 2011), both of which analyzed the propriety of exerting specific personal jurisdiction over defendant Moffett Engineering Ltd., an Irish corporation. In Lindsey, the Western District of Kentucky held that it did not have personal
jurisdiction over Moffett. In Ainsworth, the Southern District of Mississippi held that it did.

Lindsey

In Lindsey, Judge McKinley first made clear the Sixth Circuit's preference for Justice O'Connor's “Stream of Commerce Plus” approach to personal jurisdiction. In the Sixth Circuit, merely placing the product into the stream of commerce was insufficient. Judge McKinley acknowledged the split between Justice Kennedy and Justice Breyer in Nicastro and, because Justice Breyer had concluded that Nicastro could be decided on extant Supreme Court precedent, concluded that the Western District of Kentucky would continue to adhere to the Sixth Circuit's analysis of purposeful availment.

Under that analysis, Lindsey failed to show that Moffett committed sufficient forum-directed acts to purposefully avail itself of the benefits and protections of the laws of Kentucky. Moffett's only contact in the U.S. was with Cargotec, a separate corporation that distributed Moffett's forklifts. It claimed to have no knowledge or control over where in the U.S. Cargotec sold its products. Moffett had no physical presence in Kentucky, it had never sent any employees to the state or sought authority to conduct business there. It had never shipped or sold any products in Kentucky or directly solicited business from any company located in Kentucky. Moreover, Cargotec's activities in Kentucky could not be imputed to Moffett. The companies were separate corporate entities with their own officers and directors and, per their distribution agreement, Cargotec was not an agent of Moffett. Moreover, the distribution agreement between Moffett and Cargotec did not provide a basis for jurisdiction: Moffett had no ability to control Cargotec's distribution in the U.S.; it had no involvement in its advertisement and no communication with, or knowledge of, its customers. Any knowledge by Moffett that its products would be distributed and sold in the U.S. by Cargotec was insufficient to show purposeful availment of Kentucky as the forum State.

The outcome in Ainsworth was entirely different because the test applied was different. After summarizing the Supreme Court's opinions in World-Wide Volkswagen Corporation v. Woodson, 444 U.S. 286 (1980), and Asahi, Judge Starrett noted that the Fifth Circuit followed Judge Brennan's “mere foreseeability” test outlined therein. As Texas Judge Ellison had ruled, in the Fifth Circuit, “mere foreseeability” or awareness by the defendant that its product would arrive in the forum State through the stream of commerce was constitutionally sufficient for personal jurisdiction. Judge Starrett acknowledged that Justice Kennedy's concurrence in Nicastro eschewed Justice Brennan's “mere foreeability” test in Asahi, but Justice Breyer had elected to simply follow prior precedent. Justice Breyer's opinion was narrower than the plurality's and therefore reflected the binding opinion of the Court. But since Justice Breyer had declined to choose which Asahi plurality opinion controlled, Nicastro was, in Judge Starrett's view, rather limited in its applicability and did not provide grounds to depart from the Fifth Circuit's precedents.

Therefore, Judge Starrett applied Justice Brennan's “mere foreseeability” test to the case before him. Since Moffett knew its products would be marketed throughout the United States and made no attempt to limit Cargotec's marketing efforts, it was foreseeable that its products would be purchased in Mississippi. Therefore, personal jurisdiction over Moffett was appropriate.

Following that decision, Moffett requested that the court certify its opinion for Interlocutory Appeal. Judge Starrett agreed that his earlier opinion involved a controlling question of law: Whether Nicastro altered the Fifth Circuit's adherence to Justice Brennan's “mere foreseeability” stream of commerce theory. Clearly, as to Moffett, the outcome of that question controlled the outcome of the case. In analyzing whether that controlling question was one about which reasonable jurists could disagree, Judge Starrett acknowledged the multiple district court opinions within the Fifth Circuit, many of which had reached conflicting opinions as to the effect of Nicastro on the viability of Justice Brennan's test.

Judge Starrett stated his personal view: that his prior opinion was correct and that Nicastro had little or no precedential value, but recognized that there existed substantial ground for a difference of opinion. On that basis, he certified his opinion for Interlocutory Appeal.

Interlocutory Appeal

The Interlocutory Appeal in Ainsworth presents the Fifth Circuit with the opportunity to decide whether it will continue to follow Justice Brennan's “mere foreseeability” rule from Asahi. If it does, it will be the only circuit court of Appeals since Nicastro to so hold. Perhaps the ensuing circuit court split will prompt the Supreme Court into, finally, determining the requirements and boundaries of the stream of commerce.

In the meantime, the issue of jurisdiction for non-U.S. defendants will be fact- and circuit-driven.

Daniel J. Herling is a partner in the San Francisco office of Keller and Heckman LLP. He heads its litigation practice and is a member of the Board of Editors of this newsletter. Amy Blackwood is an associate in the firm's Washington, DC, office.

J. McIntyre Machinery, Ltd. v. Nicastro , 131 S.Ct. 2780 (2011) ( Nicastro ) offered the Supreme Court its first opportunity in 25 years to answer the decades-old question left open in Asahi Metal Industry Co. v. Superior Court of Cal., Solano Cty. , 480 U.S. 102 (1987): What is required to establish the minimum contacts necessary to exert specific personal jurisdiction over a foreign defendant in a forum state? Instead, its conflicting opinions have created different outcomes for the same manufacturer in different courts, and a potential Circuit Court split as to what the “Stream of Commerce” test means and how it impacts our non-U.S. clients.

J. McIntyre Machinery, Ltd. v. Nicastro

Robert Nicastro was injured while using a machine manufactured by J. McIntyre Machinery, Ltd. (McIntyre), a British manufacturer. Nicastro, a New Jersey resident, sued McIntyre in New Jersey. McIntyre sold its machines only to an independent U.S. distributor; it did not market its goods in New Jersey. McIntyre officials had attended industry-related annual conventions in the U.S., but never in New Jersey, and at least one ' but no more than four ' McIntyre machines had ended up in that state. Nonetheless, the New Jersey Supreme Court held that the exercise of personal jurisdiction over McIntyre was proper because McIntyre knew, or reasonably should have known, that its products were distributed nationwide and might be sold in any of the 50 states. The Supreme Court granted review and thus took the opportunity, for the first time in 25 years, to clarify the splintered decision in Asahi. By the time Asahi reached the Supreme Court, it was an indemnity action between Asahi and a Taiwanese manufacturer. It resulted in three separate opinions: by Justice O'Connor, Justice Brennan, and Justice Stevens. While the Justices were unanimous that jurisdiction over Asahi was not proper in California, they disagreed as to exactly what minimum contacts were required to establish specific personal jurisdiction.

Justice O'Connor's opinion set forth the “Stream of Commerce Plus” test. To assert specific jurisdiction properly, the defendant must purposefully direct actions at the forum State sufficient to create a substantial connection between the defendant and the forum. Mere placement of a product into the stream of commerce, without more, was insufficient. Similarly, mere awareness that the product might land in the forum was not enough. Something more was required through which the defendant purposefully availed itself of the benefits and protections of the forum State's laws.

Justice Brennan disagreed: Although personal jurisdiction in this case was unreasonable, Asahi had purposefully availed itself of the California market simply by placing its product into the stream of commerce, aware that the final product would be marketed in the forum. No further act was necessary. Against this backdrop, Justice Kennedy wrote the plurality opinion in Nicastro, in which Chief Justice Roberts, Justice Scalia, and Justice Thomas joined. He criticized Justice Brennan's Asahi opinion: jurisdiction based upon simply placing a product into the stream of commerce while aware that it would be marketed in the forum state was inconsistent with lawful judicial power. Rather, personal jurisdiction was based on sovereign power, consistent with Justice O'Connor's opinion, not on fairness and foreseeability. By acting in a manner directed at the forum, a defendant submitted to the judicial power of a forum state as concerning those acts, thereby invoking the benefits and protections of its laws. It was the defendant's conduct that gave the sovereign the power to subject the defendant to judgment regarding that conduct.

Justices Breyer and Alito concurred. They agreed with the plurality that mere foreseeability was not enough to support personal jurisdiction. However, they disagreed with the plurality's strict rule limiting jurisdiction to situations in which the defendant intended to submit to the power of a sovereign and could be said to have targeted the forum. Moreover, they felt that Nicastro was an inappropriate case in which to announce broad, new jurisdictional rules; it did not present facts demonstrating the fast-changing globalization of the world economy that might necessitate such rules. Rather, Nicastro could be decided by strict adherence to the Court's existing precedents which established that jurisdiction should be based on whether, considering the relationship among the defendant, the forum State, and the litigation, it was fair to subject the defendant to suit in the forum.

Application of Nicastro: Different Tests, Same
Defendant, Conflicting Outcomes

As the lower courts begin to apply Nicastro to the facts before them, circuit court splits are already emerging. Every court of appeals, and most district courts to have considered the issue have held that, at a minimum, something more than “mere foreseeability” is required to establish specific personal jurisdiction. Most have held that Justice Breyer's concurring opinion states the precedential holding of Nicastro. Several have held that merely directing conduct at the United States in general is insufficient to establish specific personal jurisdiction in any one state.

The Fifth Circuit is an outlier. Its pre-Nicastro decisions had followed Justice Brennan's Asahi opinion. Thus, merely placing a product into the stream of commerce was sufficient as long as the defendant knew, or reasonably should have known, that the product would be marketed in the forum state. The Fifth Circuit Court of Appeals has yet to issue an opinion interpreting Nicastro, and although those district courts that have, have continued to hold to the “mere placement” test, the decisions of the Southern District of Texas, at least, hint that perhaps the test is becoming stricter. The Southern District of Mississippi's decision, however, clearly exemplifies the problems with Nicastro's splintered opinions and has been certified to the Fifth Circuit for review.

'Mere Foreseeablity' ' Plus?

On Jan. 18, 2012, Judge Ellison of the Southern District of Texas granted a motion to dismiss third-party defendant HL (USA), a California corporation, from a product liability case arising from a bicycle accident. Powell v. Profile Design LLC, No. 4:10-cv-2644, 2012 WL 149518 at *1 (S.D. Tex. Jan. 18, 2012). HL (USA) argued that it was not subject to personal jurisdiction because it was not registered to do business in Texas and had no product distributor, bank accounts, phone numbers, employees, offices, property, or registered agent in Texas.

Judge Ellison's opinion seemingly begins by accepting Justice O'Connor's “Stream of Commerce Plus” test in Asahi. He acknowledges that the litigation must arise out of actions by the defendant purposefully directed at the forum State such that the defendant had purposefully availed itself of the benefits and protections of Texas law. He notes that the Kennedy plurality in Nicastro had held that a defendant's ability to predict that its goods would reach the forum was insufficient for personal jurisdiction; purposeful availment was necessary.

However, Judge Ellison then recognized that the Fifth Circuit had declined to follow Justice O'Connor's “Stream of Commerce Plus” rule from Asahi. Justice Brennan's more relaxed “mere forseeability” test was the law of that jurisdiction. If the defendant placed a product into the stream of commerce with the expectation that it would be purchased or used in the forum state, personal jurisdiction could be exercised so long as the litigation arose out of harm caused by the product. No further act by the defendant directed at the forum was necessary and, in fact, personal jurisdiction could be exercised based on activities directed at a market broader than merely the state in which the initial or direct sale was made.

Nonetheless, Judge Ellison's holding appears to apply the Nicastro plurality's strict stream of commerce test. In Nicastro, the British manufacturer's intent to sell its machines to all willing purchasers in the U.S. was insufficient to establish personal jurisdiction. On that basis, Judge Ellison held that HL (USA)'s mere delivery of goods to a U.S. distributor, while desiring those goods to be distributed throughout the United States, without more, was similarly insufficient. There was no evidence of the “something more” to show that HL (USA) had undertaken any state-related advertising, marketing, design, or anything else to demonstrate it had purposefully availed itself of the privilege of conducting activities in Texas.

This holding would seem to raise the requirement for personal jurisdiction to something more than merely placing the product into the stream of commerce. However, Judge Ellison cabined his holding. Immediately after stating that there was no evidence of “something more” to indicate purposeful availment, he noted that there was also no evidence that HL (USA) had placed its product into the stream of commerce with the expectation that it would be purchased in Texas. The plaintiff had not met its burden of showing that HL (USA) was aware that its product was being marketed in the forum state.

Mississippi and Kentucky: One Defendant,
Two Outcomes

Nowhere has the hazards of a split Supreme Court opinion been more clear than in Lindsey v. Cargotec USA, Inc., No. 4:09CV-00071-JHM, 2011 WL 4587583 (W.D.Ken. Sept. 30, 2011), and Ainsworth v. Cargotec USA, Inc., 2011 WL 4443626 (S.D.Miss. Sept. 23, 2011), both of which analyzed the propriety of exerting specific personal jurisdiction over defendant Moffett Engineering Ltd., an Irish corporation. In Lindsey, the Western District of Kentucky held that it did not have personal
jurisdiction over Moffett. In Ainsworth, the Southern District of Mississippi held that it did.

Lindsey

In Lindsey, Judge McKinley first made clear the Sixth Circuit's preference for Justice O'Connor's “Stream of Commerce Plus” approach to personal jurisdiction. In the Sixth Circuit, merely placing the product into the stream of commerce was insufficient. Judge McKinley acknowledged the split between Justice Kennedy and Justice Breyer in Nicastro and, because Justice Breyer had concluded that Nicastro could be decided on extant Supreme Court precedent, concluded that the Western District of Kentucky would continue to adhere to the Sixth Circuit's analysis of purposeful availment.

Under that analysis, Lindsey failed to show that Moffett committed sufficient forum-directed acts to purposefully avail itself of the benefits and protections of the laws of Kentucky. Moffett's only contact in the U.S. was with Cargotec, a separate corporation that distributed Moffett's forklifts. It claimed to have no knowledge or control over where in the U.S. Cargotec sold its products. Moffett had no physical presence in Kentucky, it had never sent any employees to the state or sought authority to conduct business there. It had never shipped or sold any products in Kentucky or directly solicited business from any company located in Kentucky. Moreover, Cargotec's activities in Kentucky could not be imputed to Moffett. The companies were separate corporate entities with their own officers and directors and, per their distribution agreement, Cargotec was not an agent of Moffett. Moreover, the distribution agreement between Moffett and Cargotec did not provide a basis for jurisdiction: Moffett had no ability to control Cargotec's distribution in the U.S.; it had no involvement in its advertisement and no communication with, or knowledge of, its customers. Any knowledge by Moffett that its products would be distributed and sold in the U.S. by Cargotec was insufficient to show purposeful availment of Kentucky as the forum State.

The outcome in Ainsworth was entirely different because the test applied was different. After summarizing the Supreme Court's opinions in World-Wide Volkswagen Corporation v. Woodson , 444 U.S. 286 (1980), and Asahi , Judge Starrett noted that the Fifth Circuit followed Judge Brennan's “mere foreseeability” test outlined therein. As Texas Judge Ellison had ruled, in the Fifth Circuit, “mere foreseeability” or awareness by the defendant that its product would arrive in the forum State through the stream of commerce was constitutionally sufficient for personal jurisdiction. Judge Starrett acknowledged that Justice Kennedy's concurrence in Nicastro eschewed Justice Brennan's “mere foreeability” test in Asahi, but Justice Breyer had elected to simply follow prior precedent. Justice Breyer's opinion was narrower than the plurality's and therefore reflected the binding opinion of the Court. But since Justice Breyer had declined to choose which Asahi plurality opinion controlled, Nicastro was, in Judge Starrett's view, rather limited in its applicability and did not provide grounds to depart from the Fifth Circuit's precedents.

Therefore, Judge Starrett applied Justice Brennan's “mere foreseeability” test to the case before him. Since Moffett knew its products would be marketed throughout the United States and made no attempt to limit Cargotec's marketing efforts, it was foreseeable that its products would be purchased in Mississippi. Therefore, personal jurisdiction over Moffett was appropriate.

Following that decision, Moffett requested that the court certify its opinion for Interlocutory Appeal. Judge Starrett agreed that his earlier opinion involved a controlling question of law: Whether Nicastro altered the Fifth Circuit's adherence to Justice Brennan's “mere foreseeability” stream of commerce theory. Clearly, as to Moffett, the outcome of that question controlled the outcome of the case. In analyzing whether that controlling question was one about which reasonable jurists could disagree, Judge Starrett acknowledged the multiple district court opinions within the Fifth Circuit, many of which had reached conflicting opinions as to the effect of Nicastro on the viability of Justice Brennan's test.

Judge Starrett stated his personal view: that his prior opinion was correct and that Nicastro had little or no precedential value, but recognized that there existed substantial ground for a difference of opinion. On that basis, he certified his opinion for Interlocutory Appeal.

Interlocutory Appeal

The Interlocutory Appeal in Ainsworth presents the Fifth Circuit with the opportunity to decide whether it will continue to follow Justice Brennan's “mere foreseeability” rule from Asahi. If it does, it will be the only circuit court of Appeals since Nicastro to so hold. Perhaps the ensuing circuit court split will prompt the Supreme Court into, finally, determining the requirements and boundaries of the stream of commerce.

In the meantime, the issue of jurisdiction for non-U.S. defendants will be fact- and circuit-driven.

Daniel J. Herling is a partner in the San Francisco office of Keller and Heckman LLP. He heads its litigation practice and is a member of the Board of Editors of this newsletter. Amy Blackwood is an associate in the firm's Washington, DC, office.