Practice Tip: Personal Jurisdiction from Abroad

A court's exercise of personal jurisdiction over a defendant is based on the relationship between the parties, the forum, and the underlying facts surrounding the litigation. In International Shoe Co. v. State of Washington, 326 U.S. 310 (1945), the U.S. Supreme Court recognized that a court can exercise personal jurisdiction over a non-resident defendant only if the defendant has “minimum contacts” with the forum state such that the maintenance of the suit would “not offend traditional notions of fair play and substantial justice.”'

Following International Shoe, the Supreme Court declared that the minimum contacts test required that the defendant “purposefully avails itself of the privilege of conducting activities within the forum State” in order for jurisdiction to attach. Hanson v. Denckla, 357 U.S. 235 (1958). Similarly, in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980), the Court emphasized that a mere “fortuitous circumstance” cannot serve as the basis for a court to exercise jurisdiction over an out-of-state defendant. Thus, the Court said, the minimum contacts test would not be met by the “mere likelihood that a product will find its way into the forum State.” But jurisdiction was proper, the Court said, where a corporate defendant delivered its “products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.”

Stream of Commerce

While the Supreme Court first introduced the stream of commerce theory in World-Wide Volkswagen Corp., the standard became the subject of focus in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987). The case involved a Japanese corporation ' Asahi ' that sold tire valves to a company based in Taiwan. The Taiwanese company incorporated the valves into tires that were sold worldwide. Asahi's only connection to California, the forum state, was that a tire valve it had produced and sold in Taiwan was incorporated into a motorcycle involved in an accident in California.'

The Court was divided over whether Asahi's contacts with California were sufficient to meet the minimum contacts standard. Four justices, in an opinion by Justice O'Connor, reasoned that the placement of a product into the stream of commerce, “without more,” failed to meet the test. They held that mere “awareness that the stream of
commerce may or will sweep” the product into the forum state was not enough to create jurisdiction, and emphasized that there must be additional conduct by the defendant indicating an intent to serve the forum state market (e.g., designing the product for the specific market, appointing a sales agent for the forum, or establishing communication channels for consumers or advertising in the forum).

In contrast, four other members of the Court, in an opinion by Justice Brennan, found jurisdiction was lacking but nevertheless concluded that the manufacturer did purposefully avail itself of the California market, because it was aware that its product was being marketed in California and benefited from each sale in the forum, even if it did not engage in additional conduct directly aimed at the market there. Yet another justice found that jurisdiction was lacking, but on grounds that did not address the different views concerning the stream of commerce theory.'

Given these divergent opinions, it is no surprise that US courts have taken divergent views on how to apply the stream of commerce theory of jurisdiction.'

No Clarity from Nicastro

A recent case, J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), gave the Supreme Court an opportunity to clarify the law. Instead, the Court issued another divided opinion and failed to adopt a clear standard.'

In that case, the plaintiff, a New Jersey resident, injured his hand while operating a metal-cutting machine manufactured by an English company in England. The machine was marketed and shipped to the plaintiff's employer in New Jersey by the manufacturer's exclusive U.S. distributor, based in Ohio. The manufacturer never marketed its products directly in New Jersey, but maintained other contacts with the United States, including attendance at tradeshows, exhibitions, and conferences in other parts of the United States. Its executives expressed the desire to market to the entire United States, and New Jersey was known as a state with a high level of scrap-recycling business. The plaintiff sued the manufacturer and distributor, claiming that the machine lacked a safety guard. (The distributor never participated in the lawsuit because it had filed for bankruptcy several years before the injury occurred.)

The Supreme Court of New Jersey held that jurisdiction was proper, since the manufacturer should have foreseen that its products would be shipped into the forum state ' the court reasoned that the manufacturer's products were being distributed by means of a nationwide distribution system that might lead to those products being sold in New Jersey.'

The U.S. Supreme Court reversed the New Jersey Supreme Court's decision by a vote of 6 to 3, ruling that personal jurisdiction was lacking. However, the Court remained divided as to the contacts with the forum state necessary to subject a foreign manufacturer to personal jurisdiction.'

A plurality opinion by Justice Kennedy, and joined by three other members of the Court, concluded that jurisdiction was lacking because the stream of commerce theory applied only when the defendant targeted the forum state. Jurisdiction was not properly exercised, the plurality reasoned, simply because the defendant might have “predicted” that its machine would be shipped into the forum state. The defendant's “actions,” not its “expectations,” were the basis of jurisdiction, Justice Kennedy wrote.'

Justice Breyer, joined by one other member of the Court, concurred in the judgment, but did not adopt the plurality's reasoning. The concurring opinion held that the exercise of jurisdiction based on the sale of a single product in the forum state was improper, even if the manufacturer placed the product into the stream of commerce knowing it would be sold in the forum. According to the concurring justices, the manufacturer did not have a regular flow or course of sales in New Jersey, and the exercise of jurisdiction was not supported by the existence of minimum contacts between the manufacturer and New Jersey. But the concurring justices also suggested that the plurality had adopted an unduly restrictive jurisdictional analysis.

Three justices, led by Justice Ginsburg, dissented. The dissent stressed that the manufacturer attempted to sell its products throughout the United States, treating the entire country ' including New Jersey ' as a single market. The dissent further emphasized that the manufacturer had some control over the distribution network used to sell its machines. The dissent concluded that the manufacturer “availed itself of the market of all States in which its products were sold by its exclusive distributor” when it “purposefully availed itself of the United States market nationwide.”

Aside from the fractured nature of the decision, the case raised more questions surrounding the distribution of products into the United States from abroad than it answered. As the concurring opinion recognized, for example, it remains unresolved whether personal jurisdiction would exist over a foreign manufacturer if it directly targeted a forum state through its website or indirectly sold its products through an intermediary like Amazon.com. While these issues have important commercial consequences, the Court found it unnecessary to address them based on the facts of the case before it.

Cargotec Continues the Divide

Given the lack of a clear-cut approach taken by the Supreme Court, it is no surprise that Nicastro, like Asahi, has produced inconsistent results. A glaring example is presented by the experience of an Irish forklift manufacturer. In the course of a single week, Moffett Engineering was subject to opposite jurisdictional rulings in cases arising in two different states. Moffett's only contact with the United States was through Cargotec, its exclusive distributor in Ohio. Under its distribution agreement, Moffett had no control over the distribution, pricing, marketing, or advertising of the forklifts in the United States. It was named as a defendant in two different product liability cases for personal injuries, one in Kentucky and one in Mississippi.'

The Kentucky court held that it lacked jurisdiction over Moffett, and dismissed the case.' Lindsey v. Cargotec USA, Inc., 2011 WL 4587583 (W.D. Ky. Sept. 30, 2011). The court explained that Nicastro had not altered the jurisdictional landscape, because the Supreme Court failed to “conclusively define the breadth and scope of the stream of commerce theory” since there was no majority consensus. The court therefore adhered to precedent in the U.S. Court of Appeals for the Sixth Circuit, which had adopted the reasoning from Justice O'Connor's opinion in Asahi that the mere placement of a product into the stream of commerce, without more, was not enough to subject the manufacturer to jurisdiction.

The court in Lindsey reasoned that Moffett had not purposely availed itself of the Kentucky market since its distribution agreement with Cargotec did not specifically target Kentucky, and Moffett never marketed or sold its products in that state.

The court in Ainsworth v. Cargotec USA, Inc., 2011 WL 4443626 (S.D. Miss. Sept. 23, 2011), reached the opposite conclusion, and the U.S. Court of Appeals for the Fifth Circuit affirmed this ruling in Ainsworth v. Moffett Engineering Ltd., 716 F.3d 174 (5th Cir. 2013). The Fifth Circuit reasoned that the plurality opinion in Nicastro was not binding precedent and did not alter its application of the stream of commerce theory. Under the Fifth Circuit's application of this test, a defendant is subject to jurisdiction if it is foreseeable that its products could be sold in the forum state. The Fifth Circuit therefore affirmed the decision of the Mississippi court to exercise personal jurisdiction over Moffett.' In so doing, it concluded that Moffett should reasonably have expected to be subject to jurisdiction in Mississippi, because Moffett entered into an agreement with its U.S. distributor to distribute its products in all 50 states, and made no attempt to limit the territory in which its products were sold.'

These opposite results ' in cases involving the same manufacturer, the same product, and same distributor ' illustrate perfectly how a manufacturer based outside the United States can be caught between conflicting jurisdictional standards. Moffett was subject to jurisdiction in Mississippi but not Kentucky simply because different courts applied different tests for personal jurisdiction. Thus, a foreign manufacturer's susceptibility to claims for personal injury may very well depend on where the injury is sustained.'

Supreme Court Fails to Clarify

Notwithstanding these divergent results, the Supreme Court recently passed on two other opportunities to provide guidance to lower courts on the nature of the connection with the forum state that must be present before a foreign manufacture may be subjected to personal jurisdiction.'

In Novo Nordisk A/S v. Lukas-Werner, 2013 WL 4402131 (U.S. cert. denied Oct. 21, 2013), a Danish pharmaceutical company argued that it should not be subject to jurisdiction in Oregon, because it had no employees or agents living or working in the state, and it did not manufacture, design, advertise, market, or solicit business there. The Oregon courts rejected this argument, concluding that jurisdiction was proper since the company, through an indirect subsidiary, distributed its products for sale in the United States, including Oregon. The Supreme Court declined to review this decision.'

The Supreme Court also recently refused to review a ruling by the Illinois Supreme Court upholding jurisdiction over a French company that manufactured a tail-rotor bearing used in producing a helicopter involved in a deadly crash in Illinois. SNFA v. Russell, 2013 WL 3865699 (U.S. cert. denied Oct. 7, 2013).' The defendant argued it was not subject to jurisdiction in a product liability suit arising out of the crash, because it sold custom-made products exclusively through a Pennsylvania-based distributor and it did not have any direct U.S. customers. In affirming the exercise of personal jurisdiction over the manufacturer, the Illinois Supreme Court ruled that by engaging a distributor to sell its products throughout the United States, including Illinois, the manufacturer engaged in sufficient activity to establish jurisdictional contacts with Illinois.'

Conclusion

These cases may have provided an opportunity for the Supreme Court to clarify the degree of contact with the forum state that is required for U.S. courts to exercise personal jurisdiction over a foreign manufacturer. Until the Court is able to set forth a consensus approach to the exercise of jurisdiction, uncertainty will continue to prevail.'

Meanwhile, manufacturers based outside the United States are well advised to continue to rely on independent distributors to market in this country, to refrain from state-specific activities, and to take other steps in the hope of reducing their exposure to the jurisdiction of many U.S. courts.'

Thomas E. Riley is a litigator and Managing Partner of Herbert Smith Freehills' New York office. His dispute practice focuses on complex litigation, and includes extensive experience in cross-border litigation. Garrett S. Kamen is an associate in the firm's dispute practice.

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Manufacturers based outside the United States often sell goods through a U.S.-based distributor, rather than selling products directly to consumers. Thus, the manufacturer's only connection in the United States may be with a single American distributor, located in a single state, which sells the manufacturer's goods throughout the country.'When a consumer is injured and seeks to recover damages from the manufacturer, can the consumer's home state exercise jurisdiction over the manufacturer?'

The answer is unsettled, and U.S. courts have adopted divergent analyses on this basic question. Some U.S. courts have exercised jurisdiction over a foreign manufacturer based on its introduction of the product into the “stream of commerce,” but others have refused to do so unless the manufacturer is engaged in activity specifically targeted at the forum state. (See James Rotondo, “Daimler AG v. Bauman,” http://bit.ly/1jbHyQz.) Far from helping to clarify the standards to be applied, the U.S. Supreme Court's decisions have added to this uncertainty, prompting one court to comment recently that this “particular theory of personal jurisdiction has been the subject of much debate, and little consensus, throughout the United States, including in the Supreme Court.” Trustees of Boston University v. Everlight Electronics Co., Ltd., 2013 WL 2367809 (D. Mass. May 28, 2013).

Minimum Contacts

A court's exercise of personal jurisdiction over a defendant is based on the relationship between the parties, the forum, and the underlying facts surrounding the litigation. In International Shoe Co. v. State of Washington , 326 U.S. 310 (1945), the U.S. Supreme Court recognized that a court can exercise personal jurisdiction over a non-resident defendant only if the defendant has “minimum contacts” with the forum state such that the maintenance of the suit would “not offend traditional notions of fair play and substantial justice.”'

Following International Shoe, the Supreme Court declared that the minimum contacts test required that the defendant “purposefully avails itself of the privilege of conducting activities within the forum State” in order for jurisdiction to attach. Hanson v. Denckla , 357 U.S. 235 (1958). Similarly, in World-Wide Volkswagen Corp. v. Woodson , 444 U.S. 286 (1980), the Court emphasized that a mere “fortuitous circumstance” cannot serve as the basis for a court to exercise jurisdiction over an out-of-state defendant. Thus, the Court said, the minimum contacts test would not be met by the “mere likelihood that a product will find its way into the forum State.” But jurisdiction was proper, the Court said, where a corporate defendant delivered its “products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.”

Stream of Commerce

While the Supreme Court first introduced the stream of commerce theory in World-Wide Volkswagen Corp. , the standard became the subject of focus in Asahi Metal Industry Co. v. Superior Court of California , 480 U.S. 102 (1987). The case involved a Japanese corporation ' Asahi ' that sold tire valves to a company based in Taiwan. The Taiwanese company incorporated the valves into tires that were sold worldwide. Asahi's only connection to California, the forum state, was that a tire valve it had produced and sold in Taiwan was incorporated into a motorcycle involved in an accident in California.'

The Court was divided over whether Asahi's contacts with California were sufficient to meet the minimum contacts standard. Four justices, in an opinion by Justice O'Connor, reasoned that the placement of a product into the stream of commerce, “without more,” failed to meet the test. They held that mere “awareness that the stream of
commerce may or will sweep” the product into the forum state was not enough to create jurisdiction, and emphasized that there must be additional conduct by the defendant indicating an intent to serve the forum state market (e.g., designing the product for the specific market, appointing a sales agent for the forum, or establishing communication channels for consumers or advertising in the forum).

In contrast, four other members of the Court, in an opinion by Justice Brennan, found jurisdiction was lacking but nevertheless concluded that the manufacturer did purposefully avail itself of the California market, because it was aware that its product was being marketed in California and benefited from each sale in the forum, even if it did not engage in additional conduct directly aimed at the market there. Yet another justice found that jurisdiction was lacking, but on grounds that did not address the different views concerning the stream of commerce theory.'

Given these divergent opinions, it is no surprise that US courts have taken divergent views on how to apply the stream of commerce theory of jurisdiction.'

No Clarity from Nicastro

A recent case, J. McIntyre Machinery, Ltd. v. Nicastro , 131 S. Ct. 2780 (2011), gave the Supreme Court an opportunity to clarify the law. Instead, the Court issued another divided opinion and failed to adopt a clear standard.'

In that case, the plaintiff, a New Jersey resident, injured his hand while operating a metal-cutting machine manufactured by an English company in England. The machine was marketed and shipped to the plaintiff's employer in New Jersey by the manufacturer's exclusive U.S. distributor, based in Ohio. The manufacturer never marketed its products directly in New Jersey, but maintained other contacts with the United States, including attendance at tradeshows, exhibitions, and conferences in other parts of the United States. Its executives expressed the desire to market to the entire United States, and New Jersey was known as a state with a high level of scrap-recycling business. The plaintiff sued the manufacturer and distributor, claiming that the machine lacked a safety guard. (The distributor never participated in the lawsuit because it had filed for bankruptcy several years before the injury occurred.)

The Supreme Court of New Jersey held that jurisdiction was proper, since the manufacturer should have foreseen that its products would be shipped into the forum state ' the court reasoned that the manufacturer's products were being distributed by means of a nationwide distribution system that might lead to those products being sold in New Jersey.'

The U.S. Supreme Court reversed the New Jersey Supreme Court's decision by a vote of 6 to 3, ruling that personal jurisdiction was lacking. However, the Court remained divided as to the contacts with the forum state necessary to subject a foreign manufacturer to personal jurisdiction.'

A plurality opinion by Justice Kennedy, and joined by three other members of the Court, concluded that jurisdiction was lacking because the stream of commerce theory applied only when the defendant targeted the forum state. Jurisdiction was not properly exercised, the plurality reasoned, simply because the defendant might have “predicted” that its machine would be shipped into the forum state. The defendant's “actions,” not its “expectations,” were the basis of jurisdiction, Justice Kennedy wrote.'

Justice Breyer, joined by one other member of the Court, concurred in the judgment, but did not adopt the plurality's reasoning. The concurring opinion held that the exercise of jurisdiction based on the sale of a single product in the forum state was improper, even if the manufacturer placed the product into the stream of commerce knowing it would be sold in the forum. According to the concurring justices, the manufacturer did not have a regular flow or course of sales in New Jersey, and the exercise of jurisdiction was not supported by the existence of minimum contacts between the manufacturer and New Jersey. But the concurring justices also suggested that the plurality had adopted an unduly restrictive jurisdictional analysis.

Three justices, led by Justice Ginsburg, dissented. The dissent stressed that the manufacturer attempted to sell its products throughout the United States, treating the entire country ' including New Jersey ' as a single market. The dissent further emphasized that the manufacturer had some control over the distribution network used to sell its machines. The dissent concluded that the manufacturer “availed itself of the market of all States in which its products were sold by its exclusive distributor” when it “purposefully availed itself of the United States market nationwide.”

Aside from the fractured nature of the decision, the case raised more questions surrounding the distribution of products into the United States from abroad than it answered. As the concurring opinion recognized, for example, it remains unresolved whether personal jurisdiction would exist over a foreign manufacturer if it directly targeted a forum state through its website or indirectly sold its products through an intermediary like Amazon.com. While these issues have important commercial consequences, the Court found it unnecessary to address them based on the facts of the case before it.

Cargotec Continues the Divide

Given the lack of a clear-cut approach taken by the Supreme Court, it is no surprise that Nicastro, like Asahi, has produced inconsistent results. A glaring example is presented by the experience of an Irish forklift manufacturer. In the course of a single week, Moffett Engineering was subject to opposite jurisdictional rulings in cases arising in two different states. Moffett's only contact with the United States was through Cargotec, its exclusive distributor in Ohio. Under its distribution agreement, Moffett had no control over the distribution, pricing, marketing, or advertising of the forklifts in the United States. It was named as a defendant in two different product liability cases for personal injuries, one in Kentucky and one in Mississippi.'

The Kentucky court held that it lacked jurisdiction over Moffett, and dismissed the case.' Lindsey v. Cargotec USA, Inc., 2011 WL 4587583 (W.D. Ky. Sept. 30, 2011). The court explained that Nicastro had not altered the jurisdictional landscape, because the Supreme Court failed to “conclusively define the breadth and scope of the stream of commerce theory” since there was no majority consensus. The court therefore adhered to precedent in the U.S. Court of Appeals for the Sixth Circuit, which had adopted the reasoning from Justice O'Connor's opinion in Asahi that the mere placement of a product into the stream of commerce, without more, was not enough to subject the manufacturer to jurisdiction.

The court in Lindsey reasoned that Moffett had not purposely availed itself of the Kentucky market since its distribution agreement with Cargotec did not specifically target Kentucky, and Moffett never marketed or sold its products in that state.

The court in Ainsworth v. Cargotec USA, Inc., 2011 WL 4443626 (S.D. Miss. Sept. 23, 2011), reached the opposite conclusion, and the U.S. Court of Appeals for the Fifth Circuit affirmed this ruling in Ainsworth v. Moffett Engineering Ltd. , 716 F.3d 174 (5th Cir. 2013). The Fifth Circuit reasoned that the plurality opinion in Nicastro was not binding precedent and did not alter its application of the stream of commerce theory. Under the Fifth Circuit's application of this test, a defendant is subject to jurisdiction if it is foreseeable that its products could be sold in the forum state. The Fifth Circuit therefore affirmed the decision of the Mississippi court to exercise personal jurisdiction over Moffett.' In so doing, it concluded that Moffett should reasonably have expected to be subject to jurisdiction in Mississippi, because Moffett entered into an agreement with its U.S. distributor to distribute its products in all 50 states, and made no attempt to limit the territory in which its products were sold.'

These opposite results ' in cases involving the same manufacturer, the same product, and same distributor ' illustrate perfectly how a manufacturer based outside the United States can be caught between conflicting jurisdictional standards. Moffett was subject to jurisdiction in Mississippi but not Kentucky simply because different courts applied different tests for personal jurisdiction. Thus, a foreign manufacturer's susceptibility to claims for personal injury may very well depend on where the injury is sustained.'

Supreme Court Fails to Clarify

Notwithstanding these divergent results, the Supreme Court recently passed on two other opportunities to provide guidance to lower courts on the nature of the connection with the forum state that must be present before a foreign manufacture may be subjected to personal jurisdiction.'

In Novo Nordisk A/S v. Lukas-Werner, 2013 WL 4402131 (U.S. cert. denied Oct. 21, 2013), a Danish pharmaceutical company argued that it should not be subject to jurisdiction in Oregon, because it had no employees or agents living or working in the state, and it did not manufacture, design, advertise, market, or solicit business there. The Oregon courts rejected this argument, concluding that jurisdiction was proper since the company, through an indirect subsidiary, distributed its products for sale in the United States, including Oregon. The Supreme Court declined to review this decision.'

The Supreme Court also recently refused to review a ruling by the Illinois Supreme Court upholding jurisdiction over a French company that manufactured a tail-rotor bearing used in producing a helicopter involved in a deadly crash in Illinois. SNFA v. Russell, 2013 WL 3865699 (U.S. cert. denied Oct. 7, 2013).' The defendant argued it was not subject to jurisdiction in a product liability suit arising out of the crash, because it sold custom-made products exclusively through a Pennsylvania-based distributor and it did not have any direct U.S. customers. In affirming the exercise of personal jurisdiction over the manufacturer, the Illinois Supreme Court ruled that by engaging a distributor to sell its products throughout the United States, including Illinois, the manufacturer engaged in sufficient activity to establish jurisdictional contacts with Illinois.'

Conclusion

These cases may have provided an opportunity for the Supreme Court to clarify the degree of contact with the forum state that is required for U.S. courts to exercise personal jurisdiction over a foreign manufacturer. Until the Court is able to set forth a consensus approach to the exercise of jurisdiction, uncertainty will continue to prevail.'

Meanwhile, manufacturers based outside the United States are well advised to continue to rely on independent distributors to market in this country, to refrain from state-specific activities, and to take other steps in the hope of reducing their exposure to the jurisdiction of many U.S. courts.'

Thomas E. Riley is a litigator and Managing Partner of Herbert Smith Freehills' New York office. His dispute practice focuses on complex litigation, and includes extensive experience in cross-border litigation. Garrett S. Kamen is an associate in the firm's dispute practice.

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