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A MANUFACTURER DOES NOT SUBMIT ITSELF TO THE JURISDICTION OF A FOREIGN STATE BY MERELY PLACING A PRODUCT INTO THE STREAM OF COMMERCE
J. McIntyre Machinery, LTD. v. Nicastro
(U.S. Supreme Court 2011)
In J. McIntyre Machinery, LTD. v. Nicastro, the United State Supreme Court ruled that the so called “stream of commerce” doctrine alone is not enough for a court to exercise personal jurisdiction over a foreign defendant. Rather, the exercise of personal jurisdiction is only lawful if a foreign defendant purposely avails itself of the privilege of conducting activities within the forum state, thereby invoking the benefits and protections of the forum State’s laws.
Factual Background
Robert Nicastro (“Nicastro”) injured his hand while using a machine manufactured by J. McIntyre Machinery, LTD (“J. McIntyre”). Nicastro, a New Jersey resident, thereafter filed a products liability action in New Jersey state court against J. McIntyre, a business incorporated and operating in England.
An independent distributor sold McIntyre’s machines in the United States. While J. McIntyre officials attended annual industry-related conventions in the U.S. to advertise J. McIntyre’s machines, none of conventions took place in New Jersey. At least one J. McIntyre machine (the machine at issue in the litigation), and potentially as many as four, ended up in New Jersey. Based mainly upon these facts, the New Jersey Supreme Court concluded that New Jersey courts could exercise personal jurisdiction over J. McIntyre in accordance with the Due Process Clause because (1) J. McIntyre knew or reasonably should have known that its products might end up in New Jersey and (2) J. McIntyre failed to prevent distribution of its products in New Jersey.
The Supreme Court’s Holding
On appeal, the U.S. Supreme Court, in determining whether New Jersey properly exercised jurisdiction over J. McIntyre, narrowed the case to a single issue: whether New Jersey courts had jurisdiction over J. McIntyre notwithstanding the fact that J. McIntyre neither marketed its goods in New Jersey nor shipped its goods there.
i. Due Process
The Supreme Court turned to the Due Process Clause to determine whether New Jersey had personal jurisdiction over J. McIntyre. The Due Process Clause “protects an individual’s rights to be deprived of life, liberty, or property only by the exercise of lawful power.” (Id. at 4.) As a general rule, neither statute nor judicial decree may bind strangers to a State. (Id.) A court is empowered to subject a defendant to judgment when that party has sufficient contacts with the sovereign “such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’” (Id. at 4-5.)
ii. Purposeful Availment
In discussing Due Process, the Supreme Court cited the general rule that a sovereign’s exercise of judicial power requires some act by which the defendant “purposefully avails itself of the privilege of conducting activities within a forum State, thus invoking the benefits and protections of its laws.” (Id. at 5.) The Supreme Court noted that it is a defendant’s purposeful availment that makes jurisdiction consistent with “traditional notions of fair play and substantial justice” in a products liability action. (Id.) Consequently, where a defendant purposefully avails itself of the privilege of conducting activities within a forum State, that defendant submits to the judicial power of the State to the extent that power relates to the defendant’s activities touching on the state. (Id. at 6.)
iii. Uncertainty After Asahi
The Supreme Court acknowledged that its decision in Asahi Metal Industry Co. v. Superior Court of Cal. (1987) 480 U.S. 102 (“Asahi”) resulted in uncertainty in determining whether a sovereign State possessed jurisdiction over a foreign defendant. Such uncertainty, or “imprecision,” resulted from the Court’s statement of the relationship between jurisdiction and the “stream of commerce.” (Id.)
The “stream of commerce” theory, as explained in Asahi, refers to the movement of goods from manufacturers through distributors to consumers. With respect to the interplay between stream of commerce and purposeful availment, the Supreme Court previously stated that “a defendant’s placing goods into the stream of commerce ‘with the expectation that they will be purchased by consumers within the forum State’ may indicate purposeful availment.” (Id. (citing World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286).)
In Asahi, competing approaches between two blocks of the Court resulted in a mixed ruling. Justice Brennan, on behalf of four Justices, outlined an approached focused on foreseeability. This approach discarded sovereign authority in favor of fairness and foreseeability and posited that jurisdiction based upon the placement of goods into the stream of commerce is consistent with Due Process as long as the participant in the stream of commerce is aware that the final product is being marketed in a forum State. Under this approach, the possibility of a lawsuit in that forum state cannot come as a surprise. (Id.) As a result, foreseeability becomes the touchstone of jurisdiction under this approach.
Justice O’Connor, on behalf of four Justices, rejected Justice Brennan’s theory of fairness and foreseeability. Justice O’Connor stated that the requisite “substantial connection” between a Defendant and the forum State to establish a minimum contact must come about by an action purposefully directed by the defendant at the forum State. Under this approach, the mere placement of a product into the stream of commerce, without more, is not an act by a defendant purposefully directed at the forum State. (Id. 7-8.)
iv. Resolving the Uncertainty of Asahi
Subsequent to Asahi, courts were left to their own device to reconcile the competing theories of fairness and foreseeability (Justice Brennan’s theory), on the one hand, and purposeful acts directed at a forum State (Justice O’Connor’s theory), on the other hand. The Supreme Court resolved the competing theories. The Supreme Court explained that its “precedents make clear that it is the defendant’s actions, not his expectations, that empower a State’s courts to subject him to judgment.” (Id. at 8.)
In determining whether personal jurisdiction exists, the Supreme Court noted that the principal inquiry is whether the defendant’s activities manifest an intention to submit to the power of a sovereign. (Id. at 7.) For purposes of illustration, the Supreme Court notes that a defendant’s transmission of goods permits the exercise of jurisdiction where the defendant is said to have targeted the forum. (Id.) Conversely, it is insufficient to exercise jurisdiction on the premise that a defendant might have predicted that its goods would reach a forum State. (Id.)
The Supreme Court concluded that while J. McIntyre directed marketing and sales efforts at the United States, its actions were not “purposefully directed” at New Jersey. Indeed, McIntyre had no office in New Jersey, neither paid taxes in New Jersey nor owned property there; and neither advertised in New Jersey nor sent any of its employees to the State. Indeed, McIntyre did not have a single contact with New Jersey short of the machine at question ending up in the State, by way of a non-affiliated distributor. These facts, the Supreme Court noted, “may reveal an intent to serve the U.S. market, but they do not show that J. McIntyre purposefully availed itself of the New Jersey market.” (Id. at 11.) Accordingly, the stream of commerce theory cannot supersede Due Process or the limits on judicial authority Due Process ensures.
With rhetorical flare, the Court concluded by stating that “the Constitution commands restraint before discarding liberty in the name of expediency.” (Id. at 12.)
Frank T. Sabaitis - SABAITIS • O’CALLAGHAN LLP
Frank McLaughlin - Senior Vice President & Chief Claims Officer - GENERALI ASSICURAZIONI GENERALI S.p.A.
Brad A. Byszewski – SABAITIS • O’CALLAGHAN LLP
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