WHERE IN THE USA CAN PRODUCT LIABILITY SUITS BE BROUGHT AGAINST MY COMPANY? ANYWHERE MY PRODUCT CAUSES SOME DAMAGE?

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1 WHERE IN THE USA CAN PRODUCT LIABILITY SUITS BE BROUGHT AGAINST MY COMPANY? ANYWHERE MY PRODUCT CAUSES SOME DAMAGE? The U.S. Supreme Court Decides Two Important Cases in 2011 By Aaron N. Wise, Partner Gallet Dreyer & Berkey, LLP 845 Third Avenue, 8 th Floor New York, NY , USA Telephone: Fax: anw@gdblaw.com Website: For foreign companies and their U.S. subsidiaries, the question of where, in the USA, they are subject to being sued for product liability damages, is an important one. The same issue applies as well to U.S. based companies. If a business has substantial continuous and systematic contacts with a particular U.S. State, then it can probably be sued in the courts of that State for any type of claim. That s called general personal jurisdiction. But many situations arise where a business has a lesser extent of contacts with a particular U.S. State, or none at all. Can it be personally sued in those States? In the product liability context, there are two competing arguments: (1) If a company s products are put on the market one way or the other, and someone in Alaska or New Mexico, or anywhere else in the USA is injured by one of them, shouldn t the injured party be permitted to sue the company there, where he/she sustained the injury, even if the company has little or no contacts with the particular State? That approximates the Stream of Commerce theory. It s a pro consumer point of view, probably shared by more Democrats than Republicans. (2) Adopting the Stream of Commerce theory as the rule is totally unfair to business. It would mean that a company could be sued anywhere in the USA, even though that company had little or no contacts with the particular U.S. State in which the lawsuit was brought. That s anti business, will discourage investment and growth, and plain unfair. There must be some significant acts or actions that I, the company, have targeted at the State in which the lawsuit is brought, for a court in that State to be able to sue me personally for claims arising from my acts or actions. That approximates the Purposeful Availment theory. More Republicans than Democrats might favor it. 1

2 Again, the Purposeful Availment theory requires, for a court in a particular U.S State to exercise special personal jurisdiction over a non resident defendant (a non resident of that particular U.S. State), that it have purposefully directed one or more material acts or actions toward that State and that the plaintiff s claims derive from those acts or actions. Whereas, the Stream of Commerce theory requires that the non resident knew or should have known or expected that one or more of its products could find its way into the U.S. State in which the injured plaintiff brought its lawsuit against it. Many courts throughout the USA have applied the Purposeful Availment theory of specific personal jurisdiction since U.S. Supreme Court decisions a number of years ago appeared to have endorsed it (e.g., Justice Sandra Day O Connor s opinion in the 1987 Asahi case). But not all of them, particularly certain U.S. state courts, which have preferred to apply the Stream of Commerce theory. THE U.S. SUPREME COURT RULES On the same day in 2011, the U.S. Supreme Court, the USA s highest Court, decided two cases which make it much clearer that the Purposeful Availment theory should be applied, particularly in product liability cases. The J. McIntyre Machinery, Ltd. Case The U.S. Supreme Court overturned the New Jersey (state) Supreme Court s ruling that New Jersey courts did have special personal jurisdiction over the UK company, J. McIntyre Machinery, Ltd. ( J. McIntyre ) in a products liability suit. Robert Nicastro alleged he was injured by a defective metal shearing machine manufactured in the UK by J. McIntyre and sold in the USA. J. McIntyre sells those machines throughout the USA through a separate company distributor located outside of New Jersey (Ohio based) in which J. McIntyre holds no ownership or management control. The Supreme Court of New Jersey decided that J. McIntyre was subject to specific personal jurisdiction in New Jersey for injuries Nicastro sustained in that State from J. McIntyre s machine, applying the Stream of Commerce theory: that J. McIntyre knew or should have known or expected that its products would be sold throughout the USA by its Ohio based distributor and that one or more of them could end up in New Jersey. The U.S. Supreme Court, relying on Justice O Connor s Asahi opinion, disagreed. It ruled that the Purposeful Availment theory rather than the Stream of Commerce theory applies, and that J. McIntyre had not sufficiently and purposefully directed its business and acts toward New Jersey to subject it to special personal jurisdiction by that State s courts. Quoting an important passage from the Justice Kennedy s plurality opinion: Recall that respondent s [Nicastro s] claim of jurisdiction centers on three facts: the distributor agreed to sell J. McIntyre s machines in the United States; J. McIntyre officials attended trade shows in several [U.S.] States but not in New Jersey; and up to four [of J. McIntyre s] machines ended up in New Jersey. The British manufacturer had no office in New Jersey; it neither paid taxes nor owned property there; and it neither advertised in, 2

3 nor sent any employees to, the State. Indeed after discovery [collection of evidence] the trial court found that the defendant [J. McIntyre] does not have a single contact with New Jersey short of the machine in question ending up in this state. These facts may reveal an intent to serve the U.S. market, but they do not show that J. McIntyre purposely availed itself of the New Jersey market. J. Mcintyre Machinery, Ltd. v. Nicastro, 564 U.S. (2011). The Goodyear Case In this case, the U.S. Supreme Court ruled, unanimously, that foreign subsidiaries of the American corporation, Goodyear Tire and Rubber Company ( Goodyear ), are subject to neither specific nor general personal jurisdiction in North Carolina. Two North Carolina teenagers were killed in a bus accident in France when a tire manufactured in Turkey by a Turkish Goodyear subsidiary malfunctioned. It overturned a decision to the contrary by the North Carolina Court of Appeals. The U.S. Supreme Court determined that North Carolina courts lacked specific personal jurisdiction over the all of the Goodyear foreign (non U.S.) subsidiaries that were sued because the claim didn t arise out of or relate to any contacts between the lawsuit and the forum State, North Carolina. The Court also ruled that there was no general personal jurisdiction over the Goodyear foreign (non US) subsidiaries because none of them had any continuous and systematic contacts with North Carolina. A closer look at the details In addition to Goodyear USA, an Ohio corporation (which didn t contest the North Carolina court s personal jurisdiction over it), the plaintiff sued three indirect Goodyear USA subsidiaries: the mentioned Turkish one, a French and a Luxembourg subsidiary (the Foreign Subs ). This case mainly involved general jurisdiction : requiring that the non resident s ties with the State where the suit is brought must be so materially continuous and systematic as to render it at home in that State. Then, it can be sued there for essentially any type or claim or cause of action. The Foreign Subs are not registered to do business and have no place of business in North Carolina; nor any employees, bank accounts in North Carolina. They do not design, manufacture or advertise their products in North Carolina. They do solicit business in or themselves sell or ship tires to North Carolina. The particular type of tire manufactured by the Goodyear s Turkish subsidiary allegedly causing the Paris accident, was never distributed in North Carolina. But it did conform to tire standards established by the U.S. Department of Transportation and bore markings required for sale in the USA. On the other hand, a small percentage of the tires manufactured by the Foreign Subs (tens of thousands out of tens of millions manufactured between ) were distributed within North Carolina by a highly organized process involving other Goodyear USA subsidiaries or affiliates. The Foreign Subs made no attempt to keep those tires from reaching the North Carolina market. But the Foreign Subs took no affirmative action themselves to cause tires they had manufactured to be shipped to North Carolina. The North Carolina Court of Appeals stressed in its opinion that some of the tires made abroad by the Foreign Subs reached North Carolina through the stream of commerce. That connection, the Court of 3

4 Appeals believed, gave North Carolina courts the handle needed for exercising general jurisdiction over the Foreign Subs. The U.S. Supreme Court concluded that that stream of commerce analysis is not relevant to general personal jurisdiction. Rather, the flow of a manufacturer s products into the forum State may bolster an affiliation with the forum State germane to specific jurisdiction. The Foreign Subs simply did not have the materially continuous and systematic contacts with North Carolina required for general personal jurisdiction. And, since the accident took place outside of North Carolina (in France) and the Goodyear tire allegedly responsible for it never entered North Carolina, there was no basis for specific personal jurisdiction over the Foreign Subs. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. (2011). Predicting the Future These two, pro business decisions will likely cause essentially all U.S. courts to apply the Purposeful Availment theory of specific personal jurisdiction in product liability cases involving non residents of a State, rather than the Stream of Commerce theory. In my view, that conclusion will apply to a number of other types of claims and causes of action as well not just product liability cases. How a court will decide any particular case using the Purposeful Availment theory will be highly fact specific, and many times difficult to predict. Different courts may reach different decisions on very similar facts. Justice Kennedy so noted in his plurarity opinion in the J. McIntyre case: The conclusion that the authority to subject a defendant to judgment depends on purposeful availment...does not itself resolve many difficult questions of jurisdiction that will arise in particular cases. The defendant s conduct and the economic realities of the market the defendant seeks to serve will differ across cases, and judicial exposition will, in common law fashion, clarify the contours of that principle. In a lawsuit, one of the first defenses a non resident defendant will typically want to raise is: the court has no personal jurisdiction over me it can t decide the case. The Purposeful Availment theory will frequently provide the non resident considerable wiggle room to make cogent arguments supporting the court s lack personal jurisdiction. Those cogent arguments can be quite valuable. In many cases involving personal injury the plaintiff s lawyer is paid on a contingency basis: he receives an agreed percentage of the moneys recovered by litigation or settlement. The plaintiff and his lawyer normally don t want any extensive preliminary battle over personal jurisdiction over the non resident defendant. That may give an important edge to the defendant. The plaintiff might decide not to bring the lawsuit at all, or might fold its tent or agree to a rather low settlement after the no jurisdiction motion is made; or the defendant might win that motion and get the case dismissed. Important Clarifications What if a foreign company concludes a written contract for its product(s) with a U.S. customer company, including a distributor company, located in U.S. State X, for example, New York. It contains, let us assume, a provision stating all disputes and claims arising in connection with the contract and 4

5 transactions pursuant to or resulting from it, will be settled in a specified tribunal or court other than the federal or state courts of New York State. It might be provide for arbitration of those disputes and claims under specified arbitration rules in New York State or in some other place, inside or outside the USA. Assume that that provision is valid and enforceable. Assume further that the U.S. customer or distributor company claims it sustains damages resulting in whole or in part from a product it purchased from the foreign company. That damage will not be personal injury damage because the U.S. customer or distributor is a company, not an individual that sustained bodily injury or death. It will be in the economic damages (damage to property, damage to the business, possibly, in rare cases, punitive damages for the foreign company s outrageous conduct. The Purposeful Availment theory will not come into plan in that situation. Likewise, if that same contract contained otherwise legally valid clauses that limited or excluded the foreign company s liability for such damages. The same analysis holds if, instead of the foreign company itself, its U.S. subsidiary was the party that entered into the contract and was the seller, and stipulated as well that any claims the U.S customer or distributor might have against its foreign parent connected therewith were either waived, or had to be brought only against the U.S. subsidiary. But in the absence of such a written contract, the Purposeful Availment theory might well apply to the situation. Also, if the plaintiff were not the company customer or distributor, but one of its employees that sustained injury from the foreign company s product, then the Purposeful Availment theory would apply. There would be no contract between that employee and the foreign company of the type mentioned above, requiring the employee to bring his claims in the contractually agreed tribunal. While your author has not thought through all of the ramifications, it would appear to him that much of the analysis in this article might apply as well, mutatis mutandis, to a foreign company or its U.S. subsidiary rendering services to a U.S. customer which caused the alleged damage. Aaron N. Wise 2011 All Rights Reserved. 5