In one of its final decisions this term, the U.S. Supreme Court, in a plurality opinion in J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343, 2011 U.S. Lexis 4800 (June 27, 2011), reversed a New Jersey Supreme Court decision permitting the exercise of personal jurisdiction over a foreign manufacturer with no contacts with New Jersey other than the fortuitous circumstances that its allegedly defective product made its way to New Jersey through a nationwide distributor and caused injury there. Rejecting the so-called "stream-of-commerce theory of jurisdiction" and purporting to clarify the components of personal jurisdiction jurisprudence, the fractured Supreme Court opinions in Nicastro ensure there will be more decisions on this issue as federal and state courts address the pervasive impact of the globalization of commerce and worldwide use of the Internet.
The factual setting was not complex and did not involve the Internet economy. Manufacturer J. McIntyre Machinery, Ltd. ("McIntyre") is incorporated and operates in the United Kingdom. McIntyre engaged an Ohio-based distributor to sell its metal-shearing machines in the United States. Robert Nicastro was seriously injured while using the machine manufactured by McIntyre at his place of employment in New Jersey. Nicastro sued McIntyre in New Jersey state court pursuant to New Jersey's long-arm statute. McIntyre challenged New Jersey's exercise of personal jurisdiction, claiming McIntyre did not have sufficient contacts with New Jersey. The New Jersey Supreme Court ruled that personal jurisdiction was proper over McIntyre in New Jersey "even though it had never advertised in, sent goods to, or in any relevant sense targeted the State" because "the injury occurred in New Jersey; because [J. McIntyre] knew or reasonably should have known 'that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states,' and because [J. McIntyre] failed to 'take some reasonable steps to prevent the distribution of its products in this State.'" (Nicastro, 2011 U.S. Lexis 4800, at *11-12) (quoting N.J. Supreme Court decision, 987 A.2d 575, 592 (2010).)
The Plurality Opinion
The plurality opinion in Nicastro was written by Justice Kennedy and was joined by Chief Justice Roberts and Justices Scalia and Thomas. The plurality recognized that the Nicastro case presented "an opportunity to provide greater clarity" with respect to the "stream-of-commerce doctrine of jurisdiction" that had been applied in its prior decision in Asahi Metal Industry Co. v. Superior Court of Cal., Solano City, 480 U.S. 102 (1987), upon which the New Jersey Supreme Court had relied. Justice Kennedy began his analysis by stating the general rule that the exercise of personal jurisdiction "requires some act by which the defendant 'purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protection of its laws.'" (J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343, 2011 U.S. Lexis 4800, *9 (June 27, 2011)) (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958).)
Justice Kennedy considered the correctness of Justice Brennan's view (for a minority of Justices in Asahi) that "jurisdiction premised on the placement of a product into the stream of commerce [without more] is consistent with the Due Process Clause." He concluded that Justice Brennan's approach, "based on general notions of fairness and foreseeability, is inconsistent with the premises of lawful judicial power" and that "precedents make clear that it is defendant's actions, not his expectations, that empower a State's courts to subject him to judgment." (Id. at *18-19.) Instead, the plurality adopted Justice O'Connor's view (also for a minority of Justices in Asahi) that there must be something more than the placement of a product into the stream of commerce to establish a "'substantial connection'" between the defendant and the forum state necessary for a finding of minimum contacts and that there must be some "action of the defendant purposefully directed toward the forum state." (Id. at *18.)
Justice Kennedy concluded 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," but he cautioned that this concept does not trump the general rule that a defendant is subject to personal jurisdiction only in a forum where it has sufficient contacts so as not to offend notions of fair play and substantial justice. The plurality emphasized that the "principal inquiry in cases of this sort is whether the defendant's activities manifest an intention to submit" to the jurisdiction of a particular state. (Id. at *17.)
Justice Kennedy then looked to see if McIntyre had sufficient traditional contacts with the forum jurisdiction -- such as an office, property, payment of taxes, presence of employees or advertising --to justify the exercise of personal jurisdiction; he found no "purposeful availment" or relevant targeting of New Jersey on the part of McIntyre. (Id. at *22-24.) The plurality emphasized that although it is possible for a defendant to target the United States as a whole, without targeting any individual state in particular, "the stream-of-commerce metaphor cannot supersede either the mandate of the Due Process Clause or the limits on judicial authority that [the] Clause ensures" for products liability cases such as Nicastro. (Id. at *24.)
Justice Breyer concurred in the opinion of the plurality and was joined by Justice Alito. Justice Breyer agreed that, based on precedent, Nicastro failed to demonstrate that McIntyre had sufficient contacts in New Jersey, and thus the Court could not exercise personal jurisdiction over McIntyre there. (Id. at *26.) However, Justice Breyer declined to set forth a strict no-jurisdiction rule, as did the plurality, emphasizing that modern advances in technology may require change to the rules of personal jurisdiction and noting that such facts were absent from this case. Justice Breyer preferred to wait for a case that confronts the jurisdictional problems posed by modern technology before creating new rules for personal jurisdiction. (Id. at *30-31.)
Justice Ginsburg filed a dissenting opinion, which was joined by Justices Sotomayor and Kagan. Justice Ginsburg concluded that the Court's decision went against precedent, specifically the stream-of-commerce theory set forth in International Shoe Co. v. Washington, 326 U.S. 310 (1945), and that personal jurisdiction was proper in the place of injury. (Id. at *65.)
Implications for Foreign Product Manufacturers
Although there was no majority decision in Nicastro, six Justices agreed that Justice O'Connor's view of stream-of-commerce jurisprudence in Asahi in 1987 was correct -- namely, that the forum jurisdiction is "without the power to adjudge the rights and liabilities" of a foreign product manufacturer "which had not advertised in, sent goods to, or in any relevant sense targeted" that jurisdiction. (Id. at *25, *9.) The Nicastro decision therefore may create a loophole allowing foreign product manufacturers that target the United States' market generally, through a nationwide distributor network rather than via any specific states, to avoid exposure to U.S. products liability laws. This loophole is now being addressed and may be closed by federal legislation.
Even absent such legislation, the personal jurisdiction loophole ultimately may not be a major concern in the near future. Justice Breyer is probably correct in his belief, as expressed in his concurring opinion in Nicastro, that the facts there reflect an older era of economic relationships that is quickly fading. The more likely factual situation for future personal jurisdiction determinations will be the foreign product manufacturer whose "purposeful availment of conducting activities" in the forum jurisdiction depends more upon the reach and sophistication of its Internet-based marketing plan than on whether its distribution of goods targets a national market as opposed to those of specific states. The Supreme Court will then have to decide whether Internet advertising and the place of injury constitute sufficient contacts for the exercise of personal jurisdiction in products liability cases.