In Nicastro v McIntyre Machinery America, Ltd., Docket No. A-29-08, 2010 WL 343563, 2010 N.J. LEXIS 19 (N.J. Feb. 2, 2010), decided this month, the New Jersey Supreme Court held that courts in this state can exercise personal jurisdiction over a foreign manufacturer defendant in a product liability action if, based on its nationwide distribution system, the manufacturer has reason to know that its product might end up in New Jersey. In these situations, the Court reasoned, a foreign manufacturer cannot avoid personal jurisdiction by arguing that it did not place the product into the stream of commerce aimed directly at New Jersey. Rather, the Court held that the state’s jurisdictional rules must keep pace with the modern global economy where it is commonplace for a foreign manufacturer to distribute a product from abroad through middlemen over whom they have no control while targeting the national market as a whole. Where the manufacturer has knowledge, or constructive knowledge based on its distribution to the national market, that its product will find its way to New Jersey consumers, New Jersey courts may exercise personal jurisdiction.
Summary of the Case
Robert Nicastro was injured during a work-place accident involving a recycling machine. The machine was manufactured by J. McIntyre Machinery, Ltd. (“J. McIntyre”), a United Kingdom corporation. McIntyre Machinery America, Ltd. (“McIntyre America”), an independently owned and operated exclusive United States distributor of J. McIntyre products based in Ohio, sold the machine to Nicastro’s employer during a trade show in Las Vegas and shipped the machine to New Jersey. Jurisdictional discovery revealed that J. McIntyre targeted the United States market as a whole by engaging the American distributor and attending American trade shows. Nicastro and his wife brought a product liability action against J. McIntyre and McIntyre America in New Jersey. The issue before the Court was whether New Jersey courts could exercise personal jurisdiction over J. McIntyre under the stream-of-commerce doctrine.
The Evolution of the Stream-of-Commerce Doctrine
A state court’s exercise of personal jurisdiction over a defendant is limited by “traditional notions of fair play and substantial justice” in accordance with the Due Process Clause of the Fourteenth Amendment; in other words, is it fair to require a foreign party to defend a claim in the forum state? What constitutes a “fair” exercise of jurisdiction, however, has evolved with the world economy, from requiring physical presence in the forum state (Pennoyer v. Neff, 95 U.S. 714 (1878)), to minimum contacts with the forum state (International Shoe Co. v. Washington, 326 U.S. 310 (1945)), to a “stream-of-commerce” theory that provides for jurisdiction if the defendant causes its product to enter the forum state through the stream of commerce (World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980)).
New Jersey adopted World-Wide Volkswagen’s stream-ofcommerce theory in Charles Gendler & Co. v. Telecom Equipment Corp., 102 N.J. 460 (1986). A year later, however, a plurality of the United States Supreme Court in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987), affirmed World-Wide Volkswagen, but disagreed regarding the application of the stream-of-commerce rule. Justice O’Connor, writing for four Justices, opined that merely placing a product into the stream of commerce is an insufficient basis for personal jurisdiction and required a showing that the defendant purposefully availed itself of the laws of the forum state. This test has become known as “stream-of-commerce plus.” On the other hand, Justice Brennan, writing for four Justices, found that the exercise of personal jurisdiction satisfies due process if the defendant is aware that its product is being marketed in the forum state. Because the leading New Jersey case on stream-of-commerce personal jurisdiction, Charles Gendler, was decided before Asahi, there has been some question as to which test would be applicable in this state.
New Jersey’s Stream-of-Commerce Doctrine
The Court in Nicastro held that, under the stream-of-commerce doctrine, “[a] foreign manufacturer will be subject to this State’s jurisdiction if it knows or reasonably should know that through its distribution scheme its products are being sold in New Jersey.” Nicastro, Docket No. A-29-08, slip op. at 39. The Court rejected Justice O’Connor’s “stream-of-commerce plus” theory, instead holding that its decision in Charles Gendler and Justice Brennan’s opinion in Asahi “reflect modern truths” of the global economy and “embrace a modality that will provide legal relief to our citizens harmed by the products of a foreign manufacturer that knows or should know, through the distribution scheme it employs, that its wares might find their way into our State.” Id. at 37. Thus, “a foreign manufacturer that places a defective product in the stream of commerce through a distribution scheme that targets a national market, which includes New Jersey, may be subject to the in personam jurisdiction of a New Jersey court in a product-liability action.” Id. at 33. To avoid jurisdiction when it targets a national market, a foreign manufacturer must “take some reasonable step to prevent the distribution of its product in this State.” Id. at 40.
Pointing to J. McIntyre’s engagement of an American distributor and its participation in trade shows in the United States, the Court found that it targeted the American market as a whole and therefore knew or should have known that its products could end up in New Jersey. The fact that McIntyre America, and not J. McIntyre, actually directed the product through the stream of commerce into New Jersey was of no consequence: “[t]he focus is not on the manufacturer’s control of the distribution scheme, but rather on the manufacturer’s knowledge of the distribution scheme through which it is receiving economic benefits in each state where its products are sold.” Id. at 39.
Given its distribution activities, to avoid personal jurisdiction, J. McIntyre was required to “present a compelling case that defending a product-liability action in New Jersey would offend ‘traditional notes of fair play and substantial justice.’” Id. at 43. The Court rejected J. McIntyre’s argument that it would be burdensome to force it to litigate in New Jersey, noting that J. McIntyre travelled to the United States to promote its products at trade shows, and that the ease of contemporary international communication and travel no longer make it unfair to force a party to defend an action abroad. Id. at 37-38. The Court concluded that any purported burden was outweighed by New Jersey’s strong interest in exercising jurisdiction over claims of injury to its residents that occur within its jurisdiction. Id. at 43.
Therefore, given that J. McIntyre introduced the product into the global stream of commerce, foreseeably resulting in the product’s entry into New Jersey, the Court held that the state’s exercise of personal jurisdiction over the foreign manufacturer did not offend traditional notions of fair play and substantial justice.
Justices Hoens and Rivera-Soto filed blistering dissents, accusing the majority of abandoning due process in favor of a stream-of-commerce rule that imposes jurisdiction over any foreign manufacturer that distributes its product nationwide, without regard for whether that system of distribution was purposefully directed at New Jersey in particular. The dissenting Justices argued that this is a significant departure from the Court’s decision in Charles Gendler and Justice Brennan’s opinion in Asahi. Justice Rivera-Soto also argued that the rule promulgated by the majority is unconstitutional and should be reversed by the United States Supreme Court.
Implications for Foreign Manufacturers
The Court noted that the stream-of-commerce doctrine is particularly suitable in product liability cases, and suggested that it may not be applicable in contract or other types of cases. Thus, manufacturers must be aware that the evolving landscape of the global market has caused a change in what courts consider a fair exercise of personal jurisdiction in product liability cases. Personal jurisdiction exists if a foreign manufacturer (whether it is located in another state or another country) distributes its product by targeting the American market as a whole, irrespective of whether it purposefully directs the product into New Jersey. To avoid jurisdiction, the manufacturer must take affirmative steps to prevent the distribution of the product in New Jersey. However, the Supreme Court did not explain what steps would be sufficient, and for the time being, foreign manufacturers should recognize that, under Nicastro, national distribution of a product will, more likely than not, give rise to personal jurisdiction in New Jersey for product liability claims alleging injury caused by the product in New Jersey.