In Goodyear Dunlop Tires Operations, S.A. v. Brown and J. McIntyre Machinery, Ltd. v. Nicastro, both handed down today, 27 June 2011, the Supreme Court addressed the standards for general and specific jurisdiction for the first time in several years and reaffirmed existing limits on when States can hear claims involving nonresident defendants. In Goodyear, Justice Ruth Bader Ginsburg wrote for a unanimous Supreme Court and held that a State cannot exercise general personal jurisdiction over a foreign company whose only contacts with the State stem from the company's products travelling through the stream of commerce and winding up in the forum State. In J. McIntyre, a four-justice plurality helmed by Justice Anthony Kennedy, and joined by Justices Stephen Breyer and Samuel Alito in a narrow concurring opinion, held that a foreign company that markets a product only to the United States generally, but does not purposefully direct its product to an individual State, is not subject to specific jurisdiction in that State.
Goodyear and J. McIntyre are of immediate and significant importance to foreign companies. The cases serve as the benchmark for determining when personal jurisdiction may be exercised over a defendant and highlight strategies that plaintiffs are likely to pursue as they attempt to hale nonresident defendants into courts in the United States. Most importantly, Goodyear and J. McIntyre add muscle to the personal jurisdiction tests, making it more difficult for plaintiffs to hale foreign defendants into court in the United States.
Specific and general jurisdiction
Goodyear and J. McIntyre both addressed the bedrock question of when a State can exercise jurisdiction over a nonresident defendant. Under established Supreme Court precedent, a State may only adjudicate claims involving a nonresident defendant if the defendant has "minimum contacts" with the forum so that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. This threshold Due Process requirement eventually gave rise to the two familiar tests for specific and general personal jurisdiction, the doctrines at issue in Goodyear and J. McIntyre.
Specific jurisdiction applies when a defendant's activities in the forum State are related to the claims asserted in the complaint—for example, a nonresident defendant may be sued in California for design defects in a product that it sold in California and that injures the plaintiff in California. In order to establish the minimum contacts needed to sustain specific jurisdiction, the defendant must purposefully avail itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws. Such activities can include sending products to a State for purchase while tailoring the product for sale in, and directing advertising to, that forum. However, courts, including the Supreme Court, have sharply divided over whether specific jurisdiction exists when the stream of commerce carries a defendant's product to a forum State and the defendant is merely aware that the product is being marketed in that State.
General jurisdiction, in contrast, applies when the defendant's contacts with the forum are unrelated to the plaintiff's claims but are nevertheless sufficiently continuous and systematic to justify the exercise of jurisdiction. Because it permits suit against the defendant on any matter, the standard for general jurisdiction is more rigorous than the test for special jurisdiction. Thus, general jurisdiction exists only when the defendant does continuous and systematic general business within the forum. These general business contacts must be so extensive that they approximate physical presence and can include some combination of the following: maintaining a place of business in the state, holding a license to do business in the State, making business trips to the State, and making business purchases in the State.
Goodyear: Specific jurisdiction standards do not apply to a general jurisdiction analysis
In Goodyear, the Supreme Court reaffirmed the stringent standard for general personal jurisdiction and rejected the lower court's decision watering down those standards. The defendants in Goodyear were three foreign subsidiaries of Goodyear that were sued in North Carolina by the administrators of the estates of two North Carolina citizens who had died in a bus accident in France. The plaintiffs alleged that the accident resulted from various defects in Goodyear tires; however, the tires were designed and manufactured by foreign defendants lacking a North Carolina presence. Nevertheless, the North Carolina courts found general personal jurisdiction because the defendants had engaged in acts by which they purposefully availed themselves of the privilege of conducting business in the forum State. Notably, (1) because the subject tires included information written in English, including markings showing that the tires could be sold in the United States, the court found that the defendants deliberately attempted to take advantage of the North Carolina tire market; (2) some tires manufactured by the defendants were shipped to the United States for sale and the defendants made no attempt to keep the tires from reaching North Carolina; and (3) the defendants were subsidiaries of Goodyear U.S.A. and, thus, had abundant ties to the United States.
The Supreme Court reversed. Rejecting the approach of the North Carolina courts, the Supreme Court made clear that the high barrier of continuous and systematic contacts with the forum State remains the touchstone for general personal jurisdiction: "A court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so 'continuous and systematic' as to render them essentially at home in the forum State." The Court stressed that the lower court's "stream-of-commerce analysis elided the essential difference between case-specific and all-purpose (general) jurisdiction." While the "flow" of a manufacturer's products into a forum "may bolster an affiliation germane to specific jurisdiction," such ties "do not warrant a determination that . . . the forum has general jurisdiction over a defendant." Because the foreign defendants were not in any sense "at home in North Carolina," the Court concluded that their "attenuated connections to the State fall short of the 'continuous and systematic general business contacts' necessary to empower North Carolina to entertain suit against them on claims unrelated to anything that connects them to the State."
The clear, and favorable, conclusion of the Goodyear decision for foreign entities and manufacturers is that, absent physical presence in a given State in the United States, or activities so extensive that they essentially equal physical presence, arguments against claims of general jurisdiction are now seemingly stronger than ever.
J. McIntyre: Specific jurisdiction requires state-specific conduct
As in Goodyear, the Court in J. McIntyre also rejected a lower court standard that would have significantly expanded personal jurisdiction. Writing in two separate opinions, six justices invalidated the New Jersey Supreme Court's finding that New Jersey had specific personal jurisdiction over the English manufacturer of a shearing machine for an injury that occurred in New Jersey where the manufacturer only targeted the U.S. market generally and otherwise lacked minimum contacts with New Jersey. The defendant, J. McIntyre Machinery, sold the machine to McIntyre Machinery of America, Inc. (MMA), an unaffiliated distributor based in Ohio, which subsequently sold the machine to a New Jersey company where it was in use at the time of the accident. According to the New Jersey Supreme Court, McIntyre was subject to specific personal jurisdiction because it knew or reasonably should have known that the machine could be sold by MMA anywhere in the United States, including in New Jersey. The New Jersey Supreme Court adopted this view even though there was no evidence that the defendant, as opposed to MMA, had any contacts at all with New Jersey and even though there was no showing that MMA acted as McIntyre's agent. Notably, the New Jersey Supreme Court emphasized that this broader approach to specific personal jurisdiction was more in keeping with recent changes in transnational commerce and was necessary to maintain a forum for in-state plaintiffs who are injured by out-of-state defendants.
Again, the U.S. Supreme Court disagreed. Stressing that specific personal jurisdiction requires purposeful availment directed at the forum State, Justice Kennedy reverted to established principles. Personal jurisdiction "requires a forum-by-forum, or sovereign-by-sovereign, analysis," he explained. Thus, a defendant might be "subject to the jurisdiction of the courts of the United States but not of any particular State." That was true of J. McIntyre. The facts "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." In other words, "it is the defendant's actions, not his expectations, that empowers a State's court to subject him to judgment." Significantly, Justice Kennedy rejected the foreseeability standard, that is whether the defendant should have foreseen that its product may wind up in a given State, for determining personal jurisdiction because it distracts from the key question of whether the exercise of personal jurisdiction is consistent with due process.
In a concurrence joined by Justice Alito, Justice Breyer agreed with the plurality's holding that the New Jersey courts could not exercise specific personal jurisdiction over J. McIntyre. But Justice Breyer wrote narrowly that the case's outcome was "determined by [the Court's] precedents." Finding no "'regular . . . flow' or 'regular course' of sales in New Jersey; and . . . no 'something more,' such as special state-related design, advertising, advice, marketing, or anything else," Justice Breyer found no facts to support specific jurisdiction. Further, he questioned the plurality's seemingly "strict rules that limit jurisdiction where a defendant does not 'inten[d] to submit to the power of a sovereign' and cannot 'be said to have targeted the forum," and how they apply to modern, especially internet-driven, commerce. But Justice Breyer also questioned, in the context of this case, the lower court's broad conclusion that the defendant knew or should have known that its products were distributed through a nationwide system that might lead to sales in New Jersey. Ultimately, he suggested that the Court may need to take up in another case how the specific jurisdiction test should apply to "contemporary commercial circumstances."1
Conclusion: Minimum contacts with muscle
Goodyear and J. McIntyre are important decisions that do more than simply reaffirm the minimum contacts test. Rather, they adopt a standard that can be characterized more accurately as minimum contacts with muscle. With respect to general personal jurisdiction, the Court emphasized that it is a more stringent standard than specific jurisdiction and applies only when the nonresident defendant maintains a truly strong connection with the forum. In terms of specific personal jurisdiction, the Court was equally clear that purposeful availment with the forum State is necessary; merely sending products to the United States is not enough on its own to justify personal jurisdiction. This is true even if the foreign defendant knows or expects that its products will wind up in a particular forum.
For foreign companies, Goodyear and J. McIntyre help clarify when and where they will be subject to suit in the United States. Maintaining independent foreign subsidiaries that do not conduct business in the United States, keeping foreign products separate from products marketed for sale in the United States, and making sure that products sold in the United States are marketed at the national level are all strategies that, under Goodyear and J. McIntyre, should keep courts from exercising personal jurisdiction over foreign defendants.
But it is doubtful that Goodyear and J. McIntyre will cause plaintiffs to cease targeting foreign companies for suit in the United States. Rather, plaintiffs will likely focus on trying to impute the actions of a U.S. subsidiary to a foreign company on an agency or alter ego theory. Plaintiffs may also set their sights on internet jurisdiction, an issue that has divided lower courts and is one that has not been addressed squarely by the Supreme Court. In fact, Justice Breyer refused to entertain how internet commerce might impact personal jurisdiction and seemingly invited the Court to take up the issue in the future. Alternatively, Congress could step in and require foreign companies to consent to personal jurisdiction as a condition of doing business in the United States. Thus, Goodyear and J. McIntyre do not represent the final word on personal jurisdiction even if they add some muscle to the Supreme Court's personal jurisdiction precedent.