The United States Supreme Court issued two product-liability decisions certain to have international implications on foreign companies, U.S. companies with foreign subsidiaries, and U.S. residents and companies who sue a foreign company. In Goodyear Dunlop Tires Operations, S.A. v. Brown and J. McIntyre Machinery, Ltd. v. Nicastro, both decided on June 27, 2011, the Supreme Court addressed whether a foreign defendant could be summoned to a state court in the U.S. when the claim against that defendant was unrelated to any of its activities in the U.S.
The Supreme Court requires state courts to exercise “traditional notions of fair play and substantial justice” in summoning an out-of-state or foreign corporation to its courtroom. International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citations omitted). A state court can impose “general jurisdiction” over foreign corporations allowing it to hear all claims asserted against that corporation if the corporation had a “continuous and systematic” presence in the forum State. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414, n. 9 (1984); International Shoe, 326 U.S. at 317. In the absence of a “continuous and systematic” presence, a state court can only exercise “specific jurisdiction” over a foreign corporation, meaning that the court can only hear claims against the foreign corporation that are related to that corporation’s activities in the forum State. International Shoe, 326 U.S. at 318.
Facts and Procedural History
In Goodyear, two North Carolina residents died in a bus accident in France. The estate filed a wrongful-death claim in a North Carolina state court, alleging that the bus had a faulty tire. The estate sued Goodyear USA (an Ohio corporation) and three foreign Goodyear USA subsidiaries. The foreign subsidiaries were not registered in North Carolina, had no place of business in the U.S., and did not solicit business in the U.S. Yet, a small percent of their tires were distributed in North Carolina by other Goodyear USA affiliates. The defective type of tire cited by the plaintiffs was manufactured in Turkey by Goodyear USA’s Turkish subsidiary, and was never distributed in the U.S. Both the state trial court and court of appeals held that North Carolina courts had jurisdiction over the foreign subsidiaries because some of their tires reached the state through the “stream of commerce.”
In J. McIntyre, a worker, Robert Nicastro, severely injured his hand in a metal-shearing machine manufactured in England by J. McIntyre Machinery, an English company. Nicastro filed a products-liability suit in a New Jersey state court, where the accident occurred. Before then, J. McIntyre had agreed with a U.S. distributor to sell its machines in the U.S. J. McIntyre officials also attended trade shows in the U.S. Yet, only one to four machines were ever imported in the U.S. The New Jersey Supreme Court exercised jurisdiction over the foreign company, holding that J. McIntyre knew or should have known that its product would be distributed nationwide once it entered the stream of commerce.
Supreme Court’s Rulings
In a unanimous opinion authored by Justice Ginsburg, the Goodyear Court reversed the North Carolina Court of Appeals, holding that the North Carolina state courts cannot exercise personal jurisdiction over the foreign Goodyear subsidiaries.
The Goodyear Court first ruled that the North Carolina state courts lacked specific jurisdiction over the foreign Goodyear subsidiaries because the accident occurred in France and the defective tire was manufactured in Turkey. That is, the claim against the subsidiaries was unrelated to any activity by the subsidiaries in the forum State. The Goodyear Court also found that the state courts lacked general jurisdiction over the foreign subsidiaries. Unlike the lower courts, the Supreme Court concluded that the foreign subsidiaries had only a limited connection to the forum State. This limited connection (the sporadic sale of foreign-made tires through other Goodyear USA distributors or intermediaries) between North Carolina and the foreign subsidiaries was insufficient to establish a “continuous and systematic” connection.
In a 6-3 decision, the Supreme Court also reversed the New Jersey state court’s holding in J. McIntyre, ruling that the state court lacked personal jurisdiction over the foreign manufacturer. The majority held that J. McIntyre did not target the forum State, even if a few of its products did reach New Jersey. The Supreme Court affirmed the stream-of-commerce doctrine described in Asahi Metal Indus. Co. v. Superior Ct. of Cal., Solano Cty., 480 U.S. 102 (1987). If a defendant places goods into the stream of commerce with the expectation that the good will reach residents of the forum State, then the defendant is purposely availing itself to the laws of that forum. Six justices reversed the lower court after finding that J. McIntyre’s distribution agreement to sell machines in the U.S., its attendance at trade shows in several States but not in New Jersey, and the fact that up to only four machines entered New Jersey, were too attenuated to support state jurisdiction. However, the six justices split 4-2 in their rationale.
The plurality opinion by Justice Kennedy and three other justices refined the stream-of-commerce doctrine, stating that a defendant’s good enters the stream of commerce only when the defendant purposely targetsconsumers in the forum State; the plurality concluded that the mere prediction that a good would reach the forum State through the stream of commerce is not sufficient to support jurisdiction over the foreign company. The plurality drew a distinction between a foreign company that, through its actions, targeted the forum State versus a foreign company that only expected its goods to reach the forum State. The plurality concluded that Nicastro failed to show “that J. McIntyre engaged in conduct purposefully directed at New Jersey.”
Justices Breyer and Alito agreed that the New Jersey court lacked jurisdiction over J. McIntyre, but for a different reason. Justice Breyer disagreed with the plurality’s conclusion that a state court can exercise jurisdiction over a foreign company only if the company purposely targets the forum State. Rather, Justice Breyer relied on World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980). The concurring justices reached the same conclusion, finding that under Volkswagen, the sale of only one to four goods (at most one in the forum State), coupled with a trade show effort in other states, was insufficient to sustain the New Jersey court’s jurisdiction. Justice Breyer also questioned the plurality’s rigid stream-of-commerce rule, contemplating that it would not fit with modern international commerce (e.g., when a foreign manufacturer distributes products through a U.S. website). Justices Breyer and Alito did not have to further discuss the stream-of-commerce doctrine as they decided the issue solely on precedent.
Goodyear does not change the law regarding a state court’s jurisdiction over foreign companies or foreign subsidiaries; rather, the decision further clarifies the rules delineated in International Shoe and its progeny by applying existing personal jurisdiction rules to a foreign subsidiary. The Goodyear court also noted in dicta, but did not address, that an injured party could theoretically pierce Goodyear’s corporate veils in the context of personal jurisdiction to reach the foreign subsidiaries. At the very least, Goodyear confirms that a foreign company whose only connection with the U.S. is that it is a subsidiary of a U.S. company cannot be summoned to answer a lawsuit in a U.S. state court. A state court could exercise personal jurisdiction over the foreign subsidiary only if the company had sufficient minimum contacts with the forum State under International Shoe and its progeny.
J. McIntyre was a plurality opinion, and thus the narrowest holding with at least a majority’s agreement is considered the Court’s holding. The concurring opinion is narrower than the plurality opinion because Justices Breyer and Alito would have only relied on precedent to reach their decision whereas the plurality tweaked the stream-of-commerce doctrine. The only proposition that had a majority vote was that the state court lacked personal jurisdiction over J. McIntyre because the foreign company’s conduct in the forum State was too attenuated to support jurisdiction under precedent.
Like Goodyear, J. McIntyre’s narrowest holding confirms traditional personal jurisdiction rules. For a foreign company, J. McIntyre shows that a state court can consider a variety of factors in determining whether the foreign company has sufficient ties to a state in the U.S. Goodyear and J. McIntyre are reminders to foreign subsidiaries of U.S. companies and to foreign companies that they must be cognizant of their actions in a state in the U.S.