Supreme Court takes on states' jurisdiction over foreign manufacturers

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January 20, 2011

Supreme Court takes on states' jurisdiction over foreign manufacturers 

The justices tackled issues of both specific and general jurisdiction last week, hearing arguments in two cases involving alleged defects in foreign-made products. “If people who are hurt are going to have any real right of recovery, this kind of jurisdiction needs to be OK,” said John Vail of the Center for Constitutional Litigation, who represents the plaintiffs in one of the cases.

By Allison Torres Burtka

Hearing arguments in two related cases on the same morning last week, the Supreme Court took up the question of whether and when a foreign manufacturer can be sued in a state court.

“By taking both cases, the Court was sending a signal that it wants to address the ambiguities and lack of clarity on this issue,” said Houston lawyer Collyn Peddie, who argued for the plaintiffs in one of the cases.

One case looks at whether a foreign manufacturer that sells its products in the United States can be subject to specific personal jurisdiction in one of those states. (J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343 (U.S. argued Jan. 11, 2011).) The other involves a state’s assertion of general jurisdiction over a foreign company. (Goodyear Luxembourg Tires, S.A. v. Brown, No. 10-76 (U.S. argued Jan. 11, 2011).)

“In Nicastro, the issue is whether a manufacturer can avoid being sued in a place where its product causes harm by interjecting a distributor between itself and the buyer,” said Alan Morrison, the associate dean for public interest and public service at the George Washington University Law School, where he teaches civil procedure.

Robert Nicastro was operating a metal-shearing machine in New Jersey when it cut off four of his fingers. The machine was manufactured in England by J. McIntyre Machinery and sold by the company’s only U.S. distributor, McIntyre Machinery of America, located in Ohio.

Nicastro and his wife filed a products liability lawsuit in New Jersey against both entities, although McIntyre America had gone bankrupt. J. McIntyre moved to dismiss the case for lack of personal jurisdiction in the state, and the trial court granted that motion.

The plaintiffs appealed, arguing that because the company targeted the United States--by directing advertising and marketing here, attending U.S. trade shows and selling products at them, and designing products to satisfy American standards--it purposefully availed itself of the benefits and protections of all the states.

“To the extent that a foreign manufacturer wishes to profit from sales in the United States, the largest market in the world, it is hardly unfair to require that defendant to be accountable where it is making money,” AAJ argued in its amicus brief supporting the Nicastros.

Arthur Fergenson of Ellicott City, Maryland, argued the case for the defendant. When he said the company did not target specific states but rather the entire United States, Justice Elena Kagan said, “[T]he United States is the United States. It's made up of 50 states. So I assume that what that means is the manufacturer wanted to sell its products in each of the 50 states. Is that right?”

Fergenson answered, “It wanted to sell its product anywhere that the distributor could find.”

Some justices expressed concern about the case’s potential policy implications. Justice Stephen Breyer said, “I'd worry about a rule of law that subjects every small business in every developing . . . country to have to be aware of the law in 50 states simply because they agreed to sell to an independent company who is going to sell to America. . . .”

Alexander Ross of Marlton, New Jersey, who argued the case for the plaintiffs, responded that merely selling a product wouldn’t trigger personal jurisdiction. “They have to do something more than just sell,” he said. “There has to be purposeful availment. There has to be some concrete action, attending trade shows, designing the product for the market.”

New Jersey’s ability to exercise this type of jurisdiction “is not controversial at all. It’s the norm internationally,” said John Vail, vice president and senior litigation counsel at the Center for Constitutional Litigation in Washington, D.C.

He added, “Very few of the machine tools that injure people in the workplace are manufactured in the U.S. anymore. If people who are hurt are going to have any real right of recovery, this kind of jurisdiction needs to be OK.” Vail also represents the Nicastros.

The Goodyear case involves two North Carolina teenagers killed in a bus crash in France, allegedly due to a defective tire.

The teenagers’ parents filed suit in a North Carolina court against Goodyear Tire & Rubber Co. (a U.S. corporation) and three of its foreign subsidiaries. The allegedly defective tire was designed, manufactured, and distributed by the foreign subsidiaries; that type of tire was also sold in North Carolina.

The foreign subsidiaries argued that they were not subject to North Carolina’s assertion of general personal jurisdiction; the plaintiffs argued that they had sufficient minimum contacts with the state. The plaintiffs said that the subsidiaries were controlled by the U.S. parent corporation—and that denying general jurisdiction in such cases would allow companies to “outsource” their tort liability.

Benjamin Horwich, assistant to the U.S. Solicitor General, appeared at oral argument in support of Goodyear. He said that such an assertion of general personal jurisdiction could extend “to any claim against them arising out of any conduct of theirs anywhere in the world.”

Peddie argued the case for the plaintiffs. She said Goodyear controlled a highly integrated manufacturing and distribution system and that the subsidiaries “didn't produce unless the parent told them to; they sent [the product] where the parent said they should send it to; and when it got to the United States, the testimony is that the parent controlled it at that point.”

After oral argument, Peddie noted that the issue is important because it “determines whether you have to chase manufacturers overseas or can sue them in an American forum.”

“The Court has gone more than 20 years without really dealing with these issues,” Morrison said. “In most cases, as a practical matter, the personal jurisdiction answer is pretty clear. . . . But at the edges, there are issues, and hopefully the Court will resolve them in a fair and sensible way.”

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