In a global economy, price and convenience are valued above all else. Global consumers demand produce out of season, buy sophisticated appliances made with cheap labor and build homes with materials shipped from abroad. And yet when these products prove to be defective, they expect to be able to sue the manufacturer at the local courthouse, regardless of where it resides. After all, the product reached them -- so they should be able to sue in their home court, right?
We've come a long way from Penoyer v. Neff, 95 U.S. 714 (1878), when a defendant's physical presence in the forum state was required to exercise jurisdiction over him. Various U.S. Supreme Court decisions have expanded the notion of personal jurisdiction, simultaneously muddying the water as to precisely what constitutional analysis is required.
Take, for example, Asahi Metal Indus. Co. v. Superior Court of Calif., 480 U.S. 102 (1986). There, the separate plurality opinions of justices Sandra Day O'Connor and William Brennan both approved of some form of the "stream of commerce" theory of jurisdiction but disagreed on the exact formulation of the test to be applied. Although lower courts subsequently used some form of "stream of commerce" analysis after Asahi, they seldom used it as a stand-alone test. Most have always added to it some form of "minimum contacts," "purposeful availment" or other analysis to establish that the defendant somehow intended or expected to benefit from the jurisdiction. This traditionally has been seen as required by the due process clause.
In February, the New Jersey Supreme Court substantially expanded the scope of personal jurisdiction over foreign manufacturers in products liability cases by abandoning any form of "purposeful availment" or "minimum contacts" analysis, opting instead to rest exclusively on the "stream of commerce" theory. Nicastro v. McIntyre, 2010 N.J. Lexis 19 (N.J. Feb. 2, 2010). Nicastro was a classic products liability case. The defendant was a British manufacturer of metal presses used to recycle metal. The plaintiff was the operator of the machine, which severed four of his fingers. He sued the manufacturer for failure to warn and design defect, arguing that the machine lacked a specific safety guard that would have prevented the accident.
The trial court had dismissed the manufacturer for lack of personal jurisdiction. It did not sell or solicit business in New Jersey, had no physical presence there and had "no expectation that its product would be purchased and utilized in New Jersey." Id. at *20-*21. The closest it came was that an employee had attended a conference in Las Vegas. The Supreme Court agreed that the defendant did not have "a presence or minimum contacts in this State -- in any jurisprudential sense -- that would justify a New Jersey court to exercise jurisdiction in this case." Id. at *28.
Nevertheless, the court -- after tracing the history of personal-jurisdiction jurisprudence, its underlying policies and the globalization of commerce -- abandoned anything other than a straight "stream of commerce" analysis for products liability cases. Under such analysis, "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." The court noted that "[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." Id. at *52, *58. The focus is not on the control of the distribution scheme, but rather on the manufacturer's knowledge of where its products are sold (and it is thus receiving benefits).
The court supported its ruling by citing the state's interest in protecting its citizens from defective products and providing a forum for injured citizens to obtain recovery. The court reasoned: "In today's world, foreign manufacturers, plying overseas markets, should be covered by insurance, accounting for the risks of doing business and providing a fund for consumers who may be injured by their products. Defending a suit in one of the United States, moreover, is not as burdensome as it once might have been, given that air transport can bring the principals of a business here within hours and instantaneous communication allows an ongoing dialogue with counsel in this country."
Notably, the court limited its new jurisdictional principle to products liability cases. Indeed, it expressly left open the possibility that the theory would not apply in "cases in which a plaintiff's injury may be so minor that an assertion of jurisdiction by a New Jersey court would not comport with traditional notions of fair play and substantial justice."
Most courts considering personal jurisdiction issues have refrained from the radical departure reflected in Nicastro. For example, in Bunch v. Lancair Int'l Inc., 202 P.3d 784 (Mont. 2009), a plane crashed in Montana, killing the pilot. The pilot's wife sued the plane manufacturer and the engine manufacturer for negligence, strict liability and breach of warranty. The manufacturers -- each of which were based in states other than Montana -- had no contacts with Montana whatsoever. Indeed, the plane manufacturer had never sold a product directly into Montana or advertised there.
NO CONNECTION TO THE FORUM STATE
The Bunch court used a different standard than did Nicastro, which was comprised of a three-part test: Did the nonresident defendant purposefully avail itself of the benefits of the forum? Does the claim arise out of the defendant's forum-related activities? And is the exercise of jurisdiction reasonable? The court held that Montana could not exercise personal jurisdiction over the two manufacturers because they had neither purposefully availed themselves of Montana's benefits nor did the claim arise out of their Montana-related activities.
The plaintiff argued that one manufacturer's nationwide focus for its advertising -- along with the fact that it was foreseeable a plane would travel into other states -- justified the exercise of jurisdiction in Montana. But the Bunch court rejected the notion that jurisdiction is merely the equivalent of foreseeability. Furthermore, it rejected the argument that mere participation in a national chain of distribution could reasonably subject a defendant to personal jurisdiction, absent some other connection to the forum state.
The New Hampshire Supreme Court employed a similar test in Vermont Wholesale Building Products Inc. v. J.W. Jones Lumber Co., 914 A.2d 818 (N.H. 2006), holding that a lumber manufacturer that knew one of its customers sold flooring in Vermont was not enough to satisfy due process; without some form of purposeful intent to derive benefit out of Vermont, the fact that the defendant knew that the stream of commerce carried its products there was not enough to subject it to suit.
But one type of claim has demonstrated a propensity for courts to stretch to employ a "stream of commerce" analysis without much more: component part claims. A prime example is Ex parte DBI Inc., 23 So. 3d 635 (Ala. 2009), in which the Alabama Supreme Court exercised personal jurisdiction over a South Korean seat belt manufacturer sued by the estate of a car crash victim. The manufacturer did no business with Alabama, had no assets there and conducted no advertising there. Instead, it sold seat belts to KIA Motors Corp. in South Korea. The court held that the defendant's sale of components for inclusion in KIA cars sold in the United States met the jurisdictional standard. It observed that the manufacturer had its belts tested in the United States for compliance with federal standards; marketed them to car manufacturers as saleable in the United States; had a claims indemnification agreement with KIA; and had insurance for losses in all U.S. states. Even though none of this activity was directed at Alabama, per se, the court held that it was "purposeful availment" of the benefits of all U.S. markets, including Alabama's. Thus, jurisdiction was proper, it held.
Until the U.S. Supreme Court sets a clear standard for personal jurisdiction in such cases, we will continue to see the tension between cases like Nicastro and DBI, on the one hand, and Bunch and Vermont Wholesale on the other.
J. Russell Jackson is a partner at New York's Skadden, Arps, Slate, Meagher & Flom and hosts a blog at www.consumerclassactionsmasstorts.com. Adam C. Tubbs, an associate at the firm, helped draft this column.