Where a foreign manufacturer has an exclusive distribution agreement with an independent company in the United States, does national distribution provide sufficient contacts to subject that manufacturer to personal jurisdiction in a products liability suit in a state the defendant does not explicitly target as a market for its products?
Robert Nicastro injured his hand in a shearing machine manufactured by J. McIntyre Machinery Ltd. (“McIntyre”), a British company with no physical American presence. McIntyre Machinery America (“MMA”), McIntyre’s exclusive U.S. distributor, sold the machinery to the Nicastro’s employer, Curcio Scrap Metal (“CSM”), in Saddle Brook, New Jersey. There was a close cooperative business relationship between the McIntyre and MMA even though there was no commonality of ownership or management. McIntyre was the dominant party in the business relationship, dictating terms of inventory, margins, and commission to MMA.
CSM purchased the shearing machine after visiting an exhibition booth at a scrap metal industry conference in Las Vegas. Although McIntyre and MMA jointly operated the booth at the convention center, CSM purchased the machine from MMA. McIntyre shipped the shearing machine to MMA, and MMA was responsible for delivering the machine to CSM. In 2001, MMA went bankrupt and terminated its relationship with McIntyre.
McIntyre did not have a presence in New Jersey, nor did it specifically target the New Jersey market. McIntyre’s presence in the United States lacked any of the common elements of doing business in New Jersey, such as property ownership, offices, bank accounts, licenses or agents within the state. Furthermore, McIntyre did not have sales staff in the United States or sales staff responsible for targeting the United States market. Nonetheless, McIntyre’s president, along with senior management, routinely traveled to industry conventions held in the United States. In a trade journal publication, McIntyre made various statements discussing its interest in selling to customers in the United States and its continued interest in supporting previous U.S. customers. The trade article also noted that efforts to solicit business in the United States were ongoing at the time McIntyre was using MMA as its distributor.
The New Jersey trial court found that the McIntyre was a separate and distinct company from MMA, and thus McIntyre did not have any connection to the state of New Jersey that would support the exercise of jurisdiction over McIntyre. Additionally, the trial court found McIntyre’s lack of knowledge of MMA’s business activities, including the sale of the shearing machine to CSM, supported the conclusion that New Jersey did not have jurisdiction. The trial court ruled that under either the traditional minimal contacts test or the stream-of-commerce theory, New Jersey did not have personal jurisdiction over McIntyre. On appeal, the New Jersey Appellate Court, observing that McIntyre did target the United States in general, held that McIntyre was in fact within the jurisdiction of New Jersey state courts. The New Jersey Supreme Court affirmed the decision of the appellate court and held that New Jersey did have personal jurisdiction over McIntyre.
McIntyre appealed to the United States Supreme Court to determine whether a foreign manufacturer’s targeting of the United States market in general is sufficient to provide personal jurisdiction to New Jersey. This case will be argued in tandem with Goodyear Dunlop Tires Operations v. Brown, which presents similar legal issues.
In this case, McIntyre argues that it has insufficient contacts with New Jersey to be subject to personal jurisdiction in that state. Nicastro counters that McIntyre's decision to distribute its products throughout the United States does not make McIntyre's relationship with New Jersey or any other state distant enough to prevent McIntyre from being subject to personal jurisdiction.
McIntyre explains that personal jurisdiction limitations are reflective of the constitutional restrictions on the power of American courts, arising from the due process clauses of the Fifth and Fourteenth Amendments of the Constitution. Personal jurisdiction, McIntyre stresses, is a form of territorial jurisdiction, which is the concept that sovereigns and quasi-sovereigns (American states) have power only over those people and things within their territory or with some meaningful connection with their territory. When a defendant's connection to the state is weak, McIntyre points out, minimum contacts with the state related to the dispute may establish "specific jurisdiction" over the defendant to resolve that particular issue. McIntyre argues that to prevent state courts from overreaching, the Supreme Court must resolve the split between two plurality opinions in Asahi Metal Industry Co. v. Superior Court. In Asahi, the Justices disagreed on whether simply knowing that a product would enter a state through the "stream of commerce" provided sufficient grounds for that state to obtain personal jurisdiction over the manufacturer of the product.
McIntyre argues in favor of the "purposeful availment" test from Justice O'Connor's opinion in Asahi. The purposeful availment test requires that a manufacturer's minimum contacts proceed from the manufacturer's purposeful actions directed at that forum. Under this theory, a plaintiff must demonstrate that a manufacturer intended to put its products in a particular market, through advertising, contracts, or sales. Regardless of the company's intent toward a national market, McIntyre argues that New Jersey courts must restrict their inquiry to evidence of McIntyre's intent to specifically serve New Jersey markets. McIntyre maintains that its intentions are limited to its relationship with MMA, its exclusive U.S. distributor based in Ohio.
McIntyre opposes the New Jersey Supreme Court's interpretation of Asahi, and argues that territory is the essence of personal jurisdiction. Without a requirement for intentional acts, McIntyre argues that there is no limit to the exercise of personal jurisdiction in state courts. Rather, McIntyre argues that the New Jersey Supreme Court's interpretation amounts to a "non-availment" test. This non-availment test essentially requires McIntyre to produce evidence that it affirmatively and explicitly prevented its products from entering New Jersey markets in order to escape personal jurisdiction in New Jersey. McIntyre argues that it is too onerous to require manufacturers to examine the law of each state before determining where to sell its products.
McIntyre argues against the adoption of the "awareness test," proposed by Justice Brennan in Asahi. The awareness test allows the exercise of personal jurisdiction as long as a manufacturer has actual awareness that its products are entering a given market. McIntyre argues that the awareness test opens the doors to subjective court decisions that do not respect due process and fair notice requirements. To support this argument, McIntyre describes several lower court opinions that extend the awareness test beyond actual awareness to include constructive awareness. Moreover, McIntyre points out that the awareness test does not require affirmative action on the part of the manufacturer, which McIntyre argues is the key to earlier precedents and the purposeful availment test, and comports with the idea of state personal jurisdiction arising from presence in or acts specifically directed at its territory.
Despite its opposition to the awareness test, McIntyre nevertheless argues that the New Jersey court adopted an even more lax approach, because the awareness test, according to McIntyre, requires at least a "specific awareness," which the New Jersey court did not require. McIntyre maintains that it did not have any specific awareness that its products were entering New Jersey.
Reasonably Anticipate Being Subject to Suit: World-Wide Volkswagen
In contrast to McIntyre, Nicastro cites World-Wide Volkswagen v. Woodson, 444 U.S. 286 (1980), to support the position that awareness of the possibility of suit is the core of the due process fairness requirement for personal jurisdiction. However, McIntyre argues that World-Wide Volkswagen supports its own position. As McIntyre explains, World-Wide Volkswagen dealt with a suit brought in an Oklahoma state court against a car retailer and wholesaler organized in New York whose only contact with the state was the presence of the plaintiffs, driving the car they purchased in New York through Oklahoma when their accident occurred. The plaintiffs in that case argued that because it was foreseeable that a car would be driven to Oklahoma, the defendant should have anticipated a lawsuit in Oklahoma. The Supreme Court rejected this argument.
McIntyre concedes that the holding in World-Wide Volkswagen allowed personal jurisdiction in places defendants "should reasonably anticipate" being sued. However, McIntyre contends that World-Wide Volkswagen defined reasonable anticipation as arising only from the defendant's connection to, and conduct toward, a particular state. McIntyre argues that it is inaccurate for Nicastro to describe its intent as one to serve a national market, and that in any case, such intent is irrelevant to the minimum contacts test of World-Wide Volkswagen. Rather, McIntyre suggests that it merely intended to distribute products through MMA, based in Ohio.
Nicastro Offers Facts Supporting Personal Jurisdiction Under Any Test
Nicastro argues that McIntyre's actions satisfy the "minimum contacts" test of International Shoe v. State of Washington, 326 U.S. 310 (1945), despite MMA's independent ownership. According to Nicastro, McIntyre, acting through its exclusive distributor MMA, put its products on the U.S. market with the expectation that they might be purchased by consumers in any given state. Nicastro argues that this arrangement satisfies the minimum contacts requirement and allows New Jersey courts to exercise personal jurisdiction over McIntyre. Specifically, Nicastro argues that the following actions support finding personal jurisdiction under the minimum contacts test: granting MMA exclusive sales in the United States, participation in trade shows across the United States, explicit retention of ownership until the product was paid for in full, basing its relationship with MMA on sales commissions, and extending its own liability insurance, rather than MMA's, to McIntyre's products.
Nicastro argues that McIntyre's intent to serve the broader national market satisfies even the purposeful availment test. Nicastro cites McIntyre's exclusive authorization of MMA as its sales agent as exactly the kind of purposeful availment that was lacking in Asahi, which involved a component part manufacturer who had no connection or direct distribution of its products within the United States. If McIntyre had desired to limit the sale of its products to particular markets, Nicastro argues that it would have done so in its contracts with MMA. Instead, Nicastro argues that McIntyre authorized the sale of its products to every potential buyer with no distinction between states. In addition, Nicastro cites a multitude of lower-court opinions holding that national distribution is sufficient purposeful availment for states to exercise personal jurisdiction. Finally, Nicastro contends that the purposeful availment test's focus on the manufacturer's intent and actions to control distribution eliminates any requirement of actual awareness. Therefore, Nicastro argues, McIntyre's assertion that it was ignorant of the sale into New Jersey is irrelevant.
Turning to World-Wide Volkswagen, Nicastro acknowledges that MMA's decisions regarding where to sell McIntyre's products remained outside McIntyre's control, but argues that McIntyre still satisfies the minimum contacts test because it clearly intended to serve a national market, and by extension serve at least indirectly any state, including New Jersey. Nicastro contends that World-Wide Volkswagen held that a manufacturer is only subject to personal jurisdiction in its targeted market. Thus, Nicastro argues that regardless of whether a manufacturer has actual knowledge that its product is being sold in a given market, a reasonable manufacturer should anticipate being sued in every state that comprises its target market. Nicastro argues that the key to the Court's denial of personal jurisdiction in World-Wide Volkswagen was the limited reach of the local dealership's target market; in contrast McIntyre targeted potential buyers in every state of the United States.
Nicastro Distinguishes Asahi: Component Parts vs. Finished Products
According to Nicastro, Asahi dealt with the exercise of jurisdiction over a foreign component manufacturer who sold its product to another foreign manufacturer, who then sold its finished product in the United States. The state court in Asahi properly exercised personal jurisdiction over the finished product manufacturer, who then cross-claimed against the component manufacturer for indemnification. Thus, Nicastro argues, Justice O'Connor intended the purposeful availment test of Asahi to prevent manufacturers of component parts who never did business in the United States from being subject to unforeseeable suits involving finished products that contained the component parts they manufactured. Nicastro argues, therefore, that Asahi is best applied to suits against foreign component manufacturers, while manufacturers of finished products like McIntyre are covered by the test in World-Wide Volkswagen.
The Supreme Court will determine the extent to which personal jurisdiction exists within individual states when a foreign manufacturer targets the United States market in general. Petitioner J. McIntyre Machinery LTD (“McIntyre”) argues that its activities are not sufficient to establish personal jurisdiction in New Jersey and that New Jersey’s actions violated the due process clause of the Fourteenth Amendment. Robert Nicastro argues that McIntyre has sufficient minimum contacts with New Jersey through the acts of its distributor and that it would not violate due process to require McIntyre defend the suit in the state where the accident involving its product occurred.
Fairness to Plaintiffs
Nicastro argues New Jersey must protect the civil liberties of its residents by permitting trials in the location where the harm occurred. Nicastro contends that without the ability to exercise personal jurisdiction over a foreign manufacturer whose product caused an injury within the state, states would be unable to fulfill their duty to protect the rights of their citizens. Furthermore, a group of law professors argues that a foreign corporation that intentionally serves the U.S. market is indirectly serving all of the states in the United States, and therefore ought to be liable for product injuries in each state. The law professors contend that if McIntyre avoids state liability in New Jersey, it would be functionally immune from liability in all states, despite its targeting of the U.S market as a whole.
The watchdog group Public Citizen argues that it is more just to require foreign corporations who do business in the United States generally to defend in any state forum than to require injured plaintiffs to pursue foreign corporations overseas. Specifically, Public Citizen contends that research shows that, for foreign defendants already doing business in the United States, internal political subdivisions are irrelevant and that the concern of an increased litigation burden ought not to be used as a means to deny personal jurisdiction over foreign companies to the detriment of injured plaintiffs.
Fairness to Defendants
The Organization for International Investment (“OII”) argues that finding personal jurisdiction over McIntyre will force companies to engage in burdensome affirmative efforts to avoid commerce with particular states. Additionally, OII argues that adopting a broad personal jurisdiction standard would limit global access to the U.S. market for companies worried about unintentionally establishing personal jurisdiction in states where they do not have a physical presence.
The Product Liability Advisory Council (“PLAC”) argues that allowing state jurisdiction for torts involving products targeted at the United States in general will expand the scope of state jurisdiction to areas where the state has little interest. Specifically, PLAC argues that under the analysis adopted by New Jersey, the gray market activity of purchasing Canadian prescription drugs in Canada for consumption in the United States will create personal jurisdiction for the drug manufacturers in any forum where a purchaser may reside. Furthermore, PLAC argues that adopting the New Jersey Supreme Court’s assertion of jurisdiction would mean that a duty-free shop in a Japanese airport could also be subject to suit in New Jersey when a resident buys something at that store. PLAC also contends that the expansion of jurisdiction would also capture corporate subsidiaries, parents, and resellers whose goods might appear in the forum, which under the current global economic arrangements will lead to virtually unlimited jurisdiction for activity anywhere in the world.
Globalization and Trade
OII contends that companies may limit their participation in the U.S. market and may abandon the market entirely to avoid accruing potential legal liability in numerous forums. OII also argues that greater legal uncertainty will lead to greater difficulty for the United States in acquiring foreign direct investment. OII adds that companies’ affirmative attempts to avoid certain states will lead to higher costs for consumers.
The United States Chamber of Commerce argues that a loosened standard for stream-of-commerce analysis leads to expensive jurisdictional discovery and will reduce the states courts’ ability to fairly adjudicate disputes. However,Nicastro contends that both domestic and foreign manufacturers already take into account the U.S. judicial environment, and the fears of unexpected or abusive litigation are overblown.
In this case, the Supreme Court will determine the criteria necessary to establish personal jurisdiction over a foreign manufacturer that does not target any particular state in the United States, but targets the United States market generally. J. McIntyre Machinery argues that New Jersey courts lack personal jurisdiction over McIntyre because it did not specifically target the New Jersey market for its products. Robert Nicastro argues that McIntyre’s intent to serve the U.S. market as a whole is sufficient to establish personal jurisdiction in New Jersey, where the product was purchased and the accident involving the product occurred. The Supreme Court’s decision will clarify the extent of the liability foreign manufacturers take on when distributing products in the United States, and will define the circumstances under which plaintiffs who are injured by foreign-manufactured products may sue in the state where the injury occurred.
· Forbes.com, James Beck: On the Docket—Inside the Courtroom (Oct. 22, 2010)
· Industry Week, Keith Wilson: “Equalizing” the Playing Field with Foreign Manufacturers (Feb. 10, 2010)
· Robb & Robb: Suing Foreign Product Manufacturers
·The Supreme Court will hear this case in tandem with Goodyear Dunlop Tires Operations v. Brown, which concerns state general personal jurisdiction over a foreign manufacturer whose products occasionally enter the state through its global parent company.