Whether a court can acquire general personal jurisdiction to hear any claim against a foreign company when the company’s only connection with the forum state is the distribution of products by other entities of the parent corporation.
Questions as Framed for the Court by the Parties
Whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant.
On April 18, 2004, Matthew Helms and Julian Brown died as a result of a bus accident near Paris, France. Helms and Brown were thirteen-year-old soccer players preparing to fly home to North Carolina at the time of the accident. Their bus allegedly crashed as a result of a defective Goodyear tire. Respondents Edgar and Pamela Brown, co-administrators of Julian Brown’s estate, and Karen M. Helms, administratrix of Matthew Helms’ estate (collectively “Brown”), sued for negligence regarding the manufacture of the tire and the failure to warn about the latent defects in the tire.
Petitioner Goodyear Turkey allegedly manufactured the tire, and Respondents sought to sue Goodyear Turkey and several of its affiliates including Petitioners Goodyear France and Goodyear Luxembourg (collectively “Goodyear Luxembourg”). Brown sued in North Carolina state court. Because the accident occurred in France, North Carolina must have general jurisdiction to hear any claims regarding Goodyear Luxembourg in order to acquire personal jurisdiction in this case. General jurisdiction arises when a party has “sufficiently continuous and systematic contacts” with the forum state, here North Carolina, to justify the exercise of that state’s judicial power over the party.
At a minimum, roughly 6,000 tires manufactured by Goodyear Turkey, 6,400 tires manufactured by Goodyear Luxembourg, and 34,000 tires manufactured by Goodyear France were shipped to North Carolina for sale between 2004 and 2007. These tires were not, however, shipped directly by the Goodyear entities into North Carolina. Rather, the tires were shipped to the United States and North Carolina through their Goodyear parent company and affiliated companies.
The failed tire on the bus had information and markings indicating that it could be sold in the United States. The trial court found that Goodyear Luxembourg knew or should have known that its tires were coming into the United States, including North Carolina, on a “continuous and systematic basis.” Additionally, there was no effort by Goodyear Luxembourg to keep its tires out of North Carolina.
While Brown has no ties to France outside of the accident, Goodyear Luxembourg does have affiliates in the United States with interests in North Carolina. Accordingly, the trial court claimed it had personal jurisdiction over the Petitioners. The Court of Appeals of North Carolina affirmed, holding that Goodyear Luxembourg had “purposefully injected their product into the stream of commerce.” The Supreme Court of North Carolina denied review.
The United States Supreme Court granted certiorari on September 28, 2010 to determine whether a defendant can be subject to general personal jurisdiction in a forum state when its products were only present in the forum state due to distribution by other entities. This case will be argued in tandem with J. McIntyre Machinery, LTD v. Nicastro, which presents similar legal issues.
General jurisdiction allows a court to exercise jurisdiction in cases where the cause of action does not arise out of or is not related to the defendant's in-state activities. A court can exercise general jurisdiction over a dispute when there is sufficient in-state activity by the defendant. However, what constitutes sufficient in-state activity is not precisely defined. Petitioner Goodyear Luxembourg argues that its company did not engage in sufficient activity in North Carolina to justify the exercise of general jurisdiction in the present case. Respondent Brown contends that the integrated nature of the Goodyear enterprise provides sufficient reason to find that Goodyear Luxembourg participated in sufficient in-state activity to permit North Carolina courts to properly find they had general jurisdiction over the dispute.
Goodyear Luxembourg maintains that the traditional requirement for permitting general jurisdiction over corporations was that the corporation be present in the state and that these requirements are still relevant. Goodyear Luxembourg admits that a state could exercise general jurisdiction over a corporation when its agents are present in the forum state and it carries on substantial business there. However, Goodyear Luxembourg argues that the fact that products made by the defendant are sold in North Carolina does not qualify as the kind of substantial activity necessary for general jurisdiction.
In contrast, Brown argues that a corporation's presence within a state is no longer the standard for determining whether jurisdiction is proper. Rather, Brown maintains that after the Supreme Court’s decision in International Shoe v. Washington, 326 U.S. 310 (1945), the proper test is whether the corporation satisfies the minimum contacts test, which asks whether Goodyear Luxembourg "had continuous, systematic and substantial contacts with North Carolina" so that the state's exercise of general jurisdiction was reasonable. Brown further argues that because Goodyear Luxembourg, the Petitioner here, is a subsidiary of the larger Goodyear enterprise, which does have a significant presence in North Carolina, Goodyear Luxembourg does have sufficient activity in North Carolina to satisfy the minimum contacts test and justify the exercise of general jurisdiction. Brown argues that because the Goodyear enterprise is a highly integrated business, the individual corporations that make it up should not be considered individually.
Goodyear Luxembourg also argues that permitting general jurisdiction based only on the fact that some of its products were sold within the state unreasonably expands a state court's jurisdiction. Goodyear Luxembourg contends that if this were allowed, every state court could exercise jurisdiction over a large corporation engaged in the sale of goods worldwide regardless of where the company operated. Goodyear Luxembourg argues that states are constrained by a reasonableness standard when determining whether they may exercise jurisdiction in accord with the Fourteenth Amendment's due process clause. Goodyear Luxembourg contends this because in cases involving general jurisdiction where there is no relationship between the defendant's in-state activities and the cause of action, the state can only justify its exercise of general jurisdiction if the defendant has sufficient contacts with the state. Goodyear Luxembourg argues that the fact that the plaintiff resides in a state is not a factor in whether the state should be able to exercise general jurisdiction over the defendant. Goodyear Luxembourg maintains that because the company did not have any direct contact with the state, asserting that their only relation came from the fact that some of their products found their way into the market via the stream of commerce, there is no basis for exercising general jurisdiction.
In response, Brown maintains that finding general jurisdiction here does comport with due process because Goodyear Luxembourg chose to become part of the larger Goodyear enterprise, which does operate in North Carolina. Brown maintains that due process focuses on the fairness of requiring a defendant to litigate in a particular forum. Brown argues that Goodyear Luxembourg would be able to defend in North Carolina with little inconvenience because of the strong ties the Goodyear enterprise maintains as a whole to the state. Similarly, Brown argues that North Carolina has a strong interest in having the litigation occur within its borders in order to allow its residents to pursue litigation in their home state. Brown also contends that Goodyear Luxembourg's actions directly affected North Carolina because its error in design and production of the tire resulted in the deaths of two of North Carolina's residents, and this should be taken into account in determining if general jurisdiction exists:.
Goodyear Luxembourg contends that the important question in determining whether a state validly exercised its jurisdiction is whether a corporation would "reasonably anticipate" being sued in that state. Goodyear Luxembourg argues that its limited contact with North Carolina would not have led it to reasonably anticipate being sued in that state. Goodyear Luxembourg also maintains that even if a state court could exercise general jurisdiction on the sole basis that its products ended up in that state, there should be the further requirement that the corporation had to know that its products were being sold and used in that state. Goodyear Luxembourg maintains that it had no knowledge of the use of their products in North Carolina, citing the attenuated chain of distribution. Goodyear Luxembourg contends that the fact that it sold products to an affiliate, who sold them to another related company who in turn sold them to independent dealers, indicates that Goodyear Luxembourg had no knowledge that its products were going to be used in North Carolina.
Brown, on the other hand argues that because of the highly integrated nature of the Goodyear enterprise, Goodyear Luxembourg had, at a minimum, constructive knowledge that its products were being sold in North Carolina, and that because of this, the company should have anticipated being sued in North Carolina. Brown contends that the only way Goodyear Luxembourg was able to sell products was through the Goodyear enterprise and its distribution channels; he argues Goodyear Luxembourg did not solicit business, but relied on the Goodyear enterprise for its supply orders. Brown maintains that based on this relationship, Goodyear Luxembourg knew that its product would reach North Carolina because it knew of the distribution channels of the Goodyear enterprise and that the Goodyear enterprise operated within the state.
Goodyear Luxembourg argues that exercising general jurisdiction in this situation will deter commerce. Goodyear Luxembourg maintains that permitting general jurisdiction in this scenario means that every state will have general jurisdiction for any suit against a company that does significant business in the international or national market. Goodyear Luxembourg contends that this could inhibit commerce and trade.
In contrast, Brown argues that refusing to permit general jurisdiction in the present scenario would hurt the United States economy. Brown contends that American corporations would want to outsource manufacturing to subsidiaries located outside of the United States because those subsidiaries would not be accountable in domestic courts. Brown maintains that this incentive would lead to a significant loss of American jobs.
The Supreme Court will determine whether a forum state can exercise general personal jurisdiction over a foreign manufacturer whose sole contact with the forum state is the distribution of its product within that state by other entities.
Petitioners Goodyear France, Goodyear Turkey, and Goodyear Luxembourg (collectively “Goodyear Luxembourg”) argue that allowing such broad general jurisdiction will discourage interstate commerce and international commerce with the United States, because parties will not want to expose themselves to claims unrelated to their forum activities anywhere in the country where their product ends up. The United States Chamber of Commerce (“Chamber”) agrees, warning that commerce would be harmed if companies must take affirmative steps to take all of their products off of the market in any forum where they did not want to risk the burden of defending a lawsuit on any claim, whether or not related to their activity in that forum. The Chamber asserts that this effect will particularly harm small American businesses, which often lack the resources to defend themselves in distant forums, even within the United States, but which make substantial contributions to the United States economy.
The Product Liability Advisory Council (“PLAC”) adds that broad general jurisdiction would create unpredictability for defendants regarding where the defendant was liable on claims unrelated to its forum activities. This unpredictability would arise, argues PLAC, because plaintiffs could sue in forums where the defendant had no fair warning, based on its forum activities, that the defendant was liable for suit on any claim. The United States of America warns that all of these disincentives to engage in commerce with or within the United States ultimately harm American citizens, who would have a smaller range of available products from which to choose.
Respondents Edgar and Pamela Brown and Karen M. Helms (“Brown”) counter that a decision in favor of the Petitioners will encourage American companies to outsource parts of their manufacturing and design responsibilities to foreign countries. Brown argues that if American courts lack general personal jurisdiction over foreign subsidiaries that distribute a significant quantity of their products through other entities into the forum state, then American companies will outsource business to subsidiaries to protect themselves from tort liability in American courts. Brown claims that American courts are viewed as likely to give large awards, and so the prospect of avoiding American courts will encourage American businesses to limit their liability by creating these subsidiary companies. Such incentives would harm the American economy, Brown asserts, by putting American companies who stayed in the United States, and thus risked liability they could have avoided with an overseas subsidiary, at a competitive disadvantage against their outsourcing competition.
Goodyear Luxembourg warns that allowing broad general personal jurisdiction in state courts against foreign companies will harm American companies abroad. PLAC worries that foreign governments will make laws to retaliate against broad American general jurisdiction. PLAC predicts that such laws could harm American foreign relations and trade by allowing foreign plaintiffs to bring American companies into foreign courts based on claims that had nothing to do with the American company’s activities in that country. The Chamber fears this will lead to “open season” on American companies in foreign courts, harming American commercial interests. In addition, the United States argues that reduced American exports would harm the nation’s long-term economic welfare.
Brown contends that there will not be a “trade apocalypse” in which other countries open their courts to United States’ defendants in retaliation and foreign businesses refuse to do business with the United States if Brown wins this case. According to Brown, foreign businesses already try to avoid American courts and dislike the ease with which American courts grant general jurisdiction in certain situations. This case, Brown implies, will not change the policy of foreign governments. Furthermore, Brown argues that a decision against Goodyear Luxembourg would not affect the level of foreign exports coming into the United States, because even under the legal theory Brown proposes, there are sufficient safeguards so that courts could only rarely exercise general jurisdiction over a nonresident defendant.
The Supreme Court will further define the limits of state court general personal jurisdiction over a foreign or out-of-state company. The Court will consider whether the transfer of Goodyear Luxembourg’s products to North Carolina by other entities in the stream of commerce establishes sufficient contacts between the corporation and the state, so that granting general jurisdiction comports with due process. Goodyear Luxembourg argues that granting general jurisdiction for one party based on the actions of other parties will chill interstate and international commerce with the United States and harm the American economy. Brown contends that shielding subsidiary companies from general jurisdiction will encourage American companies to outsource their design and manufacturing business. The Court’s decision will impact the ease with which plaintiffs can sue foreign and out-of-state companies in American courts.