Argument previews: When do state courts have general and specific jurisdiction?
This morning, the Court will hear two cases, Goodyear Luxembourg Tires v. Brown and J. McIntyre Machinery Ltd. v. Nicastro, involving the bounds of general and specific personal jurisdiction. When a court has general jurisdiction over a resident defendant, it can hear any claim against that defendant, even if the claim originated outside the forum state. By contrast, a court can have specific jurisdiction over a non-resident defendant as long as the claims arise out of the defendant's contacts with the forum state. At issue in Goodyear is a claim of general jurisdiction over a U.S. company's foreign subsidiary that arises from an accident that occurred overseas involving a foreign-designed and manufactured product, while Nicastro involves a claim of specific jurisdiction over a British corporation that sent its products to New Jersey via an out-of-state U.S. distributor.
Goodyear v. Brown
In 2004, two North Carolina teenagers were killed in a bus accident in France that occurred after a tire on the bus blew out and the bus overturned. The tire was designed, manufactured, and distributed by three foreign Goodyear subsidiaries, the petitioners in this case. Although the tires include markings required by the U.S. Department of Transportation and modified versions of those tires were imported into the United States when a U.S. plant was on strike in 2006, the tires are not regularly sold in the United States. The Goodyear parent, a U.S. corporation, is present in North Carolina, wholly owns the foreign subsidiaries, and centrally manages the subsidiaries' tire distribution.
The teenagers' parents filed a lawsuit against the Goodyear parent and its foreign subsidiaries in a North Carolina state court. The foreign subsidiaries moved to dismiss the complaint for lack of personal jurisdiction. The trial court denied the motion. It concluded that the foreign subsidiaries were subject to general jurisdiction in North Carolina as a result of Goodyear's integrated distribution system: in the court's view, the subsidiaries had such substantial ties with North Carolina that requiring them to defend a suit in North Carolina would be consistent with due process.
The North Carolina Court of Appeals affirmed. It agreed that the North Carolina courts had general jurisdiction, reasoning that the foreign subsidiaries had "purposefully injected their products into the stream of commerce" and "knew or should have known" that the tires would be distributed in the United States and North Carolina. After the North Carolina Supreme Court denied discretionary review, the subsidiaries filed a petition for certiorari, which the Court granted on September 28, 2010.
In their brief on the merits, the subsidiaries make three main arguments. First, they argue that the Court's historical jurisprudence rejected a finding of traditional general jurisdiction when the defendant merely sells products within a forum state. Rather, due process limits on jurisdiction are meant to protect defendants against an unreasonable exercise of state power "“ the state must either have authority over the defendant (general jurisdiction) or the in-state conduct (specific jurisdiction). And for general jurisdiction to exist, a corporation must be present in the state. Moreover, the fact that affiliated companies sell or market a product within the state "“ as the Goodyear parent did in this case "“ cannot create jurisdiction over the foreign company. The subsidiaries bolster their arguments by pointing to the Court's seminal jurisdiction case International Shoe v. Washington (1945) and its modern progeny, which explain that due process requires contacts with the forum state to be "continuous and substantial," and more than a mere distribution of goods, to find general jurisdiction.
Second, the subsidiaries argue that a finding of general jurisdiction is likewise improper under a modern "stream of commerce" theory, which may establish jurisdiction over defendants that send products into a market when those products end up in the forum state. The subsidiaries argue that a "stream of commerce" theory by its very definition is limited to specific jurisdiction. And, in any event, the court has not even resolved the question of whether mere participation in the "stream of commerce," without more, satisfies the less-rigorous requirements of specific jurisdiction. Here, the foreign subsidiaries argue that there was no attempt to target their products at North Carolina; even if targeting is not a requirement, the number of sales of the product in North Carolina was not sufficiently continuous or substantial to establish general jurisdiction. They also warn that finding jurisdiction could increase forum shopping and moreover discourage interstate and foreign commerce, harming the American economy. As a further fall-back position, the subsidiaries argue that even if a "stream of commerce" theory could theoretically support a finding of general jurisdiction, such a finding would not be "reasonable," as required by Asahi Metal Industry Co. v. Superior Court (1987), in this case because of the remoteness of the subsidiaries' connections to North Carolina.
Finally, the subsidiaries emphasize that, if the Court holds that general jurisdiction is not proper, the respondents have waived any attempt to establish specific jurisdiction, which does not in any event exist because the claim itself did not occur in North Carolina as required for specific jurisdiction to apply.
In their brief on the merits, the respondents argue that the foreign subsidiaries do not need to be physically present in North Carolina for a court to find general jurisdiction. Instead, they merely need to have sufficient contacts with the state. The respondents emphasize that general jurisdiction traditionally is not a mechanical test: for example, in Keeton v. Hustler Magazine, Inc. (1984), the Court upheld a finding of general jurisdiction for a magazine publisher that did not have a physical presence in the forum and only distributed a relatively small number of its magazines within the state.
Flexibility is even more important, the respondents suggest, in an era in which corporations commonly have wholly owned foreign subsidiaries. In this case, general jurisdiction is appropriate because the subsidiaries had no distribution capabilities of their own, relying instead on central distribution by the U.S. parent.
Second, the respondents argue that finding general jurisdiction over the subsidiaries still provides the due process required by International Shoe. Under the Court's "unitary business" doctrine, invoked to uphold taxation and enforce labor and discrimination laws for foreign subsidiaries, the Court should be willing to consider the Goodyear parents and subsidiaries one company for the purposes of jurisdiction. Moreover, as subsidiaries of a large U.S. corporation, the burden of litigating in North Carolina is small for the subsidiaries; by contrast, the interest of both the state and the respondents in litigating in North Carolina is high, given the state's interest in protecting its citizens and the substantial burden for the respondents to bring suit in Europe.
Finally, the respondents argue that refusing to find jurisdiction over foreign subsidiaries of U.S. corporations will accelerate outsourcing to avoid U.S. litigation. Moreover, the foreign subsidiaries vastly overstate the negative practical effects of finding general jurisdiction for foreign subsidiaries: courts can control forum shopping and insure that claims are litigated in the proper forum.
J. McIntyre Machinery v. Nicastro
J. McIntyre Machinery is a British company that manufactures heavy machinery for the scrap metal industry in the United Kingdom; as relevant here, it distributed that machinery to only one U.S. distributor, an independent company in Ohio. In 1995, the Ohio distributor sold a scrap-metal shearing machine to a New Jersey company. In 2001, an employee of that New Jersey company, respondent Robert Nicastro, was injured while using the device. Nicastro subsequently filed suit against J. McIntyre Machinery (as well as its distributor) in New Jersey state court.
After a series of proceedings, the trial court dismissed the complaint against J. McIntyre for lack of personal jurisdiction, reasoning that there was no basis for the British company to expect that its products would be sold in New Jersey. On appeal, the state's intermediate appellate court reversed. It held that jurisdiction was proper because J. McIntyre does business in the United States through a single distributor, meaning that the British company could have expected the products to end up anywhere in the United States, including New Jersey. The New Jersey Supreme Court affirmed that decision, holding that even if it lacked specific contacts with New Jersey, J. McIntyre had "targeted" the entire United States. J. McIntyre filed a petition for certiorari, which the Court granted on September 28, 2010.
In its brief on the merits, petitioner J. McIntyre Machinery makes several arguments. First, it contends that states historically were barred from exercising jurisdiction over defendants who were not present within the borders of the state. Even with the more modern minimum-contacts test of International Shoe, due process still required sufficient ties to the forum state. When, as here, a plaintiff alleges that a court has specific jurisdiction over an out-of-state defendant, courts must evaluate whether the defendant has purposefully directed the product to the forum state; if the defendant has done so, it will have had "fair warning" that it would be subject to the forum state's laws. McIntyre points to two cases that, in its view, support this argument. First, in World-Wide Volkswagen v. Woodson (1980), the Court held that there was not specific jurisdiction, and Volkswagen lacked minimum contacts in the forum state, because it had not made any attempt to avail itself of the forum state's laws. Second, Justice O'Connor's Asahi plurality provides the proper "stream of commerce" test. In that case, eight Justices agreed that it would be unreasonable to find jurisdiction for a foreign company, but they could not agree on the proper test. Thus, Justice O'Connor authored a plurality opinion (joined by three other Justices) in which she suggested that jurisdiction is only appropriate if a corporation has purposefully directed its product at the forum state; a non-resident defendant's awareness that its product might enter a state is not enough to establish minimum contacts. In a separate plurality joined by three other Justices, Justice Brennan rejected Justice O'Connor's approach. Rather, he suggested, a defendant's awareness that its products would enter a forum state is enough to establish minimum contacts for specific jurisdiction.
In any event, J. McIntyre argues, neither Asahi test is met in this case because the New Jersey Supreme Court "“ although finding jurisdiction "“ suggested that it did not have sufficient contacts with the state to satisfy either Asahi "stream of commerce" tests. Instead, J. McIntyre argues, the New Jersey Supreme Court relied on the fact that J. McIntyre had a single U.S. distributor, thereby targeting the entire United States. J. McIntyre contends that this ruling departs from the usual jurisdictional focus on individual states and lacks any support in the Court's jurisprudence.
Finally, like the petitioners in Goodyear, J. McIntyre also argues that finding jurisdiction would discourage foreign companies from doing business in the United States for fear of being unexpectedly haled into state courts; moreover, it could strain relations with other nations.
In his brief on the merits, Nicastro counters that J. McIntyre had sufficient contacts for specific jurisdiction: unlike in World-Wide Volkswagen, he argues, McIntyre purposefully marketed its product throughout the United States, including by attending trade shows in the United States, contacting customers in New Jersey, and allowing its lone U.S. distributor to use the "McIntyre" name.
Second, Nicastro argues that under either Asahi plurality opinion, the New Jersey Supreme Court could have found jurisdiction over McIntyre based on the "stream of commerce" theory: McIntyre created the product and marketed it to the entire United States, purposefully selected a distribution center that could distribute the product nationally, and had knowledge that its products could be distributed to any state. Thus, the company had fair warning that it could be haled into court in any state.
Third, Nicastro argues that there are no extenuating practical reasons to reject a finding of jurisdiction. Finding specific jurisdiction would not harm international relations because such a finding is less offensive internationally than a finding of general jurisdiction, which is much broader. Moreover, there is no due-process requirement that a defendant have physical contact within a state's territory for a court to find jurisdiction; rather, targeting the whole United States with a single distributor is enough to satisfy due process concerns, which exist to safeguard a defendant's liberty and are not imposed simply to respect a state's territorial boundaries. Finally, New Jersey has a significant interest in ensuring that its citizens have a local forum in which to litigate accidents that occur within the state.
Recommended Citation: Andy Zahn, Argument previews: When do state courts have general and specific jurisdiction?, SCOTUSblog (Jan. 11, 2011, 7:06 AM), http://www.scotusblog.com/2011/01/argument-previews-when-do-state-courts-have-general-and-specific-jurisdiction/