We mentioned late last month, back when everybody was still high on the Phillies, that the Supreme Court had granted certiorari in several interesting opinions. Two of those decisions, Brown v. Meter, 681 S.E.2d 382 (N.C. App. 2009), appeal denied, 695 S.E.2d 756 (N.C. 2010), and Nicastro v. McIntyre Machinery America, Ltd., 987 A.2d 575 (N.J. 2010), deal with personal jurisdiction in product liability matters brought in state court. Here, copied from our earlier post, are the questions that the Supreme Court agreed to hear:
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.
Whether, consistent with the Due Process Clause and pursuant to the stream-of-commerce theory, a state may exercise in personam jurisdiction over a foreign manufacturer when the manufacturer targets the U.S. market for the sale of its product and that product is purchased by a forum state consumer.
We can hear the yawns already. “Who the [word uttered when Uribe hit 9th inning sacrifice fly] cares.” Well, product liability defendants and their lawyers should care. We’ll try to explain what’s going on – which is easier than to explain Oswalt was pitching rather than Lidge last night.
“Personal jurisdiction” is the phrase given to the collection of questions that arise when a party asks, “What the heck am I doing before this court? I’ve never had anything to do with [fill in state].” We’re only dealing with defendants today, since that’s what both Brown and Nicastro deal with, but it’s not unknown for plaintiffs to ask the same question – particularly when nationwide class actions are brought in state court.
In personal jurisdiction cases, particularly in product liability, we’re dealing with the tension between: (1) our federal system, in which states remain independent sovereigns in their exercise of the powers (such as trying tort cases) assigned or reserved to them under the Constitution, and (2) the nationalization – and, indeed, internationalization – of commerce epitomized by the Interstate Commerce Clause.
Way back when, personal jurisdiction was strictly limited by territorial boundary, in that (to overgeneralize) the defendant had either to be a resident of the state or the object (usually real property, back then), known as a “res,” was within the state. The paradigmatic case for that view was called Pennoyer v. Neff, 95 U.S. 714 (1878), but it’s so old and out of date we’re not going to discuss it further.
The current rule, articulated by two ironically named cases, International Shoe Co. v. Washington, 326 U.S. 310 (1945) (where the defendant wasn’t very “international”), and World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980) (where the defendant was anything but “world-wide”), is that there must be “minimum contacts” between the defendant and the forum State such that the defendant has a relationship with said state sufficient that “he should reasonably anticipate being haled into court there.” World-Wide Volkswagen, 444 U.S. at 297.
The purposes of requiring “minimum contacts” for personal jurisdiction in our federal system are two-fold:
It protects the defendant against the burdens of litigating in a distant or inconvenient forum. And it acts to ensure that the States through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system.
World-Wide Volkswagen, 444 U.S. at 292.
There’s another personal jurisdiction concept that comes into play – the distinction between “general” and “specific” jurisdiction. “General” personal jurisdiction means that the defendant has enough contact with a state that it can be sued there about anything, even if the subject matter of the suit has nothing to do with that state. That kind of jurisdiction requires “substantial” contact, and is usually limited to the residence of an individual or state of incorporation or principal place of business of a corporation. “General” jurisdiction is why a drug manufacturer based in say, New Jersey, can be sued in New Jersey by a plaintiff from Montana who was prescribed the defendant’s drug by a Montana physician, and who has never set foot in New Jersey.
“Specific” jurisdiction is where the facts of a particular case have enough to do with a state that the defendant can be sued there in that case, even if it couldn’t for something not involving that state. That’s why our hypothetical Montana plaintiff could sue our not-so-hypothetical New Jersey drug company in Montana, as well, when the defendant detailed the prescriber and sent the drugs to him/her in Montana. An Missouri plaintiff, on the other hand, with no Montana contacts, could not sue the New Jersey company in Montana (assuming no general jurisdiction there), because the Missouri plaintiff would have no case-specific contacts with Montana. The Missouri plaintiff, however, could sue either in New Jersey (under “general” personal jurisdiction) or in Missouri (under “specific” personal jurisdiction).
That’s all well and good as a general matter, and not really in dispute. But things get complicated in product liability cases – including, but hardly limited to, cases involving prescription drugs. What if a California (or a Japanese) manufacturer sold its products to a middlemen (or to two or three) and had no idea or control over where its products ended up? Plaintiff in state X is injured by the product. Is there personal jurisdiction over the manufacturer in state X for that reason alone? To put it another way, is the “invisible hand” of commerce – foreseeability that the product could end up essentially anywhere in the country, if not the world – a sufficient “minimum contact”? It’s hardy an uncommon situation, and it’s from that kind of fact pattern that the “stream of commerce” theory of personal jurisdiction mentioned in the Brown and Nicastro cert. grants comes from.
The stream of commerce theory made it to the Supreme Court more than 20 years ago in Asahi Metal Industries Co. v. Superior Court, 480 U.S. 102 (1987), which any lawyer familiar with case names knows must have been from California. The Supreme Court considered opposing arguments that: (1) there must be more than bare foreseeability to have minimum contacts, so a defendant must have some kind of purposeful interaction with a state, or conversely (2) modern commerce in products is typically conducted through independent, impersonal middlemen and through long chains of distribution, so the mere presence of a product in a jurisdiction should be a sufficient contact to support jurisdiction.
The Court split 4-4 on the issue – but since facts peculiar to Asahi (we’ll get to them later) meant that personal jurisdiction failed even under stream of commerce, a published opinion rather than a Kent-style summary affirmance, resulted. Justice O’Connor, speaking for four justices, believed that the random yet foreseeable presence of a product (in Asahi, a valve for a motorcycle tire) in a jurisdiction was not enough to support personal jurisdiction, and that some “purposeful” conduct by the defendant affiliating itself with the state was required:
The substantial connection, between the defendant and the forum State necessary for a finding of minimum contacts must come about by an action of the defendant purposefully directed toward the forum State. The placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State. Additional conduct of the defendant may indicate an intent or purpose to serve the market in the forum State. . . . But a defendant’s awareness that the stream of commerce may or will sweep the product into the forum State does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum State.
480 U.S. 112 (all citations and quotation marks removed).
Justice Brennan, speaking for another coterie of four justices, took the opposite view:
The stream of commerce refers not to unpredictable currents or eddies, but to the regular and anticipated flow of products from manufacture to distribution to retail sale. As long as a participant in this process is aware that the final product is being marketed in the forum State, the possibility of a lawsuit there cannot come as a surprise. Nor will the litigation present a burden for which there is no corresponding benefit. A defendant who has placed goods in the stream of commerce benefits economically from the retail sale of the final product in the forum State, and indirectly benefits from the State’s laws that regulate and facilitate commercial activity. These benefits accrue regardless of whether that participant directly conducts business in the forum State, or engages in additional conduct directed toward that State.
480 U.S. at 117.
However, the claim actually at issue in Asahi wasn’t the injured California consumer’s claim. Rather, it was a third-party claim between a Taiwanese tire manufacturer plaintiff and a Japanese valve manufacturer defendant for indemnity “on the basis of a sale made in Taiwan and a shipment of goods from Japan to Taiwan.” Id. at 115. The court held that, entirely apart from stream of commerce, Due Process did not allow that claim to be dragged into a California court. Id. at 116 (“Considering the international context, the heavy burden on the alien defendant, and the slight interests of the plaintiff and the forum State, the exercise of personal jurisdiction by a California court over Asahi in this instance would be unreasonable and unfair”).
After Asahi, the states went their merry ways for more than twenty years – an object lesson to anyone who thinks that, after Kent, surely fraud on the FDA will soon find its way back to the Court. Some states applied the O’Connor view and some the Brennan view. Obviously, neither Nicastro nor Brown followed O’Connor.
Both cases are peculiar in their own way. We’ll start with Nicastro. In that case, the New Jersey Supreme Court took stream of commerce to its perhaps logical futuristic extreme. Citing modern times, the court effectively abolished federalism, as is evident from these quotes:
The increasingly fast-paced globalization of the world economy has removed national borders as barriers to trade. . . . Due process permits this State to provide a judicial forum for its citizens who are injured by dangerous and defective products placed in the stream of commerce by a foreign manufacturer that has targeted a geographical market that includes New Jersey.
987 A.2d at 577 (emphasis added).
We do not find that [defendant] had 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. Plaintiff’s claim that [defendant] may be sued in this State must sink or swim with the stream-of-commerce theory of jurisdiction.
Id. at 582 (emphasis added).
[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.
Id. at 589 (emphasis added).
Essentially in Nicastro the New Jersey Supreme Court ignored the state borders of New Jersey and every other state insofar as it applies to personal jurisdiction. Nicastro doesn’t look to a defendant’s contacts with New Jersey at all, but rather to contacts with the United States as a whole. Stream of commerce fully and finally trumps any federalistic limits on the exercise of state power. The state’s “policy reasons” – “a strong interest in protecting its citizens from defective products” and its “paramount interest in ensuring a forum for its injured citizens,” 987 A.2d at 590 – triumph over the supposedly archaic, 230-year-old concepts that at least some members of the United States Supreme Court have found in the Constitution. The New Jersey Supreme Court thus becomes a rather shrill advocate of the notion that “today’s world” changes constitutional notions of Due Process, at least as to personal jurisdiction:
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. . . . Although we cannot control manufacturing plants leaving this country or control a foreign manufacturer’s employment policy, working conditions, or the quality of its operations, we can ensure that a manufacturer that targets its defective products at a wide geographic market that includes New Jersey will not be immune from suit in our State’s courts.
987 A.2d at 591. We’ve never seen left-liberal “living constitution” philosophy combined with Tea Party know-nothingism in quite the same way before. Take that you nasty foreigners! Look how you took the all jobs from my home town! At least we’ll make you come to our courts!
We think Federalists on the Court are going to have a field day with Nicastro, since (as mentioned above) one of the “purposes” of limits on personal jurisdiction is precisely to “ensure” that states stay within “the limits imposed on them by their status as coequal sovereigns in a federal system.” World-Wide Volkswagen, supra.
Limits? Joisey don’t need no stinkin’ limits!
Brown, rather than taking stream of commerce doctrine to its logical(?) extreme, applied it to an entirely different issue – general, as opposed to, specific – jurisdiction. In both Asahi and Nicastro, at least the accident had taken place in the forum state. In Brown it did not. The plaintiffs (decedents, technically) in Brown were a couple of tourists from North Carolina who went to France. No French (or other foreign) product came to North Carolina. While in France they took a bus and were killed in an accident. Their lawyer blamed the French accident on the French/Luxembourgian/Turkish tires (it’s Europe, so maybe the word should be “tyres”) that the French bus company installed on the French bus.
Of course, suit was brought in North Carolina.
Well, because the accident and everything pertaining to it occurred overseas, there was no basis for asserting “specific” personal jurisdiction over the any of the European companies that sold their tires to Europeans in Europe. None of the “case specific” facts helped the North Carolina plaintiffs. “The present dispute is not related to, nor did it arise from, Defendants’ contacts with North Carolina. As a result, the issue raised in this case involves general rather than specific jurisdiction.” Brown, 681 S.E.2d at 388. So in a novel approach, the court applied stream of commerce theory to general jurisdiction:
[W]e conclude that the appropriate question that must be answered in order to determine whether Defendants are subject to the jurisdiction of the courts of this state is whether Defendants have purposefully injected their product into the stream of commerce without any indication that they desired to limit the area of distribution of their] product so as to exclude North Carolina. . . .
Id. at 391 (as usual, all internal cites and quotes removed). Brown found stream of commerce general jurisdiction based upon the defendant’s combined sales over a three year period of 44,384 tires that – through the hands of middlemen – found their way to North Carolina. Id. at 393-94.
Now that’s 44,384 tires out of what? Brown doesn’t say. Like the lamentable Wyeth v. Levine opinion the court provides only a numerator (the 20 adverse events in Levine) but no denominator. We had to look at the Brown defendants’ certiorari petition to find the answer. During the same period these defendants produced “more than 90 million tires.” Cert. petition at 4. We did the math. The court in Brown based its finding of general personal jurisdiction on the passive delivery (through middlemen the did not control) of one-two-thousandth (0.0005) of the defendant’s output.
This is general jurisdiction, we’re talking about.
A finding of general jurisdiction means that literally anybody – not just dead North Carolina tourists – can sue these Turkish, Luxembourgian, and French defendants in North Carolina. North Carolina can be a venue for, say, an Istanbul intellectual property action, a dispute over contract signed in Chongqing with a Chinese company, or a tort claim arising from a Nigerian clinical trial.
And the same would be true of any other state whose courts reached a similar conclusion. Chillingly, there’s nothing in Brown’s discussion of the 44,000 tires that suggests a belief that it is treading anywhere near a Due Process line. Rather, one-twentieth of one per cent of total product sales was “substantial”:
[T]he distribution chain through which tires manufactured by Defendants were shipped into the United States and, eventually, into North Carolina, was a continuous and systematic process. . . . [T]hrough a regular process employed within the [defendants’] organization, a substantial number of tires manufactured by the Defendants were imported into the United States and distributed to various entities in North Carolina.
681 S.E.2d at 394. North Carolina today; North Dakota tomorrow. Who’s to say that a court up there won’t think that forty Firestones to Fargo isn’t also “substantial.” According to Brown, “the sole act of a manufacturer’s intentional injection of his product into the stream of commerce provides sufficient grounds for a forum state’s exercise of personal jurisdiction.” Id. at 391.
So that’s what the Supreme Court has to deal with in Nicastro and Brown. In Nicastro a state court employed stream of commerce theory to abolish state boundaries altogether for personal jurisdiction – truly a tour de force for a court of just one of the fifty states. In Brown stream of commerce theory is used to expand general personal jurisdiction in order to misconstrue de minimis product sales as “substantial” and to find “purposeful injection” of products into a state where there plainly was none. If Brown stands, then potentially any product manufacturer could be sued anywhere over anything.
Those are the stakes, and these implications are why we’re following these cases. If you defend product liability cases, you should likewise pay attention. If plaintiffs have their way, it could be a Brave New World. What stream of commerce has joined, is federalism powerless to put asunder?