The United States Supreme Court to Address Whether Foreign Manufacturers May be Hailed into State Court under a Stream-of-Commerce Theory

06.05.12 | Permalink

By: Brian J. Baggot

UPDATE June 5, 2012

In 2011, a U.S. Supreme Court 4-2-3 plurality opinion held that a state court may not exercise personal jurisdiction over a foreign defendant where the jurisdictional allegations focused on the fact that the defendant’s products arrived through the “stream of commerce” into the state. See J. McIntyre Machinery, Ltd. v. Nicastro, 131 S.Ct. 2780, 180 L.Ed.2d 765 (2011). Justice Anthony M. Kennedy announced the judgment of the Court and authored the opinion supported by the most justices. He wrote, “As a general rule, the exercise of judicial power is not lawful unless the defendant ‘purposefully avails’ itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.” Id. He added, “In products-liability cases like this one, it is the defendant’s purposeful availment that makes jurisdiction consistent with ‘traditional notions of fair play and substantial justice.’”

The plurality opinion in J. McIntyre Machinery, Ltd. rejected the idea that personal jurisdiction over a non-resident defendant comports with Due Process merely because the manufacturer-defendant placed the product into the stream of commerce where it ultimately arrived in the forum state. This opinion held that it was no longer enough for plaintiff to sue a non-resident defendant by pleading the defendant could reasonably predict its product would end up in the forum state via placement into the “stream of commerce.”


Original Post from November 7, 2011

The United States Supreme Court recently heard oral arguments in a case that could have far reaching implications for foreign manufacturers. In J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343 (filed May 3, 2010) the Supreme Court granted certiorari to address whether a state may exercise jurisdiction over a foreign manufacturer whose products are distributed to the U.S. market. In an opinion that marks an unparalleled expansion of personal jurisdiction, the New Jersey Supreme Court held that a foreign manufacturer which places an allegedly defective product into the stream of commerce through a distribution system that targets the U.S. market is subject to personal jurisdiction in New Jersey when this product injures a New Jersey consumer. 

J. McIntyre, a company incorporated in the United Kingdom, manufactured metal cutting machines that were purchased and sold by an independent U.S. distributor. Nicastro, while operating one of these machines, lost four of his fingers. He then brought an action against the manufacturer in a New Jersey state court. Finding J. McIntyre had “no contacts with the state of New Jersey” and no “expectation that its product would be purchased and utilized in New Jersey,” the trial court dismissed the case against the manufacturer. The trial court reasoned that “[t]he fact that [J. McIntyre] may have sufficient aggregate minimum contacts with the United States to establish jurisdiction in this country is not a reason to extend jurisdiction to the Superior Court of New Jersey.” The New Jersey Court of Appeals, however, reversed the trial court’s decision and the New Jersey Supreme Court affirmed, holding that “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 in personam jurisdiction of a New Jersey court in a products liability action.” Although the New Jersey Supreme Court agreed with the trial court that J. McIntyre did not meet the minimum contacts test, it found that there was personal jurisdiction pursuant to the stream-of-commerce theory, placing particular emphasis on “the increasingly fast-paced globalization of the world economy.” 

In its Petition for Writ of Certiorari, J. McIntyre argued that the New Jersey Supreme Court departed from International Shoe Co. v. Washington, 326 U.S. 310 (1945) and its successors requiring that a entity purposefully establish a connection with the forum state before it can be subject to personal jurisdiction in that state. J. McIntyre further contended that the decision of the New Jersey Supreme Court deviates from the holding in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987) and the well-settled minimum contacts requirement. 

If the Supreme Court upholds jurisdiction over J. McIntyre, its decision will have significant implications for foreign manufacturers who target U.S. markets through distributors or other channels as well as their interactions with potential buyers. Many foreign manufacturers may limit their participation in U.S. markets if not abandon it all together to avoid incurring potential liability in numerous forums. For manufacturers that continue to service U.S. markets, they will be forced to factor the increased risk into the cost of their products, leading to higher costs for consumers. 

This case was argued before the Supreme Court on January 11, 2011, and a decision is expected by the end of the October 2011 term, which is scheduled to conclude late June or early July 2011. 

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