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High Court Draws Back Long-Arms: Benefits to Foreign Corporations Contesting Jurisdiction

July 14, 2011

Two significant decisions limiting the exercise of personal jurisdiction over foreign corporations were announced on June 27, 2011 by the U.S. Supreme Court. The decisions arise out of state court actions in New Jersey and North Carolina.

The new limitations on the assertion of personal jurisdiction provide important new defenses that may be available to foreign corporations and to foreign subsidiaries of domestic corporations.

The two cases are Goodyear Dunlop Tires Operations v. Brown and J. McIntyre Machinery v. Nicastro.1 These decisions constitute the most significant development regarding personal jurisdiction since the decision in Asahi Metal Industry Co. vs. Superior Court, (1987) 480 U.S. 102 (“Asahi”).2

In Goodyear, the Supreme Court addressed this question: “Are foreign subsidiaries of a United States parent corporation amenable to suit in state court on claims unrelated to any activity of the subsidiary in the forum state?”

North Carolina residents commenced a wrongful death action arising out of a bus accident in France against Goodyear USA and three of its subsidiaries incorporated in France, Luxembourg and Turkey. The three foreign subsidiaries contested the exercise of jurisdiction by North Carolina courts.

In a unanimous opinion, the Supreme Court reversed the North Carolina Court of Appeals. The Supreme Court determined Goodyear USA’s business operations in North Carolina did not confer jurisdiction over its foreign subsidiaries in the circumstance where the foreign subsidiaries did not themselves also have sufficient contacts with North Carolina to justify the exercise of jurisdiction.

The record demonstrated that the foreign subsidiaries were not registered to do business in North Carolina, had no place of business, employees or bank accounts in North Carolina, and did not design, manufacture or advertise products in North Carolina.

The Supreme Court rejected the reasoning of the North Carolina Court of Appeals, which essentially found that the realities of global commerce allowed some tires attributed to the foreign subsidiaries to reach North Carolina due to a “highly organized distribution process.” The distribution by Goodyear USA and its affiliates of a small percentage of the foreign subsidiaries’ tires in North Carolina was not sufficient in and of itself to uphold jurisdiction.

In McIntyre, the Supreme Court addressed this question: “Whether a person or entity is subject to the jurisdiction of a state court despite not having been present in the state either at the time of suit or at the time of the alleged injury, and despite not having consented to the exercise of jurisdiction.”

A New Jersey resident commenced personal injury litigation against a metal-shearing machine manufacturer incorporated in Great Britain. An independent distributor imported a McIntyre machine from another state into New Jersey, where plaintiff severed four fingers while operating the machine.

The New Jersey Supreme Court held that the courts of the State of New Jersey had personal jurisdiction over McIntyre based upon McIntyre’s knowledge that its products were being distributed in the United States.

The New Jersey Supreme Court applied a stream of commerce standard, relying upon its interpretation of Asahi. The New Jersey Supreme Court concluded McIntyre was subject to personal jurisdiction because (1) an independent company agreed to distribute McIntyre’s machines in the United States, (2) McIntyre officers attended annual industry conventions hosted in the United States (although not in New Jersey) and, (3) approximately one to four McIntyre machines were operated in New Jersey. Based on these facts, the New Jersey Supreme Court determined McIntyre “[knew] or reasonably should [have known] that its products are distributed through a nationwide distribution system that might lead to those products being sold in the fifty states.”

In reversing the New Jersey Supreme Court, the Supreme Court determined the criteria for establishing a proper exercise of personal jurisdiction were not met. A plurality determined that Asahi was incorrectly interpreted because concepts of fairness and of foreseeability were applied in place of a determination whether McIntyre consented to the exercise of jurisdiction by virtue of purposefully availing itself of the privileges of conducting business in New Jersey.

The Supreme Court concluded the record provided no evidence McIntyre engaged in conduct sufficient to demonstrate that McIntyre purposefully availed itself of the privilege of conducting activities in New Jersey. The record demonstrated “the company had no office in New Jersey; it neither paid taxes nor owned property there; and it neither advertised in nor sent any employees to the state. Indeed, the trial court found that petitioner did not have a single contact with the state apart from the fact that the machine in question ended up there.”

The Court noted “none of our precedents finds that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient.” The presence of one [or even four] machines utilized in New Jersey was insufficient to demonstrate a purposeful availment of the privileges of conducting business in New Jersey.

McIntyre provides foreign companies with significant new legal authority to contest the assertion of personal jurisdiction where the company has not consented to the exercise of jurisdiction as manifested by a purposeful availment of the privileges of conducting business in a particular state.

The Supreme Court did not entirely discard the stream of commerce analysis in favor of an analysis focusing on conduct demonstrating a purposeful availment of the privileges of the forum state. Rather, the concurring opinions of Justice Breyer and Justice Alito indicate they concur with the result of overturning the New Jersey Supreme Court’s ruling on the grounds the Asahi criteria were not satisfied. However, the Justices did not agree that McIntyre was the appropriate vehicle to implement purposeful availment criteria in lieu of the stream of commerce standard as articulated in the plurality.

As a consequence of the manner in which McIntyre was decided, the stage is set for a decision on the broader question of the appropriate standard to apply in determining personal jurisdiction over foreign corporations. Taken together, Goodyear and McIntyre signal an inclination to decide personal jurisdiction on standards less amorphous than found in Asahi et. al.

Should you have any questions about these decisions, please contact Dykema attorneys Joy L. Ganes at 213-457-1716, Dommond E. Lonnie at 213-457-1712, Christopher M. Stevens at 213-457-1746, or Automotive and Products Liability Litigation Practice Group Leader Derek S. Whitefield at 213-457-1777.


1Goodyear Dunlop Tires Operations v. Brown (“Goodyear”), --- S.Ct. ----, 79 USLW 4696, 11 Cal. Daily Op. Serv. 7915 (U.S.N.C. June 27, 2011) and J. McIntyre Machinery v. Nicastro (“J. McIntyre”), ---S.Ct. ----, 79 USLW 4684, 11 Cal. Daily Op. Serv. 7903 (U.S.N.J. Jun 27, 2011).
2480 U.S. 102

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2011 Dykema Gossett PLLC.
 

As part of our service to you, we regularly compile short reports on new and interesting developments and the issues the developments raise. Please recognize that these reports do not constitute legal advice and that we do not attempt to cover all such developments. Rules of certain state supreme courts may consider this advertising and require us to advise you of such designation. Your comments are always welcome. © 2017 Dykema Gossett PLLC.