“Supreme Court Decision Limits Use of “Stream of Commerce” Jurisdiction Theory to Subject Foreign Manufacturers to Suit in the U.S.” – Litigation Alert

At the end of its recent term, the United States Supreme Court decided J. McIntyre Machinery, Ltd. v. Nicastro (Case No. 09-1343, June 27, 2011). In McIntyre Machinery, the Court reversed a decision by the Supreme Court of New Jersey, finding that the New Jersey courts improperly asserted jurisdiction over an English machinery manufacturer in a product liability suit brought by an individual who was injured while using the manufacturer’s product in New Jersey.

The facts of the case are as follows: The defendant, McIntyre Machinery, is an English company that manufactures metal shearing devices used in the scrap metal industry. The plaintiff, Robert Nicastro, was severely injured while using a McIntrye shear in New Jersey. McIntyre sold its machines through an independent U.S. distributor, not controlled by McIntyre and not located in New Jersey. The distributor, however, followed McIntyre’s direction and guidance whenever possible. McIntyre officials also attended trade shows in the U.S., but not in New Jersey. McIntyre held U.S. and European patents on the machine. McIntyre generally desired to sell machines in the U.S., but there was no showing that New Jersey was targeted for sales, by advertising or otherwise. There was some evidence suggesting that as many as four McIntyre machines were located in New Jersey.

On these facts, six Justices of the Court agreed that the assertion of personal jurisdiction over McIntyre Machinery in New Jersey was improper. The six Justices did not agree on their reasoning. Justice Kennedy wrote the plurality opinion, joined by Chief Justice Roberts, Justice Scalia and Justice Thomas. Justice Breyer, joined by Justice Alito, concurred in the judgment. Justice Ginsburg dissented, joined by Justice Sotomayor and Justice Kagan.

The plurality stressed that the exercise of personal jurisdiction under the Due Process Clause of the Constitution generally depends on the defendant having purposefully availed itself of the privilege of doing business in the forum state, thus invoking the benefits and protections of its laws. Product liability cases, the plurality wrote, fall within this general rule. The plurality specifically rejected the notion that placing products in the stream of commerce in a manner such that it is foreseeable they will end up in a particular state is not enough: “The defendant’s transmission of goods permits the exercise of jurisdiction only where the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that its goods will reach the forum State.” (Slip Op. at 7). Further, although the facts showed a general intent by McIntyre to serve the U.S. market, “they do not show that J. McIntyre purposefully availed itself of the New Jersey market.”

In the concurring opinion, Justice Breyer stated that he did not believe it was appropriate to use the facts of this case to set strict rules. He noted that the case does not “implicate modern concerns” (such as targeting the world for sales by selling on the Internet). Justice Breyer supported the view that a single isolated sale in a state is not enough, and that “something more” is required than simply putting a product in the stream of commerce with knowledge that it may be swept into the forum state. Justice Breyer also stressed his view that due process requirements, including “purposeful availment,” rest upon a notion of “defendant-focused fairness.” Such considerations may vary when comparing a large national manufacturer to a small manufacturer selling a small number of products through a distributor. “Further, the fact that the defendant is a foreign, rather than a domestic, manufacturer makes the basic fairness of an absolute rule yet more uncertain.” (Breyer J., concurring, Slip. Op. at 6).

McIntyre Machinery is important because it limits the grounds for U.S. courts asserting personal jurisdiction against foreign manufacturers. In this context, “foreign” means out-of-state manufacturers as well as international companies. Six of the nine Justices clearly indicated that the simple fact that a product has found its way into a jurisdiction is not enough to establish jurisdiction over a non-resident manufacturer even though the manufacturer realizes that the product might end up in the state. The case will likely lead lower courts to dismiss certain cases which would otherwise have remained in court. Because of the fractured nature of the decision, however, its overall significance remains to be seen. Issues of personal jurisdiction will remain highly dependent on the facts of a particular case.