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Wednesday.  Woden's day.  The day between Tyr's day and Thor's day.  The middle of the week.  Humpday.  It's all downhill from here, baby.

I've awakened this Humpday with a grab bag of cases, each of moderate interest, but none with enough meat to fully satisfy.  So today, readers, it's tapas.  Small plates for you.  Mangia.

First plate:  Personal Jurisdiction.  The Utah Court of Appeals recently issued an interesting opinion that applied the U.S. Supreme Court's recent gallimaufry of opinions in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).

In Gardner v. SPX Corp., 2012 WL 503722 (Utah. Ct. App. Feb. 16, 2012), the plaintiff's husband, a truck driver, was killed on his employer's loading dock when a vertical dock leveler fell on him.  Plaintiff alleged that the control box was defective.  It had been designed and made by a Canadian company.  A Delaware corporation had an ownership interest in the Canadian company, but they were separate companies and all of the corporate formalities had been been observed, so no veil piercing could occur.

The control box manufacturer made its boxes based on the specifications of another Canadian company to which it sold the boxes.  That company, in turn, sold the boxes to another Canadian company, which then sold the boxes to a US company that incorporated the boxes into dock levelers.  Plaintiff argued that the Canadian control box manufacturer knew that the majority of dock levelers incorporating its component ultimately were sold in the United States to US users, particularly in the West. 

The court held that this was not enough to meet the minimum requirements inherent in the due process concept of "fair play and substantial justice."  The court analyzed the various opinions in Nicastro, observing that the "Court splintered on the question whether, in products liability cases, and especially products liability cases involving foreign defendants, the United States is more properly regarded as a 'single market' or fifty separate markets, each subject to a different authority."  2012 WL 503722 at *5.  Focusing on the lack of "purposeful availment" of the forum's laws, the Utah court held that the Canadian control box manufacturer ("Schneider Canada") had not purposefully availed itself of the benefits of Utah law:

We conclude that, under the foregoing authorities, Schneider Canada lacks the requisite minimum contacts with the State of Utah.  Schneider Canada is located and operates in Canada; it maintains no offices, owns no property, and has no employees in Utah.  Schneider Canada manufactured the control box in question in Canada and sold it to a Canadian distributor. . . .  Schneider Canada did not purposefully avail itself of the Utah market.  It did not take active steps to sell its products in Utah.  Although it was aware of potential sales in the United States, it neither advertised in Utah nor sent sales representatives to Utah.  In short . . . the record does not show "special designing for Utah's market, advertising in Utah, establishing channels for providing regular advice to customers in Utah, or marketing the product through a distributor who has agreed to act as a sales agent in Utah."  And although this was not as isolated a sale as occurred in [Nicastro], the record here does not show "special state-related design, advertising, advice, marketing or . . . special effort by the [Canadian] Manufacturer to sell in [Utah]."

Id. at *6 (citations omitted).

The court also focused on two other facts, which are interesting:  regional sales, and the nature of the product as a component:

In addition, Schneider Canada's "knowledge of the mere possibility that its product might be taken into a region of the country in which Utah is located is not sufficient" to subject it to Utah's jurisdiction.  Finally, unlike [the manufacturer in Nicastro], Schneider Canada "was a component-part manufacturer with 'little control over the final destination of its products once they were delivered into the stream of commerce.'"

Id. at *7 (citations omitted).  The Utah court affirmed the dismissal of the Canadian control box manufacturer.

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Regular readers of this blog will recall that in late October, I wrote about an opinion by U.S. District Court Judge James K. Bredar, in which he concluded after analyzing the Supreme Court's fractured opinions in J. McIntyre Machinery Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), that a majority of the Justices have rejected the "foreseeability" theory of personal jurisdiction in which jurisdiction may be premised solely upon the manufacturer's knowledge or expectation that its product may ultimately end up in a particular state after it is placed in the so-called stream of commerce.  Personal jurisdiction requires something extra:  stream of commerce "plus."  The Supremes just can't agree on how to characterize the "plus" element that gets to the notion of purposeful availment of the forum state's laws.

Judge Bredar had been loathe to dismiss the claim against the foreign defendant without giving the plaintiff a post-Nicastro shot at proving there was a "plus" there in his case.  Well, they have had the hearing, and now it's official:  the Taiwanese supplier of the bicycle's "quick release skewer" is out of the case.  As you may recall, there had been evidence that the supplier of the allegedly defective component had sold its components to bike manufacturers in the U.S., but there was no evidence that it had targeted Maryland in any way.  And now, after the hearing, there still is none.

In Windsor v. Spinner Industry Co., Ltd., 2011 WL 5985804 (D. Md. Nov. 30, 2011), Judge Bredar explained that the only new evidence offered was testimony from the president of a Maryland company that buys and sells bicycle parts.  Although he had bought a number of bicycle hubs made by the Taiwanese defendant, he bought them through a trading company in Taiwan and had never bought directly from the defendant.  (Moreover, there apparently still was nothing to connect any so-called "purposeful availment" of the forum's laws to the particular component that failed in the plaintiff's bicycle.  Thus, there was not even enough evidence to support specific jurisdiction, let alone general jurisdiction over the defendant.)

The court held that plaintiffs had "failed to carry their burden of demonstrating that [the Taiwanese defendant] is subject to personal jurisdiction in this forum."  Thus, it dismissed the claims against that defendant without prejudice.

On the same day, a court on the opposite coast reached a similar conclusion.  In Dow Chemical Canada ULC v. Superior Court, 2011 WL 6004358 (Cal. App. -- 2d Dist. Nov. 30, 2011), the plaintiffs had been injured when their 3-person personal watercraft -- think jet-ski, and then switch the brand to Sea Doo -- exploded on the California side of Lake Havasu.  The suit alleged that a defect in the fuel tank had caused the explosion.

The Sea Doo had been manufactured by a Canadian company, Bombardier, in Canada.  Bombardier had bought the allegedly defective fuel tank in Canada from a Canadian company, Wedco Molded Products, that ultimately became part of Dow Chemical Canada. 

Dow Chemical Canada appeared specially in the case to quash the summons on the ground that it lacked minimum contacts with California to justify the state's assertion of personal jurisdiction.  The trial court denied the motion to quash.  In doing so, it relied on testimony from a Bombardier employee that sometime in the 1990s he told unidentified "representatives" of Wedco that the watercraft in which Wedco's gas tanks were used were being sold in California.  Dow Chemical Canada sought a writ of mandate in the California Court of Appeal and the California Supreme Court.  Both of them turned Dow down.  It then sought certiorari in the U.S. Supreme Court.  And then the U.S. Supremes issued Nicastro.  Afterwards, the U.S. Supremes vacated the judgment against Dow Chemical Canada and remanded the case to the California Court of Appeal for reconsideration in light of Nicastro.

The California court got the hint.  First, it described the issue presented as "whether merely depositing goods in the stream of commerce with knowledge that some will end up in a finished product manufactured by another and sold in the forum state, is enough to satisfy the minimum contacts standard for personal jurisdiction."  Id. at *2.  And after recounting the Supreme Court's history of "stream of commerce" analysis in Asahi and Nicastro, the court answered the question with a resounding "no."  It reasoned:

At no time did Dow . . . engage in any activities in California that reveal an intent to invoke or benefit from the protection of its laws.  Nor is there any evidence that the design of Dow's product was in any way California-specific.  It is not sufficient for jurisdiction in this case that the defendant Dow might have predicted or known that its products would reach California.

[Wedco] never undertook to ship its components to California; it supplied its gas tanks and filler necks exclusively in Canada.  It matters not whether [Wedco] knew or could have predicted that another party -- Bombardier, Inc. -- would sell Sea Doos incorporating the [Wedco] gas tanks in California.  [Wedco] did not advertise or market products in California; it never sold products in, or to customers in, California; it never maintained an office or facility of any kind in California; it has never been qualified to do business in California; and it has no agent for service of process in California.  Due process requires that Dow have engaged in additional conduct, directed at the forum, before it can be found to have purposefully availed itself of the privilege of conducting activities within California.

Id. at *6 (citations omitted, emphasis added).  The court thus issued a writ of mandate to the trial court to grant Dow Chemical Canada's motion, and it awarded the company its costs for the proceeding.

The results in these cases are, of course, the right results.  But lest one think that perhaps the fractured opinions in Nicastro were not such a tragedy after all, let me remind you that these are the easy cases.  These are the cases in which there are absolutely no facts -- other than sheer foreseeability that a product will wash up on a forum's shores -- to support the exercise of personal jurisdiction.  The real problem arises -- and in the wake of Nicastro, unfortunately will continue to arise -- where there may be some limited facts that tie a foreign defendant to the forum.  How much (or what type) of contact is enough to support the exercise of specific jurisdiction?  And general jurisdiction?   There no doubt will be a sea of opinions that attempt to answer that question, and the results will be anything but predictable.

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The Ninth Circuit issued a dreadful decision this week that uses an agency theory to impose general jurisdiction over a foreign corporation because of its control of its US subsidiary, thus subjecting it to an Alien Tort Statute and Torture Victim Prevention Act suit arising out of the actions of the company's Argentina subsidiary.  See Bauman v. DaimlerChrysler Corp., No. 07-15386, Slip op. (9th Cir. May 18, 2011).

The plaintiffs in Bauman were 22 Argentine nationals who either were allegedly kidnapped, detained, or tortured by Argentine security forces or were related to those who were.  They alleged that during Argentina's Dirty War in the mid-1970s, Mercedes Benz Argentina -- a wholly-owned subsidiary of DaimlerChrysler AG -- labeled workers who favored unions as "subversives" and "agitators," with the knowledge and intention that the state security forces would capture them (often, allegedly, at MBA's plant) and subsequently commit human rights abuses.  The plaintiffs sought recovery from the corporate parent -- DaimlerChrysler AG ("DCAG"), a German company headquartered in Stuttgart.

DCAG also owned a holding company, DaimlerChrysler North America Holding Corporation, which was the sole owner of Mercedes-Benz USA, LLC ("MBUSA").  MBUSA has a regional office in Costa Mesa, California.  The parties all agreed that MBUSA would be subject to general personal jurisdiction in California.  The question -- for purposes of Bauman -- was whether the German parent company, DCAG, would be subject to such general personal jurisdiction.

The District Court concluded that it was not and granted the motion to dismiss for lack of personal jurisdiction.  But a three-judge panel of the Ninth Circuit -- Judges Mary Schroeder, Dorothy Nelson, and Stephen Reinhardt -- disagreed, reversing the District Court's opinion.  Notably, the panel did not consider the Kiobel question:  whether a corporation can even be subject to suit under the Alien Tort Statute.

In stretching to find personal jurisdiction over DCAG, the Ninth Circuit did not engage in an analysis of whether the corporate veils between MBUSA and DCAG should be pierced as being effectively fraudulent.  Rather, the court used an agency theory to conclude that DCAG exercised such control over MBUSA as its product distributor that the distributor should be considered DCAG's agent in the US, subjecting it to general personal jurisdiction.  Foreign companies that have clauses in their distribution agreements allowing them to control their brands and intellectual property would do well to pay close attention to the Bauman court's analysis.

In conducting the standard "minimum contacts" analysis for general personal jurisdiction (i.e., jurisdiction over matters that arise outside the forum), the court framed the issue as "whether MBUSA's extensive contacts with California warrant the exercise of general jurisdiction over DCAG."  Slip op at 6575.  The court instructed that it had two tests available to it to determine whether due process would allow the exercise of jurisdiction over a parent by virtue of its relationship to a subsidiary.  The first is the "alter ego" test, which requires the parent to exercise such control over the subsidiary that it is a mere instrumentality of the parent, such that honoring the corporate formalities will result in fraud or injustice.  Slip op. at 6576.  Clearly, the plaintiffs could not meet that standard.

And so the court focused on the second test, the "agency" test, which asks whether the "subsidiary functions as the parent corporation's representative in that it performs services that are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services."  Id. (citation omitted).  The court acknowledged that this test also required a showing that the parent controlled the subsidiary, but held that the quantum of control required to meet the agency test was somehow less than the control required to meet the "alter ego" test. 

It is this conclusion -- that plaintiffs need not show control of the day-to-day operations of the subsidiary -- that is fundamentally flawed.  The Ninth Circuit found that MBUSA performs important services for DCAG.  Of course it does -- it sells a HUGE number of DCAG's cars.  And if MBUSA didn't do it, of course DCAG would have to get another company to do it.  But that isn't what satisfies due process.  Control -- extraordinary, daily, detailed, almost sham-like control -- is what due process requires to exercise general jurisdiction over the parent.

Admittedly, DCAG's distributorship agreement with MBUSA gives it the right to control a number of issues -- just as any company concerned about its luxury brand and trademarks would do to protect the value of such intellectual property.  The goal of most of these controls is to ensure that the quality of the customer experience is maintained; they are not attempts to use MBUSA as a sham independent agency to protect the manufacturer.  And they are not evidence of day-to-day control of all aspects of MBUSA's operations.

DCAG sets dealership standards, service standards, warranty terms, prices, customer satisfaction policies, dealership locations, and what customer information MBUSA may collect; approves modification of vehicles and all dealership signage; can review advertising and marketing plans; and establishes sales targets and electronic systems for accounting, order, inventory control, and warranty claim processing.  But these controls do not amount to running MBUSA on a day-to-day basis.

After the Bauman court concluded that the "agency" test was met, it then embarked on a 7-prong analysis of whether the exercise of general jurisdiction over DCAG was "reasonable,"  First, it concluded that DCAG had purposefully interjected itself into California through MBUSA.  It also focused on some lawsuits the company had filed in the state, and the work of a California-based research subsidiary there.  It also noted that DCAG "has retained permanent counsel in California."  Id. at 6585.

Next, it evaluated the burden of defending the suit in California.  The court discounted such burdens on an international corporation, concluding that it weighed "slightly in DCAG's favor." 

Third, the court discounted any conflict with the sovereignty of DCAG's home country of Germany, reasoning that because the company intended to benefit from the US market, it must tolerate the risk of litigation here.  Id. at 6588.

Moreover, the court held that California has "a significant interest in adjudicating the suit" arising out of torts allegedly committed in Argentina, citing the Alien Tort Statute and the Torture Victim Prevention Act.

The court held that there was no "most efficient" forum for adjudicating the dispute.  The US and Germany would be equally efficient, it reasoned, and Argentina was "not a truly available forum" because it imposes a two-year statute of limitations on human rights cases arising out of the Dirty War.  The court also expressed concern about whether Germany would allow equitable tolling of the statute of limitations for human rights claims.

Ultimately, the court:

conclude[d] that it is reasonable to exercise jurisdiction over DCAG in California, a state that has itself become a major hub for world commerce and attracts business not only from all over Europe, but from all over Asia as well.

Id. at 6594.  The court noted that sales in California alone counted for 2.4% of DCAG's worldwide sales, and nearly 50% of DCAG's revenue cam from the United States.  The court continued:  "Our test for personal jurisdiction must take these realities into account in determining whether it is reasonable to subject a parent company to the jurisdiction of the courts of this nation on the basis of the acts of its agent."  Id. at 6596.

Beware, large multinational corporations with considerable US sales.  Bauman suggests that general personal jurisdiction exists to hale you into court here based on your US subsidiaries' contacts, even where the causes of action pled against you arise out of a foreign subsidiary's alleged actions on foreign soil.  Bauman is a dangerous precedent indeed.

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Not long ago I published an article on personal jurisdiction, explaining the tension between courts that believe it is sufficient for a foreign manufacturer to place the product in the stream of commerce, and those that require something more:  some form of purposeful availment of the forum's laws and benefits.

Last week the Colorado Court of Appeals was faced with a case that presented these issues.  The trial court had concluded that the Chinese manufacturer of an electric meter that exploded in Colorado, injuring a Colorado resident, was not subject to personal jurisdiction in Colorado.  The Court of Appeals reversed.  See Etchieson v. Central Purchasing, No. 09CA0218, Slip op. (Colo. Ct. App. Apr. 15, 2010).

The Court of Appeals noted that what constitutes "purposeful availment of the forum" is an open question.  It walked through the U.S. Supreme Court's decisions in World Wide Volkswagen and Asahi, as well as the Colorado Supreme Court's decision in Alliance Clothing Ltd. v. District Court, 532 P.2d 351 (Colo. 1975), in which the court found that because it was foreseeable that the subject ski pants would be sold and used in Colorado, personal jurisdiction was proper.

The Court of Appeals ultimately did not decide what the appropriate test for personal jurisdiction was, instead finding that even under Justice O'Conner's most stringent "stream of commerce plus" test, jurisdiction was proper in this case.  The Chinese manufacturer, Precision, sold the meters to a California company, Central Purchasing.  Precision put Central Purchasing's branding on the products and packaged them for sale in the United States.  It knew that Central Purchasing sold the meters throughout the United States.  It helped arrange for shipping of the goods to California and South Carolina for distribution throughout the United States.  Precision also advertised its own meters in U.S. publications with a national reach.

The Court of Appeal rejected the argument that these facts did not represent purposeful availment of Colorado's laws and benefits:

[S]imply because these activities were directed toward the United States market generally rather than toward the Colorado market exclusively did not make Precision's availment of the benefits of the Colorado market any less purposeful. 

Neither Asahi nor any other precedent requires a court to exclude from consideration a nonresident defendant's actions relating to a forum simply because those actions also constituted availment of other forums.  To the contrary, as other courts have determined, it is proper to consider contacts with the United States market as a whole in assessing whether a defendant had established minimum contacts with a particular state.

Indeed, excluding regional or national contacts in considering minimum contacts in product liability cases could allow any foreign-nation manufacturer that marketed and sold its products throughout the United States to avoid being haled into a state court anywhere in the country, thus impairing the states' ability to protect their respective citizens from injury from defective products, simply by refusing to tailor its product specifically to any state.

Slip op. at 12-14 (citations omitted).

Accordingly, the Court of Appeals reversed the trial court, holding that the exercise of personal jurisdiction over Precision was constitutionally permissible.

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