At the end of last month the U.S. Supremes handed down a pair of personal jurisdiction decisions. Once again, the more important opinion was fractured into plurality, concurrence and dissenting opinions.
Why is personal jurisdiction so darn difficult? Decisions on the subject are all over the lot. Since the Supremes' recent foray into Fractured Fairy Tales, other courts have decided personal jurisdiction questions without looking to the Supremes' constitutional jurisprudence. This post will examine these personal jurisdiction opinions to see what, if anything, can be definitively said about personal jurisdiction.
The appropriate question, thus, was not whether North Carolina could exercise specific jurisdiction over the foreign Goodyear subsidiaries; there was nothing about the facts of this incident that was connected to North Carolina at all. Rather, the question was whether North Carolina could exercise general jurisdiction over the foreign Goodyear subsidiaries.
Citing International Shoe, Justice Ginsburg -- writing for a unanimous court -- began by observing that "[a] court may assert general jurisdiction over foreign . . . corporations to hear any and all claims against them when their affiliations with the State are so 'continuous and systematic' as to render them essentially at home in the forum State." Slip op. at 2.
This, then, was an easy case, because not only were the three subsidiaries not "at home" in North Carolina, they had virtually no connection to North Carolina whatsoever. They were not present there or registered to do business there. They didn't design, advertise or market their products there. As such, there could be no general jurisdiction over them in North Carolina.
Justice Ginsburg pointed out that most of the Court's personal jurisdiction decisions after International Shoe in 1945 have addressed whether the exercise of specific jurisdiction is allowed (I.e., where the suit arises out of the defendant's forum contacts), rather than general jurisdiction. Slip op. at 7.
The North Carolina court had concluded that because at least some of the subsidiaries' products ultimately ended up in North Carolina, North Carolina could exercise general jurisdiction over them. Justice Ginsburg explained that the lower court had gotten it all wrong:
The North Carolina court's stream-of-commerce analysis elided the essential difference between case-specific and all-purpose (general) jurisdiction. Flow of a manufacturer's products into the forum, we have explained, may bolster an affiliation germane to specific jurisdiction. But ties serving to bolster the exercise of specific jurisdiction do not warrant a determination that, based on those ties, the forum has general jurisdiction over a defendant.
Slip op. at 10-11 (citations omitted).
Justice Ginsburg pointed to Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952), as the proper general jurisdiction analysis that the North Carolina court should have employed. In Perkins, a Phillipine mining company conducted its business from Ohio after the Japanese invasion of the Phillipines. The company's president had his office in Ohio, the company files were there, and the supervision of the company's activities was conducted from Ohio. These facts allowed the court to conclude that the foreign company was sufficiently "at home" in Ohio to allow Ohio to exercise general jurisdiction over the company -- even for actions that may not have had connections to Ohio.
So, from Goodyear v. Brown, we can deduce the following formula:
Little or no forum contacts = NO general jurisdiction (because foreign company is not "at home" in forum).
McIntyre Machinery v. Nicastro
On the same day, the Supremes handed down J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. ___, No. 09-1343 Slip Op. (June 27, 2011), in which the Court was as divided as it had been more than 20 years before in Asahi Metal Industry Co. v. Superior Ct., 480 U.S. 102 (1987). In Nicastro, the defendant was an English manufacturer of metal shearing machines, which were made in England. It did not market its machines in New Jersey or ship them there. It did, however, have a U.S. distributor that marketed to the country generally. Apparently at least one machine -- but no more than four -- ended up in New Jersey. And that one machine caused personal injury to a New Jersey worker. The New Jersey Supreme Court had held that New Jersey's exercise of specific jurisdiction over the manufacturer was constitutional.
The issue teed up in Nicastro was the classic "stream of commerce" jurisdiction question from Asahi: can a State assert specific jurisdiction over a manufacturer solely because its product ended up in the forum and subsequently caused injury?
The Nicastro Court splintered into three pieces over this question. And none of them used the five-factor test from Asahi.
First, Justice Kennedy (joined by Roberts, Scalia and Thomas) said no, basing their analysis of the issue on when a State may lawfully exercise jurisdiction over a non-resident. For Justice Kennedy, the question was one of State authority, which is only triggered by a non-resident's presence or the purposeful availment of the benefits of the State's laws:
As a general rule, neither statute nor judicial decree may bind strangers to the State.
A court may subject a defendant to judgment only when the defendant has sufficient contacts with the sovereign 'such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."' . . . As a general rule, the sovereign's exercise of power requires some act by which the defendant 'purposely avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws," . . . 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.'
. . .
. . . Where a defendant 'purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws,' it submits to the judicial power of an otherwise foreign sovereign to the extent that power is exercised in connection with the defendant's activities touching on the State.
Slip op. at 4-6 (citations omitted).
Justice Kennedy rejected a "stream of commerce" theory that would allow the assertion of specific jurisdiction wherever a product causes harm so long as the defendant could anticipate that the product might end up there. The "stream of commerce" theory:
merely observes that a defendant may in an appropriate case be subject to jurisdiction without entering the forum -- itself an unremarkable proposition -- as where manufacturers or distributors 'seek to serve' a given State's market. . . . 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 6-7 (citations omitted).
Justice Kennedy cautioned that "[t]he conclusion that jurisdiction is in the first instance a question of authority rather than fairness" leads to two implicit principles. First, the specific jurisdiction question is necessarily a "forum-by-forum, or sovereign-by-sovereign" inquiry. The second is perhaps more difficult for some people to swallow: "Because the United States is a distinct sovereign, a defendant may in principle be subject to the jurisdiction of the courts of the United States but not of any particular State." Slip op. at 9. In other words, no State may have jurisdiction over a foreigner who targets the US market in general and no State in particular.
Justice Ginsburg dissented (joined by Justices Sotomayor and Kagan), arguing that "the constitutional limits on a state court's adjudicatory authority derive from considerations of due process, not state sovereignty." Dissent at 8 (citations omitted). After citing a number of the Supreme Court's personal jurisdiction cases, Justice Ginsburg declared:
Whatever the state of academic debate over the role of consent in modern jurisdictional doctrines, the plurality's notion that consent is the animating concept draws no support from controlling decisions of this Court. Quite the contrary, the Court has explained, a forum can exercise jurisdiction when its contacts with the controversy are sufficient; invocation of a fictitious consent, the Court has repeatedly said, is unnecessary and unhelpful.
Justice Ginsburg thus posited that the foreign manufacturer could be subjected to specific jurisdiction in the court of any U.S. state in which its authorized distributor had sold its product, because setting up the distribution and marketing system was itself sufficient "purposeful availment" of the forum's law to support the exercise of jurisdiction. Dissent at 13-14.
As an interesting aside, Justice Ginsburg looked to European law to argue that this view is consistent with how other countries exercise jurisdiction in product liability cases.
Justice Breyer (joined by Justice Alito) was the swing vote, concurring in the judgment -- which held that there was no jurisdiction -- but refusing to join in the plurality's reasoning. Justice Breyer stated that the Nicastro case did not present the kind of record from which the Court should articulate broad jurisdictional principles. For him, it was enough that the suit arose from the single sale of the defendant's machine in New Jersey:
None of our precedents finds that a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient. . . . This Court has held that a single sale to a customer who takes an accident-causing product to a different State (where the accident takes place) is not a sufficient basis for asserting jurisdiction.
Concurrence at 2 (citations omitted).
Interestingly, however, Justice Breyer does seem to reject the "stream of commerce" theory, or at least its broadest articulation that would impose jurisdiction wherever the product ends up:
[Such a rule] would permit every State to assert jurisdiction in a products-liability suit against any domestic manufacturer who sells its products (made anywhere in the United States) to a national distributor, no matter how large or small the manufacturer, no matter how distant the forum, and no matter how few the number of items that end up in the particular forum at issue. What might appear to be fair in the case of a large manufacturer which specifically seeks, or expects, an equal-sized distributor to sell its product in a distant State might seem unfair in the case of a small manufacturer (say, an Appalachian potter) who sells his product (cups and saucers) exclusively to a large distributor, who resells a single item (a coffee mug) to a buyer from a distant State (Hawaii). . . .
. . .
. . . And a rule like the New Jersey Supreme Court suggests would require every product manufacturer, large or small, selling to American distributors to understand not only the tort law of every State, but also the wide variance in the way courts within different States apply that law.
Concurrence at 5-6.
So what rule should be applied to specific jurisdiction analysis? The Supremes still can't tell us. About the best we can say is this: (1) Where the defendant has targeted the forum for sales, specific jurisdiction likely will apply, (2) a straight stream-of-commerce test probably does not apply, and (3) where the defendant has targeted the US but no specific State, it's anybody's guess.
Rasmussen v. General Motors Corp.
Shortly after the Nicastro fiasco, the Wisconsin Supremes handed down their opinion in Rasmussen v. General Motors Corp., No. 2007AP35, Slip op. (Wisc. July 1, 2011). In Rasmussen, the court was faced with the question whether Nissan Motor Company -- a Japanese corporation -- could be subject to general jurisdiction in Wisconsin.
The plaintiff had brought a class action alleging that a number of defendants, including Nissan Japan, had violated Wisconsin's antitrust and conspiracy laws by restraining the import of lower-priced cars from Canada, and thus raising the price of cars in Wisconsin to artificial levels. Nissan Japan had moved to dismiss for lack of personal jurisdiction, arguing that it did not engage in any activities in Wisconsin and that it should not be tagged with the activities of its subsidiary, Nissan North America.
The Wisconsin Supremes first analyzed the question under the State's long-arm statute, which purported to extend as far as due process would allow. The court did not cite or engage in the "at home" due process analysis described above in Brown, however.
Rather, the court looked to whether Nissan Japan had "substantial and not isolated activities" in Wisconsin, as required by the Wisconsin Long Arm Statute. This involved looking at the quantity, nature, quality and source of the company's contacts with the State, as well as Wisconsin's interests and the convenience of the parties.
Because there was no evidence of undue control or fraud, the court refused to pierce the corporate veil or otherwise attribute the actions of Nissan North America to Nissan Japan under an "agency" theory. And it held that Nissan Japan had no contacts sufficient to give rise to general jurisdiction.
Chief Justice Abrahamson concurred separately to urge that because the long-arm statute extends to the limits of due process, all that was necessary was a due process analysis. She argued that borrowing other tests -- such as the one for piercing the corporate veil -- from substantive fields of law unnecessarily complicated what otherwise is a simple jurisdictional question of forum contacts:
[T]he circuit court and the majority opinion tread in murky waters when they use indeterminate substantive legal tests, such as piercing the corporate veil, to determine whether general personal jurisdiction lies. Tying the jurisdictional test to a substantive legal test such as piercing the corporate veil seems 'to allow consideration of a wide and freewheeling variety of veil-piercing factors for jurisdictional purposes, divorced from any meaningful appraisal of the defendant's conduct in relation to the litigation and the forum.' . . .
Using an analysis based upon the extent of control to determine whether the parent company has sufficient contacts with the forum state (through control of the subsidiaries' actions in the state), as opposed to determining whether the corporate entities should be merged or the corporate veil pierced, moors the jurisdictional analysis to jurisdictional principles and avoids the potentially confusing interplay of using a substantive legal test for jurisdictional analyses. . . .
. . . [W]hat must not be lost in using these 'tests' for jurisdictional purposes is that they are being applied to determine whether jurisdictional principles (minimum contacts, fair play, and substantial justice) are met, not whether substantive law principles are met. The majority opinion relies on the tests developed in the substantive law cases and does not acknowledge that the tests for substantive and jurisdictional law are not necessarily one and the same. . . .
. . .
. . . The focus should be on the control of the parent over the subsidiary as it relates to the minimum contacts necessary to establish jurisdiction over the parent under the pertinent general personal jurisdictional principles (a long-arm statute and constitutional principles of fairness).
Concurrence at 8-11 (citations omitted).
Interestingly, the Third Circuit recently reflexively used a "veil piercing" analysis (without considering Chief Justice Abrahamson's issued) in a non-precedential opinion which held that the actions of foreign subsidiaries in Iraq could not be attributed to the corporate parent, over which Pennsylvania had personal jurisdiction, or otherwise serve as the basis for jurisdiction. See Bootay v. KBR, Inc., No. 10-4028, Slip. op. (3d Cir. July 13, 2011) (not precedential).
One should not expect the law of specific personal jurisdiction to crystallize into easily-articulable principles anytime soon. In the meantime, it seems clear that plaintiffs will continue to try to use the actions of subsidiaries, distributors and other parties to tag foreign manufacturers with the sort of "control" and "purposeful availment" that the plurality wrote about in Nicastro. Foreign defendants should take care to ensure that the corporate formalities between parents and subsidiaries are fully observed and, if faced with such a challenge, they should consider making the arguments in Chief Justice Abrahamson's Rasmussen concurrence, so that "control" of the subsidiary is measured only in relation to forum-related contacts.