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Where in the USA Can Product Liability Suits Be Brought against My Company? Anywhere My Product Causes Some Damage?

12/06/2012 | by Tobias Ziegler
This past year the U.S. Supreme Court decided two cases that will make it more difficult to for plaintiffs to bring lawsuits in U.S. state or federal courts against a foreign company that manufactures products abroad which make their way to the U.S., if the foreign company does not have a store, sales office or employees here in the U.S.

Background
These two cases addressed the situation where the foreign company has few direct contacts with a state, other than the fact that the company’s products ended up there. In this situation, the question arises whether it is fair for the company to be forced to defend a lawsuit in that state given that it has few direct contacts. To answer this question, the courts have generally followed one of two approaches:

“Stream of commerce.”
Under this pro-consumer approach, a court can exercise jurisdiction over a foreign company if the foreign company knew or reasonably should have known that it was placing its products in the “stream of commerce” so they might end up in a particular U.S. state.

“Purposeful availment.” Under this pro-business approach, a court cannot exercise jurisdiction over a foreign company unless (i) it had taken significant actions targeting business in that state and (ii) the claims related to the products that it had directed to that state.

In the two recent decisions, the U.S. Supreme Court, the nation’s highest court, made it clearer that the more pro-business “purposeful availment” approach should be applied, particularly in product liability cases.

The J. McIntyre Machinery, Ltd. Case
This first case was brought by Robert Nicastro, who alleged he was injured by a defective metal-shearing machine manufactured in the UK by J. McIntyre and sold in the USA. J. McIntyre sells the machines throughout the US through a distributor located outside of New Jersey (Ohio-based) in which J. McIntyre holds no ownership or management control.

The Supreme Court of New Jersey decided that J. McIntyre could be sued in New Jersey for Nicastro’s injuries in New Jersey because J. McIntyre knew or should have known or expected that its products would be sold throughout the USA and could end up in New Jersey.

The U.S. Supreme Court disagreed. It ruled that J. McIntyre could not be sued in New Jersey because J. McIntyre had not sufficiently and purposefully directed its business and acts toward New Jersey. The Supreme Court noted: “The British manufacturer 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 after discovery [collection of evidence] the trial court found that the defendant [J. McIntyre] does not have a single contact with New Jersey short of the machine in question ending up in this state. These facts may reveal an intent to serve the U.S. market, but they do not show that J. McIntyre purposely availed itself of the New Jersey market.”

The Goodyear Case 
This case arose after two North Carolina teenagers were killed in a bus accident in France when a tire manufactured in Turkey by a Turkish Goodyear subsidiary malfunctioned. In addition to suing Goodyear USA, the plaintiff sued three indirect Goodyear USA subsidiaries: the Turkish one , and a French and a Luxembourg subsidiary.

The U.S. Supreme Court ruled, unanimously, that the foreign subsidiaries could not be sued in North Carolina. The Court determined that North Carolina courts lacked specific jurisdiction over the Goodyear non-U.S. subsidiaries because the claim did not arise out of or relate to any contacts between in the forum State, North Carolina. The Court also ruled that there was no general jurisdiction over the Goodyear non-US subsidiaries because none of them had any “continuous and systematic” contacts with North Carolina. 

The Court held that, for a U.S. court to exercise “general jurisdiction” over a foreign entity so that it can be sued for essentially any claim, even if the claim did not arise out of conduct in that state, the foreign entity’s ties to that State must be so continuous and systematic as to render it at home in that State.

Here, the Goodyear foreign subsidiaries were not registered to do business and had no place of business in North Carolina and had neither employees nor bank accounts in North Carolina. They did not design, manufacture or advertise their products in North Carolina. They did not solicit business in or sell or ship tires to North Carolina.

The type of tire manufactured by the Turkish subsidiary that allegedly caused the Paris accident was never distributed in North Carolina, but it conformed to U.S. Department of Transportation standards and bore markings required for sale in the USA.

In favor of a finding of jurisdiction, tens of thousands of tires from the foreign subsidiaries manufactured between 2004-2007 were distributed within North Carolina by a highly organized distribution network involving other Goodyear USA subsidiaries or affiliates. The foreign subsidiaries made no attempt to keep those tires from reaching North Carolina.

However, the foreign subsidiaries took no affirmative action to cause their tires to be shipped to North Carolina. The North Carolina Court of Appeals had stressed that tires manufactured abroad by the foreign subsidiaries reached North Carolina through “the stream of commerce”. Disagreeing, the U.S. Supreme Court concluded that that the “stream of commerce” analysis is not relevant to “general personal jurisdiction”. Rather, the flow of a manufacturer’s products into the forum State may bolster an affiliation with the forum State germane to “specific jurisdiction”. The foreign subsidiaries did not have materially “continuous and systematic” contacts with North Carolina sufficient for “general personal jurisdiction”. Since the accident took place outside of North Carolina (in France) and the Goodyear tire allegedly responsible for it never entered North Carolina, there was no basis for “specific personal jurisdiction.” 

Ramifications of decisions
These two, pro-business decisions will likely cause most U.S. state courts to apply the more narrow “purposeful availment” theory of specific personal jurisdiction in product liability cases involving foreign companies, rather than the broader “stream of commerce” theory, thereby limiting the ability of plaintiffs to bring such suits in the U.S. courts against foreign companies, particularly where the foreign company does not have any offices or employees here.

If a foreign company is sued in the United States, one of its first defenses will typically be that the court has no personal jurisdiction over it — it can’t decide the case. The “purposeful availment” theory will in many cases provide the foreign company considerable wiggle room to make cogent arguments supporting the court’s lack personal jurisdiction, to attempt to get the case dismissed, or to settle the case for a nominal sum.