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The first step in any litigation involving a corporate defendant that is foreign to the selected forum is determining whether the court can exercise jurisdiction over the defendant.  There are two different types of personal jurisdiction that a court can exercise over a defendant – general and specific.  A state court may assert general jurisdiction over a foreign corporation when the corporation’s affiliations with the state are so “continuous and systematic” as to render them essentially at home in the forum state.  On the other hand, specific jurisdiction exists only where there is a connection between the forum state and the underlying controversy.  Traditionally this occurs where an activity or occurrence takes place in the forum state.

However, even where the occurrence takes place in the forum state, the Due Process Clause of the Fourteenth Amendment circumscribes the state’s ability to exercise specific jurisdiction over a foreign defendant.   The recognized authority on this principle is International Shoe Co. v. Washington where the United States Supreme Court held that a state court may only exercise specific jurisdiction over an out-of-state defendant where the defendant has “certain minimum contacts with [the state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice,”  326 U.S. 310, 316 (1945).  As a general rule, establishing this requires some act by the defendant that demonstrates that it “purposefully avail[ed] itself of the privilege of conducting activities within the forum state thus invoking the benefits and protections of its laws.”   Hanson v. Denckla, 357 U.S. 235, 253 (1958).

In product liability cases, the traditional jurisdictional inquiry has centered on application of the “stream of commerce” doctrine.  Under this theory, in order to exercise specific jurisdiction, purposeful availment is satisfied if a defendant places its goods into the stream of commerce with the expectation that they will be purchased by consumers within the forum state.  Many courts have interpreted this to mean that a product manufacturer purposefully avails itself if it is simply “foreseeable” to the product manufacturer that the stream of commerce may or will bring its product into the forum state.  In practice, the effect of this rule is that all substantial product manufacturers become amenable to suit wherever their products could potentially be distributed.

Earlier this year, the United States Supreme Court issued two significant decisions concerning the stream of commerce theory which will benefit foreign product manufacturers who are contesting jurisdiction.  In J. McIntyre Machinery, Ltd. v. Nicastro, 131 S.Ct. 2780 (2011) the Court addressed the stream of commerce theory as it pertains to establishing specific jurisdiction and in Goodyear Dunlop Tires, S.A. v. Brown, 131 S.Ct. 2846 (2011) the court addressed the stream of commerce theory as it pertains to establishing general jurisdiction.

In J. McIntyre Machinery, Ltd. v. Nicastro a divided Supreme Court held that a New Jersey State court could not exercise specific personal jurisdiction over a foreign manufacturer whose machine had been sold in New Jersey through an independent distributor.  In so holding, the court noted that the mere foreseeability that the stream of commerce may or will bring a product into the forum state is not a sufficient basis for jurisdiction noting that it is the defendant’s actions, not its expectations, which empower a state court to subject it to jurisdiction.   The court explained that the exercise of jurisdiction should be permitted only where the defendant can be said to have targeted the forum stressing that “it is not enough that the defendant might have predicted that its goods will reach the forum state.” As the only “contact” the defendant had to New Jersey was that the machine ended up there via an independent distributor, the court found that purposeful availment was not demonstrated as there was no evidence that the defendant engaged in any activities in New Jersey that revealed an intent to invoke or benefit from the protection of New Jersey’s laws.

In another victory for foreign product manufacturers, the United States Supreme Court ruled inGoodyear Dunlop Tires, S.A. v. Brown that a state court cannot exercise general jurisdiction over a foreign product manufacturer by relying only on the stream of commerce theory.  In Goodyearthe plaintiffs’ decedent, a North Carolina resident, was killed in a bus accident outside Paris, France.  The plaintiffs filed suit in North Carolina alleging that a defective tire caused the accident.  The plaintiff sued an Ohio corporation and three of its foreign subsidiaries, one of which manufactured the tire in Turkey.  Specific jurisdiction was not available as the occurrence that gave rise to the litigation did not occur in the forum state and the product was not manufactured in the forum state.  However, the North Carolina Court of Appeals held that North Carolina could exercise general jurisdiction over the three foreign subsidiaries because they had the “continuous and systematic contacts” necessary to support general jurisdiction as they had placed their tires into the stream of interstate commerce without any limitation on the extent to which those tires could be sold in North Carolina.

The United States Supreme Court, in a unanimous decision, reversed the appellate court’s decision holding that while the flow of a manufacturer’s products into the stream of commerce may support specific jurisdiction in cases where that product ultimately causes harm inside the forum, it does not warrant a determination that the forum has general jurisdiction.  The court noted that a connection so attenuated between the forum and a foreign corporation, such as simply placing products into the stream of commerce, does not establish the “continuous and systematic” affiliation necessary to empower a state court to entertain claims unrelated to the foreign corporation’s contacts with the state.

Both decisions should be considered a victory for foreign product manufacturers and will hinder a plaintiff’s ability to sue a foreign manufacturer with no significant connection to the forum state.  The decisions not only significantly limit the scope of the previously broad sweeping “stream of commerce” theory, but also altogether eliminate application of the theory to the general jurisdiction analysis.