Legal Briefing

Continued uncertainty for international manufacturers in the US

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Technology, Media and Telecoms | 01 December 2013

For manufacturers that export, a key strategic issue for in-house counsel is assessing the risk of being sued in another jurisdiction – particularly the US.

In 2011 Sarah Croft, of Shook, Hardy & Bacon International LLP, reported on two decisions of the US Supreme Court which reaffirmed that non-US manufacturers cannot be sued in a state court unless their commercial conduct has a link to that state.1 It was hoped that these decisions gave some comfort to manufacturers that they would not end up in litigation in a state with which they had no direct commercial contact. The Supreme Court was divided, however, leaving scope for interpretation of the rulings by lower courts.


Since the cases of Goodyear Dunlop Tires Operations SA et al v Brown [2011] and J McIntyre Machinery Ltd v Nicastro [2011], there have been ten more cases on the issue of jurisdiction over foreign companies in product liability cases. Here, Sarah Croft examines how the rulings have been applied in practice in product liability cases since the Supreme Court rulings.

BACKGROUND

To briefly recap the position, if a US court is to exercise authority over a defendant, US federal and state courts must have personal jurisdiction over that defendant.2 There are two types of personal jurisdiction:

  • General personal jurisdiction: an ‘all purpose’ jurisdiction exists for any and all claims if the defendant has continuous, substantial and systematic contact with the jurisdiction, ie if the defendant is essentially ‘at home’ in the state. An example would be having an office in that state or actively carrying on business there.
  • Specific personal jurisdiction: for this ‘case specific’ jurisdiction to exist there is no need for the continuous and systematic contact, only that there are specific links between the claim at issue and the jurisdiction. An example would be a car accident that occurs when the defendant is driving in the forum state.

SUPREME COURT DECISIONS

In the cases of Goodyear Dunlop Tires Operations SA et al v Brown and J McIntyre Machinery Ltd v Nicastro, the Supreme Court ruled that the focus of the courts should be on the commercial conduct of the companies. In Goodyear, the Supreme Court clearly distinguished between the two types of personal jurisdiction, which, it emphasised, must not be combined when courts are addressing these issues. The Supreme Court in Goodyear found that general personal jurisdiction was not established on the facts because the contact with the state fell far short of the ‘continuous and systematic’ affiliation necessary.

On the issue of the flow of a manufacturer’s products into the forum through the ‘stream of commerce’, the Supreme Court said that this may be relevant when considering specific personal jurisdiction but it was not relevant when looking at general personal jurisdiction.

In J McIntyre, a divided Supreme Court held the allegations that the product entered the ‘stream of commerce’ were insufficient to establish specific jurisdiction over the UK manufacturer. While the company held a patent for the machine in question and directed the distributor with regard to US advertising and sales, the Court ruled that the test for establishing specific personal jurisdiction is ‘purposeful availment’ of the protections of that particular state.

In other words, the company must be actively operating in the state it is being sued in, rather than just targeting the whole of the US. The decision in J McIntyre, however (unlike Goodyear) was not unanimous – though two of the justices agreed with the decision on the facts, they rejected the reasoning of the majority.

CASES SINCE GOODYEAR AND J MCINTYRE

Of the ten recent cases the outcomes have been mixed for the company exporting to the US:

  • In four cases, courts declined to exercise jurisdiction over the foreign entity. Of these, three courts relied on circuit or state precedent rather than relying on the divided opinion in J McIntyreand one court relied mainly on J McIntyre.
  • In six cases, the courts did exercise jurisdiction over the foreign companies. Of these, two used the concurring opinion from J McIntyre and four relied on prior state precedent in light of the divided opinion in J McIntyre.

CASES WHERE COURTS DECLINED TO EXERCISE JURISDICTION

Yanmar Co, Ltd v Slater [2012]

The Arkansas Supreme Court determined that the Japanese tractor manufacturer lacked sufficient contact with the state with the consequence that the State Court had no jurisdiction over it. The Court found that its subsidiary’s contact was insufficient on the facts because jurisdiction over a non-resident parent corporation can be based on the actions of its resident subsidiary only if the parent exercised control and domination over the subsidiary to the extent that the non-resident becomes the resident’s ‘alter ego’. Yanmar Japan manufactured and sold the tractor in 1977 to an authorised Yanmar distributor in Japan. Twenty-six years later, the tractor came into the possession of a Vietnamese company that exported it to the United States the following year. It was eventually sold to the decedent by an Oklahoma company whose owner said that it looked ‘brand new’ when he purchased it at auction in 2004 from a Texas company. The plaintiff alleged that Yanmar Japan’s tractor was unreasonably defective or dangerous because it was manufactured without a rollover-protection system.

Sieg v Sears Roebuck & Co [2012]

The Federal Court in Pennsylvania determined the state could not exercise jurisdiction over the Taiwanese manufacturer of consumer electronics. The lawsuit was to recover for damages and injuries from a house fire allegedly caused by a defective power tap. Evidence showed that the defendant catered to the US as a whole, but not specifically Pennsylvania. This echoes the language of the Supreme Court in the McIntyre ruling.

Eskridge v Pacific Cycle, Inc [2012]

The Federal Court in West Virginia determined that the state lacked personal jurisdiction over a Taiwanese manufacturer because the company had not directed ‘purposeful, commercial activity’ toward the state. The company manufactured a part of a bicycle which allegedly caused the wheel to separate from the forks when ridden over a speed bump.

Crowell v Analytic Biosurgical Solutions [2013]

In a federal multi-district litigation case, the court in West Virginia determined (mostly using reasoning from J McIntyre), that the state could not exercise jurisdiction over a French medical device manufacturer because the defendant did not have sufficient connection to the state. The Court determined that the defendant did not purposefully avail itself of Tennessee’s laws in particular and had not targeted the state to sell its products. It supplies its product to another company that independently chooses to market in the United States.

CASES WHERE COURTS EXERCISED JURISDICTION

Van Heeswyk v Jabiru Aircraft Pty, Ltd [2012]

An Arizona Court of Appeals panel determined that the state could exercise jurisdiction over an Australian company which made engines for aircraft kits. When assessing the defendant’s contact with the forum, the Court found that the defendant engaged in ‘purposeful conduct for which it could reasonably expect to be hauled into the State Court’. This ruling allowed the decedent’s survivors to sue it for strict product liability arising out of a fatal crash involving an aircraft kit that included one of the company’s engines.

Willemsen v Invacare Corp [2012]

This case concerned an allegedly defective battery charger implicated in the cause of a fatal house fire. On remand from the US Supreme Court for reconsideration in light of J McIntyre, the Oregon Supreme Court found that jurisdiction existed over the Taiwanese company in question, based on a concurring opinion in McIntyre, in which the relevant standard was characterised as a ‘regular… flow’ or ‘regular course’ of sales in the forum state.

Yeszin v Neolt, SPA [2012]

The Federal Court in Michigan found that an Italian manufacturer had sufficient contacts to have jurisdiction exercised over it by the state. The defendant was the manufacturer of a drafting table which had allegedly caused harm to the plaintiff when it was being moved.

Russell v SNFA [2013]

Rather than using the split decision in J McIntyre, the Illinois Supreme Court relied on state precedent requiring ‘at a minimum, that the foreign defendant is “aware that the final product is being marketed in the forum state”’ to determine that the French manufacturer (which manufactured a part used in a helicopter tail rotor) was subject to personal jurisdiction. According to the court, other defendants, including the helicopter’s manufacturer:

‘… effectively operated as an American distributor for [the French manufacturer’s] tail-rotor bearings in the United States market’.

Without these other defendants, the French manufacturer:

‘… would have no market or corresponding sales of those bearings anywhere in the United States’.

And during a seven-year period, between 2000 and 2007, the helicopter manufacturer:

‘… sold approximately 2,198 parts manufactured by [the French company] to entities located in Illinois’.

Ainsworth v Moffett Eng’g [2013]

The Fifth Circuit followed a ‘stream-of-commerce’ approach to personal jurisdiction. It held that the Irish manufacturer was subject to personal jurisdiction because it delivered the product into the stream of commerce expecting that it would be purchased/used by consumers in the jurisdiction. The case involved a product liability and wrongful death action brought by the widow of a man run over by an allegedly defective fork lift while working on a farm in Mississippi.

The Fifth Circuit determined that this approach was valid even though it conflicts with the Supreme Court’s opinion in McIntyre, because that ruling failed to generate a single rationale such that the Court’s ruling:

‘… may be viewed as that position taken by those members who concurred in the judgments on the narrowest grounds.’

Hess v Bumbo Int’l Trust F/K/A Jonibach Mgmt Trust [2013]

A Federal Court in Texas determined that a South Africa-based manufacturer of child car seats had the type of contacts that allow it to be considered ‘at home’ in Texas. The company had been sued for injury to an infant allegedly caused by its infant seat product. The factual basis for this finding was that, according to the court, nearly one quarter of the 3.85 million baby seats the company sold in the United States were distributed by Texas-based Wartburg Enterprises, Inc. And, for part of the companies’ seven-year relationship, Wartburg was Bumbo International’s exclusive US importer and distributor. The Court also noted that, when the Consumer Product Safety Commission recalled the Bumbo Baby Seat® in 2007, Warburg’s vice president co-ordinated the recall and served as Bumbo’s US representative.

SUMMARY

Plainly, setting aside that these issues will be fact specific, the divided opinion in McIntyre has served to generate more confusion, with courts falling back on pre-existing precedent. This in turn means the same lack of consistency of approach from one state to another.

As the case summaries capture, the courts do seem to be examining the commercial links a defendant had with the state in question, which will assist a non-US manufacturer which seeks to argue that jurisdiction should not be exercised over it. The threshold standard the courts are applying to the issue is less clear – in other words it is difficult to say exactly how much commercial contact is needed for the court to exercise jurisdiction.

Since it took 25 years for the issue to come before the US Supreme Court in Goodyear and McIntyre, manufacturers will probably continue to face uncertainty on this issue for the foreseeable future.

By Sarah Croft, partner, Shook, Hardy & Bacon International LLP.

E-mail: scroft@shb.com.

Notes

  1. ‘When can international manufacturers be sued in the US?’ The In-House Lawyer, issue 194 (October 2011), page 54.
  2. See earlier article for more detail.