Monday, June 27, 2011

Supreme Court Overrules Stream of Commerce Principle?

While most of the media attention was directed elsewhere, the Supreme Court today decided two important personal jurisdiction cases.  In a unanimous decision, the court in Goodyear v. Brown rejected a lawsuit filed in North Carolina by parents of two North Carolina children killed in a Paris bus accident involving tires manufactured by a Turkish subsidiary of Goodyear Tire & Rubber. According to the Court, the fact that Goodyear, the parent, does business in North Carolina doesn’t mean its foreign subsidiaries can be haled into court to answer for an accident that occurred in a foreign country.  In making its ruling, the Court reiterated the "continuous and systematic" rule from International Shoe

In J. McIntrye Machinery Ltd. v. Nicastro, which concerned  a worker who was injured while using a metal-shearing machine made in England and imported into New Jersey from another state, the plurality "overruled" the "stream of commerce" theory from Asahi.   Justice Kennedy thought that the theory, which was also contained in a plurality opinion, overemphasized fairness to consumers and underemphsized whether a court has jurisdiction.  He also wrote that the "foreseeability" of a product ending up in the forum was too little for jurisdiction.  He declared that

"The owner of a small Florida farm might sell crops to a large nearby distributor, for example, who might then distribute them to grocers across the country.  If foreseeability were the controlling criterion, the farmer could be sued in Alaska or any number of other States’ courts without ever leaving town.  And the issue of foreseeability may itself be contested so that significant expenses are incurred just on the preliminary issue of jurisdiction. Jurisdictional rules should avoid these costs whenever possible."

Justices Breyer and Alito concurred, but they thought that the plurality had gone too far in rejecting the stream of commerce theory.

These two cases provide greater protection for corporations from state court jurisdiction than previous cases.  They allow a large corporation to avoid jurisdiction in a state by using a subsidiary in another country, and they have probably ended the stream of commerce principle.

This author believes that there should be minimal constraints on the assertion of personal jurisdiction by states (The Boundary of Personal Jurisdiction: The 'Effects Test' and the Protection of Crazy Horses's Name). The boundary of personal jurisdiction should prevent states from asserting jurisdiction over defendants who have no significant connection with the state, yet permit broad jurisdiction so that plaintiffs have the opportunity to litigate their grievances. In this author's view, the proper test for personal jurisdiction under due process should be the following: 1) Does the defendant have a significant, purposeful contact or connection with the forum or has the defendant knowingly received some benefit from the forum state in connection with the forum’s regulatory authority? 2) If so, is defending the lawsuit in the forum so burdensome that the defendant cannot mount a proper defense?

In McIntyre, the defendant clearly benefited from its tires being sold in New Jersey--it increased its market and profits, so there should be jurisdiction.  Goodyear is a harder case.  Under corporation principles, corporations and their subsidiaries are separate entities under state law.   The corporation cannot be sued for debts or torts of the subsidiary unless there is a reason to pierce the corporate veil.  Reluctantly, this author finds no reason to change this rule for jurisdiction in this case.  The subsidiary lacks a significant, purposeful contact or connection with North Carolina, and it has not received some benefit from the forum state in connection with the forum’s regulatory authority.  The problem is not personal jurisdiction law, but corporate law.      


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