Expansion Of Personal Jurisdiction Over Foreign Suppliers

Transcription

1 Portfolio Media. Inc. 860 Broadway, 6th Floor New York, NY Phone: Fax: Expansion Of Personal Jurisdiction Over Foreign Suppliers Law360, New York (October 16, 2012, 2:08 PM ET) -- In July 2012, the Oregon Supreme Court expanded traditional notions of personal jurisdiction when it found that a Taiwanese component part manufacturer was subject to personal, or in personam, jurisdiction in Oregon despite having no direct contact with the state. See Willemsen v. Invacare Corp., 352 Or. 191, 282 P.3d 867 (Or. 2012). The decision offers an expanded notion of the minimum contacts necessary to establish personal jurisdiction, and if the decision is upheld by the U.S. Supreme Court, then it will have significant ramifications for foreign manufacturers who seek to conduct business in the United States. In Willemsen, CTE Corp., a Taiwanese corporation, manufactured battery chargers in Taiwan. Id. at 194, 282 P.2d at 869. and sold its battery chargers to one buyer in the United States, Invacare Corp., Id., located in Ohio. Id. Invacare used the battery chargers in the manufacture of motorized wheelchairs and, in turn, sold the wheelchairs around the country. Id. Plaintiffs filed suit against CTE and others for a death caused by an allegedly defective battery charger manufactured by CTE. Id. CTE argued that it was not subject to jurisdiction in Oregon as it transacted no business there and did not otherwise have minimum contacts with the state of Oregon. Id. The Oregon Supreme Court, however, found that the volume of wheelchairs (and incorporated battery chargers) sold in Oregon during a two-year period over 1,100 units established sufficient contacts in the state for the Oregon court to exercise personal jurisdiction over CTE. Id. at 203, 282 P.2d at 874. This article will provide a brief history of the Supreme Court precedent on personal jurisdiction, and it will analyze the soundness of the Willemsen decision in light of the precedent. This article will further discuss the potential implications for manufacturers and wholesalers if the U.S. Supreme Court upholds the Willemsen decision. A Brief History of In Personam Jurisdiction The due process clause of the Fourteenth Amendment limits the power of a state court to render judgment against the resident of another state. See Kulko v. California Superior Court, 436 U.S. 84, 91, 98 S. Ct. 1690, 1696 (1978); Pennoyer v. Neff, 95 U.S. 714 (1878). For a state court to exercise such power, the court must have personal or in personam jurisdiction over such person. In personam jurisdiction may be established through either general jurisdiction or specific jurisdiction. The general jurisdiction standard allows a court to exercise jurisdiction over a defendant if the defendant s contact with the state is continuous and systemic. See Helicopteros Nacionales de Colombia, S.A. v. Hall, 466, U.S. 408, 416, 104 S.Ct. 1868, 1873 (1984).

2 Under specific jurisdiction, a court may obtain jurisdiction over a defendant if the defendant s contacts with the forum, albeit limited, are specific to the cause of action. See id. at 414, 104 S.Ct. at This article will focus on specific jurisdiction as that was the focus in Willemsen. Any analysis of specific in personam jurisdiction must begin with the seminal decisions of International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154 (1945) and World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559 (1980). In International Shoe, the state of Washington sought to impose a tax on International Shoe Company to fund the state s unemployment insurance fund. International Shoe, 326 U.S. at 312, 66 S.Ct. at 156. Over a seven-year period, International Shoe employed between 11 and 13 salesmen that operated in Washington and engaged in a number of sales over that time. Id. at , 66 S.Ct. at 157. The court referenced the oft-cited rule that to establish personal jurisdiction under the due process clause, a person must have certain minimum contacts with it such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. Id. at 316, 66 S.Ct. at 158 (quoting Milliken v. Meyer, 311 U.S. 457, 463, 61 S.Ct. 339 (1940)). The court noted that the focus is not on the quantity of contacts, but on the quality and nature of the activity in relation to the fair and orderly administration of the laws. Id. at 319, 66 S.Ct. at The court ultimately held that the Washington state court could exercise jurisdiction over International Shoe due to the volume of business conducted in the state and also because International Shoe received the benefits and protection of the laws of the state, including the right to resort to the courts for the enforcement of its rights. Id. at 320, 66 S.Ct. at 160. In World-Wide Volkswagen, the Supreme Court confronted jurisdictional issues presented by the automobile. The plaintiffs were injured due to an alleged defect in their car while driving the car in Oklahoma. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 288, 100 S.Ct. 559, (1980). Plaintiffs sought to obtain jurisdiction over the New York car dealership where plaintiffs purchased the car. Id. The plaintiffs argued that the very nature of an automobile rendered it foreseeable that the car would travel in states other than where the dealership directly transacted business; thus, it was fair for Oklahoma courts to assert personal jurisdiction over the car dealership. Id. at , 100 S.Ct. at 566. The Supreme Court, however, refused to follow a strict foreseeability approach. Id. The court found that a single occurrence in a state where the dealership transacted no business was insufficient to establish personal jurisdiction. Id. at 295, 100 S.Ct. at 566. The court added that only when a corporation purposefully avails itself of the privilege of conducting activities within the forum State is the corporation subject to suit in that state. Id. at 297, 100 S.Ct. at 567 (quoting Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1240 (1958).). The Guidance (or Lack Thereof) of Nicastro Willemsen was initially on appeal to the Supreme Court when it was remanded with instructions to reconsider in light of the Supreme Court s recent decision in J. McIntyre Machinery Ltd. v. Nicastro, 131 S.Ct (2011). In Nicastro, the injured plaintiff sought damages from the English manufacturer of a metal shearing machine. Id. at The foreign manufacturing defendant J. McIntyre Machinery Ltd. manufactured metal shearing machines in England and sold them to a U.S. distributor. Id., who then sold the shearing machines around the country. Id. The shearing unit involved in the incident was the only unit sold in New Jersey. Id.

3 Six justices of the Supreme Court determined that the New Jersey courts could not exercise personal jurisdiction over McIntyre. The court, however, did not reach a majority opinion. A plurality of four judges held that [t]he 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. Id. at The plurality concluded that New Jersey courts could not exercise personal jurisdiction over McIntyre because [a]t no time did petitioner engage in any activities in New Jersey that reveal an intent to invoke or benefit from the protection of its laws. Id. at Justice Stephen Breyer, writing the concurring opinion, was concerned with the plurality s use of the word targeted. Id. at 2793 (J. Breyer concurring). Justice Breyer did not believe that the court was equipped to address whether, for example, selling goods on Amazon.com targeted a particular jurisdiction. Id. Instead, Justice Breyer would have decided the case under a straightforward application of World-Wide Volkswagen; 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. Id. at Justice Breyer would have required a regular flow or regular course of sales to establish personal jurisdiction in a particular state. Id. The Decision Thus, the Oregon Supreme Court was faced with the difficult task of deciding Willemsen by applying Nicastro without the benefit of a majority opinion. Under the Marks principle, when there is no majority opinion, the narrowest holding carries the force of precedent. See Marks v. United States, 430 U.S. 188, 193, 97 S.Ct. 990 (1977). The Oregon Supreme Court found that Justice Breyer s concurrence was the narrowest holding; therefore, it was precedential. Willemsen, 352 Or. at , 282 P.3d at 873. Recall that Justice Breyer found that the single sale of a good in a jurisdiction was insufficient to establish a regular flow of goods that would otherwise establish specific personal jurisdiction. See Nicastro, 131 S.Ct. at From this, the Oregon Supreme Court considered whether the volume of wheelchairs (and the incorporated battery chargers) present in the state of Oregon were sufficient to establish a regular flow in Oregon. Willemsen, 352 Or. at 203, 282 P.3d at 874. The Willemsen court found that the sale of over 1,100 wheelchairs in a two-year period was sufficient to establish minimum contacts with the state. Id. Supporters of the Willemsen decision would highlight that the holding is in accord with the narrow precedent from Nicastro. Additionally, Willemsen is perhaps more in line with the realities of a global economy. Companies across the globe manufacture products with the intent of selling their products, either directly or indirectly, in as many jurisdictions as possible across the world. Supporters would also add that it does not offend traditional notions of fair play to allow a state to assert personal jurisdiction over a corporation that derives substantial profits from the sale of more than one thousand units of its product within the state. Critics, however, would say that the decision in Willemsen ignores the history of purposeful availment jurisprudence dating back to International Shoe and World-Wide Volkswagen. As the Supreme Court stated in International Shoe, the quality of the contacts, and not the quantity, should determine whether a court may assert jurisdiction over a defendant. International Shoe, 326 U.S. at 319, 66 S.Ct. at

4 Significantly, those contacts must be of such a quality that a defendant purposefully avails itself of the privilege of conducting activities in the forum State, and enjoys the benefits and protection of the laws of that state. World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567 (citation omitted); International Shoe, 326 U.S. at 319, 66 S.Ct. at 160. CTE did not conduct activities or transact business in Oregon. CTE did not receive any benefits, privileges, or protections under Oregon law. For example, CTE would not have any rights under Oregon law if a dispute arose between CTE and Invacare. Cf. International Shoe, 326 U.S. at 320, 66 S.Ct. at 160 (stating that International Shoe maintained the right to resort to the [Washington] courts for the enforcement of its rights. ) Thus, Willemsen critics would say that CTE s contacts with Oregon were not of such a quality that it would be fair for Oregon courts to assert jurisdiction over them. What is undisputed is that if Willemsen is upheld by the U.S. Supreme Court, defense attorneys will have to substantially alter how they advise their foreign, national and regional clients with respect to personal jurisdiction. Implications of Willemsen Willemsen represents a significant expansion of the traditional notions of personal jurisdiction over foreign corporations. In International Shoe, the Supreme Court found personal jurisdiction because International Shoe s sales personnel were undisputedly working and making sales within Washington state. Although the quantity of the contacts was limited, the quality of the contacts indicated that International Shoe was receiving the benefits and protections of the laws of the state of Washington. In Willemsen, CTE did not direct any products or personnel to the state of Oregon. Rather, CTE directed their battery chargers to Ohio where the battery charges were incorporated into the motorized wheelchairs and were later sold to customers in Oregon by the Ohio manufacturer. Although CTE could surely foresee the potential of its product making its way to Oregon, foreseeability alone has never been sufficient to establish personal jurisdiction. Additionally, in Willemson, the court focused on the quantity of the contacts versus the quality and nature of the activity required by International Shoe. Prior to Willemsen, a manufacturer was safe in knowing that it could not be subjected to the jurisdiction of courts in states where it did not purposefully avail itself. The Willemsen holding, however, would allow the exercise of personal jurisdiction over a manufacturer who takes no action to place its product in the forum jurisdiction. Under Willemsen, the fact that a product, or merely component part of a product, makes its way into a jurisdiction in sufficient quantity is enough to permit the exercise of personal jurisdiction over the product manufacturer. Furthermore, the Willemsen holding is not limited to foreign manufacturers. Local or regional wholesalers and manufacturers that operate through distributors will also have to reconsider the jurisdictions in which they can be subject to suit. CTE may file a petition for writ of certiorari from the Supreme Court, and, although a Supreme Court decision would resolve the Willemsen case, the Nicastro decision strongly indicates that the Supreme Court may not provide a concrete framework for lower courts to use in evaluating these types of cases in the future. --By Michael J. Halaiko, and Matthew P. Phelps, Miles & Stockbridge PC

5 Michael Halaiko is a principal and Matthew Phelps is an associate in the Baltimore office of Miles & Stockbridge. The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice. All Content , Portfolio Media, Inc.