Complex Litigation

Supreme Court Speaks on Warnings and Personal Jurisdiction Issues

By Michael Hoenig - New York Law Journal - July 11, 2011

Weeks ago the U.S. Supreme Court issued decisions in three products liability cases. Two involved questions regarding personal jurisdiction over foreign manufacturers.1 One concerned issues of warnings liability on the part of generic drug manufacturers, notably whether inadequate warnings claims were preempted by federal law.2 It will be remembered that our March 14 column already reported on the Supreme Court's Williamson v. Mazda decision holding no implied preemption of a seat belt design claim; the Court's grant of a "GVR" order in Priester v. Ford Motor Co., remanding to the South Carolina Supreme Court an automotive side window glass design claim, also raising preemption issues; and the Court's Bruesewitz v. Wyeth decision holding preemption of a child vaccine claim, all issued in late February of this year.3 Witnessing six products cases ruled upon by the nation's high Court in one term seems at least some indication of just how important this field of litigation has become.

On June 23 the Supreme Court issued its remarkable 5-4 decision in Pliva Inc. v. Mensing,4 holding that inadequate warnings claims filed against manufacturers of generic drugs were preempted because federal drug regulations applicable to generic drug manufacturers directly conflicted with the state law claims. Plaintiffs in these consolidated cases were females prescribed a drug called metoclopramide that speeds movement of food through the digestive system and, therefore, is used to treat digestive tract problems.

The drug was first approved in 1980 and sold under the brand name Reglan. Plaintiffs received the generic form of the drug from their pharmacists but developed a severe neurological disorder called tardive dyskinesia, a subject of warning labels that were strengthened and clarified several times over the years.

Plaintiffs claimed that the risk of the disorder was far greater than that indicated on the warning label. The Court held that the suits were preempted because it was "impossible for the manufacturers to comply with both state and federal requirements." Had the generic manufacturers independently changed their labels, they would have violated the federal requirement that generic drug labels be the same as the corresponding brand-name drug labels. Yet, these lawsuits urged that state law required stronger warnings from these manufacturers. Plaintiffs' further contention, that the defendants could have asked the Food and Drug Administration's help in strengthening the brand-name label, was rejected by the Court. The proper question for "impossibility" preemption analysis is whether the private party could independently do under federal law what state law requires of it.

In Wyeth v. Levine,5 the Court, in 2009, held that an inadequate warnings claim against a brand-name manufacturer was not preempted since it was possible for the manufacturer there to comply with both state and federal law. So why was the result different here? Because the federal statutes and regulations applicable to brand-name manufacturers differ, by Congress' design, from those applicable to generic drug manufacturers.

Jurisdiction

In its June 27 Goodyear Dunlop Tires decision,6 the Court dealt with a so-called "general jurisdiction" question. Since the famous International Shoe case,7 many courts have differentiated between a state's "general," as opposed to "specific" jurisdiction over foreign corporations. General jurisdiction refers to a foreign corporation's "continuous and systematic" affiliations with a state as to render it "essentially at home in the forum state."8 Sometimes, general jurisdiction is referred to as "all-purpose" jurisdiction. Courts also use language that a corporation is "doing business" or is "present" in the particular state.

What all this terminology means is that, consistent with the Due Process Clause, the forum state has authority to adjudicate an underlying controversy against the foreign company even though the out-of-state defendant does not consent to such suit and the matter in dispute is unrelated to or has nothing to do with the forum state. It is the court's personal jurisdiction over the "at home" foreign company that allows the court to adjudicate a lawsuit that may not even be related to any activity by defendant within the state. Constitutionally speaking, assertion of personal jurisdiction exposes a defendant to a state's coercive power so the exercise of such authority must comport with the 14th Amendment's Due Process Clause.

When courts speak of "specific jurisdiction," they refer to state authority to adjudicate controversies that are affiliated with the forum. Specific jurisdiction, then, is confined to adjudication of "issues deriving from, or connected with, the very controversy that establishes jurisdiction."9 Principally, in products liability cases, the jurisdictional nexus is an activity or occurrence that takes place in the forum state or that satisfies due process standards.

In Goodyear, a bus accident outside Paris, allegedly caused by a defective tire, took the lives of two 13-year-old soccer players visiting from North Carolina. The tire was manufactured in Turkey at the plant of a foreign subsidiary of Goodyear USA. The boys' parents filed a lawsuit in a North Carolina state court naming Goodyear USA (an Ohio corporation) as well as Goodyear subsidiaries organized and operating in Turkey, France and Luxembourg. Goodyear USA did not contest jurisdiction, but the foreign subsidiaries did.

The North Carolina court did not have specific jurisdiction over the foreign companies because the manufacture, distribution and failure of the tire and the accident and deaths occurred abroad. So the question was: did the North Carolina court have general jurisdiction over the foreign subsidiaries? The state courts answered that question, "Yes." They blended general jurisdiction and specific jurisdiction concepts by reasoning that a limited number of the foreign companies' tires made abroad reached North Carolina through the so-called "stream of commerce."10

Unanimous Decision

A unanimous Supreme Court, in an opinion written by Justice Ruth Bader Ginsburg, held that the North Carolina courts were wrong. There was no general jurisdiction here consistent with due process because evidence of the limited connection with North Carolina did not establish the "continuous and systematic" affiliation necessary "to empower the North Carolina courts to entertain claims unrelated to the foreign corporation's contacts with the State."11 The "stream of commerce" metaphor—where a nonresident defendant acting outside the forum, places into marketing and distribution channels, i.e., the stream of commerce, a product that ultimately causes harm inside the forum—is an analysis connected to the exercise of specific jurisdiction. "Flow of a manufacturer's products into the forum…may bolster an affiliation germane to specific jurisdiction."12

The foreign subsidiaries were "in no sense at home in North Carolina." Their "attenuated connections" to the state "fall far short of the 'continuous and systematic general business contacts' necessary to empower North Carolina to entertain suit against them on claims unrelated to anything that connects them to the State."13 Plaintiffs also argued that the various Goodyear entities together constituted a "single enterprise" with many contacts with the state, but the Court refused to address this argument, concluding that the contention was "forfeited" by inadequate argumentation on the subject.

The Court's June 27 decision in the J. McIntyre Machinery case14 was an entirely different matter in many respects. First, it was a specific jurisdiction case. Second, unlike the unanimous Court decision in Goodyear, the justices divided significantly. Thus, Justice Anthony M. Kennedy announced the judgment of the Court but wrote an opinion in which only Chief Justice John G. Roberts Jr. and Justices Antonin Scalia and Clarence Thomas joined. Justice Stephen G. Breyer wrote a separate opinion joined by Justice Samuel A. Alito, Jr. agreeing that the New Jersey Supreme Court's assertion of jurisdiction had to be reversed but refusing to announce the rule of broad applicability reflected in Justice Kennedy's opinion. Justice Ginsburg filed a dissenting opinion in which Justices Sonia Sotomayor and Elena Kagan joined. As a result, the vote stood 6-3 for reversal of the New Jersey Supreme Court's finding that the state courts could exercise jurisdiction, but the hoped-for clarity as to a number of "stream of commerce" scenarios may not have been achieved.

J. McIntyre deserves study, far more than we can specify in our brief report here. Plaintiff Nicastro was an employee in New Jersey who injured his hand while using a metal-shearing machine manufactured by the J. McIntyre company in England. The English company at no time marketed goods in New Jersey or shipped them there. Plaintiff filed suit in New Jersey state court and contended personal jurisdiction was appropriate because a U.S. distributor agreed to sell J. McIntyre's machines in this country; the English manufacturer's officials attended trade shows in several states, though not in New Jersey; and no more than four machines ended up in New Jersey. The state's high Court also noted that J. McIntyre held U.S. patents on its recycling technology and the U.S. distributor had structured its advertising and sales efforts in accordance with J. McIntyre's direction and guidance wherever possible.15

On these "contacts" the New Jersey Supreme Court concluded that the state courts could exercise personal jurisdiction consonant with the Due Process Clause. Thus, injury occurred in New Jersey; the manufacturer knew or reasonably should have known that its products were distributed nationwide leading to those products being sold in any of the 50 states; and J. McIntyre "failed to take some reasonable step to prevent the distribution of its products in this State." The state court bottomed its rationale on the "stream-of-commerce doctrine of jurisdiction."

Conflicting Approaches

In the U.S. Supreme Court's 1987 Asahi decision16 and in its 1980 World-Wide Volkswagen decision,17 the term "stream of commerce" was used to express the concept that a foreign defendant's placement of goods into distribution channels "with the expectation that they will be purchased by consumers within the forum State" may indicate the defendant's purposeful availment of the privilege of conducting activities within the state sufficient to justify specific jurisdiction in a suit arising out of or related to the defendant's contacts with the forum.

In Asahi, however, two camps of four justices each split over whether mere introduction of the product into the stream of commerce was enough or whether more was required for specific jurisdiction. The Justice William Brennan group of four justices reasoned that "fairness" and "foreseeability" were paramount. Thus, the defendant's ability to anticipate suit in the forum because it is aware that its goods are marketed there renders the assertion of specific jurisdiction "fair." As Justice Kennedy put it in J. McIntyre, Justice Brennan's approach in Asahi "made foreseeability the touchstone of jurisdiction."18

However, Justice Sandra O'Connor's group of justices in Asahi reasoned that something additional besides introduction of goods into the stream of commerce was needed. She wrote: "The placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State."19 Thus, more in the way of "purposeful availment" evidence is needed. Since Asahi, courts have divided over which approach should prevail or, as Justice Kennedy put it in J. McIntyre, "have sought to reconcile the conflicting opinions."20 For convenience and ease of memory, I refer to Justice O'Connor's approach as "stream of commerce plus." In J. McIntyre, Justice Kennedy suggested that the Asahi decision may be responsible, in part, for the New Jersey court's "error regarding the stream of commerce" and viewed this case as "an opportunity to provide greater clarity."

Justice Kennedy views the "principal inquiry" in cases where manufacturers or distributors seek to serve a given state's market as: "whether the defendant's activities manifest an intention to submit to the power of a sovereign." 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." It is the "defendant's actions, not his expectations, that empower a State's courts to subject him to judgment."21

Personal jurisdiction requires a forum-by-forum or sovereign-by-sovereign analysis. Has a defendant "followed a course of conduct directed at the society or economy existing within the jurisdiction of a given sovereign, so that the sovereign has the power to subject the defendant to judgment concerning that conduct?" Justice Kennedy sides with Justice O'Connor's "purposeful availment" approach in Asahi and rejects Justice Brennan's "foreseeability" rationale. Here defendant did not purposefully avail itself of the New Jersey market and revealed no intent to invoke or benefit from the protection of its laws.22

Justices Breyer and Alito voted to reverse the New Jersey court's assertion of specific jurisdiction. Justice Breyer viewed the case as adequately decided by adhering to the Court's existing precedents. He was loath to agree with a "strict no-jurisdiction rule" in the face of modern technological marketing methods. For example, what do the terms "submission to the power of a sovereign" or "targeting the forum" mean when a company "targets the world by selling products from its Web site?" Justice Ginsburg's dissenting opinion, on the other hand, would uphold jurisdiction since the English defendant engaged a U.S. distributor to promote and sell its machines in the U.S. market and "purposely availed" itself of the U.S. market. Fundamental "fairness," she argues, makes the defendant amenable to suit in the forum where plaintiff is injured.

Conclusion

Supreme Court watchers looking for greater clarity since Asahi may have gotten some. There seems to be Court unity that general jurisdiction is not to be based on stream of commerce or other concepts unique to specific jurisdiction determinations. General jurisdiction means the foreign corporation being "at home" in the forum. Further, in specific jurisdiction marketing scenarios of the traditional distribution kind, a majority of the justices would apply or at least lean to the "purposeful availment" or "stream of commerce plus" approach of Justice O'Connor. However, the jurisdictional facts in each case are key. Even Justice Kennedy's plurality group sees the court's analysis as one of forum-by-forum.

Modern marketing scenarios—a global website sales fact pattern, for example—may well see the Court revisiting jurisdiction issues. Similarly, the question of affiliated foreign companies being viewed together with a domestic corporation as a "single enterprise" could invite review. Likewise, the approach of some courts that independent franchises or distributors or subsidiary companies that scrupulously observe corporate separation are little more than "agents" of a foreign parent company could attract Supreme Court review. In the meantime, it is clear that jurisdiction issues are alive and well and bench and bar have much to ponder on the specific jurisdiction front when suits are filed against foreign companies.

Michael Hoenig is a member of Herzfeld & Rubin.

Endnotes

1. Goodyear Dunlop Tires Operations, S.A. v. Brown, No. 10-76 (U.S. Sup. Ct. June 27, 2011) (Slip Opinion); J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343 (U.S. Sup. Ct. June 27, 2011) (Slip Opinion).

2. Pliva Inc. v. Mensing, No. 09-993 (U.S. Sup. Ct. June 23, 2011) (Slip Opinion).

3. Hoenig, "Supreme Court Speaks (Again) on Preemption of Lawsuits," New York Law Journal, March 14, 2011, p. 3.

4. Supra n. 2.

5. 555 U.S. 555 (2009).

6. Supra n. 1.

7. International Shoe Co. v. Washington, 326 U.S. 310 (1945).

8. Goodyear, supra n. 1, Slip Op. at p. 2.

9. Goodyear, Slip Op. at p. 2 (quoting from Harvard Law Review article).

10. Goodyear, Slip Op. at p. 3.

11. Id.

12. Id., Slip Op. at p. 10 (citing cases).

13. Id., Slip Op. at p. 13.

14. Supra n. 1.

15. J. McIntyre, supra n. 1, Slip Op. at p. 3.

16. Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987).

17. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 289 (1980).

18. J. McIntyre, Slip Op. at p. 7.

19. Asahi, 480 U.S. at 112.

20. J. McIntyre, Slip Op. at p. 8.

21. Id., Slip Op. at pp. 7-8.

22. Id., Slip Op. at pp. 10-12.

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