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The “Stream-of-Commerce” Does Not Flow to State Court: The Supreme Court Limits State Court Jurisdiction Over Nonresident Defendants

Appellate Litigation Law Update E. King Poor

In J.McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. ___ (2011), the United States Supreme Court held that merely introducing goods into the "stream-of-commerce," with knowledge that those goods might be sold in a particular state, does not subject a foreign manufacturer to suit without "something more," namely, that the defendant "purposefully availed" itself of the privilege of doing business in that state.

In J.McIntyre, the Court considered whether the State of New Jersey could exercise jurisdiction over a British manufacturer of a scrap metal shearing machine that severed the fingers of Plaintiff Robert Nicastro when he used the machine at work in New Jersey. J. McIntyre manufactured the machine in England and hired an Ohio company to distribute it in the United States. However, J. McIntyre itself did not sell machines in the United States. Though its representatives attended trade shows in several states to promote the sales of its machines, they never did so in New Jersey. In addition, the company neither advertised in New Jersey nor sent any employees there.

The New Jersey Supreme Court concluded that the state properly had jurisdiction over Nicastro's product liability claim because the injury occurred in New Jersey, the manufacturer knew its products were distributed nationwide and it failed to take any steps to prevent the distribution of its products in New Jersey. Nicastro v. McIntyre Machinery America, Ltd., 897 A.2d 575, 592 (N.J. 2010). The Court acknowledged that it "could not find that J. McIntyre had a presence or minimum contacts in this State - in any jurisprudential sense - that would justify a New Jersey court to exercise jurisdiction in this case," but still held that the manufacturer was subject to suit in New Jersey under the "stream-of-commerce theory of jurisdiction." 987 A.2d at 582.

In a 6-3 decision, the Supreme Court held that New Jersey's exercise of jurisdiction over J. McIntyre violated the Due Process Clause. Justice Kennedy, joined by Justices Roberts, Scalia and Thomas, authored a plurality opinion expressly disavowing the "stream-of-commerce" theory articulated in Justice Brennan's plurality opinion in Asahi Metal Industry Co. v. Superior Court of Cal, 480 U.S. 102 (1987). In Asahi, Justice Brennan wrote - in a frequently cited decision - that placing a product into the "stream-of-commerce" allows a state to exercise jurisdiction over a manufacturer if the product causes injury in that state, if the manufacturer is aware that the product is being marketed there. 480 U.S. at 117.

Yet Justice Kennedy rejected the stream of commerce theory as "discard[ing] the central concept of sovereign authority in favor of considerations of fairness and foreseeability." Instead, he wrote, the Court's precedents "make clear that it is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment." Due Process protects a defendant's right not to be coerced except by lawful judicial power, and the exercise of that power is unlawful unless a defendant "purposefully avails itself of the privilege of conducting activities within the forum state." Thus the "principal inquiry," Justice Kennedy stated, "is whether the defendant's activities manifest an intention to submit to the power of a sovereign." The transmission of goods permits the exercise of jurisdiction only when the defendant has targeted the forum; it is not enough that the defendant can predict that the goods will reach the forum state. Because J. McIntyre intended to sell goods to the United States market in general, but not to the New Jersey market in particular, the manufacturer had not purposely availed itself of the privilege of doing business in New Jersey, and the state could not lawfully exercise jurisdiction over it.

The Court concluded that the "stream-of-commerce metaphor cannot supersede either the Due Process Clause or the limits on judicial authority that the Clause ensures" and that "the Constitution commands restraint before discarding liberty in the name of expediency."

For more information on J.McIntyre Machinery, Ltd. v. Nicastro and the stream-of-commerce theory, please contact E. King Poor at (312) 715-5143 / king.poor@quarles.com or your Quarles & Brady attorney.