Personal Jurisdiction Uncertain Based on Stream of Commerce: Part II
This article is Part II of a 3-part article discussing whether the stream of commerce theory may still be used to establish personal jurisdiction over a non-resident defendant. Part II provides the backdrop for Part I and generally addresses personal jurisdiction, due process, the origin of the stream-of-commerce theory as it relates to personal jurisdiction, and how the interaction of these principles affect non-resident defendants. Non-resident defendants of a forum state, and non-U.S. entities especially, should be aware of the circumstances under which they are and are not subject to personal jurisdiction. One of main bases upon which personal jurisdiction is asserted in the contemporary commercial world is under a stream of commerce theory. Thus, an understanding of the reasoning for the holdings and dissents of past personal jurisdiction cases is important because the Supreme Court continues to rely on some of that reasoning, and disregard other reasoning, in cases regarding stream of commerce.
Part I (published in the June issue of Monthly Insights) discussed the Federal Circuit’s decision in Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994), and whether the stream-of-commerce test might remain a viable path to establishing personal jurisdiction in patent infringement cases after the United States Supreme Court’s 2017 decision in Bristol-Meyers Squibb Co. v. Super. Ct. of Cal., S.F. Cty, __ U.S. __, 137 S. Ct. 1773 (2017) (“BMS”). Part III (to be published in the August issue of Monthly Insights) will address the Supreme Court’s BMS decision and whether the stream-of-commerce test used in cases prior to BMS remains applicable to establish personal jurisdiction, whether the ambivalent status quo will continue, or whether the stream-of-commerce test may become case or subject matter specific.
Specific and General Jurisdiction
A court may exercise personal jurisdiction over a defendant through general jurisdiction or through specific jurisdiction. General jurisdiction requires that the defendant have “continuous and systematic” contacts with the forum state and confers personal jurisdiction even when the cause of action has no relationship with those contacts. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408 (1984). A court may hear any and all claims against a defendant when it exercises general jurisdiction. Daimler AG v. Bauman, 571 U.S. 117 (2014). Specific jurisdiction must be based on activities that arise out of or relate to the cause of action and can exist even if the defendant’s contacts with the forum are isolated or sporadic. Placing a product into the “stream of commerce” has been used as one way to establish specific personal jurisdiction over a defendant in a forum in which the product causes injury to the plaintiff. Depending on the facts of the case, establishing specific jurisdiction may be challenging, especially over foreign defendants.
5th and 14th Amendment Due Process
Personal jurisdiction is related to constitutional due process. The Fifth and Fourteenth Amendments to the United States Constitution guarantee the right of due process, i.e., the right to a fair application of the law before, inter alia, having one’s property seized. Seventy-five years ago, the United States Supreme Court stated that a court could not exercise personal jurisdiction over a defendant unless that defendant has “certain minimum contacts [with the forum state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’” Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (citations omitted). The Court expanded upon that holding a few years later, saying: “[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its law.” Hanson v. Denckla, 357 U.S. 235, 253 (1958) (citing Int’l Shoe, 326 U.S. at 319). These cases provide the foundation of personal jurisdiction in the United States and have been cited countless times, allowing courts to exercise personal jurisdiction over defendants even though the defendant never physically set foot in the forum state.
As is typical with much case law, though, plaintiffs and defendants have argued extensively for decades as to what constitutes “minimum contacts” and “purposeful availment.”
Personal Jurisdiction in Federal Cases Linked to Service of Process
Personal jurisdiction is also related to service of process. Federal court cases may be based on federal questions of law or on diversity. Statutes for some federal question cases, e.g., RICO, provide for nationwide service of process. For those that don’t, including the Patent Act, a “federal district court’s authority to assert personal jurisdiction … is linked to service of process on a defendant ‘who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located.’” Walden v. Fiore, 571 U.S. 277, 283 (2014). Rule 4, Fed. R. Civ. P., covers service of process, and personal jurisdiction may be exercised over defendants under Rule 4(k)(1) (statewide service for forum state jurisdiction) or Rule 4(k)(2) (nationwide service for federal claim outside state court jurisdiction), as may be applicable. Rule 4 authorizes two areas of inquiry: the forum state’s long-arm statute and 5th Amendment due process. Most states’ long-arm statutes are co-extensive with 5th Amendment due process, making the inquiry singular. The Federal Circuit held years ago that no difference exists between the due process clauses of the 5th and 14th Amendments, as applied to personal jurisdiction. Akro Corp. v. Luker, 45 F.3d 1541, 1545 (Fed. Cir. 1995).
Each of these principles of specific and general personal jurisdiction, due process, and service of process of, on their own, can raise several questions. It is easy to understand, then how their interaction can present a complex issue for non-resident defendants who want to know whether they may be sued in a United States court and, if so, in what state(s).
In 1980, the Supreme Court heard a case in which a plaintiff had suffered injury in a car accident, and had sued World-Wide Volkswagen (“WWV”), in Oklahoma. Although a WWV customer had driven a car purchased from WWV into Oklahoma, WWV itself had never set foot in Oklahoma. Arguing that it did not meet the Int’l Shoe/Hanson tests, WWV persuaded the Court to hold that WWV did not have the requisite minimum contacts with Oklahoma and that WWV had not foreseen that it would be subject to personal jurisdiction in Oklahoma. The Court agreed, holding that the exercise of personal jurisdiction over WWV was improper, but stated:[T]his is not to say, of course, that foreseeability is wholly irrelevant. But the foreseeability that is critical to due process analysis is not the mere likelihood that a product will find its way into the forum State. Rather, it is that the defendant’s conduct and connection with the forum State are such that he should reasonably anticipate being haled into Court there.
World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297 (1980) (domestic NY car dealer sold cars only in NY; NY distributor sold to retailers in 3 states). Defendant’s specific conduct that shows reasonable anticipation of defending a lawsuit in the forum became a key consideration. The Supreme Court also, for the first time, used the phrase “stream of commerce” when analyzing personal jurisdiction. Continuing, the Court concluded: “[t]he forum State does not exceed its powers under the Due Process Clause if it asserts personal jurisdiction over a corporation that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State.” Id. at 297-98. Still, placing a product into the stream of commerce was not enough – to meet the Worldwide Volkswagen test, there must be stream of commerce and expectation of purchase in the forum state.
In a dissent, however, Justice Brennan believed the majority interpreted Int’l Shoe and its progeny too narrowly. Id. at 299. He reasoned that the majority wrongly distinguished “between a case involving goods which reach a distant State through a chain of distribution and a case involving goods which reach the same State because a consumer . . . took them there.” Id. at 306-307 (Brennan, J., dissenting). According to Brennan, the majority “focus[ed] tightly on the existence of contacts between the forum and the defendant” and too little on the interest of the forum state itself and whether the defendant was actually inconvenienced by being forced defend the lawsuit in the forum. Id. at 299-300. In his view, consideration of the defendant’s contacts with the forum state was merely one way, but not the only way, of determining the fairness and reasonableness of maintaining suit in the forum. Indeed, the Justice stated that a defendant is not entitled to the “best” forum or to any particular forum; other factors were of equal importance.
Of significance here, Justice Brennan advocated that in 1987 the world had changed since the 1945 opinion of Int’l Shoe was issued. Justice Brennan quoted Justice Black’s decades-earlier recognition, from McGee v. International Life Ins. Co., 355 U.S. 220, 222 (1957), that “a trend is clearly discernible toward expanding the permissible scope of state jurisdiction over foreign corporations and other nonresidents.”
The model of society on which the International Shoe Court based its opinion is no longer accurate. Business people, no matter how local their businesses, cannot assume that goods remain in the business’ locality. Customers and goods can be anywhere else in the country usually in a matter of hours and always in a matter of a very few days.
World-Wide Volkswagen, 444 U.S. at 309 (Brennan, J., dissenting). Yet, without a majority consensus for an expanded stream-of-commerce test, Brennan’s argument remained only an argument to be advocated another day.
Seven years later, in 1987, Justice Brennan would get another opportunity to opine on stream-of-commerce personal jurisdiction. The now all-too infamous “4-4 split” from Asahi Metal Indus. Co., Ltd. v. Superior Court of Cal., 480 U.S. 102 (1987) (motorcycle accident in California that injured California resident, who sued non-US component-part manufacturer for products liability; foreign part manufacturer did no marketing in the U.S.) has also been the subject of heated debate and much commentary. Two divergences of stream-of-commerce personal jurisdiction arose from that case – the Brennan stream-of-commerce test and the O’Connor stream-of-commerce-plus-intent test.
Justice Brennan’s stream-of-commerce test in Asahi, of course, was the same as stated in his World-Wide Volkswagen dissent. Particularly, he explained:
The stream of commerce refers not to unpredictable currents or eddies, but to the regular and anticipated flow of products from manufacture to distribution to retail sale. As long as a participant in this process is aware that the final product is being marketed in the forum State, the possibility of a lawsuit there cannot come as a surprise. Nor will the litigation present a burden for which there is no corresponding benefit. A defendant who has placed goods in the stream of commerce benefits economically from the retail sale of the final product in the forum State, and indirectly benefits from the State’s laws that regulate and facilitate commercial activity. These benefits accrue regardless of whether that participant directly conducts business in the forum State, or engages in additional conduct directed toward that State.
Asahi, 480 U.S. at 117 (Brennan, J., concurring in part and concurring in the judgment). According to four justices, placing a product in a distribution chain that ultimately sends the product to the forum state, intentional or otherwise, establishes personal jurisdiction in the forum. That’s it.
On the other hand, Justice O’Connor opined for the Court that not only must the defendant place the product into the stream of commerce, but also that the defendant must take some action that shows its intent or purpose to enter the market in the forum state. She and three other justices took the view that the defendant’s purpose or intent, not merely the defendant’s awareness that the product would end up in the forum state or an action by another participant in the distribution chain, was important.
Brennan’s view gained traction though, and, although he didn’t obtain an outright majority in Asahi, many commentators have argued that he won the day, as five justices did not agree with Justice O’Connor’s more restrictive stream-of-commerce-plus-intent test (which is considered the opinion of the Court, even though not a majority). Under both tests, though, placing a product into the stream of commerce was embraced as at least a valid starting point for exercising specific personal jurisdiction.
Still, after Asahi, some jurisdictions followed the more expansive test while others followed the more restrictive test. That divide remained the status quo for quite some time. Then, in 2011, the Supreme Court heard the case of J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011) (foreign manufacturer hired U.S. distributor to develop a U.S. market for the foreign company’s products). By this time, the Court’s makeup had changed. Neither Justice Brennan nor Justice O’Connor sat on the Court. Brennan never did obtain a majority consensus of his view of the changed commercial world.
In 2011, the Supreme Court had a new leader, Chief Justice John Roberts, who brought a new ideological center to the Court and has become a justice whom many believe is one of the Court’s most powerful justices ever. Even so, when finally faced with another stream of commerce case, neither he nor any other justice on the Court could garner a majority for any particular viewpoint. Thirty-four years after Asahi, the divide continued. The plurality in 2011, led by Justice Kennedy along with Justice Roberts, et al, specifically attempted to, in their words, “correct Asahi,” and criticized Justice Brennan’s Asahi opinion:
Justice Brennan’s concurrence, advocating a rule based on general notions of fairness and foreseeability, is inconsistent with the premises of lawful judicial power. This 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.
Id. at 883. Fairness, forseeability, and defendant’s expectations were now out, and defendant’s actions and state sovereignty and authority were in, as the rule of the day. Expectations without overt conduct were insufficient to establish personal jurisdiction.
Nicastro is replete with divergent reasoning on the part of various Justices. In a concurring opinion, Justices Breyer and Alito agreed that “a single sale of a product in a State does not constitute an adequate basis for asserting jurisdiction over an out-of-state defendant, even if that defendant places his goods in the stream of commerce, fully aware (and hoping) that such a sale will take place” in the forum state. Id. at 888-89 (Breyer, J., concurring). These two Justices were, and perhaps still are, looking for a case to present “a better understanding of the relevant contemporary commercial circumstances,” which the facts of Nicastro apparently did not provide. Id. at 892-93. Justices Ginsburg, Sotomayor, and Kagan dissented, raising numerous questions, and concluding:
Inconceivable as it may have seemed yesterday, the splintered majority today “turn[s] the clock back to the days before modern long-arm statutes when a manufacturer, to avoid being haled into court where a user is injured, need only Pilate-like wash its hands of a product by having independent distributors market it.”
Id. at 893-94 (Ginsburg, J., dissenting). Viable specific personal jurisdiction considerations after Nicastro in 2011, thus, looked remarkably like they did in 1945 at the time of Int’l Shoe. But Justices Ginsburg, Sotomayor, and Kagan are still on the Court today and may relish another opportunity to allow them to convince a majority of the Court that the nature of commercial transactions today make it reasonable for an out-of-state manufacturer to be subject to personal jurisdiction in a forum state. Justices Gorsuch and Kavanaugh are new to the Court and have not yet had the occasion to opine on these issues. Could they be convinced to side with the Nicastro dissent?
The result of these cases has left the district courts to essentially decide for themselves whether Asahi was applicable at all and, if it was, which Asahi stream–of-commerce test to use. As a result, uncertainty in the area of establishing specific personal jurisdiction grew, and remains today.
Please look for Part III of this Article, to be published in the August issue of Osha Liang LLP’s Monthly Insights, which will continue this discussion of case law along with the Bristol Meyers Squibb (‘BMS”) Supreme Court case. Part I, which discussed the discuss the impact of BMS on the Federal Circuit, may be found at https://oshaliang.com/newsletter/personal-jurisdiction-uncertain-based-on-stream-of-commerce-part-i/.