Federal Civil Procedure: Outsourcing Liability: General and Specific Jurisdiction Over Foreign National Corporations in American State Courts

Abstract

This article previews the issues relating to personal jurisdiction jurisprudence that the Supreme Court will address in this 2010-11 Term pair of consolidated cases: Goodyear v. Luxembourg Tires, S.A. v. Brown and J. McIntyre Machinery, Ltd. v. Nicastro.  

The two main issues the Court will address include: (1) May an American state court validly assert general personal jurisdiction ― consistent with due process ― over a foreign subsidiary where some small percentage of the subsidiary’s products reach the forum state through the stream of commerce, but the subsidiary’s contacts with the forum state are attenuated and the underlying lawsuit does not arise out of or relate to the defendant’s contacts with the state?, and (2) May an American state court validly―consistent with territoriality concepts―assert specific personal jurisdiction over a foreign national corporation pursuant to the stream-of-commerce theory where the manufacturer targets the entire United States market for the sale of its product and its product is purchased by a consumer in a forum state?

It is a fundamental principle of American jurisprudence that in order to render a valid and binding judgment in litigation, a court must possess both personal jurisdiction over the parties and subject matter jurisdiction over the nature of the dispute. The dual companion appeals  concern the evolving contours of personal jurisdiction over non-resident defendants, a subject that has engaged the Supreme Court for more than 130 years. The Supreme Court will once again provide some guidance for assertions of personal jurisdiction over non-resident defendants, in the context of this evolving jurisprudence, but now in an expanded international context. Moreover, the cases differ not only on the facts, but on the jurisprudential principles forming the basis for the courts’ opinions.

We are now almost a quarter-century removed from the Court’s last considered examination of personal jurisdiction principles. The Asahi case has some relevance to the Goodyear and McIntyre appeals: all involve the ability of state courts to assert personal jurisdiction over non-resident foreign corporate defendants. And with the New Year, it will be more than 30 years since the Supreme Court decided the seminal stream-of-commerce case, World-wide Volkswagen. The Court’s fractured decisions in Asahi are a mess ― although they present interesting and challenging teaching material.  Predictably, the Asahi decisions have inspired an array of conflicting decisions among state courts considering the assertion of personal jurisdiction over domestic and foreign corporate defendants whose products find their way into a state. Moreover, with the passage of a quarter-century, the authors of the two Asahi plurality decisions, Justices O’Connor and Brennan, no longer sit on the Court.

The Goodyear appeal presents the Court with questions relating to the assertion of general jurisdiction. This will no doubt require the Court of plumb the depths of International Shoe and its progeny, to answer the question whether foreign subsidiaries without a significant physical presence in a state are amenable to a state court’s personal jurisdiction. At best, the Court’s Goodyear decision may provide yet one more International Shoe progeny. At worst, the Court may further muddle understanding of the concept of general jurisdiction.

The McIntyre appeal embodies a siren song for revisiting the Court’s Asahi debacle. Civil procedure professors, at least ― not to mention state court judges― might appreciate some elucidation and instruction from the Court concerning what parts of Asahi survive, if any.  McIntyre, then, presents the Court with the tempting opportunity for a “do-over.”

Both appeals are set against the contemporary backdrop of trade globalization and the outsourcing of American manufacturing and jobs. The foreign defendants and their amici would have the Court believe that expansive assertions of American state court jurisdiction will impair free trade and impair international relations. The American plaintiffs, on the other hand, cast the issue as a further evil consequence of the American trend towards outsourcing: in this instance, outsourcing American liabilities through offshore enterprises that may render corporations immune from the jurisdiction of American state courts for their products causing injury.

It has been a hallmark of more than 130 years of Supreme Court personal jurisdiction jurisprudence that the Court has articulated evolving standards in light of changed societal and economic conditions. For some periods, this has meant a liberal expansion of the reach of state courts over non-resident defendants. Other periods, however, have illustrated Court retrenchments of such broad principles. It remains to be seen whether the Supreme Court will respond to the background arguments in these two appeals for the expansion or restriction of personal jurisdiction jurisprudence based on a new global economy. It will be interesting to discover whether the Court, perceived to embody a pro-business mindset, will heed the admonitions that the embrace of expansive personal jurisdiction principles will undermine global business, or will instead respond to the suggestion that rejection of personal jurisdiction will encourage further outsourcing of American business.