Business Law Civil Litigation Constitutional Law Legal Topics

Supreme Court Waters Down Stream of Commerce Theory

The following is a guest blog post by Myanna Dellinger, a law professor at Western State University College of Law.

In a world marked by increased ease of conducting international business, you might think that it would also be getting easier to sue foreign corporations in American courts. Think again! In two new opinions, the United States Supreme Court shows just how hard it is to sue foreign corporations in the United States.

First off, the Supreme Court considered the “stream of commerce” theory made famous by International Shoe Co. v Washington (1945) 326 US 310, 317, and held that it does not allow American courts to exercise jurisdiction over foreign companies because of mere “sporadic sales” of products in the desired forum state. Goodyear Dunlop Tires Operations v Brown  (June 27, 2011, No. 10-76).

If you’re wondering what “sporadic” might actually mean in the real world, the Court listed factors to look for when you want to sue a foreign company in the US, including whether the company:

  • Is registered to do business in the desired forum state;
  • Has a place of business, employees, or bank accounts in the desired forum state;
  • Designs, manufactures, or advertises its products in the desired forum state; and
  • Ships its products directly thereto the desired forum state.

Even after this decision, the basic rule remains: Jurisdiction is much more likely to be found if you can point to much more “continuous and systematic” contacts in the forum state, especially if the injury happened there.

In the second recent Supreme Court decision, J. McIntyre Machinery v Nicastro (June 27, 2011, No. 09-1343), the Court considered jurisdiction over a foreign defendant whose goods ended up in the forum state through a stream of commerce. The Court held that foreign defendant must “have targeted the forum.”  It generally won’t be enough that the defendant might have predicted that its goods will reach the forum state.

Although these Supreme Court decisions don’t explicitly address the issue of Internet-based jurisdiction, we can make the educated guess that, given this Court’s due process concerns and traditional insistence on a defendant having “purposefully availed itself” of conducting business within the forum state, Internet-based contacts would not lead to personal jurisdiction unless more traditional marketing methods were also used.

But there are some murky areas in which we can’t make reliable guesses. It remains unclear whether jurisdiction can be based on a company targeting a certain state through its website, for example through pop-up advertisements that the company knows will be seen in the forum state. It is also unclear what will happen if a foreign company uses an American company such as to fill and ship its orders.

Here’s the upshot of the Supreme Court’s recent rulings:

Plaintiffs wishing to sue foreign companies, whether subsidiaries or not, are probably stuck with having to sue in the company’s home court system unless they have substantial proof that the company definitely targeted the desired US forum state.

For more on personal jurisdiction issues generally, go to CEB’s California Civil Procedure Before Trial, chap 6. Also check out Professor Dellinger’s related blog post, Hauling Foreign Corporations into American Courts in the 21st Century.

© The Regents of the University of California, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited.

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