Don’t Forget Jurisdiction as a Defense

Don’t Forget Jurisdiction as a Defense

By: Gerald Swann & Miland Simpler - Ball, Ball, Matthews & Novak, P.A.

You are assigned a new products liability case.  You immediately begin formulating your strategy and defenses.  What is the product?  What are the injuries?  Is this a manufacturing or design defect?  What was the intended use or purpose of the product?  Was the product being used as it was intended?  Had the product been altered or changed?  Is the product a component or a finished completed product?

Invariably, you may overlook and don’t ask yourself the question of where is my client located, where was the product manufactured or assembled?  Does this court even have jurisdiction over my client?

Jurisdiction over a foreign defendant should always be the first and foremost investigation into a new case.  In this day and age, many products or their components are manufactured by entities not doing business within the U.S. even though those products may certainly be intended to make their way into the stream of commerce of the United States and  many times are a finished product of an American manufacturer.  In 2017, the Alabama Supreme Court released the opinion in Hinrichs v. General Motors of Canada, Ltd., 222 So. 3d 1114 which significantly strengthened the ability of a foreign manufacturer to not be subjected to an exercise of personal jurisdiction.

This article will examine the 2017 opinion from the Alabama Supreme Court establishing limitations on the “stream of commerce” subset of specific personal jurisdiction as it relates to foreign product manufacturers, and will examine that holding to other States’ treatment of similar issues.

First applied in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980),  the U.S. Supreme Court held that the manufacturer of a product purposefully avails itself to the jurisdiction of the forum State by merely placing its product in the stream of commerce with the mere awareness or expectation that the product will ultimately find its way to the forum State. Seven years later, in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987), the Court tightened the reins on the stream of commerce principle, establishing the “stream of commerce plus” test, which requires something more than mere awareness of where the product may “end up,” such as, inter alia, the manufacturer’s marketing the product specifically for the forum state or advertising in the forum state.

Since Asahi, the U.S. Supreme Court has revisited the “stream-of-commerce” doctrine numerous times, and has generally reined in the stream-of commerce doctrine even more. Nonetheless, each opinion on the doctrine seems to raise more questions than it answers, which has resulted in inconsistent rulings amongst State appellate courts and U.S. Circuits as to issues not yet tackled by the U.S. Supreme Court.

The Hinrichs’ opinion was development of the stream-of-commerce doctrine at the State-level from the Alabama Supreme Court. In Hinrichs v. GM of Can., Ltd., 222 So.3d 1114 (Ala. 2016) (cert. denied, 137 S. Ct. 2291, 198 L. Ed. 2d 724 (2017), the Court abrogated the stream-of-commerce to end in the State in which the final sale of the allegedly defective product occurred. In other words, the Court held that a manufacturer was not amenable to suit in a forum State simply because the product “ended up” there, if the stream-of-commerce was not what carried the product into that State.

In Hinrichs, the plaintiff, a passenger in a 2004 GMC Sierra 1500 pickup truck, was involved in an automobile accident which caused the Sierra to rollover twice, severely injuring the plaintiff and causing him to become a paraplegic. The plaintiff sued General Motors (“GM”) of Canada, the manufacturer and assembler of the vehicle in the Circuit Court of Geneva County, Alabama.

The relevant facts regarding the stream-of-commerce of the Sierra are as follows:

• GM of Canada manufactured certain parts of the Sierra, and assembled the Sierra, in Canada;
• GM of Canada sold the Sierra to the GM distributor in Canada, and title transferred upon the sale;
• GM then distributed the Sierra for sale in the U.S. through a GM dealer;
• The Sierra ultimately was delivered to Pennsylvania dealership for sale;
• The owner and operator of the Sierra at the time of the underlying accident, purchased the Sierra from the Pennsylvania dealership in 2003;
• The owner/operator of the Sierra drove the truck to Alabama in 2006 to attend flight training at a military base located in Alabama;
• The accident involving the Sierra occurred in Alabama in 2006.

The plaintiff alleged jurisdiction in an amended complaint through the following language:

4a. Defendant, General Motors of Canada, Ltd., is subject to the jurisdiction of this Court as it has significant contacts with the state of Alabama; placed the subject vehicle in to the stream of commerce; engaged in continuous and systematic business in the state of Alabama; generates significant export earnings by shipping 90 percent of the million vehicles which it manufacturers to the United States which includes Alabama; and manufactured the subject vehicle for General Motors Corporation with know that General Motors Corporation was selling vehicles throughout the United States, including Alabama, so as to purposefully avail itself to the jurisdiction of this Court.

Id. at 1119 (emph. in original).

GM Canada moved to dismiss based on lack of personal jurisdiction. The Court held that the trial court had neither general nor specific personal jurisdiction over GM of Canada.

Regarding general jurisdiction, the Court held that the manufacturer did not have sufficient contacts with Alabama that could be considered “so continuous and systematic” such that they that would render the manufacturer “at home” in Alabama.

The Court held there was no specific jurisdiction over the manufacturer because there was no suit-related conduct that created a substantial connection between the manufacturer and Alabama, as the vehicle was not ultimately sold in Alabama, even though the plaintiff was injured in Alabama. Recognizing the well-established analytical framework for specific jurisdiction, i.e., purposeful availment to the forum state, and the requirement that the action “arise out of or relate to the foreign defendant’s activities in the forum State, the Court declined to liberally apply the stream-of-commerce in such a way that satisfied these elements. The Court explained:

“Here, there is no evidence of any suit-related contact between GM Canada and Alabama. Hinrichs argues that his claims are related to the activities of GM Canada because the vehicle in which he was injured was intentionally manufactured by GM Canada for distribution, sale, and use throughout the United States, including Alabama….The starting point of the stream of commerce in this case is GM Canada’s anticipation of the presence of its vehicles in all 50 states, necessarily including Alabama. But it is undisputed that the stream of commerce for the Sierra ended at its sale in Pennsylvania, approximately 1000 miles from Alabama.”

Id. at 1138.

The Hinrichs Court expressly rejected the plaintiff’s argument that the phrase “arise out of or relate to” is due to be “flexibly” interpreted, and that, if it was not, then foreign manufacturers would effectively enjoy “absolute immunity” any time its product crossed a state line outside of the state in which it was initially sold and caused injury. The Court seemed to accept GM Canada’s response that the relevant fact issue, however, under the applicable analytical framework, was whether its acts directed toward the forum State (Alabama) were what gave rise to the litigation. Although GM Canada may ultimately distribute a significant number of vehicles to Alabama for sale, its distribution of vehicles to Alabama did not give rise to this litigation. Its distribution of vehicles to Pennsylvania did. Thus, the Court seems to hold, this abrogation of the stream of commerce does not grant “immunity” to foreign manufacturers in jurisdictions other than where the final sale took place. It merely applies a plain reading (albeit, a very strict plain reading) interpretation of the second element of the analytical framework for determining specific jurisdiction.

Significant to these issues, though not directly addressing them, was the U.S. Supreme Court’s decision in Bristol-Myers Squibb co. v. Superior Court, 137 S. Ct. 1773 (June 19, 2017), released contemporaneously with Hinrichs. In BMS, more than 600 plaintiffs sued Bristol-Myers in California state court for injuries resulting from a prescription drug that Bristol-Myers manufactured. However, “most” of the plaintiffs were not California residents, and those plaintiffs did not purchase or take the drug in California.

The BMS Court held that California did not have personal jurisdiction over Bristol-Myers for the claims asserted by the non-California residents. Although the Court did not discuss the stream-of-commerce principle, it did emphasize the requirement that a defendant must have performed conduct purposefully directed to the forum State, and that said conduct must be connected to the plaintiff’s claim. See, Id. at 1785-86 (citing J. McIntryre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011) (plurality opinion). Like Hinrichs, the BMS Court seemed to hold that, even if the defendant conducts activities purposefully directed to the forum State, those activities do not support personal jurisdiction over the defendant if they do not give rise to the plaintiff’s claim. In BMS, Bristol-Myers’ activities directed toward California did not give rise to, or have a connection to, those plaintiffs who purchased and ingested the drug in other States. Accordingly, BMS has been widely believed to be a fatal blow the stream-of-commerce principle.

While Hinrichs was certainly a victory for foreign manufacturers sued in Alabama, not all States have similarly abrogated the stream-of-commerce principle in such a defendant-friendly manner. Below is a bullet summary of just some of the jurisdictions that align and differ from Alabama’s holding in Hinrichs.

NEGATIVE

Minnesota

• Plaintiff was injured in an automobile accident occurring in Minnesota by a Ford Crown Victoria whose airbag failed to deploy. The Court found that “all of the relevant conduct that frames the basis for [plaintiff]’s claims,” including the design, manufacturing, and warnings, took place outside of Minnesota. Contrary to Hinrichs, the Minnesota Supreme Court did not consider it dispositive whether this particular Crown Victoria connected purposeful actions by Ford with the forum State. The Court held that because “Ford has sold thousands of such Crown Victoria cars and hundreds of thousands of other types of cars to dealerships in Minnesota,” and because “the Crown Victoria is the very type of car that [Plaintiff] alleges was defective, Ford’s sales to the Minnesota dealerships are connected to the claims at issue here.” Id. at 753-54. Notably, the Court pointed out that BMS did not expressly require a causal connection between the defendant’s forum-directed activity and the plaintiff’s claims, and therefore did not preclude personal jurisdiction in this particular case.

Montana

• Ford Motor Co. v. Montana Eighth Judicial District Court, 395 Mont. 478 (Mont. 2019)
  • Plaintiff was a Montana resident who was injured by an allegedly defective Ford Explorer which was not designed or manufactured in Montana. This particular Explorer was first sold to a dealer in Washington, and, over ten years later, resold and registered in Montana. The Montana Supreme Court held that Montana did have personal jurisdiction over Ford despite there being no causal connection between any activity Ford purposefully directed at Montana, and the plaintiff’s claims. The court applied the “stream of commerce plus” theory from Asahi to hold that “ford purposefully availed itself of the privilege of conducting activities in Montana,” by “deliver[ing] its vehicles and parts into the stream of commerce with the expectation that Montana consumers will purchase them,” and that “Ford engages in additional conduct establishing its intent to serve the market in Montana,” “advertises in Montana, is registered to do business in Montana, [] operates subsidiary companies in Montana[,] has thirty-six dealerships in Montana[,] has employees in Montana[, and] sells automobiles, specifically Ford Explorers—the kind of vehicle at issue in this case—and parts in Montana.” Id. at 488.

Texas

• Michelin N. Am., Inc. v. De Santiago, 584 S.W.3d 114 (Tex. App. 2018)
  • “We previously stated…that we were not impressed with a rule that mechanically focuses only on whether the actual failed product was sold in Texas. We continue to believe that a mechanical application of a first sale chokepoint in assessing both stream of commerce and nexus is not only unwise; it runs contrary to the fact intensive nature of personal jurisdiction.” (Internal quotations and citations omitted).

West Virginia

• State ex rel Ford Motor Company v. McGraw, 788 S.E.2d 319, 342-43 (W. Va. 2016)
  • “Having determined that this Court has not abandoned the stream of commerce test for determining specific jurisdiction in a products liability action, we decline to overrule our precedents to impose a more restrictive test….We decline to use the place of sale as a per se rule to defeat specific jurisdiction.”

SUPPORTIVE

California

• Bombardier Recreational Products, Inc. v. Dow Chem. Canada ULC, 216 Cal. App. 4th 591 (Cal. App. 2013)
  • In product liability suit alleging a watercraft had caught fire because of a defective fuel tank, the court did not have specific jurisdiction over the Canadian manufacturer of the watercraft and fuel tank where manufacturer did no business in California, but still had knowledge that its products would ultimately enter and be used in California. “An inquiry into a foreign defendant’s purposeful availment of the forum state’s benefits must find more than merely entering __ product into the stream of commerce with knowledge that the product might enter the forum state.” Id. at 602.

Kansas

• Eaves v. Pirelli Tire, LLC, 2014 U.S. Dist. LEXIS 64866 (D. Kan. 2014)
  • In product liability action brought by motorcycle riders injured due to a tire blow-out, there was no personal jurisdiction over the foreign manufacturing entities because the riders failed to establish sufficient contacts by an alter ego or agency theory with the tire distributor. Despite a “sophisticated global distribution” and an increase in sales directed toward North America, the entities lacked affiliations with Kansas that were continuous and systematic, such that they were not rendered “essentially at home” in Kansas. The plaintiff’s stream of commerce approach did not support jurisdiction because the minimum contacts and purposeful availment factors were not satisfied, because of defendant’s lack of Kansas-targeted activity giving rise to the action. The court found that “defendants exercise no direction, influence, or control over the flow of product into [Kansas], and [ ] there is no distinctive features of Kansas that connect it with the product in question. Id. at *57.

South Carolina

• Schmitigal v. Twohig, 413 F.Supp.3d 458 (D. S.C. Sept. 26, 2019)
  • Court found no specific jurisdiction of Ford Motor Company in product liability action where plaintiffs were injured in South Carolina in a Ford vehicle which plaintiffs purchased from an independently owned Ford dealership in Michigan. “What does seem clear, however, is that the stream of commerce discussion ends when a retailer makes a sale to a consumer. The purpose of the stream of commerce doctrine is to hold manufacturers and distributors of goods accountable for defective goods after making a sale of such a good within the ‘stream of commerce,’ that is, before the product reaches a consumer.” Id. at 464.

Washington

• Key Tronic Corp. v. Smart Techs. ULC, 2016 U.S. Dis. LEXIS 167804
  • Does not quote Hinrichs, but similarly ruled on stream of commerce issue, holding that Mexican corporation had no substantial connection with state of Washington. The Mexican company did not purposefully avail itself to the laws and protections of the state of Washington.

Following the release of Hinrichs, our firm had two cases directly on point.  We represented a Canadian company which supplied component parts for a seatbelt assembly.  The component parts were designed, manufactured and delivered within Canada.  From there, the parts were delivered into the U.S. where they were incorporated into the final finished product.  Ultimately, the vehicle made its way into Alabama where the plaintiffs were involved in an accident, sustained injury and suit was brought alleging a violation of Alabama’s Extended Manufacturers Liability Doctrine.  Each case was dismissed at the pleadings stage.

Obviously, this is not a comprehensive analysis of the “stream of commerce” jurisdictional issue, only a snapshot that could potentially be a starting point for defending a foreign manufacturer in your particular jurisdiction and possibly, if not already adopted, push the courts you practice before to follow the Hinrichs holding.