The Geometry of Personal Jurisdiction: Has the United States Supreme Court Dammed the Stream of Commerce?

WDC Journal Edition: Summer 2012
By: James P. Denis, III, Reinhart Boerner van Deuren, S.C.

Geometry and personal jurisdiction have something in common—at one time or another many of us believed we would "never need to use this stuff again." As lawyers, some of us may have been correct about the former. Litigators, however, are unlikely to escape the latter. Case names like International Shoe,[i] World-Wide Volkswagen,[ii] Burger King,[iii] and Asahi,[iv] may be enough to induce flashbacks to 1L Civil Procedure when it seemed like these lofty decisions were academic exercises that provided nothing more than the opportunity for professors to practice the Socratic Method. As it turns out, personal jurisdiction is a very real concept that occupies an essential place in the practice of law. Each of us who has ever been retained to represent a foreign defendant "haled" into court in Wisconsin is, or should be, proficient on the subject of personal jurisdiction.

In fact, the general concepts underlying personal jurisdiction are nearly dogmatic. Whether as law students or as practicing lawyers, we learned years ago about terms like general and specific jurisdiction, minimum contacts, purposeful availment, and fair play and substantial justice. We are familiar with the stream of commerce principles introduced in World‑Wide Volkswagen, when the United States Supreme Court concluded that a foreign defendant may be subjected to personal jurisdiction if it placed products into the stream of commerce knowing those products will be used in the forum. We understand the split of authority created in Asahi when the Supreme Court could not agree on what World-Wide Volkswagen meant by the "stream of commerce." We know that Justice Brennan interpreted it to mean that a foreign manufacturer may be subject to personal jurisdiction if it placed a product into the stream of commerce expecting the product to reach a particular jurisdiction. We also know that Justice O'Connor disagreed and concluded that the same foreign manufacturer would not be subject to personal jurisdiction unless it directed a product into a particular jurisdiction, or otherwise engaged in additional conduct that established the necessary minimum contacts with that jurisdiction. Finally, we know that both the federal and state courts in Wisconsin have diligently applied Justice Brennan's stream of commerce test to foreign defendants rather than Justice O'Connor's stream of commerce plus test.

In the twenty-five years that have passed since Asahi, we became relatively comfortable with these concepts. Then, in June 2011, the United States Supreme Court revisited the issue of personal jurisdiction for the first time since Asahi and potentially changed everything we thought we knew.

In J. McIntyre Machinery, Ltd. v. Nicastro, the Supreme Court again took up the issue of personal jurisdiction and the proper due process analysis.[v] Attempting to resolve the split created in Asahi, the Supreme Court reviewed the stream of commerce test. Again, the Supreme Court remained divided. Although the Supreme Court could not reach a majority opinion, six of the Justices rejected the notion that a foreign defendant could be subjected to personal jurisdiction if it was merely foreseeable that its products could end up in the forum. By rejecting "foreseeability" as a basis for exercising personal jurisdiction, the Supreme Court undermined a basic tenet of the stream of commerce test as it has been applied historically in many jurisdictions.

Courts across the country have agreed, concluding that McIntyre requires more than the stream of commerce test to subject a foreign defendant to personal jurisdiction. Although no Wisconsin courts (state or federal) have taken up the issue, as defense counsel we can be cautiously optimistic that the Supreme Court's decision in McIntyre may have blocked the stream of commerce test in this jurisdiction.

This Article will identify the jurisdictional standard applied by Wisconsin courts, explore in more detail the split between the stream of commerce and stream of commerce plus tests, and contemplate the possible impact the Supreme Court's decision in McIntyre may have on foreign defendants in Wisconsin.

I. Wisconsin Courts Follow a Standard Two-Part Inquiry to Determine Whether a Foreign Defendant Is Subject to Personal Jurisdiction in this State.

Every personal jurisdiction analysis in Wisconsin begins with a two-part inquiry.[vi] First, the defendant must be subject to jurisdiction under Wisconsin's long-arm statute.[vii] If the statutory requirements are met, then the exercise of jurisdiction must comport with the Due Process Clause of the Fourteenth Amendment. The plaintiff bears the minimal burden of establishing a prima facie basis for satisfying both the statutory and constitutional requirements.[viii]

Due process restricts the exercise of personal jurisdiction over a foreign defendant. The due process analysis also requires two separate inquiries.[ix] First, the plaintiff must show that the defendant purposefully established minimum contacts with the forum state. To satisfy the minimum contacts requirement, the defendant's conduct and connection with the forum state must be sufficient enough that the defendant should reasonably anticipate being haled into court there. In other words, there must be some act by which the defendant purposefully availed itself of the privilege of conducting business within the forum, thereby invoking the benefits and protections of its laws. Next, if the plaintiff has met this burden and demonstrated that the defendant has established the necessary minimum contacts, those contacts must be considered in light of other factors to determine whether subjecting the defendant to personal jurisdiction is consistent with "fair play and substantial justice."[x]

Requiring purposeful availment ensures that a foreign defendant will not be brought into court as the result of random, fortuitous, or attenuated contacts, or the unilateral activity of someone else.[xi] As such, the purposeful availment requirement is the primary focus of the minimum contacts analysis. It also is the most problematic and divisive concept in personal jurisdiction jurisprudence.

II. The Stream of Commerce and Stream of Commerce Plus Tests Divide Courts Across the Country.

The present confusion likely began with World-Wide Volkswagen Corp. In that case, as many will remember, a husband and wife bought a new automobile from a dealership in New York. The next year, the family traveled from New York to their new home in Arizona. As they passed through Oklahoma they were involved in a serious accident and several family members were injured. They brought suit in Oklahoma asserting a number of products-liability claims against the car's manufacturer, importer, regional distributor, and retail dealer. The regional distributor and retail dealer challenged jurisdiction. Both argued they did not have sufficient minimum contacts with Oklahoma to be brought into court there. The contrary argument was that because they sold a product that was mobile by design and purpose, they should have foreseen being haled into court in any of the far-off jurisdictions to which their customers might travel. Although the Supreme Court rejected this notion of foreseeability as inadequate to confer jurisdiction under the Due Process Clause, it did not discard the concept of foreseeability altogether. Instead, the Supreme Court concluded that a foreign manufacturer who placed its products into the stream of commerce with the knowledge that those products would be used in the forum state was sufficient to constitute minimum contacts subjecting the foreign manufacturer to jurisdiction.[xii]

Seven years later, in Asahi, the Supreme Court attempted to clarify the scope of this stream of commerce theory. It did not succeed. Instead, the Court was sharply divided in its interpretation of how to apply the stream of commerce theory articulated in World-Wide Volkswagen.

The facts of Asahi also are familiar to many. The case involved a motorcycle accident that occurred in California. A faulty tire valve allegedly caused the accident. The injured plaintiff sued the tire tube manufacturer, who sought indemnification from the company that manufactured the valve assembly. After the plaintiff settled with the tire manufacturer, only the indemnification claim remained. Neither the tire manufacturer seeking indemnification nor the valve manufacturer from which indemnification was sought had any connection with the California forum.

Justice O'Connor authored a plurality opinion that required additional conduct by the defendant to support personal jurisdiction.[xiii] Justice O'Connor's opinion asserted what is now known as the "stream of commerce plus" test. Under this test, the defendant must purposely direct its actions toward the forum state in order to establish the substantial connection necessary for a finding of minimum contacts. Even if the defendant is aware that the stream of commerce "may or will sweep the product into the forum state does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum state."[xiv] Examples of the additional conduct necessary to satisfy this stream of commerce plus test include "(1) showing an intent or purpose to serve the market in the forum state; (2) designing the product for that state's market; (3) advertising in the forum state; (4) establishing channels to provide regular advice to customers in the forum state; or (5) marketing the product through a distributor‑agent in the forum state."[xv]

Justice Brennan authored a second plurality opinion that supported a much more lenient application of the principles articulated in World-Wide Volkswagen. Justice Brennan's opinion concluded that "as long as a [defendant] is aware that the final product is being marketed in the forum state …, jurisdiction premised on the placement of a product into the stream of commerce is consistent with the Due Process Clause," and no showing of additional conduct is required.[xvi] This test is generally referred to simply as the "stream of commerce" test.

Because neither opinion attracted a majority of the Justices, courts facing issues of personal jurisdiction after Asahi concluded that they were free to choose between either test. Some applied the stream of commerce plus test. Some applied the stream of commerce test. Some refused to choose between the two and applied them both.

III. The Supreme Court's Decision in McIntyre Clarified the Standard for Personal Jurisdiction.

After years of uncertainty, the United States Supreme Court returned to the issue of personal jurisdiction in McIntyre. In that case, the Supreme Court analyzed a New Jersey court's decision to subject a foreign manufacturer to personal jurisdiction under the stream of commerce test. The New Jersey court had concluded that the foreign manufacturer was subject to personal jurisdiction because it knew or reasonably should have known that "its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states."[xvii] The Supreme Court disagreed with the New Jersey court's account of the stream of commerce test, as well as its ultimate holding, calling both "incorrect."[xviii] Although the foreign manufacturer knew its distributor was selling its products nationwide and made no effort to restrict its distributor's activities, personal jurisdiction did not exist. This was because there needed to be something more, such as special state related design, advertising, advice, or marketing, or anything else forum related.[xix]

At its core, the New Jersey court failed to engage in the proper due process analysis—that is, whether it would be just to impose jurisdiction given the relationship between the defendants, the forum and the litigation. New Jersey's application of the stream of commerce theory could not be reconciled "with the constitutional demand for minimum contacts and purposeful availment, each of which rest upon a particular notion of defendant‑focused fairness."[xx]

Although the McIntyre court authored multiple opinions, both the plurality and concurring Justices rejected the stream of commerce test applied in New Jersey and agreed that a foreign manufacturer cannot be subject to personal jurisdiction simply because it might have been foreseeable that its products could be sold in a particular state. In the plurality opinion, Justices Kennedy, Roberts, Scalia and Thomas expressly rejected the stream of commerce theory in favor of a more rigid test for purposeful availment.[xxi] In the concurring opinion, Justices Breyer and Alito agreed that a foreign manufacturer cannot be subject to jurisdiction simply because it "knows or reasonably should know that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states."[xxii]

By requiring something more than the stream of commerce test, the Supreme Court confirmed that purposeful availment requires more than an awareness that a product could be swept into a particular forum. As a general rule, it is not enough that the foreign manufacturer might have predicted that its products will reach the forum state. Instead, purposeful availment exists only when a manufacturer has "engaged in conduct purposely directed at [the forum state]."[xxiii] As such, the jurisdictional inquiry must focus on the foreign defendant's actions, not its predictions.

IV. Most Courts Agree that McIntyre Requires Something More than the Stream of Commerce Test to Subject Foreign Defendants to Personal Jurisdiction.

Plaintiffs have argued, and will continue to argue, that the fragmented McIntyre decision is not binding authority, and if the Supreme Court had wanted to change the landscape of personal jurisdiction, it would have said so. Nevertheless, there is ample support for a more expansive reading of McIntyre.

Although there are relatively few state courts that have construed McIntyre, there is at least one very favorable decision by the California Court of Appeals. Following remand from the United States Supreme Court for further consideration in light of McIntyre, the California appellate court concluded that McIntyre resolved the questions left open in Asahi. Specifically, the California court concluded that McIntyre rejected the stream of commerce test in favor of requiring additional conduct directed at the forum.[xxiv]

Several federal district courts also have specifically addressed the precedential effect of McIntyre and concluded that the stream of commerce test is no longer the proper jurisdictional standard. For example, a Missouri district court recognized that both the plurality and concurrence rejected the rule that a manufacturer is subject to personal jurisdiction merely because it "knows or reasonably should know that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states."[xxv] A Florida district court rejected the plaintiff's reliance on the stream of commerce theory holding that McIntyre requires "something more" than the stream of commerce test.[xxvi] The District Court of New Jersey analyzed both the plurality and concurring opinions in McIntyre and concluded that "there is no doubt [McIntyre] stands for the proposition that targeting the national market is not enough to impute jurisdiction to all the forum states."[xxvii]

Finally, a recent decision by the District Court of Maryland is particularly instructive.[xxviii] The district court analyzed the plurality, concurring and dissenting opinions in McIntyre to identify the Supreme Court's ultimate holding. The district court concluded that McIntyre "clearly rejects foreseeability as the standard for personal jurisdiction."[xxix] Instead, specific personal jurisdiction requires a "deliberate connection" between the defendant and the forum. The district court rejected the stream of commerce test because it amounted to the same "knew or should have known" standard that the Supreme Court explicitly rejected in McIntyre.[xxx]

There is limited contrary authority. Two such cases involved the same foreign defendant but arose in different jurisdictions. In the first, a Kentucky district court cited the divided Supreme Court opinion in McIntyre and concluded it would continue to follow the stream of commerce plus theory historically applied in its circuit.[xxxi] In the second, a Mississippi district court decided that McIntyre was of "little to no precedential value," and concluded that McIntyre did not affect the Fifth Circuit's adherence to the stream of commerce test.[xxxii] The Fifth Circuit Court of Appeals has granted the foreign manufacturer's petition for leave to appeal and the Mississippi district court's decision is under review. Finally, a North Carolina superior court concluded that McIntyre's plurality opinion alone cannot overcome the line of cases that "made foreseeability the touchstone of jurisdiction."[xxxiii]

Despite this, the overwhelming weight of authority—more than forty‑five decisions issued by five circuit courts and nearly thirty different federal and state courts—cites McIntyre for the proposition that a more stringent test for personal jurisdiction must be applied.

V. McIntyre May Change the Law in Wisconsin.

It is reasonable to expect that McIntyre will have a direct impact on jurisdictional issues in Wisconsin. The Wisconsin Supreme Court has specifically held that the limits of the Due Process Clause are "established by the rules set forth in the decisions of the United States Supreme Court."[xxxiv] As such, Wisconsin courts will have to deal with McIntyre sooner or later.

Despite the weight of authority favoring a more stringent application of the due process test, it is not yet clear what Wisconsin courts will do with McIntyre. As of yet there are no decisions from either the federal courts or the state appellate courts in Wisconsin interpreting McIntyre. Nevertheless, the Seventh Circuit as well as district courts in Illinois and Indiana have relied on McIntyre for the proposition that something more than the stream of commerce test must be applied to determine whether a foreign defendant is subject to personal jurisdiction.[xxxv] As support for this interpretation continues to grow, foreign defendants will find increasing material with which to block the stream of commerce test in Wisconsin.

Chances are good that none of us are ready to try to apply Euclidean constructions to double a cube, trisect an angle or square a circle (all of which may be impossible). We are much more likely to succeed in persuading Wisconsin courts to apply McIntyre to defeat the stream of commerce test for personal jurisdiction. Mathematicians will applaud our restraint, and foreign defendants will benefit from our efforts.

[i] International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945).

[ii] World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 386, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980).

[iii] Burger King Corp. v. Rudzewicz, 471 U.S. 462, 105 S.Ct. 2174, 85 L.Ed.2d 528 (1985).

[iv] Asahi Metal Ind. Co., Ltd. v. Superior Court of California, 480 U.S. 102, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987).

[v] J. McIntyre Mach., Ltd. v. Nicastro, 131 S. Ct. 2780, 2792 (2011).

[vi] See, e.g., Rasmussen v. Gen. Motors Corp., 2011 WI 52, ¶¶ 16-17, 335 Wis. 2d 1, 803 N.W.2d 623; Kopke v. A. Hartrodt S.R.L., 2001 WI 99, ¶ 8, 245 Wis. 2d 396, 629 N.W.2d 662.

[vii] Wis. Stat. § 801.05.

[viii] Rasmussen, 335 Wis. 2d 1, ¶¶ 16-17; Kopke, 245 Wis. 2d 396, ¶ 8.

[ix] Kopke, 245 Wis. 2d 396, ¶ 23.

[x] Id.

[xi] Id., ¶ 24.

[xii] World-Wide Volkswagen Corp., 100 S.Ct. at 567.

[xiii] Asahi, 107 S.Ct. at 112.

[xiv] Id.

[xv] Id.

[xvi] Id. at 117.

[xvii] McIntyre, 131 S.Ct. at 2785 (citing Nicastro v. McIntyre Mach. Am., Ltd., 201 N.J. 48, 76-77, 987 A.2d 575 (N.J. 2010)).

[xviii] Id. at 2786.

[xix] Id. at 2792.

[xx] Id. at 2793.

[xxi] Id. at 2785.

[xxii] Id. at 2793.

[xxiii] Id. at 2790.

[xxiv] Dow Chem. Canada ULC v. Super. Ct., 202 Cal. App. 4th 170, 179, 134 Cal. Rptr. 3d 597 (Cal. App. 2011), as modified (Dec. 21, 2011), review denied (Apr. 18, 2012).

[xxv] Furminator, Inc. v. Wahba, No. 410CV01941AGF, 2011 WL 3847390, at *5 (E.D. Mo. Aug. 29, 2011).

[xxvi] N. Ins. Co. of New York v. Constr. Navale Bordeaux, No. 11-60462-CV, 2011 WL 2682950, at *5 (S.D. Fla. July 11, 2011).

[xxvii]Oticon, Inc. v. Sebotek Hearing Sys., LLC, No. CIV.A. 08-5489 FLW, 2011 WL 3702423, at *9 (D.N.J. Aug. 22, 2011).

[xxviii] Windsor v. Spinner Indus. Co., Ltd., 825 F. Supp. 2d 632 (D. Md. 2011), as amended (Dec. 15, 2011).

[xxix] Id. at 638.

[xxx] Id. at 639.

[xxxi] Lindsey v. Cargotec USA, Inc., No. 4:09CV-00071-JHM, 2011 WL 4587583, at *7 (W.D. Ky. Sept. 30, 2011).

[xxxii] Ainsworth v. Cargotec USA, Inc., No. 2:10-CV-236-KS-MTP, 2011 WL 6291812, at *4 (S.D. Miss. Dec. 15, 2011).

[xxxiii] Esoterix Genetic Labs., LLC v. McKey, No. 11 CVS 1379, 2011 WL 3667698, at *8 (N.C. Super. Aug. 22, 2011).

[xxxiv] Kopke, 245 Wis. 2d 396, ¶ 22 (citing Zerbel v. H.L. Federman & Co., 48 Wis. 2d 54, 60, 179 N.W.2d 872 (1970)).

[xxxv] Colón v. Akil, 449 Fed. Appx. 511, 514 (7th Cir. 2011); City of Greenville, Ill., et al. v. Syngenta Corp. Protection, No. 10-cv-188, 2011 WL 5877239, at *2 (S.D. Ill. Nov. 23, 2011); Montalbano v. HSN, Inc., No. 11 C 96, 2011 WL 3921398, at *2 (N.D. Ill. Sept. 6, 2011); Garrett v. Prime Transp., Inc., No. 3:10-CV-297 RM, 2011 WL 2648582, at *5 (N.D. Ind. July 5, 2011).