October 15, 2019

October 15, 2019

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October 14, 2019

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Santa May Reach All 50 States, but Personal Jurisdiction May Not

During the holidays, many Americans flock to nearby stores to buy presents and decorations. And given today’s global economy, many of those products are made by foreign manufacturers. But what happens if the product fails in a manner that could give rise to potential legal liability? That raises the question of when a domestic plaintiff can sue the manufacturer of a product manufactured outside the United States.

Therein lies the artificial Christmas tree conundrum. Historically, plaintiffs would turn to the “stream of commerce” doctrine to seek personal jurisdiction over product manufacturers and distributors that are not present in the forum state. Sometimes they were successful, but sometimes they were not. And the U.S. Supreme Court’s recent decision in Bristol-Myers Squibb Co. v. Superior Court of California[1] is further muddying the waters.

Stream-of-Commerce Doctrine and Inconsistency

The stream of commerce doctrine is a subset of specific jurisdiction, which allows for jurisdiction over claims that relate to a defendant’s contacts with the forum. The Supreme Court’s decision in Asahi Metal Industry Co. v. Superior Court of California[2] included comments by four justices, but not a clear holding, that the “mere placement” of products into the stream of commerce, without more, is insufficient to establish jurisdiction in a forum state. Since then courts have analyzed, applied, and rejected the doctrine in different (and often inconsistent) ways. The disparate treatment of two Christmas tree cases by federal courts in Arkansas and Virginia illustrates those inconsistencies.

In a case involving an allegedly defective artificial Christmas tree, an Arkansas federal court held that there was personal jurisdiction over claims brought against Boto, the Hong Kong-based manufacturer. [3] In that case, a plaintiff sued Boto for wrongful death after his wife died of injuries allegedly caused by a house fire that started near an artificial Christmas tree she had purchased days before from a local Hobby Lobby. At the time, Boto was selling approximately $415 million worth of Christmas trees annually, mostly to big box stores like Hobby Lobby and Walmart. The court held that out-of-state sales to direct customers, even if the direct customers are nationwide retailers, are not by themselves sufficient to confer jurisdiction over the claims if the manufacturer had not otherwise targeted the forum state.

Ten years after the court issued its ruling in Arkansas, a federal court in Virginia reached the opposite conclusion. In that case, the plaintiff alleged that her artificial Christmas tree, also manufactured by Boto, malfunctioned and damaged her property.[4] By this point, Boto was selling approximately $1.1 billion in artificial trees annually to stores like Walmart and Target. Boto had also created a website where customers could find information about Boto’s products and complete warranty registration forms. The Virginia court found that Boto’s contacts with Virginia were sufficient to find personal jurisdiction.

Further Complications from Bristol-Myers Squibb

Although it does not mention the stream of commerce doctrine, the U.S. Supreme Court’s recent decision in Bristol-Myers Squibb further complicates stream of commerce jurisprudence. There, the Court held that a California court did not have specific jurisdiction over claims brought by non-resident plaintiffs against a non-resident corporation for injuries allegedly caused by a drug manufactured by the corporation, even though the corporation had availed itself of California’s substantial pharmaceutical market by advertising, distributing, and developing products there. The non-resident plaintiffs did not contend that they had purchased, ingested, or been injured by the drug in California. Without a connection to California between the defendant’s conduct and the plaintiff’s injuries, “specific jurisdiction is lacking regardless of the extent of a defendant’s unconnected activities in the State.” The Court also reiterated that “a defendant’s relationship with a third party [here, a California distributor], standing alone, is an insufficient basis for jurisdiction.”

Several federal courts have held that Bristol-Myers effectively overruled the stream of commerce approach to personal jurisdiction. In Shuker v. Smith & Nephew, PLC,[5] for example, the Third Circuit followed Bristol-Myers and held that “[t]he bare fact that [a non-resident defendant] contracted with a [resident] distributor is not enough to establish personal jurisdiction in the State.” Similarly, in A.T. Through Travis v. Hahn,[6] a court in the Eastern District of Missouri stated that Bristol-Myers “appears to have drastically changed the specific jurisdiction landscape to the exclusion of the stream-of-commerce theory.” The court there rejected an argument for personal jurisdiction based on a distribution contract.

State courts have also questioned whether the stream of commerce theory is viable. The Oklahoma Supreme Court recently refused to exercise jurisdiction over an out-of-state helicopter manufacturer.[7] The court determined that, under Bristol-Myers, the “‘stream of commerce’ approach is insufficient to establish specific personal jurisdiction.” The court ultimately found that without “direct and specific conduct with this State directly related to the incident giving rise to the injuries” it could not exercise jurisdiction over the defendants.

Nonetheless, some courts are continuing to apply the stream of commerce doctrine. For example, a court in the Western District of Texas held that a Taiwanese tire manufacturer could be sued in Texas for injuries resulting from a tire-related accident that occurred in Mexico.[8] The court did not discuss Bristol-Myers or its potential effects on the stream of commerce theory.

Other courts examining the stream of commerce theory have distinguished Bristol-Myerson its facts. For example, an Illinois appellate court found Bristol-Myers inapplicable because Bristol-Myers dealt with an out-of-state plaintiff.[9] Still other courts have held that because Bristol-Myers doesn’t mention the stream of commerce doctrine, it did not alter it.[10]

What’s next when it comes to Christmas trees and other products manufactured abroad? Bristol-Myers has created a stricter standard to find personal jurisdiction over a foreign defendant, but it’s less clear how that case has affected the stream of commerce doctrine. While having an in-state distributor is no longer enough to convey jurisdiction over a manufacturer, until the Court addresses the stream of commerce doctrine head-on, it may be difficult for foreign defendants to predict what factors a court will use in analyzing personal jurisdiction.


[1]   137 S. Ct. 1773 (2017).

2]   480 U.S. 102 (1987).

[3]   Smith v. Hobby Lobby StoresInc., 968 F. Supp. 1356 (W.D. Ark. 1997).

[4]   Jones v. Boto Co., Ltd., 498 F. Supp. 2d 822 (E.D. Vir. 2007).

[5]   885 F.3d 760 (3d Cir. 2018).

[6]   No. 18-01139 (SNLJ), 2018 WL 5278699 (E.D. Miss. Oct. 24, 2018).

[7]   Montgomery v. Airbus Helicopters, Inc., 414 P.3d 824 (Okla. 2018).

[8]   Dillard v. Federal Corporation, 321 F. Supp. 3d 752 (W.D. Tex. 2018).

[9]   Kowal v. Westchester Wheels, Inc., 2017 IL App (1st) 152293.

[10]  Lindsey v. American Honda Motor Company, Inc., No. 16-00941 (RBS), 2017 WL 3217140 (E.D. Pa. July 28, 2017).

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About this Author

Matthew Smart, litigation lawyer, Schiff Hardin
Associate

Matthew is a member of the Litigation and Dispute Resolution Group. His practice focuses on general litigation matters and spans all phases of litigation.

Before joining Schiff, Matthew was a restructuring associate in the Chicago office of an international law firm where he practiced in all areas of corporate restructuring, bankruptcy, and insolvency-related matters and represented corporate debtors and creditors in chapter 11 and chapter 15 proceedings.

312.258.5597
Stephen Copenhaver, complex civil litigator, Schiff Hardin, chicago law firm
Associate

Stephen M. Copenhaver focuses his practice on complex civil litigation matters, with a particular emphasis on product liability and civil conspiracy matters. He has represented clients in several different industries, including juvenile products, agricultural products, construction equipment, industrial products, chemicals, home furnishings, aviation, consumer electronics and glass containers.

312-258-5648