Personal Jurisdiction Uncertain Based on Stream of Commerce: Part III

By Suzanne Lecocke

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This article concludes a 3-part article discussing whether the stream of commerce theory may still be used to establish personal jurisdiction over a non-resident defendant, an area of vital concern in today’s commercial world both to plaintiffs who want to sue non-resident companies, and equally to non-resident defendants who want to know where they may be subject to suit.

This article concludes a 3-part article[1] discussing whether the stream of commerce theory may still be used to establish personal jurisdiction over a non-resident defendant, an area of vital concern in today’s commercial world both to plaintiffs who want to sue non-resident companies, and equally to non-resident defendants who want to know where they may be subject to suit.

 

For patent litigation, the Court of Appeals for the Federal Circuit and many federal district courts, rightly or wrongly, still rely on Beverly Hills Fan[2] and have not applied the United States Supreme Court’s 2017 Bristol-Myers Squibb[3] decision to federal intellectual property cases.  Non-resident defendants should remain cognizant of the circumstances under which they are and are not subject to personal jurisdiction and the variances of opinions in different district courts.

Bristol-Myers Squibb

The BMS decision has now turned out to be a controversial and somewhat unsettling decision on specific personal jurisdiction.  In an attempt to clarify whether a state court may exercise general or specific jurisdiction over an out-of-state company to adjudicate the product liability claims of out-of-state residents involving wholly out-of-state events and injuries, an overwhelming 8-1 majority of the Court agreed on the decision, but many questions remain over the reach of that decision.  Justice Alito delivered the majority opinion, with 7 other justices in agreement; Justice Sotomayor was the lone dissent.  The sole question was whether California’s exercise of personal jurisdiction violated 14th Amendment due process.  California had used a “sliding scale” approach – the stronger the connection between the forum state and the specific claim at issue, the fewer the defendant’s unrelated contacts with the forum could be while still allowing the state to exercise personal jurisdiction over the defendant.  The BMS majority explicitly rejected the California approach, clearly indicating that unrelated general contacts do not establish specific personal jurisdiction.

The Supreme Court had of course previously addressed the issues of specific jurisdiction and stream of commerce in Nicastro and Asahi,[4] but those cases left proper application of the stream of commerce theory in disarray.  However, rather than clarify the Nicastro and Asahi opinions, the BMS majority didn’t mention Nicastro, failed to see the need to even use the explicit term “stream of commerce,” and only briefly mentioned Asahi.  The Court also did not overtly strike down the stream-of-commerce argument.  Instead, the majority applied “settled principles of personal jurisdiction” to sideline, or perhaps signal its eradication of, the vestiges of “stream-of-commerce” personal jurisdiction, whether it be the Asahi test advocated by Justice O’Connor or the Asahi test advocated by Justice Brennan.[5]

According to BMS, simply stated, a court’s exercise of specific personal jurisdiction over a defendant must satisfy three conditions, without qualification: (1) defendant’s purposeful availment of the forum State by conducting activities in that forum State, (2) a claim arising out of or related to defendant’s activities in the forum State, and (3) reasonableness.[6]  Further considerations may be factored into the reasonableness condition, once the first two conditions are met: “the burden on the defendant, the forum State’s interest in adjudicating the dispute, the plaintiff’s interest in obtaining convenient and effective relief, the interstate judicial system’s interest in obtaining the most efficient resolution of controversies, and the shared interest of the several States in furthering fundamental substantive social policies,”[7] with the burden on the defendant being the “primary concern.”[8]

Int’l Shoe was again firmly cemented in a personal jurisdiction 14th Amendment analysis by the 8-1 BMS majority.  The question today is whether placing a product into the stream of commerce will satisfy the Int’l Shoe/BMS test or whether the Supreme Court will allow a different test for 5th Amendment federal cases.  The case can certainly be made that using any stream-of-commerce approach to establish personal jurisdiction over an out-of-state or foreign defendant whose product happened to make its way into the state and then caused injury is no longer a correct theory under which to exercise specific personal jurisdiction . . . probably.  Without the Supreme Court’s explicit rejection of the stream-of-commerce personal jurisdiction analysis, and without the explicit application of the BMS holding to all types of cases, some lower federal courts continue to apply either Brennan’s stream-of-commerce test or O’Connor’s stream–of-commerce-plus-intent test, effectively ignoring BMS under different factual scenarios.  As Justice Sotomayor said in her dissent, the BMS majority opinion is a “factbound” opinion.[9]

You might recall from Part II of this article that Justice Sotomayor also dissented in Nicastro, along with Justices Ginsburg and Kagan.  Though losing support in BMS from the other two justices, Sotomayor emphasized her disagreement with the majority, saying: “It does not offend ‘traditional notions of fair play and substantial justice,’ [citation omitted] to permit plaintiffs to aggregate claims arising out of a single nationwide course of conduct in a single suit in a single State where some, but not all, were injured.  But that is exactly what the Court holds today is barred by the Due Process Clause.”[10]

In Nicastro, Justices Breyer and Alito had concurred with the majority, saying that a single sale does not constitute a basis for specific personal jurisdiction.  Although not citing Nicastro, the BMS majority implicitly expanded upon Breyer’s and Alito’s Nicastro viewpoint by way of example, in affirming that a manufacturer merely placing a product with a third-party distributor does not, alone, create specific personal jurisdiction over the manufacturer, at least where the claim at issue against the defendant did not occur in the forum.

A defendant’s relationship with a . . . third party, standing alone, is an insufficient basis for jurisdiction.  In this case, it is not alleged that [defendant] engaged in relevant acts together with [its distributor] in [the forum] . . .  .  The bare fact that [the defendant] contracted with a [forum] distributor is not enough to establish personal jurisdiction in the State.[11]

Note, though, the qualifiers in the holding – “alone” and “at least where the claim at issue … did not occur in the forum.”  Had these conditions been met, might the holding have been different?

It seems apparent, in any event, that the Court’s focus on the Int’l Shoe standard is a direct rebuff of Justice’s Brennan’s dissent in World-Wide Volkswagen that the commercial world-view had changed since 1945.  In conclusion, to establish specific personal jurisdiction, there must be a connection between the defendant, the forum, and the claim at issue.[12]  The remaining unsettled issue, though, is how crucial the defendant’s connection with the forum state or its in-state conduct must be to the cause of action for liability.  In Nicastro, Justices Breyer and Alito were seeking a case to present “a better understanding of the relevant contemporary commercial circumstances” in which to overtly and explicitly decide a correct across-the-board stream of commerce test for today’s world.[13]  Did BMS simply not present such sought-after facts?  Have they given up their quest?  We shall see.

Uncertainty Still Reigns After BMS

Important questions abound when determining specific jurisdiction.  Still today, the answers to those questions are anything but certain.  Is BMS indeed “factbound”?  Will specific nuances of individual cases be important?  Do changes in commercial activity and the way conducting business has evolved in the past 75 years count for anything?  Does it matter whether the case is a mass tort case, a single tort case, a non-intentional or an intentional tort, a products liability case, a class action, or a patent infringement case?  Does the cost or size of the product matter, i.e., would it make a difference whether the product(s) brought into a forum state are hundreds of 5-dollar product or a single multi-million-dollar piece of equipment?  Does it matter whether the trial court is a state court or a federal district court?  Does it matter whether the defendant is an out-of-state domestic entity or a non-U.S. foreign entity? (Justice Ginsburg noted that “‘[i]n the international order,’ the State that counts is the United States, not its component States, and that the fair place of suit within the United States is essentially a question of venue.”[14]).  Is advertising on the Internet considered advertising in every state, including the intent that a product will reach every state?  Does selling a product on Amazon or eBay establish the requisite contacts?   How about whether the manufacturer ships the product to the customer, or whether Amazon ships the product?  Should fairness/inconvenience/hardship to the plaintiff be a more proper consideration when the plaintiff is an individual and the defendant is a multi-national corporation or a non-U.S. corporation?  Is stream-of-commerce personal jurisdiction even relevant anymore, or has it been or should it be either discarded or encompassed by other considerations?

Should there even be a one-size-fits-all personal jurisdiction standard, which would be simpler, yes, but fair laws are not always simple and simple laws not always fair.

Two Stream-of-Commerce Cases Pending Before the Supreme Court

Currently pending before the U.S. Supreme Court are two post-BMS products liability cases dealing with stream-of-commerce personal jurisdiction.[15]  In these cases, the plaintiffs sued in their home states where the injuries occurred.  In Bandemer, Ford argued that it was not subject to personal jurisdiction because the specific car involved in the accident was not designed, manufactured, or originally sold in Minnesota, but was only in Minnesota after having been placed in the stream of commerce and driven there.  The Minnesota Supreme Court determined that Ford’s marketing efforts were continuous and systematic contacts with the forum state, that Ford purposefully availed itself of the forum, and that BMS did not require a more direct connection.  Similar facts occurred in Montana.  The Montana Supreme Court stated: “due process does not require a direct connection; it only requires that the plaintiff’s claims ‘arise out of’ or ‘relate to’ the defendant’s forum-related activities.”[16]

By granting certiorari in these cases, the U.S. Supreme Court will have the opportunity to decide what is meant by the terms “arise out of” and “relate to” and whether a manufacturer’s marketing efforts in the forum state, directly or indirectly, constitute a sufficient connection to the injury in the state so that personal jurisdiction may be established – at least in the products liability sense.  The result will be that either specific personal jurisdiction over major companies like Ford or Apple, who advertise in every state, may be exercised in every state (essentially equating to nationwide general jurisdiction for companies that do business nationwide), or only in the company’s state of incorporation or principal place of business (the forums in which they are subject to general personal jurisdiction under Daimler[17].  The outcome in these cases may impact all stream-of-commerce cases, including by analogy, patent infringement cases.  The two Ford cases have been consolidated.  Amicus curiae briefs have been filed in support of both sides of the issue.  Oral argument is set for October 7, 2020.

BMS and 5th Amendment Due Process

And finally, back to BMS for a final few words – in the last sentence of the majority opinion in BMS, the Court “[left] open the question whether the Fifth Amendment imposes the same restrictions on the exercise of personal jurisdiction by a federal court.”[18]  A few commentators have surmised that the Court is hinting that the extent of due process under the 14th Amendment and that under the 5th Amendment are different.  Yet, virtually everyone agrees that due process under both amendments are equivalent, the only difference being that the 14th Amendment applies to states and the 5th Amendment applies to federal courts.  Some courts have explicitly stated that, while BMS might be applicable in a federal diversity case, it does not apply to federal question cases because the issue of interstate sovereignty and federalism would not be present. Other courts have stated that BMS would apply to federal question cases only if the federal statute in issue does not allow for nationwide service of process.[19]  Service of process and specific personal jurisdiction are “inextricably intertwined.”[20]  Recall that the Patent Act provides for nationwide service of process, and the Supreme Court has not yet explicitly ruled as to whether BMS applies to patent infringement cases.

The extent of due process being comparable, could the Supreme Court be signaling that the analysis used to establish personal jurisdiction under the 5th Amendment is or should be different from the 3-factor test used under the 14th Amendment, as confirmed in BMS?  I doubt that, but it remains to be seen.  Only the 14th Amendment was relevant to the facts of BMS, so only personal jurisdiction under the 14th Amendment was decided, and the Supreme Court did not rule on a question not before it.

Conclusion

Dozens of federal district courts have grappled with the stream-of-commerce personal jurisdiction conundrum since BMS, but the Federal Circuit so far has declined any opportunity it may have had to decide the impact, if any, of BMS on Beverly Hills Fan.  In November of last year, the Federal Circuit denied a mandamus petition on the issue, saying there were “no exceptional circumstances” to decide this issue prior to issuance of a final judgment.[21]  At the district court, Judge Gilstrap had determined that BMS did not abrogate the stream-of-commerce basis for personal jurisdiction, and TCT petitioned for a writ of mandamus.[22]

Thanks for your interest in this three-part article.  I will update this article when the Supreme Court decides the Ford cases (to the extent that decision pertains to patent litigation) or when the Court provides any further word on the impact of stream of commerce on specific personal jurisdiction in patent infringement litigation.  In the meantime, prepare for continued division and differences of opinion in the various state and federal courts.

[1] Part I (published in the June issue of Osha Liang’s Monthly Insights at https://oshaliang.com/newsletter/personal-jurisdiction-uncertain-based-on-stream-of-commerce-part-i/) discussed Beverly Hills and whether the stream-of-commerce test might remain a viable path to establishing personal jurisdiction in patent infringement cases after BMS.  Part II (published in the July issue of Monthly Insights at https://oshaliang.com/newsletter/personal-jurisdiction-uncertain-based-on-stream-of-commerce-part-ii/) generally discussed personal jurisdiction and due process and the origin of the stream-of-commerce theory as it relates to personal jurisdiction.

[2] Beverly Hills Fan Co. v. Royal Sovereign Corp., 21 F.3d 1558 (Fed. Cir. 1994).

[3] Bristol-Myers Squibb Co. v. Superior Court of Cal., San Francisco Cty., __ U.S. __, 137 S. Ct. 1773 (2017) (“BMS”) (86 California residents and 592 non-residents sued U.S. prescription drug manufacturer in state court for injury caused by drug).

[4] McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. 873 (2011) and Asahi Metal Indus. Co. v. Superior Court of Cal., Solano Cty., 480 U.S. 102 (1987).  For a discussion of Nicastro and Asahi, see Part II of this article, cited at fn. 1.

[5] BMS, 137 S. Ct. at 1785-86.

[6] Id. (citations omitted).

[7] Id. at 1786.

[8] Id. at 1780.

[9] Id. at 1788, fn. 3 (Sotomayor, J., dissenting).

[10] Id. at 1789 (Sotomayor, J., dissenting).

[11] Id. at 1783 (majority op., citations and quotations omitted).

[12] Id. at 1781.

[13] Nicastro, 564 U.S. at 892-93 (concurring op.).

[14] Id. at 905 (citation omitted).

[15] Bandemer v. Ford Motor Co., 931 N.W.2d 744 (Minn. 2019), cert. granted, 140 S. Ct. 916 (2020) and Ford Motor Co. v. Montana Eighth Judicial Dist. Court, 443 P.3d 407 (Mont. 2019), cert. granted, 140 S. Ct. 917 (2020) (together, Ford cases).

[16] Montana, 443 P.3d at 490-91.

[17] Daimler AG v. Bauman, 571 U.S. 117, 137 (2014).

[18] BMS, 137 S. Ct. at 1784 (majority op.).

[19] See, e.g., Roy v. FedEx Ground Pkg. Sys., Inc., No. 3:17-cv-30116-KAR, 2018 WL 2324092 (D. Mass. May 22, 2018).

[20] Id. at *3.

[21] In re TCT Mobile Int’l, Ltd., 783 Fed. Appx. 1028 (Fed. Cir. 2019).

[22] Semcon IP Inc. V. TCT Mobile Int’l Ltd., No. 2:18-cv-00194-JRG, 2019 WL 2774362 (E.D. Tex., July 2, 2019).