In the last two months, the United States Supreme Court granted review in two cases involving the limits of federal court jurisdiction over foreign companies:  DaimlerChrysler AG v. Bauman, No. 11-965 (cert. granted Apr. 22, 2013), and Walden v. Fiore, No. 12-574 (cert. granted Mar. 4, 2013).  In these two cases, the Supreme Court may revisit the limitations that it imposed in two 2011 cases on personal jurisdiction over foreign companies, and any new limitations or clarifications could have an important impact on how companies manage their international supply chain risk.

In 2011, the Supreme Court issued two decisions that, together, make clear that federal courts only may exercise personal jurisdiction over foreign defendants that have directed a course of conduct at the forum state, and not merely defendants that have foreseen that their products could up end up there.

In Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846, 2851 (2011), the Supreme Court addressed the extent of contacts necessary for personal jurisdiction under the “general jurisdiction” doctrine, under which a federal court can exercise personal jurisdiction over a foreign company where the company has “continuous and systemic” contact with the forum state such that the forum state is analogous to a “home” state.  The Supreme Court unanimously held that the a foreign company did not satisfy the general-jurisdiction doctrine requirements absent conduct that directly targeted markets in the forum state, even where its products had entered the forum state through the stream of commerce.  See id. at 2851.  To determine the sufficiency of the contacts, the Supreme Court looked to factors such as whether the foreign company had registered in the forum state; had a place of business, employees or bank accounts there; manufactured or designed products there; advertised there; solicited business there; and directly shipped products there.

In J. McIntyre Machinery Ltd. v. Nicastro, 131 S. Ct. 2780, 2788 (2011), the Supreme Court addressed the contacts needed to establish personal jurisdiction under the “specific jurisdiction” doctrine, under which a court has jurisdiction over a foreign company based on issues or controversies arising out of an activity or occurrence in the forum state.  A majority of the Supreme Court emphasized whether the foreign company purposefully availed itself of the market in the forum state.  A four-justice plurality explained that “the exercise of judicial power is not lawful unless the defendant purposefully avails itself of the privilege of conducting activities within the forum State.”  Id. at 2785 (internal quotation and citation omitted).  The plurality stated that, even if it was foreseeable that a product placed in the stream of commerce ultimately would end up in the forum state, foreseeability alone was insufficient to establish specific jurisdiction.  See id. at 2790.

Goodyear and McIntrye increased the risk to domestic companies that they will be unable to pursue foreign suppliers in American courts.  These cases created particular risk for companies that import from suppliers in jurisdictions that are unfriendly to corporate and/or foreign plaintiffs, increasing the likelihood that such companies would be unable to recover at all for a supply chain disruption or for losses and liabilities arising from tainted or substandard supplies.

Companies that rely on international supply chains, or that operate foreign subsidiaries, thus should pay particular attention to the DaimlerChrysler and Walden cases.  As in 2011, one of the new cases, DaimlerChrysler, will address the general-jurisdiction doctrine, and the other, Walden, will address the specific-jurisdiction doctrine.

Specifically, DaimlerChrysler presents the question of “whether it violates due process for a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum State.”  Petition for Writ of Certiorari, DaimlerChrysler AG v. Bauman, 2012 WL 379768, at *i (Feb. 6, 2012) (No. 11-965).  The Supreme Court will be reviewing the Ninth Circuit’s decision that Daimler AG (formerly DaimlerChrysler AG), a German company with no facilities or employees in the United States, is subject to general personal jurisdiction in California because Mercedes-Benz USA LLC (MBUSA), an indirect subsidiary of Daimler AG, distributes Daimler AG-manufactured vehicles in California.  Because Daimler AG is subject to general personal jurisdiction because of the actions of one of its subsidiaries, the Ninth Circuit found that Daimler AG can be sued in California for acts (alleged human rights violations) committed by another Daimler AG subsidiary, Mercedes-Benz Argentina, in Argentina against Argentine residents.  Thus, in DaimlerChrysler, the Supreme Court may clarify Goodyear by considering the extent to which a federal court may impute the contacts of domestic subsidiaries to foreign parent corporations.

Walden presents the question of “[w]hether due process permits a court to exercise personal jurisdiction over a defendant whose sole ‘contact’ with the forum State is his knowledge that the plaintiff has connections to that State.”  Petition for Writ of Certiorari, Walden v. Fiore, 2012 WL 5451439, at *i (Nov. 6,  2012) (No. 12-574).  In Walden, two professional gamblers brought a Bivens action in Nevada against DEA Agent Walden who allegedly had violated their Fourth Amendment rights by searching and seizing their gambling proceeds in an Atlanta, Georgia airport while they were on a layover on a return flight to Las Vegas, Nevada.  The Ninth Circuit found personal jurisdiction over Walden even though the entire event happened in Georgia and Walden had never been to Nevada.  The Ninth Circuit reasoned that Walden “individually targeted Fiore and Gipson in Nevada by creating a false and misleading probable cause affidavit . . . His conduct in doing so was expressly aimed at Nevada because . . . he knew that Fiore and Gipson had ongoing and substantial connections to Nevada.  If, as alleged, he also knew that there was no legitimate reason to seek forfeiture of the funds, his actions amounted to an attempt to defraud Nevada residents.”

Fiore v. Walden, 688 F.3d 558, 586 (9th Cir. 2012), cert. granted, 133 S. Ct. 1493 (2013).  Walden thus presents the opportunity for the Supreme Court to revisit McIntyre to address what is required for a foreign defendant to purposefully avail itself of the forum state.

These cases could have great significance on the risk attendant to relying on international supply chains. Companies thus should consider taking steps now to boost their chances of weathering a product liability event caused by a defect in a product supplied by a foreign entity.  We addressed some important steps in our prior article on Goodyear and McIntrye here.