On Thursday morning, the Illinois Supreme Court filed its decision in Russell v. SNFA. We were watching Russell closely here at Appellate Strategist because it was the Court's first opportunity to apply the United States Supreme Court's decision in J. McIntyre Machinery, Ltd. v. Nicastro. In Nicastro, a plurality of the high court held that merely placing a product into the stream of commerce with the expectation that it would ultimately reach the forum state was not enough to trigger personal jurisdiction over the manufacturer. Our report on the Russell argument is here.
Russell arose from a helicopter crash in Illinois. The decedent's estate sued, alleging that one of the helicopter's tail rotor drive-shaft bearings had failed, fracturing the drive shaft, making the tail rotor inoperable, and leading to the crash. SNFA made the custom bearings.
The helicopter that crashed was built in Italy by Agusta, an Italian company that was unrelated to SNFA. The helicopter had been sold multiple times during its life, as aircraft often are -- first to a German company, then to Metro Aviation in Louisiana, and finally to Air Angels in Cook County Illinois. None of these companies had anything to do with SNFA either. Metro -- the Louisiana company - had replaced several of the bearings with SFNA replacement parts, but they didn't get them directly from SNFA. The replacements were sold by SNFA to Agusta in Italy, sold again to Agusta's American subsidiary, and then to Metro in Louisiana. Indeed, although SNFA did have three U.S.-based customers for its aerospace bearings, it sold no helicopter bearings in the U.S. at all.
The trial court held it had no personal jurisdiction over SNFA, noting that SNFA's only apparent contact with Illinois had been a single visit to an entirely different customer for an entirely different product. The Appellate Court reversed, holding that SNFA knew that Agusta sold its helicopters in the United States, and since SNFA's bearings were custom made, Agusta's U.S. subsidiary essentially was SNFA's American distributor. The Illinois Supreme Court tossed the case back in the Appellate Court's lap when Nicastro came down, but not long after, the Appellate Court reversed again, holding that Nicastro made the Court even more certain it was right.
On Thursday morning, a 5-1 majority of the Supreme Court affirmed in an opinion by Chief Justice Kilbride. Although the majority agreed that Illinois lacked general jurisdiction over SNFA - meaning that it could have adjudicated any claim against the company, regardless of whether it was related to Illinois or not - the state did have specific jurisdiction, the majority found. Specific jurisdiction, the majority noted, "requires a showing that the defendant purposefully directed its activities at the forum state and the cause of action arose out of or relates to the defendant's contacts with the forum state."
Much of the decision in Russell turns on the Court's construction of recent personal jurisdiction cases from the United States Supreme Court. According to the Court, the high court had held in World-Wide Volkswagen Corp. v. Woodson that a manufacturer may be subjected to liability where it delivers a product into the stream of commerce with the expectation that the product would be purchased in the forum state. On the other hand, in Asahi Metal Indus. Co., Ltd. v. Superior Court, the court had divided between Justice O'Connor's plurality, holding that jurisdiction required not only delivery into the "stream of commerce" but something more - an affirmative act seeking to reach and serve the forum market - and Justice Brennan's concurrence, arguing that merely placing a product into the stream of commerce with the expectation that it would reach the forum was enough. According to the majority in Russell, Nicastro had clarified the situation almost not at all. Although the plurality had certainly endorsed Justice O'Connor's view, Justice Breyer's concurrence, the majority insisted, had refused to adopt Justice O'Connor's Asahi opinion, resting on the stream-of-commerce theory from World Wide Volkswagen. So the majority concluded it couldn't adopt either the Brennan or the O'Connor theory of personal jurisdiction - and it didn't have to, since SNFA lost under either theory.
The sole market for the custom-made ball bearings SNFA made for Agusta, according to the majority, was Agusta's helicopters. Since SNFA had no U.S. customers for the bearings themselves, its only way of reaching the U.S. market was through Agusta's sales of helicopters containingthe bearings. This was sufficient to qualify under Justice Brennan's theory.
And there was "something more" sufficient to satisfy Justice O'Connor, according to the Court. SNFA had had an ongoing relationship since 1997 with Hamilton Sunstrand in Rockford, Illinois. SNFA had never sold Hamilton Sunstrand so much as a single one of the helicopter ball bearings it made for Agusta; it sold Hamilton an entirely different product - bearings for fixed-wing aircraft and airplanes. In fact, SNFA had sold Hamilton nearly a million dollars worth of these bearings, and the record contained "hundreds" of invoices listing Rockford, Illinois as the purchasing location (and San Diego, California as the delivery location).
SNFA argued that even if the Hamilton Sunstrand relationship "counted" for purposes of jurisdiction, since the plaintiff's claim was specific rather than general jurisdiction, the claim still had to arise out of the contacts for jurisdiction to attach - and it clearly didn't. Not so, the majority held; the standard was "lenient or flexible." There was no basis for distinguishing between varieties of bearings, and besides, all conflicts in the evidence were construed in favor of the plaintiff at this point. So bottom line, SNFA's sales through Agusta were enough to find specific jurisdiction in Illinois.
Join me below the fold for a review of Justice Garman's dissent, and some initial thoughts on what it all means.
Justice Rita Garman filed a lengthy dissent. Jurisdiction was clearly absent, Justice Garman insisted, whether measured under Asahi and Nicastro, or the Illinois Supreme Court's earlier decision in Wiles v. Morita Iron Works Co., which the majority had relied upon.
Besides, Justice Garman wrote, the majority had partially mischaracterized Justice Breyer's concurring opinion in Nicastro. There was nothing suggesting that Justice Breyer's reference to the O'Connor test was merely illustrative; it seemed to be an endorsement. And if it was, given that Justice Alito had signed on to the Breyer concurrence, there were six Justices who had endorsed the O'Connor "stream of commerce plus something more" theory from Asahi.
And there was no "something more" here, according to Justice Garman. There was no evidence that SNFA knew that Agusta helicopters were in Illinois, and without that, an assertion of jurisdiction would abandon the long-settled requirement that a defendant have some connection to the forum. "The majority's holding," Justice Garman wrote, "would subject defendant to jurisdiction in any state in which Agusta sold helicopters containing defendant's products, whether or not defendant was actually aware its products were being marketed or sold in such a state, thereby essentially causing defendant's 'amenability to suit [to] travel with the chattel.'"
Nor was Justice Garman persuaded by SNFA's business relationship with Hamilton Sunstrand. None of the approximately one million dollars in products which had been purchased by Hamilton over a span of years had been shipped into Illinois; all had been sent to San Diego.
In Justice Garman's view, the majority opinion was a major threat to manufacturers whose customers ultimately sold products into Illinois:
Under the majority holding, a foreign defendant can now be haled into court in Illinois for even the most fleeting and inconsequential business contact with this state. Indeed, defendant is now subject to Illinois jurisdiction even though it had never actually sold a single item to an Illinois consumer.
Foreign manufacturers - not only those based outside the U.S., but even manufacturers in other states - should take Justice Garman's concerns to heart for several reasons.
First, Russell takes a quite liberal view of the Nicastro approach to personal jurisdiction over foreign manufacturers. The plurality in Nicastro sought to reconcile the "stream of commerce" standard from World-Wide Volkswagen with the more general principles of jurisdiction. World-Wide Volkswagen was simply a restatement of the more general notion that a manufacturer may be subject to jurisdiction where it purposefully seeks to serve the forum market, the plurality wrote. "The principal inquiry in cases of this sort is whether the defendant's activities manifest an intention to submit to the power of a sovereign." According to the plurality, "jurisdiction is in the first instance a question of authority rather than fairness."
As Justice Garman observes in Russell, Justice Breyer does not reject Justice O'Connor's "stream of commerce plus something more" theory from Asahi; he seems to endorse it. There is no language of limitation in Justice Breyer's application of the theory. But Justice Breyer clearly views the plurality's opinion in Nicastro as tightening jurisdiction even further than the O'Connor theory, and it is this he intends to reject: "The plurality seems to state strict rules that limit jurisdiction where a defendant does not 'inten[d] to submit to the power of a sovereign' and cannot 'be said to have targeted the forum.' But what do those standards mean when a company targets the world by selling products from its Web site? . . . I do not agree with the plurality's seemingly strict no-jurisdiction rule." But after Russell, any notion that at minimum Justice O'Connor's view states the law is gone, at least in Illinois courts. Now, there is a real risk that jurisdiction might not only follow the chattel, but the end-user product manufactured from the chattel as well.
The second point is a related one. Regardless of how close the relationship between the defendant and the helicopter manufacturer in Russell was, the notion of a more-or-less customized component for an end-user product is far from unique in the economy as a whole. But that doesn't mean the component manufacturer and its customer are financially joined at the hip; if manufacturer's price rises, the customer will send its specs off to a different manufacturer (indeed, counsel conceded at oral argument in Russell that several other companies also made high-performance ball bearings). If the customer goes elsewhere (or goes under), the manufacturer will replace the customer. All this is basic economics straight out of industrial organization textbooks. But in the wake of Russell, anyone who manufactures components which are arguably built to the customer's specifications must wonder if a court will construe its customers' sales as the manufacturer's own for purposes of minimum contacts.
The third point of concern post-Russell flows from the majority's construction of the "arising out of" element of specific jurisdiction. Traditionally, the "arising out of" limitation has been thought to relate to the forum's territorial jurisdiction -- if you act in a state, the forum has the power to adjudicate the consequences flowing from your act. But the standard is "flexible," the majority in Russell found, holding that decedent's accident involving custom-made helicopter bearings "arose out of" the sale of custom-made fixed-wing aircraft bearings to an entirely different customer. This seems to be a liberal construction of the element indeed. Post-Russell, it may be that lower courts will interpret the Court's opinion to mean that future accidents "arise out of" virtually any sale of any product in a defendant's entire catalogue, so long as the sale happened in the jurisdiction.