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J. McIntyre Machinery: An important case for corporate counsel

Near the end of its last term, the U.S. Supreme Court decided its first “minimum contacts” case in 24 years. The case, argued successfully by a Baltimore-based lawyer, is a powerful shield in the service of corporate defendants within the United States and abroad.

In J. McIntyre Machinery Ltd. v. Nicastro, 09-1343, the court held 6-3 that J. McIntyre Machinery, a United Kingdom company, did not purposefully avail itself of the New Jersey market when it shipped a three-ton metal shearing machine to its Ohio distributor, which then sold it to a New Jersey firm.

An employee of the New Jersey firm suffered an accident and sued the U.K. company in New Jersey state court. The New Jersey Supreme Court held that any company that marketed to the U.S. could be sued in product liability in New Jersey if 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 50 states.

The U.S. Supreme Court reversed on June 27, issuing its first decision on minimum contacts since Asahi Metal Industry Co. v. Superior Court in 1987.

While the result in Asahi was unanimous, it was announced in three separate opinions — one plurality and two concurring.

In J. McIntyre, too, there was no majority opinion. Instead, there was a plurality by Justice Kennedy, joined by the chief justice and justices Scalia and Thomas; and a concurrence by Justice Breyer, joined by Justice Alito. Justice Ginsburg wrote a dissent, joined by justices Sotomayor and Kagan.

The plurality decision is especially valuable for corporations who want protection against being dragged in to plaintiff-oriented courts. Since Asahi, lower courts have been building a plaintiff-friendly jurisprudence under the rubric of “stream of commerce.”

That is now gone: “stream of commerce,” all the justices concurring in the judgment agree, is nothing more than a metaphor.

In direct opposition to Asahi, some lower courts have eliminated the “minimum contacts” test and essentially ruled that marketing to the U.S. equals targeting every state. All those cases are now overruled.

The two-part test — jurisdiction and then fairness — is a thing of the past. The burden of proof to demonstrate jurisdiction is on plaintiff. In a key holding, Justice Kennedy held that “the defendant’s transmission of goods permits the exercise of jurisdiction only where the defendant can be said to have targeted the forum; as a general rule, it is not enough that the defendant might have predicted that

its goods will reach the forum State.”

Justice Kennedy did not limit his holding to foreign defendants, noting that it would be equally impermissible for a Florida orange grower to be brought before the courts of Alaska merely because the grower had sold its oranges to a large distributor that then distributes them to all 50 states.

Arthur Fergenson, who practices in Baltimore with the Ansa Law Group, successfully argued the case before the Supreme Court for J. McIntyre Machinery. A former Supreme Court clerk for Chief Justice Warren Burger, Mr. Fergenson emphasized the importance of finding true minimum contacts before exercising jurisdiction over a party. All corporations and in-house counsel owe Mr. Fergenson a debt of gratitude for his efforts in having the New Jersey Supreme Court decision overturned.

J. McIntyre gives corporations in the United States and abroad powerful tools to avoid being compelled to appear in courts, state and federal, in jurisdictions, far-flung or near, where there is no purposeful availment. The plaintiffs’ bar is very unhappy with the decision — a measure of the justice finally, and appropriately, accorded defendants.

Mr. Classen is Deputy General Counsel of Computer Sciences Corporation. The views expressed herein are those of Mr. Classen and not those of Computer Sciences Corporation.