Supreme Court Update: Montana v. Wyoming (Orig. 137), Goodyear Dunlop Tires Operations, S.A. v. Brown (10-76) and J. McIntyre Machinery, LTD v. Nicastro (09-1343)

July 7, 2011 Supreme Court Update

Greetings Court fans!

In case you needed a break from hotly controversial cases, this Update will bring you some of the least talked about decisions of the year: Montana v. Wyoming (Orig. 137), a water-rights case; and two personal jurisdiction cases, Goodyear Dunlop Tires Operations, S.A. v. Brown (10-76) and J. McIntyre Machinery, LTD v. Nicastro (09-1343). The latter two decisions, while not the stuff of headlines, are two of the most citable cases of the Term. So, no skipping these.

What happens when two states share a river? It's not a lot different than two siblings sharing a toy. Intervention is often required, and here, that intervention is by the Court in the first instance, since State-State disputes fall within the Court's original jurisdiction. Montana v. Wyoming (Orig. 137) involved a dispute over the proper interpretation of the Yellowstone River Compact ratified by Montana, Wyoming, and North Dakota ("Compact"). The Compact provides that "[a]ppropriative rights to the beneficial uses of the water of the Yellowstone River System existing in each signatory State as of January 1, 1950, shall continue to be enjoyed in accordance with the laws governing the acquisition and use of water under the doctrine of appropriation." Here, Montana complained not that Wyoming was taking too much water out of the river, but instead that Wyoming had allowed its water users to switch from flood to sprinkler irrigation, which increased crop consumption, thereby decreasing the amount of water that returned to the river system (and thus decreasing the amount available to downstream users like Montana). The Court appointed a Special Master (you didn't actually expect the Court to get its hands dirty, did you?), who found that the Compact permitted Wyoming to increase the efficiency of its irrigation system so long as no additional water was removed from the river and the water was used to irrigate the same number of acres. The Court essentially agreed. In an opinion by Justice Thomas for all but Scalia, who dissented, and Kagan, who did not participate. The Court explained that the doctrine of appropriation, which was expressly incorporated into the Compact, allows appropriators to improve their irrigation systems, even to the detriment of downstream appropriators. The Compact did not guarantee Montana a specific quantity of water.

Justice Scalia penned a lone dissent. In his view, the Compact itself focuses on the "depletion" of the river's flow, not the amount of water originally diverted. Thus, Wyoming only had a right to the same net consumption of water (the amount removed minus the amount returned via seepage back into the river) as existed in 1950. Wyoming could not increase its net consumption to the disadvantage of downstream users, even if the increase came from efficiency improvements rather than changes in the amount of water removed.

The next case, Goodyear Dunlop Tires Operations, S.A. v. Brown (10-76), provides a lesson on personal jurisdiction. The case involved a bus accident in France allegedly caused by a defective tire. Two North Carolina boys died. The boys' parents commenced an action in North Carolina state court, naming The Goodyear Tire and Rubber Company ("Goodyear USA") and three of its foreign subsidiaries, organized and operating in Turkey, France, and Luxembourg respectively, as defendants. The foreign subs, who had no place of business, employees, or bank accounts in North Carolina, and did not design, manufacture or advertise their products in North Carolina (as their tires were designed for the Asian and European markets), challenged the court's personal jurisdiction. The state court found jurisdiction because a small amount of tires manufactured by the subs were distributed in North Carolina by other Goodyear USA affiliates, typically as special order requests for horse trailers and other unique vehicles. The state court recognized that the subs could not be subject to specific jurisdiction because the accident did not arise out of or relate to the subs' contact with North Carolina. But the court found general jurisdiction over the subs because they placed their tires "in the stream of interstate commerce without any limitation on the extent to which those tires could be sold in North Carolina."

The Court unanimously reversed in an opinion by Justice Ginsburg. The personal jurisdiction requirement flows from the Due Process Clause of the Fourteenth Amendment and requires that a defendant have "certain minimum contacts with the State such that the maintenance of the suit does not offend tradition notions of fair play and substantial justice." International Shoe Co. v. Washington (1945) continues to be the seminal case, and provides two tests for personal jurisdiction – specific jurisdiction and general jurisdiction. The first is satisfied if a corporation's "continuous and systemic" in-state activities give rise to the suit or where certain "single or occasional acts" in the State make the corporation answerable in the state for injuries caused by those acts. By contrast, general jurisdiction exists only if the "continuous corporate operations within a state are so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities." General jurisdiction is typically satisfied in the corporation's principal place of business and place of incorporation – where a corporation is "fairly regarded as at home." Here, specific jurisdiction did not exist because the tires that made their way to North Carolina had nothing to do with the accident in France, which involved tires manufactured outside the U.S causing injury outside the U.S. Courts have only allowed a "stream of commerce" theory to support personal jurisdiction where the product manufactured out of state caused the alleged harm in the forum state – supporting specific personal jurisdiction. Here, the North Carolina court improperly relied on the stream of commerce theory to support general jurisdiction. But the foreign subs lacked the substantial and continuous contacts with North Carolina necessary to satisfy that test. Simply put, they were not "at home" in North Carolina.

The second personal jurisdiction case, J. McIntyre Machinery, LTD. v. Nicastro (09-1343), was not so easy for the Court, splitting it three ways and resulting in no majority opinion. While at work in New Jersey, Nicastro severed three fingers of his hand on a piece of equipment manufactured by J. McIntyre Machinery, LTD ("McIntyre"), a company incorporated in and having its principal place of business in England, where the machine at issue was manufactured. The evidence showed that McIntyre wished to sell its products in the U.S. market and engaged an independent company, McIntyre Machinery America, Ltd. ("McIntyre America") as its exclusive distributor for U.S. sales. McIntyre America attended tradeshows throughout the U.S. (though none in New Jersey), at which representatives from McIntyre attended. However, a maximum of four pieces of McIntyre equipment were sold in New Jersey (including the machine that injured Nicastro), and McIntyre did not engage in any advertising or marketing directed specifically at the New Jersey market. The New Jersey Supreme Court found these contacts sufficient to support specific personal jurisdiction over McIntyre. But the Court reversed.

Justice Kennedy wrote for a four Justice plurality, including the Chief, Scalia and Thomas, that would quite radically transform personal jurisdiction rules. The plurality would focus the test for jurisdiction not on whether the defendant could reasonably foresee being haled into the forum state's courts, but instead on whether the defendant "intend[ed] to benefit from and thus intend[ed] to submit to the laws of the forum State" -- "purposeful availing" itself of the privilege of doing business in the forum State. The significant part of the decision is not the purposeful availment test – which has existed for decades – but the plurality's strict divorcing of that test from the reasonable forseeability analysis and emphasis instead on the defendant's intent. Also significant is the plurality's focus on the defendant's intent to subject itself to the jurisdiction of a particular sovereign: "It is petitioner's purposeful contacts with New Jersey, not with the United States, that alone are relevant." Indeed, the plurality goes so far as to suggest that a case that may not be appropriate in a state court may be appropriate in a federal court in that same state under some (rare) circumstances. Under the plurality's test, the fact that a manufacturer places an item in the stream of commerce knowing that it may end up in a particular state or even hoping that it will, is not enough. "It is the defendant's actions, not his expectations, that empower a State's courts to subject him to judgment." The company must have actual contacts with the forum state or specifically target its marketing efforts at the forum state. "The question is whether a defendant has followed a course of conduct directed at the society or economy existing within the jurisdiction of a given sovereign. . . ." Here, Nicastro could not establish such purposeful activity by McIntyre directed at New Jersey. Accordingly, jurisdiction was lacking.

Justice Breyer, joined by Alito, concurred in the judgment, but disagreed with the plurality's reasoning. They would simply apply the Court's prior precedent without altering it, particularly where new and evolving technology, not at issue in this case, may warrant additional thinking about personal jurisdiction in an international and digital age. In particular, they would not adopt an intent-based standard for determining jurisdiction. (How would such a standard address e-commerce for example?) But they also did not agree with the absolute approach adopted by the New Jersey Supreme Court, under which a foreign company would be subject to jurisdiction any time it put a product into the stream of commerce through a nationwide distribution system knowing that it might lead to a product being sold anywhere in the U.S. and might cause injury. They would simply apply prior precedent regarding purposeful availment, under which a few isolated sales into the forum state, without more, is not enough to subject a foreign company to jurisdiction. Here, given that there was no regular course of sales in New Jersey and "no special state-related design, advertising, advice, marketing, or anything else," the New Jersey courts lacked jurisdiction over McIntyre.

Justice Ginsburg wrote an impassioned dissent, joined by Justices Sotomayor and Kagan. In their view, the plurality and concurrence defied commercial reality and reams of caselaw, allowing a foreign manufacturer to evade personal jurisdiction simply by engaging an independent distributor and declining to develop state-specific marketing materials, instead focusing on obtaining sales from the entire U.S. marketplace. The dissenters recounted McIntyre's relationship with McIntyre America, which was formed specifically so that McIntyre's good could be distributed across the United States. McIntyre representatives went to trade shows in the U.S. attended by New Jersey companies, including Nicastro's employer. McIntyre touted its product as being sold around the world and guaranteed serviceability globally. As Ginsburg put it: "The machine arrived in Nacastro's New Jersey workplace not randomly or fortuitously, but as a result of the U.S. connections and distribution system that McIntyre UK deliberately arranged." For the dissent, these actions constituted purposeful availment and New Jersey was a perfectly appropriate forum (and probably the best forum) for this litigation given that the injury occurred in New Jersey to a New Jersey resident. Now, Nicastro, who never left New Jersey, must bring suit against McIntyre in England if he is to have any hope of recovery.

You might be wondering what happens in a case like this where no five Justices can agree on the correct reasoning. "When a fragmented Court decides a case and no single rationale explaining the result enjoys the assent of five Justices, the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds." Marks v. United States (1977). Accordingly, while Justice Kennedy's plurality opinion garnered four votes, Justice Breyer's concurrence probably controls – though no citing us on this one.

If you made it this far, congrats! But don't think you're done yet. We'll be back again soon with yet more decisions, including a per curiam opinion issued today denying a stay of execution in Leal Garcia v. Texas (11-5001) notwithstanding the United States's request that the execution be stayed until September to allow a law to be passed implementing the Vienna Convention on Consular Relations, which required Leal Garcia to be notified of his right to consular assistance.

Kim & Jenny

From the Appellate and Complex Legal Issues Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400