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Supreme Court Protects Foreign Corporations Against State Court Liability

In Goodyear Dunlop Tires Operations, S.A. v. Brown, a unanimous Court held that three foreign subsidiaries (“Subsidiaries”) of Goodyear USA could not be sued in North Carolina for a wrongful death claim that occurred outside of North Carolina. The plaintiffs alleged that a defective tire manufactured by the Subsidiaries caused a bus accident in France which killed their son. The North Carolina Court of Appeals said that, because some of the tires made abroad by the Subsidiaries reached North Carolina through the “stream of commerce,” the Subsidiaries could be sued in North Carolina state court. However, the Supreme Court held that “a connection so limited” between the state and the foreign corporation is insufficient to establish jurisdiction. The accident had not occurred in North Carolina and the Subsidiaries lacked “continuous and systematic” affiliations to subject them to its jurisdiction. Consequently, the Subsidiaries could not be sued in North Carolina state court.

In a separate decision, the Supreme Court decided whether a New Jersey court had jurisdiction over J. McIntyre Machinery, Ltd. (“J. McIntyre”), a foreign corporation, when its products were sold within the U.S. by a U.S. distributor. Several officials of the corporation attended trade shows in the U.S. (although not in New Jersey), and several of the foreign-made machines ended up in New Jersey. A plurality of the Court found that a state cannot exercise jurisdiction over a foreign corporation unless that corporation participated in activities designed to benefit from, and submit to, the laws of the state. J. McIntyre had not submitted to the jurisdiction of the New Jersey courts because it never purposefully directed its conduct at New Jersey. Although J. McIntyre may have intended to conduct business within the U.S., and at least one of its machines did end up in New Jersey, they did not show “that J. McIntyre purposefully availed itself of the New Jersey market.”

These two rulings sought to clarify prior Supreme Court decisions on whether foreign corporations can be sued in state courts. In Goodyear, the state court did not have jurisdiction because the claim did not arise out of North Carolina, and the Subsidiaries did not have “continuous and systematic” affiliations with the state. The impact of J. McIntyre is less clear. The Court created a potential loophole for foreign companies that sell products within the U.S. but do not direct them at specific states. It is possible that foreign manufacturers may take advantage of web-based marketing, directed generally at U.S. consumers but not a particular state’s citizens, in order to avoid a state court’s jurisdiction.



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