Fifth Circuit holds that ‘stream of commerce’ approach to personal jurisdiction still applies despite Supreme Court’s McIntyre decision

by John Chapman

In J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011), the Unites States Supreme Court reversed a decision by the New Jersey Supreme Court that had found New Jersey courts could exercise jurisdiction over a foreign company that had only sold one machine in the state. Robert Nicastro had injured his hand in New Jersey while using a machine manufactured by J. McIntyre Machinery (“McIntyre”). The machine had been manufactured in England, where McIntyre was incorporated and operated, then sold to a U.S. distributor, which in turn sold and shipped the machine to New Jersey. McIntyre did not market, sell, or ship machines to New Jersey, and the U.S. distributor had only sold one of McIntyre’s machines in New Jersey—the machine that caused Mr. Nicastro’s injury. Mr. Nicastro sued McIntyre in New Jersey, and the New Jersey Supreme Court held personal jurisdiction was proper. The Supreme Court reversed but did not produce a majority opinion.

This month, in Ainsworth v. Moffett Engineering, Ltd., No. 12-60155 (May 9, 2013), the Fifth Circuit Court of Appeals was called upon to interpret McIntyre.

Mary P. Ainsworth had brought a product liability and wrongful death action against Cargotec USA, Inc. and Moffett Engineering, Ltd. in the Southern District of Mississippi. Her husband, James T. Ainsworth, was run over and killed by an allegedly defective forklift while he was working at Wayne Farms in Mississippi. The forklift was designed and manufactured by Moffett, an Irish corporation with its principal place of business in Ireland. Pursuant to an exclusive sales and distribution agreement, it was sold to Wayne Farms by Cargotec, a Delaware corporation with its principal place of business in Ohio.

The defendant Moffett filed a motion to dismiss for lack of personal jurisdiction, which the district court denied. The Supreme Court subsequently issued its opinion in McIntyre. Moffett then asked the district court to reconsider its ruling in light of McIntyre. The district court denied that motion, finding that McIntyre’s fractured opinion limited its applicability, and that the present case fell outside of McIntyre’s narrow holding. The Fifth Circuit granted Moffett leave to appeal the district court’s interlocutory order.

Applying pre-McIntyre Fifth Circuit precedent, the district court concluded that Moffett was subject to personal jurisdiction in Mississippi because it was foreseeable to Moffett that its products would be purchased by consumers in Mississippi. The district court based its conclusion on the exclusive sales and distribution agreement between Moffett, the manufacturer of the forklift, and Cargotec, its seller. Pursuant to that agreement, Cargotec was the exclusive marketer and distributor of Moffett’s forklifts throughout the United States. Cargotec ws Moffett’s only customer in the United States; Moffett did not sell forklifts directly to other customers in the United States. The district court reasoned that Moffett was subject to personal jurisdiction in Mississippi under the stream- of-commerce approach because “(1) it had entered into a sales and distribution agreement which specifically defined Cargotec’s sales territory as the entire United States, (2) it was aware that Cargotec marketed its product throughout the entire United States, and (3) it made no attempt to limit the scope of Cargotec’s marketing efforts.”

On appeal, Moffett argued that application of the Fifth Circuit’s stream-of-commerce approach is no longer proper after the Supreme Court’s decision in McIntyre. In cases involving a product sold or manufactured by a foreign defendant, the Fifth Circuit has consistently followed a “stream-of-commerce” approach to personal jurisdiction, under which the minimum contacts requirement is met so long as the court finds that the defendant delivered the product into the stream of commerce with the expectation that it would be purchased by or used by consumers in the forum state. Under that test, mere foreseeability or awareness is a constitutionally sufficient basis for personal jurisdiction if the defendant’s product made its way into the forum state while still in the stream of commerce, but the defendant’s contacts must be more than random, fortuitous, or attenuated, or of the unilateral activity of another party or third person.

In McIntyre, a plurality of the Supreme Court stated that a “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.” (emphasis added). In Ainsworth, the Fifth Circuit acknowledged that its “stream-of-commerce test, in not requiring that the defendant target the forum, is in tension with the plurality opinion, under which Moffett would likely not be subject to personal jurisdiction in Mississippi.” However, the court of appeals noted that only majority—not plurality—opinions of the Supreme Court are binding precedent. Because there was no majority opinion in McIntyre, the Fifth Circuit determined that ‘the holding of the Court may be viewed as that position taken by those Members who concurred in the judgments on the narrowest grounds.”

The court of appeals found that Justice Breyer’s concurring opinion, joined by Justice Alito, furnished the narrowest grounds for the decision in McIntyre and thus controls. Justice Breyer made clear that his view that “resolving [the] case require[d] no more than adhering to [the Supreme Court’s] precedents” and that his decision was “based on the facts,” which involved only a single sale in New Jersey. He explained that under any of the Court’s precedents “a single isolated sale” is not an adequate basis for personal jurisdiction. In contrast, the Fifth Circuit noted that, in Ainsworth, Cargotec sold 203 Moffett forklifts to customers in Mississippi—“a far cry from the single sale in McIntyre.” According to the Fifth Circuit:

The facts in the record establish that Moffett could have “reasonably anticipated” being haled into court in Mississippi. Cargotec sells or markets Moffett products in all fifty states, and Moffett makes no attempt to limit the territory in which Cargotec sells its products. From 2000 through September 2010, Moffett sold 13,073 forklifts to Cargotec, worth approximately €254,000,000. Cargotec sold 203 of those forklifts, worth approximately €3,950,000, to customers in Mississippi. Those Mississippi sales accounted for approximately 1.55% of Moffett’s United States sales during that period. Moreover, the record indicates that Moffett designed and manufactures a forklift for poultry-related uses. Thus, even though Moffett did not have specific knowledge of sales by Cargotec in Mississippi, it reasonably could have expected that such sales would be made, given the fact that Mississippi is the fourth largest poultry-producing state in the United States.

Accordingly, under the facts raised by Ainsworth, the Fifth Circuit determined that application of the stream-of-commerce approach in the case did not run afoul of McIntyre’s “narrow holding.” Thus, the court of appeals affirmed the district court’s interlocutory order finding personal jurisdiction and denying dismissal.

by John Chapman

John Chapman is a licensed attorney with experience in complex commercial litigation (including securities fraud, RICO, shareholder oppression, and derivative actions) and personal injury litigation.