Purposeful Availment and Commercial Exploitation

Mike Richards

This is the second in a series of three posts discussing the Supreme Court’s decision last term in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).

This post looks at the role of economic incentives in the decision. For the factual background of the case, see the first post in this series, which examined the case’s confused approach to the idea of due process of law.

In my last post, I noted what I take to be the circular reasoning of Justice Kennedy’s plurality opinion in J. McIntyre, viz., that a state can only subject a defendant to the jurisdiction of its courts when it would be lawful to do so. In response to Justice Kennedy’s contention that jurisdiction over the defendant failed to satisfy due process because the defendant had not “purposefully availed” itself of New Jersey, I observed that it is not self-evident, at least to me, why economic benefit from the sale of a $25,000 piece of equipment in the forum does not constitute such purposeful availment simply because of the interposition of a distributor in the chain of possession between the defendant manufacturer and the injured operator. That view of purposeful availment systematically and improperly permits foreign manufacturers to externalize any harmful effects their products have in the United States while still enjoying the benefits of selling to the U.S. market.

It is true that actual payment to J. McIntyre came, at least in most instances, from a sale made to the Ohio distributor. (However, the New Jersey Supreme Court noted in its overruled decision that at least some of the machines appear to have been sold on a consignment basis. 987 A.2d 575, 579 (N.J. 2010)). Justice Kennedy also relied in part on the failure of the plaintiff to show or allege that “the distributor was under J. McIntyre’s control.” Slip op. at 3. But it is not clear why an agency relationship should be necessary to show purposeful availment. In no event could the English manufacturer deny that its derivation of that economic benefit was directly—and completely—the result of the distributor’s resale of the machines. It would be entirely unreasonable for the manufacturer to think that the machines would not end up someplace other than the distributor’s warehouse, and indeed, if the distributor did cease reselling the machines, the economic benefit to J. McIntyre obviously would have stopped. J. McIntyre based its business model, then, upon making its machinery available through the United States.

Compare the facts of J. McIntyre to those of World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286 (1980). In that case, the Supreme Court held that a New York car dealership could not be subject to personal jurisdiction in Oklahoma for an accident that occurred there. The Court rejected the argument that jurisdiction was proper in Oklahoma because the mobile nature of automobiles made it foreseeable that the car at issue might end up there. In a memorable phrase, the Court refused to endorse a simple foreseeability rule that would mean that “[e]every seller of chattels would in effect appoint the chattel his agent for service of process.” Id. at 296.

Permitting New Jersey courts to exercise personal jurisdiction over J. McIntyre would have been entirely consistent with World-Wide Volkswagen. The issue raised by the comparison of World-Wide Volkswagen with J. McIntyre is not whether mere foreseeability that a product will end up in the forum should be sufficient to sustain personal jurisdiction there (it should not); the central inquiry should be the degree to which the defendant manufacturer derives some material economic benefit from commercial activity occurring in the forum. The New York car dealer in World-Wide Volkswagen surely could have in some sense “foreseen” that the unilateral conduct of a car buyer might cause the car to end up in Oklahoma; but the dealer took no steps to make it happen, and, more important, was commercially indifferent to whether it happened. The dealer was concerned with selling cars to customers in New York. (Given the geography of Massena, NY, where the retailer was located, the relevant market possibly also included customers coming to the New York dealership from Quebec or Ontario.) Contrast this with the business model in J. McIntyre: the English manufacturer sold its machines to the Ohio distributor for the sole purpose of resale throughout the United States.

As it stands, Justice Kennedy’s resolution of J. McIntyre is an invitation for a foreign manufacturer to shield itself from personal jurisdiction—and, a fortiori, liability—simply by telling its distributor to sell throughout the United States without specifying any particular state. Since the foreign manufacturer has not satisfied Justice Kennedy’s definition of “purposeful availment” of any specific state, it will be subject to personal jurisdiction nowhere (other than perhaps the state where its distributor is located). Under this rule, a defendant who reaps the benefits of a national market is subject to jurisdiction only a single state; whereas a defendant that asked its distributor to focus on sales in, say, a dozen states would be subject to personal jurisdiction in all of them. The Constitution does not require such a result. When a foreign defendant purposefully avails itself of the entire U.S. market, whether or not through an intermediary, due process should be satisfied by that decision to exploit the U.S. market. Only by so linking the practical realities of a defendant’s commercial gains with the accountability that personal jurisdiction guarantees will foreign defendants have economic incentives that are not wholly misaligned.

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The final post in this series will explore the implications of J. McIntyre for interstate federalism.