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Due Process Clause Prevents State Court Lawsuits Against Foreign Subsidiaries Of U.S. Parent Company On Claims Unrelated To Subsidiaries’ In-State Activity, Says U.S. Supreme Court

Blogs, Product Liability

Are foreign subsidiaries of a United States parent corporation amenable to suit in state court on claims unrelated to any activity of the subsidiaries in the forum state?

That is the question that the United States Supreme Court answered on June 27, when it issued its opinion in Goodyear Dunlop Tires Operations, S.A. v. Brown, No. 10-76, holding that the Fourteenth Amendment’s Due Process Clause does not permit a state to exercise “general” personal jurisdiction over a foreign subsidiary of a United States corporation where the subsidiary lacks continuous and systematic business contacts within the state.

In Goodyear, the parents of two teenage boys who were killed in a bus accident in France, brought an action, in state court in North Carolina, against Goodyear Tire and Rubber Company (“Goodyear USA”) and three of its subsidiaries (operating in Turkey, France, and Luxembourg). The parents alleged that the accident resulted from a defective tire manufactured at the Turkish subsidiary’s plant. Slip Op. at 2. While Goodyear USA operates in North Carolina, none of the three foreign subsidiaries had places of business, employees, or bank accounts, in the state, nor did they solicit business in the state. The subsidiaries’ only contact with North Carolina resulted from a distribution of a small percentage of their tires in that state by other Goodyear USA affiliates. The subsidiaries moved to dismiss the claims asserted against them for lack of personal jurisdiction. The trial court denied the motion, and the North Carolina Supreme Court affirmed, holding that the court had general jurisdiction over the subsidiaries because their tires had reached the state through “the stream of commerce.” Slip Op. at 3.

The United States Supreme Court in Goodyear took issue with the lower courts’ analysis, stating:

To justify the exercise of general jurisdiction over petitioners, the North Carolina courts relied on the petitioners’ placement of their tires in the “stream of commerce.” The stream-of-commerce metaphor has been invoked frequently in lower court decision permitting “jurisdiction in products liability cases in which the product has traveled through an extensive chain of distribution before reaching the ultimate consumer.” Typically, in such cases, a nonresident defendant, acting outside the forum, places in the stream of commerce a product that ultimately causes harm inside the forum.

Slip Op. at 9. The Court further explained that in this case, “both the act alleged to have caused injury (the fabrication of the allegedly defective tire) and its impact (the accident) occurred outside the forum.” Accordingly, “[t]he North Carolina court’s stream-of-commerce analysis elided the essential difference between case-specific and all-purpose (general) jurisdiction.” Slip Op. at 10. As such, the court held that “[a] connection so limited between the forum and the foreign corporation . . . is an inadequate basis for the exercise of general jurisdiction.” Slip Op. at 3.

Relying heavily on International Shoe Co. v. Washington, 326 U.S. 310 (1945), and its progeny, the Court reiterated the distinction between general and specific personal jurisdiction. General personal jurisdiction arises from a defendant’s “continuous and systematic” affiliation with a state and permits a state to exercise personal jurisdiction over the defendant for any claim, regardless of whether the claim itself has any connection to the defendant’s activities in the state. Slip Op. at 2. On the other hand, specific personal jurisdiction arises from a connection with the specific claim. Id.

Where a subsidiary lacks continuous and systematic business contacts with the state, the Due Process Clause of the Fourteenth Amendment does not authorize a state to exercise “general” personal jurisdiction over a foreign subsidiary of a United States corporation, the Court concluded.

 A copy of the Court’s opinion is available at: