United States: Supreme Court Decision Alert – June 27, 2011

Last Updated: June 29 2011
Article by Andrew E. Tauber

Originally published June 27, 2011

Keywords: personal jurisdiction, stream of commerce, restrictions, sales, violent video games, minors

Today the Supreme Court issued three decisions, described below, of interest to the business community.

Personal Jurisdiction—General Personal Jurisdiction Based on "Stream of Commerce"

J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343, and Goodyear Dunlop Tires Operations, S.A. v. Brown, No. 10-76 (previously discussed in the September 28, 2010 Docket Report).

In International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945), the Supreme Court ruled that a state court may exercise general jurisdiction over a foreign corporation when the corporation's operations within the State are so "continuous and systematic" that "the maintenance of the suit does not offend traditional notions of fair play and substantial justice." However, language from subsequent Supreme Court decisions, such as Asahi Metal Indus. Co. v. Superior Court of Cal., Solano Cty., 480 U.S. 102 (1987), led various lower courts to conclude that, under the so-called "stream-of-commerce" doctrine, a state court may exercise personal jurisdiction over a foreign corporation if the corporation knew or reasonably should have known that its products would be distributed through a nationwide distribution system that might lead to those products being sold in any particular state.

Today, in a pair of decisions—J. McIntyre Machinery, Ltd. v. Nicastro, No. 09-1343, and Goodyear Dunlop Tires Operations, S.A. v. Brown, No. 10-76—the Supreme Court reaffirmed that a state court can exercise personal jurisdiction over a foreign corporation only if the corporation has purposefully availed "itself of the privilege of conducting activities within the forum State." McIntyre slip op. 5. The Court clarified that the "principal inquiry" for establishing personal jurisdiction "is whether the defendant's activities manifest an intention to submit to the power of a sovereign." Id. at 7; see also Goodyear slip op. 13 (noting that "continuous and systematic general business contacts [are] necessary to empower" the State to entertain a suit against petitioners "on claims unrelated to anything that connects them to the State").

In McIntyre, respondent seriously injured his hand in New Jersey while operating a machine manufactured by petitioner. Petitioner was incorporated and operates in England, and the machine that caused respondent's injury was manufactured in England. Although the petitioner had not "advertised in, sent goods to, or in any relevant sense targeted the State," the Supreme Court of New Jersey nevertheless held that New Jersey courts could properly exercise jurisdiction over petitioner because petitioner "knew or reasonably should have known 'that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states'" and because "petitioner failed to 'take some reasonable step to prevent the distribution of its products in this State.'" McIntyre slip op. 2-4.

The Supreme Court reversed that decision. Justice Kennedy, in an opinion joined by Chief Justice Roberts and Justices Scalia and Thomas, reasoned that "jurisdiction is in the first instance a question of authority rather than fairness." McIntyre slip op. 8. Although the plurality ruled that "the authority to subject a defendant to judgment depends on purposeful availment," it recognized that that conclusion "does not by itself resolve many difficult questions of jurisdiction that will arise in particular cases." Id. at 10. According to the plurality, the "defendant's conduct and the economic realities of the market the defendant seeks to serve will differ across cases, and judicial exposition will, in common-law fashion, clarify the contours of that principle." Id. Nonetheless, in this case, the plurality found that respondent had not established that petitioner engaged in any conduct that was purposefully directed at the state of New Jersey. Id. at 11.

Justice Breyer, joined by Justice Alito, concurred in the judgment. Justice Breyer concluded that, under the Court's precedents, the relevant facts found by the Supreme Court of New Jersey were not constitutionally sufficient to support New Jersey's exercise of jurisdiction in this case. However, Justice Breyer found that this case was "an unsuitable vehicle for making broad pronouncements that refashion basic jurisdictional rules." McIntyre Concurrence 4.

In a dissenting opinion joined by Justices Sotomayor and Kagan, Justice Ginsburg argued that because of petitioner's many "endeavors to reach and profit from the United States market as a whole," respondent's lawsuit was "brought in a forum entirely appropriate for the adjudication of his claim." McIntyre Dissent 6.

In Goodyear, two children from North Carolina were killed in a bus accident that occurred near Paris, France. The children's parents filed suit in North Carolina, claiming that the accident was caused by defective tires that were manufactured by, as relevant here, three foreign subsidiaries of Goodyear USA. Those subsidiaries, petitioners in the Supreme Court, manufacture tires that are largely sold in European and Asian markets. They do not solicit business in North Carolina, nor do they themselves sell tires or ship tires to North Carolina customers, although a small percentage of petitioners' tires are distributed within North Carolina by affiliated companies.

The trial court denied petitioners' motion to dismiss for lack of personal jurisdiction, and the North Carolina Court of Appeals affirmed. North Carolina courts lacked specific jurisdiction over the action because the accident occurred in France and the allegedly defective tires were sold and manufactured outside the United States. But the state appellate court concluded that general jurisdiction existed because "petitioners 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.'" Goodyear slip op. 5.

The Supreme Court reversed that decision as well. Justice Ginsburg, writing for a unanimous Court, held that a "connection so limited between the forum and the foreign corporation" was "an inadequate basis for the exercise of general jurisdiction." Goodyear slip op. 3. The Court explained that the stream-of-commerce doctrine, which may be relevant to the exercise of specific jurisdiction, did not satisfy the requirement of a "'continuous and systematic' affiliation" that would be necessary for North Carolina courts to exercise general jurisdiction over petitioners. Id. at 3, 10–11.

* * * * * * * * * *

First Amendment—Restrictions on Sales of Violent Materials to Minors

Brown v. Entertainment Merchants Association, No. 08-1448 (previously discussed in the April 26, 2010 Docket Report)

In 2005, California passed a law prohibiting the sale or rental of "violent video games" to minors, defining such games as those that depict "killing, maiming, dismembering, or sexually assaulting an image of a human being" in a manner offensive to prevailing community standards. Cal. Civ. Code §§ 1746-1746.5. Today, in Brown v. Entertainment Merchants Association, No. 08-1448, the Supreme Court held that the California law violates the First Amendment.

In an opinion authored by Justice Scalia, and joined by Justices Kennedy, Ginsburg, Sotomayor, and Kagan, the Court first held that, "[l]ike the protected books, plays, and movies that preceded them, video games communicate ideas—and even social messages," which "suffices to confer First Amendment protection." Slip op. 2. Acknowledging that certain "well-defined and narrowly limited classes of speech" do not enjoy the protection of the First Amendment, the Court observed that "new categories of unprotected speech may not be added to the list by a legislature that concludes certain speech is too harmful to be tolerated." Id. at 3. Nor could the California law properly be construed as permissible obscenity regulation, because "the obscenity exception to the First Amendment," the Court explained, "does not cover whatever a legislature finds shocking, but only depictions of sexual content." Id. at 5 (internal quotation marks omitted). The Court held that the desire to protect children from harm did not give California "a free-floating power to restrict the ideas to which children may be exposed." Id. at 7. Accounts of the "astounding" violence and racism embodied in some video games, the Court said, "highlight[] the precise danger posed by the California Act: that the ideas expressed by speech—whether it be violence, or gore, or racism—and not its objective effects, may be the real reason for governmental proscription." Id. at 11.

The Court therefore applied strict scrutiny to the California law, and held that the State could not meet that standard. The Court noted California's acknowledgement that it could not "show a direct causal link between violent video games and harm to minors." Slip op. 12. The Court also observed that the psychological studies that formed the basis for the State's conclusions suggested, at most, "some correlation between exposure to violent entertainment and miniscule real-world effects"—effects no greater after exposure to the video games subject to the regulation than after exposure to children's' cartoons, to video games rated as "appropriate for all ages," or even to a picture of a gun Id. at 13. Thus, the Court held, the California law "singled out the purveyors of video games for disfavored treatment" with "no persuasive reason why." Id. at 14. Nor, according to the Court, could California "show that the Act's restrictions meet a substantial need of parents who wish to restrict their children's access to violent video games," a need the Court deemed largely met by the voluntary rating system implemented by the video-game industry. Id. at 15-16.

Justice Alito, joined by Chief Justice Roberts, concurred in the judgment. In his view, the California law was "not framed with the precision that the Constitution demands" and should therefore have been stricken on due-process grounds for failing to "give people of ordinary intelligence fair notice of what is prohibited." Concurrence 1-2.

Justices Thomas and Breyer filed separate dissents. In his dissent, Justice Thomas expressed the view that the First Amendment, "as originally understood, does not include a right to speak to minors (or a right of minors to access speech) without going through the minors' parents or guardians." Thomas Dissent 1. For his part, Justice Breyer would have upheld the law insofar as it restricted the sale of violent video games to children under the age of 17 (the law restricted sale to those under 18). Breyer Dissent 2. 

Mayer Brown filed an amicus brief on behalf of First Amendment scholars in support of respondents.

Please visit us at www.appellate.net.

Visit us at mayerbrown.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2011. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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