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The Re-routing of the Stream of Commerce Ryan Robert Gutierrez-Flores

The Re-routing of the Stream of Commerce

An comparative study on the applicability of the Stream of Commerce doctrine

One of the most important considerations when it comes to developing offshore markets, as far as international business is concerned, is liability management. Where in the context of a possible legal problem with a given product, will it be the subject of a long-arm statute which could find the manufacturer situated thousands of miles away stuck between the jaws of a foreign, and oftentimes unsympathetic court. The two cases which were recently decided by the US Supreme Court on the basis of the Stream of Commerce doctrine provides a new direction as to the general application of the prevailing rule, laid down by the International Shoe Co. v. Washington1 and Mullane v. Central Hanover Bank and Trust, et al2 cases which, among others, dealt with a different interpretation of Stream of Commerce and the Minimum Contact requirement in the acquisition of specific jurisdiction over foreign companies. Review: International Shoe, Mullane and Shaffer Foremost among these old cases was International Shoe Co. v. Washington, where it was held that the requirement of Minimum Contact was satisfied by the maintenance of a labor force which are local residents of the particular state, the active solicitation of orders and the more or less regular supply of mailed-in products, as well as the presence of permanent display rooms for products sold. All of these were sufficient to vest the court with jurisdiction even if the main office, as well as the factory of International Shoe was actually in St. Louis, Missouri, thus making the service of summons to an actual sales agent within the state of Washington valid for all intents and purposes, petitioner having established a substantial presence within the state. In the case of Mullane v. Central Hanover Bank and Trust, et al., the court deemed it inappropriate to simply assume notice was given to non-resident beneficiaries through publication. The court ruled that these non-resident beneficiaries lacked the necessary minimum contacts in order to be fully apprised of the status of certain trusts in their favor. The Court further elucidated that notice, in all its forms, must be approximated to reach their intended audience, and for entities not to proceed with this important aspect of jurisdiction with a cavalier attitude. In this case, because of the lack of any serious effort to send notice to the beneficiaries, the court held that jurisdiction was not acquired over the person of these beneficiaries. In the case of Shaffer v. Heitner3, the Defendant Heitner filed a motion in Delaware for the sequestration of the stocks belonging to a non-resident stockholder. Delaware was the state of
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International Shoe Co. v. Washington [1945] 326 U.S. 310 Mullane v. Central Hanover Bank and Trust Co., Trustee, et al [1950] 399 U.S. 306 3 Shaffer v. Heitner [1977] 433 U.S. 186

The Re-routing of the Stream of Commerce Ryan Robert Gutierrez-Flores

incorporation as far as Greyhound was concerned, however, none of the certificates which represented the stocks were actually physically present in Delaware. The US Supreme Court here held that the state court of Delaware committed an error in exercising its jurisdiction over the case when the property which is the subject of the motion was wrongly considered as under its jurisdiction; the mere holding of stocks of a Delaware incorporated corporation does not establish a contact sufficient in substance to vest the court with jurisdiction over the person and property of the non-resident stockholder. In 2011, the US Supreme Court handed down two cases which dealt heavily on the application of the Minimum Contact and the Stream of Commerce doctrines, providing valuable insight to the modern interpretation of these two time-honored concepts. In Focus: J. McIntyre Machinery Ltd. V. Robert Nicastro In the case of J. McIntyre Machinery Ltd. V. Robert Nicastro4, the petitioner is a manufacturer of heavy equipment with its principal business address in the United Kingdom, registered under U.K. law. The case springs from an accident involving the respondent and one of the petitioners metal shearing machines resulting in the loss of four of the respondents fingers. The New Jersey Supreme Court relied on the standard found in Asahi Metal Industry Co. v. Superior Court of California5, where it held that the court may exercise jurisdiction over the foreign manufacturer provided that the company knows or reasonably should know that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states6, the New Jersey Supreme Court relying on this ruling, held that the U.K. based company may be subject to jurisdiction in New Jersey without any violation of the due process clause. The Supreme Court held otherwise, noting that in no instance during its existence did the petitioner actually advertised, promoted, distributed and serviced any of its machines in the state of New Jersey. While it may have participated with its U.S. distributor in several trade shows, the same was not done at any time within the borders of New Jersey. The court discusses the Stream of Commerce which refers to the movement of goods from manufacturers through distributors to consumers, yet beyond that descriptive purpose its meaning is far from exact.7 The Court has once stated that the act of a manufacturer in placing its goods in said stream of commerce may be tantamount to purposeful availment, which would then result in the acquisition of jurisdiction on the part of the court over the person of the corporation. The Court in this case explains that this doctrine does not erase the general rule in jurisdiction, and may not supplant its requirements: The transmission of a manufacturers goods
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J. McIntyre Machinery Ltd. V. Robert Nicastro [2011] No. 09-1343 Asahi Metal Industry Co. v. Superior Court of California, Solano Cty. [1987] 480 U.S. 102 6 Supra. 7 J. McIntyre Machinery Ltd. V. Robert Nicastro [2011], Supra

The Re-routing of the Stream of Commerce Ryan Robert Gutierrez-Flores

into a forum may only be considered as purposeful availment if it could be proven that the corporation actually targeted the forum with specificity. That foresight, as a necessary element in the ruling in Asahi, would subject the Court and the parties to an overly drawn out process of proving its presence, which would be an utter waste of time and effort, thus the same must be avoided at all costs. The Supreme Court found no evidence of any acts which would reveal that the petitioner had purposefully availed itself of the protection accorded by the laws of New Jersey. It had no presence, no office, no tax obligations and no property to speak of. It neither advertised in, or sent employees to, the forum. The court thus held that it did not maintain even the barest minimum contact in the state of New Jersey. Hence, the reliance of the New Jersey Supreme Court on the Stream of Commerce Doctrine was unfounded, and the US Supreme Court reverses the decision. In Focus: Goodyear Dunlop Tires Operations S.A., et al. v. Brown In the case of Goodyear Dunlop Tires v. Brown8, the court was faced with another opportunity to revisit the Stream of Commerce doctrine in relation to the Minimum Contact doctrine, where one vests special or specific jurisdiction, and the other vesting general jurisdiction. The case deals with a suit filed by the heirs of two young men who died in a bus accident outside of Paris. The parents of the children attributed their death to the tires which were manufactured in Turkey by a foreign subsidiary of the petitioner. The suit was brought to the North Carolina court, which claimed to exercise jurisdiction even over the foreign subsidiaries. The North Carolina courts declared that it exercised jurisdiction over the foreign subsidiaries because of the fact that some of the tires manufactured by said foreign subsidiaries actually found its way to North Carolina, relying on the Stream of Commerce doctrine. The Court notes the marked absence of any minimum contact necessary to acquire general jurisdiction over the foreign subsidiaries. The court likewise found that these foreign subsidiaries have not purposefully availed of the protection afforded by North Carolina law. The Court held that this single connection alone will not be sufficient to vest the North Carolina courts of any jurisdiction over the foreign subsidiaries. A single causal link is not sufficient to establish a continuous and systematic affiliation between the foreign Subsidiaries and the forum where the case was brought, thus the US Supreme Court reverses the contested judgment. Ryan Robert Gutierrez-Flores July 19, 2011 Pasig City, Republic of the Philippines

Goodyear Dunlop Tires Operations, S.A., v. Brown, et ux. [2011] 10-76