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Essay Question 4 from the 2012 CivPro Exam

I am only half-way through grading this one. I should be done tomorrow.

Essay Question 4. (36 points)

On July 5, 2010, P’s right leg was crushed by the collapse of a crane manufactured by D Corp.  P is domiciled in South Carolina, which is where the crane accident occurred. D Corp. is incorporated in Germany, and the vast bulk of its employees and manufacturing plants are in Germany. It ships most of its products to the United States, however, and for that reason in January of 2010 it moved its most important officers and administrators from Germany to Boston, Massachusetts. The crane involved in the accident was sold in 2005 in Germany to a French company which used it in France for several years. The French company then went into bankruptcy and the crane was confiscated by the French government for nonpayment of taxes. Ultimately it was sold by the French government to a South Carolina company (P’s employer) in 2008, which installed it in South Carolina, where it ultimately collapsed and harmed P.

Before January of 2010, D Corp. sold its products in the United States through an independent distributor, D Corp. USA. Ownership and control of D Corp. USA was completely independent of D Corp. Through D Corp. USA, two cranes were sold in South Carolina. These two cranes, plus the one bought by P’s employer, were the only D Corp. cranes in the state at the time of P’s accident. In conjunction with the move of its headquarters to Boston, however, D Corp. ended its relationship with D Corp. USA and in January 2010 hired employees to act as its sales agents in the United States. One agent was assigned to the following southeastern states: Virginia, North Carolina, South Carolina, and Georgia. This agent made his first trip to South Carolina in September, 2010. By April of 2011, he had made two more trips and had sold 3 more D Corp. cranes in the state.

In May of 2011, P sued the D Corp. under South Carolina law in the Federal District Court for the District of South Carolina, asking for $1.5 million. Service was effected by having a process server give the D Corp’s sales agent a copy of the summons and complaint while he was in the state. The D Corp. made a motion to dismiss for lack of subject matter jurisdiction, personal jurisdiction, and venue. How should the court rule on its motions?

 

ANSWER

SMJ and venue were easy in this question. The problem was PJ. You were rewarded for identifying just how this case was like and unlike other cases we have studied. The question is roughly modeled after Yates v. Motivation Indus. Equipment Ltd., 38 Fed.Appx. 174 (4th Cir. 2002). As in Yates, the product that caused harm in the forum state got there through a process that could not have been anticipated by the defendant. But, also as in Yates, the defendant had reached out to the forum state concerning that same type of product.

The following in italics would be an ideal answer:

SMJ is clear. The plaintiff is a citizen of SC (because he is domiciled in that state) and the defendant is a citizen of Germany (by virtue of that being its country of incorporation) and, under the nerve center test in Hertz, of Massachusetts, because that is its principal place of business. The Clarification Act has made it clear that even if a corporation is incorporated in a foreign country, its principal place of business can be in a state in the US. See 28 USC 1332(c)(1). That’s the case here. Therefore this cause of action falls under 1332(a)(3) – it is a controversy between “citizens of different States and in which citizens or subjects of a foreign state are additional parties.” The jurisdictional minimum is obviously satisfied given the extent of P’s alleged injuries.

Venue is also easy. A substantial part of the events or omissions giving rise to the claim (namely the accident) occurred in the District of South Carolina.

PJ is the hard part. First of all, a federal court in SC can get PJ over a defendant (with exceptions irrelevant to this question) only if a state court in SC would be able to do so. See FRCP 4(k)(1)(A). We know nothing about the SC long-arm statutes, so our only real concern is whether the 14th Amendment would allow a SC state court to assert PJ over the D Corp.

There is a serious problem with arguing that there is specific jurisdiction over the D Corp. To argue specific jurisdiction, the activity of the defendant that gave rise to the cause of action must have involved intentionally reaching out to the forum state in some fashion. But that is clearly not the case here. The activity of the D Corp. that gave rise to the cause of action was the sale in 2005 of a crane to a French company that was to use it in France. It is impossible that the D Corp. could have known that it would end up in SC. Indeed, as far as the D Corp. was concerned this was not a case of putting the product into the stream of commerce at all. It thought it was selling the product to an end-user. Notice that even in McIntyre and Asahi, the sale of the product causing the harm in the forum state was to someone that the defendant knew would pass it on in the stream of commerce. This case, in contrast, is more like World Wide Volkswagen, because the sale was to an end-user (even though by chance it was subsequently sold). Indeed, in a sense it is even worse that Worldwide Volkswagen, since cars at least move around, such that it is foreseeable that they might end up causing harm in a different jurisdiction. Cranes do not move around in the same way.

[NOTE: Recognizing this problem with a specific jurisdiction argument was very important.]

To be sure, one might add to the sale to the French company the way that the D Corp. was reaching out to SC in connection with other cranes in 2005. At that time it was selling, through D Corp. USA, cranes throughout the US, and two were sold in SC (although before or after 2005 we don't know). Thus one might argue that we are facing a situation more like McIntyre and Asahi. (Notice that it would not appear relevant to a McIntyre-Asahi-style argument how the D Corp. sold its cranes after the sale to the French company. The question is the background knowledge with which the defendant made the sale of the product that caused the harm in the forum state.) 

[NOTE: I have concluded here that post-2005 contact with SC is irrelvant to a specific jurisdiction argument. Although I think that this is true, what is most important is that you recognized the question and justified your choice. Under my argument, the reason why you look to other sales is that you are giving an explanation of the defendant's intent at the time of the sale and that intent arguably does not include merely the particular sale that ultimately caused the harm but other types of sales going on at the same time.]

But, to repeat, in Asahi and McIntyre, the defendant could have predicted that the product that caused the harm would have ended up in the forum state. That's not so here. Asahi and McIntyre look irrelevant.

What about relying on general jurisdiction? Notice that in connection with general PJ, we can now look to the contacts that the D Corp. had with SC at the time of the filing of the suit, not merely at the time of the sale of the crane to the French company.  The problem is it does not appear that the “at home” test in Goodyear is satisfied. In Goodyear itself sales of the defendant’s product through a distributor was held insufficient to create general jurisdiction. To be sure, here the cranes being sold by the D Corp. in SC appear to be the same type as the crane that caused the harm. Furthermore, the sales are now direct from the D Corp. itself. The D Corp. sends its own employee into SC. It no longer relies on an intermediate distributor.  But it is unlikely that even that is enough, if general jurisdiction means the ability to sue the defendant on any cause of action in the forum state. It is very hard to see how the D Corp. could be sued in SC concerning an employment dispute at its German factory for example.

That leaves the questionable idea, which was discussed in class in connection with Ex Parte Newco, of a more limited form of general PJ. In this form of PJ, the defendant can be sued in the forum state concerning a certain type of cause of action (here, actions involving crane accidents), even though the defendant did not reach out to the forum  state concerning the particular cause of action at issue. [Note: this yeat I called this "category jurisdiction."] As with true general jurisdiction, it appears one can consider contacts with the forum state at the time of filing, not merely at the time of the sale of the product that caused the harm. And, given these contacts, the argument for this limited form of general PJ seems very strong. Unlike in NewCo, the defendant now directly sells cranes in SC (in Newco the relevant sales were through an intermediary). The D Corp. cannot be surprised to be subjected to PJ in SC in connection with an accident involving a crane it sold directly, so why not also allow PJ for an accident involving a crane that got into the state fortuitously?

[For those not in my CivPro class, see Ex Parte Newco Mfg, 481 So.2d 867 (Ala. 1985).]

Adding to the argument for PJ are the McGee factors. SC has a manifest interest in providing a forum for suits brought by its domiciliaries who are injured in SC. Many of the witnesses are likely to be in SC. And the burden on the injured plaintiff to go to Massachuestts is great, whereas the D Corp. would not find it burdensome to appear in a court in SC, since it already has an employee regularly going to the state.

[Here I would expect you to take a stand. I did not care which way you went on the matter. It is possible that Goodyear put the kibosh on Newco style arguments.]

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