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Does the use of a US subsidiary to distribute a product manufactured by a foreign parent company suffice for the exercise of personal jurisdiction?


Personal jurisdiction over an out-of-state defendant may only be exercised if the defendant has certain "minimum contacts" with the forum state so that requiring the defendant to defend in the forum does not offend "traditional notions of fair play and substantial justice." International Shoe Co. v. Washington, 326 U.S. 310, 316, 102, 66 S. Ct. 154, 158 (1945); Wiles v. Morita Iron Works Co., 125 Ill. 2d 144, 150, 530 N.E.2d 1382, 1385 (1988).   “[I]f the contacts between the defendant and Illinois are sufficient to satisfy the requirements of due process, then the requirements of both the Illinois long-arm statute and the U.S. Constitution have been met, and no other inquiry is necessary.”  W. R. Grace & Co. v. Ensey, 279 Ill.App.3d 1043, 1047, 666 N.E.2d 8 (3rd Dist.1996).  The analysis must focus on two factors: (1) the defendant's contacts with Illinois and (2) the fairness or reasonableness of exercising personal jurisdiction over the defendant. 279 Ill.App.3d at 1047.

The minimum contacts necessary with a forum state are present if a defendant delivers products into a stream of commerce, originating outside the forum state, with the awareness or expectation that some of the products will be purchased in the forum state.  In "stream of commerce" cases the minimum contacts analysis is controlled primarily by two United States Supreme Court cases.  Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 107 S. Ct. 1026 (1987) and World-Wide Volkswagen v. Woodson, 444 U.S. 286, 100 S. Ct. 559 (1980).  In Asahi the court was unanimous in its holding, but divided in its rationale. All nine Justices agreed that jurisdiction must fail due to the unique facts of the case which rendered the exercise of personal jurisdiction unfair and unreasonable. Justice O'Connor, and three other Justices, also concluded that minimum contacts had not been established.

The O'Connor “narrow” view of minimum contacts requires that the out-of-state defendant do more than just place a product in the stream of commerce, which eventually causes an injury in the forum state.  This view requires "additional conduct [which] may indicate an intent or purpose to serve the market in the forum State." Asahi, 480 U.S. at 112.  Justice O'Connor includes as examples of such "additional conduct" such things as designing the product for the forum state, advertising in the forum state, providing advice to customers in the forum state, and marketing the product through a distributor in the forum state. Asahi, 480 U.S. at 112 (emphasis added).

Justice Brennan, also joined by three other Justices, concluded that minimum contacts had been established in Asahi. Justice Brennan's “broad” view holds that personal jurisdiction premised on the placement of a product in the stream of commerce is consistent with the due process clause, without showing additional conduct on the part of the defendant. Asahi, 480 U.S. at 117. In this case under Justice Brennan’s “broad” view minimum contacts have also been established.  

Prior to Asahi, the court decided World-Wide Volkswagen v. Woodson, 444 U.S. 286, 100 S. Ct. 559 (1980).  World-Wide, the last majority opinion in this area, concluded that while foreseeability is relevant in determining whether minimum contacts have been established, the test is whether the defendant's conduct and connection with the forum make it foreseeable that he could be haled into court there. World-Wide, 444 U.S. at 297.   As the court stated: "if the sale of a product of a manufacturer or distributor *** is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor to serve, directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States." World-Wide Volkswagen, 444 U.S. at 297 (emphasis added).

The Illinois Supreme Court in Russell v SNFA, 2013 IL 113909, 987 N.E.2d 778, (Ill. 2013) expressly stated that it would “not adopt either the broad or narrow version” of the stream of commerce theory without more definitive guidance from a majority of the United States Supreme Court.  2013 IL 113909 at pg. 70, 987 N.E.2d at 794.  Rather, our Supreme Court followed the approach set out by the United States Supreme Court in World-Wide Volkswagen:
[O]ne way to satisfy the requirements for specific jurisdiction is under the "stream of commerce" theory, an approach first recognized by the United States Supreme Court in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980).  In that decision, the Court concluded as follows:

"[I]f the sale of a product by a manufacturer or a distributor *** is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor to serve directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others." World-Wide Volkswagen, 444 U.S. at 297.

Under those circumstances, the forum state is permitted to exercise personal jurisdiction over a nonresident defendant "that delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State." World-Wide Volkswagen, 444 U.S. at 297-98. 2013 IL 113909 at pg. 43. 987 N.E.2d at 788 (emphasis added).

  The Illinois Supreme Court in Russell found that it was proper to exercise specific personal jurisdiction over the nonresident Defendant.    In Russell the defendant was found to have the requisite minimum contacts because it “knowingly used a distributor…to distribute its products throughout the world, including the United States and Illinois.” 2013 IL 113909 at pg. 85, 987 N.E.2d at 797.   Thus in Illinois, under the stream of commerce theory first recognized by the United States Supreme Court in World Wide Volkswagen and endorsed by the Illinois Supreme Court in Russell, a nonresident defendant is subject to jurisdiction when it delivers its product into the stream of commerce with the expectation that it will be purchased by consumers of that forum.
In Illinois in a products liability action, where a manufacturer uses a subsidiary company exclusively to distribute its product in Illinois and the distribution is not incidental but substantial in Illinois the manufacturer will be deemed to have the minimum contacts for personal jurisdiction.  Saia v. Scripto-Tokai, 366 Ill. App.3d 419, 851 N.E.2d 693 (1st Dist. 2006).  

In 2017 the US supreme court clarified that the limits of specific personal jurisdiction in state courts require a connection between a defendant’s minimum contacts with the forum and the claim at issue. The plaintiff must how that the action being brought sufficiently arises out of the defendant's activities and the state of issue to establish the necessary link for the exercise of personal jurisdiction   (Bristol-Meyers Squibb vs. Superior Court of California, San Francisco County.)

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