The Texas long-arm statute does not reach French equipment manufacturer (but maybe it should).

• Author: Ericson, Connie M.
• Position: Case Note

SUMMARY

The Texas Supreme Court has provided an example of why reforming personal jurisdiction jurisprudence for international defendants may be proper. In CMMC v. Salinas the Supreme Court reversed a court of appeals decision that extended long-arm jurisdiction to a French equipment manufacturer in a products liability suit.(1) The ruling purports to sidestep the debate regarding the minimum contacts test and the stream of commerce test in Asahi Metal Industry Co. v. Superior Court.(2) However, the Texas Supreme Court decision clearly favors Justice O'Connor's plurality opinion,(3) which recommends a "stream of commerce plus" test--that is, requiring the defendant to purposefully direct action toward the forum state.(4) The decision hinges on the limited nature of CMMC's contact with Texas, the forum state, and the State's fledgling wine industry.(5) It ignores, as it must, the likelihood of substantial sales by the manufacturer with other states(6) that may have large, well-established wine and juice industries.

This Note reviews the Texas decision in light of the history of personal jurisdiction and the stream of commerce test. It argues that a revised minimum contacts test for international defendants based on national contacts would produce a fairer result for plaintiffs without violating defendants' due process rights. Part II outlines the facts in CMMC v. Salinas. Part III reviews the history of personal jurisdiction under International Shoe and its progeny, focusing on the stream of commerce test for minimum contacts as developed by the Supreme Court and applied in the Fifth Circuit and in Texas. Part IV analyzes the court of appeals' and the Supreme Court's application of the test in CMMC v. Salinas and suggests an alternative.

1. BACKGROUND OF CMMC v. SALINAS

   The case arose as a products liability suit filed by Ambrocio Salinas, a worker at Hill Country Cellars, a small winery in Cedar Park, Texas.(7) Salinas was injured while cleaning an allegedly defective wine press manufactured by CMMC and purchased by Hill Country through KLR Machines, Inc., an independent distributor of wine- and juice-making equipment.(8) CMMC sold its equipment in the United States directly and through KLR; it did no direct U.S. advertising, but KLR advertised CMMC's products in national wine-making periodicals.(9) CMMC had no direct contact with Hill Country or Texas and had only a few isolated sales of equipment in Texas.(10) The deposition of KLR Vice President R. Ivan Linderman cites significant sales by KLR to wine and juice producers in western states, but did not provide detailed information on CMMC sales within the United States.(11) KLR sold the wine press to Hill Country and arranged for transport to Hill Country through the port of Houston.(12) CMMC knew KLR was sending the press to Hill Country for use in Texas.(13) CMMC rewound the press for use in the United States, and Hill Country made one warranty claim on the press, which KLR honored, billing CMMC.(14)

   CMMC entered a special appearance in the trial court contesting jurisdiction.(15) The trial court dismissed the case for want of personal jurisdiction.(16) The court of appeals reversed and remanded, finding that CMMC had sufficient minimum contacts with Texas to justify the exercise of personal jurisdiction in the case.(17) The court of appeals held that the Texas long-arm statute conferred jurisdiction over CMMC because CMMC delivered its product into the stream of commerce that carried the product into the State.(18) Although CMMC did not do business systematically with Texas customers, did not solicit buyers specifically in Texas through advertisements or a designated instate distributor, and had no direct contact with anyone in Texas, CMMC was aware of the ultimate destination of its wine press.(19) The court of appeals held that direct placement of a product into the stream of commerce establishes minimum contacts, but may not establish minimum contacts in instances where the unilateral activity of an entity in another state was the sole means of transporting it into the State.(20) The Texas Supreme Court reversed unanimously the court of appeals, holding that a manufacturer's isolated sale to the forum state and knowledge that equipment will be delivered and used in the forum state are insufficient to warrant the exercise of personal jurisdiction without evidence of more purposeful contact by the manufacturer with the forum.(21)

2. PERSONAL JURISDICTION VIA THE STREAM OF COMMERCE

   1. The Development of the Due Process Standard

      Because the assertion of jurisdiction by Texas courts over nonresidents arises from a long-arm statute that reaches as far as the U.S. Constitution allows, an analysis of personal jurisdiction requires an overview of those constitutional limits.(22) To understand the decisions of both the court of appeals and the Texas Supreme Court, it is necessary to review the development of the due process standard, which limits the states' exercise of personal jurisdiction over nonresident defendants.

      Review of the due process limits on personal jurisdiction begins necessarily with International Shoe Co. v. Washington in which the Supreme Court first articulated the "minimum contacts" standard: Due process requires that a state may exercise personal jurisdiction over a defendant not in the forum only if the defendant has "certain minimum contacts with it such that maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'"(23) The Court has held that due process was met even when the only contacts with the forum of a nonresident defendant insurance company were mailing the contract to the forum, the insured's mailing payments from the forum, and the insured's living in the forum at the time of death.(24) However, when there is no activity by a nonresident defendant in the forum state, the unilateral activity of a plaintiff claiming a relationship with the defendant is not sufficient to satisfy the minimum contacts test for personal jurisdiction; there must be "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws."(25) Mere acquiescence by a nonresident to an act that will have an "effect" in a forum does not make jurisdiction reasonable; more is required, such as a claim of physical or property damage or commercial activities from which a nonresident derives benefit.(26)

   2. The Stream of Commerce Test

      CMMC v. Salinas deals with an important development building on the International Shoe line of cases: The "stream of commerce" test for determining minimum contacts in product liability cases. The stream of commerce test for minimum contacts arose from a state court decision to authorize extension of personal jurisdiction by a nonresident safety valve manufacturer whose product was incorporated, also outside the forum, into a water heater sold to a consumer in the forum.(27) The court reasoned that specialization of commercial activity and interdependence of business enterprises justified extension of jurisdiction to a party that benefits only indirectly from commercial activity in a forum if an alleged defect in his product is raised in a suit as the cause of injury in the forum.(28) The stream of commerce doctrine gained wider currency when the Supreme Court endorsed it in World-Wide Volkswagen Corp. v. Woodsolt.(29)

      In World-Wide, the Supreme Court held that a New York automobile retailer and associated regional distributor were not subject to Oklahoma's long-arm statute in a products liability suit solely because a vehicle the retailer sold was involved in an accident in Oklahoma which gave rise to a suit.(30) The retailer and distributor conducted no activity in the forum, made no sales, solicited no business through salesmen or advertising "reasonably calculated to reach the State," sold no cars at wholesale or retail to customers from the forum, and did not indirectly, through others, seek to serve the market.(31) Although a vehicle is by nature mobile and a seller could reasonably foresee that the product would reach the distant forum, the Court refused to make foreseeability alone the criterion for jurisdiction because it would effectively appoint a chattel the agent for service of process for every seller of chattels.(32) The decision emphasized that both the defendant's conduct and the defendant's connection to the forum have to justify jurisdiction, ensuring that the nonresident could reasonably anticipate being haled into court there; however, the decision affirmed that indirect sales could still subject a party to jurisdiction:

      [I]f 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 if its allegedly defective merchandise has

      there been the source of injury to its owner or to others.

      The forum State does not exceed its powers under the

      Due Process Clause if it asserts personal jurisdiction

      over a corporation that delivers its products into the

      stream of commerce with the expectation that they will

      be purchased by consumers in the forum State.(33)

      Justice Brennan, in dissent, suggested that other considerations, such as the interests of a state and other parties in proceeding with a cause in the selected forum, could outweigh the relative insignificance of the defendant's contacts.(34) In addition, Justice Brennan objected to limiting the stream of commerce to a flow that stops at the user of a product, arguing there was no reason to distinguish "between a case involving goods which reach a distant State through a chain of distribution and a case involving goods which reach the same State because a...