Supreme Court Narrows Foreign Firms’ Liability

The Supreme Court curbed the jurisdiction of American courts over foreign manufacturers, concluding Tuesday that it is “unreasonable and unfair” for a Japanese firm that does not directly sell its products in California to be held liable in state courts for a motorcycle accident.

The justices unanimously overturned a sweeping California Supreme Court ruling that said that the state courts had jurisdiction simply because the Japanese firm put its products into the “stream of commerce.”

While disagreeing with the opinion written by former Chief Justice Rose Elizabeth Bird, the justices could not agree among themselves on a clear standard for deciding when a foreign company falls under state laws.

Four justices said a company must take some action “purposely directed” at the state in question, such as advertising, marketing or distributing its product there.

Four others said a mere “awareness” that a product will be later sold or used in a state is enough. And Justice John Paul Stevens, the court’s most independent-minded member, agreed with neither side and stated no standard of his own.

Important Issue

“They have struggled with this issue. It is difficult to come up with clear guidelines,” said Graydon Staring, a San Francisco attorney who represented the Asahi Metal Industry, which prevailed in Tuesday’s decision. “In all candor, I don’t know how they would rule if any of the facts are changed for the next case.”

The issue of jurisdiction is an important one for companies because it involves an attempt by a state to apply its product liability laws in a sweeping fashion to help ensure the safety of its residents.

Attorneys for the foreign firm said it would be an unfair burden to try their company in a California court when the firm had no offices or operations in the United States.

The complicated case began in 1978 when a Solano County man lost control of his motorcycle and ran into a truck. He was seriously injured, and his wife, who was riding behind him, was killed.

He alleged that the accident was due to a tire made by Cheng Shin Rubber Industrial Co. of Taiwan that blew out. That firm in turn blamed the maker of the tire valve, Asahi Metal of Japan.

Asahi tried to quash the suit, contending that the company “has never contemplated that its limited sales of tire valves to Cheng Shin in Taiwan would subject it to lawsuits in California.” But the California Supreme Court ruled that it could be held liable.

In past cases, the U.S. Supreme Court has said that a firm must have “minimum contacts” with the state to justify state courts having jurisdiction. And the state courts’ actions must be reasonable.

Intent to Serve

One faction of the court said Asahi lacked the necessary minimum contact with California, while the second group said that it was unreasonable to require Japanese officials to defend themselves in a Solano County court.

Writing for the first group, Justice Sandra Day O’Connor said the courts need some evidence of a firm’s “intent or purpose to serve a market” before it can be held liable there.

“Asahi does not do business in California. It does not advertise or otherwide solicit business in California. It did not create, control or employ the distribution system that brought its valves to California,” she wrote in an opinion joined by Chief Justice William H. Rehnquist and Justices Lewis F. Powell Jr. and Antonin Scalia.

The second group adopted Bird’s “stream of commerce” theory. “As long as a participant in this process is aware that the final product in being marketed in the . . . states, the possibility of a lawsuit there cannot come as a surprise,” wrote Justice William J. Brennan Jr.

He added, however, that in this case, it was unfair to require the Japanese officials to defend themselves in a state court. His opinion was joined by Justices Byron R. White, Thurgood Marshall and Harry A. Blackmun. Stevens said that since it was clearly unfair to try the Japanese firm in California, the court should not use the case (Asahi Metal Industry vs. Superior Court of Solano County, 85-693) to draw guidelines.