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Supreme Court Upholds Jurisdiction

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The Texas Supreme Court recently upheld the jurisdiction of Texas courts over a German manufacturer which established a Texas distributor to market its products after a Texan was injured by a high-pressure hose which failed. The case is Spir Star AG v. Kimich, ___ (Tex. 2010)(3/12/10)

In this products liability suit the Supreme Court held "that a manufacturer is subject to specific personal jurisdiction in Texas when it intentionally targets Texas as the marketplace for its products, and that using a distributor-intermediary for that purpose provides no haven from the jurisdiction of a Texas court."

"To render a binding judgment, a court must have both subject matter jurisdiction over the controversy and personal jurisdiction over the parties." Personal jurisdiction exists "when (1) the Texas long-arm statute provides for it, and (2) the exercise of jurisdiction is consistent with federal and state due process guarantees. Our long-arm statute reaches 'as far as the federal constitutional requirements for due process will allow.' Consequently, the statute's requirements are satisfied if exercising jurisdiction comports with federal due process limitations."

"A defendant's contacts with a forum can give rise to either specific or general jurisdiction. General jurisdiction exists when a defendant's contacts are continuous and systematic, even if the cause of action did not arise from activities performed in the forum state." In this case, "general jurisdiction" analysis was unnecessary because specific jurisdiction existed. "A court has specific jurisdiction over a defendant if its alleged liability arises from or is related to an activity conducted within the forum. Unlike general jurisdiction, . . . specific jurisdiction 'may be asserted when the defendant's forum contacts are isolated or sporadic, but the plaintiff's cause of action arises out of those contacts with the state.'" The focus is "on the 'relationship among the defendant, the forum[,] and the litigation.'" Specific jurisdiction exists "when (1) the defendant's contacts with the forum state are purposeful, and (2) the cause of action arises from or relates to the defendant's contacts." "Purposeful availment requires a defendant to seek some 'benefit, advantage, or profit by 'availing' itself of the jurisdiction.' Thus, sellers who . . . create continuing relationships with residents of another state are subject to the specific jurisdiction of the latter in suits arising from those activities."

Mere awareness that some of the sellers products in the stream of commerce may be swept into the forum state is insufficient. It requires some "additional conduct," such as designing the product for the forum state, advertising there, establishing channels of advice, or marketing through a distributor serving as a sales agent there.
"When an out-of-state manufacturer like AG specifically targets Texas as a market for its products, that manufacturer is subject to a product liability suit in Texas based on a product sold here, even if the sales are conducted through a Texas distributor or affiliate." It is not the intermediary's conduct, "but the actions of the foreign manufacturer who markets and distributes the product to profit from the Texas economy." This is limited: to specific jurisdiction; to claims related to the contacts with the forum; the product in question must have a substantial connection to Texas; and the "manufacturer must have intended to serve the Texas market."

Here, the defendant determined that Houston was an "optimal location" to market its products to the coastal region. Its executives traveled to Houston, leased space, established the distributor, permitted it to use the defendant's trademark free of charge, and served as defendant's "exclusive distributor in Texas and North America." The products were shipped to the port of Houston, and the distributor assembled them using defendant's tools and training. Though the defendant itself did not own the distributor, its directors owned 75%, and its president also served as the distributor's president. It was not "persuasive" that title to the hoses passed in Germany. "AG directly targeted the Texas market." Its website listed the distributor it formed in Texas. And the plaintiff's claim here "arose from AG's Texas contacts."

Since there are sufficient contacts for specific jurisdiction, "we must now determine whether jurisdiction is consistent with traditional notions of fair play and substantial justice." Therefore, "we must consider AG's contacts in light of: (1) 'the burden on the defendant'; (2) 'the interests of the forum state in adjudicating the dispute'; (3) 'the plaintiff's interest in obtaining convenient and effective relief'; (4) the interstate or international judicial system's interest in obtaining the most efficient resolution of controversies; and (5) the shared interest of the several nations or states in furthering fundamental substantive social policies." Footnote 3: "[c]ourts must consider the interests of 'other nations whose interests are affected by the assertion of jurisdiction.'"

In this case, "Houston is familiar territory for AG's leadership." "Moreover, Texas has a significant interest in exercising jurisdiction over controversies arising from injuries a Texas resident sustains from products that are purposefully brought into the state and purchased by Texas companies." And the plaintiff would "face an undue burden were he forced to litigate his product liability claim against AG in Germany," in addition to which the suit against the distributor will be litigated here. So, the "burden [to the defendant] is minimal and is outweighed by Kimich's and Texas's interests in adjudicating the dispute here." Therefore, asserting "personal jurisdiction over AG comports with traditional notions of fair play and substantial justice."

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