As a manufacturer, the possibility of being sued is an unpleasant reality of doing business. But knowing when and where you might face litigation can at least help your company evaluate risk and inform business planning. Can a fabricator in Freeport, Maine, be sued in Fairbanks, Alaska? Must a manufacturer in Milwaukee, Wisconsin, face a civil trial in Maui, Hawaii? These questions have vexed courts—and manufacturers—for decades. The National Association of Manufacturers’ (NAM) Manufacturers’ Center for Legal Action (MCLA) is working to bring some needed clarity to these issues.
Generally, a business may only be sued in a state where it is headquartered, operates a factory or conducts other business. For some large corporations, that could mean being vulnerable to suit throughout the United States. But small and medium-sized manufacturers might only operate in one region of the country or even in a single state. Courts recognize there are situations where it would be unjust to force manufacturers to face lawsuits in far-flung states where the manufacturer has no operations.
A court has jurisdiction over a defendant if that defendant has “minimum contacts” with the plaintiff’s state. If a company has a physical presence in a state, the “minimum contacts” test is easily satisfied. But determining jurisdiction becomes more challenging when a manufacturer has no operations or other physical presence in a state, but its products are ultimately sold there.
A toy manufacturer is now asking the U.S. Supreme Court to provide some much-needed clarity on these issues. The case—Align Corporation v. Boustred—involves a Taiwan-based manufacturer of toy helicopters. The manufacturer has no operations, employees or other presence in the United States. It sells to U.S.-based distributors who then sell to retailers nationwide. A Colorado man bought one of the helicopters and then sued the manufacturer in Colorado after the helicopter allegedly injured him.
The manufacturer asked the court to dismiss the case because the manufacturer has no operations in Colorado. The Colorado Supreme Court ultimately rejected that argument, reasoning that the manufacturer had placed its product in the “stream of commerce” and did not prohibit distributors from selling to Colorado retailers.
Why should manufacturers in the United States care? This “stream of commerce” theory of minimum contacts means that any manufacturer in the United States, large or small, could be sued anywhere their products end up, regardless of whether the company has any operations or other activity in the state.
Is it fair for a family-run business in Vermont to be dragged into an Oregon court? Should a manufacturer in Pittsburgh be forced to fight a frivolous lawsuit in Alaska? The NAM’s MCLA doesn’t think so, and we filed a legal brief in this case for that very reason. We are asking the U.S. Supreme Court to take the case and reverse the Colorado court’s decision. A more constrained test would significantly narrow and clarify where manufacturers can be sued.