A Defendant's Knowledge That Its Product May Be
 Distributed In The Forum State Is Not Sufficient   
To Establish Jurisdiction
 Vermont Wholesale Building Products, Inc. v. JW. Jones Lumber Company, Inc., No.2006-144 (December 21, 2006)

Facts:   Defendant Jones Lumber is a North Carolina Corporation that manufactures and sells lumber products. Its sole place of business is in North Carolina , and it has no direct contacts with the State of New Hampshire .

Plaintiff Vermont Wholesale distributes specialty lumber in four states, including New Hampshire .

Jones Lumber supplies Vermont Wholesale, but did not advertise or solicit business in New Hampshire . Jones Lumber was aware, however, that Vermont Wholesale sold flooring in New Hampshire .

Vermont Wholesale purchased flooring from Jones Lumber and then sold it to Central Building Supply, a retail store located in New Hampshire . Central then sold the flooring to a contractor, who installed it in a New Hampshire home.

The homeowners filed suit against the contractor, alleging that the flooring was defective. The contractor brought a third party action against Vermont Wholesale, which brought actions against Central and Jones Lumber.

Jones Lumber filed a motion to dismiss for lack of personal jurisdiction, claiming that merely placing its product into the stream of commerce, without a showing of activity directed toward the state, was not sufficient to establish minimum contacts for the purpose of satisfying the Due Process Clause even if it was foreseeable that the product would be used in New Hampshire.

Vermont Wholesale argued that by selling its flooring to a Vermont distributor with the knowledge that the product would be sold in a four-state region that included New Hampshire , Jones Lumber established minimum contacts sufficient to confer jurisdiction in New Hampshire .

The motion to dismiss was denied, and Jones Lumber appealed.

Held:     Vacated and remanded.

The Court's jurisdictional analysis was limited to whether New Hampshire has specific jurisdiction over Jones Lumber.

Specific jurisdiction exists when "the cause of action arises out of or relates to the defendant's forum-based contacts."

In order for the exercise of jurisdiction to be constitutional, the following factors must be met:

1.       The contacts must relate to the cause of action;

2.       The defendant must have purposefully availed itself of the protection of the forum state's laws; and

3.       It must be fair and reasonable to require the defendant to defend the suit in the forum state.

The parties agreed that the alleged contacts related to the cause of action, so the Court proceeded to consider the second factor - whether Jones Lumber purposefully availed itself of the protection of New Hampshire 's laws.

This factor requires the court to determine whether the defendant has established minimum contacts with the forum state such that it should reasonably anticipate having to defend a lawsuit in the forum. Whether this factor is satisfied simply because a defendant places a product into the stream of commerce has not previously been decided in New Hampshire . Other state and federal courts have issued conflicting decisions on the issue.

In Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987), the United States Supreme Court was unable to reach a majority decision as to whether placing a product into the stream of commerce, without more, was sufficient to satisfy the second prong of the due process test. Justice Brennan, writing for four justices, found that the defendant's awareness that its product was being marketed in the forum state was sufficient to establish jurisdiction. Justice O'Connor, writing for four justices, rejected that view and instead adopted a "stream of commerce plus" theory. She found that merely placing a product into the stream of commerce with the awareness that the product may end up in the forum state, without more, is not an act of the defendant purposefully directed toward the forum state. According to the "stream of commerce plus" theory, additional conduct (such as advertising in the forum, establishing channels for providing advice to customers in the forum, marketing the product through a sales agent in the forum, etc.) may indicate an intent to serve the market in the forum and create jurisdiction there.

The New Hampshire Supreme Court adopted the "stream of commerce plus" theory as more consistent with the requirements of due process. Thus, in New Hampshire a defendant's actual awareness that its product may find its way into the forum state is not sufficient to subject it to jurisdiction there. The Court remanded the case to the trial court with instructions to apply the "stream of commerce plus" theory.

Regards,

Mike Wallenius

603-634-4300
mwallenius@gss-lawyers.com