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Wednesday, April 24, 2013

RUSSELL V. SNFA: Illinois Supreme Court Finds Specific Personal Jurisdiction Over Foreign Component Part Manufacturer

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The Illinois Supreme Court issued a significant personal jurisdiction decision last week in an aviation product liability case, Russell v. SNFA, 2013 IL 113909 (Apr. 18, 2013), which has profound implications for component part manufacturers and the aviation industry. The Court found that a French manufacturer is subject to Illinois jurisdiction even though it did not have any direct Illinois customers for its custom-made helicopter bearings and lacked knowledge that its components would end up in Illinois.

Russell arises out of the January 28, 2003 crash of an Agusta 109C helicopter in Illinois, operated by Air Angels, Inc., an air ambulance service, which resulted in the pilot's death. The pilot's estate filed suit in Cook County, Illinois against various defendants, alleging that the helicopter crashed because a tail-rotor bearing failed. The defendants included: (1) SNFA, a French corporation, which manufactured the custom-made helicopter bearings to Agusta S.p.A.'s specifications; (2) Agusta S.p.A. (Agusta), the Italian manufacturer of the helicopter; (3) Agusta Aerospace Corporation (AAC), the wholly-owned subsidiary and U.S. distributor of Agusta, which sold the helicopter bearings at issue; and (4) Metro Aviation, Inc., a Louisiana company that sold the helicopter to the decedent's employer.

The issue in Russell   was whether an Illinois court could exercise personal jurisdiction under Illinois' long arm statute over SNFA-a French company that manufactured and sold custom-made helicopter bearings to a helicopter manufacturer in Europe. But the real battle line here concerned specific personal jurisdiction and the contours of the "stream of commerce" theory.

As recounted in the Illinois Supreme Court's opinion, SNFA does not have any offices, assets, property, or employees in Illinois, and is not licensed to do business in Illinois. And it does not have any direct United States customers for its custom-made helicopter bearings. Despite SNFA's lack of direct contacts with Illinois, the Illinois Supreme Court nevertheless found that specific personal jurisdiction existed. It focused on two main factors in its analysis: (1) SNFA's relationship with Agusta, and (2) SNFA's relationship with Hamilton Sundstrand.

The Court acknowledged that SNFA sold the custom-made helicopter bearings to Agusta in Europe, but imputed the activities of Agusta and AAC, Agusta's U.S. distributor, to SNFA. It found that AAC essentially operated as a distributor for SNFA's tail-rotor bearings in the United States. The Court noted that in the past ten years, five Agusta helicopters were sold in Illinois and 2,198 parts manufactured by SNFA were sold by AAC in Illinois.

Based on a stream of commerce theory, the majority found that SNFA had sufficient minimum contacts with Illinois because of Agusta's and AAC's activities in Illinois. The Court reached this conclusion though SNFA lacked specific knowledge of the final destination of its helicopter bearings after selling them to Agusta in Europe and though it did not create or control the distribution system that brought its helicopter bearings to Illinois.

In finding that specific personal jurisdiction existed, the Court also emphasized SNFA's relationship with Hamilton Sundstrand. It noted that SNFA had a longstanding business relationship with a branch of Hamilton Sundstrand in Rockford, Illinois, and that hundreds of invoices listed Rockford as the purchasing address for SNFA's products with total sales nearing $1 million. Of interest, the majority twice highlighted the fact that one of the agreements between SNFA and Hamilton Sundstrand contained an Illinois choice-of-law clause. And it referenced the fact that an SNFA representative made three trips to Rockford. As pointed out by the dissenting justice, however, the products SNFA sold to Hamilton Sundstrand involved a distinct product line (airplane bearings, not helicopter bearings) and those products were shipped to California, not Illinois. SNFA did not directly sell any helicopter bearings in Illinois. The majority, however, held that adopting a distinction between subcategories of SNFA's products-bearings for airplanes versus bearings for helicopters-was too restrictive and thus counted these contacts against SNFA in its personal jurisdiction analysis.

Russell is noteworthy for a few reasons. To begin with, it appears to set a very low bar for claimants to establish specific personal jurisdiction over a component part manufacturer in Illinois. The Illinois Supreme Court essentially found that a component part manufacturer can be haled into Illinois court under a stream of commerce theory based on the actions of the helicopter manufacturer's U.S. distributor   though it did not create or control that distributor, and based on a business relationship with another company on a distinct product line that was not physically delivered in Illinois. In her dissent, Justice Garman underscored the ramifications of the majority's decision:

Under the majority holding, a foreign defendant can now be haled into court in Illinois for even the most fleeting and inconsequential business contact with this state. Indeed, defendant is now subject to Illinois jurisdiction even though it never actually sold a single item to an Illinois consumer.

Russell is consequential for another reason. It is the first time the Illinois Supreme Court has addressed the U.S. Supreme Court's plurality decision in McIntyre, which reached the opposite conclusion in a similar factual setting.See J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011). In its majority opinion, the Supreme Court of Illinois discussed McIntyre   and competing standards for the "stream of commerce" theory. It concluded that three main points can be gleaned from McIntyre:

(1) The U.S. Supreme Court unanimously endorsed the continued validity of the stream of commerce theory set forth in World-Wide Volkswagen   to establish specific personal jurisdiction, though its application is unsettled;

(2) Six justices rejected the New Jersey Supreme Court's expansive stream of commerce theory in McIntyre. Accordingly, a single sale in a forum   is not sufficient to establish specific personal jurisdiction even if a manufacturer knows that its products are distributed through a nationwide distribution system; and

(3) A minority of the U.S. Supreme Court would adopt a broader stream of commerce theory.

Ultimately, the Illinois Supreme Court concluded that it needed more definitive guidance from a majority of the U.S. Supreme Court before it could adopt either the broad or narrow version of the stream of commerce theory. On this point, the Court stated that Justice Breyer's concurrence in McIntyre   did not endorse Justice O'Connor's narrower "stream of commerce plus" approach in Asahi, and thus the McIntyre   Court's fractured decision did not alter the stream of commerce test. See Asahi Metal Indus. Co. v. Superior Court,480 U.S. 102, 112 (1987) (O'Connor, J.) ("The placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully directed toward the forum State.").But other courts have reached the opposite conclusion and held that McIntyre   establishes a "stream of commerce plus" test. See, e.g.Smith v. Teledyne Cont'l Motors, Inc., 840 F. Supp. 2d 927, 931 (D.S.C. 2012) ("Thus, six Justices agree that, at a minimum, the limitations of Justice O'Connor's test should be applied, although the plurality would apply an even stricter test, the parameters of which were not precisely defined."). As the dissenting Justice in Russell   stated, "there does, at the very least, appear to be a six-justice majority in McIntyre   for a 'stream of commerce' plus 'something more' approach to sufficient minimum contacts." Russell, 2013 IL 113909, ¶ 102 (Garman, J., dissenting).

In sum, Russell   appears to be an adverse case for foreign component part manufacturers. It potentially exposes component part manufacturers to personal jurisdiction in Illinois based on the activities of the aircraft manufacturer and its U.S. distributor even if the component part manufacturer is unaware that its component is being marketed and sold in Illinois.

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Adler Murphy & McQuillen LLP has a seasoned team of attorneys experienced in defending component part manufacturers from product liability claims across the country.


This article  is intended for informational purposes only. It is not intended to provide legal advice, and you should not act on the information contained herein without first consulting legal counsel and obtaining advice with respect to your particular issue or problem.