The Subrogation Strategist

In L.W. v. Audi AG, 108 Cal. App. 5^th 95, the Court of Appeal of California (Court of Appeal) recently held that a foreign manufacturer can be subject to specific personal jurisdiction in California state courts. In L.W., a minor child suffered injuries when an Audi Q7 allegedly malfunctioned and surged forward, pinning the child against a garage wall. The plaintiffs brought suit against Audi AG (Audi Germany) and Volkswagen Group of America, Inc. doing business as Audi of America (Audi America). Audi Germany designed, manufactured and then sold the Audi Q7 to Audi America. Audi America imported the car into the United States and distributed the car to the California dealership.

Audi Germany specially appeared and filed a motion to quash service for lack of personal jurisdiction. Audi Germany argued that it was not subject to personal jurisdiction in California because it did not conduct activities in California and did not directly send its product to the state. In addition, it argued that Audi America had complete and exclusive decision-making authority over the marketing and sale of Audis in California. Further, Audi Germany asserted that specific jurisdiction does not exist in a products liability case unless a defendant, itself, conducts relevant activities in the forum state. “In other words, Audi [Germany] asserted that California could never exercise personal jurisdiction over a foreign manufacturer (such as Audi) when that manufacturer relies on a separate entity (a national distributor such as [Audi America]) to distribute, market, and sell its products in that state.” In response, the plaintiffs argued that the court could assert specific jurisdiction over Audi Germany because Audi Germany systematically served the California market through a separate entity within its corporate structure, Audi America.

California’s Court of Appeal begun its decision with a discussion of the stream-of-commerce theory of personal jurisdiction arising from World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286 [62 L. Ed. 2d 490, 100 S. Ct. 559] (World-Wide Volkswagen). There, the United States Supreme Court explained: “[I]f the sale of a product of a manufacturer or distributor such as Audi or Volkswagen is not simply an isolated occurrence, but arises from the efforts of the manufacturer or distributor to serve, directly or indirectly, the market for its product in other States, it is not unreasonable to subject it to suit in one of those States if its allegedly defective merchandise has there been the source of injury to its owner or to others.”

Since World-Wide Volkswagen established the stream-of-commerce theory of personal jurisdiction, there has been no established framework for how to apply the theory. The seminal plurality decision on the stream-of-commerce theory, Asahi Metal Industry Co. v. Superior Court (1987) 480 U.S. 102 [94 L. Ed. 2d 92, 107 S. Ct. 1026], resulted in three competing opinions, none of which garnered a majority to establish it as the proper standard for exercising personal jurisdiction over a foreign manufacturer. 

The first standard, from Justice Brennan, argued that personal jurisdiction under a stream-of-commerce theory should exist “[a]s long as a participant ... is aware that the final product is being marketed in the forum State.” The second, stricter standard (sometimes referred to as the stream-of-commerce plus approach), outlined by Justice O’Connor, required “[a]dditional conduct of the defendant [indicating] an intent or purpose to serve the market in the forum State.” The third standard, from Justice Stevens, found that “the volume, the value, and the hazardous character” of the product affects the determination.

The Court of Appeal concluded that the evidence was sufficient to establish specific jurisdiction over Audi Germany under any of the three approaches to the stream of commerce theory. The court found that Audi Germany “deliberately and systematically (albeit indirectly)” served the California market through a “regular flow” of vehicles from Audi Germany to Audi America and from Audi America to dealerships across the United States, including California. This case is important because it supports a finding of personal jurisdiction over a foreign manufacturer that sells its products to an American distributor, particularly when that distributor is related to the foreign manufacturer.