Legislation Might Increase Litigation Against Foreign Product Manufacturers

Sen. Sheldon Whitehouse (D-R.I.) announced last week his plan to introduce legislation that would increase the ability of U.S. plaintiffs to sue foreign manufacturers of allegedly defective products. This development should be monitored by all foreign manufacturers selling into the United States.

Whitehouse announced the proposed legislation at a hearing by the Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts. The hearing was entitled, “Leveling the Playing Field and Protecting Americans: Holding Foreign Manufacturers Accountable.” A variety of witnesses testified about the impact of the issue on both American consumers and American business, and whether there was a need for Congress to put foreign companies on a more equal footing with domestic companies in terms of litigation risks, and to reduce a possible “competitive disadvantage” suffered by U.S. manufacturers.

There are three main procedural hurdles faced by plaintiffs seeking to sue foreign parties: (1) obtaining personal jurisdiction; (2) serving process; and (3) enforcing U.S. judgments abroad. That is, a party suing must first be able to find a court that has Constitutional power/authority over the defendant, personal jurisdiction. Asahi Metal Industry Co. v. Superior Court of California, Solano County, 480 U.S. 102 (1987). Then after filing, the party must inform the defendant of the lawsuit and its contents. And at the end of the lawsuit, the party must be able to collect any money awarded, especially when the defendant's assets are outside of the U.S. If the defendant is judgment proof, the suit is a waste of time for plaintiffs.

One speaker, Prof. Teitz of the Roger Williams University School of Law, described that as a result of different approaches in other legal systems, U.S. consumers face difficulties recovering in U.S. courts and enforcing U.S. judgments abroad, in fact more difficulty than many foreign consumers face in the reverse situation. In addition, there is an obvious competitive impact on U.S. manufacturers who are sued more easily and cheaply here for obvious reasons and against whom judgments can be enforced throughout the country under the Full Faith and Credit Clause. Service of process may be governed by international conventions and treaties, or may involve the use of diplomatic channels, the Professor said. Legislation to require domestic agents for service of process would reduce the cost and difficulty of service.

A plaintiff attorney testified that the transition of the U.S. economy away from manufacturing has resulted in a dramatic increase in foreign-made goods entering the country. The volume of imports has tripled over the last decade and is expected to triple again by 2015. He recommended legislation allowing jurisdiction based on aggregate national contacts and import licenses that require liability insurance as well as agents for service of process and consent to jurisdiction.

Another attorney noted a competitive disadvantage for U.S. companies that are subject to what he called the “tort tax.” But he cautioned that legislation should not burden U.S. business by expanding federal jurisdiction and changing choice-of-law rules. He also warned of possible problems with the constitutionality of the discussed legislation. For example, legislation might authorize jurisdiction over foreign entities by virtue of their national contacts in both federal and state courts. That may run afoul of the rule that state courts may only assert personal jurisdiction over defendants who purposefully establish minimum contacts with that forum state. See, e.g., International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945).