Personal Jurisdiction (Yes, again…)

Welcome back to 14th & Colorado. As the calendar year winds down, I hope everyone has pleasant and relaxing holidays.

The temperature is dropping (sort of…it was almost 80º in Dallas just the other day). But the SCOTX term is heating up. The new rules of appellate procedure are anticipated to take effect in just a few weeks. So we’ll soon see how the new petition process plays out. I’ll be keeping a close eye on a wide variety of issues during the transition.

Today’s post covers a recurring topic on this Substack—personal jurisdiction. I have to give special thanks to my good friend Cody Vaughn for flagging the Fifth Circuit’s decision involving another in the seemingly unending line of exploding 18650 battery cases Ethridge v. Samsung SDI.

Briefly, Ethridge is a personal injury case involving an 18650 battery used in an e-cigarette. The battery exploded in Ethridge’s pocket, and he suffered severe injuries. Samsung moved to dismiss under Rule 12(b)(2) for lack of personal jurisdiction. The district court granted the motion to dismiss. Ethridge appealed. Initially, in May of this year, the panel reversed the district court’s decision. The Court focused on the “aris[ing] out of or relat[ing] to” prong of the specific personal jurisdiction analysis. Specifically, the Court considered Samsung’s “different market” argument, i.e., Samsung sells 18650 batteries to Texas companies (like HP, Dell, and Black & Decker)—not Texas consumers (like Ethridge). Therefore, Ethridge’s injuries are not “related to” the company’s relevant in-Texas contacts. The Fifth Circuit ultimately rejected this “different markets” understanding of the Fourteenth Amendment and Ford.

Opinion on Panel Rehearing

This case is interesting on many levels. Judge Oldham’s December opinion comes on a grant of panel rehearing. But it wasn’t the petition for rehearing that seems to have struck a chord. According to the brief opinion, Judge Oldham was inspired by the Seventh Circuit’s decision in B.D. ex rel. Myers v. Samsung SDI Co (another Samsung 18650 case) to take a closer look at the record. Myers provides a detailed background of Samsung’s market for these batteries:

[I]ndividual 18650 batteries are not intended for consumer purchase. Samsung SDI instead markets this model battery only to sophisticated corporate customers.

The company sells millions of batteries annually to these corporate middlemen. They, in turn, incorporate those batteries into packs. Battery packs combine several individual 18650 batteries into a single encasement. Unlike the individual 18650 battery, batteries encased in a pack are monitored by a circuit board meant to prevent thermal runaway—a dangerous heat cycle that can lead to explosions. Some Samsung SDI customers then sell the battery packs, while others integrate them directly into widely available end products, such as laptops, power drills, and vacuum cleaners.

Indeed, Myers notes the steps Samsung takes to ensure its batteries are not sold individually or used in e-cigarettes:

Samsung SDI takes steps to ensure its customers use 18650 batteries only for approved purposes. Customers must apply to purchase the individual batteries and disclose to the manufacturer how they plan to utilize them. Each customer must also, as a precondition of sale, acknowledge that 18650 batteries should not be used outside of a pack. The batteries are particularly dangerous when employed outside of a pack to power e-cigarette—or vaping—devices. Such devices are often kept close to a person's body, so the risk of injury from an exploding battery is severe. For that reason, Samsung SDI will not sell 18650 batteries to a customer if its purchase application exposes ties to the e-cigarette industry.

According to Judge Oldham, Samsung did not offer this detailed explanation in the Fifth Circuit. Instead, they provided only a single sentence in a lengthy footnote that Samsung “takes careful steps through its relationships with packers and manufacturers to only supply 18650 cells in sealed battery packs for approved products.” (Practice pointer: relegating arguments to footnotes makes them seem less important. Here, the specific details of the market segmentation are critical to the Court’s rehearing decision. As a general practice, this is why I avoid footnotes in briefs.) After digging through the record (Judge Oldham compared this process to truffle hunting), he discovered that Samsung’s declaration in the trial court laid out the same information discussed in the Myers opinion.

On this record, Judge Oldham was persuaded to change course. He concluded that Samsung affirmatively limited its contacts to approved manufacturers in Texas, and Ethridge did not show his injuries related to those contacts. Thus, the district court properly dismissed Ethridge’s claim for lack of personal jurisdiction.

It’s not clear to me why the Court changed course. The opinion on rehearing disclaims that it was the precise measures Samsung took that mattered:

Nothing in this opinion should be construed as answering whether the precise measures Samsung took to sell its products only to the industrial market create a necessary baseline for specific personal jurisdiction cases like this one. It is enough to say that Samsung affirmatively limited its contacts to approved manufacturers in Texas, and Ethridge has not shown that his injuries are related to those contacts.

Perhaps the steps Samsung took to ensure its products don’t fall into consumers’ hands makes it “surprising” and “unfair” for it to have to answer for injuries to Ethridge in Texas. But this strikes me as effectively embracing the market segmentation approach that the panel had previously rejected. And that prior opinion wasn’t going out on a limb. The Texas Supreme Court had relatively recently adopted the same approach.

The Texas Supreme Court on Market Segmentation

Judge Oldham noted that courts all over the country have arrived at different conclusions in the exploding battery cases. One of the cases he flags in a footnote is the Texas Supreme Court’s decision in LG Chem America, Inc. v. Morgan, a case with nearly identical facts involving LG 18650 batteries. In that case, the Supreme Court rejected LG’s argument that the plaintiff’s claims were unconnected to its forum contacts.

LG similarly argued that it did not sell 18650 batteries to consumers in Texas. Instead, the batteries were sold to commercial buyers in a form that would require tampering for consumer use in e-cigarettes. But the Texas Supreme Court found that fact of no moment, rejecting the market segmentation argument just as the Fifth Circuit did in its original opinion.

Where, as here, a defendant purposefully avails itself of the privilege of doing business in Texas by selling and distributing into Texas the very product that injures a plaintiff, personal jurisdiction is not lacking merely because the plaintiff is outside a segment of the market the defendant targeted. Put differently, the relatedness prong of the minimum-contacts analysis does not require that the plaintiff’s claims arise out of a set of facts mirroring the defendant’s expectations about the course its product would follow after it entered Texas.

Personal Jurisdiction Chaos

Earlier this year, Justice Busby penned a concurrence in another personal jurisdiction case, BRP Rotax GMBH v. Shaik, lamenting the current state of personal jurisdiction jurisprudence. He noted that “fairness” has become a touchstone of the due process evaluation of personal jurisdiction. But fairness, as a guidepost, is hollow. The current standards have produced anything but consistent, predictable, or orderly results. And the U.S. Supreme Court has not only allowed this chaos to persist, it has facilitated its growth “by producing a string of plurality and closely divided decisions.”

As Justice Busby noted, whether a court in Texas has personal jurisdiction over a party depends on whether the case is filed in state or federal court. In the case of “stream of commerce” cases like BRP Rotax, the federal courts would almost certainly exercise jurisdiction while the state court could not. Though the state’s long-arm statute is coextensive with the limits of due process, it presents no real problem for the state to be more cautious about defendants’ due process rights than the federal government demands.

In the case of “market segmented” sellers of products, however, we now have the reverse. Federal courts in Texas cannot exercise personal jurisdiction, while state courts can. Perhaps we’ll see some clarification from the Supreme Court, or as Justice Busby hopes, a return to the historical roots of courts’ power to adjudicate. For now, personal jurisdiction remains an area fraught with unpredictability and in desperate need of clarity.

Mallory…again

The Texas Attorney General is litigating against Johnson & Johnson/Kenvue, the makers of Tylenol, on multiple fronts. In October, the AG sued Kenvue under the DTPA, alleging that it “deceptively market[ed] Tylenol to pregnant mothers despite knowing that early exposure to acetaminophen, Tylenol’s only active ingredient, leads to a significantly increased risk of autism and other disorders.” The AG then sued Kenvue in Bailey County (having not appealed the special appearance loss) seeking an ex-parte TRO because Kenvue was not registered to do business in Texas. As part of that TRO application, the AG sought a declaration that once Kenvue registers to do business, it “consent[s] to the exercise of personal jurisdiction by Texas Courts in any case filed in Texas.” The AG pointed to the Supreme Court’s decision in Mallory v. Norfolk Southern Railway Co. Ultimately, the district court granted the TRO and declared that once Kenvue registers it will be subject to general personal jurisdiction in Texas.

This is not the first time the AG pressed the consent-by-registration argument. The State previously argued, in State v. Yelp, that Yelp was subject to general personal jurisdiction because it is registered to do business in Texas. I’ve discussed the flaws of this argument on multiple occasions: here and here. As I noted in my opinion wrap-up, in State v. Yelp, the Fifteenth Court did not reach the consent-by-registration argument because the AG had failed to properly present it in its petition. So the AG is trying again.

I won’t spend any more time here on the issue, but I commend to you those prior posts discussing why this is not what Mallory stands for and how Texas’s registration statute is distinguishable from Pennsylvania’s statute at issue in Mallory. This is one more area of personal jurisdiction I hope gets clarified. Given the politically charged nature of the cases the consent-by-registration argument is being offered, the meaning of Mallory will likely find its way to the Texas Supreme Court in the future.

Until next time…