Justice Rebeca Huddle
The Texas Supreme Court has held that Texas courts could exercise personal jurisdiction over two foreign manufacturers that distributed lithium-ion batteries in Texas.
LG Chem America, Inc. and LG Chem, Ltd. V. Tommy Morgan (No. 21-0094) arose from an alleged injury sustained by Morgan when a lithium-ion battery he bought to recharge his e-cigarette blew up in his pocket. Morgan sued the manufacturer and distributor of the battery (the LG Chem defendants), the cigarette manufacturer, and the retail store where he bought the battery. The LG Chem defendants filed special appearances, arguing that Texas did not have specific personal jurisdiction because “they did not send the batteries to Texas for resale to individual consumers to use with e-cigarettes” but only to other manufacturers for incorporation into their products, such as cordless power tools and laptop computers. The trial court denied the special appearances, and the Houston [1st] Court of Appeals affirmed. The LG Chem defendants sought review.
In an opinion by Justice Huddle, SCOTX affirmed. Plaintiff argued that specific purpose jurisdiction was established by the fact that the defendants targeted the Texas market specifically when they placed the batteries in the stream of commerce. Defendants countered that plaintiff presented no evidence that “his claims arose from or are related to any purposeful contacts between [them] and Texas.” At issue was whether the defendants established the “minimum contacts” with Texas necessary to confer specific jurisdiction and whether the maintenance of the suit was “reasonable and ‘does not offend traditional notions of fair play and substantial justice’” (citations omitted). A court determines this based on a two-pronged test: (1) whether the defendant “purposefully availed itself of the privilege of conducting activities in the forum state,” such that the defendant may reasonably expect to be haled into court; and (2) whether the plaintiff’s claim arises out of or relates to the defendant’s contacts with the forum state (the “relatedness inquiry”).
As this is a products liability suit, Justice Huddle begins by applying the “stream-of-commerce-plus” standard, which requires additional conduct by the defendant beyond merely placing a product in the stream of commerce without “evincing ‘an intent or purpose to serve the market in the forum state’” (citations omitted). Referring to a recent SCOTUS decision in Ford Motor Co. v. Mont. Eighth Jud. Dist. Ct, 141 S. Ct. 1017 (2021) with regard to the “relatedness inquiry,” Justice Huddle noted that the Court found that the forum state had specific jurisdiction over Ford by virtue of the connection between the plaintiff’s products liability claim and Ford’s activities in the state. Plaintiff need not make a “causal showing” and the relatedness requirement “is satisfied when a company ‘serves a market for a product in the forum State and the product malfunctions there.’”
Similar to Ford in that case, the LG Chem defendants do not contest that they purposefully availed themselves of the Texas market but that plaintiff’s claim does not arise from their contacts with Texas. They base this argument on a distinction between the purpose for which they manufacture, distribute, and sell batteries in Texas, i.e. for sale to other manufacturers for incorporation into their products, and the unintended sale of the battery at issue to an individual consumer who used it for an improper purpose. The Court did not buy this argument. “Rather than focusing on the nature and magnitude of their contacts with the sovereign forum and the close relationship of those contacts to this litigation,” Justice Huddle writes, “the LG Chem defendants urge us to shift focus to whether the plaintiff is within a particular Texas market segment—the ‘industrial component’ market—they intended to serve.” But what the defendants intended is beside the point in the jurisdictional analysis. The “whole forum,” that is, the State of Texas, is the relevant market when it comes to the stream-of-commerce-plus test. The LG Chem defendants don’t deny that they targeted and sold thousands of batteries in Texas, and the same battery allegedly exploded and caused injury. The relatedness prong is thus satisfied.
Further, the Court found unpersuasive the defendants’ argument that they had no “clear notice,” as required by due process, that they would be haled into a Texas court under these circumstances. But when they deliberately sold the batteries into the Texas market, they “purposefully availed themselves of Texas laws and have enjoyed the benefits and protection of Texas laws (citation omitted). Texas’s enforcement of the LG Chem defendants’ reciprocal obligation to ensure that its model 18650 batteries are safe for Texas citizens can ‘hardly be said to be undue’” (c itation to International Shoe omitted). In response to defendants’ claim that it is unfair to subject them to jurisdiction in Texas because “they cannot structure their Texas-directed conduct to avoid exposure to consumer lawsuits such as Morgan’s other than by choosing not to sell its product in Texas at all,” Justice Huddle points out that they, like everybody else who sells products in Texas, can manage that risk by insurance or in the price they charge for the product.
It seems apparent by the opinion that the Court took this rightly decided case below because of a fairly large body of cases “involving factually similar claims against the LG Chem defendants or other battery manufacturers yielding seemingly conflicting conclusions about whether personal jurisdiction exists.” Observing that specific jurisdiction must be found on a case-by-case basis, the Court declined to get into the weeds on each one of them. “While we disapprove of any reliance on the argument that the LG Chem defendants’ intent to serve the industrial versus the individual-consumer market segment” for the batteries,” Justice Huddle writes, “we express no opinion on whether these cases, each of which is accompanied by a unique evidentiary record, were correctly decided.” We’ll leave it others to determine whether this decision will affect or would have affected those other cases. But we now know that special appearance defendants attempting to escape a lawsuit by splitting the Texas market based on their “intent” to reach a specific market won’t fly.
