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From Products Liability Law Daily, May 30, 2013

Australian Toy Company Subject to Federal Court Jurisdiction in Arizona in Action Over Aqua Dots Injuries

By Pamela C. Maloney, J.D.

An Australian toy company that did not have any offices in the United States and did not conduct retail or wholesale operations in the country was subject to federal jurisdiction in Arizona in a products liability action brought on behalf of a child who was seriously injured after he ingested Aqua Dots manufactured by the company, a federal district court in Arizona determined (Monje v. Spin Master Inc., May 29, 2013, Snow, G.).

Background. The Australian company, Moose Enterprises Proprietary Limited, specializes in the design, development, manufacture, marketing, and distribution of children’s toys throughout the world. One of its products, Bindeez, was marketed and sold in the United States as Aqua Dots, which are small, colorful beads that children could use to make various crafts. According to the complaint, the 18-month old ate some Aqua Dots, which contain a harmful toxin that, when metabolized, converts in GHB (the “date rape” drug). The child experienced “significant seizures, continued vomiting, went into respiratory failure, required intubation, and slipped into a coma.” Allegedly as a result of the ingesting, the child sustained severe and permanent injuries to his brain and central nervous system. The Australian company moved for dismissal for lack of personal jurisdiction, arguing that its direction of the product into the United States did not give a federal court in Arizona jurisdiction over it.

General jurisdiction. To establish personal jurisdiction over the Australian company, the parents, who filed the lawsuit on behalf of their son, had to establish that the toy company had certain minimum contacts with the state of Arizona so as not to “offend traditional notions of fair play and substantial justice.” In determining whether the parents established the existence of sufficient minimum contacts to justify jurisdiction, the court focused on whether the company’s conduct was purposely directed at and caused harm in Arizona. Although the Ninth Circuit has followed the “stream of commerce plus” metaphor announced in Asahi Metal Indus. Co. v. Sup. Ct. of Cal., both parties contended that the U.S. Supreme Court’s more recent decision in J. McIntyre Machinery, Ltd. v. Nicastro controlled. However, the court distinguished the facts in that case, which involved the sale of a single piece of industrial machinery into New Jersey, from the facts in this case. According to the Arizona court, the toy company did not passively launch its product into the stream of commerce. It was involved in every aspect of Aqua Dots from design, to manufacture, to distribution to a degree that was sufficient to convince the Arizona court that it could exercise jurisdiction over the company. At the manufacturing stage, the toy company was in constant contact with its Chinese manufacturer regarding design and manufacturing specifications. With respect to distribution and sale, the company facilitated the move of the toy from the manufacturer to the U.S. distributor, and supplied the distributor with a wealth of marketing material (including packaging artwork, marketing plans, television drafts and posters). Furthermore, the toy company ordered the suspension of all shipments of Aqua Dots following an incident with a child in New Zealand and was actively involved in responding to retailers’ concerns. Thus, the extent of the toy company’s involvement in the distribution process far exceeded that of the nonresident manufacturer in J. McIntyre.

In response to the toy company’s argument that the direction of its product into the United States did not mean that an Arizona federal court could exercise jurisdiction, the court again distinguished the rationale in the J. McIntyre plurality opinion that an intent to serve the U.S. market did not show that the toy company purposefully availed itself of the forum state’s market. The Arizona court explained that (1) the plurality opinion in J. McIntyre did not control a majority of the court on this rationale, (2) the J. McIntyre case addressed a factual situation in which a state court was attempting to exercise jurisdiction, and (3) a direct application of that principal to this case would produce a strange outcome. Specifically, it would allow a company that did not have an office, licenses, or direct contact in the United States to manufacture and market defective products to the U.S. market in general, yet avoid jurisdiction in any U.S. forum. The toy company, which was sufficiently involved in the distribution of the product and did not limit the distribution to certain parts of the country only, could not object when a federal court located in one of the states attempted to exercise personal jurisdiction over it, the court concluded.

The case number is: CV-09-1713-PHX-GMS.

Attorneys: Martha Lynn McCuen Neese (Neese Law Firm) and Melanie E Beauchamp (Beauchamp Law Office PC) for Monje; Ronald Y Rothstein (Winston & Strawn LLP) for Spin Master Inc.

Companies: Spin Master Inc.; Toys “R” Us; Moose Enterprises Proprietary Limited

MainStory: TopStory JurisdictionNews ChildrensProductsNews ArizonaNews

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