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From Products Liability Law Daily, March 9, 2015

Exploded tire placed into stream of commerce in Iowa by Chinese manufacturer

By Susan Lasser, J.D.

A large, high volume Chinese tire manufacturer selling to a national market was subject to personal jurisdiction in Iowa based on its direct shipments to Iowa of thousands of tires and indirect shipments of thousands more to the state through the manufacturer’s American distributor in Tennessee, including an allegedly hazardous tire which injured an Iowa resident when it exploded while he was inflating it, the Iowa Supreme Court held. The state high court found that the Due Process Clause of the U.S. Constitution permitted the exercise of personal jurisdiction over the tire manufacturer in Iowa under the stream-of-commerce test as adopted in World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S. Ct. 559, 62 L. Ed. 2d 490 (1980); and followed by Iowa precedent in Svendsen v. Questor Corp., 304 N.W.2d 428 (Iowa 1981) (Book v. Voma Tire Corp., March 6, 2015, Waterman, T.).

Background. Seventeen-year-old Dylan Book was badly injured in his father’s auto repair shop when a tire Dylan attempted to inflate exploded. The explosion blinded Dylan in one eye, deprived him of part of his jaw and much of his sense of taste and smell, and left him with partial use of his left arm and hand. His injuries and rehabilitation were extensive, involving many different medical specialists. The tire was one of four LT 285/R16 10-ply Treadstone tires manufactured in China by Doublestar Dongfeng Tyre Company, Ltd. (Doublestar) that Dylan’s father, Jim, had purchased for mounting on a customer’s horse trailer. Prior to Dylan’s attempt to “air up” the tire, Jim had tried to do so, but had trouble getting the tire to seat properly on the wheel rim. He failed to realize that he was trying to mount a sixteen-inch tire on an older model 16.5” rim, which was a common mistake, according to the court’s review of the facts.

Dylan’s mother, Karen Book, filed a products-liability action in the Iowa District Court for Dallas County, seeking money damages for Dylan’s personal injuries and medical expenses and her loss of consortium. Her complaint initially named a number of defendants, including Iowa Tire, Inc. (the Iowa retailer that sold “the accident tire” to Alley Auto Sales); Holt Sales and Service, Inc. (the Iowa-based wholesaler that sold the accident tire to Iowa Tire); and Voma Tire Corporation (Voma), a national tire distributor with its principal place of business in Tennessee, which sold the accident tire to Holt. Karen Book later amended the complaint to name two additional defendants, including Doublestar. The complaint alleged that the Treadstone tire used an unreasonably dangerous multistrand weftless bead which was prone to fail if the sixteen-inch tire was inflated on a 16.5” rim, a foreseeable occurrence. The court deferred ruling on Doublestar’s motion to dismiss for lack of personal jurisdiction to allow for jurisdictional discovery.

Doublestar and its distributors. Doublestar, a Chinese corporation with its principal place of business in China, is one of the ten largest tire manufacturers in China and produced nearly 3.2 million tires in the nine months preceding Dylan’s accident in October 2009. Hundreds of thousands of those Doublestar tires were sold in the United States in 2009 through two American distributors: Greenball Tire Corporation, based in California, and Voma, based in Tennessee. Doublestar has no employees or offices in, nor does it advertise in, the United States. Voma owns the “Treadstone” trademark and has been selling Treadstone tires since 2008. Doublestar is one of several of Voma’s tire suppliers, and about 25 to 30 percent of Voma’s sales in 2008 and 2009 were tires manufactured by Doublestar. Voma provided Doublestar with a mold to stamp “Treadstone” on the sidewall of those tires during the manufacturing process, and Voma exclusively sold the Treadstone tires in the United States. Voma’s revenue from tire sales dropped from ten million dollars in 2010 to zero when it stopped selling tires by late 2012.

When Voma ordered tires from Doublestar in 2009, it provided detailed shipping requirements to the Chinese manufacturer. Doublestar completed each order by providing instructions to the shipper as directed by Voma. To save on shipping costs, Voma frequently instructed Doublestar to have the tires shipped from China directly to distribution centers in various states. Voma, not Doublestar, selected the destination of shipments from China and paid the shipping costs. Doublestar knew the destinations identified on the shipping documents containing Voma’s requirements. Voma routinely sent Doublestar the bill of lading, identifying each destination, after each shipment was complete. Doublestar maintained a spreadsheet showing the destination for every tire it sold to Voma.

As of October 20, 2009, Voma had purchased 180,000 tires from Doublestar, and sold 16,700 of those tires to Holt in Iowa. On 16 occasions in 2008 and once in 2009, Voma instructed Doublestar to ship the tires directly from China to Holt in Des Moines, bypassing Voma’s Tennessee facility. Those 17 direct shipments from China to Iowa conveyed a total of 12,681 tires. None of those China-to-Iowa shipments included any 10-ply tires of the same model as the accident tire, but some of the containers included a similar 14-ply Treadstone tire. Doublestar sold Voma 7008 of the 10-ply Treadstone tire model, the type involved in Dylan’s accident, 999 of which Voma sold to Holt in Iowa. In the month leading up to Dylan’s accident, Voma was selling approximately 150 of the 10-ply tires to Holt every two weeks. Voma shipped all of these 10-ply tires from its warehouse in Tennessee. The DOT number stamped on the accident tire indicates Doublestar manufactured it in China in early June of 2009. In 2009, Holt purchased seven shipments of the 10-ply tires, all from Voma’s warehouse in Tennessee.

District court decision. After its completion of jurisdictional discovery, the district court granted Doublestar’s motion to dismiss. The court found that the tire at issue was shipped from China to Voma’s warehouse in Memphis, and that no 10-ply tires were shipped directly to Iowa from China. The trial court also found that the tires directly shipped from China to Des Moines were a different model than the accident tire. The Books dismissed their claims against the remaining parties in October 2013 pursuant to a confidential settlement and appealed Doublestar’s dismissal. During oral argument before the Iowa Supreme Court, counsel for Doublestar conceded that Doublestar would be subject to personal jurisdiction in Tennessee, Voma’s home state.

Personal jurisdiction. The Iowa Supreme Court held that the Due Process Clause allowed for the exercise of personal jurisdiction over the Chinese tire manufacturer in Iowa. The court noted that the case presented it its first opportunity to address the “stream of commerce” test for personal jurisdiction in a products-liability or personal-injury case since the U.S. Supreme Court’s divided decision in J. McIntyre Machinery, Ltd. v. Nicastro, 564 U.S. __, 131 S. Ct. 2780 (2011), which had reversed a New Jersey Supreme Court ruling that the manufacturer, J. McIntyre Machinery, was subject to personal jurisdiction because “its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states,” and its employees came to trade shows in other states.

After discussing the constitutional boundaries of personal jurisdiction, and tracing the development of the stream-of-commerce test and its competing formulations set forth in several divided opinions of the U.S. Supreme Court and applied inconsistently in the lower courts, the Iowa high court concluded that its own Svendsen test used in Iowa products-liability cases should be applied in the case, and it declined to adopt a more restrictive test as to a high-volume manufacturer of a potentially hazardous product.

The Iowa Supreme Court had applied the World-Wide Volkswagen stream-of-commerce test in Svendsen, concluding that a Missouri manufacturer of billiard tables was subject to personal jurisdiction in Iowa when it sold a defective table to an Omaha distributor, who resold the table in Iowa where the plaintiff using it was injured. The state high court had said in that opinion that it was “generally accepted that when a manufacturer voluntarily places his product in the stream of commerce, the constitutional requirement of minimum contacts will be satisfied in all states where the manufacturer can foresee that the product will be marketed.” The court later clarified Svendsen to note the mere foreseeability that the product would enter the forum was insufficient to establish personal jurisdiction. The court foreseeability that mattered was not simply that the product will enter the forum state, but rather that “the defendant’s conduct and connection with the forum State are such that he should reasonably anticipate being haled into court there.”

According to the state supreme court, the current case provided the occasion for the court to follow the Oregon Supreme Court’s decision in Willemsen v. Invacare Corp., in which a Taiwanese manufacturer of battery chargers supplied chargers for motorized wheelchairs to an Ohio corporation, which then sold over one thousand wheelchairs to customers in Oregon, one of whom died in a fire ignited by the defective battery. The Oregon Supreme Court determined that Justice Breyer’s concurrence was the holding of J. McIntyre Machinery because it was the narrowest ground for the decision. Under that holding, a single sale in a forum state is insufficient to establish personal jurisdiction over a manufacturer selling through a national distributor. In Willemsen, by contrast, 1102 wheelchairs with the battery chargers had been sold in Oregon over a two-year period. The Oregon Supreme court concluded that this volume was sufficient to constitute a “‘regular course’ of sales,” and, thus, personal jurisdiction could be exercised over the manufacturer in Oregon under a stream-of-commerce test. The Iowa Supreme Court believed that the present case was a clearer case for personal jurisdiction in that there was a regular course of sales of Doublestar’s tires into Iowa, and Doublestar actually shipped thousands of tires into Iowa.

The Iowa court stated that Svendsen and World-Wide Volkswagen remained the controlling precedent for evaluating personal jurisdiction in products-liability cases in the state, and declined to overrule its precedents to impose a more restrictive stream-of-commerce test—as Doublestar requested—that “would limit access to justice in Iowa courts for residents of our state injured by allegedly defective products purchased here.” According to the court, “sound policy reasons cut against a more stringent test for jurisdiction over high-volume manufacturers in products-liability cases.” The court noted that the product at issue was a tire with an allegedly dangerous design, and that the Books alleged that the tire design was prone to explode during reasonably foreseeable mounting mistakes. Although the alien defendant has a high burden to defend itself in a “foreign legal system,” the court found that in this case, that concern was “substantially diminished” by the tire manufacturer’s concession that it was subject to personal jurisdiction in Tennessee. Further, Doublestar did not identify any material additional burden it would face defending the case in Iowa instead of Tennessee. It also did not contend that it lacked the resources to defend the lawsuit in Iowa. The court additionally observed that the case did not involve an isolated sale or a small manufacturer as in J. McIntyre Machinery, which concerned personal jurisdiction over a foreign manufacturer in a state where no more than four of its machines had been sold.

Application of test. In applying the stream-of-commerce test set forth in World-Wide Volkswagen and Svendsen, the Iowa Supreme Court first held that Doublestar had the requisite minimum contacts with Iowa. In 2008–09, the manufacturer shipped 12,681 tires directly to Des Moines, Iowa, for Voma. Doublestar’s employees knew from the shipping documents these tires were going to “Des Moines, IA.” Moreover, the court found that “indirect shipments” counted—Voma shipped the accident tire and another 998 tires of the same model from Tennessee to Iowa for sale in Iowa. Doublestar sold 180,000 tires to Voma for the U.S. market, and Voma shipped 16,700 of those tires to Holt for sale in Iowa. This satisfied the court that Doublestar at least indirectly served the Iowa market through Voma “with the expectation that [its tires] would be purchased by consumers in the forum State.” Intermediaries did not prevent jurisdiction in the court’s assessment. Further, awareness “that the final product is being marketed in the forum State” was shown by the direct shipments from China to Des Moines, the court said.

Having determined Doublestar had the requisite minimum contacts with Iowa, the court then held that the exercise of personal jurisdiction over Doublestar comported with fair play and substantial justice. Along with Doublestar’s concession that it was subject to Tennessee’s jurisdiction, the court found that a Tennessee forum would be far more burdensome for the Books compared to their home county. Their interest in obtaining convenient relief at home outweighed Doublestar’s interest in avoiding Iowa in favor of Tennessee, the court found. Moreover, the court stated that systemic judicial interests favored jurisdiction in Iowa because the key occurrence and damages witnesses were located in Iowa, not Tennessee. These practical considerations favor trial in Iowa over Tennessee, according to the court. Therefore, the court held that Doublestar was subject to personal jurisdiction in Iowa and reversed the lower court’s jurisdictional ruling, and remanded the case for further proceedings.

The case is No. 13–1793.

Attorneys: Neil Ray Chamberlin (McMath Woods PA) for Dylan Book. Kevin M. Reynolds (Whitfield & Eddy PLC) for Doublestar Dongfeng Tyre Company, Ltd.

Companies: Doublestar Dongfeng Tyre Company, Ltd.

MainStory: TopStory CourtDecisions JurisdictionNews MotorEquipmentNews IowaNews

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