Products Liability Law Daily Jurisdiction proper over Swedish company that shipped allegedly defective engines to forum state
Wednesday, December 11, 2019

Jurisdiction proper over Swedish company that shipped allegedly defective engines to forum state

By David Yucht, J.D.

The U.S. Fifth Circuit utilizes a "stream-of-commerce approach," where minimum contacts required for jurisdiction are found if a foreign seller or manufacturer "delivered the product into the stream of commerce" expecting that it would be purchased or used in the forum state.

Based on the "stream-of-commerce approach," a federal court in Louisiana determined that it had prima facie personal jurisdiction over a Swedish ship engine manufacturer who had shipped allegedly defective ship engines to the U.S. after receiving a Louisiana company’s factory order, with the knowledge and expectation that these engines would be delivered to Louisiana. Consequently, the manufacturer’s motion to dismiss for lack of jurisdiction was denied. The court upheld a third-party claim for contribution against the Swedish manufacturer but dismissed an indemnification claim. Moreover, the court dismissed third-party claims for products liability because they were not filed by an "ultimate user." Because the purchaser of the engines did not bring a redhibition claim, the court dismissed the third-party claim seeking redhibition relief (Boat Service of Galveston, Inc. v. NRE Power Systems, Inc., December 10, 2019, Barbier, C.).

Scania AB is a Swedish company with its principal place of business and much of its operations located in Sweden. Scania AB conducts almost all its business in North America through its wholly owned subsidiary, Scania USA. Scania USA is incorporated in Delaware and has its principal place of business in San Antonio, Texas, with a major distribution warehouse located in Indiana. Scania AB does not maintain any offices, employees, or property in Louisiana, nor did it specifically target Louisiana consumers. Scania AB manufactures its engines and then distributes them in the U.S. via Scania USA.

NRE Power Systems, a diesel engine company located in Louisiana, ordered eight Scania engines for ultimate use by Boat Service of Galveston (BSOG) in an offshore crew boat. One of the engines had a critical failure due to an alleged malfunctioning of one of the engine’s injector hold-down bolts. Once the bolt broke, fuel began to leak, which led to a fire in the engine room. BSOG sued NRE and Scania USA. NRE then brought a third-party claim against Scania AB asserting among other things, tort indemnity and contribution; products liability claims; and redhibition—a Louisiana civil action claim comparable to a warranty action. Scania AB moved to dismiss based on a lack of personal jurisdiction and a failure to state a claim on which relief could be granted.

Jurisdiction. The court denied Scania AB’s motion to dismiss for lack of jurisdiction. In determining personal jurisdiction in actions where a product is sold or manufactured by a foreign entity, the U.S. Court of Appeals for the Fifth Circuit utilizes a "stream-of-commerce approach" where the minimum contacts requirement is met if the foreign seller or manufacturer "delivered the product into the stream of commerce with the expectation that it would be purchased or used by consumers in the forum state." Foreseeability is the "ultimate arbiter" of whether a foreign seller or manufacturer is subject to the jurisdiction of a forum state under the stream-of-commerce standard. The court found that it possessed prima facie personal jurisdiction over Scania AB based on the manufacturer’s actual knowledge and expectation that its allegedly defective engines were to be delivered to Louisiana. The court accepted NRE’s evidence that Scania AB had shipped the engines to Scania USA’s warehouse after having received NRE’s factory order, with the knowledge and expectation that Scania USA would deliver them to NRE in Louisiana. The court determined that it will exercise jurisdiction until and unless Scania AB proves that the exercise of jurisdiction is not fair and reasonable.

Indemnity-contribution. The court also ruled that NRE adequately stated a claim for contribution but dismissed NRE’s indemnification claim. Scania AB argued that NRE’s third-party pleading was defective because it failed to specify the "duties," "contracts," "regulations," or "laws" that Scania AB allegedly had breached by manufacturing and shipping a defective engine. In maritime law, a claim for tortious indemnity only is allowed in narrow circumstances, such as when a vicariously liable or non-negligent tortfeasor is entitled to indemnity from a co-debtor guilty of actual fault. In the instant case, BSOG claimed that the ship fire had been caused "by the sole, concurrent, and joint fault and negligence of NRE and Scania [USA]." If at trial it is found that NRE neither was at fault nor negligent, then NRE will owe BSOG no damages. Consequently, the court found that NRE was not a "non-negligent" tortfeasor and could not state a claim for tort indemnity.

NRE stated a claim for maritime law contribution, however. Maritime products liability cases are comparative fault cases. The court found that NRE pleaded enough facts to show that Scania AB’s manufacturing had been a contributing factor in the ship fire. NRE’s complaint indicated that the subject engine was manufactured by Scania AB, the design defect involved the injector holder and screw potentially breaking off from the engine, and that defect caused injury to BSOG.

Products liability. The court dismissed NRE’s products liability claims, concluding that those claims had to be adjudicated under maritime law. Under maritime law, only the "ultimate user or consumer" of a product may bring a products liability claim. Since NRE was not the "ultimate user," its products liability claim was dismissed. NRE conceded that because maritime law applied, its state law products liability claims should be dismissed.

Redhibition. Finally, the court threw out NRE’s redhibition claim. Under Louisiana law, a "seller warrants the buyer against redhibitory defects, or vices, in the thing sold." To protect innocent sellers who inadvertently sell defectively manufactured products, a "seller who is held liable for a redhibitory defect has an action against the manufacturer of the defective thing." Because the buyer, BSOG, had not asserted a claim in redhibition against NRE, the court could not consider NRE’s redhibition indemnity claim.

The case is No. 17-7210.

Attorneys: Anthony John Staines (Staines & Eppling, LLC) for Boat Service of Galveston, Inc. Bradley Joseph Schlotterer (Kean Miller LLP) for NRE Power Systems, Inc. Andrew D. Weinstock (Duplass, Zwain, Bourgeois, Pfister, Weinstock, & Bogart APLC) and Charles H. Abbott (Forman Watkins & Krutz LLP) for Scania USA, Inc.

Companies: Boat Service of Galveston, Inc.; NRE Power Systems, Inc.; Scania USA, Inc.

MainStory: TopStory JurisdictionNews DefensesLiabilityNews DesignManufacturingNews SofLReposeNews AircraftWatercraftNews LouisianaNews

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