Arkansas Supreme Court Issues Groundbreaking Decision in “Gray Market” Products Liability Suit

February 9, 2012

In Yanmar Co., Ltd. v. Slater, 11-370, 2012 Ark. 36 ( Feb. 2, 2012), a case of national first impression involving a “gray market” product, the Arkansas Supreme Court reversed the judgment of the trial court based on a jury verdict in favor of the plaintiff and dismissed the defendant, a Japanese tractor manufacturer, on the grounds of lack of in personam jurisdiction as well as its U.S. subsidiary on the grounds of no duty owed to the decedent.

The Japanese defendant manufactured a tractor in 1977 that was designed and intended to be used only on flat rice paddy terrain in Japan. In 2004, the used tractor entered the United States through the “gray market,” by virtue of third parties not affiliated with the defendant or its U.S. subsidiary. The used tractor was eventually sold to the decedent in Arkansas, who rolled it over and was killed while mowing a steep slope. Plaintiff brought a products liability and negligence action against the Japanese manufacturer and its U.S. subsidiary, neither of which had involvement in the “gray market” chain of sale.

The trial court denied defendants’ motions for summary judgment on behalf of the Japanese manufacturer based on lack of in personam jurisdiction and on behalf of the U.S. subsidiary based on lack of a duty owed to the decedent; the jury subsequently rendered a verdict in favor of the plaintiff. The Arkansas Supreme Court reversed and dismissed on the same grounds originally asserted in the summary judgment motions and renewed at trial by way of directed verdict motions. The Court held that there was no “general” jurisdiction over the manufacturer in Arkansas and agreed that the U.S. subsidiary did not assume a duty to the decedent because it had undertaken various countermeasures to curb the gray market and warn U.S. consumers of the potential hazards of gray market tractors in the U.S. market.

The Slater decision has potentially far-reaching consequences for foreign manufacturers who are faced with gray market issues. By definition, a “gray market” product is one that the manufacturer did not intend to be sold or used in a certain market, e.g., the United States; so in most “gray market” situations, there is no “purposeful availment” required for “specific” in personam jurisdiction. Applying the restrictive “general” jurisdiction standard of Goodyear Dunlop Tires Operations v. Brown,__ U.S.__, 131 S. Ct. 2846 (2011), the Arkansas Supreme Court held that the Japanese manufacturer could not be subjected to “general” jurisdiction in Arkansas. Foreign manufacturers will not be subject to “general” jurisdiction in the forum state unless they have “continuous, systematic and substantial” general business contacts with that state, which is fairly atypical.

In addition, the Slater decision impacts U.S. subsidiaries of foreign manufacturers with gray market issues that are dragged into products liability litigation simply by virtue of having a name similar to that of the manufacturer. The Slater Court recognized that the subsidiary had no involvement with the product that gave rise to a duty to the decedent, and that it did not assume such a duty by undertaking various countermeasures to curb gray market activity and warn U.S. consumers of the potential hazards.

For additional information, contact:

Richard Rubenstein
Partner-New York

Philip Quaranta
Partner-White Plains

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