- New York Tests Daimler's Limits with Its Consent-to-Jurisdiction Rule for Foreign Companies Registering to Do Business in the State
- July 3, 2015 | Authors: Harold K. Gordon; Sevan Ogulluk
- Law Firm: Jones Day - New York Office
The U.S. Supreme Court's 2014 blockbuster holding in Daimler AG v. Bauman significantly limited the circumstances in which U.S. courts can exercise general jurisdiction over foreign corporate defendants. Commonly referred to as "all-purpose" jurisdiction, general jurisdiction authorizes U.S. courts to hear claims against defendants wherever in the world the claims arise. Prior to Daimler, American courts routinely exercised general jurisdiction over foreign corporations on the basis that they engaged in a substantial, continuous, and systematic course of business in the U.S. forum where the case was to be adjudicated; that was especially true for New York.
Daimler, however, held that due process permits general jurisdiction over a foreign company only when that company is "at home" in the state-merely doing business in a forum (even continuously and systematically) is no longer the test. And absent "exceptional" and unimagined circumstances, "at home" means the forum where the defendant is organized or has its primary place of business. This new approach severely curtailed a plaintiff's ability to invoke the broad all-purpose jurisdiction of U.S. courts to prosecute claims against foreign defendants arising out of conduct in distant lands-no doubt welcome news to many non-U.S. corporations hoping to avoid American-style litigation (including discovery).
In particular, the Daimler holding cast serious doubt about the viability of New York's traditional-and broad-"doing business" standard for exercising general jurisdiction. Because so many foreign companies (financial institutions, especially) do substantial business in the state, New York courts have exercised general jurisdiction over countless foreign entities over claims that arose anywhere in the world. Since Daimler, however, many New York courts have declined to exercise jurisdiction over defendants that would likely have fallen within the comparatively broad scope of "doing business" analysis that existed before Daimler.
But foreign companies, and those who advise them, should not get too comfortable. Many courts in New York (and in other states) are testing Daimler's restrictions by revitalizing a 20th century doctrine under which foreign companies registering to do business in New York have implicitly consented to general jurisdiction. Critics argue that this approach is nothing more than a clever attempt to circumvent Daimler. Whether this consent-based alternative to general jurisdiction in fact complies with due process is a question that remains unanswered. And, not to be outdone, New York's lawmakers are now debating a bill that would amend the state's business registration statute to explicitly require foreign companies to consent to general jurisdiction as a condition of doing business in the state.
Even after the Supreme Court's ruling in Daimler, it appears foreign corporations still do not have a clear and final answer about whether their business activities in the U.S. expose them to the risk of general jurisdiction.
New York's Pre-Daimler "Doing Business" Test
Before Daimler introduced its "at home" standard for general jurisdiction last year, New York courts had spent nearly a century applying the "doing business" test, dating back to a 1917 decision by New York's Court of Appeals in Tauza v. Susquehanna Coal Co. In exercising general jurisdiction over the foreign defendant, a Pennsylvania-based company with a New York office, the Tauza court explained that "[i]f in fact a corporation is in a state not occasionally or casually, but with a fair measure of permanence and continuity, then ... it is within the jurisdiction of [the state's] courts."
For nearly a century since Tauza, New York's courts routinely used the "doing business" standard to exercise personal jurisdiction over countless foreign defendants, across a wide range of settings. To cite just one (pre-Daimler) example, a New York court exercised general jurisdiction over an international company with no employees in the state, based solely on the presence of a single New York bank account, because the account could be managed from abroad using "cable and satellite communications media" without the defendant being physically present in New York. The court in that case explained that a "corporation's deliberate use of a New York bank to conduct almost all of its business demonstrates an intent to take advantage of the benefits and protections of New York laws on a continuous and systematic basis so as to create a constructive 'presence' within this State" and subject it to general jurisdiction.
Suffice it to say that because so many domestic and international companies do substantial business (and in many cases have some physical presence) in New York, an international commercial hub, numerous foreign (including international) entities regularly got swept up in the dragnet of New York's broad general jurisdiction law-which, again, authorized the court to adjudicate claims against a defendant wherever in the world the claim arose.
All that changed suddenly last year with Daimler.
Daimler's Impact on New York's General Jurisdiction Law
New York's high court, the Court of Appeals, has yet to address the fate of the traditional "doing business" test after Daimler. In the meantime, lower courts in New York applying Daimler appear to be grappling with the implications of the proverbial carpet having been pulled out from underneath a century of well-established case law. Although they have acknowledged that New York's standard to exercise general jurisdiction must contract substantially to comply with Daimler's "at home" test, none has held the "doing business" analysis to be altogether defunct.
Meanwhile, at the federal level, trial courts that have failed to recognize the import of Daimler have been reversed on appeal. In Gucci Am. v. Bank of China, the Second Circuit Court of Appeals held that a district court could not exercise personal jurisdiction over the Bank of China, even though the bank continuously and systematically did business in New York and had two branches there. Applying Daimler's newly minted "at home" standard, the court explained that the bank was "incorporated and headquartered elsewhere," and this was "clearly not an exceptional case where the Bank's contacts are so continuous and systematic as to render [it] essentially at home in the forum."
Thus, absent an "exceptional case," doing continuous and systematic business in New York no longer exposes a foreign defendant to general jurisdiction in New York courts. Yet, as explained below, foreign defendants may not be completely off the jurisdictional hook. New York (and other states) may have a way to sidestep (or at least test) Daimler's limits and exercise general jurisdiction over foreign defendants "doing business" in the state after all.
Consent to Jurisdiction by Registration after Daimler
Perhaps the most volatile area of jurisdiction law after Daimler is whether registering to do business in a state constitutes consent to general jurisdiction. This is especially true in New York, where courts (i) historically have recognized the validity of consent-by-registration as a means of exercising general jurisdiction over foreign entities, and (ii) are now split on Daimler's impact on the traditional rule.
Several Supreme Court decisions, issued long before Daimler, acknowledged that state statutes could condition authorization to do business on a foreign company's designation of a local agent for service of process, without violating due process. And in New York, the history of consent to jurisdiction by compliance with registration statutes dates back to the 1916 New York Court of Appeals holding in Bagdon v. Philadelphia & Reading Coal & Iron Co. Since that time, New York's state and federal courts have repeatedly held that a foreign corporation's registration to do business in New York constitutes consent by the corporation to general personal jurisdiction in the state.
Notwithstanding the strong historical roots of consent-based jurisdiction in New York, Daimler has caused courts to question whether registration statutes requiring foreign corporations to submit to general jurisdiction can still be enforced. Notably, Daimler did not address consent-based general jurisdiction that occurs through corporate licensing and registration with state authorities. Yet, courts have been grappling with Daimler's impact on the traditional consent-by-registration rule, resulting in split rulings across New York, as well as in other states.
For example, in Bailen v. Air & Liquid Syst. Corp., a New York trial court found that it could "exercise general personal jurisdiction over a corporation, regardless of whether it is 'at home' in New York, so long as it is registered to do business here as a foreign corporation and designates a local agent for service of process." The defendant in Bailen, a railroad company incorporated in Delaware with its principal place of business in Nebraska, never conducted business in New York but had registered to do business there under New York Business Corporation Law Section 1304. That statute requires every foreign registrant to designate the New York Secretary of State as its agent for service of process, and it "is well-settled under New York law that registration under § 1304 subjects foreign companies to personal jurisdiction in New York." Accordingly, Bailen appears to hold that foreign corporations registered to do business under Section 1304 are subject to personal jurisdiction in New York for any and all actions against them, no matter how minimal their in-state contacts may be.
Bailen's influence remains uncertain, however, and a recent federal court decision reached a very different conclusion. In Chatwal Hotels & Resorts LLC v. Dollywood Co., a court in the Southern District of New York declined to exercise general jurisdiction over a foreign company that had registered to do business and paid taxes in New York. Acknowledging that, before Daimler, registration was either dispositive of or "very strong evidence that the corporation is subject to in personam jurisdiction," the Chatwal court found that consent by registration was "the strongest argument for establishing general jurisdiction" over defendants who are not "at home" in the forum. Nonetheless, the court held that, "[a]fter Daimler, with the Second Circuit cautioning against adopting an 'overly expansive view of general jurisdiction' in [Gucci Am. v. Bank of China], the mere fact of [the foreign corporation] being registered to do business is insufficient to confer general jurisdiction in a state that is neither its state of incorporation or its principal place of business."
Yet another recent decision out of the Southern District of New York concluded otherwise, however. In Vera v. Republic of Cuba, the plaintiffs sought third-party discovery from several domestic and international banks. BBVA, a Spanish bank, moved to dismiss for lack of personal jurisdiction. The court in Vera cautioned that Daimler "should not be read so broadly as to eliminate the necessary regulatory oversight into foreign entities that operate within the boundaries of the United States," and "[w]hen corporations receive the benefits of operating in this forum, it is critical that regulators and courts continue to have the power to compel information concerning their activities." The court then concluded that "BBVA consented to the necessary regulatory oversight in return for permission to operate in New York, and is therefore subject to jurisdiction requiring it to comply with the ... subpoenas."
Courts in other states have also reached inconsistent conclusions on this issue. For example, in Neeley v. Wyeth LLC, a Missouri federal court recently declined to find general jurisdiction over a foreign corporation that was registered to do business in and had designated a registered agent in Missouri. The court explained that because "any foreign corporation transacting business in the state of Missouri is required to register with the Secretary of State, ... every foreign corporation transacting business in the state of Missouri would be subject to general jurisdiction here. Daimler clearly rejects this proposition."
On the other hand, a Delaware federal court in Novartis Pharm. Corp. v. Mylan Inc. held that one defendant was subject to general jurisdiction in the state because it registered to do business in the state, although another did not register and, therefore, did not consent. The court in Novartis not only applied Daimler but also noted that "Daimler does not mention consent" and that the Supreme Court had not overruled the line of cases upholding the validity of registration statutes as the basis for consent to general jurisdiction.
Unless and until the Supreme Court addresses this jurisdictional issue of "consent," courts across the United States will continue to disagree regarding Daimler's impact on the viability of "consent" jurisdiction, including "consent" to general jurisdiction by registering to do business in a state.
New York's Legislature Takes Aim at Daimler
In addition to recent judicial efforts to cabin Daimler's reach, New York lawmakers are considering legislation that would explicitly require any company seeking authorization to do business in New York to consent to general jurisdiction. According to the New York Senate Committee Report regarding the proposed legislation, "almost all New York courts have held that consent to personal jurisdiction is the inherent by-product of registration to business in New York." It then explains that the purpose of the bill is to "clarify and confirm the well-established New York policy on corporate consent" in light of the Supreme Court's decision in Daimler.
The bill, according to the Committee Report, aspires to "provide a forceful legislative declaration as to the effect of a foreign corporation's registration to do business in New York," by amending Section 1301 of the Business Corporation Law to explicitly state that a "foreign corporation's application for authority to do business in this state, whenever filed, constitutes consent to the jurisdiction of the courts of this state for all actions against such corporation."
The Committee Report observes that the Second Circuit in Gucci left open the question of "whether (a corporation) has consented to personal jurisdiction in New York by applying for authorization to conduct business in New York and designating the New York Secretary of State as its agent for service of process." The Committee Report suggests that statutes that do not expressly require consent to jurisdiction for foreign companies seeking authorization to do business in the state are vulnerable to judicial attack-i.e., due process may permit a statutory consent-by-registration requirement while forbidding courts from reading statutes to implicitly contain such a requirement.
Although some may criticize New York's approach as an aggressive legislative reaction to the significant jurisdictional constraints set by Daimler, the Committee Report suggests that the bill would in fact reduce unnecessary litigation costs for foreign and resident businesses alike. By treating registration to business as consent to jurisdiction in New York, the bill, according to the Committee Report, "provides the certainty of a forum with open doors ... without the expense and burden of proving jurisdiction on a case-by-case basis."
It appears inevitable that the Supreme Court will eventually decide whether "consent to general jurisdiction" registration statutes such as New York's are constitutional. In the meantime, global companies doing business in the United States-and in New York in particular-will need to carefully evaluate whether their activities put them at risk for general jurisdiction in the United States for claims arising worldwide.
Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 265 (1917).
Id. at 267.
Georgia-Pacific Corp. v. Multimark's Int'l, Ltd., 265 A.D.2d 109, 112 (1st Dep't 2000).
Deutsche Zentral-Genossenschaftsbank AG v UBS AG, 2014 N.Y. Misc. LEXIS 1858, at *12 (Sup. Ct. Apr. 17, 2014) ("Daimler significantly narrows the parameters for the exercise of general personal jurisdiction, and calls into question the validity of the doing business doctrine."); Magdalena v. Lins, 123 A.D.3d 600, 601 (1st Dep't 2014)("[T]here is no basis for general jurisdiction pursuant to CPLR 301, since [defendant] is not incorporated in New York and does not have its principal place of business in New York (see Daimler v. Bauman)"). See also Brown v. Web.com Grp., Inc., 57 F. Supp. 3d 345, 354 (S.D.N.Y. 2014); Sonera Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221, 224 n.2 (2d Cir. 2014) ("There is no need to address the scope of general jurisdiction under [§301] because the exercise of general jurisdiction over [defendant] is clearly inconsistent with Daimler.").
See, e.g., In re Roman Catholic Diocese of Albany, 745 F.3d 30 (2d Cir. 2014); Sonera Holding, 750 F.3d 221.
 See Gucci Am. v. Bank of China, 768 F.3d 122 (2d Cir. 2014). The Gucci court also found that the defendant's failure to timely object to personal jurisdiction did not waive that defense, because, given pre-Daimler New York precedent, the defendant had no reason to believe that defense was available to it. Id. at 134-5.
Id. at 135 (internal citation and quotation omitted). See also In re M/V MSC Flaminia, 2015 U.S. Dist. LEXIS 52977, at *9 (S.D.N.Y. Apr. 22, 2015).
 Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 174-5 (1939). See also Pennsylvania Fire Ins. Co. of Philadephia v. Gold Issue Mining & Milling Co., 243 U.S. 93, 95 (1917).
 Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432, 437 (1916) (holding that "service on the agent shall give jurisdiction of the person.").
 See, e.g., Augsbury Corp v. Petrokey Corp., 97 A.D.2d 173, 175 (3d Dep't 1983); Le Vine v. Isoserve, Inc., 70 Misc. 2d 747, 749 (N.Y. Sup. Ct. 1972); STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127, 131 (2d Cir. 2009); China Nat'l Chartering Corp v. Pactrans Air & Sea Inc., 882 F. Supp. 2d 579, 596 (S.D.N.Y. 2012); Steuben Foods, Inc. v. Oystar Group, 2013 WL 2105894, at *3 (W.D.N.Y. May 14, 2013).
 Bailen v Air & Liquid Sys. Corp., 2014 N.Y. Misc. LEXIS 3554, at *9 (N.Y. Sup. Ct. Oct. 24, 2014); see also Zucker v. Waldmann, 46 Misc. 3d 1214(A), 2015 N.Y. Misc. LEXIS 169, at *7 (N.Y. Sup. Ct. 2015) (recognizing that although a defendant may not be "at home" in New York under Daimler, it may nonetheless be found to have "consent[ed] to jurisdiction ... statutorily, by registering to do business" in the state).
 NY CLS Bus Corp § 1304. ("A foreign corporation may apply for authority to do business in this state .... It shall set forth ... [a] designation of the secretary of state as its agent upon whom process against it may be served.").
 STX Panocean (UK) Co., 560 F.3d at 131; see Neirbo Co., 308 U.S. at 178.
 Chatwal Hotels & Resorts LLC v. Dollywood Co., 2015 U.S. Dist. LEXIS 15976, at *10 (S.D.N.Y. Feb. 6, 2015).
 Id. (quoting Beja v. Jahangiri, 453 F.2d 959 (2d Cir. 1972)).
 Id. at *12.
 Id. at *12-3.
 Vera v. Republic of Cuba, 2015 U.S. Dist. LEXIS 32846 (S.D.N.Y. Mar. 17, 2015).
 Id. at *26.
 Neeley v. Wyeth LLC, 2015 U.S. Dist. LEXIS 39879, at *7 (E.D. Mo. Mar. 30, 2015).
 Novartis Pharm. Corp. v. Mylan Inc., 2015 U.S. Dist. LEXIS 31812, at *8 (D. Del. Mar. 16, 2015); see also Otsuka Pharm. Co. v. Mylan Inc., 2015 U.S. Dist. LEXIS 35679, at *28 (D.N.J. Mar. 23, 2015).
 See 2015 New York Senate Bill No. 4846, §2, New York Two Hundred Thirty-Eighth Legislative Session.
 New York Senate Committee Report for S.B. 4846 (Apr. 23, 2015) (hereinafter "Senate Committee Report").
 The bill would also extend the consent-to-jurisdiction requirement for registration to general associations, limited liability companies, and partnerships. 2015 N.Y. S.B. 4846 §§ 3-6.
 2015 NY S.B. 4846.
 Senate Committee Report.