Cross Border Cut
Foreign Corporations Not Out of the Woods Yet – Where General Jurisdiction May Be Found Outside of a Corporate Defendant’s Principal Place of Business or State of Incorporation, Even Post- Daimler
By now, most companies have heard how the U.S. Supreme Court’s watershed decision in Daimler AG v. Bauman refashioned the test for “general” or “all purpose” personal jurisdiction, which is based on a defendant’s contacts with a forum, and made it more difficult for plaintiffs to sue foreign corporate defendants in the U.S.[1] As a refresher, prior to Daimler, a foreign bank with a New York branch could have been sued in New York on any claim arising in any forum, provided the bank had a “continuous and systematic” presence in the State, usually through doing business there. In Daimler, however, the Court drastically reduced foreign corporate defendants’ jurisdictional exposure by ruling that due process requires that a corporation be subject to general jurisdiction in two forums only: its place of incorporation and its principal place of business (other than in an “exceptional case”).[2] Specific jurisdiction, in contrast, remains applicable to foreign companies when the cause of action sued upon arises out of the defendant’s activities in that state.
But this does not tell the whole story. Importantly, Daimler is silent as to the validity of decades old precedent that holds that foreign companies that are required under state law to register to do business in a state have implicitly consented to be haled into court there.[3] Accordingly, courts are divided about whether this consent-based approach to general jurisdiction is consistent with Daimler’s robust due process analysis.
This split of opinion is reflected in a number of recent New York cases, which is especially troublesome given that many foreign companies do substantial business in New York. For example, in Chatwal Hotels & Resorts LLC v. Dollywood Co., a judge in the Southern District of New York rejected the argument that the out-of-state defendant consented to jurisdiction by registering to do business in New York, holding that, after Daimler, “the mere fact of [defendant’s] being registered to do business is insufficient to confer general jurisdiction in a state that is neither its state of incorporation nor its principal place of business.”[4] Likewise, in Motorola Credit v. Uzan, another judge in the Southern District of New York rejected the argument that foreign banks constructively consented to general jurisdiction by registering to conduct banking operations with the Superintendent of the DFS, as required by New York law.[5] According to the Motorola court, that argument is precluded by the Second Circuit’s decision in Gucci, which “stands for the proposition that mere operation of a branch office in a forum—and satisfaction of any attendant licensing requirements—is not constitutionally sufficient to establish general jurisdiction.”[6]
But at least two other New York judges have concluded otherwise, finding that Daimler left intact prior case law concerning the consent-based approach to general jurisdiction. In Vera v. Republic of Cuba, another judge in the Southern District of New York exercised general jurisdiction over a foreign bank, distinguishing Daimler because itinvolved parties who “had not consented to jurisdiction.”[7] The court concluded – in an analysis largely driven by public policy concerns – that the bank “consented to the necessary regulatory oversight in return for permission to operate in New York.”[8] [9] Courts in Delaware – another popular destination for commercial litigation – are similarly divided.[10]
Notably, the court in B&M Kingstone, LLC v. Mega International Commercial Bank Co., a recent decision by the New York intermediate court for the First Department (which covers Manhattan and the Bronx), found that Daimler did not prevent a New York court from exercising general jurisdiction over a foreign bank’s New York branch.[11] Largely following the reasoning of the court in Vera, the court in B&M Kingstone found that general jurisdiction over the defendant was proper “because it consented to the necessary regulatory oversight in return for permission to operate in New York.”[12] Thus, until the New York Court of Appeals or U.S. Supreme Court addresses this issue, the law in New York’s First Department is that Daimler leaves open a consent-based approach to general jurisdiction based on the bank’s consent through registration with the DFS to conduct banking operations in the State.[13]
This issue will eventually be resolved by more appellate courts, possibly making its way back to the U.S. Supreme Court in the next few years. One plausible outcome is that only those statutes that expressly condition authorization to do business in a state on consent to general jurisdiction will be found to be consistent with due process.[14] This potential middle ground approach pays deference to state lawmakers while giving clear notice to foreign companies that they may be haled into a state’s courts as a cost of doing business in that state. Whether this approach in fact comports with due process, or merely reframes the old “doing business” test that Daimler deemed unconstitutional, will be for the courts to decide.[15]
In the meantime, foreign businesses should keep in mind that, notwithstanding Daimler, the law around general jurisdiction remains unsettled. While Daimler may have given foreign business something to celebrate, until higher courts weigh in on the issue, complying with corporate registration statutes could expose foreign businesses to general jurisdiction in the U.S..
Contributor: Zachary Kerner
The contents of this article are provided for informational purposes only and do not constitute legal advice. All rights reserved. Attorney advertising. Prior results do not guarantee a similar outcome.
[1] 134 S. Ct. 746 (2015).
[2] See also Gucci America, Inc. v. Li, 768 F. 3d 122, 135 (2d Cir. 2014) (applying Daimler to foreign banks).
[3] See, e.g., Robert Mitchell Furniture Co. v. Selden Breck Construction Co., 257 U.S. 213 (1921); Pennsylvania Fire Ins. Co. v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917).
In New York, New York Business Corporation Law § 304 requires that foreign corporations doing business in New York designate the Secretary of State as agent for service for process. New York Banking Law § 200(3), which applies to foreign banks specifically, requires that foreign banks doing business in New York designate the Superintendent of New York’s Department of Financial Services (“DFS”) as agent for service of process.
[4] 90 F. Supp. 3d 97, 105 (S.D.N.Y. 2015) (reasoning that that the Second Circuit’s post-Daimler decision in Gucci “caution[s] against adopting ‘an overly expansive view of general jurisdiction”).
[5] --- F. Supp. 3d ----, 02-cv-666 (JSR), 2015 WL 5613077, at *2 (S.D.N.Y. Sept. 9, 2015) (citing New York Banking Law § 200).
[6] Id. (emphasis added).
[7] 91 F. Supp. 3d 561, 567 (S.D.N.Y. 2015) (emphasis added).
[8] Id. at *8 (“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. There is no reason to give advantage to a foreign bank with a branch in New York, over a domestic bank. I cannot espouse a notion of jurisdiction that allows banks to hide information concerning assets connected to terrorism in other countries. When 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.”).
[9] See also Bailen v. Air & Liquid Sys. Corp., No. 190318/12, 2014 WL 3885949, at *4 (Sup. Ct. N.Y. Cnty. Aug. 5, 2014) (“Although Daimler clearly narrows the reach of New York courts in terms of its exercise of general jurisdiction over foreign entities, it does not change the law with respect to personal jurisdiction based on consent.”).
[10] Compare AstraZeneca AB v. Mylan Pharm., Inc., 72 F. Supp. 3d 549, 556 (D. Del. 2014) (“Finding mere compliance with such statutes sufficient to satisfy jurisdiction would expose companies with a national presence . . . to suit all over the country, a result specifically at odds with Daimler.”), with Acorda Therapeutics, Inc. v. Mylan Pharm. Inc., 78 F. Supp. 3d 572, 589 (D. Del. 2015) (“Consistent with Daimler, it remains the law that general personal jurisdiction may be established by showing that a corporation is ‘at home’ in the sense described in detail in Daimler, or separately general jurisdiction may be established by a corporation’s consent to such jurisdiction. Daimler is directed to the former situation and has nothing to say about the latter scenario.”), and Novartis Pharm. Co. v. Mylan Inc., 2015 WL 1246285, at *2 (D. Del. Mar. 16, 2015) (noting “that Daimler does not mention consent” and finding that defendant consented to general jurisdiction by complying with the Delaware registration statutes).
[11] 131 A.D.3d 259 (N.Y. App. Div. 1st Dep’t 2015).
[12] Id. at 260 (citing New York Banking Law § 200).
[13] In Brown v. Lockheed Martin Corp., the Second Circuit rejected the argument that by registering to transact business in Connecticut and appointing an agent under the Connecticut registration statute the defendant had consented to the court’s exercise of general jurisdiction over it. --- F.3d ----, 2016 WL 641392, at *2 (2d Cir. Feb. 18, 2016). Seeking to avoid thorny constitutional issues, the Brown court did not ground its holding on due process concerns under Daimler but rather on the fact that the Connecticut registration statute could not be fairly construed to require consent to general jurisdiction. Id. at *18. (“[W]e decline to decide here whether consent to general jurisdiction via a registration statute would be similarly effective notwithstanding Daimler’s strong admonition against the expansive exercise of general jurisdiction.”).
[14] The New York Legislature apparently has prepared for this outcome by proposing a bill that expressly provides that an application by a foreign company – be it a corporation, limited liability company, partnership, or general association – to do business in New York constitutes consent to the jurisdiction of New York courts for all actions against such company. 2015 New York Senate Bill No. 4846, § 2, New York Two Hundred Thirty-Eighth Legislative Session.
[15] See, e.g., Brown, 2016 WL 641392, at *18 (“[A] carefully drawn state statute that expressly required consent to general jurisdiction as a condition on a foreign corporation’s doing business in the state, at least in cases brought by state residents, might well be constitutional.”).