New York Raises the Bar for General Jurisdiction Over Foreign Corporations
October 27, 2021
When can an out-of-state corporation be sued in New York State? New York’s highest court recently weighed in determining when courts have general jurisdiction over out-of-state corporations.
To bring a lawsuit against a person or entity in a particular state, the state’s courts must have personal jurisdiction over the defendants, meaning that the courts have the power to make legal decisions and judgments involving the individual or entity. Courts can exercise either general or specific jurisdiction. General jurisdiction allows courts to hear any claim against a defendant, while specific jurisdiction grants the power to hear a claim related to a defendant’s contacts with the state.
For example, if a New Jersey resident commits a negligent act within New York, New York state courts can exercise specific jurisdiction over that individual if they are sued for damages arising from that act. On the other hand, New York courts can exercise general jurisdiction over any claim against a corporation that is incorporated or has its principal place of business in New York regardless of the claim’s relation to the corporation’s acts or presence in New York.
New York Business Corporation Law § 1301(a) states that all foreign corporations (meaning those not incorporated in New York) must obtain authorization to do business in New York State by registering with the New York Secretary of State, designating the Secretary of State as the corporation’s agent for service of process, and filing biennial statements.
Until recently, New York courts held that when a foreign corporation registered to do business in the State and designated an agent for service of process, the foreign corporation automatically subjected itself to general jurisdiction in New York courts. In other words, historically, New York has conditioned conducting business in New York on consenting to general personal jurisdiction of its courts. In 2014, the U.S. Supreme Court decision in Daimler AG v. Bauman created uncertainty as to the enforceability of the New York rule.
On October 7, 2021, New York’s highest court finally clarified state law on this point, holding that a foreign corporation does not consent to general jurisdiction by registering with and appointing the New York Secretary of State as an agent for service of process. Aybar v. Aybar, No. 54, 2021 WL 4596367 (N.Y. Oct. 7, 2021).
The Former Standard in New York – Bagdon
New York Courts’ prior rule dates back to Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432 (1916). For over 100 years, state courts have cited Bagdon for the proposition that a foreign corporation’s registration and appointment of an in-state agent for service of process constitutes consent to general jurisdiction.
In reliance on Bagdon, New York courts routinely held that any foreign corporation that registered to do business with the New York Department of State could be sued in New York, and that the state’s courts had general jurisdiction over such corporations without having to prove any further connection to New York State.
U.S. Supreme Court Decision in 2014 – Daimler AG v. Bauman
In 2014, the U.S. Supreme Court decided Daimler AG v. Bauman, 571 U.S. 117 (2014), holding that general jurisdiction cannot be based simply upon a corporation’s substantial, continuous, and systematic course of business in a state. In order to invoke general jurisdiction, absent an “exceptional case,” the corporation must be incorporated in the state or have its principal place of business in the state.
New York State Decision – Aybar v. Aybar
In 2012, a Ford Explorer, owned and driven by a New York resident, overturned on a highway in Virginia resulting in multiple fatalities and injuries. The survivors and estates of those that died in the accident filed suit against Ford Motor Company and Goodyear Tire in Queens County, New York, asserting products liability claims and alleging both defendants were subject to general jurisdiction in New York.
While Ford and Goodyear are both large corporations indisputably conducting business in every corner of the country, Ford did not design, manufacture, or sell the vehicle in New York, nor did Goodyear design, manufacture, or sell the tires that were on the vehicle in New York. The driver had merely purchased the vehicle in New York from a third-party seller. Ford is incorporated in Delaware with its principal place of business in Michigan while Goodyear is both incorporated and has its principal place of business in Ohio.
Ford and Goodyear both moved to dismiss the complaint for lack of personal jurisdiction under CPLR 3211(a)(8). Plaintiffs opposed the motion, arguing that foreign corporations’ consent to general jurisdiction when they register to do business in New York and appoint an in-state agent for service of process in compliance with New York’s Business Corporation Law, in reliance on the Bagdon precedent.
At the trial court level, the New York State Supreme Court denied the motions, citing Bagdon and the longstanding understanding that a foreign corporation’s registration and appointment of an in-state agent for service of process constitutes consent to general jurisdiction. Aybar v. Aybar, No. 706909/2015, 2016 WL 3389889 (N.Y. Sup. Ct. May 31, 2016).
In 2019, the Appellate Division, Second Department reversed, and citied to Daimler AG v. Bauman, supra, holding that the U.S. Supreme Court declared New York’s basis for this type of application of general jurisdiction “unacceptably grasping.” Aybar v. Aybar, 169 A.D.3d 137 (2d Dept. 2019).
SCOTUS Forces New York to Change Course
On October 7, 2021, the New York Court of Appeals affirmed the Second Department’s decision. Aybar v. Aybar, No. 54, 2021 WL 4596367 (N.Y. Oct. 7, 2021).
Because the ability to ascertain general jurisdiction over all foreign corporations registered with the state was based on notions the U.S. Supreme Court rejected in Daimler, the Second Department and the Court of Appeals agreed that Bagdon and its progeny must officially be retired.
The Court of Appeals boils its decision down to two points. The first is that there is no statutory basis for the Bagdon rule. The Business Corporation Law does not explicitly state that foreign corporations that register with the state thereby consent to general jurisdiction or that registration will subject foreign corporations to general jurisdiction in the state of New York. The second is that, following Daimler, there is no longer a viable common-law basis for the Bagdon rule.
Based on this analysis, the Court of Appeals held that a foreign corporation’s registration to do business in New York is no longer a valid basis on which to establish general jurisdiction.
Thus, while Aybar did not definitively hold that incorporating or having a principal place of business in New York are the only grounds for establishing general jurisdiction, it made obtaining general jurisdiction over a foreign corporation more difficult. Plaintiffs seeking to sue a foreign corporation in New York should plead a basis for specific jurisdiction.
Personal jurisdiction is a fundamental issue in any litigation. With the ease of conducting interstate and international business, corporations today often find themselves sued in states beyond those of their incorporation and principal place of business. Corporations need to assess their exposure to litigation in different states as well as draft agreements that pre-emptively address jurisdiction.
Emily Uhlig is an Associate Attorney at Adams Leclair LLP. Emily’s practice focuses on business and construction litigation.