David Paul Horowitz and Lukas M. Horowitz

General jurisdiction is a form of personal jurisdiction that subjects a defendant to any and all claims asserted against it in a given forum. Where the defendant is a corporation, general jurisdiction subjects it to personal jurisdiction in the courts of a state on any claim, notwithstanding the fact that there is no nexus between the claim being asserted and the corporation’s activity in the forum state.

Late last month the Second Department, in Aybar v. Aybar, 2019 NY Slip Op 00412 (2d Dep’t 2019), confronted the question of whether a foreign corporation’s registration to do business in New York under Business Corporations Law §§1301(a) and 1304(a)(6) constitutes consent to general jurisdiction in New York. The Aybar court concluded:

We consider on these appeals whether, following the United States Supreme Court decision in Daimler AG v Bauman (citation omitted), a foreign corporation may still be deemed to have consented to the general jurisdiction of New York courts by virtue of having registered to do business in New York and appointed a local agent for the service of process. We conclude that it may not.

Aybar, decided five years after Daimler, A.G. v. Bauman, 571 U.S. 117 (2014), effectively shuts the door, for now, to a New York court’s exercise of general jurisdiction over a corporate defendant which is neither incorporated, nor maintains it principal place of business, in New York.

97 Years of Broad General Jurisdiction in NY

Since the seminal 1917 New York Court of Appeals decision by Judge Cardozo in Tauza v. Susquehanna Coal Co., 220 N.Y. 259 (1917), corporations had been subject to general jurisdiction in New York provided the subject corporation had a permanent and continuous, albeit relatively modest, presence in the state. Was the presence in Tauza sufficient to sustain general jurisdiction? “In brief, the defendant maintains an office in this state under the direction of a sales agent, with eight salesmen, and with clerical assistants, and through these agencies systematically and regularly solicits and obtains orders which result in continuous shipments from Pennsylvania to New York.”

Judge Cardozo concluded, “to do these things is to do business within this state in such a sense and in such a degree as to subject the corporation doing them to the jurisdiction of our courts.” The absence of a nexus between the claim asserted and the New York forum was of no moment: “We hold further that the jurisdiction does not fail because the cause of action sued upon has no relation in its origin to the business here transacted.”

A Sea Change in General Jurisdiction

The Court of Appeals’ holding in Tauza was reaffirmed by that court in Bryant v. Finnish Natl. Airline, 15 N.Y.2d 426 (1965), and for 97 years general jurisdiction in New York was governed by its holding, currently codified in CPLR 301.

That changed—significantly—in 2014 when the U.S. Supreme Court in Daimler, in a decision by Justice Ruth Bader Ginsburg, held that the exercise of general jurisdiction of the scope permitted by Tauza violated a defendant corporation’s due process rights: “Exercises of personal jurisdiction so exorbitant, we hold, are barred by due process constraints on the assertion of adjudicatory authority.” The Daimler court was confronted with a California court’s exercise of personal jurisdiction over a German corporation for claims arising from governmental abuses in Argentina in the 1970s.

Citing its 2011 decision in Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011), in which the court foreshadowed the sea change to come, the Daimler court held “a court may assert jurisdiction over a foreign corporation ‘to hear any and all claims against it’ only when the corporation’s affiliations with the State in which suit is brought are so constant and pervasive ‘as to render it essentially at home in the forum State.’” Stating that “only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction,” the court held that “the paradigm forum for the exercise of general jurisdiction is … the corporation’s place of incorporation and principal place of business … these bases afford plaintiffs recourse to at least one clear and certain forum in which a corporate defendant may be sued on any and all claims.”

The court did hold open the possibility that general jurisdiction over a corporation could be found in a forum other than the state of incorporation and state where the principal place of business was located, but only in what it referred to as an “exceptional case,” discussed in detail, below.

Daimler cited a 1952 decision, Perkins v. Benguet Consol. Min. Co., 342 U.S. 437 (1952), where, on facts unlikely to be repeated, general jurisdiction was found over a corporation in Ohio state court notwithstanding the fact that Ohio was not the state of incorporation or permanent principal place of business of the corporation (“The company’s mining properties were in the Philippine Islands. Its operations there were completely halted during the occupation of the Islands by the Japanese. During that interim the president, who was also the general manager and principal stockholder of the company, returned to his home in Clermont County, Ohio. There he maintained an office in which he conducted his personal affairs and did many things on behalf of the company.”).

Aside from the facts in that case being, for all intents and purposes, unique, the court made clear in a subsequent decision that general jurisdiction in Perkins was found because “Ohio was the corporation’s principal, if temporary, place of business,” thus, under the reasoning of Daimler, making the corporation at home in Ohio.

While some commentators have held out the hope that Daimler permits the exercise of general jurisdiction in a forum beyond the two “paradigm” jurisdictions, it is clear that the broad general jurisdiction CPLR 301 permitted under Tauza and its progeny is no longer constitutionally permitted, leading to the conclusion that Tauza and its progeny have been overruled.

Two footnotes in the Daimler decision have injected some uncertainty (and caused some mischief) into its analysis of general jurisdiction. First, in footnote 19, citing Perkins, the court noted: “We do not foreclose the possibility that in an exceptional case … a corporation’s operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that State.” The court offered no guidance as to what level of corporate operations in a forum state would be “so substantial and of such a nature” to support a finding of general jurisdiction. However, its holding did illustrate that even a very significant level of operations do not support general jurisdiction. The court ticked off MBUSA’s (an indirect subsidiary of Daimler) operations in California:

Although MBUSA’s principal place of business is in New Jersey, MBUSA has multiple California-based facilities, including a regional office in Costa Mesa, a Vehicle Preparation Center in Carson, and a Classic Center in Irvine. According to the record developed below, MBUSA is the largest supplier of luxury vehicles to the California market. In particular, over 10% of all sales of new vehicles in the United States take place in California, and MBUSA’s California sales account for 2.4% of Daimler’s worldwide sales.

Given that MBUSA’s operations in California were not substantial enough to satisfy due process (and the court gave no indication it was a close call), it is difficult to opine with any certainty what level of operations in New York would suffice for general jurisdiction to pass due process muster.

Directly addressing Tauza in the preceding footnote, number 18, the court, with what might be described as remarkable imprecision, wrote: “Barrow and Tauza indeed upheld the exercise of general jurisdiction based on the presence of a local office, which signaled that the corporation was “doing business” in the forum. Perkins’s unadorned citations to these cases, both decided in the era dominated by Pennoyer’s territorial thinking … should not attract heavy reliance today.”

“Should not attract heavy reliance” suggests that some portion of Tauza’s holding survives Daimler. This may explain why Tauza is not noted as being overruled, merely “questioned,” when Shepardizing the case today, more than five years after Daimler. Contrasting the New York operations of defendant Susquehanna Coal Co. in Tauza, with the California operations of MBUSA in Daimler, it is difficult to understand why the case is not overruled. Susquehanna Coal’s modest presence in New York does not equate to what would be required to bring it within the ambit of an “exceptional case.”

General Jurisdiction in NY Post-‘Daimler’

In 2014 the First Department in Magdalena v. Lins, 123 A.D.3d 600 (1st Dep’t 2014), a fee sharing action where no part of the transaction occurred in New York, dismissed the action against the foreign corporate defendant. Citing Daimler, the court held there was no general jurisdiction under CPLR 301 “since the corporation is not incorporated in New York and does not have its principal place of business in New York.”

In Fernandez v. DaimlerChrysler, A.G., 143 A.D.3d 765 (2d Dep’t 2016), the Second Department held that general jurisdiction in New York did not lie, on due process grounds, against DaimlerChrysler, A.G., a German corporation that manufactures Mercedes-Benz vehicles in Germany, in a wrongful death action sounding in product liability and negligence arising from an automobile accident that occurred in Pennsylvania. The court held:

“A foreign corporation is amenable to suit in New York courts under CPLR 301 if it has engaged in such a continuous and systematic course of doing business here that a finding of its presence in this jurisdiction is warranted” (citations omitted). Any exercise of jurisdiction over a foreign corporation on the basis of state law must comport with the due process requirement that “the corporation’s affiliations with the State in which suit is brought are so constant and pervasive as to render it essentially at home in the forum State’” (citation omitted).

New York courts also considered Daimler’s impact on CPLR 301 jurisdiction against an individual defendant. In IMAX v. Essel Group, 154 A.D.3d 464 (1st Dep’t 2017), the First Department cited Daimler and Magdelena in holding:

Petitioner failed to establish that New York courts have general jurisdiction over respondent Chandra individually pursuant to CPLR 301. New York courts may not exercise general jurisdiction against a defendant under the United States Constitution or under CPLR 301 unless the defendant is domiciled in the state (citations omitted) or in an exceptional case where “an individual’s contacts with a forum are so extensive as to support general jurisdiction notwithstanding domicile elsewhere” (citation omitted).

And what of the “exceptional case”? As the Second Circuit noted in Reich v Lopez, 858 F.3d 55 (2d Cir. 2017), alleging general jurisdiction under CPLR 301: “In an ‘exceptional case,’ an individual’s contacts with a forum might be so extensive as to support general jurisdiction notwithstanding domicile elsewhere, Daimler AG v. Bauman (citation omitted), but the Second Circuit has yet to find such a case.”

Consent Jurisdiction Under ‘Aybar’

Aybar arose when a 2002 Ford Explorer, registered in New York and operated by defendant Aybar, a New York resident, was involved in an accident on a Virginia interstate highway. One of its tires allegedly failed, causing the vehicle to become unstable and overturn and roll multiple times, killing three passengers and injuring three others. Aybar purchased the subject vehicle and tire in New York from a third party.

The three surviving plaintiff passengers and the estates of the three deceased passengers sued the driver, as well as defendant Ford Motor Company (for negligently manufacturing and designing the Ford Explorer) and defendant Goodyear Tire & Rubber Co. (for negligently manufacturing and designing the faulty tire).

The Second Department set the jurisdictional table relative to the corporate defendants: “Ford is incorporated in Delaware, with its principal place of business in Michigan, and Goodyear is incorporated in, and has its principal place of business in, Ohio.” The court continued, “the complaint alleges that at all relevant times both corporations were registered to do business in New York, and that each, in fact, conducted business in New York and derived substantial revenue from such business.”

Defendants Ford and Goodyear moved to dismiss, citing the lack of any nexus between the corporate defendants activities in New York and claims involving the subject vehicle. In opposition, plaintiff argued that both defendants were subject to general jurisdiction in New York because both defendants were “at home” in New York as a result of their substantial operations in the state.

The trial court denied the motions upon findings recited by the Second Department:

Ford and Goodyear were each subject to general jurisdiction in New York. The motion court found that the activities of both Ford and Goodyear in New York were so continuous and systematic that both Ford and Goodyear are essentially at home here. The motion court also found that both Ford and Goodyear had otherwise consented to general jurisdiction in New York by each registering to do business in New York as a foreign corporation and designating a local agent for service of process. With regard to Ford’s activities in New York, the motion court pointed to the facts that Aybar purchased the vehicle in New York and primarily used it in New York, Ford has an organization of facilities in New York engaged in day-to-day activities, and Ford has many franchises across New York. With regard to Goodyear, the motion court relied upon the facts that Goodyear had operated numerous stores in New York since approximately 1924 and had employed thousands of workers in those stores, and it has an organization of facilities in New York engaged in day-to-day activities.

The Second Department focused its examination of the activities of Ford and Goodyear in New York: “Neither Ford nor Goodyear is incorporated in New York or has its principal place of business here. Thus, New York courts can exercise general jurisdiction over each defendant only if the plaintiffs have established that its affiliations with New York are so continuous and systematic as to render it essentially ‘at home’ here.”

The court explained the test to be applied:

To determine whether a foreign corporate defendant’s affiliations with the state are so continuous and systematic as to render it essentially at home, Daimler advised that “the general jurisdiction inquiry does not focus solely on the magnitude of the defendant’s in-state contacts,” but “instead calls for an appraisal of a corporation’s activities in their entirety, nationwide and worldwide. A corporation that operates in many places can scarcely be deemed at home in all of them” (citations omitted).

Appraising the magnitude of Ford and Goodyear’s respective activities in their entirety, the Second Department concluded that neither defendant was “at home” in New York.

The court next addressed plaintiff’s final jurisdictional argument, that “Ford and Goodyear each consented to the jurisdiction of New York courts for all purposes, including this suit, by registering to do business in New York and appointing an agent for service of process.”

The court acknowledged “longstanding judicial construction by New York courts and federal courts interpreting New York law, that registering to do business in New York and appointing an agent for service of process constitutes consent to general jurisdiction,” originating in the Court of Appeals’ 1916 decision in Bagdon v. Phila. & Reading Coal & Iron Co., 217 N.Y. 432 (1916). However, the evolution of in personam jurisdiction jurisprudence as a result of the U.S. Supreme Court decision in Intl. Shoe Co. v. Washington, 326 U.S. 310 (1945), meant that “the relationship among the defendant, the forum, and the litigation, rather than the mutually exclusive sovereignty of the States on which the rules of Pennoyer rest, became the central concern of the inquiry into personal jurisdiction.” The result:

Following the United States Supreme Court’s decision in Daimler, personal jurisdiction cannot be asserted against a foreign corporation based solely on the corporation’s continuous and systematic business activity in New York. The consent-by-registration line of cases is predicated on the reasoning that by registering to do business in New York and appointing a local agent for service of process, a foreign corporation has consented to be found in New York. Daimler made clear, however, that general jurisdiction cannot be exercised solely on such presence.

Noting that every state has enacted a registration statute requiring both registration and the appointment of an agent for service of process, the Second Department concluded that “asserting jurisdiction over a foreign corporation based on the mere registration and the accompanying appointment of an in-state agent by the foreign corporation, without the express consent of the foreign corporation to general jurisdiction, would be ‘unacceptably grasping’ under Daimler.”

Conclusion

When lecturing on New York civil practice, the late, great, Professor David Siegel would, when discussing an attorney’s desire to blaze a new trail in the law by arguing for an as-yet-unsupported extension of law, advise “let it be in someone else’s case.” An attorney contemplating an action based upon general jurisdiction in New York against a corporate defendant not incorporated in the state and with its principal place of business elsewhere should heed Professor Siegel’s sage advice. So, too, should an attorney contemplating an action outside of the Second Department where jurisdiction against a corporate defendant is based upon a consent theory under New York’s existing registration statutes.

And what if New York enacts an explicit consent statute for corporations registering to do business in our state (after Daimler such a statute has been proposed for several years running in the New York legislature but has not been enacted)? See, Siegel, above (at least until the U.S. Supreme Court has given its due process blessing to such a statute).

When it comes to jurisdiction over corporations in New York post-Daimler, the proverb “may you live in interesting times” is apt.

David Paul Horowitz is a member of McNamara & Horowitz in New York City, Lecturer at Law at Columbia Law School, and serves as a legal malpractice expert, private arbitrator, mediator, and discovery referee. He can be reached at david@newyorkpractice.org. Lukas M. Horowitz is a member of the Albany Law School Class of 2019.