An issue that comes up frequently at the outset of litigation is how to obtain jurisdiction over a foreign corporation. If the litigation involves a contractual dispute, chances are the contract contains a jurisdiction provision which resolves the issue quickly. However, as with most litigation matters, it is usually not that easy. Typically, it will come down to establishing sufficient contacts of the foreign business in New York to bring the company under the jurisdiction of New York courts.
In a ruling earlier this year by the Appellate Division Second Department, Aybar v. Aybar, 2019 N.Y. Slip Op. 00412 (2d Dep’t January 23, 2019), the Court assessed the precedent regarding how jurisdiction is obtained in New York when foreign corporate entities cross state lines. For many years, such questions appeared to be controlled by Pennoyer v. Neff, 95 U.S. 714 (1878), which held that a court’s jurisdiction was limited to its geographic boundaries.
This strict territorial approach became more flexible when the Court of Appeals, in Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432 (1916), held that when businesses register to do business within a state, an agent within that state is authorized to accept service of a summons on their behalf should litigation matters arise. Furthermore, the Court of Appeals, in Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 265 (1917), held that unregistered foreign corporations were considered under New York’s legal jurisdiction if they conducted “continuous” and “systematic and regular” business therein. This issue was clarified further by the U.S. Supreme Court in Int’l Shoe Co. v. Wash., 326 U.S. 310 (1945), which held that “due process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice,’” Milliken v. Meyer, 311 U.S. 457. 463 (1940),otherwise known as long-arm jurisdiction.
Thus, based on this prior precedent, the general rule was that ‘certain minimum contacts’ with, and conducting ‘continuous,’ ‘systematic and regular’ business within, the geographic boundaries of New York State was enough for a foreign corporate party to be considered as ‘doing business’ in New York and therefore subject to its jurisdiction.
Then came Daimler AG v. Bauman, 571 U.S. 117 (2014), which significantly limited previously accepted jurisdictional boundaries. In Daimler, the U.S. Supreme Court held that general jurisdiction was maintained over corporations only where a corporation was incorporated; where it had its principal place of business; and where a corporation’s pursuit of business was substantial enough that it could be considered “at home” in that state.
Now, in Aybar, the Appellate Division has once again narrowed the grounds for establishing personal jurisdiction over foreign corporate defendants. The Court in Aybar held that a foreign corporation has not consented to general jurisdiction by simply registering to do business in New York State under New York’s current Business Corporation Law § 1301. In fact, the Appellate Division stated that to conclude such a thing was “unacceptably grasping” under Daimler. In this case, defendants Ford Motor Company and Goodyear Tire & Rubber Company were incorporated and had their principal places of business outside of New York State, yet they were registered to do business in New York. They were brought to Court in a personal injury litigation; however, the Appellate Division held that neither company had contacts with New York sufficient to establish that they were “at home” in the state. Such a decision once more renders uncertain how jurisdiction is decided for foreign corporations, especially considering that many corporations now do a majority of their business remotely in another state through online means that impact New York.
Based on this decision in Aybar, it is important to remember that the procedure for establishing a corporate party “at home” in New York no longer relies merely on whether it conducts in-state business, has registered to do business in New York, or appointed an agent for receipt of service. Furthermore, it is important for businesses entering into an agreement with a corporation legally defined as “foreign” in New York State, to include jurisdiction consent provisions to avoid any jurisdictional dispute at the outset of litigation. Please contact us to discuss your particular situation.