Foreign Corporations Don’t Consent to General Jurisdiction by Registering in NYNovember 22, 2021 | Benjamin J. Wisher | |
A recent New York Court of Appeals decision clarified the contours of one of the most foundational legal principles: personal jurisdiction.
In Aybar v. Aybar, the Court, in a 5-2 decision, held that foreign corporations (i.e., corporations that are not incorporated under New York law) do not consent to general jurisdiction by registering to do business in New York and designating an agent for service of process.
The Doctrine of Personal Jurisdiction
It is a sacrosanct legal principle that, without personal jurisdiction, a court has no “power over an . . . entity.” See Amelius v. Grand Imperial LLC, 57 Misc. 3d 835, 848 (Sup. Ct., New York County 2017). Accordingly, if a court lacks personal jurisdiction over an entity, that entity may move to dismiss an action and, if successful, escape a lawsuit essentially undamaged. See New York Civil Practice Law and Rules § 3211(a)(8).
Generally, personal jurisdiction may only be exercised over a party via the subsumed doctrines of specific jurisdiction or general jurisdiction. See Amelius, 57 Misc.3d at 848. Specific jurisdiction is narrow in that it only permits a court to exercise personal jurisdiction over a litigant insofar the litigant has “purposefully avail[ed] itself of the privilege of conducting activities” within the state in which the court sits. See J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 880 (2011). In other words, a litigant must maintain “minimum contacts” with the state in which the court sits for the court to exercise specific jurisdiction over the litigant and such exercise of specific jurisdiction must relate to the “minimum contacts” maintained by the litigant. See Int’l Shoe Co. v. State of Wash., Off. of Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945). For example, in a products liability case, a New York court cannot exercise specific jurisdiction over a foreign corporation which only sold the product(s) at issue to the State of Georgia. That is because, in that scenario, the foreign corporation has not “purposefully availed” itself to the State of New York to sell the products at issue. Therefore, that foreign corporation maintains no “minimum contacts” with the State of New York with respect to sold product(s). Conversely, if the foreign corporation did purposefully sell the product(s) within the State of New York, a New York court could exercise specific jurisdiction over the foreign corporation in a products liability case related to the sold product(s). Compare J. McIntyre Mach., Ltd., 564 U.S. at 887; Int’l Shoe Co., 326 U.S. at 321.
On the other hand, under the doctrine of general jurisdiction, if a litigant maintains contacts “so continuous and systematic as to render them essentially at home” in a state, a court of that state may exercise personal jurisdiction over the litigant as to any matter, regardless of the that matter’s relatedness to the litigant’s activities in the state. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 919 (2011).
General jurisdiction could be achieved over a party by personally serving them in the state in which the action is commenced. See Burnham v. Superior Ct. of California, Cty. of Marin, 495 U.S. 604, 628 (1990). This mechanism is commonly referred to as “tag jurisdiction.” So, for example, if Jane Doe commenced a breach of contract action against John Smith in New York, and John Smith resided in New Jersey, Jane Doe could confer personal jurisdiction to a New York court over John Smith by personally serving John Smith in New York while John Smith was attending a Broadway show, although John Smith’s contacts with New York (attending the Broadway show) were unrelated to his alleged breach of his contract with Ms. Doe. Historically, in New York, the theory of “tag jurisdiction” applied in a situation where personal service was made on a foreign corporation’s designated agent in New York, thus conferring general jurisdiction to New York courts over that foreign entity. See e.g., Esperti v. Cardinale Trucking Corp., 263 A.D. 46, 47 (2d Dep’t 1941). In fact, the same principle has applied even more recently. See Brinkmann v. Adrian Carriers, Inc., 29 A.D.3d 615, 617 (2d Dep’t 2006).
However, in 2014, the United States Supreme Court limited the breadth of the general jurisdiction doctrine as applied to foreign corporations. Broadly speaking, the Court held that general jurisdiction could only be exercised over a corporation in the state in which the corporation is incorporated and the state in which the corporation maintains its principal place of business. See Daimler AG v. Bauman, 571 U.S. 117, 137 (2014). Notably, the Daimler decision did not expressly address whether it affected the historical notions of tag jurisdiction as applied to foreign corporations. Thus, after the Daimler decision, it was unclear whether New York courts were still permitted to exercise general jurisdiction over a foreign corporation whose designated agent was personally served in the State of New York.
The Aybar Decision
Then, along comes Aybar v. Aybar, which, factually, is a products liability case wherein the plaintiffs sought damages against Ford Motor Company, The Goodyear Tire & Rubber Co., and José Aybar, for injuries plaintiffs sustained when the vehicle that plaintiffs were passengers in overturned in the State of Virginia. Neither Ford nor Goodyear were incorporated in New York and did not maintain their principal places of business in New York. However, pursuant to New York Business Corporation Law, to do business in New York, foreign corporations must register with the New York Secretary of State and designate an in-state agent for service. As such, plaintiffs attempted to gain personal jurisdiction over Ford and Goodyear by personally serving those entities’ designated agents for service.
In response, Ford and Goodyear asserted that, pursuant to Daimler, personal service on their agents in New York did not confer general jurisdiction over them, and, accordingly, New York courts lacked personal jurisdiction over them for purposes of plaintiffs’ claims. The trial court disagreed with Ford and Goodyear, declined to dismiss plaintiffs’ claims on the basis that the court lacked personal jurisdiction over the entities, and held that personal service on Ford and Goodyear’s designated agents in New York was sufficient to confer personal jurisdiction. See Aybar v. Aybar, No. 706909/2015, 2016 WL 3389889, at *3 (Sup. Ct., New York May 31, 2016). On appeal, the Appellate Division, Second Department, reversed, holding that, under the Daimler decision, see supra, general jurisdiction could not be exercised over a foreign corporation on the sole basis that the foreign corporation’s designated agent for service was personally served in New York. See Aybar v. Aybar, 169 A.D.3d 137, 139 (2d Dep’t 2016). Under Daimler, general jurisdiction, as mentioned above, is only appropriate in the state(s) in which the entity is incorporated and maintains its principal place of business. Plaintiffs then appealed the Appellate Division’s reversal to the New York Court of Appeals, New York’s highest court.
The New York Court of Appeals affirmed, and held that, pursuant to the pronouncements by the United States Supreme Court in Daimler, foreign corporations do not consent to general jurisdiction by registering to do business in New York and designating an agent for service pursuant to New York Business Corporation Law. See Aybar v. Aybar, No. 54, 2021 WL 4596367, at *1 (N.Y. Oct. 7, 2021).
Aside from its academic and jurisprudential value, the Aybar decision has critical practical implications for foreign corporations sued in New York. The practical upshot of the foregoing is the outcome; that general jurisdiction cannot be obtained over a foreign corporation by serving its in-state agent. Therefore, in such situations where the plaintiff is relying on a general jurisdiction theory, the foreign entity can move to dismiss the action against it on the basis of lack of personal jurisdiction.
- Benjamin J. Wisher