“Settled Law” Evolves Over Time:

This was originally published on the SGR Blog.

Law is in the Eyes of the Court

The Business Corporation Law requires foreign corporations seeking authorization to do business in New York to register with the New York Secretary of State and designate an in-state agent for service of process. The question recently before the New York Court of Appeals was whether a foreign corporation consented to the exercise of general jurisdiction by New York courts by registering to do business there and designating a local agent for service of process. As set forth below, the Court concluded that a foreign corporation’s compliance with the relevant statutory provisions constituted consent to accept service of process in New York but that compliance did not constitute consent to general jurisdiction in New York courts. And, in the process of doing so, the Court examined how the law of consent to general jurisdiction had evolved.

In July 2012, Jose A. Aybar, Jr., a New York resident,  operated a Ford Explorer on an interstate highway in Virginia. The vehicle overturned multiple times after its Goodyear tire allegedly failed, resulting in the death of three passengers and injuries to three other passengers. The surviving passengers and the representatives of the deceased passengers’ estates sued Aybar, Ford Motor Company, and The Goodyear Tire & Rubber Co. in New York, asserting, among other things, products liability claims against Ford and Goodyear.

Aybar purchased the vehicle in New York from a third party. Ford did not sell the vehicle in the state in the first instance, nor did Ford design or manufacture the vehicle here. Similarly, Goodyear designed, manufactured, and initially sold the tire in other states. It was undisputed that Ford was incorporated in Delaware and maintained its principal place of business in Michigan. And that Goodyear was incorporated and had its principal place of business in Ohio. At all relevant times, Ford and Goodyear were registered with the New York Secretary of State as foreign corporations authorized to do business in New York and had appointed in-state agents for service of process in accordance with the Business Corporation Law.

Ford and Goodyear separately moved to dismiss the complaint against them on the ground that New York courts lacked personal jurisdiction. The surviving passenger and representatives of the deceased passengers opposed both motions, arguing that, by registering to do business in New York and appointing an in-state agent for service of process, Ford and Goodyear knowingly consented to general jurisdiction in the state’s courts.

Supreme Court denied the motions in separate orders, concluding that New York courts could exercise general jurisdiction over Ford and Goodyear. And that Ford and Goodyear consented to general jurisdiction by registering to do business in New York as a foreign corporation and designating a local agent for service of process.

The Appellate Division reversed the orders and granted the motions of Ford and Goodyear to dismiss the complaint. The Court agreed with the motion court that “[t]here has been longstanding judicial construction” that a foreign corporation’s registration to do business in New York and appointment of an in-state agent constituted consent to general jurisdiction.”  The Court determined, however, that in light of a recent United States  Supreme Court precedent clarifying the permissible grounds for general jurisdiction,  “it cannot be said that a corporation’s compliance with the existing business registration statutes constitutes consent to the general jurisdiction of New York courts.”

The survivors and representatives appealed.

The sole issue before the Court of Appeals was whether Ford and Goodyear consented to general jurisdiction in New York by registering to do business here and appointing a local agent for service of process, in compliance with the Business Corporation Law. And the Court concluded that, as a matter of New York law,  Ford and Goodyear did not consent to general jurisdiction in New York courts.

The BCL sets forth the steps a foreign corporation must take to obtain authorization to do business in New York– and provides that a foreign corporation “shall not do business in this state until it has been authorized to do so.” As part of the registration process, a foreign corporation’s application for authority to do business in New York must include “[a] designation of the secretary of state as its agent upon whom process against it may be served.” And also provides that “[n]o . . . foreign corporation may be . . . authorized to do business in this state . . . unless in its . . . application for authority it designates the secretary of state” as “the agent . . . upon whom process against the corporation may be served”. Further, if a foreign corporation “is to have a registered agent,” it must identify that agent’s “name and address within this state” and declare “that the registered agent is to be its agent upon whom process against it may be served.”

Those statutory provisions plainly required that, to do business in New York, a foreign corporation must register and designate an in-state agent for service of process. However, the statutes did not condition the right to do business on consent to the general jurisdiction of New York courts or otherwise afford general jurisdiction to New York courts over foreign corporations that comply with these conditions.

Nevertheless, the survivors and representatives argued that registering to do business in New York and appointing an agent for service of process constituted consent to general jurisdiction. But prior decisions of the Court of Appeals did not establish general personal jurisdiction through consent by registration.

The Due Process Clause of the Fourteenth Amendment sets the outer boundaries of a state tribunal’s authority to proceed against a defendant. Due process requires that the defendant be given adequate notice of the suit and be subject to the  court’s personal jurisdiction. Consistent with those principles,  the constitutional predicates of personal jurisdiction contain two components. The first component involves service of process, which implicates due process requirements of notice and opportunity to be heard. The other component of personal jurisdiction involves the power, or reach, of a court over a party to enforce judicial decrees.

The United States Supreme Court jurisprudence defining the contours of the personal jurisdiction analysis evolved significantly over time. Shortly after the Fourteenth Amendment was ratified, the Supreme Court determined in Pennoyer that the authority of every tribunal was necessarily restricted by the territorial limits of the state in which it was established. In other words, under Pennoyer, a defendant had to be present within the court’s territorial jurisdiction before the court could assert personal jurisdiction over that defendant.

Decades later, the Supreme Court decided International Shoe, a “transformative decision on personal jurisdiction” and a “momentous departure from Pennoyer‘s rigidly territorial focus. There, the Court expanded the states’ permissible exercise of jurisdiction by holding that they could exercise personal jurisdiction over an out-of-state defendant, in accord with the Due Process Clause, if the defendant had certain minimum contacts with the state such that the maintenance of the suit did not offend traditional notions of fair play and substantial justice. Following International Shoe, 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 rested, became the central concern of the inquiry into personal jurisdiction. To satisfy the jurisdictional basis, there must be a constitutionally adequate connection between the defendant, the state  , and the action.

International Shoe crystallized the two categories of personal jurisdiction: general or all-purpose jurisdiction and specific or case-linked jurisdiction. The former permits a court to exercise jurisdiction over a defendant in connection with a suit arising from events occurring anywhere in the world. The latter permits a court to exercise jurisdiction only where the suit arises out of or relates to the defendant’s contacts with the forum state. And specific jurisdiction has become the centerpiece of modern jurisdiction theory, while general jurisdiction has played a reduced role– because the Supreme Court has declined to stretch general jurisdiction beyond limits traditionally recognized, while specific jurisdiction has rapidly expanded. And the Supreme Court has limited general jurisdiction’s reach to a narrow class of defendants.

After decisions of the Supreme Court in Daimler and Goodyear, a court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the state are so ‘continuous and systematic’ as to render them essentially at home in the forum state. And,  concerning a corporation, the place of incorporation and principal place of business are paradigm bases for general jurisdiction because these are places where a corporation is fairly regarded as at home, but the Court left the door open to the possibility that 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,” but characterized such scenario as an exceptional case.

The Court of Appeals had never conflated consent to service of process with consent to general jurisdiction. Under existing New York law, a foreign corporation does not consent to general jurisdiction in the state merely by complying with the BCL’s registration provisions.

Wilson, J. (dissenting) in which Rivera, J. joined:

Judge Wilson countered with a more detailed statement of the fact: Jose Aybar, Jr., a resident of New York, owned a Ford Explorer equipped with Goodyear tires in New York, which was registered to him with the New York Department of Motor Vehicles. He purchased the car in New York. On July 1, 2012, he was driving the Explorer, with  his family members as passengers, on a return trip from a vacation in Florida back to New York. All passengers were New York residents. On I-85 in Brunswick County, Virginia, the car crashed and rolled over multiple times. Three passengers, including an 8-year-old girl, died; three others, including a 14-year-old girl, were seriously injured. The six passengers, or their estates, filed suit in New York against Ford, Goodyear, and others. The complaint alleged that the accident was caused by Ford and Goodyear’s negligence. It was undisputed that both Ford and Goodyear:

(a) had registered to do business in New York; and

(b) conducted a substantial amount of business in New York; but

(c) were not incorporated in New York.

Where could the survivors and representatives sue Ford and Goodyear? The following points were undisputed. Ford could be sued in Delaware and Goodyear in Ohio because, under the doctrine of general jurisdiction, those states were their homes, where they could be sued for anything at all. Ford and Goodyear could both be sued in Virginia because the doctrine of specific jurisdiction allowed them to be sued where the accident occurred. Finally, even when neither general nor specific jurisdiction otherwise existed, a defendant may be sued wherever it has consented to be sued.

According to the dissent, the majority erroneously concluded that Ford and Goodyear did not consent to general jurisdiction in New York by registering to do business in the State. The majority did not dispute that a defendant may consent to personal jurisdiction where it otherwise would not exist. The majority also did not dispute that actions, such as registering to do business in a state, could constitute consent to personal jurisdiction if that consequence were established by law. The sole question in this appeal, then, was whether New York law established that corporate registration equaled consent to personal jurisdiction.

The majority observed that the BCL, though requiring out-of-state corporations to designate an agent for service when registering to do business in New York, did not say that, in doing so, the corporation was agreeing that New York has personal jurisdiction over. But the absence of that language was not meaningful. Judicial decisions have the same effect as statutes: each sets out what the law is. And, in several predecessor cases, the Court of Appeals construed the relevant statute as conferring personal jurisdiction on corporations because they registered in New York. Statutory interpretation and construction are the provinceof the courts, and it is the province of the court to declare what the law is.

The Court of Appeals had interpreted the BCL at its inception when it was amended, and several times thereafter. The consistent interpretation dates back to the nineteenth century. The construction of a statute accepted for over a century without serious challenge should not be changed by the court without a compelling reason.

Although the majority relied on International ShoeDaimler and Goodyear, those cases did not support the majority’s holding. Jurisdiction may be established in three ways: specific jurisdiction (where the claim arose); general jurisdiction (where the defendant is at home); or consent. The majority recognized that International Shoe substantially expanded the places where personal jurisdiction over defendants could be asserted, mainly by differentiating between specific and general jurisdiction and allowing specific jurisdiction to empower courts located where the claim arose, regardless of the extent of the defendant’s presence. The majority pointed to Daimler and Goodyear as contracting general jurisdiction and emphasizing specific jurisdiction as the principal means by which personal jurisdiction over foreign defendants (whether corporate or natural) has been expanded. But that had nothing to do with jurisdiction by consent.

At most, the majority demonstrated that the expansion of specific jurisdiction had in many cases provided an alternative way to address the problem of reaching foreign defendants that had caused injury in a state other than their home. The expanded availability of specific jurisdiction may have made resort to consent-based jurisdiction less necessary, but it did not impugn its vitality in the least.

For more than a century, courts and commentators had widely understood that a corporation consented to personal jurisdiction in our courts by registering to do business in New York. Until now, all  interpretations of that statute  by the Court of Appeals had been consistent: the legislative purpose in requiring foreign companies to register was to obtain jurisdiction over them in our courts

The legislature has made it clear, starting in 1853 and reiterated several times thereafter, that its purpose in requiring foreign corporations registering to do business in New York was to subject them to jurisdiction here.

New York requires that foreign corporations wishing to do business here renew their registrations every two years. Ford first registered here in 1920, Goodyear in 1956. They each renewed their registrations many times; both re-registered in 2014. This suit was filed in 2015. As regards the disposition of this case, the question was not what this Court decides registration means starting today, but rather what registration meant in 2015, when this suit was filed. Unquestionably, the holding, in this case, puts future registrants on notice that, by registering, they were not consenting to jurisdiction here. But there was nothing to which Ford and Goodyear could point, or have pointed, to show such a position would have been reasonable in 2015. Until today, the rule of general jurisdiction by consent through registration was “well settled.”

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