Patrick M. Connors ()
The standard used for decades to measure whether a corporate defendant is subject to general jurisdiction in New York under CPLR 301, the famous “corporate presence” or “doing business” test, has been all but declared unconstitutional by the Supreme Court in its January 2014 decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014). Just six weeks after its blockbuster opinion in Daimler, the court returned to the subject of personal jurisdiction in Walden v. Fiore, 134 S. Ct. 1115 (2014), a decision that will most certainly affect the application of CPLR 302(a)(3) in actions based on longarm jurisdiction.
The holdings in Daimler and Walden are still in their infancy, yet they have already been cited in dozens of state and federal decisions and will have a dramatic impact on the scope of personal jurisdiction as it existed prior to 2014. A review of recent pieces in the Law Journal demonstrates that there is much to be said about these pronouncements, which were also noteworthy because they were delivered with virtual unanimity. Our goal, however, is to address the subject from the New York State perspective, concentrating on how these decisions will affect daily life in the trenches of litigation for both plaintiffs and defendants. Lawyers who are versed in the subject will provide immeasurable value to the representation of their clients in our global economy.
Space limitations necessarily compress our discussion here. In this piece, we will focus on the issues raised by the court’s decision in Daimler, which will come to the forefront when plaintiff’s claim has no connection with New York (“general jurisdiction”). In a subsequent installment, we will turn our attention to the pronouncements in Walden, which will impact litigation arising from acts that allegedly have some connection to New York (“specific/longarm jurisdiction”). For a full review of the issues raised by these decisions, practitioners should consult the July 2014 supplement to Siegel, New York Practice (5th ed. 2011), now available in hard copy and on Westlaw.
‘Doing Business’ Test Retired
The “doing business” test has been a staple subject in every first year law school civil procedure class for generations. The test was developed by courts to determine whether a corporate defendant is “present” in the state, thereby subjecting it to general jurisdiction for any claim, no matter where it arose. This basis of jurisdiction possesses quite a pedigree, owing in part to its most famous and oft quoted articulation by Judge Benjamin Cardozo in the New York Court of Appeals’ decision in Tauza v. Susquehanna Coal Co., 220 N.Y. 259 (1917); see Siegel, New York Practice §82. The long line of cases applying this standard, and the holding in Tauza itself, is now rendered obsolete by the Supreme Court’s decision in Daimler.
In Daimler, 22 Argentinian residents commenced an action in federal court in California against defendant, an automobile manufacturer headquartered in Germany. The complaint sought damages arising from criminal actions committed by defendant’s subsidiary in Argentina during its “Dirty War” in the 1970s. Plaintiffs claimed general jurisdiction over defendant in California predicated on the acts of another one of its subsidiaries, which distributed defendant’s cars in that state and others.
Even though defendant’s subsidiary was present in California with a fair degree of permanence and continuity, i.e., “doing business” there, the Supreme Court held that the “Due Process Clause of the Fourteenth Amendment precludes the [California] Court from exercising jurisdiction over [defendant] in this case, given the absence of any California connection to the atrocities, perpetrators, or victims described in the complaint.” Daimler, 134 S. Ct. at 751.
There were questions in Daimler regarding the particulars of the corporate parent-subsidiary relationship, and in language that is sure to draw attention in future cases the Court observed that a “subsidiary…might be its parent’s agent for claims arising in the place where the subsidiary operates, yet not its agent regarding claims arising elsewhere.” Daimler, 134 S. Ct. at 759; see Siegel, New York Practice §82 (discussing case law holding that a corporate agent’s pervasive activities in New York can be attributable to the principal for jurisdictional purposes in New York, even though ownership and directorship of the two corporations is separate).
It is important to note, however, that the Daimler holding did not rest on the specific parameters of the parent-subsidiary relationship at issue in the case. The court ruled that even if it were to assume that the activities of defendant’s California subsidiary “are imputable to [defendant], there would still be no basis to subject [defendant] to general jurisdiction in California, for [defendant's] slim contacts with the State hardly render it at home there.” Daimler, 134 S. Ct. at 760.
The Supreme Court stressed that “only a limited set of affiliations with a forum will render a defendant amenable to all-purpose jurisdiction there.” Daimler, 134 S. Ct. at 760. Therefore, “[f]or an individual, the paradigm forum for the exercise of general jurisdiction is the individual’s domicile; for a corporation, it is an equivalent place,” such as its “place of incorporation and principal place of business.” Id. The court conceded that it was not holding that these are the “only” two places where a corporation can be subject to general jurisdiction, but specifically concluded that a corporation is not subject to general jurisdiction “in every State in which a corporation ‘engages in a substantial, continuous, and systematic course of business.’” Id. at 761. This language threatens the continuing validity of a legion of cases on the books in New York that find general jurisdiction under the “doing business” test.
The 2014 Supreme Court gives Tauza and its articulation of the “doing business” test the constitutional cold shoulder, noting that its prior citations to the decision “should not attract heavy reliance today.” Daimler, 134 S. Ct. at 761 n.18. While it did not entirely rule out “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,” defendant’s “activities in California plainly d[id] not approach that level.” Daimler, 134 S. Ct. at 761 n.19 (citations omitted).
In short, the holding in Daimler permits a state to exercise general jurisdiction over a corporation in three instances: 1) when the corporation is incorporated in the state, 2) when the corporation has its principal place of business in the state, or 3) “in an exceptional case” where the corporation’s activities in the state are “so substantial and of such a nature as to render the corporation at home in that State.”
There will likely be considerable litigation on whether a corporation’s activities fall within the “exceptional case” category, but the facts in Daimler do not augur that this level of activity will often be found. The defendant’s subsidiary had “multiple California-based facilities,” including a regional office and car preparation center in the state and it was the largest supplier of luxury vehicles to the California market with several billions of dollars in annual sales there. Daimler, 134 S. Ct. at 752. Despite this, it was still not “at home” in the forum state.
Justice Sonia Sotomayor authored a lone concurrence, observing that “the majority’s approach creates the incongruous result that an individual defendant whose only contact with a forum State is a one-time visit will be subject to general jurisdiction if served with process during that visit, Burnham v. Superior Court of Cal., 495 U.S. 604 (1990), but a large corporation that owns property, employs workers, and does billions of dollars’ worth of business in the State will not be” if its place of incorporation and principal place of business is elsewhere. Daimler, 134 S. Ct. at 772–73 (Sotomayor, J., concurring).
Commencing an Action
Given the large number of corporations formed in Delaware, that state will likely see an increase in the number of actions commenced there in the wake of Daimler. What about the entity that is incorporated in Delaware, but then obtains a license to do business in New York? In Daimler, there was no mention of whether the defendant or its subsidiary was licensed to do business in California, or whether that would have affected the outcome.
The mere fact that service of process is made on a corporate official in New York does not create a basis of jurisdiction over the corporation itself, in the way that Justice Sotomayor noted that personal service on an individual in the state simultaneously establishes a basis of jurisdiction over that individual. See Siegel, New York Practice §§59, 70. Even if a corporate defendant’s activities in New York do not subject it to general jurisdiction in the state in light of the holding in Daimler, could the corporation that obtains a license to do business in New York be deemed to have consented to personal jurisdiction here? C.f., Siegel, New York Practice §98 (“Jurisdiction by Written Agreement”). This issue is likely to take on greater significance after the Daimler court’s evisceration of the “doing business” test.
When the defendant is a licensed foreign corporation, it will have designated the Secretary of State as its agent for service of process on any claim. Bus. Corp. L. §304; see Siegel, New York Practice §95. Several courts have held that this designation constitutes consent to personal jurisdiction in New York. See, e.g., Flame S.A. v. Worldlink Int’l (Holding) Ltd., 107 A.D.3d 436, 437 (1st Dept. 2013) (“New York courts have personal jurisdiction over [defendant] because, at the time this action was commenced, [defendant] was registered to do business in New York”), lv. denied, 22 N.Y.3d 855; Augsbury Corp. v. Petrokey Corp., 97 A.D.2d 173, 175–76 (3d Dept. 1983); STX Panocean (UK) Co., Ltd. v. Glory Wealth Shipping PTE Ltd., 560 F.3d 127, 131 (2d Cir. 2009) (“It is well-settled under New York law that registration [by foreign corporations to do business in New York] under §1304 [of the Business Corporation Law] subjects [them] to personal jurisdiction in New York.”). There has, however, been some disagreement on the subject. See, e.g., Bellepointe v. Kohl’s Dept. Stores, 975 F.Supp. 562, 564 (S.D.N.Y. 1997) (recognizing disagreement on the matter but following what it deemed to be “the rule set forth by the Second Circuit that a license to do business is not dispositive on the issue of personal jurisdiction”). There is a helpful discussion of the subject in Professor Vincent Alexander’s McKinney’s Practice Commentaries to CPLR 301.
Impact on New York Plaintiffs
The plaintiffs in Daimler were all Argentinian residents, and their claims arose from events that occurred not only outside California, but entirely outside the United States. Yet, the court’s holding will likely have a significant impact on plaintiffs who sue at home for claims arising in other states. For example, take a New York resident plaintiff who is injured after falling on defendant hotel’s property in Florida, where the hotel chain has its principal place of business. Now assume the hotel chain also operates three properties in Manhattan and is incorporated in Delaware. Unless a New York court concludes that this is “in an exceptional case” where the corporation’s activities in the state are “so substantial and of such a nature as to render the corporation at home” here, a motion to dismiss for lack of personal jurisdiction will likely succeed. Daimler, 134 S. Ct. at 761 n.19.
If the above prediction proves to be correct, it constitutes a radical departure from pre-2014 notions of general jurisdiction over a corporation, and there are likely many pending actions in New York state courts where jurisdiction is based on a similar set of facts. There can be no question that the defendant hotel is engaged in a substantial, continuous, and systematic course of business in New York, yet that is not enough to establish general jurisdiction over the corporation in the wake of Daimler. Daimler, 134 S. Ct. at 760. Moreover, the plaintiff’s residence or domicile in New York, standing alone, has little or no bearing in determining whether a corporation is subject to general jurisdiction in New York. See Walden, 134 S. Ct. at 1122 (“Put simply, however significant the plaintiff’s contacts with the forum may be, those contacts cannot be ‘decisive in determining whether the defendant’s due process rights are violated.’”).
CPLR 302, New York’s longarm statute, might provide a basis of specific jurisdiction if, for example, plaintiff can establish that the claim arose out of a transaction of business within New York. See CPLR 302(a) (1). That would be doubtful in many cases, and likely impossible in a situation in which plaintiff was merely visiting a guest at defendant’s hotel in Florida.
What remains for the plaintiff in this scenario? She can take the long trip back to Florida to institute the action, or possibly a shorter trip to Delaware on Amtrak to commence the suit where the hotel is incorporated. Under Daimler, plaintiff is assured a basis of jurisdiction over the corporate defendant in those forums. As noted above, if the hotel has procured a license to do business with the New York Secretary of State, that might provide another possibility for securing general jurisdiction over the corporation in New York.
This latter option does not, however, currently provide the certainty that is recommended for the plaintiff’s lawyer to maintain healthy sleeping habits. The prudent plaintiff’s lawyer in this scenario will commence the New York action as early as possible and dispose of any jurisdictional defenses through a prompt motion under CPLR 3211(b). If a defense of lack of personal jurisdiction cannot be disposed of in the early stages of the litigation, the plaintiff must be sure to consult the statute of limitations of the place where the defendant is incorporated or where it has its principal place of business to ensure that time remains for a new action in one of those other jurisdictions. See Siegel, New York Practice §231A (“Leave Time for Trouble”).
If a New York action is dismissed for lack of personal jurisdiction, the plaintiff must also remember that she will not be the beneficiary of CPLR 205(a)’s six-month extension in a subsequent action. Id., at §52. When the situation is getting close to the wire, the plaintiff should seriously consider commencing a precautionary “holding action” in the state where the defendant is incorporated so there will be an option to turn to if the New York action is dismissed on personal jurisdiction grounds.
Motions to Dismiss
The affirmative defense of lack of personal jurisdiction listed in CPLR 3211(a)(8) lurks in most answers served in New York State court actions. In the aftermath of Daimler, we suspect that this defense may get a dusting off by corporate defendants and be made the subject of a CPLR 3212 summary judgment motion. The aspect of personal jurisdiction addressed in Daimler, jurisdictional basis, is not subject to the 60-day rule in CPLR 3211(e). See Siegel, New York Practice §266. Therefore, the defendant can raise it on a motion for summary judgment made within the deadlines set in CPLR 3212(a) as long as the affirmative defense is pleaded in the answer.
Patrick M. Connors is a professor at Albany Law School and has assumed the authorship of ‘Siegel, New York Practice’ (5th ed. 2011).