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The portability of international arbitral awards is one of the reasons why arbitration is used to settle international business disputes. Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), the prevailing party in arbitration may seek to enforce a qualifying award before the courts of any of the 156 signatory countries. Such procedures are intended to be a powerful tool in the hands of an award creditor, theoretically enabling collection from the assets of the award debtor in nearly any country.

In theory, such actions are limited only by the grounds for non-enforcement listed in Article V of the New York Convention. In the United States, however, actions to confirm foreign arbitral awards are also subject to constitutional due process limitations on personal jurisdiction. These can be significant, since the underlying awards in such actions often concern disputes among foreign parties relating to foreign subject matter—the connection to the enforcement state is frequently slight. And while personal jurisdiction could previously be grounded on the award debtor’s non-dispute-related business contacts with the forum state, such ties are no longer sufficient following the U.S. Supreme Court’s decision in Daimler AG v. Bauman, 134 S. Ct. 746 (2014).

One way that award creditors have sought to establish personal jurisdiction after Daimler is through the theory that business registration entails consent to general (all-purpose) jurisdiction. The U.S. Court of Appeals for the Second Circuit addressed this jurisdictional theory with respect to the Connecticut registration statute in Brown v. Lockheed Martin, 814 F.3d 619 (2d Cir. 2016), which provides guidance as to how the principles established in Daimler should be applied to business registration statutes and illustrates why New York courts should not be able to exercise personal jurisdiction over an award debtor solely on the basis of business registration.

Registration Jurisdiction Before ‘Daimler’

New York requires foreign corporations to register as a condition of doing business in the state. When registering, a foreign corporation must either accept the designation of the New York secretary of state as its agent for service of process or appoint its own registered agent in the state. See N.Y. Bus. Corp. L. §§1304, 304.

Before Daimler, a line of cases held that a foreign corporation registered to do business in New York had implicitly consented to general personal jurisdiction. See Rockefeller Univ. v. Ligand Pharm., 581 F. Supp. 2d 461, 464-67 (S.D.N.Y. 2008); Steuben Foods v. Oystar Grp., 2013 WL 2105894, at *3 (W.D.N.Y. May 14, 2013). As the Third Department articulated:

[Defendant's] authorization to do business in the State and concomitant designation of the Secretary of State as its agent for service of process … is consent to in personam jurisdiction. A voluntary use of certain State procedures, as in the instant case, is in fact a form of constructive consent to personal jurisdiction which has been found to satisfy due process.

Augsbury v. Petrokey, 97 A.D.2d 173, 175-76 (3d Dep’t 1983) (citations omitted). But see Albany Int’l v. Yamauchi, 978 F. Supp. 2d 138, 143 (N.D.N.Y. 2013) (registration is “strong evidence” of jurisdiction but not dispositive in the absence of actual business in New York); Bellepointe v. Kohl’s Dep’t Stores, 975 F. Supp. 562, 564 (S.D.N.Y. 1997) (same).

Supreme Court’s ‘Daimler’ Decision

The Supreme Court’s decision in Daimler considerably narrowed the permissible scope of general jurisdiction, making more definite its previous holding in Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011) that doing business in a state is insufficient to establish general jurisdiction there in the absence of “affiliations with the State [that] are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.” Daimler, 134 S. Ct. at 761 (quoting Goodyear, 131 S. Ct. at 2851). Daimler clarified that only a “limited set of affiliations” could meet this test: Apart from an “exceptional case,” a corporation is subject to general jurisdiction only in its place of incorporation and principle place of business. Id. at 760-61, 761 n.19.

The effects of Daimler on foreign arbitral award enforcement proceedings were quickly felt. Three months later, the Second Circuit reversed an order confirming a foreign arbitral award in circumstances common to such proceedings—foreign party, foreign dispute, and foreign award, but some non-dispute-related business in New York—holding that the lack of sufficient contacts compelled dismissal under Daimler. Sonera Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221, 22427 (2d Cir. 2014).

Impact of ‘Daimler’: the ‘Brown’ Decision

No longer able to rely on doing business as a basis for general jurisdiction, award creditors have looked to alternative jurisdictional theories to ground enforcement actions. Many believed they had found their answer in the argument that by registering to do business in the state, the award debtor has consented to jurisdiction.

Some New York decisions have accepted this argument. Justice Sherry Klein Heitler of the Supreme Court, New York County, for example, held that Daimler‘s due process limitations did not apply where a party had registered to do business in New York:

Although Daimler clearly narrows the reach of New York courts in terms of its exercise of general jurisdiction over foreign entities, it does not change the law with respect to personal jurisdiction based on consent. … [A] corporation may consent to jurisdiction in New York … by registering as a foreign corporation and designating a local agent.

Bailen v. Air & Liquid Sys., 2014 WL 3885949, at *4 (Sup. Ct. N.Y. Cnty. Aug. 5, 2014); see also Beach v. Citigroup Alt. Inv., 2014 WL 904650, at *6 (S.D.N.Y. March 7, 2014); Serov ex rel. Serova v. Kerzner Int’l Resorts, 2016 WL 4083725, at *3-5 (Sup. Ct. N.Y. Cnty. July 26, 2016).

However, the Second Circuit’s 2016 decision in Brown effectively closed the door to this line of reasoning. Brown construed the Connecticut registration statute as not requiring consent to jurisdiction, identifying constitutional concerns that are equally relevant in New York.

First, Brown sought to avoid “creating precisely the result that the [U.S. Supreme] Court so roundly rejected in Daimler“—i.e., “that a corporation was subject to general jurisdiction in every state in which it conducted substantial business.” 814 F.3d at 640. As the Second Circuit explained:

It appears that every state in the union—and the District of Columbia, as well—has enacted a business registration statute. If mere registration and the accompanying appointment of an in-state agent—without an express consent to general jurisdiction—nonetheless sufficed to confer general jurisdiction by implicit consent, every corporation would be subject to general jurisdiction in every state in which it registered, and Daimler’s ruling would be robbed of meaning by a back-door thief.

Id.

Second, the court was uncomfortable with adopting a legal framework under which conducting substantial business in a state was insufficient to ground jurisdiction, whereas simply registering to do business, without necessarily performing any business, would suffice. Id. at 640.

Third, the court identified constitutional interests in: (1) providing sufficient notice to a “perhaps unwitting” registrant; and (2) disfavoring extraterritorial assertions of jurisdiction “in circumstances where the state’s interests seem limited.” Id. at 637. Thus, the Second Circuit suggested (but did not rule) that, “at least in cases brought by state residents”—i.e., where the state’s interests are sufficiently great—a “carefully drawn state statute that expressly required consent to general jurisdiction as a condition on a foreign corporation’s doing business in the state … might well be constitutional.” Id. at 641.

Jurisdiction After ‘Brown’

As in Connecticut, New York’s business registration statute does not explicitly require consent to jurisdiction (although efforts to amend the statute are underway), and the state’s highest court has not definitively construed it to have this effect. Thus, one would expect Brown‘s interpretation to apply equally to the New York registration statute. Indeed, this has been the result reached by every New York federal district court decision to have considered the issue since Brown. Famular v. Whirlpool, 2017 WL 280821, at *4-5 (S.D.N.Y. Jan. 19, 2017); Taormina v. Thrifty Car Rental, 2016 WL 7392214, at *6-7 (S.D.N.Y. Dec. 21, 2016); Bonkowski v. HP Hood, 2016 WL 4536868, at *3 (E.D.N.Y. Aug. 30, 2016); Minholz v. Lockheed Martin, 2016 WL 7496129, at *8-9 (N.D.N.Y. Dec. 30, 2016); see also Chatwal Hotels & Resorts v. Dollywood Co., 90 F. Supp. 3d 97, 105 (S.D.N.Y. 2015) (pre-Brown).

However, even if the New York registration statute were to be amended, or if the Court of Appeals were to rule differently, Brown would still serve to disallow many actions to confirm foreign arbitral awards, given that the Second Circuit was (at most) willing to permit compelling “consent” as a cost of registration in cases brought by state residents. In the future, we expect that foreign award creditors will increasingly rely on asset-based (quasi in rem) jurisdiction. Whether they will be successful is yet to be seen.

The portability of international arbitral awards is one of the reasons why arbitration is used to settle international business disputes. Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), the prevailing party in arbitration may seek to enforce a qualifying award before the courts of any of the 156 signatory countries. Such procedures are intended to be a powerful tool in the hands of an award creditor, theoretically enabling collection from the assets of the award debtor in nearly any country.

In theory, such actions are limited only by the grounds for non-enforcement listed in Article V of the New York Convention. In the United States, however, actions to confirm foreign arbitral awards are also subject to constitutional due process limitations on personal jurisdiction. These can be significant, since the underlying awards in such actions often concern disputes among foreign parties relating to foreign subject matter—the connection to the enforcement state is frequently slight. And while personal jurisdiction could previously be grounded on the award debtor’s non-dispute-related business contacts with the forum state, such ties are no longer sufficient following the U.S. Supreme Court’s decision in Daimler AG v. Bauman , 134 S. Ct. 746 ( 2014 ) .

One way that award creditors have sought to establish personal jurisdiction after Daimler is through the theory that business registration entails consent to general (all-purpose) jurisdiction. The U.S. Court of Appeals for the Second Circuit addressed this jurisdictional theory with respect to the Connecticut registration statute in Brown v. Lockheed Martin , 814 F.3d 619 ( 2d Cir. 2016 ) , which provides guidance as to how the principles established in Daimler should be applied to business registration statutes and illustrates why New York courts should not be able to exercise personal jurisdiction over an award debtor solely on the basis of business registration.

Registration Jurisdiction Before ‘Daimler’

New York requires foreign corporations to register as a condition of doing business in the state. When registering, a foreign corporation must either accept the designation of the New York secretary of state as its agent for service of process or appoint its own registered agent in the state. See N.Y. Bus. Corp. L. §§1304, 304.

Before Daimler, a line of cases held that a foreign corporation registered to do business in New York had implicitly consented to general personal jurisdiction. See Rockefeller Univ. v. Ligand Pharm. , 581 F. Supp. 2d 461, 464-67 ( S.D.N.Y. 2008 ) ; Steuben Foods v. Oystar Grp., 2013 WL 2105894, at *3 (W.D.N.Y. May 14, 2013). As the Third Department articulated:

[Defendant's] authorization to do business in the State and concomitant designation of the Secretary of State as its agent for service of process … is consent to in personam jurisdiction. A voluntary use of certain State procedures, as in the instant case, is in fact a form of constructive consent to personal jurisdiction which has been found to satisfy due process.

Augsbury v. Petrokey , 97 A.D.2d 173, 175-76 ( 3d Dep’t 1983 ) (citations omitted). But see Albany Int’l v. Yamauchi , 978 F. Supp. 2d 138, 143 ( N.D.N.Y. 2013 ) (registration is “strong evidence” of jurisdiction but not dispositive in the absence of actual business in New York ); Bellepointe v. Kohl’s Dep’t Stores , 975 F. Supp. 562, 564 ( S.D.N.Y. 1997 ) (same).

Supreme Court’s ‘Daimler’ Decision

The Supreme Court’s decision in Daimler considerably narrowed the permissible scope of general jurisdiction, making more definite its previous holding in Goodyear Dunlop Tires Operations, S.A. v. Brown , 131 S. Ct. 2846 ( 2011 ) that doing business in a state is insufficient to establish general jurisdiction there in the absence of “affiliations with the State [that] are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State.” Daimler, 134 S. Ct. at 761 (quoting Goodyear, 131 S. Ct. at 2851). Daimler clarified that only a “limited set of affiliations” could meet this test: Apart from an “exceptional case,” a corporation is subject to general jurisdiction only in its place of incorporation and principle place of business. Id. at 760-61, 761 n.19.

The effects of Daimler on foreign arbitral award enforcement proceedings were quickly felt. Three months later, the Second Circuit reversed an order confirming a foreign arbitral award in circumstances common to such proceedings—foreign party, foreign dispute, and foreign award, but some non-dispute-related business in New York —holding that the lack of sufficient contacts compelled dismissal under Daimler . Sonera Holding B.V. v. Cukurova Holding A.S. , 750 F.3d 221, 22427 ( 2d Cir. 2014 ) .

Impact of ‘Daimler’: the ‘Brown’ Decision

No longer able to rely on doing business as a basis for general jurisdiction, award creditors have looked to alternative jurisdictional theories to ground enforcement actions. Many believed they had found their answer in the argument that by registering to do business in the state, the award debtor has consented to jurisdiction.

Some New York decisions have accepted this argument. Justice Sherry Klein Heitler of the Supreme Court, New York County, for example, held that Daimler‘s due process limitations did not apply where a party had registered to do business in New York :

Although Daimler clearly narrows the reach of New York courts in terms of its exercise of general jurisdiction over foreign entities, it does not change the law with respect to personal jurisdiction based on consent. … [A] corporation may consent to jurisdiction in New York … by registering as a foreign corporation and designating a local agent.

Bailen v. Air & Liquid Sys., 2014 WL 3885949, at *4 (Sup. Ct. N.Y. Cnty. Aug. 5, 2014); see also Beach v. Citigroup Alt. Inv., 2014 WL 904650, at *6 (S.D.N.Y. March 7, 2014); Serov ex rel. Serova v. Kerzner Int’l Resorts, 2016 WL 4083725, at *3-5 (Sup. Ct. N.Y. Cnty. July 26, 2016).

However, the Second Circuit’s 2016 decision in Brown effectively closed the door to this line of reasoning. Brown construed the Connecticut registration statute as not requiring consent to jurisdiction, identifying constitutional concerns that are equally relevant in New York .

First, Brown sought to avoid “creating precisely the result that the [U.S. Supreme] Court so roundly rejected in Daimler“—i.e., “that a corporation was subject to general jurisdiction in every state in which it conducted substantial business.” 814 F.3d at 640. As the Second Circuit explained:

It appears that every state in the union—and the District of Columbia, as well—has enacted a business registration statute. If mere registration and the accompanying appointment of an in-state agent—without an express consent to general jurisdiction—nonetheless sufficed to confer general jurisdiction by implicit consent, every corporation would be subject to general jurisdiction in every state in which it registered, and Daimler’s ruling would be robbed of meaning by a back-door thief.

Id.

Second, the court was uncomfortable with adopting a legal framework under which conducting substantial business in a state was insufficient to ground jurisdiction, whereas simply registering to do business, without necessarily performing any business, would suffice. Id. at 640.

Third, the court identified constitutional interests in: (1) providing sufficient notice to a “perhaps unwitting” registrant; and (2) disfavoring extraterritorial assertions of jurisdiction “in circumstances where the state’s interests seem limited.” Id. at 637. Thus, the Second Circuit suggested (but did not rule) that, “at least in cases brought by state residents”—i.e., where the state’s interests are sufficiently great—a “carefully drawn state statute that expressly required consent to general jurisdiction as a condition on a foreign corporation’s doing business in the state … might well be constitutional.” Id. at 641.

Jurisdiction After ‘Brown’

As in Connecticut, New York ‘s business registration statute does not explicitly require consent to jurisdiction (although efforts to amend the statute are underway), and the state’s highest court has not definitively construed it to have this effect. Thus, one would expect Brown‘s interpretation to apply equally to the New York registration statute. Indeed, this has been the result reached by every New York federal district court decision to have considered the issue since Brown. Famular v. Whirlpool, 2017 WL 280821, at *4-5 (S.D.N.Y. Jan. 19, 2017); Taormina v. Thrifty Car Rental, 2016 WL 7392214, at *6-7 (S.D.N.Y. Dec. 21, 2016); Bonkowski v. HP Hood, 2016 WL 4536868, at *3 (E.D.N.Y. Aug. 30, 2016); Minholz v. Lockheed Martin , 2016 WL 7496129, at *8-9 (N.D.N.Y. Dec. 30, 2016); see also Chatwal Hotels & Resorts v. Dollywood Co. , 90 F. Supp. 3d 97, 105 ( S.D.N.Y. 2015 ) ( pre- Brown ) .

However, even if the New York registration statute were to be amended, or if the Court of Appeals were to rule differently, Brown would still serve to disallow many actions to confirm foreign arbitral awards, given that the Second Circuit was (at most) willing to permit compelling “consent” as a cost of registration in cases brought by state residents. In the future, we expect that foreign award creditors will increasingly rely on asset-based (quasi in rem) jurisdiction. Whether they will be successful is yet to be seen.