The corporation laws of every state provide that corporations organized in any other state or jurisdiction (e.g., foreign corporations) cannot transact intrastate business until they are authorized by the state to do so. That authorization is obtained through a process called “qualification” or “registration” that requires the filing of an application for authority with the Secretary of State (or equivalent office) and the designation of an in-state agent for service of process.
Foreign qualification or registration has certain consequences. The corporation, for example, becomes subject to certain provisions of the foreign state’s corporation, tax, and other laws. But does it also mean that the corporation becomes subject to the general jurisdiction of the state’s courts? (General, or all-purpose jurisdiction, is jurisdiction over a claim that does not arise out of or relate to the defendant’s contacts with the forum state.)
General jurisdiction and consent by registration
No corporation wants to be sued. But they particularly don’t want to be sued in what they consider unfavorable locations — like states that are hundreds or thousands of miles from their headquarters, or states that are considered hostile to corporations. And before the U.S. Supreme Court’s landmark decision in Daimler AG v. Bauman, 571 U.S. 117 (2014), general jurisdiction existed in any state where the corporation had substantial, continuous and systematic activities — which meant that large corporations with a nationwide presence would be subject to suit in many more states than they wished.
That all changed with Daimler. The Court held that in all but extraordinary cases, a corporation was subject to general jurisdiction only in its state of incorporation or the state where its principal place of business was located.
Daimler sent plaintiffs looking for alternate theories to assert personal jurisdiction over corporate defendants in states other than where the claim arose or where the corporation was incorporated or headquartered. One theory many have asserted is the so-called “consent by registration” theory. A defendant can consent to be sued in a state that otherwise would not have personal jurisdiction over it. And the consent by registration theory asserts that a foreign corporation consents to the general jurisdiction of a state’s courts by registering to do business in the state and designating an in-state agent for service of process.
Aybar lawsuit is filed in New York
Consent by registration was the theory asserted by the plaintiffs in Aybar v. Aybar, 2021 NY Slip Op 05393, 2021 NY LEXIS 2134, decided October 7, 2021. Aybar involved a fatal car accident in Virginia. The survivors and the estates of the decedents brought a lawsuit in New York against Ford Motor Company, a Delaware corporation with its principal place of business in Michigan, and The Goodyear Tire & Rubber Company, an Ohio corporation with its principal place of business in Ohio. Ford and Goodyear were both registered to do business in New York and had designated agents for service of process in New York.
Both corporations moved to dismiss for lack of personal jurisdiction. The trial court denied the motion, holding that the corporations had consented to general jurisdiction in New York by registering to do business and designating local agents for service of process. The court based its decision mainly on a 1916 decision by the New York Court of Appeals. The Appellate Division reversed the trial court. The Court of Appeals granted the plaintiffs’ leave to appeal and held that the corporations did not consent to jurisdiction by registering to do business and designating in-state agents for service of process.
The Court of Appeal’s decision
The court first examined the plain text of the provisions of the New York Business Corporation Law and found that while they plainly require a foreign corporation to register in order to do business in New York, they do not condition the right to do business on the corporation’s consenting to general jurisdiction, nor do they confer general jurisdiction to New York courts over foreign corporations that comply.
Secondly, the court held that the plaintiffs’ interpretation of that 1916 decision, Bagdon v. Philadelphia Reading Coal & Iron Co., 217 NY 432 (1916), was incorrect. Bagdon held that a foreign corporation consents to being served with process on its in-state agent for service of process. It does not hold that the corporation also consents to general jurisdiction. And the Court of Appeals has never conflated statutory consent to service with consent to general jurisdiction.
The court also pointed out the U.S. Supreme Court’s jurisprudence defining the contours of personal jurisdiction has evolved significantly since 1916, going from the territorial approach of Pennoyer v. Neff, 95 U.S. 714 (1877), to the minimum contacts approach of International Shoe Co. v. Washington, 326 U.S. 310 (1945), to Daimler, where the Court stated that exercising general jurisdiction in every state in which a corporation engages in a substantial, continuous and systematic course of conduct is unacceptably grasping and violates due process.
What does this mean for New York’s foreign corporations?
Although the management and counsel for the many thousands of corporations registered to do business in New York may be relieved by the Court of Appeal’s ruling that their foreign registration and designation of an agent for service of process does not mean they also consented to the general jurisdiction of New York’s courts, they should also be aware that legislation was introduced (AB 7769/SB 253) that would amend the Business Corporation Law to provide that a foreign corporation’s application for authority constitutes consent to the jurisdiction of New York’s courts. Whether that legislation will ever be enacted, or if so, will withstand Constitutional objections, remains to be seen. But for now, registered foreign corporations can have fewer concerns about having to defend themselves in New York against claims that arose anywhere else in the world.
Expanding to a new state? Start foreign qualification for your business today with CT Corporation.