N.Y. Court of Appeals Abolishes Jurisdiction Over Foreign Corporations Solely Based on Consent by Registration
New York, N.Y. (January 11, 2022) - The New York Court of Appeals’ decision in Aybar v. Aybar, 2021 N.Y. Slip Op. 05393, issued on October 7, 2021, overturned over 100 years of precedent in ruling that foreign corporations are no longer subject to being dragged into lawsuits in New York State court under the theory of "consent by registration."
The case at issue was filed in New York state court by plaintiff accident victims after a Virginia motor vehicle accident. They sued the driver, car manufacturer Ford Motor Company (Ford), and tire manufacturer Goodyear Tire and Rubber Co. (Goodyear). Ford and Goodyear separately moved to dismiss the suit pursuant to New York CPLR 3211(a)(8) for lack of personal jurisdiction. Both defendants argued that they were foreign corporations not subject to New York jurisdiction because they were not incorporated in New York and did not have their principal places of business there and New York had an insufficient nexus to the case. The plaintiffs opposed the motion based on New York Business Corporation Law (BCL) Section § 1301(a), 1304(a)(6), and 304(a) & (b). They argued that the New York courts have long followed the decision in Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432 (1916), which had been understood to connote that when a foreign corporation designates an in-state agent for service of process and registers the business as a foreign company with the secretary of state, the corporation consents to both service of process on a designated agent and general jurisdiction in New York.
That rule resulted in many foreign corporations such as Ford and Goodyear being held subject to jurisdiction because such corporations that transact any business in New York State are required to register and designate an agent for service. Foreign corporations are required to register even when they cannot be held to be doing business in New York to an extent necessary to give rise to general jurisdiction.
The Court of Appeals essentially overturned the precedents that emanated from the 1916 Bagdon decision in order to hold that a foreign corporation does not consent to the exercise of general jurisdiction by the New York courts simply by registering to do business in New York and designating a local agent for service of process (a.k.a. consent by registration). The Bagdon decision had relied on the then-relevant territorial approach to personal jurisdiction established in the 19th century in Pennoyer v. Neff, 95 U.S. 714 (1877). “In Bagdon, the defendant's consent to service of process had the effect of conferring general jurisdiction because, at that time, in-state service of process on a designated agent of a foreign corporation that was doing business in New York was itself sufficient to permit the exercise of general jurisdiction over the defendant.” Aybar, 2021 N.Y. Slip Op. 05393 at 9. As the Court of Appeals explained, the United States Supreme Court’s approach and New York common law have since evolved from Pennoyer's territorial approach to the point that, under the more recent Supreme Court decision in Daimler AG v. Bauman, 571 U.S. 117 (2014), general jurisdiction exists only in states where the corporation had substantial continuous and systematic activities such that the corporation is essentially "at home" in that forum.
In short, the Court of Appeals recognized that 19th century rules may not be well-suited to governing 21st century litigation.
Of course, the Court of Appeal’s decision does not necessarily mean that truly national entities such as Ford and Goodyear can avoid being haled into court in New York. The facts of each case will need to be scrutinized to determine whether there are sufficient contacts under the traditional jurisdictional analyses to support the exercise of jurisdiction.
Interestingly, during 2021, even before the Court of Appeals issued this decision, the state legislature had attempted to preemptively resolve this issue via a bill under which any entity registered to do business in New York would consent to New York's general jurisdiction. Governor Kathy Hochul vetoed the proposed legislation. It remains to be seen whether this issue will be brought up again this year or in the future.
For the present time, businesses around the country can be encouraged by the renewed prospects of potentially avoiding having to litigate in New York in cases having an insufficient relationship to the state solely due to the antiquated consent by registration concept. The next likely focus of litigation in the lower courts is whether the Court of Appeals’ ruling should be given retroactive or prospective only effect.
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Maxwell S. Margulies, Associate
Peter T. Shapiro, Partner