New York Court of Appeals Holds that Foreign Corporations Authorized to Do Business in New York Do Not Consent to Personal Jurisdiction in New York by Designating an In-State Agent for Service of Process

Foreign corporations seeking authorization to do business in New York are required to register with the New York Secretary of State and designate an in-state agent for service of process (Business Corporation Law §§1301, 1304).  By registering to do business in New York and appointing an in-state agent to receive service of process, do foreign corporations consent to jurisdiction?  In its recent decision in Aybar v.  Aybar, 2021 Slip Op 05393, 2021 WL 4596367 (October 7, 2021), the Court of Appeals held that they do not.

Jose Aybar, a resident of New York, owned a Ford Explorer, which he purchased in New York, equipped with Goodyear tires, and registered with the New York Department of Motor Vehicles.  While driving back from Florida with family members, all of whom were New York residents, the car crashed, in Virginia, killing or seriously injuring the passengers.  An action was commenced by the passengers or their estates, in New York, against Ford, Goodyear and others, alleging that the accident was caused by Ford and Goodyear’s negligence.  Neither Ford nor Goodyear are incorporated in New York.  Both companies have registered to do business in New York and have designated, in compliance with the BCL, an in-state agent to receive service of process.

In the trial court, Ford and Goodyear moved to dismiss for lack of jurisdiction.  The plaintiffs opposed the motion on several grounds, including that Ford and Goodyear had consented to jurisdiction in New York by appointing an in-state agent to receive process.  The trial court denied the motions, holding that it could exercise general jurisdiction over both defendants and that they had consented to jurisdiction.  On appeal, the Appellate Division reversed and granted Ford and Goodyear’s motions to dismiss the complaint (see 169 AD3d 137, 152-153 [2d Dept 2019]).  The Court of Appeals granted leave to appeal.

The Court of Appeals, in a 5-2 decision, affirmed the order of the Appellate Division and held, “[A] foreign corporation’s registration to do business and designation of an agent for service of process in New York does not constitute consent to general jurisdiction under the Business Corporation Laws plain terms” (2021 WL 4596367 at *2 [citation omitted]).

The court distinguished its prior case, relied upon by the plaintiffs, Bagdan v Philadelphia & Reading Coal & Iron Co., 217 NY 432 [1916], stating that its holding in Bagdan “was limited to the effect of service of process to which a foreign corporation consented; we did not determine that a foreign corporation consented to general jurisdiction by registering to do business and designating an agent for service of process” (2021 WL 4596367 at *3).[1]  Further, the Court acknowledged that its analysis in Bagdan would be different today from what it was at the time it was rendered.

Reviewing Supreme Court jurisprudence concerning the due process clause of the 14th Amendment and evolving jurisprudence, citing Goodyear Dunlop Tires Operations, S.A. v Brown,  564 US 915 [2011] and Daimler AG v Bauman, 571 US 117 [2014], the Court stated, “Today, ‘the exercise of general jurisdiction in every [s]tate in which a corporation engages in a substantial, continuous and systematic course of business’ would be ‘unacceptably grasping’ [citations omitted]” …  “[A] court may assert general jurisdiction over foreign … corporations to hear any and all claims against them when their affiliations with the [s]tate are so ‘continuous and systematic’ as to render them essentially at home in the forum [s]tate” (2021 WL 4596367 at *6 [citations omitted] [emphasis added]).  “At home” has been interpreted to mean the place where corporation is incorporated or maintains its principal place of business.  “The [Supreme] 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 [s]tate,’ but characterized such scenario as an ‘exceptional case’” (id. [citation omitted]).

Thus, the exercise of general jurisdiction over foreign corporations based upon registering to do business in New York alone has been foreclosed.  However, specific case-linked jurisdiction over a foreign corporation, such as may result from long-arm jurisdiction, still exists.

What does this mean? Is this just an academic exercise?  Not really.  There has been significant debate concerning the issue, both on legal (constitutional) and public policy grounds.  The Court in its decision in Aybar decided the issue on legal grounds. Recently, the New York State legislature passed legislation, which has not yet been signed by the governor,[2] which provides that a foreign corporation’s application for authority to do business in this state constitutes consent to jurisdiction of the courts of New York State.  Public policy arguments in support of the legislation include that “[b]eing able to sue New York-licensed corporations in New York on claims that arose elsewhere will save New York residents and others the expense and inconvenience of traveling to distant forums to seek the enforcements of corporate obligations’” and that it would provide “certainty regarding personal jurisdiction over out-of-state businesses…”  (Sponsor’s Memorandum in Support of the Proposed Legislation).  Public policy arguments in opposition to the proposed legislation include that its enactment could deter foreign businesses from coming to New York; that some out-of-state corporations will not register and appoint a New York agent for service of process, increasing the difficulties of effecting service on those entities; and that New  York would “become the world’s courtroom,” requiring New York courts to engage in a tedious, case-by-case inquiry to resolve innumerable forum non conveniens arguments and resolve the many procedural and substantive issues that remaining cases present when those cases might have been brought elsewhere (see, e.g., letter of the New York City Bar Association to the Hon. Kathy Hochul dated August 26, 2021, submitted in opposition to the proposed legislation).  The fate of the proposed legislation is uncertain, especially given the Court of Appeals decision in Aybar.  Stay tuned.

[1] In Bagdan, the foreign defendant conceded that it was engaged in unrelated business in New York.  The plaintiff’s causes of action were unrelated to the business transacted by the defendant in New York.

[2] A. 7769 (M. of A. Weinstein)/S. 7253 (Sen. Gianaris).

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