Precedent 103 Years Old Falls as New York’s Jurisdictional Grasp Narrows
In late January, the Second Department effectively cast aside Bagdon v. Philadelphia and Reading Coal & Iron Co., 217 N.Y. 432 (1916), in which the Court of Appeals had held that a foreign corporation could be sued in New York even if the underlying claim had no relation to the company’s operations here, as long as it had obtained authorization to do business and appointed an agent for service of process in New York. Aybar v. Aybar, 2019 NY Slip Op 00412 (2019). The Second Department disavowed Bagdon despite a United States Supreme Court case in 1939 which affirmed that registering in New York and designating an agent for service of process constitutes corporate consent to be sued in New York. Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165 (1939).
The Second Department held that this landscape was fundamentally altered by Daimler AG v. Bauman, 571 US 20 (2014):
Since Daimler, the Supreme Court has reiterated that, standing alone, mere “in-state business . . . does not suffice to permit the assertion of general jurisdiction over claims . . . that are unrelated to any activity occurring in [the forum State]” (BNSF Ry Co. v Tyrrell, ______ US at ____, 137 S Ct at 1559). To determine whether a foreign corporate defendant’s affiliations with the state are so continuous and systematic as to render it essentially at home, Daimler advised that “the general jurisdiction inquiry does not focus solely on the magnitude of the defendant’s in-state contacts,” but “instead calls for an appraisal of a corporation’s activities in their entirety, nationwide and worldwide. A corporation that operates in many places can scarcely be deemed at home in all of them” (Daimler AG v Bauman, 571 US at 139 n 20; see BNSF Ry co. v Tyrrell, _____ US at _____, 137 S Ct at 1559).
Addressing Bagdon, the Court reasoned:
The consent-by-registration line of cases is predicated on the reasoning that by registering to do business in New York and appointing a local agent for service of process, a foreign corporation has consented to be found in New York. Daimler made clear, however, that general jurisdiction cannot be exercised solely on such presence . . . . The Supreme Court expressly cautioned that cases such as Tauza v Susquehanna Coal Co. 220 NY 259) which uphold the exercise of general jurisdiction based on the presence of a local office “should not attract heavy reliance today” (Daimler AG v Bauman, 571 US at 138 n 18). As other courts have observed, it appears that every state in the Union has enacted a registration statute that requires foreign corporations to register to do business and appoint an in-state agent for service of process (citing cases). We agree with those courts that asserting jurisdiction over a foreign corporation based on the mere registration and the accompanying appointment of an in-state agent by the foreign corporation, without the express consent of the foreign corporation to general jurisdiction, would be “unacceptably grasping” under Daimler.
The Court was careful to note that plaintiffs were not asserting specific jurisdiction under CPLR 302. The plaintiffs could not rely on that basis because the tire at issue was designed in Ohio, manufactured in Tennessee, and tested and inspected outside of New York; nor were any advertisements directed at New York residents.
In short, while it was no surprise the Second Department held that Bagdon was no longer good law after Daimler, its decision upends over a century of
Joe DiBenedetto recently retired from Winston & Strawn LLP, after spending 46 years in its Manhattan office as a capital partner specializing in commercial litigation. He formed JDB Mediation LLC to further develop his mediation and arbitration practice, which is centered in Manhattan and its surrounding counties (including Westchester, Nassau, and Suffolk). Joe DiBenedetto’s experience, training, and other credentials are more fully described at www.JDBMediation.com