For more than a century, it was well established that any foreign entity registered to do business in New York could be sued in a New York state or federal court for any reason – i.e., registered foreign entities were subject to general personal jurisdiction in New York. The theory was that by registering to do business in New York, a foreign entity affirmatively consented to be subject to general personal jurisdiction. Decisions in recent years, however, have thrown this deeply enshrined law on personal jurisdiction in New York into turmoil. Potential litigants should be aware that since 2014, obtaining jurisdiction over a foreign entity in New York (at least in federal district courts located in New York) has become much more problematic, and in many cases impossible. New York-based companies doing business with foreign entities should familiarize themselves with the new restrictions on personal jurisdiction, and should consider carefully whether a forum selection clause is necessary to protect their right to have potential future disputes resolved by the courts located in New York.
In the last year, federal district courts in New York have overturned a century of case law in New York, finding that due process no longer permits courts located in New York to exercise general jurisdiction over a foreign entity on the basis of its registration to do business in the state and its appointment of a local agent, such as the New York Secretary of State, for service of process. In these decisions, the federal district courts in New York have cited a 2014 Supreme Court decision – Daimler AG v. Bauman, 134 S. Ct. 746 (2014) – and interpreted that decision as completely rejecting, as contrary to due process, the concept of consenting to jurisdiction through compliance with the State’s registration process for obtaining authorization to do business in New York.
Meanwhile, however, state courts in New York have reached the opposite conclusion. New York state courts have continued to find that by registering to do business in New York and appointing a local agent for service of process, a foreign entity affirmatively consents to be sued in the state for any reason. And New York state courts have specifically rejected arguments that the Supreme Court’s Daimler decision altered the law in this regard. Thus, at present, there is a complete split between federal and state courts in New York on this topic. Practically speaking, many lawsuits brought against foreign entities in New York state court will give rise to diversity jurisdiction, thus allowing the foreign entity to remove the case from state court to federal court. Therefore, the personal jurisdiction issue will most often be decided by a federal court applying federal precedent.
Under recent New York federal district court precedent, the Supreme Court’s decision in Daimler prevents courts from exercising general personal jurisdiction over a foreign entity (even one registered with the New York Secretary of State) unless that foreign entity is “essentially at home in New York” – a phrase that has been interpreted to mean having its principal place of business in New York, despite being formed elsewhere. This new “essentially at home” Daimler standard for exercising general jurisdiction is much higher than the old “minimum contacts” standard of International Shoe and its progeny. Therefore, what you learned about personal jurisdiction in law school is no longer the state of the law, at least if you are litigating in federal court in New York. As the Second Circuit recently put it, under the Daimler standard: “when a corporation is neither incorporated nor maintains its principal place of business in a state, mere contacts, no matter how ‘systematic and continuous,’ are extraordinarily unlikely to” give rise to general personal jurisdiction. Accordingly, even where a foreign corporation maintains offices within the state, employs hundreds if not thousands of New Yorkers, derives substantial revenues from the state, and/or maintains an agent for service of process in the state, the foreign entity will typically not be subject to general jurisdiction in New York unless its principal place of business is also located in the State.
Because the Daimler “essentially at home” standard is so difficult to meet, and because the New York federal district courts have now uniformly rejected the concept of consent to general jurisdiction through compliance with New York’s registration to do business statute (as currently enacted), in most situations there remain only two bases for suing a foreign entity in New York. The first is specific jurisdiction under New York’s long arm statute – i.e., jurisdiction over the foreign entity with respect to disputes growing out of that entity’s activities within the State. For example, “[t]o establish [specific] personal jurisdiction under [CPLR § 302(a)(1)], a plaintiff must show (1) that the defendant ‘transacted business within the state’ and (2) that the claim ‘arise[s] from that business activity.’” “While even ‘one transaction in New York’ may suffice, New York’s long-arm statute authorizes specific jurisdiction only where that transaction has a ‘substantial relationship’ to the claim asserted in the instant case.” In short, specific jurisdiction analysis always involves a case-by-case consideration of the facts and circumstances, and therefore the outcome of a motion to dismiss for lack of personal jurisdiction is not always predictable.
The second remaining basis for suing a foreign entity in New York is where the foreign entity consented to jurisdiction in New York by virtue of a forum selection clause.
What all this means is that domestic companies have little assurance that they will be able to litigate their disputes with foreign corporations within New York state, unless they are suing on a contract containing an enforceable forum selection clause. Without a forum selection clause to invoke, domestic entities must understand that the well-known “doing business” / “minimum contacts” tests are no longer good law. Unless either (a) the foreign corporation’s principal place of business is located in the state, or (b) the subject matter of the lawsuit relates specifically to the defendant foreign corporation’s activities within the state of New York, the domestic company will likely lose on a motion to dismiss for lack of personal jurisdiction. As a result, domestic plaintiffs may find themselves with no choice but to litigate the dispute in the foreign corporation’s home state. As is evident from the foregoing, this drastic change in the law of personal jurisdiction in New York places a great deal of importance on forum selection clauses. If a domestic company wishes to protect its right to litigate in its home state, negotiating an enforceable forum selection clause may be crucial.