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September 2, 2015

Impact of 'Daimler' on Registering as Foreign Corporation

This article originally ran in The Legal Intelligencer on September 2, 2015.

 

What are the jurisdictional consequences of registering as a foreign corporation in a state where a corporation would like to conduct business? If, for example, a California corporation registers to do business in Pennsylvania, is it subject to suit in Pennsylvania by a New York resident based on conduct that occurred in New Jersey? Under specific personal jurisdiction analysis, the answer is clearly no. But is there an argument that the corporation is subject to general personal jurisdiction, making it susceptible to suit in Pennsylvania despite the lack of any connection between the dispute and the commonwealth? Surprisingly, despite a 2014 pronouncement from the U.S. Supreme Court narrowing the scope of general personal jurisdiction, case law continues to support jurisdiction based solely on the act of registering to do business in a number of states, including Pennsylvania, New York and Delaware.

 

On Jan. 14, 2014, the U.S. Supreme Court issued its opinion in Daimler AG v. Bauman, 134 S.Ct. 746 (2014), clarifying the bounds of a court's ability to exercise general, "all purpose" jurisdiction over a foreign corporation, when the dispute involves no connection to the forum state. The Supreme Court held that the test for general jurisdiction is not simply whether a corporation conducts "continuous and systematic" activity within the forum state, but rather, "whether the corporation's affiliations with the state are so 'continuous and systematic' as to render it essentially at home in the forum state." The court identified a corporation's principal place of business as well its state of incorporation as the paradigmatic examples of where a corporation may be considered "at home." The court left open the possibility for exceptional circumstances in which a corporation could be considered "at home" elsewhere, but implied that only activity of a character substantially equivalent to a corporation's principal place of business would suffice. Numerous commentators have recognized this decision as a significant restriction on forum-shopping, particularly when litigating against large corporations that do substantial business throughout the country.

 

However, the Daimler decision did not address the issue of consent as a traditional basis upon which general jurisdiction over a corporation may be found. While forum selection clauses in contracts are commonly understood forms of consent, corporations and practitioners may not be cognizant of less obvious forms of consent—most notably with respect to state statutes providing that general jurisdiction exists over any foreign corporation that registers to do business and designates an agent for service of process in that state. Pennsylvania, Delaware and New York, for example, all have such statutes. Pennsylvania's general personal jurisdiction statute provides that Pennsylvania courts have "general personal jurisdiction" over corporations where any of the following relationships exist: "(i) incorporation under or qualification as a foreign corporation under the laws of this commonwealth; (ii) consent, to the extent authorized by the consent; (iii) the carrying on of a continuous and systematic part of its general business within this commonwealth." The Daimler decision clarifies the circumstances under which general jurisdiction may be established under the third prong of Pennsylvania's long-arm statute. However, the court did not address jurisdiction in the context of consent or registration.

 

Before Daimler, courts in many other jurisdictions have struggled with the jurisdictional impact of foreign business registration statutes. (See generally Matthew Kipp's "Inferring Express Consent: The Paradox of Permitting Registration Statutes to Confer General Jurisdiction.")

Although Daimler cautioned a narrow approach to general jurisdiction analysis, it provides no clear guidance on this issue. Courts in Pennsylvania have not weighed in since the Daimlerdecision, but numerous federal court decisions predating Daimler hold that registration as a foreign corporation in Pennsylvania constitutes consent and subjects a corporation to suit in Pennsylvania even where the suit does not arise out of the corporation's Pennsylvania contacts. Since Daimler did not address consent, these decisions presumably remain good law.

 

Likewise, in a series of cases post-dating Daimler, federal district courts in Delaware have expressly held that registration as a foreign business (which is required for any corporation that desires to conduct business in Delaware) is sufficient to establish general personal jurisdiction, regardless of whether the suit involves any Delaware conduct. Notably, in the Novartis Pharmaceuticals v. Mylan, 2015 U.S. Dist. LEXIS 31812, *8 (D. Del. Mar. 16, 2015), decision, U.S. District Judge Richard Andrews of the District of Delaware acknowledged in a footnote that he believed the Daimler decision included an "implied gloss that there should be a very limited number of places in which general jurisdiction exists" and predicted that "it may be the case that at some point the Supreme Court will decide that 'consent to general jurisdiction' registration statutes such as Delaware's violate due process or the commerce clause, but that has not happened to date."

 

Federal district courts in New York appear to be split on this issue. Compare Beach v. Citigroup Alternative Investments, 2014 U.S. Dist. LEXIS 30032, *18 (S.D.N.Y. Mar. 7, 2014) (holding that "a corporation may consent to jurisdiction in New York under Civil Practice Law and Rules Section 301 by registering as a foreign corporation and designating a local agent" notwithstanding the limitations set forth in the Daimler decision) with Chatwal Hotels & Resorts v. Dollywood Co., 2015 U.S. Dist. LEXIS 15976, *12-13 (S.D.N.Y. Feb. 6, 2015) (noting "the mere fact of [defendant's] being registered to do business is insufficient to confer general jurisdiction in a state that is neither its state of incorporation or its principal place of business"). While few state courts in New York have addressed the issue since Daimler, those that have appear to follow pre-Daimler precedent establishing that registration is sufficient to establish general personal jurisdiction. Underpinning the decisions in Pennsylvania, New York and Delaware is the rationale that the act of registering to do business in a foreign state, as well as the designation of an agent to accept service of process in that state, constitutes either implied or express consent to be sued in that state for any purpose. This notion finds support in the U.S. Supreme Court's decision in Pennsylvania Fire Insurance v. Gold Issue Mining & Milling, 243 U.S. 93, 95 (1917), where the Supreme Court stated that "there would be ... little doubt" as to the existence of personal jurisdiction over a corporation that appointed an agent to accept service of process in that state when the state's supreme court had interpreted the statute requiring such an appointment to constitute consent. In fact, every state has some variation of a registration statute that requires the designation of a local agent for service of process in order to conduct business within that state. However, it is not clear that a corporation necessarily would understand the jurisdictional import of registering to do business as anything more than an agreement to accept service within that state for suits arising out of its business activities within that state. A review of the forms required to register as a foreign corporation in Pennsylvania and New York, for example, provides no indication of the jurisdictional consequences of registration.

 

Accordingly, although the Supreme Court in Daimler expressed a clear intention to limit forum-shopping, and to restrict the places in which corporations can be hauled into court on matters having nothing to do with the forum, foreign business registration statutes have the potential to operate as an end-run around that policy. For a large corporation with operations in multiple states, any state where it registers as a foreign corporation may be considered a forum of general jurisdiction, just as though the corporation were headquartered there. Corporations should be cognizant that registration may create an increased exposure to foreign litigation, and review the case law regarding jurisdiction before registering and designating an in-state agent in a new market—particularly in jurisdictions with law that is not favorable to its business. Likewise, plaintiffs deciding where to file suit should be mindful that potential alternative bases of jurisdiction may exist in states with case law that is favorable to general jurisdiction under a consent-through-registration theory.

 

Andrew S. Gallinaro is a partner at Conrad O'Brien. He focuses his practice in complex commercial litigation, representing businesses and individuals in a variety of commercial contexts. In addition to his complex litigation practice, Gallinaro is also a key member of the firm's receivership litigation practice group and has experience in estate litigation as well as professional liability matters.  He can be reached at 215-864-8083 or agallinaro@conradobrien.com.

 

Elizabeth A. Ford is an associate at the firm, where she represents businesses and professionals in a variety of commercial litigation matters, including business litigation, employment matters, and defending clients in negligence actions. She can be reached at 215-864-8062 or eford@conradobrien.com.

 

Reprinted with permission from the September 2, 2015 issue of The Legal Intelligencer. © 2015 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.

 

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