New York Tests Daimler's Limits With Its Consent-To-Jurisdiction Rule For Foreign Companies Registering To Do Business In The State

The U.S. Supreme Court's 2014 blockbuster holding in Daimler AG v. Bauman significantly limited the circumstances in which U.S. courts can exercise general jurisdiction over foreign corporate defendants. Commonly referred to as "all-purpose" jurisdiction, general jurisdiction authorizes U.S. courts to hear claims against defendants wherever in the world the claims arise. Prior to Daimler, American courts routinely exercised general jurisdiction over foreign corporations on the basis that they engaged in a substantial, continuous, and systematic course of business in the U.S. forum where the case was to be adjudicated; that was especially true for New York.

Daimler, however, held that due process permits general jurisdiction over a foreign company only when that company is "at home" in the state—merely doing business in a forum (even continuously and systematically) is no longer the test. And absent "exceptional" and unimagined circumstances, "at home" means the forum where the defendant is organized or has its primary place of business. This new approach severely curtailed a plaintiff's ability to invoke the broad all-purpose jurisdiction of U.S. courts to prosecute claims against foreign defendants arising out of conduct in distant lands—no doubt welcome news to many non-U.S. corporations hoping to avoid American-style litigation (including discovery).

In particular, the Daimler holding cast serious doubt about the viability of New York's traditional—and broad—"doing business" standard for exercising general jurisdiction. Because so many foreign companies (financial institutions, especially) do substantial business in the state, New York courts have exercised general jurisdiction over countless foreign entities over claims that arose anywhere in the world. Since Daimler, however, many New York courts have declined to exercise jurisdiction over defendants that would likely have fallen within the comparatively broad scope of "doing business" analysis that existed before Daimler.

But foreign companies, and those who advise them, should not get too comfortable. Many courts in New York (and in other states) are testing Daimler's restrictions by revitalizing a 20th century doctrine under which foreign companies registering to do business in New York have implicitly consented to general jurisdiction. Critics argue that this approach is nothing more than a clever attempt to circumvent Daimler. Whether this consent-based alternative to general jurisdiction in fact complies with due process is a question that remains unanswered. And, not to be outdone, New York's lawmakers are now debating a bill that would amend the state's business registration statute to explicitly require foreign companies to consent to general jurisdiction as a condition of doing business in the state.

Even after the Supreme Court's ruling in Daimler, it appears foreign corporations still do not have a clear and final answer about whether their business activities in the U.S. expose them to the risk of general jurisdiction.

New York's Pre-Daimler "Doing Business" Test

Before Daimler introduced its "at home" standard for general jurisdiction last year, New York courts had spent nearly a century applying the "doing business" test, dating back to a 1917 decision by New York's Court of Appeals in Tauza v. Susquehanna Coal Co.1 In exercising general jurisdiction over the foreign defendant, a Pennsylvania-based company with a New York office, the Tauza court explained that "[i]f in fact a corporation is in a state not occasionally or casually, but with a fair measure of permanence and continuity, then ... it is within the jurisdiction of [the state's] courts."2

For nearly a century since Tauza, New York's courts routinely used the "doing business" standard to exercise personal jurisdiction over countless foreign defendants, across a wide range of settings. To cite just one (pre-Daimler) example, a New York court exercised general jurisdiction over an international company with no employees in the state, based solely on the presence of a single New York bank account, because the account could be managed from abroad using "cable and satellite communications media" without the defendant being physically present in New York.3 The court in that case explained that a "corporation's deliberate use of a New York bank to conduct almost all of its business demonstrates an intent to take advantage of the benefits and protections of New York laws on a continuous and systematic basis so as to...