Oct 13, 2021

New York’s Highest Court Limits Jurisdiction Over Foreign Companies

Cooperative Building in New York City

Foreign companies wishing to do business in New York are generally familiar with the requirement that, under New York Business Corporation Law (the BCL), a foreign corporation must obtain authorization to do so.  If such a company is not registered to do business in accordance with the BCL, it forfeits the ability to initiate an action in New York’s courts.  Previously, some New York state and federal courts held that companies that registered to do business in New York consented to be sued in New York even on matters unrelated to their business in New York.

Last week, the New York Court of Appeals (the highest court in New York) in Aybar v. Aybar, held that the mere fact that a business designates a local agent for service of process in New York as required by the BCL to register to do business in the State, does not alone provide a court with personal jurisdiction over the company for all purposes.

The facts of the case are simple:  A tire on an SUV allegedly failed while being driven in Virginia by a New York resident.  Three passengers died and three other passengers were injured in the accident.  They or their estates sued Ford Motor Company and The Goodyear Tire & Rubber Co. for products liability.  Ford and Goodyear each moved to dismiss the claims against them on the ground that the New York court lacked personal jurisdiction over them.  Plaintiffs argued that those corporations knowingly consented to the “general jurisdiction” of New York courts as they had designated an agent for service of process in New York as required under the BCL to be registered to do business in the State.  The causes of action had no relation to the defendants’ business being done in New York.

The majority noted that the case, as presented to them, did not include an assertion that specific jurisdiction existed.  Specific jurisdiction is present when a plaintiff’s claims arise out of a defendant’s contacts with the state as the Supreme Court expounded upon earlier this year in Ford Motor Co. v. Montana Eight Judicial Dist. Ct.  Additionally, plaintiffs abandoned their argument that general jurisdiction as described by the U.S. Supreme Court’s in Daimler AG v. Bauman existed.  Under Daimler, general jurisdiction exists only where the company is “at home”—effectively, where it is incorporated and where it maintains its principal place of business.  Rather, the issue presented in Aybar focused on whether personal jurisdiction was proper based on Ford and Goodyear having registered agents for service of process in the State as required by the BCL, on the theory that these defendants thereby consented to be sued in New York even on claims unrelated to their business in the State.

The majority in Aybar narrowly interpreted both the statute at issue and Chief Judge Benjamin Cardozo’s 1916 opinion in Bagdon v Philadelphia & Reading Coal & Iron Co.  The Court held that the BCL does not condition the right to do business on consent to the general jurisdiction of New York courts or otherwise afford general jurisdiction to New York courts over foreign corporations that comply with its conditions.   It also observed that “Our holding in Bagdon, properly understood, 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.”

The importance of this decision is clear: foreign companies can now register to do business in New York and appoint an agent for service of process in the State as required by the BCL and will only be subject to the New York court’s jurisdiction for matters arising out of their business transacted in the State.

We believe that the Court’s narrow interpretation of consent and the effect of appointing agents for service of process will apply where out-of-state parties to commercial contracts have consented to personal jurisdiction in New York and/or have designated agents in New York to accept service of process.[1]  Thus, for commercial entities that want to use New York courts as the forum for any contractual dispute (whether to take advantage of the depth of experience among New York’s bench and bar in commercial disputes or for the breadth of statutory and common law in New York dealing with such matters), the Aybar decision cautions that explicit contractual consent by out-of-state entities to personal jurisdiction in New York is likely necessary.  Stated another way, it is likely that service of process on a designated agent within New York in the absence of explicit consent to jurisdiction will not be sufficient to require an out-of-state contract counterparty to appear in New York.  The Aybar decision also means that contractual consent to jurisdiction for a specific contract will likely not confer personal jurisdiction over out-of-state companies for unrelated causes of action.

[1] Unrelated to the Aybar decision, we believe that the appointment of agents for service of process in New York in respect of contracts is good practice when the counterparty is not located in the United States.  Such appointment avoids the need to serve process in a foreign country under the applicable treaty and provides benefits with respect to speed of any proceeding and enforceability of any judgment obtained therein.

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