Delaware Supreme Court Declines to Exercise General Personal Jurisdiction Over Foreign Corporate Defendants Registered to Do Business in Delaware

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1 CLIENT MEMORANDUM Delaware Supreme Court Declines to Exercise General Personal Jurisdiction Over Foreign Corporate May 24, 2016 AUTHORS Joseph G. Davis Richard Mancino On April 18, 2016, the Delaware Supreme Court held in Genuine Parts Co. v. Cepec that a foreign corporation does not consent to a court s general, or all-purpose, personal jurisdiction when it registers to do business in the state under Delaware s foreign corporation registration statutes. 1 In so holding, Chief Justice Strine, writing for the majority, relied on the U.S. Supreme Court s reasoning in Daimler AG v. Bauman, which clarified that a corporation can be subject to general personal jurisdiction only in a jurisdiction in which it is at home, which ordinarily includes its place of incorporation and its principal place of business. Foreign corporation registration statutes exist in every state in the United States. Many corporations, both domestic and international, comply with these statutes in the process of conducting business operations or sales activities across one or more U.S. jurisdictions. Since Daimler, courts have split on the question of whether a foreign corporation registered to do business in a state is subject to general personal jurisdiction in that state on the basis of the registration. Genuine Parts holds that Delaware s business registration statutes must not be read as a broad consent to general personal jurisdiction, in line with Daimler s reasoning that corporations should not be subject to general personal jurisdiction everywhere they do business, but only where they are at home. Genuine Parts does not resolve the split itself, but creates a path forward for appellate courts still struggling with the issues of the jurisdictional effect of a corporation s business registration. 1

2 Background The Supreme Court s decision in Daimler brought constitutional jurisdictional jurisprudence back to first principles. In Daimler, the Supreme Court reaffirmed, after decades of near silence, that due process does not permit courts to assert general jurisdiction over a foreign corporate entity unless the corporation s affiliations with a state are so continuous and systematic as to render the corporation essentially at home in the forum State. A corporation is at home in a forum only where it is incorporated, has its principal place of business, or where other, exceptional circumstances exist. 2 Daimler did not address the continued constitutional viability of the conclusion that a foreign corporation impliedly consents to a state s general personal jurisdiction solely by virtue of registering to do business there. After Daimler, the question remains whether the assertion of general personal jurisdiction through registration to do business on a theory of implied consent is within constitutional bounds. Post-Daimler, state and federal courts have reached disparate results regarding jurisdictional and due process implications of business registration statutes. Some courts have found that consent jurisdiction resulting from a foreign corporation registering to do business in a state remains a constitutionally valid basis for exercising general personal jurisdiction, because Daimler did not address or preclude jurisdiction by consent. For example, federal courts in New Jersey and state courts in New York have rejected the argument that Daimler changed jurisdiction by consent when a foreign corporation registers to do business. 3 Other courts have ruled that Daimler makes clear that there is no constitutional basis for finding that a foreign corporation consented to general personal jurisdiction merely by complying with a state s business registration statute. Missouri, Mississippi, and Illinois federal courts ruled that Daimler is inconsistent with the assertion of general jurisdiction over a foreign corporation merely on the basis of its business registration. 4 The Genuine Parts Decision The issue in Genuine Parts was whether a Georgia corporation that was sued in Delaware court over claims that did not arise from its activities in Delaware had consented to Delaware s general personal jurisdiction by complying with Delaware s business registration statutes (Delaware General Corporate Law ( DGCL ) 371 and 376). 5 Neither statute provides that registration includes consent to general personal jurisdiction. Using Daimler as its framework for the analysis, the court overturned what it characterized as dicta of sorts in Sternberg v. O Neil, 550 A.2d 1105 (Del. 1988) that a foreign corporation expressly consented to Delaware s general personal jurisdiction by registering to do business in the state. 6 The Genuine Parts court noted that jurisdiction in Sternberg was appropriate under specific personal jurisdiction, and that in reaching beyond that basis for jurisdiction to hold that registration under 376 also conferred general jurisdiction, the Sternberg court had relied on federal case law now undermined by the major shift in our nation s personal jurisdiction jurisprudence following Daimler. 7 The court further noted that while it was perhaps possible to read Delaware s business registration statutes broadly implying consent, the statutes were also capable of a more narrow and constitutionally unproblematic reading. The Genuine Parts court added 2

3 that the more narrow reading would not subject properly registered foreign corporations to an unacceptably grasping and exorbitant exercise of jurisdiction, consistent with Daimler s teachings. 8 The Genuine Parts court also relied on a close reading of Delaware s long-arm statute in DGCL 3104, which Sternberg did not address, to support its narrow and constitutionally unproblematic reading of the registration statutes. 9 The longarm statute speaks of personal jurisdiction explicitly, and provides that Delaware courts may exercise jurisdiction over any corporation in certain enumerated circumstances. Reading 376 broadly to serve as the basis for general personal jurisdiction over foreign corporations who have registered to do business in the state is not consistent with language in 3104 because such a broad reading would lead to the inconsistent result that the long-arm statute would only be relevant to foreign corporations that have not registered in the state. The Delaware Supreme Court thus declined to exercise general personal jurisdiction over defendant, because the Georgia corporation did not have its principal place of business in Delaware, was not incorporated in Delaware, and there was not any other plausible basis on which Delaware is essentially its home. 10 The Genuine Parts court also pointed out that the application of general personal jurisdiction to foreign multinational corporations must be considered in light of a modern economy, in which many corporate citizens must operate in many jurisdictions, domestic and foreign, to compete. A scheme where every state can claim general personal jurisdiction over every business that registers to do business within its borders for any claim not only contravenes Daimler and due process principles, but also subjects businesses to capricious litigation treatment, inefficiencies, and reduced legal certainty. Exacting such a disproportionate toll on commerce is not only constitutionally problematic, the court noted, but also does not accord with common sense. 11 Genuine Parts, which is the first case regarding this issue to be decided by a state s highest court, resolved a split between Delaware federal district courts over the proper construction of Delaware s business registration statutes with respect to establishing consent to general jurisdiction. 12 Conflicts regarding the application of Daimler exist within a number of other jurisdictions as well. One New York federal court has held that the mere fact of being registered to do business is insufficient to confer general jurisdiction after Daimler. 13 Another New York federal court has noted that, to the contrary, a corporation may consent to jurisdiction in New York by registering to do business as a foreign corporation, notwithstanding the limitations set forth in Daimler. 14 To complicate matters further in New York, the New York State Legislature is considering legislation that would explicitly require any foreign company seeking authorization to do business in New York to consent to general jurisdiction. 15 This proposed legislation is controversial and has been challenged in both business and legal sectors in New York. The Business Council of New York State and the New York City Bar Association both voiced doubts regarding the constitutionality of the bill in light of Daimler. 16 In a legislative memo regarding its opposition to the bill, the Business Council pointed to Genuine Parts to support its position. 17 The Court of Appeals for the Second Circuit recently addressed the same issue under Connecticut law. 18 In Brown, the Second Circuit declined to construe corporate compliance with Connecticut s registration and agent-appointment statutes as actual consent to general jurisdiction without explicit statutory language. It also signaled doubts that a state statute could predicate a corporation s ability to transact business in the state on consent to general jurisdiction, even with explicit 3

4 statutory language: Were the Connecticut statute drafted such that it could be fairly construed as requiring foreign corporations to consent to general jurisdiction, we would be confronted with a more difficult constitutional question about the validity of such consent after Daimler [but] we decline to decide here whether consent to general jurisdiction via a registration statute would be similarly effective notwithstanding Daimler s strong admonition against the expansive exercise of general jurisdiction. 19 A district court case in New Jersey that is currently on appeal relied heavily on Brown s reasoning to find that registering to do business does not constitute consent to general personal jurisdiction absent explicitly statutory language because such a jurisdiction scheme is untenable in light of Daimler s limitation on the exercise of general jurisdiction. 20 Conclusion The Delaware Supreme Court s decision in Genuine Parts reflects the paradigm shift in general personal jurisdiction jurisprudence since Daimler. As the first decision on the issue by the highest court of a state, Genuine Parts could have far-reaching impact. Most states have similar business registration statutes, and Delaware law is particularly important on issues of corporate governance. Ultimately, however, the question of whether a state could expressly condition business registration on consent to general personal jurisdiction, as the New York legislature is considering, is a question that remains to be tested directly. If you have any questions regarding this memorandum, please contact Joseph G. Davis ( ; jdavis@willkie.com), Richard Mancino ( ; rmancino@willkie.com) or the Willkie attorney with whom you regularly work. Willkie Farr & Gallagher LLP is an international law firm with offices in New York, Washington, Houston, Paris, London, Frankfurt, Brussels, Milan and Rome. The firm is headquartered at 787 Seventh Avenue, New York, NY Our telephone number is (212) and our fax number is (212) Our website is located at May 24, 2016 Copyright 2016 Willkie Farr & Gallagher LLP. This memorandum is provided by Willkie Farr & Gallagher LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum may be considered advertising under applicable state laws. 1 Genuine Parts Co. v. Cepec, No. 528, 2015, 2016 WL (Del. Apr. 18, 2016). 2 Daimler AG v. Bauman, 134 S. Ct. 746, 761, n.19 (2014). 3 Otsuka Pharm. Co. v. Mylan Inc., 106 F. Supp. 3d 456, (D.N.J. 2015) ( it cannot be genuinely disputed that consent, whether by registration 4

5 or otherwise, remains a valid basis for personal jurisdiction following International Shoe and Daimler Nor can the Court find any support for Mylan s position that Daimler, in essence, precludes general jurisdiction by consent ); see also Senju Pharm. Co. v. Metrics, Inc., 96 F. Supp. 3d 428, 437, 439 (D.N.J. 2015) ( [c]ontrary to Defendants contention, Daimler AG v. Bauman did not disturb the consent-by-in-state service rule Daimler did not discuss in state service and there was no indication in Daimler that the defendant had registered to do business in the state or had been served with process there [And] it may also be correct that registering to do business alone (particularly where registration also requires the entity to appoint an agent in the state for service of process) may be sufficient as a basis for personal jurisdiction ) (citations omitted); see also Bailen v. Air & Liquid Sys. Corp., No /12, slip op. at 4-5 (N.Y. Sup. Ct. Aug. 5, 2014) ( [a]lthough Daimler clearly narrows the reach of New York courts in terms of its exercise of jurisdiction over foreign entities, it does not change the law with respect to personal jurisdiction based on consent [and] a New York court may exercise general personal jurisdiction over a corporation so long as it is registered to do business here as a foreign corporation and designates a local agent for service of process. ). 4 Neeley v. Wyeth LLC, 2015 U.S. Dist. LEXIS 39879, at *7 (E.D. Mo. Mar. 30, 2015) ( to extend the Plaintiff s reasoning to its natural conclusion [that registration in the state and its designation of a local registration agent subjects it to general jurisdiction], every foreign corporation transacting business in the state of Missouri would be subject to general jurisdiction here. Daimler clearly rejects this proposition. ); Pitts v. Ford Motor Co., 127 F. Supp. 3d 676, 683 (S. D. Miss. 2015) (following Daimler, a defendant is not subject to general jurisdiction even when it is qualified and registered to do business in the state); Surita v. AM Gen. LLC, No. 15-C-7164, slip op. at 5 (N.D. Ill. Nov. 4, 2015) (asbestos plaintiff s argument for all-purpose jurisdiction based on defendant s registration to do business is unavailing, especially in light of Daimler. ). 5 8 Del. C. 371, 376 (2010). 6 See Sternberg v. O Neil, 550 A.2d 1105 (Del. 1988). 7 Genuine Parts, 2016 WL , at *7. 8 Id. at *11, Del. C (2008). 10 Id. at *3. 11 Genuine Parts, 2016 WL , at * Compare Acorda Therapeutics, Inc. v. Mylan Pharm. Inc., 78 F. Supp. 3d 572 (D. Del. 2015), aff d on other grounds, 817 F.3d 755 (Fed. Cir. 2016), with AstraZeneca AB v. Mylan Pharm. Inc., 72 F. Supp. 3d 549 (D. Del. 2014), aff d on other grounds sub nom. Acord Therapeutics, Inc. 817 F.3d 755 (Fed. Cir. 2016). On appeal, the Federal Circuit avoided the issue, grounding its holding instead on specific personal jurisdiction, although one concurring judge would have ruled that registration amounted to consent to general personal jurisdiction. Acorda Therapeutics Inc. v. Mylan Pharm. Inc., 817 F.3d 755, 757 (Fed. Cir. 2016); id. at 764 (O Malley, J. concurring). 13 Chatwal Hotels & Resorts LLC v. Dollywood Co., 90 F. Supp. 3d 97, 105 (S.D.N.Y. 2015). 14 Beach v. Citigroup Alt. Inv., No. 12 Civ (PKC), 2014 WL , at *6 (S.D.N.Y. Mar. 7, 2014). 15 See 2015 New York Senate Bill No. 4846, 2, Reg. Sess. (Apr. 22, 2015). 5

6 16 Memorandum from the Business Council of New York State on Bill S.4846 (Bonacic) /A.6714 (Weinstein) Regarding Consent to General Jurisdiction (May 3, 2016) ( Report from the New York City Bar on Legislation A.6714/ S.4846 (Mar. 2016) (on file with author). 17 Id. ( [Genuine Parts is] very relevant to the CPLR amendments now being considered in New York ). 18 Brown v. Lockheed Martin Corp., 814 F.3d 619, (2d Cir. 2016). 19 Id. at Display Works, LLC v. Bartley, No. CV , 2016 WL , at *9 (D.N.J. Apr. 25, 2016) ( [a]s the Second Circuit explained [in Brown], [t]he sweeping interpretation that a state court gave to a routine registration statute and an accompanying power of attorney that Pennsylvania Fire credited as a general consent has yielded to the doctrinal refinement reflected in Goodyear and Daimler and the Court s 21st century approach to general and specific jurisdiction in light of expectations created by the continuing expansion of interstate and global business. Brown, 814 F.3d at 639. The Court agrees with this conclusion [Following Daimler, it cannot be that the law] would permit the Court to exercise general jurisdiction over any corporation that completes the required registration and appointment procedures, regardless of whether the statute expressly discusses general jurisdiction. ). 6