New York’s (stalled) grab for jurisdiction over foreign businesses

June 30, 2014

Should New York courts have the right to hear cases against international businesses with any operations in the state? That’s what the state’s top administrative judge asked for — and very nearly got — from the state legislature. The proposed changes to state laws died on June 20, the last day the state senate was in session. But according to the chair of the New York courts’ advisory committee on civil procedure, the law to reclaim jurisdiction over foreign corporations will probably be revived when the legislature returns to session, possibly as soon as this fall.

New York’s contemplated law is a direct response to last January’s decision by the U.S. Supreme Court in Daimler v. Bauman. The Daimler opinion, written by Justice Ruth Bader Ginsburg for a unanimous court, restricted jurisdiction over foreign businesses to the states in which those business are “at home.” Jurisdiction isn’t justified just because a corporation has substantial operations in a particular state, the court held. Instead, it said, a state must be the site of incorporation or the base of the business’s U.S. operations in order to claim jurisdiction.

The 2nd U.S. Circuit Court of Appeals has since cited Daimler in at least two decisions tossing claims for lack of jurisdiction, according to a June 18 client alert by the law firm Akerman, so it’s no wonder that New York’s courts regarded the ruling as a threat to their turf. Jurisdiction always seems like a wonky topic, but it matters a lot to both courts and corporations. Courts, of course, have a strong institutional interest in protecting their power, since they only exist to hear cases. Businesses, meanwhile, want to control where they can be sued; that’s why, for instance, Delaware-incorporated businesses are rushing to enact provisions that require their shareholders to litigate in Chancery Court.

This spring, at the recommendation of the courts’ advisory committee on civil practice, the state’s Chief Administrative Judge, Gail Prudenti, requested that the New York legislature enact amendments to state corporate and partnership laws to confer New York jurisdiction over any business licensed to conduct operation in the state. As a memo accompanying the state senate version of the bill explained, the constitutional due process concerns underpinning the Daimler decision bar New York from simply amending its laws to assert jurisdiction. But Prudenti’s proposal attempted to circumvent due process problems by amending state laws to require businesses to consent to New York jurisdiction as a condition of state licensing and registration.

“We think this is constitutional,” said George Carpinello of Boies, Schiller & Flexner, who chairs the state courts’ advisory committee. New York courts, he said, have recognized for decades that when a business is licensed to conduct operations in New York, it consents to submit to the jurisdiction of New York courts. The proposed legislation, according to Carpinello, would only codify the case law; and, according to the memo supporting the bill, “provide a forceful legislative declaration of the effect of a foreign corporation’s registration to do business in New York.” After all, the memo said, “consent to general jurisdiction is a fair requirement to impose on corporations that benefit from conducting business in New York.”

Considering the potential impact of the legislation — which explicitly sought to mitigate the Supreme Court’s Daimler holding — the state court-supported bill received surprisingly little attention from business groups. The Lawsuit Reform Alliance of New York opposed the legislation, as did the Institute for International Bankers. The New York City Bar’s Committee on Banking Law sent a letter to the bill’s sponsors, Assemblywoman Helene Weinstein and Senator John Bonacic, raising doubts that the proposed legislation would really permit New York to skirt Daimler’s due process holding. (The letter also requested that foreign banks be excluded from any amendments imposing New York jurisdiction.)

Carpinello told me that legislative staffers seemed to support the proposed bill when his group met with them early this spring. The state assembly passed the law on June 2, and the senate version made it to the upper house’s rules committee in the final days of the New York legislative session. Then it apparently ran into opposition. Carpinello said supporters don’t know why the bill died or who killed it, but he said he expects the proposal to be revived when the legislature returns to session. “My understanding is that it has a lot of support in both houses,” he said.

If the law is re-introduced, you can expect banks once again to lobby against it. John Clarke of DLA Piper, who signed the opposition letter on behalf of the city bar’s banking committee, told me in an email that New York courts can’t sidestep Daimler’s due process concerns by deeming corporations to have consented to New York jurisdiction as a condition of doing business in the state. “In Daimler, the Supreme Court reiterated that a forum state can exercise general jurisdiction over an out-of-state entity within the limits of the Constitution only if that entity … essentially is ‘at home’ there,” Clarke said. “That principle would seem to require more than simply registering to do business in the state.”

(This article has been corrected. A previous version included an out-of-date name for the law firm Akerman.)

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