Bill S7078-2013

Relates to consent to general jurisdiction by foreign business organizations authorized to do business in New York

Relates to consent to general jurisdiction by foreign business organizations authorized to do business in New York.

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Actions

  • Jun 20, 2014: COMMITTED TO RULES
  • Jun 20, 2014: RESTORED TO THIRD READING
  • Jun 20, 2014: SUBSTITUTION RECONSIDERED
  • Jun 3, 2014: SUBSTITUTED BY A9576
  • May 5, 2014: ADVANCED TO THIRD READING
  • Apr 30, 2014: 2ND REPORT CAL.
  • Apr 29, 2014: 1ST REPORT CAL.427
  • Apr 23, 2014: REFERRED TO JUDICIARY

Meetings

Calendars

Votes

VOTE: COMMITTEE VOTE: - Judiciary - Apr 29, 2014
Ayes (21): Bonacic, DeFrancisco, Flanagan, Lanza, LaValle, Little, Nozzolio, O'Mara, Savino, Ranzenhofer, Zeldin, Grisanti, Avella, Hassell-Thompson, Breslin, Dilan, Espaillat, Perkins, Stavisky, Hoylman, Addabbo
Ayes W/R (1): Squadron
Nays (1): Hannon

Memo

BILL NUMBER:S7078

TITLE OF BILL: An act to amend the civil practice law and rules, the business corporation law, the general associations law, the limited liability company law, the not-for-profit corporation law and the partnership law, in relation to consent to jurisdiction by foreign business organizations authorized to do business in New York

This is one in a series of measures being introduced at the request of the Chief Administrative Judge upon the recommendation of her Advisory Committee on Civil Practice.

This measure would amend § 1301 of the Business Corporation Law (BCL) to reinforce the continuing viability of consent as a basis of general (all-purpose) personal jurisdiction over foreign corporations authorized to do business in New York. In so doing, the measure serves a substantial public interest. Being able to sue New York-licensed corporations in New York on claims that arose elsewhere will save New York residents and others the expense and inconvenience of traveling to distant forums to seek the enforcement of corporate obligations. The measure likewise amends the General Associations Law, the Limited Liability Company Law, the Not-for-Profit Corporation Law, and the Partnership Law to encompass other similarly situated foreign business organizations that must register to do business in New York.

Until recently, a foreign corporation doing business in New York could be sued here on claims arising anywhere in the world. The doing of business in New York, such as soliciting and facilitating orders for New York sales from an office in New York staffed by corporate employees, was treated as corporate "presence," which traditionally allowed for the assertion of general personal jurisdiction. When general jurisdiction exists, the claim being sued upon need not arise out of activity of the corporate defendant in New York. These principles were articulated in the 1917 case of Tauza v. Susquehanna Coal Co., 220 N.Y. 259, and carried forward by CPLR 301.

In the recent decision of Daimler AG v. Bauman, 134 S.Ct. 746 (2014), however, the U.S. Supreme Court held that due process requires more than the doing of business in a state before the courts of that state may assert general jurisdiction. By analogy to the assertion of general jurisdiction over individuals domiciled in the state, the corporation must be "at home" in the state. This means that the only type of local activity by a corporation that will ordinarily qualify for general jurisdiction is incorporation in the state or maintenance of its principal place of business in the state. Id. at 760-62. Doing business in the state, by itself, will not suffice, even if such business is conducted on a regular and systematic basis from a local office or other facility. Tauza-type general jurisdiction, therefore, is no longer available in New York for those seeking to enforce corporate obligations incurred outside the state. On the other hand, Daimler's at-home requirement has no application to cases in which a corporation is subject to "specific" jurisdiction pursuant to a long-arm statute, such as CPLR 302, which confers jurisdiction for claims arising from a defendant's local acts.

Because Daimler's limitation on general jurisdiction was decided on the basis of constitutional due process, amending the CPLR to

explicitly confer general jurisdiction over foreign corporations simply because they are doing business in the state would be futile. The Daimler Court, however, did not address consent-based general jurisdiction that occurs through corporate licensing and registration with the Secretary of State. (See 134 S.Ct. at 755-56, citing "textbook case" of Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952), for guidance as to circumstances that permit exercise of general jurisdiction "over a foreign corporation that has not consented to suit in the forum.")

A foreign corporation, as a condition to doing business in New York, must apply for authorization to do so from the New York Secretary of State. BCL § 1301(a). As a part of such licensing and registration, BCL § 304(b) specifies that the corporation must designate the Secretary of State as its agent upon whom process may be served in a New York action. See also BCL § 1304(a) (6). Furthermore, BCL § 304(c) provides that foreign corporations already authorized to do business in New York as of the 1963 effective date of the BCL were "deemed" to have made such designation. (During the statutory regime that preceded adoption of the BCL, foreign corporations seeking authorization to do business in New York could appoint either a private individual or a public officer as agent upon whom process could be served. See Karius v. All States Freight, Inc., 176 Misc. 155, 159 (Sup.Ct. Albany Co. 1941)).

From 1916 to the present, New York courts - State and Federal - have held that a foreign corporation's registration to do business in New York constitutes consent by the corporation to general personal jurisdiction in the New York courts. Judge Benjamin N. Cardozo wrote in Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432 (1916), that such consent flows from the foreign corporation's statutorily required designation of a New York agent for service of process:

The person designated is a true agent. The consent that he shall represent the corporation is a real consent. He is made the person "upon whom process may be served." The actions in which he is to represent the corporation are not limited. The meaning must, therefore, be that the appointment is for any action which under the laws of this state may be brought against a foreign corporation.... The contract deals with jurisdiction of the person.... It means that whenever jurisdiction of the subject matter is present, service on the agent shall give jurisdiction of the person.

Id. at 436-37. Judge Cardozo rejected the notion that the consent at issue in Bagdon was limited to claims that arose from the foreign corporation's New York activity. The consent extended to all claims, regardless of where they arose. Id. at 438.

Although the applicable New York statutes, both in 1916 and now, do not explicitly state that registration to do business or designation of a local agent to accept service of process constitutes consent to general jurisdiction, judicial interpretation of the statutes is what matters. The Supreme Court has twice recognized that a corporation's statutorily required designation of a local agent to accept process rationally may be interpreted as consent to general jurisdiction: "(W)hen a power is actually conferred by a document, the party

executing it takes the risk of the interpretation that may be put upon it by the courts. The execution was the defendant's voluntary act." Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93, 96 (1917); see also Neirbo Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 174-75 (1939).

From the time of Bagdon, almost all New York courts have held that consent to general personal jurisdiction is the inherent by-product of registration to do business in New York. Some have reasoned, as in Bagdon, that the act of consent is the designation of the Secretary of State or some other person as agent in New York (see, e.g., Karius v. All States Freight, Inc., supra, 176 Misc. at 159; Robfogel MillAndrews Corp. v. Guppies Co., 67 Misc.2d 623, 624 (Sup.Ct. Monroe Co. 1971); see also Restatement of the Law (Second) of Conflict of Laws 44 (1971)), while others have held that a foreign corporation consents to general jurisdiction as a result of both registration "and concomitant designation of the Secretary of State as its agent for service of process" (Augsbury Corp. v. Petrokey Corp., 97 A.D.2d 173, 175 (3d Dep't 1983); see also The Rockefeller University v. Ligand Pharmaceuticals Inc., 581 F.Supp.2d 461, 466-67 (S.D.N.Y. 2008)). Still others have simply held that becoming licensed to do business in New York constitutes consent to general jurisdiction. Le Vine v. Isoserve, Inc., 70 Misc.2d 747, 749 (Sup.Ct. Albany Co. 1972); STX Panocean (U.K) Co., Ltd. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127, 131 (2d Cir. 2009); China National Chartering Corp. v. Pactrans Air & Sea, Inc., 882 F.Supp.2d 579, 596 (S.D.N.Y. 2012); Steuben Foods, Inc. v. Oystar Group, 2013 WL 2105894 (W.D.N.Y. 2013) (observing in n.1 that contrary decision in Bellepointe, Inc. v. Kohl's Dep't Stores, Inc., 975 F.Supp. 562, 564 (S.D.N.Y. 1997), has been rejected by the Second Circuit).

Because authorization to do business is not possible today without designation of the Secretary of State as an agent upon whom process may be served (BCL 304(b)-(c)), the acts of designating the Secretary of State and becoming registered are co-equal in effect. The critical fact is that the corporation has agreed to subject itself to the regulation of the state of New York and thereby has consented to general personal jurisdiction. This is "part of the bargain by which (the foreign corporation) enjoys the business freedom of the State of New York." Neirbo Co. v. Bethlehem Shipbuilding Corp. supra, 308 U.S. at 175. For at least 98 years, foreign corporations have been on notice that becoming licensed to do business in New York is a consent to general personal jurisdiction.

The addition of the proposed new subdivision (e) to BCL § 1301 would codify the caselaw and provide a forceful legislative declaration of the effect of a foreign corporation's registration to do business in New York. Consent to general jurisdiction is a fair requirement to impose on corporations that benefit from conducting business in New York. Such consent provides the certainty of a forum with open doors for the enforcement of obligations of New York-licensed corporations without the expense and burden of proving jurisdiction on a case-bycase basis. In Daimler, the Supreme Court recognized the value of having an "easily ascertainable" and "clear and certain forum in which a corporate defendant may be sued on any and all claims." 134 S.Ct. at 760. It should be noted, however, that even when corporate defendants are registered in New York, courts retain the discretionary

power to decline the exercise of jurisdiction over them in the interests of justice and convenience pursuant to the doctrine of forum non conveniens. CPLR 327; see, e.g., Bewers v. American Home Products Corp., 99 A.D.2d 949 (1st Dep't), affd, 64 N.Y.2d 630 (1984).

BCL § 1312(a) will continue to provide an indirect enforcement mechanism to encourage foreign corporations doing business in New York to become authorized and thereby confer consent to general jurisdiction. BCL § 1312(a) states that a foreign corporation doing business in New York without authority may not maintain an action in the state's courts until it obtains the necessary authorization and pays relevant fees, taxes, penalties and interest charges. This statute "regulate(s) foreign corporations which are conducting business in New York so that they will not be on a more advantageous footing than domestic corporations." Reese v. Harper Surface Finishing Systems, 129 A.D.2d 159, 162 (2d Dep't 1987).

BCL § 1312(a) applies to corporations engaged in "regular, systematic and continuous" business in New York. See, e.g., Highfill, Inc. v. Bruce and Iris, Inc., 50 A.D.3d 742, 743 (2d Dep't 2008). This standard encompasses corporations that maintain offices or other facilities in New York for the purpose of engaging in a mix of local and interstate business and provides sufficient flexibility for the inclusion of corporations that do business in New York without a fixed location, as was the case in Highfill. It has been noted that the "regular, systematic and continuous business" standard helps to ensure compliance with constitutional limits on state regulation of purely interstate business. See Airtran New York, LLC v. Air Group, Inc., 46 A.D.3d 208, 214 (1st Dep't 2007).

Consistent with the history, policy and caselaw relating to foreign business corporations, this measure also codifies the principle that other types of foreign business organizations consent to general jurisdiction when they do business in New York and, pursuant to statute, expressly appoint the Secretary of State as their agent upon whom process may be served. This measure thus includes foreign joint stock associations and business trusts (see Gen. Assoc. Law §§ 18; 2(4) (these are the only "associations" that must designate the Secretary of State as agent)); foreign limited liability companies (see Ltd. Liability Co. Law §§ 301(a); 802(a)); foreign not-for-profit corporations (see Not-for-Profit Corp. Law §§ 304, 1301, 1304(a)(6)); foreign limited partnerships (see Partnership Law §§ 121-104; 121-902); and foreign limited liability partnerships (see Partnership Law § 121-1502).

Authorized foreign corporations not wishing to continue their consent to jurisdiction may, of course, surrender their authority to do business in New York at any time in accordance with BCL § 1310. Other types of business organizations may likewise withdraw their authorization or certificate of designation to do business in the State. Currently, however, there is no statutory language specifically delineating the date upon which the consent to jurisdiction is deemed withdrawn. Accordingly, this measure would also enact a new CPLR 301-a to provide that where a business organization which is registered, authorized or designated to do business in this state surrenders, withdraws or otherwise revokes its registration, authorization or

certificate of designation, its consent to jurisdiction terminates on the date of such surrender, withdrawal or revocation.

With respect to not-for-profit corporations, the amendment of the Not-for-Profit Corporation Law (§ 1301(e)) recognizes that some not-for-profits, such as religious corporations, are exempt from the requirement that they designate the Secretary of State as an agent upon whom process may be served. See Relig. Corp. Law § 2-b. See also Not-for-Profit Corp. Law § 113(b); Private Housing Finance Law § 13-a (limited-profit housing companies). In such cases, consent-based jurisdiction is lacking. Furthermore, foreign banks and foreign insurance companies are excluded from this measure. Although these foreign entities must register to do business in New York, their concomitant designation of the Secretary of Banking and the Secretary of Insurance, respectively, as an agent upon whom process may be served is explicitly limited by statute to a narrow range of claims. See Banking Law § 200(3); Ins. Law § 1212(a).

This measure, which would have no fiscal impact on the State, would take effect immediately.

Legislative History: None. New Proposal.


Text

STATE OF NEW YORK ________________________________________________________________________ 7078 IN SENATE April 23, 2014 ___________
Introduced by Sen. BONACIC -- (at request of the Office of Court Admin- istration) -- read twice and ordered printed, and when printed to be committed to the Committee on Judiciary AN ACT to amend the civil practice law and rules, the business corpo- ration law, the general associations law, the limited liability compa- ny law, the not-for-profit corporation law and the partnership law, in relation to consent to jurisdiction by foreign business organizations authorized to do business in New York THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM- BLY, DO ENACT AS FOLLOWS: Section 1. The civil practice law and rules is amended by adding a new section 301-a to read as follows: S 301-A. TERMINATION OF CONSENT TO JURISDICTION IN CERTAIN CASES. WHERE A BUSINESS ORGANIZATION REGISTERED, AUTHORIZED OR DESIGNATED TO DO BUSINESS IN THIS STATE SURRENDERS, WITHDRAWS OR OTHERWISE REVOKES ITS REGISTRATION, AUTHORIZATION OR CERTIFICATE OF DESIGNATION, ITS CONSENT TO JURISDICTION TERMINATES ON THE DATE OF SUCH SURRENDER, WITHDRAWAL OR REVOCATION. S 2. Section 1301 of the business corporation law is amended by adding a new paragraph (e) to read as follows: (E) A FOREIGN CORPORATION'S APPLICATION FOR AUTHORITY TO DO BUSINESS IN THIS STATE, WHENEVER FILED, CONSTITUTES CONSENT TO THE JURISDICTION OF THE COURTS OF THIS STATE FOR ALL ACTIONS AGAINST SUCH CORPORATION. A SURRENDER OF SUCH APPLICATION SHALL CONSTITUTE A WITHDRAWAL OF CONSENT TO JURISDICTION. S 3. Section 18 of the general associations law is amended by adding a new subdivision 5 to read as follows: 5. AN ASSOCIATION'S CERTIFICATE OF DESIGNATION PRESCRIBED BY THIS SECTION, WHENEVER FILED, CONSTITUTES CONSENT TO THE JURISDICTION OF THE COURTS OF THIS STATE FOR ALL ACTIONS AGAINST SUCH ASSOCIATION. A REVO- CATION OF SUCH DESIGNATION SHALL CONSTITUTE A WITHDRAWAL OF CONSENT TO JURISDICTION. S 4. Section 802 of the limited liability company law is amended by adding a new subdivision (c) to read as follows:
(C) A FOREIGN LIMITED LIABILITY COMPANY'S APPLICATION FOR AUTHORITY TO DO BUSINESS IN THIS STATE, WHENEVER FILED, CONSTITUTES CONSENT TO THE JURISDICTION OF THE COURTS OF THIS STATE FOR ALL ACTIONS AGAINST SUCH LIMITED LIABILITY COMPANY. A SURRENDER OF SUCH APPLICATION SHALL CONSTITUTE A WITHDRAWAL OF CONSENT TO JURISDICTION. S 5. Section 1301 of the not-for-profit corporation law is amended by adding a new paragraph (e) to read as follows: (E) A FOREIGN CORPORATION'S APPLICATION FOR AUTHORITY TO CONDUCT ACTIVITIES IN THIS STATE, WHENEVER FILED, CONSTITUTES CONSENT TO THE JURISDICTION OF THE COURTS OF THIS STATE FOR ALL ACTIONS AGAINST SUCH CORPORATION UNLESS SUCH CORPORATION IS EXEMPT FROM ANY LAW REQUIRING IT TO DESIGNATE THE SECRETARY OF STATE AS AGENT OF THE CORPORATION UPON WHOM PROCESS AGAINST IT MAY BE SERVED AND IT HAS MADE NO SUCH DESIG- NATION. A SURRENDER OF SUCH APPLICATION SHALL CONSTITUTE A WITHDRAWAL OF CONSENT TO JURISDICTION. S 6. Section 121-902 of the partnership law is amended by adding a new subdivision (e) to read as follows: (E) A FOREIGN LIMITED PARTNERSHIP'S APPLICATION FOR AUTHORITY TO DO BUSINESS IN THIS STATE, WHENEVER FILED, CONSTITUTES CONSENT TO THE JURISDICTION OF THE COURTS OF THIS STATE FOR ALL ACTIONS AGAINST SUCH FOREIGN LIMITED PARTNERSHIP. A SURRENDER OF SUCH APPLICATION SHALL CONSTITUTE A WITHDRAWAL OF CONSENT TO JURISDICTION. S 7. Section 121-1502 of the partnership law is amended by adding a new subdivision (r) to read as follows: (R) A FOREIGN LIMITED LIABILITY PARTNERSHIP'S NOTICE TO CARRY ON OR CONDUCT OR TRANSACT BUSINESS OR ACTIVITIES AS A NEW YORK REGISTERED FOREIGN LIMITED LIABILITY PARTNERSHIP IN THIS STATE, WHENEVER FILED, CONSTITUTES CONSENT TO THE JURISDICTION OF THE COURTS OF THIS STATE FOR ALL ACTIONS AGAINST SUCH FOREIGN LIMITED LIABILITY PARTNERSHIP. A WITH- DRAWAL OF SUCH NOTICE SHALL CONSTITUTE A WITHDRAWAL OF CONSENT TO JURIS- DICTION. S 8. This act shall take effect on the first of January next succeed- ing the date on which it shall have became a law.

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