The Second Circuit Holds That New York Business Registration Does Not Constitute Consent To General Personal Jurisdiction
Securities Litigation
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  • The Second Circuit Holds That New York Business Registration Does Not Constitute Consent To General Personal Jurisdiction

    On March 30, 2020, the United States Court of Appeals for the Second Circuit held that business registration under the New York Business Corporation Law (the “BCL”) Section 1301 does not “constitute consent to general personal jurisdiction in New York.”  Chen v. Dunkin’ Brands, Inc., No. 18-cv-3087 (2d Cir. Mar. 30, 2020).  The Court accordingly affirmed the dismissal of a putative class action asserting various state consumer protection law claims against a fast food franchise chain (the “Company”).  The Court’s opinion was based in part on a consideration of the Supreme Court’s decision in Daimler AG v. Bauman, 571 U.S. 117 (2014), which held that a state’s exercise of general personal jurisdiction over foreign corporations would be unconstitutional if it did not establish that the corporation had “continuous and systematic” contact with the state rendering it “essentially at home in the forum.”

    Plaintiffs alleged that the Company, a global fast food retail chain, violated the Magnuson-Moss Act and state consumer protection laws because its marketing efforts contained misleading representations in ads concerning its Angus Steak sandwiches.  The district court dismissed the SAC, holding that: (i) there was no general personal jurisdiction in New York over the Company on the sole basis that the Company registered to conduct business in New York; (ii) specific personal jurisdiction did not exist as to the claims brought by four out of the five plaintiffs, whose allegations stemmed from conduct that occurred outside the state (i.e., purchases made outside New York); and (iii) the fifth plaintiff failed to state a claim.  On appeal, the Second Circuit noted that it “look[s] to the law of the forum state to determine whether a federal district court has personal jurisdiction over a foreign corporation” and that, “[p]rior to 2014, New York courts interpreted the act of registering under BCL §1301(a) as consent to general jurisdiction in the state.”  In 2014, however, the Supreme Court issued Daimler, holding that based on the U.S. Constitution’s Fourteenth Amendment’s Due Process Clause, a court does not have general personal jurisdiction over a corporation unless “that corporation’s affiliations with the State [in which the court is located] are so continuous and systematic as to render it essentially at home in the forum.”  571 U.S. 117 (2014).  The Court observed that, since Daimler, neither it nor the highest state court of New York, the New York Court of Appeals, had “considered the impact of Daimler on New York courts’ longstanding interpretation of BCL § 1301(a).”  The Court further observed that, as it had noted in prior precedent, “[i]n the absence of a federal statute specifically directing otherwise, and subject to limitations imposed by the United States Constitution, we look to the law of the forum state to determine whether a federal district court has personal jurisdiction over a foreign corporation.”  The Court noted it would need to determine how New York’s highest court would resolve the question.

    The Second Circuit has previously “explained ‘[its] view’ that Daimler established that, except in a truly exceptional case, a corporate defendant may be treated as essentially at home only where it is incorporated or maintains its principal place of business,” in Brown v. Lockheed Martin Corp., 814 F.3d 619 (2d Cir. 2016).  In Brown, the Court considered general personal jurisdiction in connection with Connecticut’s business registration statute, but determined that the statute did not impose a consent requirement, so did not reach the issue of whether basing personal jurisdiction on the registration statute would be unconstitutional in light of Daimler.  New York’s business registration statute, however, has previously been “definitively construed” in such a way.  New York case law has been unsettled on this issue since Daimler.  Three of New York’s intermediate appellate courts—the First, Second, and Fourth Departments—have held that the consent-by-registration New York cases cannot survive Daimler, but New York lower courts have not been unanimous.  The Court observed that the statute does not explicitly “condition[] registration [under the statute] on consent to general jurisdiction in the state,” and New York legislation that was introduced after Daimler to make such a requirement express was ultimately not passed.  Further, the pre-Daimler interpretation, the Court held, results in “constitutional concerns”—under this approach, a corporation could be “subject to general jurisdiction in every state in which it registered,” and, as the Court noted in Brown, “Daimler’s ruling would be robbed of meaning by a backdoor thief.”  After consideration of Daimler, the Court’s precedent in Brown, and “the unanimous conclusion of three New York intermediate courts to have considered the issue,” the Court held that a non-NY corporation does not consent to general personal jurisdiction in New York by merely registering to do business in the state and designating an in-state agent for service of process under BCL §1301(a).  In so holding, the Second Circuit acknowledged that it had the option to certify this question to the New York Court of Appeals, but that “certification [wa]s not warranted here because ‘sufficient precedents exist for us to make [the] determination.’”

    The Second Circuit also rejected the alternative argument that the court had specific personal jurisdiction, holding that it was waived and that plaintiffs failed to adequately allege facts sufficient to plead it.  As to the merits of the one remaining plaintiff’s allegations concerning the Company’s marketing misrepresentations, the Second Circuit agreed with the district court’s holding that the ads were not deceptive and that a reasonable consumer would not have been misled by the advertisement.

    The Second Circuit’s decision points to the limited scope of general personal jurisdiction over foreign corporations in New York post-Daimler, clarifying that a non-NY corporation is not subject to personal jurisdiction there simply because it has registered to do business in New York under BCL § 1301(a).  The Second Circuit’s interpretation of New York law – which is based in part on the Court’s conclusion that a contrary conclusion would raise federal constitutional concerns – is technically not binding on New York state courts, but can serve as persuasive authority.  See, e.g., People v. Kin Kan, 78 N.Y.2d 54, 60, (N.Y. 1991) (noting that “the interpretation of a Federal constitutional question by the lower Federal courts may serve as useful and persuasive authority” although it is not “binding” on a New York court).  Here, the Second Circuit’s reasoning seems like it should be highly persuasive and non-controversial if considered by a New York state court, consistent with the Second Circuit’s observation in the opinion that it had “little trouble concluding that were the New York Court of Appeals to decide the issue, it would agree that this conclusion is consistent with the U.S. Constitution and the evolving law surrounding general personal jurisdiction.” 

    The Second Circuit joins the Eleventh Circuit, which held that Florida law does not expressly or implicitly establish that a foreign corporation’s registration to do business and appointment of an agent for service of process in Florida amounts to its consent to general jurisdiction in the Florida courts.  Waite v. All Acquisition Corp., 901 F.3d 1307 (11th Cir. 2018), cert. denied sub nom. Waite v. Union Carbide Corp., 139 S. Ct. 1384, 203 L. Ed. 2d 611 (2019).  We would expect most, if not all, federal appellate courts to reach similar conclusions if they address the issue.
    CATEGORY: Jurisdiction