New York rejects general jurisdiction by consent to service

Today’s decision is outside the realm of prescription drug / device legislation, but we are taking this detour because Aybar vs. Aybar, 2021 NY LEXIS 2134 (NY Ct. App. October 7, 2021) is an important court decision – a decision with more than 100 years of legal precedent to resolve.

The plaintiffs were involved in an automobile accident in Virginia, allegedly due to a faulty tire. The driver had purchased the vehicle in New York from a third party. The plaintiff brought a product liability action in New York against the car maker, Ford, and the tire maker, Goodyear. Ford is a Delaware corporation with its principal place of business in Michigan, and Goodyear is both incorporated and has a principal place of business in Ohio. Identifier. to * 2-3. Ford and Goodyear, of course, do business in New York City. To do so, both companies had to comply with New York’s Business Corporation Law (“BCL”), which requires foreign companies to register with the New York Secretary of State and appoint agents in the New York City. State for the service of pleadings. Identifier. to 3.

The plaintiffs did not allege that the court had specific jurisdiction over any of the defendants. Nor did the plaintiff contend that the defendants were “essentially at home in New York”, so that there was general jurisdiction under Goodyear Dunlop Tires Operations, SA vs. Brown, 564 US 915 (2011) or Daimler AG v Bauman, 571 United States 117 (2014). Identifier. at 4 o’clock. The plaintiffs’ only argument was that the defendants had consented to general jurisdiction in New York by registering to do business and appointing an agent for service in the state. Identifier. at 5.

The tribunal had a fundamental problem with the plaintiffs’ argument because it did not comply with the clear terms of the BCL. The law does not require a defendant to consent to general jurisdiction to do business in New York and to interpret it that way “would unduly alter the law by adding words that are not there.” Identifier. at * 6 (citation omitted).

But the plaintiffs were not without precedent for their argument. The centerpiece of the complainants’ argument was the case Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 NY 432 (1916). The complainants interpreted this case as largely conferring general jurisdiction on any company that complied with the BCL. The Aybar however, the court did not recognize that the Bagdon the decision went that far.

Bagdon involved a New York resident who was injured in Pennsylvania while working for a Pennsylvania company that, like Ford and Goodyear, had complied with the BCL. Identifier. at * 7-8. The plaintiff then served his legal action on the defendant in New York. The defendant argued that his agent’s authority to accept service in New York was “limited to actions which [arose] outside of business transacted in New York. Identifier. at 8. As the matter between the plaintiff and the defendant arose in Pennsylvania, the defendant argued that the meaning of the process and, by extension, the exercise of personal jurisdiction was invalid. Identifier.

Bagdon, therefore, answered a narrow question – whether the meaning of the proceedings conferred jurisdiction on the defendant for “any jurisdiction in the matter properly exercised by the courts of New York. Identifier. (emphasis added). In other words, Bagdon did not decide that mere registration under the BCL established general personal jurisdiction. On the contrary, the tribunal examined the “question of the effect of service” which they were to make “through the prism of the principles of jurisdiction then applicable”. Sense, Bagdon was decided within the framework of Pennoyer vs. Neff, 95 US 714 (1877).

[T]The Court determined that the jurisdiction existed not because the company had “consented” to it, but because the existing Supreme Court precedent had then been established, in accordance with Pennoyer vs. Neffthe territorial approach of the, this service in the State on a foreign company present in the State conferred a general competence.

Identifier. to 10. A lot has happened since Pennoyer and Bagdon. Starting with the minimum contact test of International Shoe Co. v. Washington, 326 US 310 (1945) – herself over 75 years old – which “crystallized the two categories of personal competence” – general and specific. Identifier. at * 14-15. Since that time, the Supreme Court has simultaneously “rapidly extended” a specific jurisdiction while “limiting the scope of general jurisdiction to a restricted category of defendants”. Identifier. to 15. Probably why the court noted that it had not cited Bagdon since International shoe has been decided. Identifier. at * 16n.7.

The Supreme Court has ruled that the exercise of general jurisdiction is appropriate only when the defendant’s affiliations with the state “are so continuous and systematic as to make them essentially at home in the forum state”. Identifier. to * 16. This was not the state of the law when Judge Cardozo considered the matter. In 1916, “the consent of the defendant to service of a pleading had the effect of conferring general jurisdiction”. Identifier. to * 17. This is what motivated the decision to Bagdon, and not a confusion between “legal consent to service and consent to general jurisdiction”. Identifier.

Today, the exercise of general jurisdiction in each state in which a company engages in substantial, continuous and systematic commercial activity would be “unacceptable” [under Bauman.]

Identifier. at 15. Therefore, the court did not interpret the New York BCL as authorizing general registration-based jurisdiction to do business.

Due to this interpretation of the law, the court did not directly address the issue of due process. There is a lengthy dissent joined by two judges which we leave to our readers to explore for themselves if they are interested.

This article was written by Michelle Yeary of Dechert LLP.