United States: Second Circuit Ends "Doing Business" Test In New York For General Jurisdiction

Steven Raffaele is a Partner and Sean Barry an Associate in Holland & Knight's New York office.

The Court Adopts the "Essentially at Home" Test Limiting New York Courts' General Jurisdiction Over Foreign Corporations

HIGHLIGHTS:

  • Following Daimler AG v. Bauman, the Second Circuit has cemented the "essentially at home test" into New York's jurisdictional jurisprudence, limiting the circumstances in which New York courts may exercise general jurisdiction over a foreign corporation.
  • In Gucci America, Inc. v. Weixing Li, the court departed from the long-standing "doing business" test and held that a foreign corporation cannot be subject to general jurisdiction in New York based on maintaining offices and having employees in the state, when the corporation is not "essentially at home" in New York.
  • The Southern District Court of New York recently found an "exceptional case" of general jurisdiction where the foreign defendants were neither individuals, partnerships, nor corporations, and were not "essentially at home" in a particular U.S. jurisdiction. An expedited appeal is pending before the Second Circuit.

In September 2014, the Second Circuit abrogated the nearly century-old "doing business" test used by New York courts in deciding whether general jurisdiction exists over foreign corporations. In Gucci America, Inc. v. Weixing Li,1 the Second Circuit applied the "essentially at home" test set forth in the U.S. Supreme Court's Goodyear2 and Daimler3 decisions. The court determined there was no general jurisdiction over a non-party bank that maintained offices and employees in New York because it was not "essentially at home" in New York, i.e., the bank was neither incorporated in nor had its principal place of business in the state.

Pre-Daimler: The "Doing Business" Test

A personal jurisdictional analysis involving a foreign defendant requires a two-step inquiry:

  • first, whether the foreign defendant is subject to jurisdiction under the law of the forum state
  • second, whether the exercise of personal jurisdiction comports with constitutional due process

Since International Shoe Co. v. Washington, the touchstone principle to satisfy constitutional due process has been that foreign defendants have "certain minimum contacts with [the state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice."4 In the context of general or all-purpose jurisdiction, courts take a narrow view of what constitutes minimum contacts.5

Federal courts located in New York historically have permitted the exercise of general jurisdiction "over a foreign corporation that [was] engaged in such a continuous and systematic course of 'doing business' in New York as to warrant a finding of 'presence' in the state, even if the cause of action [was] unrelated to the defendant's New York activities."6 Under the "doing business" test, a court could exercise general jurisdiction over a foreign corporation that maintained an office and had employees in New York.7 Prior to Daimler, well-established Second Circuit precedent held that satisfying New York's "doing business" test also comported with constitutional due process.

Post-Daimler: The "Essentially at Home" Test

In line with Goodyear and Daimler, New York's general jurisdictional jurisprudence has changed dramatically to the benefit of foreign corporations. Now, general jurisdiction over a corporation exists only when its contacts with the state are so continuous and systematic as to render the corporation essentially at home in the forum state, which, absent "an exceptional case," means its state of incorporation or where it maintains its principal place of business.8 As explained in Daimler, the "essentially at home" test provides a level of ascertainability and predictability previously unavailable to foreign defendants.

No General Jurisdiction Over Foreign Bank

In Gucci America, the Second Circuit held that general jurisdiction did not exist over a non-party bank that was neither incorporated in nor maintained its principal place of business in New York. In this case, the plaintiff-manufacturers of high-end merchandise brought suit against the defendant-sellers of counterfeit products for violating the plaintiffs' trademarks. The plaintiffs obtained an injunction enjoining the defendants from selling the counterfeit goods and freezing their assets, which implicated the defendants' accounts at the non-party Bank of China. The plaintiffs served Bank of China's New York branch with the asset-freeze injunction and a subpoena to produce documents concerning the defendants' unlawful conduct. In response, Bank of China produced documents that were in the possession of its New York branches, but refused to produce any documents from any branches or offices in China.

The plaintiffs moved to compel compliance. Bank of China opposed the motion and moved to modify the court's orders as they related to assets located and held in China. The District Court granted the plaintiffs' motion to compel and denied Bank of China's motion to modify. Bank of China moved for reconsideration citing a letter from Chinese regulatory agencies stating that Chinese law prohibits commercial banks from freezing assets or turning over account records pursuant to foreign court orders. The District Court denied the motion for reconsideration and sanctioned Bank of China for failing to comply with the court's order. Bank of China appealed, requesting the Second Circuit determine, inter alia, whether the District Court had jurisdiction over Bank of China to issue and compel compliance with the injunction and subpoena.

On appeal, the Second Circuit reversed and held that, in light of Daimler (decided after oral argument), Bank of China was not subject to the general jurisdiction of the District Court, and the district court could not compel Bank of China to comply with the subpoena. The court also rejected Bank of China's argument that the District Court needed personal jurisdiction over a non-party in order to issue the asset freeze injunction. The court noted that Daimler addressed for the first time "the question of whether, consistent with due process, 'a foreign corporation may be subjected to a court's general jurisdiction based on the contacts of an in-state subsidiary.'" The Second Circuit further highlighted that Daimler "expressly cast doubt on previous Supreme Court and New York Court of Appeals cases that permitted general jurisdiction on the basis that a foreign corporation was doing business through a local branch office in the forum."

In applying the "essentially at home" test, the Second Circuit held that Bank of China could not be subject to general jurisdiction in New York based solely on its maintaining subsidiary branch offices in the state. The court specifically noted that Bank of China:

  • is not incorporated anywhere in the United States (including New York)
  • maintains its principal place of business in China
  • conducts only a small portion of its worldwide activity in New York, with only four of 10,000 branches located in the U.S.

The court also concluded that this "clearly" was not the "exceptional case" as contemplated by Daimler.

District Court Finds an "Exceptional Case"

In Sokolow v. Palestine Liberation Organization9 (PLO), the Southern District of New York recently analyzed what it deemed an"exceptional case" of general jurisdiction over foreign defendants pursuant to the U.S. Antiterrorism Act. The court found that, by their own admission, defendants were "not foreign corporations and therefore are not subject to the traditional analysis of determining a defendant's place of incorporation or principal place of business."Although the defendant argued that it had several embassies, missions and delegations around the world that were larger than its delegation in the United States, the court declined to find the PLO "at home" in any one of those countries. Thus, the court deemed it appropriate to aggregate the PLO defendants' "continuous and systematic business and commercial contacts" within the U.S.

The court acknowledged the Supreme Court's warning in Daimler (and repeated in Gucci America) that cautioned against taking "an overly expansive view of general jurisdiction inconsistent with 'the fair play and substantial justice' due process demands," but found that a comity analysis further supported asserting personal jurisdiction because there would be no conflict with any foreign country law or sovereign interest. An expedited appeal is pending before the Second Circuit.

Foreign Defendants Gain Strong Basis to Challenge General Jurisdiction

Following Daimler and Gucci America, foreign defendants will have a strong basis to challenge the court's exercise of general jurisdiction.10 The jurisdictional limitations imposed by these decisions make it extremely difficult for plaintiffs to rely on the presence of subsidiary offices or employees for the purpose of alleging general jurisdiction. Greater emphasis will fall on the specific jurisdiction analysis to determine whether the defendant's case-related contacts are sufficiently related to the forum.11 Additionally, whether registering to do business in the forum constitutes consent to jurisdiction will take on even greater significance in cases applying Daimler. Although New York state and federal courts generally have held that a foreign corporation's registration and designation of a local agent for service of process constitutes consent,12 courts in other jurisdictions have taken a contrary position in regard to their respective state corporate registration laws.13 It is likely that such issues will be at the forefront of post-Daimler jurisprudence.

Footnotes

1. 768 F.3d 122 (2d Cir. 2014). Prior to Gucci America, the Second Circuit recognized but did not reconcile the tension under New York law between the "doing business" and "essentially at home" tests. See Sonera Holding B.V. v. Cukurova Holding A.S., 750 F.3d 221, 223-24 n.2 (2d Cir. 2014) ("[W]e note some tension between Daimler's 'at home' requirement and New York's 'doing business' test for corporate 'presence[.]'... Daimler's gloss on due process may lead New York courts to revisit Judge Cardozo's well-known and oft-repeated incantation.").

2. Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. __, 131 S. Ct. 2846 (2011). The Goodyear Court applied the "essentially at home" test and concluded there was no general jurisdiction over the defendants because they were neither incorporated in nor maintained their principle place of business in North Carolina. Id. at 2851-52. See Holland & Knight alert, " Goodyear and McIntyre: Two Supreme Court Decisions Refocus Personal Jurisdiction Inquiry for Foreign Manufacturers of Goods Sold in the United States," May/June 2011.

3. Daimler AG v. Bauman, 571 U.S. __, 134 S. Ct. 746 (2014).

4. See Goodyear, 131S. Ct. at 2852(quoting Int'l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945)).

5. See In re Terrorist Attacks on September 11, 2001, 714 F.3d 659, 674 (2d Cir. 2013) (because "general jurisdiction is not related to the events giving rise to the suit, ... courts impose a more stringent minimum contacts test").

6. Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir. 1998). New York's general or all-purpose jurisdiction principle is codified in Section 301 of the New York Civil Procedure Law and Rules. See N.Y. C.P.L.R. §301.

7. Cf. BWP Media USA Inc. v. Hollywood Fan Sites, LLC, __ F. Supp. 3d __, No. 14-cv-121, 2014 WL 6077247, at *3 (S.D.N.Y. Nov. 14, 2014) (holding that finding of general jurisdiction turns on where the defendant is "essentially at home," not where the defendant has an office).

8. See Sonera,750 F.3d at 225; see also Daimler, 134 S. Ct. at 762, n.2 ("A corporation that operates in many places can scarcely be deemed at home in all of them.").

9. No. 04-cv-397, 2014 WL 6811395 (S.D.N.Y. Dec. 1, 2014), appeal docketed sub nom., In re Palestine Liberation Organization, No. 14-4449 (2d Cir. Dec. 9, 2014).

10. See BWP Media USA Inc., 2014 WL 6077247, at *3; Zucker v. Waldmann, No. 503476/13, 46 Misc. 3d 1214(A), 2015 N.Y. Slip Op. 50055(U) (N.Y. Sup. Ct. [Kings Cnty.] Jan. 23, 2015).

11. New York's long-arm or specific jurisdiction principle is codified in Section 302 of the New York Civil Procedure Law and Rules. See N.Y. C.P.L.R. §302.

12. See, e.g., Beach v. Citigroup Alternative Investments LLC, No. 12-cv-7717, 2014 WL 904650, at *6 (S.D.N.Y. Mar. 7, 2014) ("a corporation may consent to jurisdiction in New York under CPLR §301 by registering as a foreign corporation and designating a local agent"); see also Zucker, 46 Misc. 3d 1214(A), at *4 ("Without [defendant's] express written consent to jurisdiction ... by registering to do business, it cannot be involuntarily subjected to this Court's jurisdiction.").

13. See WorldCare Ltd. Corp. v. World Ins. Co., 767 F. Supp. 2d 341, 352-53 (D. Conn. 2011) (noting a Circuit split and analyzing the "widely divergent approaches" by lower courts in deciding consent to personal jurisdiction in the forum by registering to do business); see also AstraZeneca AB v. Mylan Pharm., Inc., __ F.3d __, No. 14-696-GMS, 2014 WL 5778016 (D. Del. Nov. 5, 2014), appeal docketed, No. 15-117 (Fed. Cir. Dec. 30, 2014) (finding compliance with foreign corporate registration statutes would expose companies with a national presence to suit all over the U.S., a result at odds with Daimler).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions