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A06714 Summary:

BILL NOA06714
 
SAME ASSAME AS S04846
 
SPONSORWeinstein
 
COSPNSRSeawright, Steck
 
MLTSPNSR
 
Add S301-a, CPLR; amd S1301, BC L; amd S18, Gen Assoc L; amd S802, Lim Lil L; amd S1301, N-CP L; amd SS121-902 & 121-1502, Partn L
 
Provides that a foreign corporation's application for authority to do business in this state constitutes consent to jurisdiction of the courts of this state and a surrender of such application constitutes withdrawal of such consent.
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A06714 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A6714         Revised 09/27/16
 
SPONSOR: Weinstein (MS)
  TITLE OF BILL: An act to amend the civil practice law and rules, the business corpo- ration 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 his 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 for general (all-purpose) personal jurisdiction over foreign corporations authorized to do business in New York. In so doing, the measure serves a substan- tial public interest. Being able to sue New York-licensed corporations in New York on claims that arose elsewhere will save New York resi- dents-individuals and New York companies alike-the expense and inconven- ience of traveling to distant forums to seek the enforcement of corpo- rate 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 busi- ness 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 princi- pal 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-aim 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 the "textbook case" of Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952), for guidance as to circumstances that permit exercise of general jurisdic- tion "over a foreign corporation that has not consented to suit in the forum.") A foreign corporation, as a condition of 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 juris- diction 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 repre- sent 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 jurisdic- tion 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 corpo- ration's New York activity. The consent extended to all claims, regard- less 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, 17475 (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 Mill-Andrews Corp. v. Cupples 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 proc- ess" (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 consti- tutes consent to general jurisdiction. Le Vine v. Isoserve, Inc., 70 Misc.2d 747, 749 (Sup.Ct. Albany Co. 1972); STX Panocean (UK) 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 a contrary deci- sion 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 maybe 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 regu- lation 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 nearly 100 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 as to 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-by-case basis. In Daimler, the Supreme Court recognized the value of having an "easily ascertainable" and "clear and certain forum in which a corporate defend- ant may be sued on any and all claims." 134 S.Ct. at 760. Post-Daimler caselaw strongly supports the validity and value of the proposed measure. The Supreme Court, New York County, held in Bailen v. Air & Liquid Systems Corp., 2014 WL 3885949 (Aug. 5, 2014), that Daimler "does not change the law with respect to jurisdiction based on consent." A corporation consents to New York jurisdiction "by registering as a foreign corporation and designating a local agent." See also Corporate Jet Support, Inc. v. Lobosco Ins. Group, L.L.C., 2015 WL 5883026 (Oct.7, 2015, Sup.Ct.N.Y.Co.) (same). The Appellate Division, First Department, also relied upon consent prin- ciples in B & M Kingstone, LLC v. Mega Intl Commercial Bank Co., 131 A.D.3d 259 (1st Dep't 2015), motion for leave to appeal dismissed, 2015 WL 6457032, to require a Taiwanese bank, a branch of which was regis- tered and doing business in New York, to respond to a post-judgment information subpoena concerning any assets held by certain third-party judgment debtors at the New York branch or any of the bank's non-New York branches. Daimler did not preclude the exercise of such jurisdic- tion. The relevant registration statute, Banking Law § 200, confers jurisdiction for causes of action against a foreign registered bank, or its branches, that arise out of a transaction in New York (id. § 200(3)), but the case here did not involve a cause of action against the bank-only participation in discovery proceedings concerning a judgment against other parties. The bank "consented to . . regulatory oversight in return for permission to operate in New York. . . . This legal status also confers obligations to participate as (a) third-part(y) in lawsuits which involve() assets under (its) management." (On a separate point, the IAS court denied the judgment creditor's request to enforce a restraining notice. The separate-entity rule of Motorola Credit Corp. v. Standard Chartered Bank, 24 N.Y.3d 149 (2014), prohibits the enforcement of restraining notices served on New York bank branches with respect to accounts in other branches of the bank located in foreign countries. This aspect of the IAS court's order was not appealed. The Appellate Division stressed that the Motorola Court limited its application of the separate-entity rule to restraining notices and turnover orders and therefore did not preclude enforcement of the information subpoena in the instant case.) Several federal district courts have explicitly held that consent based on corporate registration survives Daimler as a constitutional basis for the exercise of general jurisdiction for claims against foreign corpo- rations. See, e.g., Acorda Therapeutics, Inc. v. Mylan Pharmaceuticals Inc., 78 F.Supp.3d 572 (D.Del. 2015); Forest Laboratories, Inc. v. Amneal Pharmaceuticals LLC, 2015 WL 880599 (D.Del. 2015); Otsuka Pharma- ceutical Co. v. Mylan Inc., 2015 WL 1305764 (D.N.J. 2015); Perrigo Co. v. Meriel Ltd., 2015 WL 1538088 (D.Neb. 2015). See also Beach v. Citi- group Alternative Investments LLC, 2014 WL 904650 (S.D.N.Y. 2014) (dicta). To be sure, some federal courts have disagreed. For example, AstraZeneca AB v. Mylan Pharmaceuticals, Inc., 72 F.Supp.3d 549 (D.Del. 2014), held that consent jurisdiction and contacts-based jurisdiction-the latter being the matter at issue in Daimler-both require due process scrutiny, which corporate registration fails. The AstraZeneca court reasoned that one of the premises of Daimler was that a corporation is entitled to "some minimum assurance as to where its conduct will and will not render (it) liable to suit," and such notice is absent when registration is treated as consent to general personal jurisdiction. The court also argued that a corporate defendant registered in multiple states could be exposed to suits all over the country, a result that Daimler's "at home" test sought to preclude. See also Chatwal Hotels & Resorts LLC v. Dolly- wood Co., 90 F.Supp.3d 97 (S.D.N.Y. 2015); Public Impact, LLC v. Boston Consulting Group, Inc., 2015 WL 4622028 (M.D.N.C. 2015) (applying pre- Daimler Fourth Circuit precedent). AstraZeneca was convincingly answered by Acorda Therapeutics, Inc. v. Mylan Pharmaceuticals Inc., 2015 WL 186833 (D.Del. 2015), where the court held that consent is an entirely separate basis of jurisdiction from that based on minimum contacts. Daimler itself indicated that the issue before the Court was the scope of jurisdiction over corporations that had not consented to jurisdiction. 134 S.Ct. at 755-56. Daimler simply does not overrule or even call into question Supreme Court prece- dents upholding corporate registration as a constitutional basis for general jurisdiction. Acorda also rejected the argument that jurisdic- tion based on registration creates unpredictability. On the contrary, "(w)hen . . the basis for jurisdiction is the voluntary compliance with a state's registration statute, which has long and unambiguously been interpreted as constituting consent to general jurisdiction in that state's courts, the corporation can have no uncertainty as to the juris- dictional consequences of its action." The number of states in which a corporation voluntarily registers to do business is irrelevant. (The split within the Delaware District Court is expected to be resolved in a consolidated appeal of AstraZeneca and Acorda to the Court of Appeals for the Federal Circuit. See 2015 WL 1467321.) In short, the developing caselaw firmly supports New York's statutory reaffirmance that a foreign corporation that registers to do business in New York consents to general personal jurisdiction. It is important to note that the doctrine of forum non conveniens provides a safety valve against unreasonable exercises of jurisdiction, even when corporate defendants are registered in New York. Forum non conveniens, codified in CPLR 327, authorizes courts, in their discretion, to dismiss cases that have no connection to New York. Recently, for example, the court in Corporate Jet Support, Inc. v. Lobosco Ins. Group, L.L.C., 2015 WL 5883026 (Oct. 7, 2015, Sup.Ct.N.Y.Co.), dismissed a New York action against a New York-regis- tered corporate defendant, even though such registration conferred general jurisdiction, because New Jersey was a more appropriate forum: the case involved a New Jersey corporation suing another New Jersey corporation with respect to events that took place in New Jersey. See also Bewers v. American Home Products Corp., 99 A.D.2d 949 (1st Dep't), aff'd, 64 N.Y.2d 630 (1984) (court dismissed on forum non conveniens grounds where English citizens sued New York corporations for personal injuries allegedly caused by defendants' pharmaceutical products that were manufactured, tested, labelled, marketed, prescribed and ingested in England). 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 corpo- rations 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 corpo- rations 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 juris- diction when they do business in New York and, pursuant to statute, expressly appoint the Secretary of State as their agent upon whom proc- ess may be served. This measure thus includes foreign joint stock asso- ciations 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 busi- ness organizations may likewise withdraw their authorization or certif- icate 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 busi- ness 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-pro- fits, 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 lack- ing. Furthermore, foreign banks and foreign insurance companies are excluded from this measure. Although these foreign entities must regis- ter 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 on the first of January next succeeding the date on which it shall have become law.   2015 LEGISLATIVE HISTORY: Senate 4846 (Sen. Bonacic) (committed to Rules) Assembly 6714 (M. of A. Weinstein) (PASSED)   2014 LEGISLATIVE HISTORY: Senate 7078 (Sen. Bonacic) (subst. by Assembly 9576) Assembly 9576 (M. of A. Weinstein) (PASSED)
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