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A05918 Summary:

BILL NOA05918
 
SAME ASSAME AS S05889
 
SPONSORWeinstein
 
COSPNSRSimotas
 
MLTSPNSR
 
Add 301-a, CPLR; amd 1301, BC L; amd 18, Gen Assoc L; amd 802, Lim Lil L; amd 1301, N-CP L; amd 121-902 & 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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A05918 Memo:

NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
 
BILL NUMBER: A5918
 
SPONSOR: Weinstein
  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 part- nership 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 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 regis- ter 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-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 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. . . that whenever jurisdiction of the subject matter is present, service on the agent shall give juris- diction 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; 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 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 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 corpo- ration) 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 case law 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. 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), aff'd, 64 N.Y.2d 630 (1984). Post-Daimler caselaw supports, both directly and indirectly, 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 corpo- ration consents to New York jurisdiction "by registering as a foreign corporation and designating a local agent." Similarly, two federal courts in New York have said that consent to general jurisdiction based on corporate registration presents an inquiry that is independent of Daimler. Gucci America, Inc. v. Weixing Li, 768 F.3d 122, 136 n.15 (2d Cir. 2014) (although jurisdiction could not be based on the mere doing of business in New York, district court could "consider whether   a corporation has consented to personal jurisdiction in New York by applying for authorization to conduct business in New York and designat- ing the New York Secretary of State as its agent for service of proc- ess"); Beach v. Citigroup Alternative Investments LLC, 2014 WL 904650 (S.D.N.Y. 2014). Of particular interest is the decision of the Federal District Court in AstraZeneca AB v. Mylan Pharmaceuticals, Inc., 2014 WL 5778016 (D.Del. 2014), which held that Delaware's corporate consent regime was incon- sistent with the premise of Daimler. However, the Delaware registration legislation, like the current BCL in New York, does not explicitly state that registration constitutes consent to jurisdiction. The proposition, rather, is established by caselaw. The Delaware district court, there- fore, confined its holding "to Delaware's statutes specifically," noting that a more difficult question is raised when a state statute "expressly indicate  s that foreign corporations consent to general jurisdiction by complying with the statutes." Id. at n. 6. Adoption of the proposed amendments to the BCL and related statutes would clarify and confirm the well-established New York policy on corporate consent, as to which foreign corporations have been on notice for nearly a century. 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 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 on the first of January next succeeding the date on which it shall have become law.   2015-2016 LEGISLATIVE HISTORY: Senate 4846 (Sen. Bonacic) (committed to Rules) Assembly 6714 (M. of A. Weinstein) (PASSED in 2015; ordered to 3" Rdg., Cal. 253 in 2016)   2014 LEGISLATIVE HISTORY: Senate 7078 (Sen. Bonacic) (subst. by Assembly 9576) Assembly 9576 (M. of A. Weinstein) (PASSED; committed to Rules)
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