A recent decision by the Court of Appeals for the Second Circuit attempts to resolve what it describes as "a nettlesome and increasingly contentious question" concerning the ability of courts to exercise general jurisdiction over foreign corporations.1
In the case, Brown v. Lockheed Martin Corp., Civ. No. 14-4083, 2016 WL 641392 (2d Cir. Feb. 18, 2016), the Second Circuit affirmed the dismissal of personal injury claims brought in Connecticut against Lockheed, a company that is incorporated and maintains its principal place of business in Maryland, after concluding that Lockheed was not subject to the general jurisdiction of the Connecticut courts. It reached this decision despite the fact that during the time period in question Lockheed had derived "about $160 million in revenue for its Connecticut-based work" and was registered to conduct business, leased office spaces, maintained between 30 and 70 employees, and appointed a designated agent for service of process there.
The plaintiff in Brown represented the estate of a decedent who was allegedly injured as a result of asbestos exposure in connection with his work "in locations in Europe and around the United States, but not in Connecticut."
There was no basis to assert that Lockheed was subject to the specific jurisdiction of the Connecticut courts because none of the alleged conduct giving rise to the decedent's injuries occurred in that state. Instead, the plaintiff argued that Lockheed was subject to the general jurisdiction of the Connecticut courts because: (1) its "continuous and systemic" contacts with Connecticut placed it "essentially at home" in the state, and (2) its registration to do business and appointment of an agent to receive service of process there constituted consent to the jurisdiction.
Lockheed's contacts with Connecticut did not render it "essentially at home" there
The Second Circuit first turned to the Supreme Court's decisions in Goodyear Dunlop Tires Operations S.A. v. Brown, 131 S. Ct. 2846 (2011) and Daimler AG v. Bauman, 134 S. Ct. 746 (2014) to assess the plaintiff's argument that Lockheed's contacts with Connecticut were sufficient to subject it to the general jurisdiction of that state's courts. Under Goodyear and Daimler, "the general jurisdiction inquiry 'is not whether a foreign corporation's in-forum contacts can be said to be in some sense continuous and systemic,' but rather, . . . 'whether that corporation's affiliations with the State are so continuous and systematic as to render it essentially at home in the forum.'" And a corporation is "essentially at home" only "where it is incorporated or where it has its principal place of business."
Only "in a truly 'exceptional' case," the court held, will a state be able to exercise its general jurisdiction over a foreign corporation. In considering whether Brown was one such "exceptional" case, the Second Circuit found that Connecticut could not be said to be Lockheed's "surrogate principal place of business," nor was Lockheed's activity within the state significant in comparison to its overall activity: during the relevant time period, its Connecticut-based employees represented less than 0.05 percent of its workforce, and its Connecticut-based revenue never exceeded 0.107 percent of its total annual revenue. On these facts, the Second Circuit concluded that there was no basis to find that Lockheed was subject to the general jurisdiction of the Connecticut courts: "given that it is common for corporations to have presences in multiple states exceeding that of Lockheed in Connecticut, general jurisdiction would be quite the opposite of 'exceptional' if such contacts were held sufficient to render the corporation 'at home' in the state."
Lockheed's registration to do business and appointment of an agent to accept service of process did not constitute consent to jurisdiction
In examining the next question, whether Lockheed consented to the general jurisdiction of the Connecticut courts by registering to do business and appointing an agent to accept service of process there, the Second Circuit first provided some historical context. The court noted that business registration statutes were "enacted primarily to allow states to exercise jurisdiction over corporations that, although not formed under its laws, were transacting business within a state's borders and thus potentially giving rise to state citizens' claims against them." By registering to do business in a foreign state, the corporation thus consented "to appear in state court on actions by a state's citizens arising from the corporation's operations in the jurisdiction."
The particular Connecticut registration statute at issue in Brown was found by the Second Circuit to be facially consistent with these purposes. It requires foreign corporations to maintain a registered agent for service of process and provides that they are subject to suit in Connecticut for actions arising out of certain in-state and state-related conduct. While the Second Circuit observed that Connecticut's registration statute "nowhere expressly provides that foreign corporations that register to transact business in the state shall be subject to the 'general jurisdiction' of the Connecticut courts," it acknowledged that several years before the Daimler decision was issued by the Supreme Court, the Connecticut Appellate Court had in fact ascribed that broad meaning to the statute.
The Second Circuit disagreed with the Connecticut Appellate Court. It held that Connecticut's registration statute provided "no notice to a corporation registering to do business in the state that the registration might have the sweeping effect that the [Connecticut Appellate Court] envisioned." Rather, the text of the statute, combined with its historical ancillaries, "suggests that assent only to specific jurisdiction is what the statute required."
The Second Circuit also rejected the Brown plaintiff's attempt to rely on a nearly 100-year-old Supreme Court case − Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917) − which held that a foreign company's appointment of a designated power of attorney to receive service of process within a state, "so long as it should have any liabilities outstanding in the state," served as a consent to general jurisdiction there. The Second Circuit held that Pennsylvania Fire's "sweeping" holding "has yielded to the doctrinal refinement reflected in Goodyear and Daimler and the Court's 21st century approach to general and specific jurisdiction in light of expectations created by the continuing expansion of interstate and global business."
In light of these facts, the Second Circuit held that "if mere registration and the accompanying appointment of an in-state agent − without an express consent to general jurisdiction − nonetheless sufficed to confer general jurisdiction by implicit consent, every corporation would be subject to general jurisdiction in every state in which it registered, and Daimler's ruling would be robbed of meaning by a back-door thief."
Questions raised on the constitutionality of registration statutes requiring corporations to consent to general jurisdiction
In light of the fact that Connecticut's registration statute did not include an "express consent to general jurisdiction" and compliance with its terms could not be fairly construed as constituting consent to the general jurisdiction of the Connecticut courts, the Second Circuit concluded that the dismissal of plaintiff's claims for failure to establish jurisdiction over Lockheed was appropriate. While reaching this decision, the Second Circuit suggested that it would have confronted "a more difficult constitutional question" if the Connecticut registration statute − like those of other states, including New York − did require Lockheed to consent to its general jurisdiction, and it questioned whether such consent would be valid after Daimler.
Although the court acknowledged that statutes requiring corporations to consent to general jurisdiction "might well [be found to] be constitutional," it cautioned that "[a] state court's assertion of jurisdiction exposes defendants to the State's coercive power, and … [t]he reach of that coercive power, even when exercised pursuant to a corporation's purported 'consent,' may be limited by the Due Process clause." The Second Circuit chose not to address that question in Brown, because the issue had not been squarely presented.
A powerful tool
The Brown decision provides corporations with powerful bases to challenge the ability of foreign jurisdictions, including those in which the corporations are registered to do business, to exercise general jurisdiction over them in cases that do not pertain to their in-state or state-related activities.
Brown also suggests that registration statutes that require foreign corporations to submit themselves to the general jurisdiction of a state as a condition of doing business within the state may be subject to constitutional challenge pursuant to the due process clause.
Find out more about the meaning of this decision for your business by contacting any of the authors.
1 The phrase "foreign corporation" as used herein means an organization incorporated under the laws of a state other than the state in which a litigation has been brought.