Defense Digest, Vol. 30, No. 1, March 2024

Vetoed New York State Legislation Maintains Status Quo to Favor Out-Of-State Defendants: No Consent to Jurisdiction by Registration

By
Taylor Bourguignon

Key Points: 

  • Corporation that registers to do business in New York does not necessarily consent to general personal jurisdiction. 
  • Proposed amendment to New York Business Corporation Law § 1301(e) would have overturned that law but was vetoed by the Governor.

A recent New York Court of Appeals case held that a corporation registering to do business in New York State does not necessarily mean it consents to general personal jurisdiction in the state. A proposed amendment to New York Business Corporation Law § 1301(e) would have overturned that law. The Bill was vetoed by the Governor, who determined that the change would have overburdened New York courts and deterred foreign corporations from doing business in New York. 

Developing case law in both New York state courts and the Supreme Court of the United States has created uncertainty regarding the scope of a court’s jurisdiction over out-of-state defendants. The recent veto of a New York Bill, at least temporarily, provides clarity on New York State’s position and protects foreign corporations from being subjected to litigation based solely on their registration to do business in New York. 

In general, a defendant can only be sued in a given location if the court has “personal jurisdiction” over that defendant. There are two types of personal jurisdiction: specific and general. First, specific personal jurisdiction exists when the cause of action arose in the state. Essentially, the defendant did something within the state which is the basis of the litigation against it. Second, general personal jurisdiction exists when the defendant does not specifically act within the state, but has sufficient “connections” with the state to be sued there. For a corporate defendant, those connections are generally the place of its incorporation and its principal place of business. 

Historically, New York expanded the scope of general personal jurisdiction over a corporation to also include when the corporation is registered to do business with the Secretary of State and consented to service of process. Essentially, when a corporation became licensed to conduct business in New York, it automatically consented to general personal jurisdiction of New York courts. That standard changed in 2021 with the New York Court of Appeals decision Aybar v. Aybar, 37 N.Y.3d 274, 280, 282 (2021). 

In Aybar, the court affirmed the appellate court’s decision in Aybar v. Aybar, 169 A.D.3d 137 (2d Dep’t 2019), which had held that an out-of-state corporation’s registration in New York does not necessarily mean it consents to the court’s personal jurisdiction. The court recognized that registering in New York does mean the corporation can be served with a lawsuit there; however, its registration does not per se mean it can be sued there for any cause of action, considering that the corporation may not even have a direct contact with New York State. 

This issue was recently addressed in the Supreme Court of the United States in Mallory v. Norfolk Southern Railway, 600 U.S. 122 (2023). The Supreme Court upheld consent by registration, holding that Norfolk Southern was subject to personal jurisdiction in Pennsylvania on the basis of being registered in the state. The Mallory case stirred uncertainty as to New York’s opposing views. 

Adding to that uncertainty was New York State Senator Michael Gianaris’ proposed amendment to Business Corporation Law section 1301(e). Gianaris’ Bill 7476 would have changed Section 1301 to read: 

(e) A foreign corporation’s application for authority to do business in this state, whenever filed, constitutes consent to the jurisdiction of the courts of this state for all actions against such corporation. A surrender of such application shall constitute a withdrawal of consent to jurisdiction.

Essentially, this change would have codified the Supreme Court’s Mallory holding into New York law and overruled the effect of Aybar. However, New York Governor Hochul was not ready to support such a change and vetoed Bill 7476 on December 22, 2023. In the memo discussing the Bill’s veto, the Governor stated: 

I vetoed substantially similar legislation in 2021 due to the concerns that the proposal would represent a massive expansion of New York’s law governing general jurisdiction, likely deterring out-of-state companies from doing business in New York because it would require them to be subject to lawsuits in the State regardless of any connection to New York. This bill would cause uncertainty for those businesses and burden the judicial system.

The Governor’s veto slows down New York’s adoption of the Mallory decision. For the time being, pursuant to the Aybar court’s 2021 decision, corporations are protected from automatically consenting to the general personal jurisdiction of New York courts simply based on registration to do business in the state. However, given the Mallory holding and recent attempts to incorporate consent by registration into the Business Corporation Law, the Aybar ruling may be on very thin ice. Corporations, and their attorneys, should keep a close eye on developments involving the scope of New York personal jurisdiction moving forward. 

*Taylor is an associate in our New York City office. She can be reached at (212) 376-6426 or TABourguignon@mdwcg.com. 

 

Defense Digest, Vol. 30, No. 1, March 2024, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2024 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.