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2016 Mitigating Risk: Key Litigation Developments

Commercial Litigation: Procedural Issues >> Jurisdiction Test for Foreign Defendants Continues to Narrow

April 5, 2016

In recent years, the century-old standard allowing courts to exercise personal jurisdiction over foreign defendants by showing that they were “doing business” in a forum state has been substantially limited.

Prior to the U.S. Supreme Court’s 2014 ruling in Daimler AG v. Bauman, courts required foreign defendants to maintain “minimum contacts” with a forum state, such that bringing the lawsuit in that state did not “offend traditional notions of fair play and substantial justice.” Accordingly, it had been established law in the Second Circuit, which includes federal courts in New York, that courts had general jurisdiction over a foreign corporation engaged in a “continuous and systematic course of doing business in New York” — by, for example, maintaining an office or employees in New York — regardless of whether the cause of action was related in some way to those activities.

In Daimler, however, the Supreme Court held that a court could not exercise jurisdiction over a foreign corporation unless the corporation’s interactions with the forum state were so “constant and pervasive” as to render it “essentially at home” in the forum state.

Daimler was followed and applied by the Second Circuit in a case in which it held that a foreign corporation was “essentially at home” in the forum state when it was incorporated or headquartered there.

In light of these significant decisions, foreign defendants may have a strong basis to challenge a federal district court’s exercise of general jurisdiction. In response, plaintiffs likely will shift their energy toward the second prong of the test establishing personal jurisdiction — specific jurisdiction — and focus on whether defendant corporations had purposefully engaged in activities in the forum state that gave rise to the claims asserted against them in the lawsuit.

Takeaways

  • The “essentially at home” test narrows the exposure foreign corporations face in maintaining satellite offices or employees or otherwise generally doing business in a state, and corporations not headquartered or incorporated in the state where they are defending a lawsuit should examine whether they have a viable argument that they are not subject to personal jurisdiction there.
  • With respect to New York, there is some uncertainty as to whether a corporation is “essentially at home” if it has “consented” to general jurisdiction in New York by, for example, registering to do business in the state. In addition, courts still are considering what constitutes an “exceptional case” warranting departure from the rule set forth in Daimler. Thus, foreign corporations should still consider whether a court might deem them subject to jurisdiction in New York even if they are not incorporated or headquartered in New York.

Author(s)

JOSHUA H. EPSTEIN
Partner
212.468.4869
jepstein@dglaw.com
Litigation