Delaware Supreme Court Rules that Qualifying to Do Business as a Foreign Entity Does Not Operate as a Consent to General Jurisdiction
On April 18, 2016 the Delaware Supreme Court, in a 4-1 decision, held that a foreign corporation does not expressly consent to general jurisdiction by merely registering to do business in the state and appointing an agent for service of process. In Genuine Parts Company v. Cepec, No. 528, 2015 (Del. Sup. Ct. Apr. 18, 2016), the court reached its conclusion largely based on two recent U.S. Supreme Court cases construing the constitutional limits of personal jurisdiction, Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011) and Daimler AG v. Bauman, 134 S. Ct. 746 (2014). In doing so, it overturned at least part of the holding in the leading Delaware case on the issue, Strenberg v. O’Neil, 550 A. 2d 1105 (Del. 1988).
Genuine Parts Co. involved an asbestos-related claim against the parent company of Napa auto-parts stores. Genuine Parts is a Georgia corporation with headquarters in Atlanta and the alleged harms occurred in Florida. Genuine Parts is lawfully registered to do business in Delaware as a foreign entity pursuant to § 371 of the DGCL and its designated agent for service of process is in Wilmington in accordance with DGCL § 376. The defendants argued that general personal jurisdiction was proper is this case because Genuine Parts consented to the general jurisdiction of the Delaware courts when it qualified to do business and appointed an agent for service of process. This argument is consistent with Strenberg, which has been the law in Delaware for nearly thirty years.
Strenberg involved a double-derivative suit against the Ohio parent of a Delaware subsidiary alleging breach of fiduciary duty due to mismanagement. Chief Justice Strine, writing for the majority, pointed out that Strenberg actually provided two alternate grounds for its ruling. The first ruling, as described above, determined that general jurisdiction existed in light of the Ohio parent’s decision to qualify to do business and appoint a service of process agent, regardless of the absence of specific language in the statute regarding consent to jurisdiction. The alternate ruling, however, stated that specific personal jurisdiction existed as well:
The reality is that Sternberg‘s ruling on § 376 was not necessary to the resolution of the case because the Court also found that the foreign corporation had sufficient minimum contacts with Delaware through owning and managing its Delaware subsidiary for over thirty years to provide a constitutional basis for specific jurisdiction.
Genuine Parts Co. at 32. Rather than reading consent to general jurisdiction into the statute requiring foreign corporation to appoint an agent for service of process, the majority in Genuine Parts Co., stated that “[section] 376 can be given a sensible reading by construing it as requiring a foreign corporation to allow service of process to be made upon it in a convenient way in proper cases [i.e. those cases where specific personal jurisdiction is present], but not as a consent to general jurisdiction.” Id. at 34.
Moreover, the majority in Genuine Parts Co. decided that the first Strenberg ruling embraced the prevailing federal jurisprudence in favor of a broad interpretation of personal jurisdiction but that this view has been discredited and is not in sync with Due Process.
Goodyear and Daimler
According to the majority, the U.S. Supreme Court decisions in Goodyear and Daimler were meant to reign in broad interpretations of business qualification statutes like the deemed consent found in Strenberg. Under Goodyear, a “court may only exercise general jurisdiction over foreign corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” Goodyear, 131 S. Ct. at 2851. Daimler further clarified that the standard under Goodyear “is not whether a foreign corporation’s in-forum contact can be said to be in some sense continuous and systematic,” but that the presence is so pervasive that it is equitable to consider it at home in the state. Daimler, 134 S. Ct. at 761 (emphasis added). Therefore, under this line of analysis the only two places where a corporation is subject to general jurisdiction are its place of incorporation and its principal place of business. The Genuine Parts Co. approved of this analysis, noting: “It is one thing for every state to be able to exercise personal jurisdiction in situations when corporations face causes of action arising out of specific contacts in those states; it is another for every major corporation to be subject to the general jurisdiction of all fifty states.” Genuine Parts Co. at 35.
Alternative Approaches and Dissenting Opinion
There are many courts that would disagree with the outcome in Genuine Parts Co. and the majority “acknowledge[d] that some courts have maintained in Daimler‘s wake that implied consent by virtue of simple registration to do business remains a constitutionally valid basis for general jurisdiction over a nonresident corporation.” Justice Vaughn, as the lone dissenter, noted that “just last month” a federal circuit court judge authored a concurring opinion in a case originating in Delaware supporting the proposition that “Daimler did not overrule the line of Supreme Court authority establishing that a corporation may consent to jurisdiction over its person by choosing to comply with a state’s registration statute.” Genuine Parts Co. (dissenting opinion, at 2).
After Genuine Part Co., plaintiffs cannot sue non-resident corporations in Delaware if the claims are unrelated to the company’s contacts within the state.
It will be interesting to see whether other jurisdictions will be persuaded by the Delaware Supreme Court’s ruling in Genuine Auto Parts. Only Pennsylvania expressly provides by statute that registering to do business in the state is a sufficient basis for general jurisdiction over a foreign corporation but perhaps more states may consider similar legislation in light of Genuine Parts Co.
You can read the full opinion here (starts automatic download of .pdf file).
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