Wednesday, April 20, 2016

Delaware registration of out-of-state companies does not confer general jurisdiction

By Amanda Maine, J.D.

The Delaware Supreme Court has ruled that the state’s requirement that foreign companies be registered to do business in the state and appoint an agent for in-state service of process does not by itself subject those companies to general personal jurisdiction. The decision, drawing from recent Supreme Court decisions on personal jurisdiction, overturns 28-year old state precedent (Genuine Parts Company v. Cepec, April 18, 2016, Strine, L).

Lawsuit. Georgia residents Ralph and Sandra Cepec sued Genuine Parts Company and six other companies associated with asbestos in Delaware superior court. Ralph worked at Genuine Parts’ Jacksonville, Florida warehouse for three years and, according to the complaint, developed asbestos-related ailments. Genuine Parts, which is known for operating NAPA auto parts stores, is a Georgia corporation that is registered to do business in the state of Delaware.

Genuine Parts moved to dismiss the lawsuit for lack of general and specific personal jurisdiction. The Cepecs argued that the company had consented to Delaware’s general jurisdiction by registering to do business in the state and appointing an in-state agent for service of process. The superior court agreed with the plaintiffs, and Genuine Parts submitted an interlocutory appeal to the Delaware Supreme Court.

Sternberg, Goodyear, and Daimler. Under Sternberg v. O’Neil (Del. 1988), a defendant foreign corporation consents to Delaware’s general jurisdiction by registering to do business in the state and appointing an in-state agent for service of process. Chief Justice Strine pointed out, however, that two U.S. Supreme Court cases, Goodyear Dunlop Tires Operations, S.A. v. Brown (2011) and Daimler AG v. Bauman (2014) set due process limits on states’ exercise of general jurisdiction over non-residents. The Goodyear court rejected the notion that North Carolina had jurisdiction over Goodyear’s foreign subsidiaries because some of the tires that the subsidiaries manufactured had reached North Carolina through the stream of commerce.

Following the reasoning of Goodyear, the Daimler court held that the proper inquiry for general jurisdiction is whether the corporation’s affiliations with the state “are so continuous and systematic as to render [it] essentially at home in the forum state.” Daimler also rejected the idea that a company that engages in a “substantial, continuous and systematic course of business” subjects a corporation to general jurisdiction, stating that such “all-purpose jurisdiction” would prevent out-of-state defendants from structuring their conduct with assurance of where that conduct could make them subject to lawsuits.

No general jurisdiction. Goodyear and Daimler arose in the context of a global economy, Chief Justice Strine wrote, advising that “we no longer live in a time where foreign corporations cannot operate in other states unless they somehow become a resident.” Delaware’s statutory provisions requiring registration and service of process agents, working in tandem with its long-arm statute, mean Delaware can exercise personal jurisdiction over registered business when causes of action arise out of their activities in Delaware, the court said. However, simply registering to do business in the state does not mean it is “at home” under Daimler. Genuine Parts is “at home” in Georgia, where it is incorporated and where it runs its principal place of business, not in Delaware. Fewer than 1 percent of its employees work in Delaware, fewer than 1 percent of its stores are in Delaware, and less than 1 percent of its revenue comes from Delaware.

In light of Daimler, the service of process provision can be construed as requiring a foreign corporation to allow service of process to be made upon it, but not as a consent to general jurisdiction, according to Chief Justice Strine. He stressed, however, that plaintiffs with a fair basis to subject out-of-state corporations to lawsuits in Delaware may do so. He also expressed concern that should every state confer general jurisdiction simply by way of registration/service of process requirements, legal certainty for businesses would be impaired. “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,” he said.

In addition, Chief Justice Strine noted that at the federal level, the Delaware District Court has issued conflicting decisions on how Daimler should be applied in the state. However, he also advised that the majority of federal courts that have considered the issue have adopted the position espoused in this decision.

Accordingly, the Delaware Supreme Court reversed the decision of the lower court that denied Genuine Part’s motion to dismiss.

The case is No. 528, 2015.

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