Delaware Supreme Court: Foreign Corporations Not Subject to General Jurisdiction Solely by Registering To Do Business | Practical Law

Delaware Supreme Court: Foreign Corporations Not Subject to General Jurisdiction Solely by Registering To Do Business | Practical Law

The Delaware Supreme Court in Genuine Parts Co. v. Cepec held that under new US Supreme Court precedent, a foreign corporation does not consent to general jurisdiction in Delaware solely by registering to do business and appointing an agent for service of process.

Delaware Supreme Court: Foreign Corporations Not Subject to General Jurisdiction Solely by Registering To Do Business

by Practical Law Corporate & Securities
Published on 05 May 2016 • Delaware, USA (National/Federal)
The Delaware Supreme Court in Genuine Parts Co. v. Cepec held that under new US Supreme Court precedent, a foreign corporation does not consent to general jurisdiction in Delaware solely by registering to do business and appointing an agent for service of process.
On April 18, 2016, the Delaware Supreme Court held that a foreign corporation does not consent to general jurisdiction in Delaware simply by registering to do business and designating an agent for service of process in Delaware under Sections 371 and 376 of the DGCL (Genuine Parts Co. v. Cepec, (Del. Apr. 18, 2016). The decision overturns the court's previous interpretation of Delaware's registration statutes in Sternberg v. O'Neil, 550 A.2d 1105 (Del. 1988), following the US Supreme Court's rulings in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), and Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011)) (for more on Daimler, see Legal Update, Supreme Court: Presence of Subsidiary in Forum State Insufficient for General Jurisdiction over Foreign Parent Corporation).

Background

The case came before the Delaware Supreme Court on interlocutory appeal from the Delaware Superior Court on the sole issue of personal jurisdiction. The plaintiffs Ralph and Sandra Cepec, both Georgia residents, sued seven companies in Delaware Superior Court, including Genuine Parts Company, for wrongful exposure to asbestos while Ralph Cepec worked for Genuine Parts in Florida. Genuine Parts is a Georgia corporation with its principal place of business also in Georgia. Though properly qualified to do business in Delaware, fewer than one percent of Genuine Parts' employees and stores are located in Delaware and less than one percent of its revenue come from Delaware.
Genuine Parts moved to dismiss the complaint for lack of general and specific personal jurisdiction. The Cepecs argued that Genuine Parts had consented to Delaware's general jurisdiction when it registered to do business and designated an agent for service of process in Delaware under the state's registration statutes. The Delaware Superior Court denied the motion to dismiss, finding that Genuine Parts had expressly consented to Delaware's jurisdiction by registering to do business in Delaware. In so ruling, the court relied on the Delaware Supreme Court's decision in Sternberg, which held that a foreign corporation so consents to general jurisdiction when it registers to do business in Delaware.
Genuine Parts submitted an interlocutory appeal to the Delaware Supreme Court on the issue of submission to general jurisdiction under Delaware's registration statutes.

Outcome

The Delaware Supreme Court, in a majority opinion, reversed the lower court's ruling, holding that after Goodyear and Daimler, the mere acts of registering to do business and designating an agent for service of process in Delaware can no longer be considered sufficient on their own to sustain a finding that a foreign corporation has submitted to general personal jurisdiction in Delaware. Justice Vaughn dissented for the reasons given by the Superior Court.
As the majority opinion explained, the US Supreme Court's decisions in Goodyear and Daimler narrowed the traditional test for general personal jurisdiction over foreign corporations. Whereas prior precedent had held that continuous and systematic business contacts in a forum state establish general jurisdiction over a foreign corporation in that state, Goodyear and Daimler created a new standard in which the contacts must be so continuous and systematic as to essentially render the corporation "at home" in the forum state. In light of those rulings, personal jurisdiction over a nonresident defendant corporation can only be established if either:
  • The defendant satisfies the "at home" test for general jurisdiction. As the Daimler court explained, general jurisdiction will usually only be found over corporations either incorporated or having their principal place of business in the forum state, with an "exceptional case" for foreign corporations that are essentially at home in the forum state.
  • The lawsuit relates to the defendant's activities within the forum state, which establishes specific jurisdiction. The exercise of specific jurisdiction over an out-of-state defendant must satisfy the forum's long-arm statute and be consistent with the Due Process Clause of the Fourteenth Amendment to the US Constitution.
In Genuine Parts, the Georgia corporation's business contacts with Delaware were clearly too minimal to satisfy the "at home" test, and the plaintiffs did not argue that the court should exercise specific jurisdiction over the corporation. The plaintiffs did argue, however, that under the Delaware Supreme Court's decision in Sternberg, a foreign corporation consents to general jurisdiction in Delaware jurisdiction by registering as a foreign corporation under Section 371 of the DGCL and appointing an agent for service of process under Section 376 of the DGCL, and that the US Supreme Court's decisions in Goodyear and Daimler had not disturbed that precedent.
The court therefore analyzed whether Sternberg's holding that general jurisdiction applies as a result of registration is still good law in light of Goodyear and Daimler.

Statutory Interpretation after Daimler

While acknowledging that Sternberg had applied the US Supreme Court's pre-Daimler personal jurisdiction jurisprudence accurately in interpreting Section 376 of the DGCL, the court here declined to continue to follow it, opting instead for a "narrower and constitutionally unproblematic reading" of the statute. In that vein, the court focused on a distinction in the DGCL for service of process on foreign corporations that have registered to do business in Delaware and those that have failed to register:
  • Section 382 of the DGCL provides that a foreign corporation that transacts business in Delaware without first qualifying to do business is deemed to have appointed the Secretary of State as its agent for service of process in any action "arising or growing out of any business" it has transacted within Delaware.
  • Section 376 of the DGCL provides that a foreign corporation that has qualified to do business in Delaware must designate an in-state agent to accept all service of process on its behalf. The statute in that context omits any language to the effect that the action must arise out of business transacted within Delaware.
This difference was significant for the Sternberg court, which understood the omission from Section 376 as an indication that the act of appointing an agent for service of process is tantamount to consent to jurisdiction for actions not having to do with the corporation's actual business being conducted in Delaware. In Genuine Parts, however, the court held that the emphasis did not have to be placed on the omission from Section 376. Instead, the court preferred an interpretation in which the additional language in Section 382 is read as an indication that a foreign corporation that has not registered to do business in Delaware is subject to jurisdiction in Delaware to the same extent as registered foreign corporations. The court preferred this reading in light of the fact that the statute makes no mention of submission to personal jurisdiction, as opposed to the long-arm statute, Section 3104 of Title 10 of the Delaware Code, which does.
The court added that its new reading avoids Sternberg's "perverse result" in which the statute would apply broader general jurisdiction over foreign corporations that have adhered to Delaware's registration statutes and limited specific jurisdiction over, foreign corporations that have not properly registered. The narrower reading also protects registered foreign corporations from the "unacceptably grasping" and "exorbitant" exercise of jurisdiction that Daimler rejected (Daimler, 134 S. Ct. at 761). To support its decision to deviate from Sternberg, the court found it significant that the minimum-contacts test had also been met in Sternberg, which meant that the issue of jurisdiction did not turn on the Sternberg court's interpretation of Section 376.
The court acknowledged that Delaware's District Courts are split on the registration question post-Daimler, but noted that a majority of federal courts have taken the position that registration does not itself cause a foreign corporation to submit to general jurisdiction. The court emphasized that the global nature of the modern economy demands that corporations have the freedom to transact business in many forums, and that a holding in line with the Superior Court's would subject corporations to general jurisdiction in every state in which they transact any business—a state of affairs that the US Supreme Court rejected in Daimler.

Practical Implications

Genuine Parts represents a break with Delaware precedent on personal general jurisdiction over foreign corporations as established in Sternberg. Following this decision, foreign corporations have certainty that they are not deemed to have consented to general jurisdiction in Delaware merely by adhering to Delaware's registration statutes for qualifying to do business there. Personal jurisdiction will only be established if the corporation either conducts so much business in Delaware as to essentially be "at home" there, or if specific jurisdiction can be established through the two-part test of satisfying the long-arm statute and the minimum-contacts test for Due Process. Given the Delaware Supreme Court's influence on corporate law, it should not be surprising if other courts adopt the reasoning of Genuine Parts.
Of interest, the court addressed the argument that if a foreign corporation's registration to do business and appointment of an agent for service of process are not tantamount to acceptance of the forum state's general jurisdiction, then contractually negotiated forum-selection clauses cannot be relied on for consent to personal jurisdiction either. The court did away with this argument, distinguishing between enforcement of freely negotiated non-adhesion contracts in which a party explicitly submits to jurisdiction in a state, on the one hand, and refusing to enforce a statutory regime in which corporations are deemed to have consented to jurisdiction in every state in which they register to do any business. Notably, the US Supreme Court itself held that forum-selection clauses in freely negotiated agreements are prima facie valid (M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972)).