April 27, 2016

Delaware Supreme Court Overturns Prior Law on Consent Jurisdiction

Arnold & Porter Advisory

In Daimler AG v. Bauman,1 and Goodyear Dunlop Tires Operations, S.A. v. Brown,2 the US Supreme Court closed the door on states’ ability to assert nationwide general jurisdiction.3 Those cases held that absent exceptional circumstances, a corporation is subject to general jurisdiction in the one or two states where it is “at home.”4 But plaintiffs have re-grouped, looking for other bases to connect out-of-state defendants to plaintiffs’ chosen forums. One theory that courts are grappling with now is whether an out-of-state company has consented to general jurisdiction by registering to do business in the forum and appointing an agent for service of process.5 Last week, in Genuine Parts Co. v. Cepec,6 the Delaware Supreme Court said no—overturning its 1988 decision in Sternberg v. O’Neil.7

In Genuine Parts, a Georgia couple brought an asbestos lawsuit in Delaware Superior Court against seven corporations, including Genuine Parts. The plaintiff alleged that he was exposed to asbestos while working for the company in Florida.8 Genuine Parts is a Georgia corporation with its principal place of business in Atlanta.9 The company does not have corporate offices in Delaware; less than 1% of its workforce is comprised of Delaware residents; less than 1% of its auto-parts stores are located in Delaware; and less than 1% of its revenue is derived from Delaware sales.10

On these facts, Genuine Parts moved to dismiss for lack of personal jurisdiction.11 Relying on prior Delaware case law, the plaintiffs argued that because Genuine Parts had registered to do business in Delaware, it consented to be sued there for any and all causes of action.12 The trial court agreed.13 Genuine Parts petitioned for interlocutory appeal, and the Delaware Supreme Court reversed.14

The Genuine Parts Court first examined the language of the Delaware registration statute. Delaware requires out-of-state companies desiring to do business in-state to register with the Secretary of State and appoint an agent for service of process.15 If a company fails to comply, it is subject to “fees, penalties, and franchise taxes.”16 Nothing in the statute notifies an out-of-state corporation that registration subjects it to general jurisdiction.17 The court therefore read the statute as requiring out-of-state companies to merely “appoint a registered agent to accept service of process, but not as a broad consent to personal jurisdiction in any cause of action, however unrelated to the foreign corporation’s activities in Delaware.”18

The court cautioned that a broader reading of the registration statute would run afoul of recent US Supreme Court precedent. Goodyear and Daimler rejected “unacceptably grasping” and “exorbitant” exercises of jurisdiction, holding instead that a “corporation that operates in many places can scarcely be deemed at home in all of them.”19 Although an older line of US Supreme Court cases supported consent jurisdiction,20 the court concluded that Goodyear and Daimler now “undermine[] the key foundation upon which prior federal cases like [Neirbo Co. v. Bethlehem Shipbuilding Corp.]21 and [Pennsylvania Fire Insurance Co. of Philadelphia. v. Gold Issue Mining & Milling Co.]22 relied.”23

The court also concluded that its own precedent, Sternberg v. O’Neil, did not survive Daimler.24 In Sternberg, the plaintiff brought a shareholder derivative action against an out-of-state corporation who allegedly breached its fiduciary duties by mismanaging its wholly-owned Delaware subsidiary.25 Sternberg held that registering to do business in Delaware amounted to consent for general jurisdiction, but this was “strongly influenced by prior US Supreme Court jurisprudence whose dependability has been undermined by Daimler.”26 And in any event, Sternberg’s consent holding was not “necessary to the resolution of the case,” because the defendant was also subject to specific jurisdiction in Delaware.27

Finally, the court considered the tit-for-tat effects of finding consent jurisdiction based on compliance with the registration statute. If doing business in Delaware means out-of-state companies consent to general jurisdiction, they may stop doing business in Delaware.28 And because “‘grasping’ behavior by one can lead to grasping behavior by everyone,”29 other states may apply the same consent analysis to Delaware companies doing business in their borders.

The Delaware Supreme Court is the first state high court to decide consent-by-registration to general jurisdiction following Daimler. It joins the Second Circuit, see Brown v. Lockheed Martin Corp.,30 which rejected the theory under Connecticut law.

  1. 134 S. Ct. 746 (2014).

  2. 564 U.S. 915 (2011).

  3. There are two theories under which a state may exercise personal jurisdiction. Specific jurisdiction applies when the lawsuit arises out of or relates to the defendant’s contacts with the forum state. A court can exercise general jurisdiction over a corporation that has “continuous corporate operations within a state (that are) so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities.” Genuine Parts Co. v. Cepec, No. 528,2015, 2016 WL 1569077, at *4 (Del. Apr. 18, 2016).

  4. Daimler, 134 S. Ct. at 761; Goodyear, 564 U.S. at 919.

  5. See, e.g., Brown v. Lockheed Martin Corp., 814 F.3d 619 (2d Cir. 2016); Acorda Therapeutics Inc. v. Mylan Pharm. Inc., --- F.3d ---, 2016 WL 1077048 (Fed. Cir. Apr. 4, 2016).

  6. 2016 WL 1569077.

  7. 550 A.2d 1105 (Del. 1988).

  8. Genuine Parts, 2016 WL 1569077, at *3.

  9. Id.

  10. Id.

  11. The plaintiffs conceded that Delaware lacked specific jurisdiction over Genuine Parts. Id.

  12. Genuine Parts, 2016 WL 1569077, at *3.

  13. Id. at *4.

  14. Id. at *3.

  15. Id. at *5.

  16. Id. (citing 8 Del. C. § 383).

  17. Id. at *13.

  18. Id. at *2.

  19. Daimler, 134 S. Ct. at 761, 762 n.20.

  20. Genuine Parts, 2016 WL 1569077, at *7.

  21. 308 U.S. 165 (1939).

  22. 243 U.S. 93 (1917).

  23. Genuine Parts, 2016 WL 1569077, at *7.

  24. Id. at *1–2 (“(A)fter Daimler, it is not tenable to read Delaware’s registration statutes as Sternberg did.”). The issue of whether Sternberg remains good law was also briefed before the Federal Circuit this year. See Acorda Therapeutic, 2016 WL 1077048. Last month, the majority opinion deferred ruling on consent jurisdiction and instead based its decision on specific jurisdiction. The concurring opinion, however, concluded 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 the state’s registration statute.” Id. at *11.

  25. Genuine Parts, 2016 WL 1569077, at *6.

  26. Id. at *6, 13.

  27. Id. at *13.

  28. Id. at *14.

  29. Id.

  30. 814 F.3d 619 (2d Cir. 2016).

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