New York Proposes Legislation Conditioning a Foreign Corporation’s Authority to do Business in New York with Consent to Jurisdiction of the New York Courts For All Actions Against the Corporation

By Michael J. Williams, Esq.

Senate Bill 7476 (GIANARIS), introduced May 30, 2023, and passed by both the Senate and Assembly, seeks to codify in New York a tactic previously employed only in Pennsylvania:  a corporate entity wishing to register to conduct any business whatsoever in New York must consent to general personal jurisdiction for any and all issues, no matter how unrelated to that business, before our state’s already overburdened courts.  Senate Bill 7476 further seeks to apply this general jurisdiction by “consent” requirement to any corporation, including nonprofit, charitable organizations serving New York citizens in need.   

This proposed legislation by New York was in anticipation of the recent United States Supreme Court decision, arising from a Pennsylvania case, upholding jurisdiction by consent through legislation as an alternative to the contemporary minimum contacts framework. 

Pennsylvania’s highest court had found that a Pennsylvania law requiring out-of-state companies to answer in the Commonwealth of Pennsylvania any suits against it in exchange for status as a registered foreign corporation violates the Due Process Clause.   On June 27, 2023, in a 4-1-4 decision, the U.S. Supreme Court followed controlling precedent from 1916 to reverse Pennsylvania’s Supreme Court and permit this registration by “consent” requirement.  Mallory v. Norfolk S. Ry. Co., 600 U.S. ----, 143 S. Ct. 2028 (2023).  The Mallory opinion held that the longstanding jurisdictional doctrine originating with International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945) merely ran parallel to, rather than replacing, the largely forgotten “consent” doctrine of Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93, (1916).  Mallory effectively undermined the reasoning of the New York Court of Appeals in Aybar v. Aybar, 37 N.Y.3d 274 (2021) insofar as it relied on International Shoe and its progeny such as Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011) and Daimler AG v. Bauman, 571 U.S. 117 (2014). 

However, Senate Bill 7476 reminds us that the New York Court of Appeals’ Aybar decision remains controlling as to an element exclusive to state law:  the New York registration provisions such as Business and Corporations Law sec. 1301 et seq. presently do not create general jurisdiction by consent.  Registration instead requires that the foreign corporation merely designate an in-state agent for service of process. The statutes do not, however, condition the right to do business on consent to the general jurisdiction of New York courts or otherwise afford general jurisdiction to New York courts over foreign corporations that comply with these conditions.  Aybar, 37 N.Y.3d at 283. 

While Mallory stands as the ultimate authority as to federal due process, Aybar remains New York’s last word on its own law.  Aybar explicitly overruled prior, contrary authority that inferred such consent.  Id. at 283-291 (reversing Bagdon v. Philadelphia & Reading Coal & Iron Co., 217 N.Y. 432, 111 N.E. 1075 [1916]).  Expressly asserting this authority, the Court of Appeals stated “as our conclusion rests solely on New York law grounds” it would “express no opinion on the federal due process issue presented by the parties.”  Id. at 291. 

It is further noteworthy that the fifth concurring Mallory vote posited that a consent to general jurisdiction requirement likely violated the dormant Commerce Clause.  Mallory, 143 S. Ct. at 2049-2054 (J. Alito, concurrence at II.A.).  However, the Pennsylvania Supreme Court did not address this alternative argument and certiorari was not granted as to that question.  Mallory, 143 S.Ct. at 2033 n. 3.  As the concurrence argued, “[b]ecause the right of an out-of-state corporation to do business in another State is based on the dormant Commerce Clause, it stands to reason that this doctrine may also limit a State's authority to condition that right.”  Mallory, 143 S. Ct. at 2052.  While this issue must be addressed on remand, the Supreme Court’s most recent dormant Commerce Clause opinion may be found at National Pork Producers Council v. Ross, 598 U. S. ––––, ––––, 143 S.Ct. 1142, 1156–1157 (2023). 

Whatever the reader may think of the Mallory opinion, it was contrary to the holding of the Pennsylvania Supreme Court as well as other state courts such as New York and California.  Modern authorities nearly universally looked to either a foreign corporation’s continuous and systemic contacts with a state for general jurisdiction or case-linked contacts giving rise to the alleged injury for specific jurisdiction.  Jurisdiction accordingly flowed with the foreign corporation’s conduct. 

SB7476, in contrast, would revert to a bygone era where states predicated any business contacts on judicial dominion over the foreign corporation.  This regression, where New York normally stands for progressive policies, invites forum shoppers to our overburdened courts for litigation completely unrelated to New York interests.  Must a company with no New York premises or personnel of any degree whatsoever, conducting business for the benefit of New York consumers as well as itself, be hailed into a foreign courtroom at substantial expense for claims unrelated to its conduct in New York and not involving a New York resident?  Not every slip and fall or motor vehicle accident involving a foreign plaintiff and a foreign corporation registered in New York needs resolution in a New York courtroom. 

Frankly, it is difficult to reconcile the logic of the purported “substantial public interest” cited in the bill -- saving New York residents and others the expense and inconvenience of traveling to distant forums to seek the enforcement of corporate obligations that arose outside New York --with the substantial burden and costs imposed on foreign corporations (big and small) who would otherwise seek to invest and provide consumer services in New York, along with the increased burden on the New York court system adjudicating other states’ affairs.

Perhaps entities such as Norfolk Southern Railroad, Goodyer Dunlop, or Daimler AG conduct sufficiently profitable business to justify this regressive legislation.  Small businesses, in contrast, would be easy prey for predatory litigation: settle or be forced to defend in a remote courtroom at great expense.  Worst of all would be the impact on benevolent nonprofit corporations.  SB7476 explicitly seeks to compel these foreign entities to submit to general jurisdiction in exchange for their “business” interest of providing necessary services to New Yorkers in need. 

A likely unconstitutional and regressive law, contrary to New York’s historic practices as recognized by the Court of Appeals, that harms both small business and nonprofit entities, while further overburdening our state courts with matters unrelated to New York interests, needs amendment if not abandonment.  Treating all foreign corporations uniformly lacks fundamental fairness and creates comparatively unreasonable burdens that the dormant Commerce Clause prohibits.  An amendment protecting small business interests, and particularly excluding nonprofit service providers, would be an appropriate start for a reasoned discussion of this issue. 

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