New York Weighs Jurisdictional Rule for Foreign Firms 

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Some lawyers say bill is at odds with recent U.S. Supreme Court ruling

New York lawmakers are weighing a bill to make foreign companies submit to the jurisdiction of New York courts as a condition of doing business in the state, a position some lawyers say is at odds with a recent U.S. Supreme Court ruling.

The high court decided unanimously last year to put restrictions on lawsuits filed against foreign companies in the U.S. that concern actions that took place abroad. Defense lawyers hailed the decision as a strike against “litigation tourism,” the filing of lawsuits in a jurisdiction with no direct link to the issue or parties involved.

New York, meanwhile, is trying to draw more corporate litigants into its courts, with the hope of surpassing Delaware as the leader in business litigation.

“We do want New York to be a leader in corporate law,” said George F. Carpinello, a civil litigator who chairs an advisory committee to the New York Office of Court Administration, which produced the proposal. “That’s been the policy for many years.”

The Supreme Court’s 9-0 ruling in Daimler AG v. Bauman said a company can be sued in a state for actions that take place elsewhere only in limited circumstances—if, for instance, the company is based in the state or incorporated there.

Under the proposed law, any claim against a foreign company that registers with the New York secretary of state could be filed in New York courts, regardless of where the alleged wrongdoing took place or who was harmed.

Critics say it flies in the face of the Supreme Court’s decision and could discourage outsiders considering business in New York.

“This is a particularly unfriendly bill to foreign business,” said Lanier Saperstein, a New York-based partner at Dorsey & Whitney LLP who represents foreign banks. The New York City Bar and the Business Council of New York State also oppose the legislation.

The dispute reflects foreign companies’ aversion to litigation in American courts, where legal rules allow for a broad pretrial exchange of evidence between parties—a process known as discovery—that has grown so costly in the digital age that some companies settle cases just to avoid it.

New York courts have held since 1916 that when a company obtains a license to do business in the state, it implicitly agrees that New York courts have jurisdiction to consider legal claims against it, Mr. Carpinello said. New York judges would still be able to jettison cases that have no strong ties to the state under a legal doctrine known as forum non conveniens, Latin for “forum not agreeing.”

“This has been the law for the last 100 years,” said Mr. Carpinello. “We’re just making it explicit.”

The legislation has been reported out of committees and awaits a vote on the floors of the New York senate and assembly, where it has “broad support,” Mr. Carpinello said.

A spokesman for New York Sen. John Bonacic, one of the bill’s sponsors, said the legislation would “save New Yorkers and others the expense and inconvenience of traveling to distant forums to seek the enforcement of corporate obligations.”

In the Daimler ruling, the U.S. Supreme Court ruled that a federal court in California lacked jurisdiction to hear a lawsuit filed by Argentine citizens alleging that the German maker of Mercedes-Benz was complicit in human-rights abuses during the country’s Dirty War, beginning in the mid-1970s. Daimler denied the allegations.

The plaintiffs had selected California because they believed Daimler’s business ties to the state, including Mercedes-Benz sales, provided a jurisdictional hook.

But Justice Ruth Bader Ginsburg, who wrote the unanimous opinion, wrote that Daimler’s contacts with the state were too “slim.” Forcing the company to litigate in California, where it wasn’t “at home,” violated the U.S. Constitution’s guarantee of due process.

The Supreme Court didn’t address whether Daimler could have consented to answer the claims in federal court in California. Since the ruling, three lower courts have held that imposing jurisdiction on foreign companies through state registration violates due process, while three other lower courts have held that the Daimler ruling doesn’t automatically preclude it.

Foreign or out-of-state companies don’t have to register to do business in New York, but doing so confers a major advantage: access to New York courts for their own purposes. Mr. Carpinello and other supporters of the bill argue that if a company wants to use New York courts to sue others, it should also have to subject itself to their jurisdiction.

But Eugene Kontorovich, a law professor at Northwestern University, likened that way of thinking to a law that says anyone who uses New York highways “agrees to be sued there for anything.”

“Access to courts is a fundamental right,” Mr. Kontorovich said. “It is not clear that the state can sell it, especially on discriminatory terms to foreign companies.”

Source: WSJ – New York Weighs Jurisdictional Rule for Foreign Firms

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