Court Revisits Personal Jurisdiction Issues Post-'Daimler'

By Adam Shaw

This column addresses decisions of the U.S. District Court for the Northern District of New York. Recently the court revisited personal jurisdiction issues since the U.S. Supreme Court’s Daimler AG v. Bauman, 134 S. Ct. 746 (2014) changed the landscape. District Judge Mae A. D’Agostino discussed the proof required to show general and specific jurisdiction over a foreign defendant, and Senior District Judge Frederick J. Scullin, Jr. discussed the interplay of the elements needed to show the propriety of exercising specific jurisdiction over a foreign defendant under a long-arm statute.

‘Spratley’

In Spratley v. FCA US, 2017 WL 4023348 (N.D.N.Y. Sept. 12, 2017), plaintiffs brought a grouping of class actions against the Chrysler Group (now known as FCA US LLC) alleging warranty claims for defective vale stems in their cars’ tire pressure monitoring systems. The plaintiffs included a New York resident who purchased his car in New Jersey and non-New York plaintiffs who purchased their cars outside New York. Daimler sought to dismiss the class actions, arguing that the court had no personal jurisdiction over the non-New York claims or purchases. Judge D’Agostino agreed.

The court noted that there are two types of personal jurisdiction: general jurisdiction, which permits the court to rule on cases against a defendant wherever they arise and whomever the plaintiff; and specific jurisdiction, which permits the court to rule on cases that arise out of a defendant’s activities in a state. The Supreme Court changed the landscape of general jurisdiction in Daimler AG v. Bauman, 134 S. Ct. 746 (2014). For years, defendants were deemed to be engaging in sufficient contacts with a state for purposes of general jurisdiction by virtue of their registering to do business within a state. Daimler seemingly changed that determination when it “clarified that a court may assert general jurisdiction over a foreign corporation only where the corporation’s ‘affiliations with the State are so “continuous and systematic” as to render [it] essentially at home in the forum State.’” Spratley, 2017 WL 4023348, at *3 (quoting Daimler, 134 S. Ct. at 761). And, other than in exceptional cases, a defendant should be treated as “essentially at home” only where it is incorporated or maintains its principal place of business.

Chrysler claimed that despite being registered to do business in New York it was incorporated and maintained its principal place of business outside of New York. The court noted that courts continued to disagree about the effect of registering to do business in a state on their exercise of general jurisdiction. The Second Circuit had recently weighed in on the effect of registering to do business in the State of Connecticut and found that such an act did not confer general jurisdiction because the Supreme Court of Connecticut had never definitely construed the registration statute to have that effect and the Connecticut registration statute did not explicitly provide that general jurisdiction adhered upon registration. Id. (citing Brown v. Lockheed Martin Corp., 814 F.3d 619, 622 (2d Cir. 2016)). The Second Circuit noted that the effect of the New York statute may be different, as it has been definitively construed to confer general jurisdiction, pre-Daimler.

The court noted that the few post-Daimler courts in the Second Circuit that have concluded that registering to do business in New York is enough for general jurisdiction did so without much analysis, while the majority of courts within the Circuit had found that registration is not enough. Here, Judge D’Agostino agreed with the majority position. The court reasoned that because Daimler “rejected the idea that corporations are subject to general jurisdiction in every state where they conduct substantial business as ‘unacceptably grasping,’” then “treating the registration to do business in a state as an implicit consent to general jurisdiction must also be ‘unacceptably grasping’” “[s]ince every state in the union has a business registration statute.” Id. at *4.

The court also rejected the plaintiffs argument that it had specific jurisdiction over the non-New York residents and non-New York car purchases. The court explained that whether a court has specific jurisdiction over a non-resident defendant depends on the relationship among the defendant, the forum, and the litigation. The court further explained that federal courts situated in New York look to the New York long-arm statute to determine the basis for specific jurisdiction. Under New York’s CPLR §302(a)(1), courts have personal jurisdiction over defendants who have transacted business in the state and over claims that arise from that business activity. As to the New York plaintiff, the court found that even if Chrysler did business in the state, the claims did not arise out of that business because he bought his car in New Jersey. The court rejected the notion that advertisements that the New Jersey Chrysler dealership directed at New York could support jurisdiction because the dealership was not a party in the case and the advertisements were just for cars generally and were not even Chrysler advertisements.

The court also held that it did not have specific jurisdiction under New York’s CPLR §302(a)(3), which allows for jurisdiction over non-New York defendants when they commit a tort outside of New York, the claims arise from that tort, the tortious act caused an injury in New York, the defendants expected the act to have consequences in New York, and the defendants derives substantial revenue from interstate commerce. As to the New York resident plaintiff, the court found that the injury did not occur in New York. Whether an injury occurs in New York, the court explained, depends on a “situs-of-injury test,” which focuses on the location of the original event that caused the injury, not where the resulting damages are felt. According to the court, the injuries originally occurred in New Jersey where he bought his car, even though he may have later suffered financial damages in New York.

The court similarly rejected plaintiffs’ arguments for exercising personal jurisdiction over the non-New York plaintiffs’ claims. They argued that their claims need not arise from Chrysler’s New York activities because their claims were the same as those asserted by New York plaintiffs and arose out of Chrysler’s nationwide activity. The court disagreed, noting that the Supreme Court recently rejected the notion that there should be a sliding scale of personal jurisdiction that weighs a defendant’s general contact with the state and the claims at issue and allows for specific jurisdiction over unconnected claims when the defendant has substantial contact with the state. Id. at *6-7. (citing Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017)). Instead, the court explained, there must be a specific connection between the defendant’s contacts with the state and the claims. Because the non-New York plaintiffs had “shown no connection between their claims and Chrysler’s contacts with New York” the court concluded it had no specific jurisdiction over the non-New York Plaintiffs’ claims.

‘Buck Construction’

In Buck Construction v. Murray Corporation, 2017 WL 3981306 (N.D.N.Y. Sept. 8, 2017), Senior District Judge Frederick J. Scullin Jr. also addressed the workings of the specific jurisdiction statutes There, Buck Construction bought commercial hose clamps manufactured by Murray Corporation and claimed they were defective and caused property damage. Murray Corporation moved to dismiss for lack of personal jurisdiction, and Buck argued that the court had specific personal jurisdiction under New York’s long-arm statute, CPLR §302(a)(3). Buck Construction is a New York citizen and bought the clamps from a supply store in Utica, N.Y. Murray Corporation is a citizen of Maryland and Maine.

The court explained that CPLR §302(a)(3) allows for jurisdiction when non-New York defendants commit a tort outside of New York, the claims arise form that tort, the tortious act caused an injury in New York, the defendants expected the act to have consequences in New York, and the defendants derive substantial revenue from interstate commerce. The court found that there was no issue as to the first three elements because Murray Corporation made the clamps outside of New York and the clamps malfunctioned in New York, where plaintiff bought them and suffered its property damage injury.

According to the court, the fourth element—that the defendants expected their acts have in-state consequences—is intended to ensure a link between the defendant and the state that makes it reasonable to require a defendant to come to the state to answer for conduct committed elsewhere. The test, the court ruled, is an objective one, and asks whether a defendant knew or should have reasonably expected that a defect in its product would have direct consequences in New York. In other words, the court commented, there must be tangible evidence that the non-New York defendant knew or should have known that its product was destined for a New York market.

The court found that it was undeniable that Murray Corporation knew its product was destined for New York markets because it admitted to $1.8 million in sales revenue from New York and 1,775 shipments of products into New York, as well as shipments of its clamps as part of pipe kits to distributors who in turn sold into New York. The court rejected Murray Corporation’s argument that the New York activity was only a small part of its business because, notwithstanding the relative volume, it still “should have foreseen that its products could cause injury in New York.” 

The court similarly rejected Murray Corporation’s arguments that its business was of too local a character to be considered to have derived substantial revenue from interstate commerce because the court found that Murray Corporation made millions of dollars from wide-ranging sales.

The court explained that even where it has specific personal jurisdiction under long arm statutes, it must still determine whether the exercise of jurisdiction comports with due process. Due process requires that the defendant have both sufficient minimum contacts with the state and that exercise of jurisdiction be fair and reasonable. The court noted that the minimum contacts inquiry focuses on the relationship among the defendant, the state, and the litigation to ensure that the claims are sufficiently connected to the defendant’s purposeful contact worth the state. According to the court, it is the defendant’s contacts with the state that are important to the analysis, not the plaintiff’s contacts. The court rejected Murray Corporation’s arguments that it had no purposeful contacts with New York and merely placed its clamps into a stream of commerce that ended in New York. The court found that Murray Corporation actively sent thousands of shipments into New York and made millions of dollars in New York. The court ruled that “Defendant’s products arrived in New York, not because of the fortuitous current of the stream of commerce but because Defendant actually made shipments to New York and to distributors that serviced New York.”

The court also found that it was reasonable under the circumstances to exercise personal jurisdiction. That inquiry, according to the court, looks at the burdens imposed on the defendant, the interests of the forum state in the case, and interests of efficiency and the states’ shared interest in furthering substantive social policies.

Murray Corporation argued that costs of litigating in New York were burdensome, that New York had no interest in the ligation, and that there were no public policy reasons supporting personal jurisdiction. The court, however, found that litigating in a far away forum may impose some costs, but that the witnesses and evidence were in New York. It also found that the other proffered reasons were not specific or compelling enough to render the exercise of jurisdiction unreasonable. Accordingly, the court held that it could exercise personal jurisdiction over Murray Corporation and denied the motion to dismiss.

Adam R. Shaw is a partner in the Albany Office of Boies Schiller Flexner. Jack Dew, an associate in the office, and Sydney Shaw, a student at Stanford University, assisted in writing this article.