DELAWARE SAYS CORPORATIONS’ REGISTRATION TO DO BUSINESS ≠ PERSONAL JURISDICTION IN NON-“HOME” STATE

To do business within their borders, every state in the union requires “foreign” entities—corporations and other entities formed under the laws of another state or country—to register and appoint an agent to accept service of process. And registration and appointment of an agent have been widely considered sufficient grounds for “general” personal jurisdiction over those entities. But in recent years, two United States Supreme Court decisions dramatically changed the landscape of states’ exercise of general jurisdiction over foreign corporations. In Daimler AG v. Bauman, 134 S. Ct. 746 (2014)—following on the heels of Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011)—the Supreme Court held that general jurisdiction over a foreign corporation would exist only when its contacts with a forum state “are so continuous and systematic as to render [it] essentially at home in [that] State.” For this general jurisdictional analysis, apart from an “exceptional case,” a corporation will be considered “at home” only in its state of incorporation and its principal place of business, even if it has engaged in “a substantial, continuous, and systematic course of business” in other states.

In Genuine Parts Co. v. Cepec, the Delaware Supreme Court has now joined several other courts in concluding that subjecting foreign corporations to general jurisdiction based on their registration to do business and appointment of a registered agent “collides directly with the U.S. Supreme Court’s holding in Daimler.” It therefore overruled in part its prior decision in Sternberg v. O’Neil, 550 A.2d 1105 (Del. 1988). As was true in many other states, the Delaware court in Sternberg had held compliance with the registration statute to constitute consent by foreign corporations to general jurisdiction in Delaware. In light of Daimler, the court undertook a detailed reexamination of that statute and related provisions and, noting that those statutes made no mention of consent to jurisdiction, concluded a more “sensible reading” did not include an express or implied consent to jurisdiction by foreign corporations that complied with the registration statute. The court also noted that this more “sensible reading” made better sense in Delaware’s relations with its sister states (and in protecting its turf as guardian of the nation’s corporate laws). “As the home of a majority of the United States’ largest corporations,” the court observed, “Delaware has a strong interest in avoiding overreaching in this sensitive area.” If other states followed the more expansive pre-Daimler approach, “major Delaware corporations with national markets could be sued by … stockholders on an internal affairs claim in any state in the nation because the corporations have had to register to do business in every state”—giving rise to potentially divergent constructions of Delaware corporate law by other states, something the Delaware courts very much wish to avoid.

The Delaware Supreme Court’s decision in Genuine Parts appears correct in light of Daimler. But other courts have come to a different conclusion. Those in that camp have noted that Daimler did not address the issue of “consent” to jurisdiction—the rationale most courts relied on to find general jurisdiction over foreign entities based solely on their registration in the forum state—and therefore have persisted in exercising general jurisdiction based on such express or implied consent even after Daimler. The Genuine Parts opinion collects the cases on both sides of that issue. It notes Pennsylvania is the only state whose statutes expressly provide that registering to do business constitutes consent to or “a sufficient basis for” general jurisdiction. The Delaware court then muses that, after Daimler, the “unconstitutional conditions doctrine” may prohibit states from exacting or coercing consent to jurisdiction as the price for doing business there. The Genuine Parts Court avoided that constitutional issue by construing Delaware’s registration statute as not constituting or requiring consent, but the question may well make its way to the United States Supreme Court from a state that rejects the approach now taken by Delaware.