By Joe Palazzolo
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."
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."
Write to Joe Palazzolo at joe.palazzolo@wsj.com
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