New York Law Review

Tag: foreign corporation

  • Stewart v. Volkswagen A.G., 81 N.Y.2d 203 (1993): Strict Compliance Required for Service on Foreign Corporations

    Stewart v. Volkswagen A.G., 81 N.Y.2d 203 (1993)

    When seeking to obtain jurisdiction over a foreign corporation not authorized to do business in New York by serving the Secretary of State, strict compliance with the sequential service requirements of Business Corporation Law § 307(b)(2) is mandatory.

    Summary

    Plaintiffs sued Volkswagen A.G. (VWAG), a German corporation, for injuries allegedly caused by unintended acceleration in Audi vehicles. They attempted service by serving the New York Secretary of State and mailing a copy of the summons and complaint to Volkswagen of America (VOA) in New Jersey, purportedly on behalf of VWAG. VWAG moved to dismiss for lack of personal jurisdiction, arguing non-compliance with Business Corporation Law § 307(b)(2). The Court of Appeals held that the plaintiffs failed to meet the strict sequential requirements of the statute. Mailing to VOA was insufficient, and plaintiffs did not demonstrate attempted compliance with the prior service options outlined in the statute.

    Facts

    Plaintiffs filed suit against Volkswagen A.G. (VWAG), a German corporation, for personal injuries related to alleged unintended acceleration of Audi 5000 vehicles.

    VWAG manufactured the vehicles and exported them to the United States, transferring title to Volkswagen of America, Inc. (VOA).

    VOA sold the vehicles to World Wide Volkswagen Corp., which distributed them to Audi dealers, who then sold them to consumers.

    Plaintiffs attempted to obtain jurisdiction over VWAG by serving the New York Secretary of State, pursuant to Business Corporation Law § 307(b)(2), and by mailing a copy of the summons and complaint to “Volkswagen of America on behalf of Volkswagenwerk-Aktien Gesellschaft” in New Jersey.

    Procedural History

    VWAG moved to dismiss the complaint under CPLR 3211(a)(8), arguing that plaintiffs failed to obtain personal jurisdiction due to improper service under Business Corporation Law § 307(b)(2).

    Supreme Court denied the motion, holding that VOA was a proper agent for service on VWAG.

    The Appellate Division affirmed, reasoning that jurisdiction could be acquired over a foreign corporation by serving a local corporation so controlled by the foreign entity that the local corporation is deemed a mere department of the foreign corporation.

    The Court of Appeals granted leave to appeal.

    Issue(s)

    1. Whether plaintiffs could rely on mailing the summons and complaint to “the last address of such foreign corporation known to the plaintiffs” under Business Corporation Law § 307(b)(2) without attempting to satisfy the preceding service prescriptions.

    2. Whether mailing the summons and complaint to Volkswagen of America (VOA) in New Jersey satisfied the requirement of mailing to the “address of such foreign corporation [VWAG]”.

    Holding

    1. No, because Business Corporation Law § 307(b)(2) establishes a mandatory sequence and progression of service completion options that must be strictly followed.

    2. No, because mailing to VOA in New Jersey was not mailing to VWAG’s “last known address,” even if VOA was a mere department of VWAG, and because the plaintiffs possessed an address for VWAG in Germany.

    Court’s Reasoning

    The Court emphasized that plaintiffs bear the burden of proving that statutory and due process prerequisites for jurisdiction and service of process have been satisfied. Business Corporation Law § 307 establishes a mandatory sequence of service options to acquire jurisdiction over a foreign corporation, and these steps are “requirements of a jurisdictional nature which must be strictly satisfied.”

    Plaintiffs failed to show they attempted to ascertain whether VWAG had a specified post office address for receiving process or a registered office address on file with the German equivalent of the Secretary of State before resorting to the “last known address” option. The court found that plaintiffs could not randomly select from the options available in the statute.

    Even if plaintiffs were permitted to proceed directly to the “last known address” option, they did not correctly utilize it because they sent the process to VOA in New Jersey “on behalf of” VWAG. The court stated, “That is not VWAG’s ‘last known address,’ as prescribed and contemplated by the statute, even if VOA is a mere department of VWAG.” The court also noted that plaintiffs’ own documents indicated that they possessed an address for VWAG in Germany.

    The court rejected the argument that service on VOA, as an alleged “mere department” of VWAG, was sufficient. Business Corporation Law § 307 provides for constructive service on the Secretary of State, and the provisions must be strictly complied with; it does not authorize alternative notification through an agent when jurisdiction is invoked initially by service on the Secretary of State.

    The Court distinguished Luciano v Garvey Volkswagen, stating that the case addressed liability under an express warranty and did not establish that VOA is an agent of VWAG for service of process purposes under Business Corporation Law § 307(b)(2).

    “Because the appointment of the Secretary of State as agent is a constructive rather than an actual designation, the statute contains procedures calculated to assure that the foreign corporation, in fact, receives a copy of the process…and ‘strict compliance with [those procedures] is required’.”

  • Frummer v. Hilton Hotels Int’l, 19 N.Y.2d 533 (1967): Establishing Jurisdiction Over Foreign Corporations Based on ‘Doing Business’ in New York

    Frummer v. Hilton Hotels Int’l, 19 N.Y.2d 533 (1967)

    A foreign corporation is subject to personal jurisdiction in New York if it engages in a continuous and systematic course of “doing business” within the state, such that it is deemed “present” in the jurisdiction, even if the cause of action arises outside of New York.

    Summary

    Frummer, a New York resident, sued Hilton Hotels (U.K.) for injuries sustained in a London Hilton hotel. The New York Court of Appeals addressed whether New York courts had jurisdiction over the British corporation. Although the plaintiff’s cause of action did not arise from any transaction of business within New York under CPLR 302(a)(1), the court held that jurisdiction was properly acquired because Hilton (U.K.) was “doing business” in New York through its agent, the Hilton Reservation Service. The court reasoned that the Reservation Service performed all the functions that Hilton (U.K.) would perform if directly present in New York, thus establishing the corporation’s presence for jurisdictional purposes.

    Facts

    Plaintiff Frummer, a New York resident, was injured in 1963 while staying at the London Hilton Hotel, operated by Hilton Hotels (U.K.) Ltd., a British corporation.
    Frummer sued Hilton (U.K.) and related entities (Hilton Hotels Corporation and Hilton Hotels International) in New York, seeking $150,000 in damages.
    Hilton (U.K.) moved to dismiss the complaint, arguing that the New York court lacked personal jurisdiction over it.
    Hilton Hotels International owned almost all shares of Hilton (U.K.). Hilton Hotels Corporation was the American parent company.
    Hilton Reservation Service, jointly owned by Hilton Hotels Corporation and Hilton Hotels International, maintained a New York office and bank account.
    The Reservation Service advertised its ability to confirm availabilities at any Hilton hotel, including the London Hilton, and provided liaison services for travel agents.

    Procedural History

    Hilton (U.K.) moved to dismiss the complaint under CPLR 3211(a)(8) for lack of personal jurisdiction.
    The lower courts upheld jurisdiction over Hilton (U.K.).
    The Court of Appeals granted leave to appeal and certified the question of whether the order was properly made.

    Issue(s)

    Whether New York courts have personal jurisdiction over a foreign corporation, Hilton (U.K.), based on the activities of its agent, Hilton Reservation Service, in New York, even though the cause of action arose outside of New York.

    Holding

    Yes, because Hilton (U.K.) was “doing business” in New York through the Hilton Reservation Service, which performed all the functions that Hilton (U.K.) would perform if it were directly present in New York, thus establishing its presence for jurisdictional purposes.

    Court’s Reasoning

    The court determined that CPLR 302(a)(1), New York’s long-arm statute, was inapplicable because the plaintiff’s cause of action did not arise from any transaction of business within New York by Hilton (U.K.).
    The court analyzed jurisdiction under CPLR 301, focusing on whether Hilton (U.K.) was “doing business” in New York in the traditional sense, referencing landmark cases such as Tauza v. Susquehanna Coal Co. and International Shoe Co. v. Washington.
    The court stated, “a foreign corporation is amenable to suit in our courts if it is ‘engaged in such a continuous and systematic course of “doing business” here as to warrant a finding of its “presence” in this jurisdiction.’”
    The court distinguished the case from Miller v. Surf Props., noting that the Hilton Reservation Service did more than mere solicitation; it both accepted and confirmed room reservations at the London Hilton.
    The court emphasized that the Hilton Reservation Service “does all the business which Hilton (U. K.) could do were it here by its own officials.”
    The court considered the common ownership between Hilton (U.K.) and the Reservation Service as a factor supporting the broad scope of the agency relationship.
    The court noted that engaging in international trade comes with the responsibility of being subject to litigation in foreign jurisdictions where business is conducted extensively.
    Dissent: Judge Breitel argued that extending jurisdiction based solely on the relationship between affiliated corporations, without evidence of fraud or intermingling of activities, was an overreach. He believed the Hilton Reservation Service’s activities amounted to mere solicitation, similar to the situation in Miller v. Surf Props.
    The dissent also highlighted policy concerns regarding the potential for reciprocal manipulation against American enterprises operating abroad if such broad jurisdictional principles were adopted.

  • Bryant v. Finnish National Airline, 15 N.Y.2d 426 (1965): Establishing Jurisdiction Over Foreign Corporations

    Bryant v. Finnish National Airline, 15 N.Y.2d 426 (1965)

    A foreign corporation is subject to personal jurisdiction in New York if it engages in a continuous and systematic course of “doing business” within the state, even if the cause of action arises outside of New York.

    Summary

    Bryant, a New York resident, sued Finnish National Airline (Finnair) for negligence after being injured in Paris by a baggage cart allegedly propelled by the blast of Finnair’s aircraft. Finnair moved to dismiss for lack of personal jurisdiction, arguing it wasn’t “doing business” in New York. The Court of Appeals reversed the Appellate Division’s dismissal, holding that Finnair’s New York office, which conducted activities like public relations, maintaining contacts with other airlines, and transmitting requests for space, constituted sufficient “doing business” to warrant jurisdiction.

    Facts

    The plaintiff, a New York resident and employee of Trans World Airlines, sustained injuries at an airport in Paris after being struck by a baggage cart, allegedly due to the excessive blast of air from a Finnair aircraft. Finnair is a Finnish corporation with its principal place of business in Helsinki, Finland. Finnair maintained a one and a half-room office in New York City, staffed with three full-time and four part-time employees. This office received reservations for Finnair flights from international air carriers and travel agencies, which were then transmitted to Finnair’s space control office in Europe. The New York office also engaged in information and publicity work for Finnair, including advertising its European services. The office had a bank account with an average balance of less than $2,000, used for salaries, rent, and operating expenses.

    Procedural History

    The Supreme Court, Special Term, denied Finnair’s motion to dismiss for lack of personal jurisdiction, finding that Finnair’s activities in New York constituted “doing business” within the state. The Appellate Division reversed, dismissing the complaint. The New York Court of Appeals then reversed the Appellate Division, reinstating the Special Term’s order and allowing the case to proceed in New York.

    Issue(s)

    Whether Finnair’s activities in New York State, specifically maintaining an office for publicity, public relations, and transmitting reservation requests, constitute “doing business” sufficient to subject it to personal jurisdiction in New York, even though the cause of action arose outside of New York.

    Holding

    Yes, because Finnair maintains a New York office that systematically and continuously engages in activities that promote its business, including public relations, maintaining contacts with other airlines and travel agencies, and transmitting requests for space, which is enough to constitute “doing business” within New York and subject Finnair to personal jurisdiction there.

    Court’s Reasoning

    The Court reasoned that the test for “doing business” should be a simple, pragmatic one. While Finnair did not operate its airplanes within New York State, its New York office was one of many directly maintained by the airline in various parts of the world. The office had a lease, employed several people, maintained a bank account, did public relations and publicity work, maintained contacts with other airlines and travel agencies, and transmitted requests for space to Finnair in Europe. The Court emphasized that the New York office helped generate business for Finnair. The court distinguished Miller v. Surf Props., emphasizing the person served in that case was an independent travel agency, not an employee of the defendant. Citing Berner v. United Airlines, the court noted that operating airplanes within the state isn’t determinative. The court stated, “The test for ‘doing business’ is and should be a simple pragmatic one, which leads us to the conclusion that defendant should be held to be suable in New York.”

  • Sauerbrunn v. Hartford Life Insurance Co., 220 N.Y. 363 (1917): Limits on Court Jurisdiction Over Internal Affairs of Foreign Corporations

    Sauerbrunn v. Hartford Life Insurance Co., 220 N.Y. 363 (1917)

    New York courts generally lack jurisdiction to regulate the internal affairs of foreign corporations, particularly concerning matters that affect the corporation’s relationship with its members or policyholders across multiple jurisdictions.

    Summary

    Sauerbrunn, a New York resident and member of Hartford Life Insurance Company, a Connecticut corporation, sued to prevent the company from increasing his insurance assessments. The New York Court of Appeals reversed the lower courts, holding that New York lacked jurisdiction because the action involved the internal affairs of a foreign corporation. The court reasoned that regulating assessments affected all members, not just the plaintiff, and allowing such suits could lead to inconsistent rulings across different states, disrupting the company’s operations and creating legal uncertainty.

    Facts

    Plaintiff Sauerbrunn was a member of Hartford Life Insurance Company, a corporation organized under the laws of Connecticut.
    As a member, Sauerbrunn held a certificate requiring him to pay annual dues and mortuary assessments to cover death claims.
    Sauerbrunn initiated a lawsuit in New York, seeking to prevent Hartford Life from increasing his assessments beyond a certain amount.
    He argued that the increased assessments were unlawful and sought an injunction and an accounting.

    Procedural History

    The Supreme Court granted Sauerbrunn an injunction, ordered an accounting, and awarded a money judgment.
    The Appellate Division affirmed the Supreme Court’s decision.
    The Court of Appeals granted leave to appeal and reversed the lower courts’ decisions, dismissing the complaint.

    Issue(s)

    Whether New York courts have jurisdiction to regulate the internal affairs of a foreign corporation, specifically regarding decisions on member assessments that affect the corporation’s operations across multiple jurisdictions.

    Holding

    No, because New York courts should generally decline jurisdiction over matters involving the internal affairs of foreign corporations, especially when those matters affect the rights and obligations of members located in multiple states, as uniformity of decision is preferable.

    Court’s Reasoning

    The court emphasized the principle that courts should not interfere with the internal management of foreign corporations. The court noted, “To trace in advance the precise line of demarcation between the controversies affecting a foreign corporation in which jurisdiction will be assumed and those in which jurisdiction will be declined, would be a difficult and hazardous venture.” The court reasoned that Sauerbrunn’s lawsuit sought to regulate the corporation’s assessment policies, which directly impacted its financial management and the obligations of its members in various states.

    Allowing New York courts to dictate assessment levels could lead to conflicting rulings in other states, creating chaos and uncertainty for the corporation. “[W]e cannot overlook the fact that if the various states assume jurisdiction in like actions the decisions of the courts might be divergent, different rules of law would prevail and a corporation might be called upon to account in various states and relieved therefrom by the decrees of the courts in other states.”

    The court cited numerous cases from other jurisdictions supporting the principle that courts should decline jurisdiction over such matters. The court distinguished this case from actions where a plaintiff seeks damages for breach of contract, for example, which do not involve regulating the corporation’s internal affairs.

    By declining jurisdiction, the court sought to avoid inconsistent rulings and protect the principle of comity between states. The court acknowledged that while it had personal jurisdiction over the defendant, that did not automatically extend to jurisdiction over the subject matter, particularly when it involved the corporation’s internal affairs in Connecticut.

  • Plimpton v. Bigelow, 93 N.Y. 592 (1883): Attachment of Stock in a Foreign Corporation

    Plimpton v. Bigelow, 93 N.Y. 592 (1883)

    Shares of stock in a foreign corporation are not subject to attachment in a state where the corporation is not domiciled, even if the certificates representing those shares are physically present within that state.

    Summary

    This case addresses whether shares of stock in a foreign corporation can be attached in New York when the certificates are held within the state. The Court of Appeals held that such an attachment is invalid because the stock itself is located in the state of incorporation, not where the certificates happen to be. The court reasoned that the shares represent an interest in the corporate assets held in the foreign state, and New York courts lack jurisdiction over those assets. This decision highlights the principle that jurisdiction over property generally requires the property itself to be located within the jurisdiction.

    Facts

    The plaintiff, Plimpton, sought to attach shares of stock owned by Bigelow, a non-resident, in a foreign (Pennsylvania) corporation. The certificates representing these shares were physically located in New York. Plimpton attempted to levy on the stock by serving a warrant of attachment on the individual in possession of the certificates in New York.

    Procedural History

    The lower court upheld the validity of the attachment. The General Term reversed this decision, holding the attachment invalid. The New York Court of Appeals affirmed the General Term’s decision, finding that the shares of stock were not properly subject to attachment in New York.

    Issue(s)

    Whether shares of stock in a foreign corporation are subject to attachment in New York simply because the certificates representing those shares are physically present in New York.

    Holding

    No, because the situs of the stock is in the state where the corporation is domiciled, and therefore, not subject to attachment in New York based solely on the presence of the stock certificates.

    Court’s Reasoning

    The Court of Appeals reasoned that shares of stock represent an ownership interest in the corporation, and that interest is tied to the corporation’s assets and domicile. The court stated: “The general rule that the situs of personal property is the domicile of the owner is subject to many exceptions, and it is clear that for the purposes of taxation, and for other purposes where the sovereignty of the state is to be exercised, personal property may have an actual or constructive situs within the state, although the domicile of the owner is elsewhere.” However, this principle does not automatically apply to attachments. The court distinguished between the certificates, which are merely evidence of ownership, and the shares themselves, which represent an interest in the corporation’s assets. The court emphasized that the corporation exists under the laws of Pennsylvania, and New York courts cannot exercise direct control over the corporation’s internal affairs or assets. The court noted, “The foreign corporation is not here; it has no property in this state which can be taken by virtue of the attachment. The certificates of stock are not the property itself, they are but evidence of property… The shares are held by the company in Pennsylvania.” The court further observed that to allow attachment based solely on the presence of the certificates would create significant practical problems, as multiple states could potentially claim jurisdiction over the same shares. The dissenting opinion argued that the certificates, when endorsed, effectively transfer the property they represent, and thus should be subject to attachment where found. The majority, however, rejected this argument, emphasizing the importance of the corporation’s domicile in determining the situs of the stock. The court relied on the principle that a state’s jurisdiction generally extends only to property located within its borders, and that shares of stock are deemed to be located in the state of incorporation.