New York Law Review

Tag: Stewart v. Volkswagen A.G.

  • 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’.”