U.S. Supreme Court Diminishes Daimler and Upends Aybar

Plaintiffs’ counsel rejoice, defense counsel take note, and businesses beware. Daimler has been diminished and businesses are no longer only subject to general jurisdiction in states in which they are incorporated or headquartered.

On Tuesday, the United States Supreme Court issued its opinion in Mallory[1] and held that a business is subject to general jurisdiction in a state where it is merely registered to do business.

Although largely inconsequential for small businesses, for large and medium businesses — which tend to be registered to do business in multiple states — Mallory is critical. It appears those businesses are now subject to suit in any state where they are registered to do business, regardless of the claim’s nature.

As an Opinion of the United States Supreme Court, Mallory applies nationally; however, for practitioners and businesses operating in New York, Mallory is particularly relevant. Only a year and a half ago, the New York Court of Appeals rendered an opposite decision: Aybar, which held that an out-of-state business was not subject to general jurisdiction in New York if it was simply registered to do business in the state. Mallory does not expressly overturn or abrogate Aybar, but it certainly appears to upend it. However, without clarification from the New York Court of Appeals regarding Mallory’s effect on Aybar, or at least a relevant decision from the Appellate Division, practitioners and businesses operating in New York are left uncertain as to which decision to follow.

This article does not attempt to answer that question. Instead, it merely provides information for readers to better understand the doctrine of general jurisdiction and the relevance of Daimler, Aybar, and Mallory, along with a brief discussion of their practical implications.

General Jurisdiction

General jurisdiction and specific jurisdiction are subsets of personal jurisdiction. Personal jurisdiction simply means that a court has authority over the parties to a particular action. Without personal jurisdiction, a court has no power over the parties. Specific jurisdiction permits a court to exercise personal jurisdiction over a litigant if the litigant has “purposefully availed” itself of the privilege of conducting activities within the state in which the court sits. If the litigant has, the courts in that state can exercise personal jurisdiction over that litigant if the litigant’s contacts with the state are related to the claim at issue.

General jurisdiction is different from specific jurisdiction and arises when a litigant’s contacts with the state in which the court sits are “so continuous and systematic as to render them essentially at home” in that state. If the contacts are as described, a court in that state can exercise personal jurisdiction over the litigant as to any claim, regardless of the fact that claim’s relation to the litigant’s activities in the state.

Daimler

Daimler is the United States Supreme Court’s seminal decision regarding general jurisdiction with respect to businesses, rendered in 2014. In Daimler, the Court pronounced that a business was only “at home” and subject to general jurisdiction in the states in which the business is: (a) incorporated or (b) maintained its headquarters. Daimler also left room for general jurisdiction to apply to a business in a different state in “an exceptional case.”

Aybar

Aybar is a late 2021 case from the New York Court of Appeals. In that case, the plaintiff attempted to hold vehicle and tire manufacturers liable for personal injuries the plaintiff sustained in a vehicle accident in the State of Virginia. Neither of the manufacturer defendants were incorporated nor headquartered in New York, making general jurisdiction difficult under Daimler, and there were no contacts the manufacturer defendants had with New York to convey specific jurisdiction. However, plaintiff sued them in New York anyway.

Unsurprisingly, the manufacturer defendants moved to dismiss the action for lack of personal jurisdiction. Plaintiff opposed the motion, arguing that the defendant manufacturers were subject to general jurisdiction in New York because they registered to do business in New York. Notably, New York law requires out-of-state businesses to register to do business in New York. As part of that registration, the out-of-state businesses have to designate an in-state agent for accepting service of process on its behalf. Plaintiff effected service on the defendant manufacturers’ in-state agents. The trial court agreed with Plaintiff and declined to dismiss the action for lack of personal jurisdiction. At the Appellate Division, the trial court’s decision was reversed and the action dismissed.

The issue then made its way to the New York Court of Appeals. There, the Court heavily relied on Daimler, reciting that businesses are only subject to general jurisdiction in the states in which the business is incorporated or headquartered, which the manufacturer defendants were not. Further, the Court held that an out-of-state business is not subject to general jurisdiction in New York by registering to do business in New York. Therefore, the defendant manufacturers ultimately prevailed and were dismissed from the action.

Mallory

On Tuesday, only a year and a half after Aybar, the United States Supreme Court issued Mallory and held that a defendant business subject to general jurisdiction in a state where it was not headquartered or incorporated, but merely registered to do business. Plaintiff in Mallory was a former train mechanic who worked for the defendant corporation for nearly 20 years in Ohio and Virginia. Thereafter, he moved to Pennsylvania and developed cancer, attributing his diagnosis to his former employment. Plaintiff commenced an action against his former employer in Pennsylvania.

Like the manufacturer defendants in Aybar, Plaintiff’s employer moved to dismiss the action for lack of personal jurisdiction. It was not headquartered or incorporated in Pennsylvania, making general jurisdiction difficult under Daimler, and Plaintiff did no work for the employer in Pennsylvania, making specific jurisdiction an obstacle. Like Plaintiff in Aybar, Plaintiff in Mallory opposed the motion to dismiss, asserting that Plaintiff’s employer was subject to general jurisdiction in Pennsylvania because, among other things, the employer registered to do business in Pennsylvania. The Pennsylvania Supreme Court disagreed, holding that exercising general jurisdiction over Plaintiff’s employer would violate Daimler.

The issue was appealed to the United States Supreme Court, which disagreed with the Pennsylvania court and agreed with Plaintiff. The Supreme Court held that general jurisdiction could properly be exercised over Plaintiff’s employer by a Pennsylvania court because the employer registered to do business in Pennsylvania. The majority in Mallory largely ignored Daimler, instead relying on a Supreme Court case from 1917 that held a defendant business was subject to general jurisdiction in Missouri because it registered to do business there. The dissenting justices in Mallory argued, among other things, that the majority’s ruling “flies in the face of [] precedent” (i.e., Daimler).

Practical Implications

As discussed above, Mallory is groundbreaking, and not in a positive way, for medium and large businesses, which are usually registered to do business in numerous states. Under Mallory, these businesses now appear subject to suit, via general jurisdiction, in all of the states in which they are registered, regardless of the claim’s nature and the businesses’ operations in those states.

The best path to mitigate against Mallory is unclear. If a business is not actually doing business in a particular state, but is merely registered there, it may make sense to unregister. However, it seems less practical and sensible to unregister in states where a business is doing business (unless the amount of business being done in that state is outweighed by potential exposure). It seems more likely at this time that businesses will have to accept Mallory’s implications, at least until there is a decision narrowing Mallory’s scope.

For out-of-state businesses operating in New York, the issue is slightly more complicated. Aybar is still the controlling law in New York, and it is unclear whether Aybar would prevail in light of Mallory. Therefore, it is unclear whether such businesses should abide by Mallory, Aybar, or somehow both. For businesses that can afford to cease business in New York or find that operating in New York is outweighed by potential litigation exposure in New York, unregistering in New York to avoid potential Mallory jurisdiction seems, conceivably, an option. However, it is hard to imagine that option is practical and sensible for most businesses. For most, it seems the way forward is to be mindful of Mallory, proceed operations in New York, and, if finding themselves in New York litigation on account of general jurisdiction from registration, argue Aybar in favor of dismissal for lack of jurisdiction.

Neither this article as a whole, nor any part of this article, is or is intended to be legal advice. Businesses seeking to navigate these issues, or others, should retain legal counsel.

[1] A copy of Mallory can be found here: https://www.supremecourt.gov/opinions/22pdf/21-1168_f2ah.pdf.