June 20, 2016

DELAWARE INSIDER: Genuine Parts Co. v. Cepec: The Delaware Supreme Court Examines General Jurisdiction as Applied to Foreign Corporations

Samuel L. Moultrie

The Delaware Supreme Court recently overturned, in a 4–1 decision, a long-standing precedent set in Stenberg v. O’Neil, 550 A.2d 1105 (Del. 1988), and held that merely registering to do business in the state and have a registered agent appointed to receive service of process does not subject a foreign corporation to Delaware’s general jurisdiction for claims unrelated to Delaware. Genuine Parts Co. v. Cepec, No. 528, 2015 (Del. Supr. April 18, 2016). In light of recent decisions by the U.S. Supreme Court, including Daimler AG v. Bauman, 134 S. Ct. 746 (2014) and Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S. Ct. 2846 (2011), the Delaware Supreme Court concluded that registering to do business as a foreign corporation in Delaware will no longer serve as a basis for Delaware to exercise personal jurisdiction over a foreign corporation for a cause of action unrelated to the foreign corporation’s activities in Delaware. The Genuine Parts opinion is the most recent iteration of Delaware law on personal jurisdiction and, in particular, general jurisdiction as it applies to foreign corporations that are registered to do business in Delaware. Notably, Justice Randy J. Holland, the author of Stenberg, joined the majority opinion.

Background

The plaintiffs, Ralph and Sandra Cepec, residents of the state of Georgia, sued multiple defendants in Delaware to recover damages for personal injuries suffered from Mr. Cepec’s exposure to asbestos while he was employed at Genuine Parts Company, in Georgia. Mr. Cepec’s former employer, Genuine Parts Company, was a Georgia corporation registered to do business in Delaware under § 371 of the DGCL and had designated an agent for service of process in Delaware under § 376 of the DGCL. Genuine Parts’s corporate activities in Delaware were minimal and had no connection to the Cepecs’ claims. The court specifically noted that Genuine Parts Co. was not “at home” in Delaware, as it had very limited business operations in the state. Less than 1 percent of its employees worked in Delaware, less than 1 percent of its auto-parts stores were in the state, and less than 1 percent of its revenues came from Delaware. Further, no basis for specific jurisdiction existed. Genuine Parts moved to dismiss on personal jurisdiction grounds. The Cepecs argued that Genuine Parts had consented to Delaware’s general jurisdiction by registering to do business in the state and appointing an agent for service of process. The trial court, relying on the Delaware Supreme Court’s holding in Stenberg, that compliance with Delaware’s business registration statutes confers general jurisdiction over a foreign corporation, and decisions from the U.S. District Court for the District of Delaware applying Sternberg, ruled that Genuine Parts had consented to general jurisdiction in Delaware merely by registering to do business and appointing an agent for service of process in compliance with Delaware law. The Delaware Supreme Court accepted Genuine Parts’s interlocutory appeal and reversed the trial court’s ruling.

The Court’s Holding and Rationale

The Delaware Supreme Court began its analysis by reviewing Delaware’s registration statutes. It noted that unlike Pennsylvania, which expressly provides by statute that registering to do business in the Commonwealth is a basis for general jurisdiction over a foreign corporation, Delaware’s registration provisions do not expressly provide for consent to general jurisdiction. Rather, in Sternberg, the court interpreted compliance with Delaware’s registration statutes as giving express consent to general jurisdiction by designating an in-state agent to accept service of process. The Delaware Supreme Court, however, explained that Goodyear and Daimler dictate that, absent “affiliations with the State [that] are so ‘continuous and systematic’ as to render [it] essentially at home in the forum State,” it is inconsistent with principles of due process to subject a corporation to general jurisdiction in every state in which it does business. The court based its conclusion, at least in part, on the realities of modern day business in a global economy and the need for corporations, as a practical matter, to operate in all 50 states. Thus, the interpretation of Delaware’s registration statutes adopted in Stenberg was no longer compatible with due process principles, because it would offend due process for a corporation to be subject to general jurisdiction in every state in which it does business. Rather than reading consent to general jurisdiction into the statute requiring a foreign corporation to appoint an agent for service of process, the court stated that “[section] 376 can be given a sensible reading by construing it as requiring a foreign corporation to allow service of process to be made upon it in a convenient way in proper cases [i.e. those cases where specific personal jurisdiction is present], but not as a consent to general jurisdiction.”

The court also noted that the interpretation adopted in Stenberg created somewhat unequal treatment between registered foreign corporations and non-registered foreign corporations. The court noted that other Delaware statutory provisions (§§ 381 and 382 of the DGCL) make clear that foreign corporations that fail to register to do business in Delaware or that seek to withdraw registration in Delaware have consented to service of process only for actions arising out of business transacted in Delaware. The court noted that the Sternberg interpretation would have the “perverse result” of subjecting a foreign corporation that lawfully complied with Delaware’s foreign registration statutes to general jurisdiction while those foreign corporations that failed to register or that wish to withdraw registration would be subject to specific jurisdiction based only on claims arising from their activities in Delaware.

Conclusion

This holding has important application for those practicing civil and commercial litigation involving corporations in Delaware. Absent express consent, plaintiffs no longer may sue foreign corporations in Delaware for claims that are unrelated to that corporation’s activities in Delaware. Importantly, this opinion does not foreclose express consent as a basis for general jurisdiction in all circumstances, rather it merely provides that a foreign corporation’s compliance with Delaware’s registration statutes will no longer be interpreted as express consent by a registered foreign corporation to general jurisdiction in Delaware. As in most situations in other states, where a foreign corporation does not have its principal place of business in Delaware nor consented to general jurisdiction, Delaware cannot exercise general jurisdiction over that foreign corporation and, instead, must evaluate whether it can exercise specific jurisdiction for claims arising out of that corporation’s activities in Delaware under the long-arm statute, 10 Del. C. § 3104. This is a reasonable and practicable application of the evolving due process standards as applied to corporations in a diverse national and global economy. To require a foreign corporation to subject itself to claims that are unrelated to that corporation’s minimal business activities in Delaware interferes with that corporation’s ability to manage its affairs in an efficient and predictable manner. As a result of the court’s holding, foreign corporations in Delaware are no longer subject to general jurisdiction simply because they comply with Delaware’s registration statutes.

Additional Resources

For other materials on this topic, please refer to the following.

BLS Committee Newsletters

Delaware Supreme Court Reconsiders the Scope of General Jurisdiction
By Kali E. Bradshaw
Business and Corporate Litigation Committee Newsletter Summer 2016

Business Law Today

What Statute of Limitations Applies? The Effect of the Delaware Borrowing Statute on Claims Governed by Foreign Law
By C. Stephen Bigler and Jennifer Veet Barrett
Vol. 24 no. 7 March 2015

 

Samuel L. Moultrie

Samuel L. Moultrie is an associate at Wilks, Lukoff & Bracegirdle, LLC in Wilmington, Delaware. The opinions expressed in this article are those of the author and do not necessarily reflect the views of Wilks, Lukoff & Bracegirdle, LLC or its clients.