Exercise of General Jurisdiction Over Foreign Corporations Overturned
The Delaware Supreme Court overturned its long-standing precedent in Sternberg v. O'Neill, 550 A.2d 1105 (Del. 1988), and ruled that a foreign corporation's registration to do business in Delaware and related appointment of a registered agent for the acceptance of service of process did not subject the corporation to general jurisdiction in Delaware, in Genuine Parts v. Cepec, No. 528, 2015 (Del. Supr. April 18, 2016). Examining more recent U.S. Supreme Court jurisprudence undermining the rationale of the 1988 Sternberg decision, the Delaware Supreme Court concluded that compliance with Delaware's registration statutes could no longer be interpreted as a broad consent to personal jurisdiction in any cause of action, however unrelated to the foreign corporation's activities in Delaware. Thus, unless a foreign corporation has its principal place of business in Delaware or has operations here that are so substantial, continuous and systematic as to render the corporation "at home" here, Delaware cannot exercise general jurisdiction over the foreign corporation. Rather, personal jurisdiction will depend upon the presence of specific jurisdiction and a showing that the claim arose from the foreign corporation's activities in Delaware.
The Delaware Supreme Court also recognized that express consent could provide a basis for the exercise of general jurisdiction, but the court rejected the argument that mere compliance with Delaware's registration statutes constituted the requisite express consent.
The plaintiffs in Cepec were residents of Georgia who sued multiple defendants in Delaware to recover damages for personal injuries suffered from exposure to asbestos. One of the defendants, Genuine Parts Co., was a Georgia corporation registered to do a business in Delaware as a foreign corporation. Fewer than 1 percent of its employees worked in Delaware; fewer than 1 percent of its stores were in the state, and fewer than 1 percent of its revenues came from Delaware. Genuine Parts moved to dismiss on personal jurisdiction grounds. The plaintiffs did not argue that their claims arose from Genuine Parts' conduct of business in Delaware. Rather, the plaintiffs 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 Superior Court, relying on the Sternberg precedent and three decisions from the U.S. District Court for the District of Delaware finding Sternberg still to be good law, 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 8 Del. C Section 376.
In reversing the Superior Court's decision, the Supreme Court analyzed Delaware's registration statutes. It noted that unlike some states, Delaware's registration provisions do not expressly provide for consent to general jurisdiction. Conceding that Sternberg had interpreted Delaware's registration statutes as expressly consenting to general jurisdiction by designating an in-state agent to accept service of process, the Delaware Supreme Court ruled that such interpretation was no longer compatible with U.S. Supreme Court due process standards. Relying on U.S. Supreme Court precedent in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), the court reasoned that it is inconsistent with the principles of due process for a corporation to be subject to general jurisdiction in every place it does business. The court noted that such interpretation also was incompatible with other Delaware statutory provisions concerning a foreign corporation that failed to register to do business subjecting it to service of process only for suits arising out of business transacted by it in the state. Failing to overturn the Sternberg consent interpretation would have the perverse result of subjecting a corporation that lawfully complied with Delaware's foreign registration statutes to general jurisdiction while those foreign corporations that failed to register would be subject to specific jurisdiction based only on claims arising from their activities in Delaware.
Cepec represents a sensible and natural evolution of jurisdictional due process standards in a global economy compatible with evolving U.S. Supreme Court standards of fundamental fairness. Notably, the author of the Delaware Supreme Court's Sternberg decision almost 30 years ago joined in the majority's opinion in Cepec. Subjecting corporations to general jurisdiction in every state or jurisdiction they register to do business in interferes with a corporation's ability to order its affairs in a predictable manner. It also may exact a disproportionate toll on commerce that is itself constitutionally problematic.
It is important to recognize that Cepec does not invalidate express consent as a basis for Delaware's exercise of general jurisdiction. It simply ruled that Delaware's foreign registration statutes do not expressly evidence consent to general jurisdiction and that it is not reasonable to so interpret them.
Left open by the ruling is the effect of a statutory amendment that states clearly and expressly that by registering to do business in Delaware a foreign corporation consents to general jurisdiction for claims not arising from its Delaware activities. The Cepec decision discusses case law suggesting that imposition of such a condition would be bad policy and might not satisfy constitutional standards protecting due process and interstate commerce. But it leaves resolution of the question to another day.