Has the Ground Shifted under the Law Concerning When a Party Is “Found within the District” for Purposes of Rule B?

Thomas H. Belknap, Jr., and Noe S. Hamra

It has long been the law in the Second Circuit that when a foreign party registers with the New York Department of State to conduct business in New York and designates an agent within the district upon whom process may be served, it will be “found within the district” for purposes of Rule B of the Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Actions of the Federal Rules of Civil Procedure (the “Admiralty Rules”). This precedent was clearly established in STX Panocean (UK) Co. v. Glory Wealth Shipping Pte Ltd., 560 F.3d 127, 133 (2d Cir. 2009), where the Second Circuit unequivocally held that “a company registered with the Department of State is ‘found’ [within the district] for purposes of Rule B… .”

Recent developments in the law concerning the constitutional scope of a court’s personal jurisdiction, however, combined with the absence of clear legislative statements in New York’s registration statute, raise fresh questions about the continuing viability of STX Panocean’s holding, and the extent to which a party can seek to immunize itself against Rule B attachment in a state by registering there.

Background

Rule B of the Admiralty Rules allows a maritime claimant to attach a defendant’s tangible or intangible personal property as security for a maritime claim. Specifically, Rule B (1)(a) states, in relevant part, that “[i]f a defendant is not found within the district, when a verified complaint praying for attachment and the affidavit required by Rule B (1)(b) are filed, a verified complaint may contain a prayer for process to attach the defendant’s tangible or intangible personal prop­erty—up to the amount sued for—in the hands of garnishees named in the process.”

Historically, maritime attachments were broadly available in recognition of the difficulty in obtaining jurisdiction over par­ties to a maritime dispute who are often peripatetic and their assets transitory. Thus, the policy underlying maritime attach­ment was to permit attachments wherever the defendant’s assets could be found, thereby obviating the need for a plaintiff to “scour the globe” to find a proper forum for suit, or property of the defendant sufficient to satisfy a judgment.

Although the Admiralty Rules do not define what it means to be “found within the district,” the Second Circuit held in Seawind Compania, S.A. v. Crescent Line, Inc., 320 F.2d 580, 582 (2d Cir. 1963), that this requirement presents “a two-pronged inquiry: First, whether (the respondent) can be found within the district in terms of jurisdiction, and second, if so, whether it can be found for service of process.” In Winter Storm Shipping, Ltd. v. TPI, 310 F.3d 263, 268 (2d Cir. 2002), the Second Circuit clarified that “a defendant will be consid­ered ‘found within the district’ in which the plaintiff brings its action if the defendant has sufficient contacts with the district to meet minimum due process standards and can be served with pro­cess in the district.”

While federal law defines the jurisdictional due process boundaries surrounding a court’s exercise of jurisdiction, the federal courts look to the relevant state law to determine if those jurisdictional requirements are met. Until recently, it was well-settled under New York law that registration to do business in New York constituted a voluntary submission to general personal jurisdiction in New York. Relying on New York law, federal courts within the Second Circuit thus consistently held that registration with the New York Department of State to conduct business in New York, and designation of an agent within the district upon whom process may be served, consti­tuted being “found within the district” for purposes of Rule B. Most relevant to the court’s analysis was a party’s amenability to suit, rather than its economic and physical activities in the district. After all, as the STX Panocean court noted, “[i]n the context of peripatetic defendants with transient assets, maritime attachment is aimed at obviating a plaintiff’s need to determine where the defendant is amenable to suit. However, no ‘scour[ing of] the globe’—and, therefore, no attachment—is necessary where the defendant has already vol­untarily subjected itself to the district’s jurisdiction by reason of its registration with the State.”

Recent Developments

In 2014, the Supreme Court in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), addressed the question of whether, consis­tent with due process, a foreign corporation may be subject to a court’s general jurisdiction—i.e., amenability to suit in a jurisdiction having no relationship with the matter in dispute—based on the contacts of its in-state subsidiary. The court held that a corporation may be subject to general jurisdiction in a state only where its contacts are so “continuous and system­atic,” judged against the corporation’s national and global activities, that it is “essentially at home” in that state. The court further stated that aside from “an exceptional case,” a corpora­tion is at home only in a state where it is incorporated or it has its principal place of business.

Subsequent to Daimler, the Second Circuit Court of Appeals, which hears appeals from the federal district courts in New York, Connecticut, and Vermont, considered in Brown v. Lockheed Martin Corp., 814 F.3d 619 (2d Cir. 2016), whether a party who had registered in Connecticut could still be said to have submitted to that state’s general jurisdiction in light of the Supreme Court’s ruling in Daimler. The Brown court found that the Supreme Court’s shift in the general jurisdiction analysis over foreign corporations from the traditional “mini­mum contacts” review to the more demanding “essentially at home” test enunciated in Daimler, suggested that federal due process rights likely constrain an interpretation that transforms a “run-of-the mill” registration and appointment statute into a full corporate “consent” to the general jurisdiction of that state’s courts. Thus, without a clear legislative statement and a definitive interpretation by the Connecticut Supreme Court, the Brown court declined to interpret the Connecticut registration and agent-appointment statute as providing consent-by-regis­tration jurisdiction.

On the basis that New York’s registration statute is similar to Connecticut’s, and guided by Brown, federal district courts for the Southern, Eastern, Western, and Northern Districts of New York, in a series of non-Rule B cases, overturned a century of case law by finding that due process no longer permits courts located in New York to exercise general jurisdiction over foreign defendants on the basis of their registration to do business in the state and their appointment of a local agent for service of process. These district courts expressly declined to rely on pre-Daimler New York state law precedent.

No federal court, on the other hand, has yet addressed the issue of whether Daimler overruled STX Panocean on the question of whether a foreign corporation is “found within the district” for purposes of Rule B attachments by virtue of its registration in New York. Based on the ruling in Brown and the New York cases following it, however, it seems plain that this is an issue ripe for litigation.

Conclusion

Currently, there is a bill in the New York state legislature to amend New York’s licensing and registration statutes to clearly inform a foreign corporation that if it applies for authority to do business in New York, it is then consenting to general juris­diction in New York for all purposes.[1] Should this bill become law, the issue of whether registration and appointment of an agent for service of process amount to being “found within the district” for Rule B purposes may become moot. In the meantime, however, foreign corporations should be aware that registering to do business in New York and appointing an agent for service of process as a shield from plaintiffs’ attachments may be insufficient to render it “found within the district” within the meaning of Rule B.

[1] New York State Bill S5889 (2017-2018), nysenate.gov/legislation/bills/2017/s5889 (last visited April 24, 2018).