"at Home" in Georgia: the Hidden Danger of Registering to Do Business in Georgia
| Publication year | 2019 |
"At Home" In Georgia: The Hidden Danger of Registering to do Business in Georgia
Brian P. Watt
Troutman Sanders, brian.watt@troutman.com
W. Alex Smith
Troutman Sanders, alex.smith@troutman.com
Georgia law prohibits any foreign corporation—a corporation with an originating registration initiated in a state other than Georgia—from transacting business in the state until it obtains a certificate of authority from the Georgia Secretary of State.1 Attorneys advise foreign corporations to register to transact business in Georgia as a matter of course, and business owners readily comply. on the surface, registration appears innocuous—submit paperwork and pay a fee to the state. In return, the corporation reaps the benefits of transacting business throughout Georgia.
But what often evades business owners—and some practitioners—is that registering to do business in Georgia operates as a veiled forfeiture of a fundamental right—the corporation's right to due process, which imposes a limit on the state's exercise of jurisdiction over the corporation.2 By virtue of its registration, a foreign corporation is subject to general personal jurisdiction in Georgia.3 That means it must respond to any lawsuit filed against it in a Georgia court.4 The foreign corporation must do so no matter how remote the lawsuit's connection is to Georgia.5
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Georgia is not unique in its registration requirement. Every state in the Union has a similar statute.6 But very few states require a foreign corporation to forfeit the guarantees of due process as a condition for transacting business in the state. Georgia is one of them.
The current state of Georgia law is bad practice. It encourages forum shopping, and it cools interstate commerce by potentially deterring foreign corporations from registering to do business in Georgia. Usually, a Georgia resident would rather file a lawsuit against a foreign corporation in Georgia to avail himself of an ostensibly friendly forum. As the Ninth Circuit Court of Appeals recognized, "[N]o doctorate in astrophysics is required to deduce that trying a case where one lives is almost always a plaintiff's preference."7 More significantly, however, a plaintiff can avail himself of favorable Georgia procedural law—including, critically, Georgia's statutes of limitations8 —simply by filing his lawsuit in Georgia rather than in another forum. A recent case decided by the Georgia Court of Appeals exemplifies the forum shopping that Georgia law currently allows: a Georgia resident filed suit against a Delaware corporation with its principal place of business in Maryland based on alleged tortious conduct that occurred in Texas.9 The court held that the corporation is subject to jurisdiction in Georgia based solely on its registration to do business in the state.10
The potential for exploitation aside, Georgia law likely violates federal law. Recently, the United States Supreme Court transformed the landscape for the exercise of general jurisdiction, greatly limiting the fora in which a foreign corporation can be subject to general
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jurisdiction.11 Georgia law must be reformed in light of modern-day strictures of federal due process.
I. A Brief Overview of Personal Jurisdiction
A state's courts can exercise jurisdiction over a defendant only if that power satisfies two prerequisites: (1) state law—typically the state's long-arm statute; and (2) the Due Process Clause of the Fourteenth Amendment of the United States Constitution.12 As discussed below, the Supreme Court of Georgia concluded that the exercise of general jurisdiction over a foreign corporation registered to do business in Georgia is authorized by state law.13 We do not question the court's interpretation of Georgia law for the purposes of this article. Rather, our focus is whether the court's holding comports with the second step: the protections of due process.
"The Due Process Clause protects an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful 'contacts, ties, or relations.'"14 Unless the defendant has sufficient "minimum contacts," due process prevents a state from exercising jurisdiction over the rights or interests of a nonresident defendant.15 Due process can be satisfied under either one of two categories of jurisdiction: specific or general.16
The exercise of specific jurisdiction requires that the litigation arise out of or relate to the defendant's contacts with the forum state.17 Typically, that means the conduct underlying the claims of the lawsuit takes place in the forum state. It is the controversy itself that establishes jurisdiction. If the lawsuit is not sufficiently
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connected to the defendant's contacts with the state, specific jurisdiction is not satisfied, and the court cannot preside over the lawsuit.
General jurisdiction, by contrast, focuses solely on the sufficiency of the defendant's contacts with the state. A state that exercises general jurisdiction can "hear any and all claims" against the defendant.18 As the United States Supreme Court recognized, "Even when the cause of action does not arise out of or relate to the foreign corporation's activities in the forum State, due process is not offended by a State's subjecting the corporation to its in personam jurisdiction when there are sufficient contacts between the State and the foreign corporation."19
After the Supreme Court issued its watershed opinion in International Shoe Co. v. Washington in 1945,20 the exercise of specific jurisdiction over a foreign corporation was subject to a relatively defined analysis. A court examined whether there existed "an ' affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State. ' When no such connection exists, specific jurisdiction is lacking regardless of the extent of a defendant's unconnected activities in the State."21
The exercise of general jurisdiction over a foreign corporation, however, remained unresolved. Most courts relied upon the nebulous standard espoused in International Shoe, which posited that there may exist "instances in which the continuous corporate operations within a state were thought so substantial and of such a nature" as to justify the exercise of general jurisdiction.22 Yet over the next sixty-five years, the Court issued only two opinions discussing general jurisdiction over foreign corporations.23 Courts were left without
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much guidance to define the contacts necessary to subject a corporation to general jurisdiction.
It was in this context that the Supreme Court of Georgia concluded that a foreign corporation's registration to do business rendered it subject to general jurisdiction in Georgia.
II. The Supreme Court of Georgia Holds that All Foreign Corporations Registered to Do Business in Georgia Are Subject to General Jurisdiction in the State
In 1992, the Supreme Court of Georgia's decision in Allstate Insurance Co. v. Klein24 analyzed whether Georgia could exercise jurisdiction over a foreign corporation registered to do business in the state. The plaintiff was a passenger involved in a car wreck in Georgia.25 Allstate insured the car under a New Jersey policy.26 The plaintiff sued Allstate in Georgia for injuries sustained in the collision.27 Allstate moved to dismiss the suit for lack of personal jurisdiction, arguing that any nexus between the claims and Allstate's activities in Georgia was too tenuous to satisfy the first step of the jurisdictional analysis—the Georgia Long-Arm Statute.28
The trial court granted the motion, but the court of appeals reversed, holding that the court could exercise specific jurisdiction because the suit was sufficiently connected to Allstate's contacts with Georgia.29 The Georgia Supreme Court affirmed the exercise of jurisdiction over Allstate, but for a different reason.30 The court focused on the language of the Georgia Long-Arm Statute, which applies exclusively to jurisdiction over Georgia nonresidents.31 The court reasoned that because the statute defines nonresident as
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including only foreign corporations not authorized to transact business in the state, a foreign corporation registered to do business in Georgia must be considered a resident for the purposes of jurisdiction.32 The court concluded:
As a resident, such a foreign corporation may sue or be sued to the same extent as a domestic corporation. Therefore, a plaintiff wishing to sue in Georgia a corporation authorized to do business in Georgia is not restricted by the personal jurisdiction parameters of [the Long-Arm Statute], including the requirement that a cause of action arise out of a defendant's activities within the state.33
In other words, a foreign corporation registered to do business is subject to general jurisdiction.
The court, however, made short shrift of the second step of the jurisdictional analysis—the due process inquiry. In a footnote, the court noted that whether the exercise of general jurisdiction over a registered foreign corporation comported with due process had "not been challenged in this case."34 The court surmised simply that "it appears" that such jurisdiction "does not run afoul of the 'minimum contacts' requirement of procedural due process."35
III. United States Supreme Court's Recent General Jurisdiction Jurisprudence
In 2011, the United States Supreme Court finally revisited the exercise of general jurisdiction. The Court's decision in Goodyear Dunlop Tires Operations, S.A. v. Brown36 restricted the exercise of general jurisdiction over a foreign corporation tremendously.
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A. Goodyear Dunlop Tires Operations, S.A. v. Brown
In Goodyear, plaintiffs filed suit in North Carolina against foreign corporations, alleging...
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