The Delaware Supreme Court’s recent opinion in Genuine Parts Co. v. Cepec gives clarity to long-standing personal jurisdiction principles by acknowledging an unfettered exercise of judicial power over businesses creates constitutional and economic concerns.
In Genuine Parts, a Georgia corporation registered to do business in Delaware. Plaintiff sued the corporation alleging claims, which did not involve actions taken in Delaware. The Superior Court held the corporation consented to general jurisdiction simply because it registered to do business in Delaware and obtained an in-state agent to accept service of process on its behalf. Thus, the lower court allowed the case to go forward. Reviewing the action on an interlocutory appeal, the Delaware Supreme Court reversed in a majority opinion with Justice Vaughn dissenting. The Court held, in light of two recent United States Supreme Court decisions, any use of service of process provisions for registered corporations must involve an exercise of personal jurisdiction over the putative defendant. This was because such an exercise of jurisdiction must be consistent with the United States Constitution’s Due Process Clause. Given that the plaintiff could not show specific or general jurisdiction, the Delaware Supreme Court dismissed the action.
While the Court expressed multiple reasons for its decision such as United States Supreme Court precedent and an interpretation of Delaware case law, the most noteworthy consideration was the micro and macro economic effects on corporations and our country as a whole. In explaining its rejection of the Superior Court’s decision, the Court relied on financial concerns by stating “[a]n incentive scheme where every state can claim general jurisdiction over every business that does any business within its borders for any claim would reduce the certainty of the law and subject business to capricious litigation treatment as a cost of operating on a national scale or entering any state’s market.” If businesses were subject to general jurisdiction in every state in which they operate, constitutional principles would be violated.
The Court also recognized Delaware’s interest in having corporations registered here by explaining Delaware relies on corporations’ services. However, the Court made it a point to explain the looming economic risk if businesses were subject to general jurisdiction in a way inconsistent with the United States Constitution. The Court stated that if corporations were subject to such loose jurisdictional thresholds, legal certainty for businesses would decrease.
The economic considerations by the Court are significant in light of the current climate involving United States’ businesses and companies. Recent studies have shown small businesses are failing at a higher rate than they are opening. In addition, influential companies are moving their operations overseas—hurting American job growth and GDP in the process.
While these actions can be attributed to a variety of factors, it is clear the threat of litigation and decreased predictability in legal outcomes would further stifle American businesses and economy. “Delaware’s courts offer litigants a forum with an extensive and well-developed jurisprudence that creates predictability and expediency in adjudication, allowing for efficient business planning.” (emphasis added). If corporations were subject to litigation in every state in the United States and compelled to appear in courts with unpredictable corporate law, our economy would certainly suffer. Corporations would undoubtedly face higher economic risk. “The decisions of the Delaware Supreme Court and the Court of Chancery establish precedents that provide the predictability needed for businesses to act with confidence.”
The Court’s decision in Genuine Parts sheds light on constitutional issues arising in the context of general and specific personal jurisdiction, but it does more by recognizing how overreaching and unpredictability can produce harmful results. The opinion’s underlying tones make clear Delaware law is essential to the well-being of our nation’s jobs, industries, businesses and financial institutions. The Delaware Supreme Court’s ruling protects corporations by making evident that predictability in the law as well constitutional limitations must be respected.
Suggested Citation: Brittany Giusini, Genuine Parts Requires Genuine Jurisdiction: Protecting Our Economy Through Constitutional Principles, Del. J. Corp. L (Jan. 18, 2017), www.djcl.org/blog.