Out-Of-State Defendants Beware: Supreme Court Upholds Constitutionality Of Pennsylvania’s “Consent-By-Registration” Statute, General Personal Jurisdiction Abounds
June 30, 2023
Types : Alerts
On Tuesday, June 27, 2023, the Supreme Court of the United States revived Robert Mallory’s suit against Norfolk Southern Railway Company (“Norfolk Southern”) by upholding Pennsylvania’s “consent-by-registration” statute, holding that an out-of-state entity’s consent to general jurisdiction for any suit filed against it in Pennsylvania – albeit the forced consent required to register to do business in Pennsylvania – is constitutionally permissible and will make that entity susceptible to suits there. This ruling alters the personal jurisdiction jurisprudence that has developed over the last few decades and to which defendants have grown accustomed.
In Mallory v. Norfolk Southern Railway Co., 600 U.S. ___ (2023), the Supreme Court vacated and remanded the judgment of the Pennsylvania Supreme Court and held that the Due Process Clause of the Fourteenth Amendment does not prohibit a state from requiring an out-of-state corporation to consent to personal jurisdiction to do business there. Notably, the 5-4 majority rejected the Pennsylvania Supreme Court’s view that the intervening decisions, such as International Shoe Co. v. Washington, 326 U.S. 310 (1945), implicitly overruled Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917), a century old case that answered the nearly identical issue as Mallory.
In Mallory, the plaintiff, a former employee for twenty years, sued Norfolk Southern under the Federal Employer’s Liability Act. Mr. Mallory attributed his post-employment cancer diagnosis to his work at Norfolk Southern, which involved exposure to asbestos, chemicals, and carcinogens. He filed this suit in Pennsylvania—Philadelphia County—even though he resided in Virginia, Norfolk Southern was headquartered and incorporated in Virginia, and he was exposed to the alleged employment-related carcinogens in only Ohio and Virginia.
Norfolk Southern was registered to do business in Pennsylvania as a foreign entity. Mr. Mallory argued that by complying with the statutory scheme of Pennsylvania law, Norfolk Southern consented to suit in Pennsylvania. Pennsylvania law states that for an out-of-state corporation to do business in the Commonwealth, it must register with the Department of State and identify a registered office within the state that it will “continuously maintain.” 15 Pa. Cons. Stat. §§ 411(a), (f). Upon completing these requirements, the corporation “shall enjoy the same rights and privileges as a domestic entity and shall be subject to the same liabilities, restrictions, duties, and penalties . . . imposed on domestic entities.” 15 Pa. Cons. Stat. § 402(d). Pennsylvania’s jurisdiction statute specifically states that “qualification as a foreign corporation” shall permit state courts to “exercise general personal jurisdiction” over a registered foreign corporation, just as they do over domestic corporations. 42 Pa. Cons. Stat § 5301(a)(2)(i).
Norfolk Southern argued that any exercise of personal jurisdiction over it by Pennsylvania state courts would offend the Due Process Clause of the Fourteenth Amendment. Norfolk Southern conceded that it complied with the statute by registering to do business in Pennsylvania, establishing an office there to receive service of process, and that in doing so, it understood that it would be amenable to suit on any claim. Even so, Norfolk Southern argued that after International Shoe and its progeny, courts could not establish general personal jurisdiction over an out-of-state corporation unless it was “at home” in the jurisdiction, e.g., incorporated or headquartered in the forum state. Further, it argued that allowing Mr. Mallory’s claim to proceed in Pennsylvania state court would be “unfair” because it would unleash “local prejudice” against a company that is not local in the eyes of the community.
The Supreme Court was unpersuaded by all of Norfolk Southern’s arguments and found that the issue of this case was a “very old question” that was resolved over one hundred years ago in Pennsylvania Fire. In Pennsylvania Fire, the Supreme Court unanimously held that laws like Pennsylvania’s comport with the Due Process Clause. In the view of the majority, the Pennsylvania Supreme Court “clearly erred” in finding that decisions like International Shoe implicitly overruled Pennsylvania Fire. The Mallory court found that International Shoe and Pennsylvania Fire sit comfortably side by side and that their holdings can be distinguished. Pennsylvania Fire held that an out-of-state corporation that has consented to in-state suits in order to do business in the forum is susceptible to suit there; International Shoe held that an out-of-state corporation that has not consented to in-state suits may also be susceptible to claims in the forum state based on the “quality and nature of [its] activity in the forum.” For the Mallory Court, the answer to this issue was easy: apply the precedent of Pennsylvania Fire to uphold Pennsylvania’s “consent-by-registration” law and remand this case back to state court for further proceedings. The Supreme Court also did not draw a distinction between those entities that register to do business and maintain a substantial physical presence in the state and those that register but do not have such a presence; the consent is the controlling factor.
The Mallory holding will have an impact nationwide, but the strongest will be in states like Pennsylvania, who have strict “consent-by-registration” laws. In other states, such as New York and Maryland, out-of-state corporations are required to agree to answer only suits brought by in-state plaintiffs. In states such as Iowa and Michigan, corporations are required to consent to suit if the plaintiff’s cause of action arose within the state, even if the plaintiff resides elsewhere. States like Pennsylvania omit both limitations from their statutory scheme, creating greater risks of litigation for registered foreign corporations. While relatively few states have such strict “consent-by-registration” laws on the books, there is always the opportunity for other states to adopt similar policies that will lead to foreign corporations feeling a stronger impact of the Mallory holding and winding up being found “at home” in multiple jurisdictions.
With this ruling, the Supreme Court has essentially left the door open for plaintiffs to forum shop because the Court has never “held that the Due Process Clause protects against forum shopping.” (Alito, J., concurring Mallory) Allowing for such broad general personal jurisdiction over out-of-state corporations could discourage corporations from doing business in Pennsylvania, and other states alike because of wariness of being unexpectedly hauled into any state’s courts over any claim. Small businesses will want to be particularly wary as many do not have the resources to develop creative corporate structuring to insulate them from litigation. Out-of-state corporations will want to think twice before registering to do business in Pennsylvania and should ensure that they know what they are consenting to when it comes to potential lawsuits.
But, not all hope is lost. Justice Alito, in his concurrence, set forth a road map for defendants to challenge the constitutionality of Pennsylvania’s “consent-by-registration” statute through the dormant Commerce Clause. Since the Pennsylvania Supreme Court had not addressed or ruled upon Norfolk Southern’s dormant Commerce Clause argument, the U.S. Supreme Court remanded the case to Pennsylvania to address the grounds for challenge to the Pennsylvania statute and general jurisdiction. We will continue to monitor the developments in Mallory as it proceeds at the state court.
This article is co-authored by Partner Christopher Scott D’Angelo, Partner Dylan F. Henry, and Summer Associate Tara Hessenthaler. Please reach out to Christopher or Dylan for further questions or more information.