How to Succeed in Business (in Philadelphia) Without Really Trying (Your Case There, Because Venue Isn’t Proper)

Faegre Drinker Biddle & Reath LLP

Faegre Drinker Biddle & Reath LLP

Venue rulings in Pennsylvania affect many defendants in products cases.  Those incorporated here, and those sued on allegations that their products caused harm here, of course.  And, for now at least, it includes corporate defendants registered to do business in Pennsylvania.  They are subject to general jurisdiction, including for claims unrelated to the Commonwealth, under Pennsylvania’s unique “consent to jurisdiction” statute.  That statute was upheld as consistent with due process in Mallory v. Norfolk Southern Railway Co., 600 U.S. 122 (2023).

And with many serious personal injury cases being filed in Philadelphia – a venue described in a Mallory concurring opinion as “reputed to be especially favorable to tort plaintiffs” – the stakes involved in venue disputes are higher than ever.  That is even more evident after several recently reported verdicts in product cases, one approaching $1 billion and one exceeding $2 billion.

Products defendants therefore will take a keen interest in two recent rulings under Pennsylvania Rule of Civil Procedure 2179(a)(2), which allows venue against most corporate defendants in any county in which that defendant “regularly conducts business” – a test similar to one applied to corporations in many states.  Those cases are Hangey v. Husqvarna Professional Products, Inc., 304 A.3d 1120 (Pa. 2023), issued last November, and Watson v. Baby Trend, Inc., 2024 WL 133697 (Pa. Super. Jan. 12, 2024), issued last month.  One went defendant’s way and one plaintiff’s, but both involve Philadelphia cases – and supply guidance on how corporate defendants might challenge venue in Pennsylvania.

The plaintiff in Hangey purchased one of defendant’s riding mowers in Bucks County and was injured using it in Wayne County.  Defendant had two authorized dealers in Philadelphia with about $75,000 in annual sales – about 0.005% of total sales nationwide and well below the company’s average sales across all counties.  The trial court applied case law that assessed venue based on the “quality” of forum activities, focusing on whether they directly furthered or were essential to “corporate objects,” and the “quantity,” focusing on whether they were “so continuous and sufficient to be general or habitual.”  The court found the “quality” prong satisfied but, because the percentage of total sales was far below the levels found adequate in previous cases, ruled the “quantity” prong was not.

The Superior Court reversed, initially in a 2-1 panel decision and then in a published en banc opinion.  The Supreme Court affirmed.  It acknowledged venue rulings are subject to “abuse of discretion” review, but concluded the trial court abused its discretion by erroneously applying the relevant law, specifically by giving dispositive effect to the percentage of sales in the forum rather than treating that number as “simply a data point that must be considered in the context of the company as a whole to determine regularity.”  The Court emphasized that “regular” activity is not the same as “principal activity.”  It pointed out that large national companies usually will have only a very small percentage of total sales in any given county.  And it emphasized that defendant had authorized dealers in Philadelphia that regularly sold its products, albeit in modest amounts.  The Court found those regular sales and ongoing attempts to sell to be sufficient for the “quantity” prong of the test.  The “quality” prong was satisfied, the Court concluded, because sales in Philadelphia “directly furthered” the company’s “corporate objects,” rather than being “incidental” to them.

The same principles produced the opposite result in Watson, which affirmed a trial court decision that venue was lacking in Philadelphia and the case therefore should be remanded to neighboring Bucks County – with the trial court also denying plaintiff venue-related discovery.  The Court concluded that defendant did not “regularly conduct business” in Philadelphia because more than 99% of its sales were made to big box retailers that controlled where the products were actually sold to consumers, while only 0.56% of its total sales were direct-to-consumer sales.  The Court considered those sales “merely incidental to defendant’s corporate object as a wholesaler,” and therefore ruled a few isolated direct-to-consumer sales in Philadelphia did not establish regular business activity.  It also cited the absence of direct contacts with Philadelphia such as sales representatives, physical locations, property, or business registrations.

Hangey and Watson, and particularly the contrast between them, provide pointers on how to assess and litigate venue.  The percentage of a defendant’s total business in Philadelphia remains relevant, but a small percentage is not a “get out of Philly free card,” especially for a large national or international business.  Frequency may count more than volume; sales that are regular (even if small) in the forum county may support venue, but intermittent or rare sales, even if larger, may not.  And “how” might matter more than “how much.”  Purposely directed sales in a county through agents or dealers may support venue even if the dollars are relatively small, but distribution even in large amounts may not if made through retail chains that control where the products are sold to consumers.

Also relevant is whether the business activity is essential to corporate objectives.  Activity in an incidental or ancillary business may not carry the day, while the same activity relating to defendant’s core business may.

Finally, defendants should keep in mind that the “regularly conducting business” test goes to whether venue is legally proper – a separate question from whether serious burden and inconvenience justifies transfer to another county under the forum non conveniens doctrine.  The latter doctrine should be considered when the case has only weak ties to plaintiff’s chosen venue.  In some cases, the doctrine results in transfer, particularly if the case involves events, witnesses and evidence found at distant locations elsewhere in the Commonwealth.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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