On June 27, 2023, the U.S. Supreme Court decided that states can require corporations registered in their state to consent to be sued in the state as a condition of doing business there—even if the facts of a lawsuit occurred several states away and the corporation is not "at home" in the state—without violating the corporation's due-process rights.
In Mallory v. Norfolk Southern Railway Co.,[1] a railroad employee sued his employer, a railroad company headquartered in Virginia, for workplace injuries that occurred in Ohio and Virginia. He filed suit in Pennsylvania, defending his selection of venue by reference to the state's corporate registration statute, by which corporations registered to do business in the state must consent to general jurisdiction there regardless of where the underlying lawsuit arose. A plurality of the Court rejected the Pennsylvania Supreme Court's conclusion that the employee's reading of the registration statute violated notions of due process and sided with him.
This alert begins with a review of the doctrine of personal jurisdiction, its evolution, and connection to the constitutional guarantee of due process. Next, it reviews the Mallory decision. Finally, it provides reflections on the implications of the decision.
What You Need to Know:
- Historically, courts have focused on a corporate defendant's contacts with the forum state, asking whether the exercise of personal jurisdiction would promote "fair play and substantial justice."
- In the recent case Mallory v. Norfolk Southern, the U.S. Supreme Court confirmed that states can require corporations registered in their state to consent to be sued in the state as a condition of doing business there—even when their business activities giving rise to the lawsuit occurred several states away and the corporation is not "at home" in the state.
- As a result of this decision, businesses may be required to defend cases in far-flung and plaintiff-friendly jurisdictions.
Legal Fictions Beget Legal Frictions: A Primer on the History of Corporate Jurisdiction
A court's proper exercise of personal jurisdiction is an inherent component of a party's Fourteenth Amendment Due Process rights. Due process mandates that a party cannot be forced to litigate in a jurisdiction to which they have no ties because doing so places undue burdens on the party by forcing them to travel great distances to a foreign jurisdiction. Moreover, the obligation to litigate in unfamiliar territory could subject a party (a purported outsider) to unfair prejudice in the proceedings. For these reasons, due process requires a certain degree of procedural fairness, including the prevention of forcing parties to litigate in jurisdictions they have no connection to.
The original premise of the concept of personal jurisdiction was simple and understandable: lawsuits could only be brought either (1) with respect to a piece of property, or (2) against individuals (i.e., human beings). In this paradigm, jurisdictional questions were easily answered. A lawsuit against or regarding a piece of real property was properly brought in the locality where the property was situated.[2] A lawsuit against an individual, on the other hand, was thought to be transitory and personal to the individual—the individual could be sued in any jurisdiction where their person could be found. This was sometimes referred to as "tag" jurisdiction.[3] This was so regardless of whether the locality of service was the individual's permanent place of residence or somewhere they passed through for only a few hours (or even a moment).[4]
Over time, as the legal fiction of the corporate form took shape, the concept of personal jurisdiction grew more complex. "Tag" jurisdiction rules did not easily apply because, of course, unlike a human being, a corporation is not a physical being capable of service. Therefore, and in response to many corporate entities' efforts to (unsurprisingly) evade both service and being haled into court, many states passed laws to regulate corporate personal jurisdiction. Submission to these laws was a condition of doing business in the state. These laws took varying forms and thoroughly muddled any chance at a uniform approach to corporate personal jurisdiction.
For example, some states, such as New York, Wisconsin, Maryland, and North Carolina, enacted laws requiring out-of-state corporate defendants to submit to personal jurisdiction in those states for lawsuits brought by their own residents. Other states, like Iowa, Texas, and Michigan, required corporate defendants to submit to personal jurisdiction for suits that arose out of transactions or activities that occurred within their boundaries. Another subset of states, including Nevada, South Carolina, and Connecticut, required out-of-state corporations to agree to personal jurisdiction in those states regardless of where the acts giving rise to the suit occurred or where the plaintiff was domiciled. Still others, namely Virginia, Pennsylvania, Ohio, Illinois, Arkansas, and Missouri, mandated corporate jurisdictional consent for only a subset of businesses, such as railroads and insurance.
In 1917, the Supreme Court weighed in with its decision in Gold Issue Mining & Milling Co. v. Pennsylvania Fire Insurance Company of Philadelphia.[5] In that case, Pennsylvania Fire (chartered in Pennsylvania) insured a mining contract for Gold Issue Mining (chartered in Arizona) for a project in Colorado. A fire broke out and destroyed the mining facility. Gold Issue Mining sought to collect from Pennsylvania Fire on its policy, but Pennsylvania Fire refused to pay. Gold Issue Mining brought suit in Missouri, even though neither party nor the project site were located there. However, at the time, Missouri law required that any out-of-state corporation doing business in Missouri (like Pennsylvania Fire) appoint a registered agent in Missouri to accept service of process on behalf of the corporation and to thereby submit to jurisdiction in the state. Gold Issue Mining therefore asserted that jurisdiction was proper, notwithstanding Pennsylvania Fire's challenge to the law as unconstitutional. The Missouri Supreme Court sided with Gold Issue Mining.
The U.S. Supreme Court agreed; Pennsylvania Fire could be sued in Missouri by a foreign plaintiff because, by virtue of complying with the state's corporate registration requirements, it had agreed to accept service of process in Missouri. The Court reasoned that, because an individual can be sued in any jurisdiction where they can be found, the same principle should apply to corporations—they should be able to be sued in any jurisdiction they are "found" (i.e., where they register to do business). The takeaway from Pennsylvania Fire was that a state can make corporate consent to personal jurisdiction a requisite condition to do business in that state.
Almost three decades later, the Court further staked out corporate jurisdiction in International Shoe Co. v. Washington.[6] In that case, the State of Washington sued International Shoe in Washington state court based on the company's in-state activity. Here, however, International Shoe was not registered to do business in Washington and therefore had not agreed to accept service of process there. In the end, the Court determined that International Shoe had submitted to personal jurisdiction in Washington. The Court reasoned that personal jurisdiction is not to be decided based on any "mechanical or quantitative" test and is instead to be determined by a more flexible approach, taking into account the overall "quality and nature of the [out-of-state corporation's] activity" in the state.
International Shoe also gave rise to the dichotomy of general and specific jurisdiction, whereby a corporate defendant may be subject to personal jurisdiction in any forum where they maintain a certain consistent and systematic level of commercial activity (general jurisdiction), or where the actions upon which a specific suit are based occurred in the forum state (specific jurisdiction).
In the ensuing decades, courts have since interpreted International Shoe as implicitly supplanting Pennsylvania Fire and expanding states' abilities to assert personal jurisdiction over out-of-state corporate defendants.
Against this backdrop, the dispute between Robert Mallory and Norfolk Southern Railway Co. gathered steam.
Mr. Mallory's Lawsuit: Pennsylvania Fire v. International Shoe
Robert Mallory worked for Norfolk Southern as a freight-car mechanic for nearly 20 years, in both Ohio and Virginia. After leaving Norfolk Southern, Mr. Mallory was diagnosed with cancer, the cause of which he attributed to his work for the railroad in Ohio. He sued Norfolk Southern (which had a principal place of business in Virginia) in Pennsylvania state court for his injuries. Norfolk Southern challenged the Pennsylvania state court's exercise of personal jurisdiction. The railroad, relying on International Shoe, argued that there was no connection between the parties or the lawsuit and Pennsylvania. After all, Mr. Mallory was a resident of Virginia, the alleged facts in his suit arose in Ohio, and Norfolk Southern was "at home" in Virginia. According to Norfolk Southern, the Due Process Clause of the Fourteenth Amendment barred the court's exercise of personal jurisdiction.
But according to Mr. Mallory, Norfolk Southern had unquestionably consented to personal jurisdiction in Pennsylvania court. For one thing, Norfolk Southern was registered to do business in Pennsylvania, and, according to the state's registration statute, it had expressly consented to the state courts' jurisdiction. For another, at the time Mr. Mallory's complaint was filed Norfolk Southern maintained over 2,000 miles of track, operated 11 rail yards, and operated three locomotive repair shops in Pennsylvania. To Mr. Mallory, Pennsylvania Fire ratified Pennsylvania's exercise of jurisdiction.
The Pennsylvania Supreme Court found in favor of Norfolk Southern on grounds that its corporate-registration statute, which amounts to "[l]egislatively coerced consent to general jurisdiction" is not voluntary and thus "strips foreign corporations of the due process safeguards guaranteed" by the U.S. Supreme Court in International Shoe and its progeny.[7] The U.S. Supreme Court granted certiorari.
The Other Shoe Drops: The U.S. Supreme Court's Decision
The U.S. Supreme Court sided (narrowly) with Mr. Mallory and reversed. Justice Gorsuch, writing for a plurality of the Court, clarified that none of its decisions treating corporate personal jurisdiction during the intervening 105 years since Pennsylvania Fire overruled that decision. To be sure, International Shoe and its progeny did not implicitly overrule Pennsylvania Fire; rather, International Shoe provided a means by which state courts could obtain jurisdiction over foreign corporations that were not registered to do business in the state, whereas Pennsylvania Fire treated the jurisdictional boundaries for cases in which a foreign corporation may have consented to jurisdiction by way of a corporate-registration statute.
Having established that Pennsylvania Fire remained good law, the Court next observed that it also "has direct application" to Mallory's case, which, in its eyes "poses a very old question indeed—one that this Court resolved more than a century ago." The Court held that, just like Missouri's registration statute from the 1910s, Pennsylvania's current consent-by-registration statute did not violate Norfolk Southern's due process rights.
In a concurrence, Justice Alito suggested (perhaps signaling a strategy for Norfolk Southern on remand) that Pennsylvania's consent-by-registration statute may run afoul of the Dormant Commerce Clause by discriminating against out-of-state companies and/or imposing an undue burden on interstate commerce without legitimate local interest.
Gauging the Implications of Mallory
Simply put, the Mallory decision uproots the collective understanding of corporate personal jurisdiction (i.e., that corporations may be sued only where they are "at home" or where the facts of the case establish sufficient ties between the corporation and the jurisdiction). Beyond this generic observation, what are the practical implications of the decision for businesses?
First, and perhaps most obviously, businesses should be prepared for plaintiffs that may engage in forum shopping or "litigation tourism" in Pennsylvania state court, especially with tort-based suits. At least one prominent tort-reform organization has identified Pennsylvania state courts as a jurisdiction that renders decisions that are "radically out of balance" and tipped in favor of plaintiffs.[8] After Mallory, plaintiffs may not only perceive greater odds on the merits of their case in a Pennsylvania state court, but also a significant jurisdictional hurdle has been eliminated. Companies defending against a forum-shopping plaintiff's suit may face increased logistical obstacles, as witnesses and evidence may be far from Pennsylvania. Further, companies may need to re-think litigation budgeting and case valuation to account for the cost of those logistical obstacles and for the case being venued in a historically more plaintiff-friendly jurisdiction.
Second, companies should also be prepared to defend against litigation tourists in Georgia state court. In 2021, the Georgia Supreme Court rejected a corporate due-process challenge similar to Norfolk Southern's in Mallory, and ruled that state courts may exercise general personal jurisdiction over foreign corporations that are authorized to do business in the state (but that have not expressly consented to jurisdiction in the state).[9] Georgia state courts, too, have been identified as plaintiff-friendly.[10]
Third, companies should prepare to defend transnational litigation in Pennsylvania state court. A 2014 U.S. Supreme Court decision dismantled general jurisdiction of foreign corporations in U.S. courts over disputes arising in other countries.[11] However, if a foreign corporation is registered to do business in a state that has a consent-by-registration statute, plaintiffs may argue that courts have a basis to exercise jurisdiction over those businesses. The Biden Administration submitted an amicus brief to the Court in Mallory to warn exactly of this concern; it asked the Court to give weight to the notion that "international rapport" may be damaged by U.S. courts hearing about foreign corporations' misdeeds.
Fourth, in the wake of Mallory, companies should monitor pending legislation. After Mallory, states may have a renewed interest in this niche topic of corporate jurisdiction, and certain groups may attempt to amend their corporate registration statutes to include consent-to-jurisdiction provisions like Pennsylvania. Companies that are registered in multiple states outside of Georgia and Pennsylvania should monitor legislation in all states in which they are registered.
But, at the end of the day, these concerns about Mallory could be either minimal and/or short-lived. At any time, Pennsylvania could alter or amend its corporate-registrations statute to remove the consent-to-jurisdiction requirement. It is not clear what is the value proposition to the Commonwealth of Pennsylvania to have its judicial resources diverted to and its court dockets saturated with controversies that arose elsewhere and that are litigated by parties with no ties to the state. Perhaps this is why the litigation history of Mallory shows that the Commonwealth itself does not appear to be deeply invested in the statute's current form—it did not submit an amicus brief to defend its statute to either the Pennsylvania Supreme Court or the U.S. Supreme Court. Pennsylvania's next legislative session could see bills sponsored by interested groups (of which there are many, as evidenced by 13 amici curiae supporting Norfolk Southern during litigation) seeking reform of the consent-to-jurisdiction registration statute.
[1] No. 21-1168, 600 U.S. ___, ___ S. Ct. ___ (2023).
[2] 3 W. Blackstone, Commentaries on the Laws of England 117-119, 294 (1768).
[3] Massie v. Watts, 6 Cranch 148, 162-63 (1810).
[4] Indeed, "tag" jurisdiction is alive and well today. In fact, the Supreme Court's leading case applying it was only just decided in 1990. Burnham v. Superior Ct. of Cal., Cnty. of Martin, 495 U.S. 604 (1990).
[5] 243 U.S. 93, 37 S. Ct. 344 (1917).
[6] 327 U.S. 310, 66 S. Ct. 154 (1945).
[7] Mallory v. Norfolk Southern Railway Co., 266 A.3d 542 (Pa. 2021).
[8] About, Am. Tort Reform Found., https://www.judicialhellholes.org/hellhole/2022-2023/pennsylvania-supreme-court-the-philadelphia-court-of-common-pleas/.
[9] Cooper Tire & Rubber Co. v. McCall, 863 S.E.2d 81 (Ga. 2021).
[10] Georgia, Am. Tort Reform Found., https://www.judicialhellholes.org/hellhole/2022-2023/georgia/.
[11] See Daimler A.G. v. Bauman, 571 U.S. 117, 134 S. Ct. 746 (2014).
