Pennsylvania Supreme Court Rejects Consent Jurisdiction by Registration as Unconstitutional
Knowledge

Pennsylvania Supreme Court Rejects Consent Jurisdiction by Registration as Unconstitutional

Key Takeaways

  • Pennsylvania’s general jurisdiction statute, 42 Pa.C.S. 5301(a)(2), which conveys general jurisdiction over foreign corporations by virtue of registration to do business in Pennsylvania, violates the Due Process Clause of  the Fourteenth Amendment and offends the concept of federalism.

  • The Supreme Court of Pennsylvania holds that “[l]egislatively coerced consent to jurisdiction is not voluntary consent and cannot be constitutionally sanctioned,” and the United States Supreme Court precedent in Daimler and Goodyear is the law of  the land with regard to the minimum due process requirements for general jurisdiction.

  • Foreign defendants that find themselves named in Pennsylvania lawsuits that do not arise in the Commonwealth have a reenergized defense.

 

On December 22, 2021, the Supreme Court of Pennsylvania issued a landmark decision in the matter of Mallory v. Norfolk Southern Railway Company, holding that Pennsylvania’s general jurisdiction statute, 42 Pa.C.S. § 5301(a)(2), which conveys general jurisdiction over foreign corporations who register to do business in the Commonwealth, is unconstitutional.

In Mallory, the plaintiff, a Virginia resident, filed a Federal Employers’ Liability Act (FELA) action against the defendant Norfolk Southern Railway in the Philadelphia Court of Common Pleas, alleging that while he was employed by Norfolk in Ohio and Virginia from 1988 to 2005, he was exposed to various carcinogens, including asbestos, that he alleged caused him to develop colon cancer. None of the plaintiff’s alleged exposures took place in Pennsylvania.

Norfolk filed preliminary objections seeking dismissal of the plaintiff’s complaint for lack of both general and specific jurisdiction. Norfolk argued that the case did not arise in Pennsylvania (i.e. no specific jurisdiction), and that since Norfolk was neither “at home” in Pennsylvania nor did it consent to jurisdiction in Pennsylvania by registering to do business in the Commonwealth, general personal jurisdiction was also lacking. In opposition, the plaintiff argued that Norfolk had consented to jurisdiction by virtue of its registration to do business in Pennsylvania, under the Commonwealth’s general personal jurisdiction statute, which provides:

(a) General Rule. – The existence of any of the following relationships between a person and this Commonwealth shall constitute a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over such person, or his personal representative in the case of an individual, and to enable such tribunals to render personal orders against such person or represented:

(b) Corporations.

(i) Incorporation under or qualification as a foreign corporation under the laws of this Commonwealth;

(ii) Consent, to the extent authorized by the consent;

(iii) The carrying on of a continuous and systematic part of its general business within this Commonwealth.

The trial court sustained Norfolk’s preliminary objections, finding that “the Due Process Clause of the Fourteenth Amendment of the Constitution limits the authority of a state court to exercise personal jurisdiction over a non-resident defendant.” The court noted that “specific jurisdiction is linked to the case in controversy and depends upon an affiliation between the forum state and the underlying case.” Here, because the plaintiff’s alleged exposures took place outside of Pennsylvania—in Ohio and Virginia—there was no specific jurisdiction.

With regard to general jurisdiction, the court noted that Norfolk was not a Pennsylvania corporation, nor did it maintain its principal place of business in the Commonwealth. As such, the only pathway to general jurisdiction would be consent. Finding no voluntary consent by contract or stipulation, the court evaluated registration-based consent under Section 5301(a)(2)—the argument mounted by the plaintiff.

The court found that Norfolk’s purported “consent to jurisdiction by registering to do business in the Commonwealth was involuntary and, thus, invalid.” That is, because the Associations Code in Pennsylvania requires foreign corporations to register with the Commonwealth before conducting business operations in the Commonwealth, foreign corporations have just two choices—either to do business in the Commonwealth while consenting to general personal jurisdiction, or not do business in the Commonwealth at all. The court found that this “Hobson’s choice violate[d] Defendant’s right to due process,” and further concluded that “[b]y requiring foreign corporations to submit to general jurisdiction as a condition of doing business here, Pennsylvania’s statutory scheme infringes upon our sister states ability to try cases against their corporate citizens.” The court found that this “infringement runs counter to the concept of federalism and should not be tolerated.”

The Supreme Court of Pennsylvania Decision

On appeal to the Supreme Court of Pennsylvania, which has exclusive jurisdiction over appeals from trial court orders that declare a statute unconstitutional, the plaintiff maintained his position that the trial court erred in holding that Pennsylvania’s consent-by-registration statute violated due process. The plaintiff argued that the statute did not coerce involuntary consent to jurisdiction, but rather gave notice to a foreign corporation registering to do business in Pennsylvania that they have consented to jurisdiction. The plaintiff further noted that none of the decisions relied upon by the trial court hold that a foreign corporation could not validly consent to jurisdiction by registration.

Norfolk argued that Pennsylvania’s statute requires all foreign corporations to register, and “compliance with mandatory registration cannot serve as a voluntary relinquishment of due process rights.” Norfolk further argued that the statute did not permit a voluntary choice, but rather compelled a defendant to relinquish its right to due process by registering to do business in the Commonwealth or forego the privilege of doing business in Pennsylvania. This, Norfolk argued, violates the doctrine of “unconstitutional conditions,” which prohibits the government from denying a benefit to a person because he exercises a constitutional right.

On review de novo, the court noted that “[t]here is a strong presumption that a statutory scheme is constitutional…rebutted only by proof that the law clearly, palpably, and plainly violates the constitution.” The court further noted that the Supreme Court of the United States  “has not addressed the question of whether it violates due process when a state conditions the privilege of doing business in the forum State upon the foreign corporation’s submission to general jurisdiction,” resulting in courts across the nation reaching disparate results on the issue. However, the court noted that “[w]hile all states require foreign corporations to register to do business within their boundaries, most states do not provide expressly that the act of registering to do business constitutes a specific basis upon which a court may assert general jurisdiction … .”

The court agreed with Norfolk that the United States Supreme Court decisions in Daimler and Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011) set forth the minimum due process requirements for general jurisdiction, and the exercise of jurisdiction over Norfolk in this case did not satisfy such requirements. Here, the plaintiff alleged jurisdiction solely based on Norfolk’s compliance with a mandatory registration statute, and the legislature’s grant of such broad jurisdictional authority in that statute was incompatible with the Fourteenth Amendment.

The court held that “to conclude that registering as a foreign corporation invokes all-purpose general jurisdiction eviscerates the Supreme Court’s general jurisdiction framework set forth in Goodyear and Daimler and violates federal due process by failing to comport with International Shoe’s ‘traditional conception of fair play and substantial justice.’” The court further held that the Pennsylvania statute was contrary to the concept of federalism, recognized by the U.S. Supreme Court in Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017): “when determining whether personal jurisdiction is present, courts should consider the effect of the defendant’s ‘submission to the coercive power of a State that may have little legitimate interest in the claims in question,’ as the ‘sovereignty of each state implies a limitation of the sovereignty of all its sister states.’” On this point, the court held that “[t]he factual predicate underlying the instant appeal illustrates the textbook example of infringement upon the sovereignty of sister states, as Pennsylvania has no legitimate interest in a controversy with no connection to the Commonwealth that was filed by a non-resident against a foreign corporation that is not at home here.”

In conclusion, the court opined:

Our statutory scheme of conditioning the privilege of doing business in the Commonwealth on the submission of the foreign corporation to general jurisdiction in Pennsylvania courts strips foreign corporations of the due process safeguards guaranteed in Goodyear and Daimler. Legislatively coerced consent to jurisdiction is not voluntary consent and cannot be constitutionally sanctioned. Accordingly, our statutory scheme is unconstitutional to the extent that it affords Pennsylvania courts general jurisdiction over foreign corporations that are not at home in the Commonwealth.

Analysis/Commentary

This decision will have significant impacts on mass tort litigation, and particularly asbestos litigation in Pennsylvania, which has been one of the only states in the country with such broad jurisdictional framework until now. Counties such as Philadelphia, which is consistently dubbed a “judicial hellhole” in part due to its open courtroom door practice for out-of-state plaintiffs, and Allegheny, home to Pittsburgh, have historically played host to hordes of cases with absolutely no connection to Pennsylvania due to forum shopping by the plaintiffs’ bar.

Now, foreign defendants who find themselves named in lawsuits pending in Pennsylvania would be judicious to consider filing preliminary objections and motions to dismiss based on lack of personal jurisdiction. In cases involving a non-Pennsylvania plaintiff, where there is no alleged exposure in Pennsylvania, dismissal should be successful based on the Supreme Court of Pennsylvania’s Mallory holding. However, practitioners should always be mindful of available alternate forums, as a motion to dismiss for lack of personal jurisdiction is likely to be without prejudice, permitting the plaintiffs to re-file in the appropriate states. When faced with having a Pennsylvania case dismissed for lack of personal jurisdiction, only to see a re-filing in the New York City Asbestos Litigation or California, also notorious “judicial hellholes,” one may have to settle for the lesser of two evils after an in-depth analysis of the relative risks present in the alternate jurisdictions.

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