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SCOTUS Vacates Pennsylvania Law on ‘Foreign’ Corporations in Ruling that Carries Possible Far-Reaching Legal Ramifications on Business


SCOTUS Vacates Pennsylvania Law on ‘Foreign’ Corporations in Ruling that Carries Possible Far-Reaching Legal Ramifications on Business

Key Takeaways

  • Every foreign corporation registered to do business in Pennsylvania is now subject  to general  jurisdiction in the courts of  the commonwealth.

  • While this case is limited in its scope to the specific Pennsylvania law at issue, it presents the opportunity for other states to follow suit to put forth a similar legal scheme allowing for general jurisdiction, despite a defendant’s minimal contacts with that state.

  • For many of our clients, this opens the possibility for plaintiffs to run amok with “forum shopping” to find jurisdictions with higher verdict  values.

In what now seems to be the lasting legacy of the Roberts’ Court, the U.S. Supreme Court again took up the issue of what constitutes due process in subjecting a corporate entity to personal jurisdiction in state court. In doing so, the Supreme Court has seemingly tossed out the constraints it has put on “general personal jurisdiction,” and has opened the flood gates to allow states to subject any corporate defendant to its general jurisdiction by doing nothing more than what would amount to a clerical task.

In Mallory v. Norfolk Southern Railway Co., decided Tuesday, the Supreme Court considered the constitutionality, under the 14th Amendment’s Due Process Clause, of a portion of Pennsylvania’s Long Arm Statute that requires an out-of-state corporation to register with the Department of State before it can conduct business within the commonwealth where such mandatory registration also subjects the out-of-state corporation to “general personal jurisdiction” in Pennsylvania.

History of the Case and Pennsylvania Law

The case involved plaintiff Robert Mallory alleging that while he was employed by defendant, Norfolk & Southern Railway, he was exposed to asbestos that ultimately led to his diagnosis of cancer. Mr. Mallory worked for Norfolk & Southern for 20 years, first in Ohio and then Virginia. Norfolk & Southern is a company both incorporated and headquartered in Virginia.  Mr. Mallory was also a resident of Virginia. Furthermore, the allegations in the complaint state that his exposure to asbestos while employed for Norfolk & Southern occurred only in Ohio and Virginia. Despite the seemingly non-existent contacts this case had with Pennsylvania, Mr. Mallory chose to file his lawsuit there.

Norfolk & Southern moved to have the case dismissed on the basis that Pennsylvania lacked the sufficient contacts to subject Norfolk & Southern to personal jurisdiction in this case and that the requirements of Pennsylvania’s Long Arm Statute violated Norfolk & Southern’s due process afforded to them by the 14th Amendment.

The plaintiff argued that under Pennsylvania law, a foreign corporation — such as Norfolk & Southern — could not do business in Pennsylvania without first registering with the Department of State, which Norfolk & Southern did. Furthermore, under Pennsylvania’s Long Arm Statute, such qualification as a foreign corporation constitutes a sufficient basis to enable Pennsylvania courts to exercise general personal jurisdiction over the corporation.

The trial court agreed with Norfolk & Southern and the plaintiffs appealed that decision to the Pennsylvania Supreme Court. The Pennsylvania Supreme Court undertook a detailed analysis of the U.S. Supreme Court’s historical jurisprudence on the issue of a state’s power to exercise personal jurisdiction over a defendant from its canonical decision in International Shoe (1945) through its most recent decision in Ford Motor Co. v. Montana Eighth Judicial District (2021). In doing so, the Pennsylvania Supreme Court held that Pennsylvania’s legal scheme requiring an out-of-state corporation to answer any suit against it in the commonwealth in exchange for the status as a registered foreign corporation violated the 14th Amendment’s Due Process Clause.

In reaching this holding, the Pennsylvania Supreme Court noted that with International Shoe and its progeny, the focus of personal jurisdiction shifted toward an analysis of the defendant’s contacts with the forum state is sufficient enough to allow it to be sued in that state without offending the “traditional notions of fair play and substantial justice.”  That focus has led to the recognition of two types of personal jurisdiction – general and specific jurisdiction.

General personal jurisdiction has been stated to exist where the “continuous corporate operations within a state [are] so substantial, and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities.”  Further legal development of this theory of general jurisdiction led to the conclusion of the U.S. Supreme Court in later cases that a state court could exercise general jurisdiction over a defendant only when that defendant is “essentially at home” in the forum state. For a corporation, the Supreme Court has stated that a corporate defendant is “at home” in its place of incorporation or principle place of business, but also left open the possibility that a corporation might be said to be “at home” elsewhere in “exceptional cases.”

The Pennsylvania Supreme Court found that a mandatory requirement to register and submit to general jurisdiction, despite any sufficient contacts, was not one of those “exceptional cases” envisioned by the U.S. Supreme Court. The Pennsylvania Supreme Court also recognized that while the rights recognized by the Due Process Clause may be waived in a variety of ways, a legal requirement to register to do business, which in turn triggers another legal requirement to submit to general jurisdiction, cannot be construed to be a “voluntary” waiver of one’s rights.

Finally, the Pennsylvania Supreme Court addressed Mr. Mallory’s argument that the facts of this case were controlled by the holding of the U.S. Supreme Court set forth in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917)(Holmes, J). That case involved essentially the same type of mandatory registering requirements under a Missouri law. The Pennsylvania Supreme Court dismissed that argument, holding that PA Fire Ins. was issued nearly 30 years before International Shoe, and that the nearly 80 years of personal jurisdiction analysis under International Shoe and its progeny, left little precedential value to PA Fire Ins.

The SCOTUS Decision

In its split decision Tuesday, a narrow majority of the U.S. Supreme Court reversed the decision of the Pennsylvania Supreme Court and held that the Pennsylvania laws holding foreign corporations to its general jurisdiction did not violate the Due Process Clause. In so holding, the court spent little time and effort analyzing or distinguishing this case from the litany of precedential holdings it has put down on the issue of personal jurisdiction over the last decade. Instead, the court’s opinion offered the myopic and simple reasoning that “[t]o decide this case, we need not speculate whether any other statutory scheme and set of facts would suffice to establish consent to suit. It is enough to acknowledge that the state law and facts before us fall squarely within Pennsylvania Fire’s rule.”

The court provided remarkably scant analysis on how its holding in Mallory fits into its prior decisions and analysis on personal jurisdiction, whether its belief that a corporation has to be “at home” in a state to be subject to its general jurisdiction still applies, or whether the facts of Mallory represented one of those “exceptional cases” where a corporate defendant could be said to be “at home” in a state other than the one where they are incorporated or headquartered.

The reason that the court’s opinion eschews any real analysis of how this case complies with the “sufficient contacts” analysis of the last 75 years of case law is because the court trades out the due process requirement of sufficient contacts with that of “consent.”  The majority’s analysis is based almost solely on the notion of consent to general jurisdiction. But as Justice Barrett noted in her dissent, what the majority “calls ‘consent’ is what the Pennsylvania Supreme Court called ‘compelled submission to general jurisdiction by legislative command.’”

A Decision Short Lived?

There is some reason to think that Tuesday’s holding in Mallory may be short lived.  Justice Alito joined the majority in concurring with the judgment, but wrote a separate opinion on the analysis. In his concurrence, Justice Alito notes that, while he agrees that the sort of “consent jurisdiction” at issue here does not violate the Due Process clause, he is “not convinced . . . that the Constitution permits a State to impose such a submission-to-jurisdiction requirement.”

According to Justice Alito, a state’s assertion of jurisdiction over lawsuits with no real connection to that state “may violate fundamental principles that are protected by one or more constitutional provisions or by the very structure of the federal system that the Constitution created.” But the “most appropriate home” for such a defense is not Due Process, but rather the dormant Commerce Clause, which “prohibits state laws that unduly restrict interstate commerce.”

Norfolk Southern asserted the dormant Commerce Clause in the proceeding below, but the Pennsylvania Supreme Court (from which Mallory came to the Supreme Court) did not address it. Even the majority opinion states, (in footnote 3,) that the Pennsylvania Supreme Court did not address Norfolk Southern’s dormant Commerce Clause argument, and that “any argument along those lines remains for consideration on remand.”  The dissent does not address the dormant Commerce Clause issue, but given that they believe the Due Process clause does apply it does not seem a stretch to believe that they would apply the dormant Commerce Clause here, as well.

Possible Implications of the Supreme Court Ruling

Tuesday’s holding in Mallory was limited specifically to the Pennsylvania law.  So while any of our clients who are registered to do business in Pennsylvania are now subject to general personal jurisdiction here, the same is not necessarily true in other states. While nearly every other state also requires that foreign corporations register with their Department of State (or equivalent), not every other state also makes such registration sufficient consent to general jurisdiction. But they could, and one would suspect that with Tuesday’s decision, some will.

Regardless, if any other state follows suit, Philadelphia County is already known as a plaintiff friendly jurisdiction with high verdict values and this decision has opened the doors for a potential wave of cases seeking high damages against our clients who would otherwise have no sufficient contacts with the commonwealth to subject them to jurisdiction within our courts.

Contact Us, We’re Here to Help

We have had tremendous success in obtaining dismissals on personal jurisdictional grounds for our clients in various jurisdictions, including other plaintiff friendly arenas such as New York, Illinois and California. While this decision limits our ability to obtain dismissals on these grounds in Pennsylvania for now, we continue to provide skilled and knowledgeable legal analysis on this issue. If you are registered to do business in other states and want to know if this decision will have an implication for you in those states, we are able to help. And if you are registered to do business in Pennsylvania, we can also provide you with experienced legal advice on what your best course of action may be going forward.


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