On Tuesday, June 27, the Supreme Court of the United States issued the highly anticipated opinion in Mallory v. Norfolk Southern Railway Co. (U.S. 2022) considering whether the Due Process Clause of the Fourteenth Amendment prohibits a state from requiring an out-of-state corporation to consent to personal jurisdiction in order to do business in the state. Five Justices held that consent-by-registration statutes are constitutional. In reaching its decision, the Court stated that this issue was heard and decided in 1917 when it found that consent-by-registration statutes establish personal jurisdiction that is consistent with the Fourteenth Amendment. Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93, 95-96 (1917). Therefore, the Pennsylvania court should have followed the precedent set in Pennsylvania Fire even if it thought the precedent is in tension with some other line of the Supreme Court's decisions like International Shoe Co. v. Washington, 326 U.S. 310 (1945).
To understand the Supreme Court's decision is to have an appreciation for the facts of Pennsylvania Fire and Mallory. In Pennsylvania Fire, an Arizona corporate plaintiff sued Pennsylvania Fire Insurance Company (incorporated in Pennsylvania) on breach of contract claims in Missouri court. The contract was executed in Colorado. Despite Pennsylvania Fire's objection to the choice of forum, the Missouri Supreme Court found the lower court could exercise jurisdiction over the Pennsylvania corporate defendant and the U.S. Supreme Court agreed. The U.S. Supreme Court unanimously decided that Pennsylvania Fire could be sued in Missouri by an out-of-state plaintiff on an out-of-state contract because it had agreed to accept service of process in Missouri on any suit as a condition of doing business there. Pennsylvania Fire, 243 U.S. at 95.
Similarly, Robert Mallory, a Virginia resident, filed his action in the Philadelphia County Court of Common Pleas against Norfolk Southern Railway Co., a Virginia corporation with a principal place of business in Virginia. Mr. Mallory worked primarily in Ohio and Virginia. He filed suit in Philadelphia because Pennsylvania's Long-Arm Statute 15 Pa. Cons. Stat. § 411(a)-(b), enforces a consent-by-registration doctrine that requires foreign corporations operating in the state to agree to general personal jurisdiction in Pennsylvania courts. In 2021, the Pennsylvania Supreme Court found that the state's long-arm statute was unconstitutional as it compelled foreign corporations' submission to general personal jurisdiction in violation of the Due Process Clause. Mallory v. Norfolk S. Ry. Co., 266 A.3d 542, 570–71 (Pa. 2021). The Pennsylvania Court agreed the facts of Mallory fall squarely in line with Pennsylvania Fire, but believed the Supreme Court's opinions of International Shoe and the more recent Daimler decision implicitly overruled Pennsylvania Fire, leaving only one road of analysis for determining general personal jurisdiction.
The U.S. Supreme Court majority rejected the Pennsylvania Supreme Court's analysis. The Court found there was no tension between Pennsylvania Fire and International Shoe. The cases provide two distinct avenues for establishing general personal jurisdiction. Pennsylvania Fire held that an out-of-state corporation that has consented to in-state suits to do business in the forum is susceptible to suit there. Whereas 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. 326 U.S. at 319. Based on the explicit language of Pennsylvania's statute, the Supreme Court decided that Norfolk consented to be subject to general jurisdiction as a condition of doing business in Pennsylvania. Furthermore, Pennsylvania court's exercise of jurisdiction over Norfolk is fair as it has taken full advantage of its opportunity to do business in Pennsylvania and boasted its presence in the state.
In sum, the Supreme Court Justices, in their 5-4 decision, upheld a 106-year-old precedent allowing plaintiffs to sue foreign corporate defendants that have consented to a state's jurisdiction through the business registration. In light of this decision, other states with similar rulings like the Pennsylvania Supreme Court's ruling in Mallory, may experience an influx in plaintiffs re-challenging personal jurisdiction. Additionally, plaintiff-friendly jurisdictions with consent-by-registration statutes may see an increase in suits filed by out-of-state plaintiffs since companies that are required to register in varying states to conduct any amount of business may be subject to that state's long-arm statute and, subsequently, subject to general personal jurisdiction.
While we are all still unpacking the implications of this decision, there are a few key points businesses need to consider in the short term:
- If you are a foreign corporation registered to do business in Pennsylvania, you are now subject to general personal jurisdiction on any and all claims, just as if you were a domestic corporation.
- Pennsylvania is not the only state with consent-by-registration statutes. Additionally, the Court has greenlit state legislatures to craft similar statutes allowing them to exercise general jurisdiction over any foreign corporation that operates (or plans to) in their state.
- Plaintiff's attorneys have yet another avenue to forum shop and find the best (or worst) jurisdictions to file their cases.
The attorneys at Maron Marvel continue to review this opinion and its implications for businesses, not just in Pennsylvania but across the nation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.