Imagine an Argentinian wants to sue a German automaker. He claims that, while employed at the car manufacturer’s factory in Buenos Aires, he sustained serious injuries. Although the employee is Argentinian and the automaker is German, he sues the company in Pennsylvania. Could the state court hear the case, simply because the company transacts some business there? The short answer is: yes, after the U.S. Supreme Court’s ruling in Mallory v. Norfolk Southern Railway Co. On June 27, 2023, the Court held that Pennsylvania’s “consent-by-registration” statute, which requires any company that wants to do business to consent to be sued for any kinds of claims in the state, satisfies due process. As we previewed when the Supreme Court agreed to hear the case, this decision has drastic implications for entities that conduct business in the United States. Indeed, the decision may well greenlight forum-shopping in a messy jurisdictional free-for-all—as business groups, scholars, and the U.S. government all warned in amicus briefs. Businesses will now need to pay close attention to the registration statutes of all 50 states: they may now be signing up not just to do business, but also to be sued. They will therefore have to pay extra close attention to where they register to do business and which of their affiliates does the registration.
Key Takeaways
- The Supreme Court held that a Pennsylvania statute that allows state courts to “exercise general personal jurisdiction” over registered out-of-state corporations did not violate the Due Process Clause of the Fourteenth Amendment to the U.S. Constitution. The Court based its decision on its 1917 decision in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., which blessed a consent-by-registration regime.
- There’s a silver lining for businesses. Mallory left unaddressed whether the statute violates the dormant Commerce Clause of the Constitution, an argument that remains for consideration on remand. As Justice Alito wrote in his concurrence, “there is a good prospect that Pennsylvania’s assertion of jurisdiction . . . violates the Commerce Clause.”
- Although the statute may still be invalidated on remand, companies that do business in Pennsylvania will, for now, need to reassess their litigation risk there. Plaintiffs can sue any U.S. or foreign company registered to do business in Pennsylvania for any and all claims, even if the plaintiffs or events giving rise to the claims are unconnected to Pennsylvania.
- The ruling’s effects will extend beyond Pennsylvania. Even though Pennsylvania has the most explicit consent-by-registration statute, other states’ courts may now, in light of Mallory, interpret their states’ registration statutes to similar effect. Georgia’s highest court, for instance, has interpreted its registration statute, which subjects registered corporations to the same obligations and liabilities as a “domestic corporation,” to mean a registered company may be sued to the same extent as a domestic company.[1] State legislatures may also pass bills enacting consent-by-registration statutes. Thus, there is a real possibility that more states will require companies consent to general jurisdiction in the state in exchange for registering to do business there.
- Companies who do business in more than one U.S. state should now look carefully at where they do business and whether their corporate structures might need to be adjusted to decrease litigation risk in light of Mallory.
Background
To understand the decision’s import, let us revisit the legal doctrine of personal jurisdiction. The Due Process Clause of the Fourteenth Amendment requires that a court establish its power—or “personal jurisdiction”—to hear claims against and make binding decisions on a defendant.
Traditionally, personal jurisdiction was based on a defendant’s territorial presence in the state. That changed with the 1945 landmark case International Shoe Co. v. Washington,[2] which established the current framework on general jurisdiction. Today, there are two ways a court may establish personal jurisdiction: through either “specific jurisdiction” or “general jurisdiction.” Specific jurisdiction allows the court to hear claims that arise out of or relate to the defendant’s activities in that forum. By contrast, general jurisdiction allows the court to hear any and all claims against the defendant, even those unrelated to the forum, originating anywhere in the world.
Mallory is focused on general jurisdiction. As the Supreme Court clarified about a decade ago, a corporation is typically subject to general jurisdiction only in (1) the state where it is incorporated, and (2) the state where it has its principal place of business (usually its headquarters).[3] Separately, U.S. courts have also recognized that a defendant can consent to be subject to general jurisdiction in a forum.
In Mallory, the Pennsylvania statute at issue allowed state courts to exercise general personal jurisdiction over any registered out-of-state corporation, in effect requiring companies to “consent” to jurisdiction in return for doing business in the state.[4] (Like most U.S. states, Pennsylvania requires all out-of-state corporations to register before doing business in the state.) Based on this statute, Robert Mallory filed a tort lawsuit against his former employer, Norfolk Southern Railway, in a Pennsylvania court. The case had no real connection to Pennsylvania—the plaintiff was a citizen of Virginia, the company was incorporated and headquartered in Virginia, and the alleged torts occurred in Virginia and Ohio—but the plaintiff alleged the court had jurisdiction over the defendant because, by registering to do business in Pennsylvania, Norfolk Southern had consented to general jurisdiction in the state. The Pennsylvania Supreme Court ultimately held that the case did not belong in Pennsylvania, concluding that Pennsylvania’s consent-by-registration statute violated the Due Process Clause.
Supreme Court’s Decision
In a 5–4 decision, the Supreme Court decided in favor of Mallory, holding that the Due Process Clause of the Fourteenth Amendment allows states to require out-of-state corporations to consent to personal jurisdiction to do business there.
Authoring the majority opinion, Justice Gorsuch found controlling the Court’s 1917 decision in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co.[5] There, the Court had held that a Missouri law requiring corporations that wished to do in-state business consent to personal jurisdiction comported with the Due Process Clause. That decision, the majority observed, remains good law; it has not been overturned by “intervening decisions”—most notably, International Shoe. As the Court explained, International Shoe did not replace traditional ways of securing jurisdiction that came before and left intact the consent regime under Pennsylvania Fire.
Because the Pennsylvania Supreme Court invalidated the Pennsylvania statute on due-process grounds, it did not consider Norfolk Southern’s challenge that the statute also violates the dormant Commerce Clause, and the U.S. Supreme Court did not agree to review the dormant Commerce Clause challenge. The Commerce Clause challenge thus remains open for the Pennsylvania Supreme Court to consider on remand. In asserting that challenge, Norfolk Southern has claimed that the statute burdens businesses engaged in interstate commerce and thus violates the dormant Commerce Clause, which forbids state laws that unduly restrict interstate commerce without protecting a local state interest justifying such burdens.
Justice Alito seemed to endorse this view in his partial concurrence, writing that Norfolk Southern had “a good prospect” of succeeding on its dormant Commerce Clause challenge. That result would prevent what Justice Alito called the “intolerable unpredictability” that the consent-by-registration regime “injects . . . into doing business across state borders.” This current decision in Mallory, then, is “not the end of the story for registration-based jurisdiction.”
The upshot for companies who do business in the United States is that the tide may be shifting. While a series of decisions from state high courts suggested registration-based consent was not a viable jurisdictional theory, Mallory opens the door—for now, at least. While it remains to be seen whether the Pennsylvania Supreme Court believes that consent by registration transgresses the dormant Commerce Clause, the Pennsylvania Supreme Court won’t have the last word. Businesses will therefore need to keep a careful watch as the law in this area evolves. We certainly will be.
[1] Cooper Tire & Rubber Co. v. McCall, 863 S.E.2d 81 (Ga. 2021).
[2] International Shoe Co. v. Washington, 326 U.S. 310 (1945).
[3] Daimler AG v. Bauman, 571 U.S. 117 (2014).
[4] 42 Pa. Cons. Stat. § 5301(a)(2); 15 Pa. Cons. Stat. § 411(a).
[5] Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Min. & Mill. Co., 243 U.S. 93 (1917).
