A recent (and surprising) ruling from the U.S. Supreme Court may allow businesses to be sued in states where they have little connection. The Court ruled 5-4 to uphold a Pennsylvania law that requires a corporation to consent to the jurisdiction of Pennsylvania courts over them as a condition of registering to do business there.
Due Process
Under prior jurisdictional analysis, a corporation could be sued where a person is injured, where it is incorporated, or where it has its headquarters. The Pennsylvania statute added a “consent to be sued” requirement in its business registration statute.
In the recent case titled Mallory v. Norfolk Southern, the Court majority (Justices Gorsuch, Thomas, Alito, Sotomayor, and Jackson) ruled the Pennsylvania statute agrees with fundamental notions of due process and isn’t unconstitutional.
The majority explained, “in truth, it is a very old question—and one this Court resolved in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917).” In Pennsylvania Fire, the Court unanimously found that laws like Pennsylvania’s satisfy the U.S. Constitution’s Due Process Clause.
Corporations Are (Fictitious) People Too
Writing for the Court, Justice Neil Gorsuch emphasized that individuals have always been subject to general jurisdiction in any state where they can be located and served, no matter how temporary their presence there. The Court compared “tag” jurisdiction over individuals to service on corporations under Pennsylvania’s law. Relying on the reasoning in Pennsylvania Fire, the Court extrapolated, “what sense would it make to treat a fictitious corporate person differently?”
The Court rationalized that its more recent decisions involving general personal jurisdiction—such as International Shoe and its progeny—merely provide additional avenues to jurisdiction over out-of-state corporations.
Ultimately, the Court concluded that when a state law requires a company to register and consent to general jurisdiction to do business in that state, and the company complies with the law by registering and maintaining an agent in the state, the assertion of general jurisdiction over the company by the state’s courts comports with traditional notions of fair play and substantial justice because of the corporation’s consent.
Tracking the Facts
A closer examination of the facts in Mallory drive home the importance of this decision. Norfolk Southern is incorporated in Virginia and had (at the time) its principal place of business in Virginia. It manages railroad track across the eastern United States, including thousands of miles of track in Pennsylvania.
Robert Mallory was employed by Norfolk Southern but didn’t work on its railroads in Pennsylvania. He spent the majority of his time working in Virginia and Ohio. He moved to Pennsylvania after his employment with Norfolk Southern ended. While living in Pennsylvania, he sought legal representation for the cancer he alleges he developed because of the work he performed for Norfolk Southern.
Mallory then moved back to Virginia, where he filed a Federal Employers’ Liability Act claim against Norfolk Southern in a Pennsylvania state court that had little to no connection to the lawsuit. Yet, according to the Mallory Court, the case may proceed there because of Pennsylvania’s statute that required Norfolk Southern’s consent as a cost of doing business. Mallory v. Norfolk Southern.
Takeaways
If you’re a company doing business in multiple states, should you be concerned? Maybe. If you’re registered to do business in Pennsylvania, you’re subject to general jurisdiction in its courts.
That means no matter where your headquarters are located, you can be sued in Pennsylvania whether the dispute at issue has any connection to that state or no connection at all. As Justice Gorsuch recognizes, “corporations [will] not relish the prospect of being sued for any claim anywhere they conduct business.” But that’s the cost of doing business in Pennsylvania, according to the Mallory majority.
Even so, the case isn’t over yet. The Court sent the case back to the lower court, where a potentially further constitutional challenge to the corporate registration statute may occur. The majority notes—and Justice Samuel Alito points out in his concurrence—that Norfolk Southern made an alternative argument that Pennsylvania’s statutory scheme violates the dormant Commerce Clause preventing “state laws that unduly restrict interstate commerce,” as explained in the 2019 opinion Tennessee Wine and Spirits Retailers Assn. v. Thomas. The majority didn’t consider this question and left it open-ended on remand.
So, stay tuned. The issue of whether a state may require consent to jurisdiction via a corporate registration statute may see further challenges in the years to come.
Ken Bryant and Madeline Hughes are attorneys with Burr & Forman LLP. You can reach them at kbryant@burr.com and mhughes@burr.com.