In a Potential Sea Change for Business Litigation, U.S. Supreme Court Allows States To Compel Companies To Be Sued Where Registered To Do BusinessPrint PDF
On June 27, the U.S. Supreme Court upheld a Pennsylvania law that requires companies to consent to being sued in its state courts as a condition of registering to do business there. In Mallory v. Norfolk Southern, the Court reversed a lower court’s decision, ruling that a foreign corporate registration statute alone is sufficient to establish personal jurisdiction over an out-of-state defendant. This unexpected ruling opens the door for states across the nation to pass similar “consent by registration” statutes that may subject out-of-state corporations to suits by plaintiffs in locations far from the operative events, and potentially in courts viewed as hostile to corporations – a practice sometimes called “litigation tourism.”
- A “third prong” of personal jurisdiction is now in play, with “consent” becoming a third co-equal form of jurisdiction along with the two types of personal jurisdiction mentioned in Bristol-Myers Squibb Co. v. Superior Court and Daimler AG v. Bauman.
- Out-of-state companies may now be subject to personal jurisdiction in unexpected venues, irrespective of how much business the company does in that state.
- Pennsylvania could now become a hotspot for “litigation tourism.”
- Any state may now enact a statute allowing general jurisdiction by consent – raising the potential for litigation tourists in other courts known as hostile to corporations.
Mallory v. Norfolk Southern
Robert Mallory, who resides in Virginia, brought a suit against his former employer Norfolk Southern, a Virginia company, alleging that he was exposed to toxic chemicals while on the job in Virginia and Ohio. He elected to sue in Pennsylvania, however, on the grounds that Norfolk Southern registered to do business there, even though the events at issue did not occur in Pennsylvania. After a lengthy process, the Supreme Court ultimately sided with Mallory.
A Surprising Turn By the Supreme Court
The current Supreme Court is often characterized as politically conservative and assumed to be “pro-business.” But this decision did not hold serve as expected. In a split 4-1-4 ruling, two of the more conservative justices (Gorsuch and Thomas) aligned with two of the more liberal justices (Jackson and Sotomayor) to support opening the door to expanded personal jurisdiction. Four justices not typically aligned (Roberts, Barrett, Kagan, and Kavanaugh) dissented, with Justice Alito writing independently to join the majority ruling in certain parts.
Despite the Supreme Court’s ruling, there may still be challenges to the statute at issue in Mallory. The Court remanded the case for further proceedings, and the lower court may still find the Pennsylvania statute invalid under the Commerce Clause to the U.S. Constitution based on a framework set forth by Justice Alito. Indeed, his opinion was skeptical about the legitimacy of such consent-by-registration statutes: “[A] State generally does not have a legitimate local interest in vindicating the rights of non-residents harmed by out-of-state actors through conduct outside the state. With no legitimate local interest served, there is nothing to be weighed to sustain the law.”
Currently, Pennsylvania, Georgia, and Minnesota, as well as Puerto Rico, arguably allow general jurisdiction by “consent” based solely on foreign corporate registration. Meanwhile, federal courts in Iowa and Kansas have construed those states’ laws to allow general jurisdiction by consent, but unlike Pennsylvania, do not have a statute expressly for that purpose. It remains to be seen if more states will follow in Pennsylvania’s footsteps and seek to subject out-of-state corporations to general jurisdiction in their state.
Companies should analyze where they have registered to do business and whether by simply registering have they consented to being sued in that state for events that occurred elsewhere. We will continue to monitor these developments and can help businesses navigate this process.
This advisory was prepared by David Ferrera and Sarah Kelly in Nutter’s Product Liability and Business Litigation practice groups. If you would like additional information, please contact David, Sarah, or your Nutter attorney at 617.439.2000.
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.