New SCOTUS Ruling May Increase Your Company’s Litigation Risks

New SCOTUS Ruling May Increase Your Company’s Litigation Risks

A recent decision by the U.S. Supreme Court dramatically alters where companies can be hauled into court. In Mallory v. Norfolk Southern Railway Co., the Court upheld a Pennsylvania law requiring out-of-state companies that register to do business in Pennsylvania to agree to appear in Pennsylvania courts on “any cause of action” against them, regardless of whether the corporation is headquartered in Pennsylvania or whether the conduct at the center of the lawsuit occurred there.

Jurisdiction Over Corporations

The Fourteenth Amendment’s Due Process Clause restricts courts’ authority to exercise personal jurisdiction over out-of-state defendants. Personal jurisdiction is further divided into specific and general jurisdiction. A court with specific personal jurisdiction over an out-of-state defendant can only hear claims that arise from the defendant’s contacts with the state. However, courts with general personal jurisdiction can “hear any and all claims against” a defendant, regardless of whether there is a connection between the claims and the state. 

With regard to general jurisdiction over corporations, the Supreme Court has held that “[a] court may assert general jurisdiction over foreign (sister-state or foreign-country) corporations to hear any and all claims against them when their affiliations with the State are so ‘continuous and systematic’ as to render them essentially at home in the forum State.” Corporations are generally considered “at home” in their place of incorporation and their principal place of business.

The Supreme Court’s most recent decision in Mallory addressed what happens when states adopt laws that deviate from traditional jurisdictional requirements. Robert Mallory worked for Norfolk Southern as a freight-car mechanic for nearly 20 years, first in Ohio, then in Virginia. After Mallory left the company, he moved to Pennsylvania for a period before returning to Virginia. Along the way, he was diagnosed with cancer. Attributing his illness to his work for Norfolk Southern, Mr. Mallory hired Pennsylvania lawyers and sued his former employer in Pennsylvania state court under the Federal Employers’ Liability Act.

Norfolk Southern challenged the suit on constitutional grounds, arguing that any effort by a Pennsylvania court to exercise personal jurisdiction over it would offend the Due Process Clause. In support, it noted that Mallory resided in Virginia and his complaint alleged that he was exposed to carcinogens in Ohio and Virginia. Meanwhile, the company  was incorporated in Virginia and had its headquarters there as well.

In response, Mallory cited that Norfolk Southern has registered to do business in Pennsylvania in light of its “‘regular, systematic, [and] extensive’” operations there. He further argued that Norfolk Southern had consented to suit in Pennsylvania because Pennsylvania requires out-of-state companies that register to do business in the Commonwealth to agree to appear in its courts on “any cause of action” against them.

The Pennsylvania Supreme Court sided with Norfolk Southern. It held that the Pennsylvania law—requiring an out-of-state firm to answer in the Commonwealth any suits against it in exchange for status as a registered foreign corporation and the benefits that entails—violates the Due Process Clause.

Supreme Court Upholds “Consent by Registration” Law

The Supreme Court reversed. In reaching its decision, the majority rejected Norfolk Southern’s argument that more recently decided Supreme Court rulings, such as International Shoe Co. v. Washington, 326 U.S. 310 (1945), Goodyear Dunlop Tires Operations SA v. Brown, 564 U.S. 915 (2011), and Daimler AG v. Bauman, 571 U.S. 117 (2014), had overridden the precedent established in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917), in which the Supreme Court held that a similar Montana law complied with the Due Process Clause.

According to the majority, Pennsylvania Fire Insurance is still alive and well, despite decisions like International Shoe. As Justice Gorsuch explained, “[t]he two precedents sit comfortably side by side.” International Shoe did not rule out all alternative grounds for personal jurisdiction, Gorsuch explained, but instead “stake[d] out an additional road to jurisdiction over out-of-state corporations.” He added: “Pennsylvania Fire held that an out-of-state corporation that has consented to in-state suits in order to do business in the forum is susceptible to suits there. 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.”

The Supreme Court went on to find that its decision in Pennsylvania Fire Insurance directly applied to the facts of the case. “Not every case,” Gorsuch wrote, “poses a new question. This case poses a very old question indeed — one this Court resolved more than a century ago in Pennsylvania Fire.” He further explained:

Norfolk Southern applied for a ‘Certificate of Authority’ from the Commonwealth which, once approved, conferred on Norfolk Southern both the benefits and burdens shared by domestic corporations, including amenability to suit in state court on any claim. For more than two decades, Norfolk Southern has agreed to be found in Pennsylvania and answer any suit there. To decide this case, the court 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 the court fall squarely within Pennsylvania Fire’s rule.

Justice Samuel Alito agreed with the Court’s ultimate conclusion. However, he raised the argument that Pennsylvania’s law potentially violates the Constitution’s dormant commerce clause.

“In my view, there is a good prospect that Pennsylvania’s assertion of jurisdiction here — over an out-of-state company in a suit brought by an out-of-state plaintiff on claims wholly unrelated to Pennsylvania — violates the Commerce Clause,” he wrote. “Aside from the operational burdens it places on out-of-state companies, Pennsylvania’s scheme injects intolerable unpredictability into doing business across state borders. … I am hard-pressed to identify any legitimate local interest that is advanced by requiring an out-of-state company to defend a suit brought by an out-of-state plaintiff on claims wholly unconnected to the forum state.”

Chief Justice John Roberts and Justices Amy Coney Barrett, Elena Kagan and Brett Kavanaugh dissented. In their view, the majority’s decision upends the settled rule that that the Due Process Clause does not allow state courts to assert general jurisdiction over foreign defendants merely because they do business in the State. “On the court’s reasoning, corporations that choose to do business in the state impliedly consent to general jurisdiction,” Justice Barrett wrote. “The result: A state could defeat the due process clause by adopting a law at odds with the due process clause.”

Key Takeaway

The Supreme Court’s decision injects new uncertainty over where corporations may be sued. Based on the Court’s ruling, states can require a company, as a condition of doing business in the state, to consent to being sued there for any and all claims without running afoul of due process. Right now, few states have such laws in place; however, corporations should remain vigilant.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Ajoe Abraham, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.