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June 28, 2023

Supreme Court Endorses “Jurisdiction by Consent” Theory in Latest Jurisdictional Salvo

Advisory

On June 27, 2023, the U.S. Supreme Court ruled in Mallory v. Norfolk Southern Railway Co., No. 21-1168, a case that raised the question of whether an out-of-state company’s compliance with a business registration statute gives rise to jurisdiction. In a divided opinion likely to spur further litigation about the decision’s applicability under a different registration statute and outside of the case-specific facts, the Supreme Court held that consent-by-registration does not run afoul of the Due Process Clause, at least under certain circumstances. That opinion is a marked departure from the way many courts understood the Supreme Court’s recent decisions curtailing general jurisdiction in Daimler and specific jurisdiction in Bristol-Myers Squibb. See Daimler AG v. Bauman, 571 U.S. 117, 137 (2014) (a company is “at home” and subject to general jurisdiction where it is incorporated and where it maintains its principal place of business); Bristol-Myers Squibb Co. v. Superior Court of Cal., S.F. Cnty., 582 U.S. 255, 264 (2017) (court lacks specific jurisdiction over out-of-state defendant for claims brought by out-of-state residents for out-of-state injuries).

The Facts in Mallory

In Mallory, a Virginia resident filed a personal injury action in Pennsylvania, alleging that he developed cancer from exposure to asbestos and other toxic chemicals while working for the defendant — a Virginia railroad company. None of the alleged exposure occurred in Pennsylvania. The plaintiff’s only basis for asserting personal jurisdiction was the defendant’s compliance with Pennsylvania’s business registration statute, 15 Pa.C.S. § 411(a), as “qualification as a foreign corporation under the laws of this Commonwealth” is a “sufficient basis of jurisdiction to enable the tribunals of [Pennsylvania] to exercise general personal jurisdiction over such person.” 42 Pa.C.S. § 5301(a)(2)(i).

The defendant moved to dismiss for lack of personal jurisdiction. The trial court agreed, and the Pennsylvania Supreme Court affirmed, holding that the state’s statutory scheme was incompatible with the Fourteenth Amendment’s due process guarantees. Compliance with the state’s mandatory registration requirement could not constitute voluntary consent to jurisdiction notwithstanding that Pennsylvania’s statute expressly provides for jurisdiction by registration. Mallory v. Norfolk S. Ry. Co., 266 A.3d 542 (Pa. 2021). To find otherwise, the Pennsylvania Supreme Court concluded, would “eviscerate[] the Supreme Court’s general jurisdiction framework” and “would also be contrary to Daimler’s directive that a court cannot subject a foreign corporation to general all-purpose jurisdiction based exclusively on the fact that it conducts business in the forum state.” Id. at 566 (citation omitted).

The Court’s Decision

Justice Gorsuch — joined by Justices Thomas, Sotomayor, Jackson, and Alito — disagreed with the Pennsylvania Supreme Court, concluding instead that the question raised in Mallory had been resolved more than a century ago in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917). Gorsuch Op. at 10 (“Pennsylvania Fire controls this case.”). In that case, the Supreme Court held that an out-of-state company “could be sued in Missouri by an out-of-state plaintiff on an out-of-state contract because [the defendant-company] had agreed to accept service of process in Missouri on any suit as a condition of doing business there.” Id. at 9 (citing Pa. Fire Ins., 243 U.S. at 95).

However, the remainder of Justice Gorsuch’s opinion could not garner a majority, with Justices Jackson and Alito each writing separate concurrences. Justice Jackson stressed her view that waiver is a critical component of personal jurisdiction jurisprudence. See Jackson Concurrence at 4 (“[T]he personal-jurisdiction requirement is an individual, waivable right, and I agree with the Court that Norfolk Southern waived that right by choosing to register as a foreign corporation under the circumstances presented in this case.”).

Justice Alito agreed with the plurality that Pennsylvania Fire remains good law and therefore the Due Process Clause is no bar to the exercise of jurisdiction in this case, but opined that the dormant Commerce Clause likely prevents the state court from exercising jurisdiction in these circumstances. Specifically, he explained that the Constitution “restricts a State’s power to reach out and regulate conduct that has little if any connection with the State’s legitimate interests,” Alito Concurrence at 5, and that there was no “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,” id. at 14. But rather than characterize these as jurisdictional constraints, Justice Alito viewed the “federalism concerns” as “fall[ing] more naturally within the scope of the Commerce Clause.” Id. at 8.

Justice Barrett issued a vigorous dissent — joined by Chief Justice Roberts and Justices Kagan and Kavanaugh. Like Justice Alito, Justice Barrett emphasized the interstate federalism problems with the statute — albeit in the guise of due process rather than the Commerce Clause — concluding that “there is nothing reasonable about a State extracting consent in cases where it has ‘no connection whatsoever.’” Barrett Dissent at 6-8. She also criticized the majority decision as effectively doing away with 75 years of the Court’s personal jurisdiction jurisprudence, including key decisions such as Daimler. Id. at 1.

The Implications

The immediate battleground in the wake of Mallory is likely its application outside of the facts and circumstances of the case. See Gorsuch Op. at 12 (“To decide this case, we need not speculate whether any other statutory scheme and set of facts would suffice to establish consent to suit.”). The Court explained that Pennsylvania’s statutory scheme, which explicitly puts out-of-state companies on notice that registering to do business in the state renders them amenable to general jurisdiction, falls squarely within Pennsylvania Fire’s holding and does not run afoul of due process concerns. See id. (“It is enough to acknowledge that the state law and facts before us fall squarely within Pennsylvania Fire’s rule.”); Alito Concurrence at 5 (“I agree that Pennsylvania Fire controls our decision here, but I stress that it does so due to the clear overlap with the facts of this case.”). However, parties with an expansive view of jurisdiction are likely to argue that the decision does not turn on fair warning, particularly when the statute at issue in Pennsylvania Fire was not so explicit as the current Pennsylvania statute.

Given the lack of a bright-line rule on jurisdiction by consent, lower courts will be left to grapple with Mallory’s application to registration statutes that are silent as to their jurisdictional effect and to defendants with less extensive activities in the forum state.

State registration statutes

While all 50 states have statutes that require foreign companies to register before they can conduct business there, Pennsylvania’s is unique in putting those companies on explicit notice of the jurisdictional consequences of compliance. See, e.g., Barrett Dissent at 9-10 (“[A]s Mallory concedes, Pennsylvania is the only State with a statute treating registration as sufficient for general jurisdiction. Indeed, quite a few have jettisoned the jurisdictional consequences of corporate registration altogether — and in no uncertain terms.” (emphasis in original; citation omitted)). A number of states have enacted statutes, based on the Model Registered Agents Act, that explicitly tell corporations that they are not subject to personal jurisdiction in the state based solely on their appointment of a registered agent. See DeLeon v. BNSF Ry. Co., 426 P.3d 1, 7 & n.1 (Mont. 2018) (citing Montana law as well as that of Arkansas, Hawaii, Idaho, Maine, Mississippi, Nevada, North Dakota, South Dakota, Utah, and the District of Columbia).

Regardless of the current state of play in registration statutes, it remains to be seen whether any state legislature will seize on the decision and pass statutes that mirror Pennsylvania’s in an attempt to broaden their jurisdictional reach. This, of course, would take some time.

On the other hand, Mallory purports to leave unchanged International Shoe and its progeny, including Daimler. Specifically, these cases remain applicable where non-resident companies have not consented to jurisdiction. See Gorsuch Op. at 14 (“[A]ll International Shoe did was stake out an additional road to jurisdiction over out-of-state corporations … 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.” (emphases in original; citation omitted)). To mitigate risk, large corporations currently registered to do business across the country may well reconsider whether registration in every state is necessary in light of their specific business model and activities in particular states.

Fairness

The decision also leaves open grounds for making a due process argument based on fairness concerns. The plurality rejected Norfolk Southern’s fairness-based argument, noting that the company was registered in Pennsylvania at the time that the plaintiff originally filed his claim there, had taken “full advantage of its opportunity to do business” there, and had even “boast[ed] of its presence” in the forum. Gorsuch Op. at 18-20 (citation omitted). The plurality noted, in particular, that the defendant “proclaimed itself a proud part of the Pennsylvania community,” that it “employed more people in Pennsylvania than it did in Virginia, where its headquarters are located,” and had “extensive operations in Pennsylvania, including 2,278 miles of track, eleven rail yards, and three locomotive repair shops.” Id. at 20 (citation and internal quotations omitted). Companies with fewer contacts in the forum may, therefore, still be able to mount a due process challenge.

Interstate federalism

Additionally, the Supreme Court left open the possibility of revisiting the constitutionality of state consent-by-jurisdiction statutes, as five members of the Court expressed concern that the Pennsylvania statute might run afoul of interstate federalism principles, whether as a matter of due process or under the dormant Commerce Clause. The majority expressly noted that they were not addressing defendant-respondent’s argument that “Pennsylvania’s statutory scheme as applied here violates [the Supreme] Court’s dormant Commerce Clause doctrine” and that such argument “remains open for consideration on remand.” Id. at 4 n.3. And in his partial concurrence, Justice Alito set out a roadmap for making such an argument on remand. Alito Concurrence at 8-14. In particular, he explained that “a state law may offend the Commerce Clause’s negative restrictions in two circumstances: when the law discriminates against interstate commerce or when it imposes undue burdens on inter-state commerce.” Id. at 11-12 (quotations and citation omitted). Because the Pennsylvania registration statute satisfied both prongs of that analysis, Justice Alito concluded, “there is a good prospect that Pennsylvania’s assertion of jurisdiction here … violates the Commerce Clause.” Id. at 11.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.