Supreme Court Broadens States’ Jurisdiction Over Out-of-State Corporate Defendants, Potentially Subjecting Companies to More Suits in More Places
In a decision that could open a jurisdictional Pandora’s box, the United States Supreme Court upheld a Pennsylvania law that made consent to be sued in the state’s courts for “any cause of action” a condition of registering to do business there. Traditional federal jurisdiction principles require a much greater nexus between a company and a state where it could be sued, such as the location of its principal place of business or a case that arose from its activities in the state. But the Court’s ruling in Mallory v. Norfolk Southern Railway Co. means that states can legislatively ensnare parties in lawsuits with only the faintest connection to the jurisdiction of those state courts. It also means that if other states follow Pennsylvania’s lead, businesses may be subject to lawsuits and subpoenas in far-flung locations with which those businesses have established zero connection beyond having set up a registered agent.
Jurisdiction Over “Any Cause of Action,” Not Just Those Related to the State
Mallory involved a Pennsylvania statute that requires foreign corporations that register to do business there to agree to the jurisdiction of its courts on “any cause of action” against them. The plaintiff was a former employee of Norfolk Southern who sued the company under a federal workers’ compensation statute for exposure to carcinogens during his employment, which led to him developing cancer. The plaintiff never worked for the company in Pennsylvania and was a Virginia resident when he filed his lawsuit. Norfolk Southern was a Virginia corporation but had registered to do business and had regular operations in Pennsylvania.
Norfolk Southern moved to dismiss the case on the grounds that the state’s jurisdictional scheme violated the Due Process Clause of the 14th Amendment. The Pennsylvania Supreme Court ultimately agreed with the company’s position, and Mallory appealed to the U.S. Supreme Court.
Consent, Even if a Condition of Doing Business Is Sufficient Basis for Jurisdiction
An unusual grouping of five justices (Gorsuch, Alito, Thomas, Sotomayor, and Jackson) reversed the state supreme court’s decision and held that Pennsylvania requiring a company to consent to jurisdiction for any suits against it in exchange for status as a registered foreign corporation did not violate due process.
Writing for the majority, Justice Gorsuch said the case was controlled by its 1917 decision in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., where the Court upheld a similar Missouri statute. Gorsuch rejected arguments that subsequent decisions on jurisdiction, specifically its 1945 decision in International Shoe Co. v. Washington, implicitly overruled that case. As noted above, those decisions generally held that jurisdiction over a corporate defendant is proper and constitutional when the lawsuit relates to its activities in the state where the case is filed or in a state where the corporation is incorporated or has its principal place of business.
Gorsuch essentially ruled that consent to jurisdiction, even if made a condition of doing business in a state, is a “third way” jurisdiction can be established over an out-of-state entity and that the Pennsylvania Fire and International Shoe decisions were complementary, not contradictory. “The two precedents sit comfortably side by side,” he wrote.
The implications of Mallory are profound for corporations that do business in multiple states. The ruling effectively gives each state the right to make its own jurisdictional rules regarding corporate defendants instead of a broad, national standard for when and where companies may be dragged into court. This is likely to further encourage “forum shopping,” in which corporations face lawsuits in the most “plaintiff-friendly” states where they do business, even if the case has nothing to do with any activities in those states.
As such, corporations should be mindful of the jurisdictional statutes in every state they do business. While Mallory does not specifically address a state’s ability to issue and enforce subpoenas on out-of-state third-party corporations – and the law as it stands currently limits states’ ability to do so – it does open the possibility that companies may need to be prepared to respond to subpoenas in jurisdictions far from home.
If you have any questions about the implications of the Supreme Court’s decision, please contact Corinne Rockoff at Maddin Hauser.