The Supreme Court Declares Registered Out-of-State Businesses “At Home” in Pennsylvania
If a Wisconsin citizen is injured in Wisconsin on the property of a Wisconsin company, where can the citizen sue the company? One option is where the accident occurred—Wisconsin. Another option is where the company is headquartered or formed—again, Wisconsin. However, on June 27, 2023, the Supreme Court of the United States significantly expanded the choices for potential plaintiffs. Specifically, the Court upheld a Pennsylvania law that extends jurisdiction to any company that is registered to do business in Pennsylvania, even if the company is not headquartered in Pennsylvania or the conduct at issue did not occur in Pennsylvania. In Mallory v. Norfolk Southern Ry. Co., the Court held that this Pennsylvania law passed constitutional muster, accordingly, from the example above, the Wisconsin citizen who was injured in Wisconsin on the property of a Wisconsin company can sue in Pennsylvania, so long as the company is registered to do business in Pennsylvania.
Companies around the country must now consider the possibility that the simple act of registering to do business in Pennsylvania may mean that they can be sued in Pennsylvania courts for anything, regardless of the connection to Pennsylvania.
Background: Personal Jurisdiction
Personal jurisdiction refers to the power of a court to adjudicate the obligations of a defendant and confers the court with the authority to enter orders affecting the defendant, like requiring the defendant to pay money. With respect to companies, courts generally consider two different types of personal jurisdiction: specific and general personal jurisdiction.
Specific personal jurisdiction grants a court power over a particular defendant because of the connection between the state where the court sits and the conduct that gives rise to the action. Returning to the example, a Wisconsin court would have specific personal jurisdiction because the injury occurred in Wisconsin.
General personal jurisdiction provides for jurisdiction where the defendant is “at home.” A company is generally “at home” in the state where the company is formed and where is has its principal place of business (e.g., its headquarters). Therefore, the Wisconsin company, with its principal place of business in Wisconsin, could be sued in Wisconsin if the injury occurred in California, Florida, or even Germany because the company is formed under Wisconsin laws and is headquartered in Wisconsin.
In addition to specific and general jurisdiction, courts have personal jurisdiction over a defendant if the defendant consents to jurisdiction. Consent to jurisdiction could be a contract term or an explicit agreement in a particular case.
In 1917, in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., the Supreme Court held that a corporation could be sued in a foreign jurisdiction by an out-of-state plaintiff on an out-of-state contract because the corporation agreed to accept service of process in the foreign jurisdiction as a condition of doing business there. The Court decided Pennsylvania Fire prior to the Court’s landmark decision in Int’l Shoe Co. v. Washington, which fundamentally reshaped personal jurisdiction.
As such, an open question remained as to whether Pennsylvania Fire remained good law.
Mallory v. Norfolk Southern Ry. Co.
In a 5-4 decision, the Supreme Court upheld Pennsylvania Fire and opened the door for companies to be sued wherever they register to do business. Specifically, the Court held that Pennsylvania’s law—requiring an out-of-state company to consent to jurisdiction in Pennsylvania in exchange for status as a registered foreign corporation—does not violate the Due Process Clause of the Constitution.
Much like the earlier example, neither the plaintiff, defendant, nor dispute had a connection to Pennsylvania. Mallory, the plaintiff and a citizen of Virginia, brought suit against Norfolk Southern, a company incorporated in Virginia and headquartered there, for injuries he claims he sustained in Ohio and Virginia. Despite no clear connection between the parties or dispute and Pennsylvania, Mallory sued in Pennsylvania, relying on Pennsylvania’s law to confer personal jurisdiction.
Under Pennsylvania law, an out-of-state corporation “may not do business in [Pennsylvania] until it registers with” the Department of State. 15 Pa. Const. Stat. § 411(a). Pennsylvania law further provides that “qualification as a foreign corporation” shall permit state courts to “exercise general personal jurisdiction” over a registered foreign corporation, just as they can over domestic corporation. 42 Pa. Const. Stat. §§ 5301(a)(2), (b). Simply put, companies that do business in Pennsylvania are subject to jurisdiction there.
In denying the constitutional challenge to section 5301, the Court held that Pennsylvania Fire remained good law and that the dispute fell squarely within the holding of Pennsylvania Fire. The Court reasoned that by registering to do business in Pennsylvania, a company consents to both the benefits and burdens of registration, including consenting to general personal jurisdiction in Pennsylvania. Ultimately, the Court permitted Mallory’s suit to continue in Pennsylvania, despite the absence of any connection between the parties or dispute and Pennsylvania.
What This Means for Companies
The Supreme Court’s revitalization of Pennsylvania Fire has opened the door for companies who are registered to do business in Pennsylvania to be sued for any claim in Pennsylvania courts regardless of the connection to Pennsylvania. Returning to our example, if the Wisconsin company was registered to do business in Pennsylvania, the Wisconsin citizen could sue the Wisconsin company in the Philadelphia Court of Common Pleas. Because diversity of citizenship does not exist in the hypothetical, the Wisconsin company could not even remove the case to federal court. Although the Wisconsin company could file a motion to change venue for forum non conveniens—the doctrine that the case should be heard elsewhere because the dispute has a stronger connection to that other forum—a recent decision from the Superior Court of Pennsylvania, Ehmer v. Maxim Crane Works, L.P., demonstrates Pennsylvania court’s general hostility to transferring cases under forum non conveniens. Thus, the Wisconsin company may be forced to litigate a Wisconsin dispute against a Wisconsin citizen in Pennsylvania.
But Mallory’s impact does not stop with Pennsylvania. Other state courts, including in Georgia and Minnesota, have found that registering to do business in the state permits courts in that state to exercise personal jurisdiction over the registering company. Nothing is stopping other states from passing legislation, like section 5301, requiring companies who register to do business in their state to consent to jurisdiction there.
Despite the prospect of forum shopping and litigation tourism presented by Mallory, Justice Samuel Alito’s concurrence may provide a way forward. Although Justice Alito joined Mallory to the extent it said that the question regarding the Due Process Clause was settled by Pennsylvania Fire, Justice Alito pointed to a different constitutional provision that may prove to be the undoing of both Mallory and Pennsylvania Fire. Justice Alito indicated that he believed that Pennsylvania’s scheme may violate the Commerce Clause of the Constitution because it interferes with interstate commerce. However, Justice Alito could not rule in favor of Norfolk Southern utilizing the Commerce Clause because Norfolk Southern did not present it as an argument to the Court. Justice Alito’s concurrence presents companies with an opportunity to continue to argue that Pennsylvania courts do not have personal jurisdiction over the company simply by registering to do business there, but such an argument must be clearly presented to the trial court and preserved for appeal.
To ensure that your company is not unnecessarily sued in an unfavorable jurisdiction and your defenses are preserved, contact your local Quarles attorney, or:
Lars E. Gulbrandsen: 414-277-5137 / email@example.com
Evan W. Thomsen: 414-277-5270 / firstname.lastname@example.org
Summer Associate Cody Linday assisted in drafting this alert.