By Hayley Hodson
The U.S. Supreme Court has just set forth a ruling with extraordinary implications for businesses from coast-to-coast. In Mallory v. Norfolk Southern Railroad Co., the high court has deemed constitutional statutes that require out-of-state companies to consent to personal jurisdiction as a prerequisite to doing business in a state. The net effect: plaintiffs can sue defendants that have consented to a state’s jurisdiction through business registration on any and all claims, no matter where those claims arise or the parties are located. This is big news that impacts the locations where companies could face future trials and might allow plaintiffs to choose jurisdictions that may be more friendly toward them.
Personal Jurisdiction: a Brief Overview
Personal jurisdiction refers to a court’s ability to exercise judicial power over a party in a lawsuit. As otherwise stated, for a judge to be able to make decisions in a court case, the court must have personal jurisdiction over the parties. In the absence of personal jurisdiction, litigation filed against a defendant may be dismissed.
As a general proposition, personal jurisdiction is established when a cause of action has occurred in the state where the case is being filed, the defendant has been personally served with the court papers in the state, or the defendant has a substantial connection with the state. With its ruling in Mallory, the Supreme Court has made the personal jurisdiction calculus much easier when a defendant is registered to do business in the state where a legal action has been initiated.
Mallory v. Norfolk Southern Railroad Co.
In Mallory, the Supreme Court held that a Pennsylvania law subjecting out-of-state companies registered to do business in the state to personal jurisdiction in Pennsylvania courts does not violate the Due Process Clause of the Fourteenth Amendment. The facts of the case are rather interesting, especially given the exercise of personal jurisdiction where the parties were not physically located in Pennsylvania and the causes of action did not arise there.
Robert Mallory sued Norfolk Southern due to a cancer diagnosis he traced back to work he did for the company in Ohio and Virginia, which allegedly exposed him to cancer-causing carcinogens. When he filed his complaint, Mallory resided in Virginia, but he nevertheless initiated the action in Pennsylvania where he had lived for a time after working for Norfolk Southern. In response, Norfolk Southern, which was incorporated and headquartered in Virginia (the company relocated its headquarters to Georgia after the suit commenced), but registered to do business in Pennsylvania, asserted that Pennsylvania courts did not have the right to exercise personal jurisdiction over it since it was neither incorporated nor headquartered in the state. Likewise, none of the alleged misconduct occurred there. For these reasons, Norfolk Southern argued the Pennsylvania statute asserting personal jurisdiction over any entity qualified to do business in the state was unconstitutional and violated the Due Process Clause.
The Pennsylvania Supreme Court agreed with Norfolk Southern and held that the law violated the Due Process Clause. That determination was appealed and the case made its way to the U.S. Supreme Court.
By way of an opinion authored by Justice Neil Gorsuch, the high court vacated the Pennsylvania Supreme Court’s decision. In doing so, Justice Gorsuch and the rest of the majority relied heavily on Pennsylvania Fire Ins. Co. v. Gold Issue Mining Co., a 1916 case in which it was held that corporations are also subject to personal jurisdiction in a state when they consent to such jurisdiction as a prerequisite to conducting business there. In Mallory, the Supreme Court reaffirmed this principle, holding that the Pennsylvania statute explicitly granting Pennsylvania courts general personal jurisdiction over foreign entities registered to do business in Pennsylvania does not violate the Due Process Clause because registering to do business in the state constitutes sufficient consent to personal jurisdiction. (PA ST 42 §5301). By registering to do business in Pennsylvania, Norfolk Southern subjected itself to Pennsylvania’s laws, including the statute at issue, thus consenting to personal jurisdiction in the state.
Why Mallory Matters
The Supreme Court’s decision in Mallory solidifies the constitutionality of state statutes that provide for a state’s courts to exercise personal jurisdiction over foreign entities registered to do business in the state. While not every state has such a statute, most states do have laws requiring out-of-state companies to register to do business, typically with a requirement to designate an agent for service of process. Accordingly, Mallory serves as a cautionary reminder to businesses with multi-state presences that they may be sued in jurisdictions where they are neither incorporated nor headquartered on the basis of having consented to personal jurisdiction by doing business there—even if the claims in given cases do not arise from business’s contacts in these jurisdictions. Making matters even worse for businesses is that the outcome in Mallory could allow plaintiffs to “forum shop” and bring claims against them in jurisdictions in which courts will treat the plaintiffs’ claims most favorably based on applicable laws.
Of note, Mallory does not address whether an out-of-state company may be considered to have consented to personal jurisdiction simply by registering or doing business in a jurisdiction where there is no statute explicitly subjecting out-of-state companies to personal jurisdiction. Until that shoe drops, businesses should be aware of the laws of all states in which they function and understand that even having only minor operations in a given state may still subject them to the decision-making authority of its courts.
Quinn Tassin, a Summer Associate in Michelman & Robinson’s New York office, contributed to this blog post.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.
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