Recently, the U.S. Supreme Court handed down an important decision impacting a court’s exercise of personal jurisdiction over out-of-state corporate defendants. In Mallory v. Norfolk Southern Railway Co., the Court upheld the constitutionality of a Pennsylvania law allowing any company registered to do business in the state to be sued there, including out-of-state corporations. This is true even where the corporation’s headquarters or acts giving rise to the litigation occurred elsewhere.
The Supreme Court’s Decision
In rejecting Norfolk Southern’s constitutionality challenge under the Fourteenth Amendment’s Due Process Clause, the Court held instead that the case was controlled by a U.S. Supreme Court decision from 1917—Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co.
In Pennsylvania Fire, the Supreme Court addressed a Missouri law similar to the one in Mallory. There, the Court held that the corporation could be sued in Missouri because it agreed to accept service of process on any suit in the state in exchange to do business there.
Norfolk Southern argued that the Court’s prior 1945 decision in International Shoe Co. v. Washington controlled. Norfolk Southern claimed that under International Shoe, the due process clause only allows personal jurisdiction over out-of-state corporations in two scenarios:
- First, where the corporation’s activities giving rise to the lawsuit occurred in the state.
- Second, in the state where the corporation is incorporated or has its principal place of business.
Because neither scenario applied, Norfolk Southern relied on International Shoe to argue that the Pennsylvania law violated its due process rights and was therefore unconstitutional.
Writing for the majority, Justice Gorsuch rejected this argument, noting the two precedents can co-exist. He explained that “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.”
Justice Gorsuch then compared International Shoe, which “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.” Thus, the question in Mallory was one already addressed in Pennsylvania Fire.
Impact on Personal Jurisdiction
Although the case only involved the constitutionality of a specific Pennsylvania law, practically speaking, the impact of Mallory may be much broader. Under the Court’s decision, a corporation would be subject to personal jurisdiction in any state with a similar registration-consent statute.
Now that the Supreme Court has endorsed this type of law and rejected a Fourteenth Amendment challenge, more states might pass registration-consent statutes. If so, corporations will be subject to litigation in more states, regardless of the suit’s subject matter or connection to the state.
For now, corporations should do a few things to protect themselves:
- withdraw business registrations in any state the corporation no longer does business;
- weigh the risks of registering to do business in a particular state;
- reanalyze contracts to determine whether choice-of-law and venue requirements should be included; and
- keep an on eye on whether more states enact statutes similar to Pennsylvania’s, and expect to be subject to suit in those states.
If your company conducts business in multiple states and you would like guidance on how this decision impacts your company, please reach out and let us know how we can help.