Supreme Court Rules U.S. States Have Jurisdiction Over Foreign Corporations Via Registration
On June 27, the Supreme Court held in Mallory v. Norfolk Southern Railroad that the assertion of general jurisdiction over an out-of-state corporation that has waived its jurisdictional defense as a condition to doing business in a state comports with due process. Although a majority of the Court questioned whether states—here, Pennsylvania—have the constitutional power to impose such a requirement, the Court ruled that Pennsylvania courts have jurisdiction over the corporate defendant, Norfolk Southern, on account of its corporate registration. The implication of the Mallory decision is that a corporation registered in a state requiring consent to general jurisdiction may be subject to a lawsuit there, regardless of where the dispute arose, where the plaintiff resides, or where the defendant corporation is actually domiciled.
In this case, Robert Mallory sued Norfolk Southern for workplace injuries that occurred in Virginia and Ohio. Neither he nor Norfolk Southern resided in Pennsylvania, but the latter was registered as a foreign corporation there. Pennsylvania requires businesses wishing to engage in local business to register with its department of state and, as a condition thereto, submit to the general jurisdiction of Pennsylvania courts. Norfolk Southern argued that this could not be correct, and the Pennsylvania Supreme Court agreed, holding that regardless of state law, the exercise of general jurisdiction over foreign corporations based on business registration violates the due process requirements of the U.S. Constitution.
The U.S. Supreme Court disagreed. It reasoned that a 1917 case, Pennsylvania Fire, is controlling. Per the Court, Pennsylvania Fire upheld a similar law against a similar challenge, and its holding, applicable today, has not been disturbed by subsequent authority—particularly, the Court’s 1945 International Shoe decision, which limited personal jurisdiction only when parties have not consented to personal jurisdiction. International Shoe laid the foundation, now widely accepted as blackletter law, for two types of personal jurisdiction: general and specific. Specific jurisdiction is case-related and assesses the relationship between a nonresident defendant’s purposeful contacts with a forum and the plaintiff’s claims. General jurisdiction refers to the territorial right of a court to hear all claims against a defendant. Underlying both, and necessary for the exercise of personal jurisdiction, is the focus on “fair play and substantial justice,” which is necessary to satisfy the Due Process Clause of the Fourteenth Amendment.
Over the last decade, and particularly after its 2013 opinion in Daimler AG v. Bauman, the Supreme Court has held that general jurisdiction over corporate defendants exists only where the corporation “resides”—meaning its headquarters or place of incorporation, even if that corporation does substantial business in other locations. Specific jurisdiction exists over nonresident corporations only where a claim arises out of or relates to the corporation’s contacts in that state. As a result, corporate defendants have had a powerful defense to being sued in states in which they did business, but did not reside.
The Mallory decision, reviving 100-year old precedent, departs from this dichotomy—the requirement to establish either general or specific jurisdiction over a corporations—and underscores that personal jurisdiction is just that: personal. Corporations may waive defenses to personal jurisdiction, including by consenting to general jurisdiction in a state’s corporate registration statute, and such jurisdiction can be exercised without running afoul of due process considerations.
The Mallory decision opened the courthouse doors in Pennsylvania (and states with similar statutes) to litigants from anywhere in the world to bring claims against registered corporations, even if the corporations are foreign, the plaintiffs are foreign, and the claims arise out of events that have no connection to the particular U.S. state, or even the United States.
This does not mean that a corporation is without defenses if it registers to do business in a state like Pennsylvania. Many of the same considerations that might have prevented a court from hearing a case due to personal jurisdiction also exist in motions to dismiss due to improper venue, or the related concept of forum non conveniens. These defenses look at, among other things, where the events occurred, where the parties are located, and the ties that the litigation has to the selected forum. In many cases, these defenses could result in a ruling directing plaintiffs to file elsewhere. For now, Mallory v. Norfolk has opened the courthouse doors to litigants everywhere, and those with potential claims or foreign judgment should consult the corporate registry of states like Pennsylvania for the proposed defendant when formulating litigation strategy.
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The foregoing is for informational purposes only. It is not intended as legal advice and no attorney-client relationship is formed by the provision of this information.