Supreme Court Sustains Viability of Pennsylvania's Foreign Registration Corporation Statute
On June 27, in Mallory v. Norfolk Southern Railway Co., 2023 WL 4187749 (2023), the Supreme Court vacated and remanded the Pennsylvania Supreme Court decision to the contrary, and upheld a Pennsylvania foreign corporation registration statute that required consent to general personal jurisdiction as a condition of granting registration in Pennsylvania, essentially rejecting the argument that such a statute violated the due process clause of the Fourteenth Amendment. Three justices dissented, and various concurrences somewhat clouded the decision but for now, it does provide some clarity on an issue that has divided the states.
The facts are straightforward. A railway worker for the defendant in Ohio and Virginia contracted cancer and sued the railway in Pennsylvania state court under the Federal Employers’ Liability Act. His choice of Pennsylvania was based on his residence in Pennsylvania before returning to Virginia. He was a resident of Virginia when he sued, and Virginia was where the defendant was incorporated and headquartered. Defendant has registered to do business in Pennsylvania as a foreign corporation; apparently it managed over 2,000 miles of track, operated 11 rail yards, and ran locomotive repair shops in Pennsylvania.
The Pennsylvania Supreme Court held that the consent to general jurisdiction requirement violated due process, in contrast to a recent decision by the Georgia Supreme Court. The U.S. Supreme Court, citing 100-year-old precedent Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917) that sustained statutes like Pennsylvania’s, vacated the decision. Justice Jackson concurred by noting a further precedential ruling. Justice Alito concurred to the extent that Pennsylvania Fire controlled, because compliance by large foreign corporations “with substantial operations in a state” comply with the registration requirements does not violate due process, but there remains the predicate question of whether assertion of general jurisdiction through such statutes is itself Constitutional, citing the Commerce Clause.
In considering whether to overrule that decision, the 5-4 majority found that Pennsylvania Fire controlled the result and that the due process clause did not prohibit a state from requiring consent to jurisdiction. A plurality found that International Shoe Co. v. Washington, 326 U.S. 310 (1945), did not supplant Pennsylvania Fire, but merely provide another route to jurisdiction.
The three dissenting justices argued that this kind of statute essentially eviscerates a conduct-based approach to whether there was consent to general jurisdiction. They warned that states could now manipulate statutes so as to render obsolete the Court’s recent holdings on general jurisdiction in Goodyear Dunlop Tires Operations, S. A. v. Brown, 564 U.S. 915 (2011) and Daimler AG v. Bauman, 571 U.S. 117 (2014).
What are the takeaways from this? Not all state statutes read like the Pennsylvania one; some states limit the consent to suits where the cause of action arose within the state, and others are limited to in-state plaintiffs. Other states have no such limitations. Given the narrow portion of the opinion that garnered the majority, the settled portion would appear to be that a due process challenge to such statutes will fail. However, challenges under the Commerce Clause to these statutes were raised in Justice Alito’s concurrence, and may foster further litigation. Companies that are transacting business in a state may decline to register, but such may not be an option in all cases and could deprive them of the opportunity to bring suits themselves. State legislatures may also be lobbied one way or another with regard to their existing statutes. The real impact of the case will probably be on smaller and medium-sized companies, who may have the choice not to register as a foreign corporation, depending on the level of their activity in the state, and who should give careful consideration to the risks of litigation in such states before registering when they may not have to.
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