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June 28, 2023

US Supreme Court Expands Corporations' Risk of Being Sued in a Foreign State

On Tuesday, June 27, 2023, in Mallory v. Norfolk S. Ry. Co., the US Supreme Court held that a Pennsylvania statute did not violate constitutional due process in requiring out-of-state corporations doing business there to register with the Department of State and, in so doing, consent to be sued in its state courts—even for disputes having no other connection to Pennsylvania.

Robert Mallory, a Virginia resident, brought suit in Pennsylvania against his former employer, Norfolk Southern Railway, which is incorporated and has its principal place of business in Virginia. Mallory alleges that he developed cancer from exposure to toxic chemicals in his work for Norfolk Southern in Virginia and in Ohio. While Mallory had resided in Pennsylvania for a brief time after working for Norfolk Southern and Norfolk Southern registered to do business there as required by the statute, the facts of the case had no relationship to Pennsylvania. 

Norfolk Southern challenged the Pennsylvania law on the grounds that it violated the Fourteenth Amendment’s Due Process Clause in conferring state court jurisdiction over out-of-state corporations based solely on their compliance with the registration requirement. The Pennsylvania Supreme Court agreed and struck down the law, applying US Supreme Court precedents beginning with International Shoe Co. v. Washington in 1945. International Shoe had been understood to allow for jurisdiction over corporations under two scenarios: 1) general jurisdiction, where a company is incorporated or maintains its principal place of business, or 2) specific jurisdiction, where the cause of action arose from the corporation’s activities within the state. 

The 5–4 majority of the US Supreme Court in Mallory disagreed, vacating the Pennsylvania Supreme Court decision. Writing for the majority, Justice Gorsuch stated that the Court’s 1917 decision in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., under substantially the same material facts, was controlling precedent and had not been implicitly overruled by International Shoe and its progeny. The Court had reasoned in Pennsylvania Fire Ins. that because the law historically allowed individuals to be sued in any jurisdiction where they could be found, no matter where the cause of action arose, it would not make sense to treat a corporation differently. Justice Gorsuch further stated that International Shoe had merely added to the circumstances in which jurisdiction could be found.

In finding the Court’s earlier decision in Pennsylvania Fire Ins. controlling, the majority in Mallory stressed that in both cases the state statute allowed the out-of-state corporation to “enjoy the same rights and privileges as a domestic entity,” but also provided that they were to “be subject to the same liabilities, restrictions, duties and penalties . . . .” Further, the majority noted that the Pennsylvania law “is explicit 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 corporations.” 

The decision may not end the story, however, as corporations in Norfolk Southern’s situation may have better fortune turning to other provisions of the US Constitution. That is according to Justice Alito, writing a concurring opinion. He explains that he joined with the other four justices in the Mallory majority only with respect to the result, given the Pennsylvania Supreme Court’s holding based on the Due Process Clause. He writes that he is “not convinced, however, that the Constitution permits a State to impose such a submission-to-jurisdiction requirement.” Instead, a state’s “assertion of jurisdiction over lawsuits with no real connection to the State may violate fundamental principles that are protected by one or more constitutional provisions or by the very structure of the federal system that the Constitution created.” He goes on to suggest that “the so-called dormant Commerce Clause” may be “the most appropriate home for these principles” and that Norfolk Southern should be able to pursue a challenge to the statute on that ground while the case is remanded to the lower court for further proceedings. 

Justice Alito’s lengthy concurring opinion proceeds to outline the potential Commerce Clause challenge. Moreover, this challenge is likely to find an ally in the US Solicitor General’s Office, which had joined the case before the US Supreme Court to argue in Norfolk Southern’s favor that a state’s exercise of such broad jurisdiction could have a negative impact on interstate and international commerce.

Given the number of states that do, or will, have similar jurisdiction statutes, the potential ramifications of the Court’s decision in Mallory are significant. If not Norfolk Southern, some corporation that finds itself subject to a lawsuit in a state having nothing to do with the facts of the case will likely have sufficient incentive to pursue Justice Alito’s invitation to bring a Commerce Clause challenge to the constitutionality of these laws.  

If you have questions regarding the content of this alert, please contact Joe Stanganelli, Commercial Litigation Practice Area co-chair, at jstanganelli@barclaydamonl.com; Martine Wayne, associate, at mwayne@barclaydamon.com; or another member of the firm’s Commercial Litigation Practice Area.
 

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