A Pennsylvania case that was appealed to the U.S. Supreme Court in June 2023 has led to a ruling that could result in a substantial change in how companies register within the country. By upholding a state law at the national level, SCOTUS’s ruling could result in multiple states adopting similar legislation, which could be considered unfriendly to businesses. If you need to understand how this decision may affect your company’s future, consult with a skilled commercial litigation attorney from MehaffyWeber.
Pennsylvania Companies Must Agree to Be Sued When They Register to Do Business
In Mallory v. Norfolk Southern, SCOTUS found a state law requiring all companies to consent to legal action when they register as a corporation in Pennsylvania did not violate the due process clause of the constitution. While the ruling only applies to Pennsylvania cases at the moment, the state could become a focus for plaintiffs in other states to bring their claims
The Details of Mallory v. Norfolk Southern
A Virginia resident, Robert Mallory, initiated a claim against Norfolk Sothern as a former employee. He alleged exposure to toxic chemicals while working in Ohio and Virginia. Despite the injury occurring in Virginia, which was home to Norfolk Southern’s headquarters at the time, he filed the case in Pennsylvania, where the company had its corporate registration.
Under Pennsylvania law, all companies that register there must consent to appear in state courts for any legal action against them. Mallory took advantage of this option to try his case there under the Federal Employers Liability Act (FELA) in the Pennsylvania Court of Common Pleas for Philadelphia. When pressed to the state Supreme Court, Pennsylvania ruled the action violated the Fourteenth Amendment clause for due process.
Upon appeal to the U.S. Supreme Court, Mallory was successful. The SCOTUS ruling (4-1-4) cited International Shoe Co. v. Washington (1945) to support allowing cases in jurisdictions where a company has even minimal contacts where the action is brought. As such, the ruling to proceed was upheld for Mallory, who may return to PA courts and continue his claim there, with the understanding that those courts may render a final decision.
What the New Ruling Could Mean for Personal Jurisdiction
Two cases have already impacted personal jurisdiction: Daimler AG v. Bauman and Bristol-Myers Squibb Co. v. Superior Court. The Daimler case established that an American company cannot be sued for activity outside the United States, even if it operates a subsidiary in that location. Bristol-Myers Squibb addressed the question of whether individuals who were non-residents of the state of incorporation were allowed to sue in their state of residence if the company did substantial business there.
The Mallory case now introduces the potential for a third “prong” for personal jurisdiction. In addition to having the right to sue companies from outside the U.S. and suing from states other than that of incorporation, businesses in Pennsylvania must now consent to litigation when they register in the Keystone State. While few other states have either laws or precedents involving consent to actions in state courts by registering to do business, none of them express the governance in the way Pennsylvania does.
The Future of the Mallory Case and What Could Be Next
The SCOTUS ruling is not a final decision since the case was remanded back to state courts in Pennsylvania for additional proceedings. Justice Alito cited the Commerce Clause of the U.S. Constitution, stating, “…there is a good prospect that Pennsylvania’s assertion of jurisdiction here…violates the Commerce Clause.”
For the dissent, Justice Amy Coney-Barrett wrote that the ruling could render specific jurisdiction “superfluous” for corporations, indicating that, while Due Process allowed reasonable restrictions by states on foreign companies, they should not be required to provide consent to actions in jurisdictions where the company has no connection. She also noted that Norfolk Southern never explicitly gave consent to be sued but was rather assumed to have waived personal jurisdiction upon registration.
In addition to Pennsylvania, current laws in Minnesota, Georgia, and Puerto Rico allow consent-by-registration for foreign corporations. Federal courts in Kansas and Iowa have ruled in favor of general jurisdiction by consent, although there is no specific statute on the books. The SCOTUS decision in Mallory could have the potential to cause an uptick in legislation among states that are more hostile to business interests, but this remains to be seen.
Contact MehaffyWeber to Discuss How Mallory v. Norfolk Southern May Affect Your Business
It’s worth the time to speak with your current corporate litigation attorney or connect with one to examine how your corporate registration could be affected by this ruling. Assuming your business is “safe” simply because the plaintiff lives in another state could result in unexpected and detrimental decisions influenced by the Mallory ruling.
By conducting a close review of your registration documents compared to the laws that govern them, an experienced commercial litigation firm like MehaffyWeber can help your business prepare for potential future legal action. Contact us to see how we can help your business.