United States Supreme Court Update – Out of State Corporations Registered in Pennsylvania Must Now Defend in PA Courts on any Claim
The United States Supreme Court has upheld the constitutionality of a Pennsylvania statute that requires corporations engaged in business within the state to register and accept general personal jurisdiction in Mallory v. Norfolk Southern Railway Co., 143 S. Ct. 2028 (2023). The court’s vote of 5-4 revealed an unexpected alignment of justices, with Justice Gorsuch delivering the opinion joined by Justices Thomas, Alito, Sotomayor, and Jackson. On the opposing side, Justice Barrett authored the dissent, supported by Chief Justice Roberts, and Justices Kagan and Kavanaugh. This reversed and remanded the decision by the Pennsylvania Supreme Court in Mallory v. Norfolk Southern Railway Co., 266 A.3d 542 (Pa. 2021), which, siding with Appellee Norfolk Southern, found that Pennsylvania’s statutory law in 42 Pa. Cons. Stat. §5301(a)(2)(i), (b)—requiring an out-of-state firm to answer in the Commonwealth any suits against it in exchange for status as a registered foreign corporation and the benefits that entails—violated the Due Process Clause. The appellant, Mallory, petitioned for and was granted certiorari by the Supreme Court. The Court agreed to hear the case to decide whether the Due Process Clause of the Fourteenth Amendment forbids a State from forcing an out-of-state corporation to consent to personal jurisdiction to do business there.
The United States Supreme Court’s opinion in Mallory is centered around the application of the Fourteenth Amendment’s Due Process Clause and its compatibility with Pennsylvania’s jurisdictional law. The Pennsylvania statute mandates that corporations conducting business in the state must register and thereby consent to being subject to general personal jurisdiction. This broad jurisdiction allows legal actions against the corporation even when the claims lack a direct link to its activities in Pennsylvania.
Writing on behalf of the Court, Justice Gorsuch clarified that the case at hand was guided by the precedent set in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U. S. 93 (1917). He pointed out that the Pennsylvania Supreme Court had made an erroneous judgment in assuming that subsequent decisions had invalidated this precedent. See Mallory, 143 S. Ct. at 2038. The Court underscored the importance of lower courts adhering to precedents directly applicable to a case, even if there exists tension with other legal lines of thought, leaving the authority to overturn precedents exclusively to the Supreme Court. See id.
Applying Pennsylvania Fire, the Court ruled that Norfolk Southern had indeed given its implicit consent to being subjected to general personal jurisdiction by virtue of conforming to Pennsylvania’s mandatory registration stipulation. See Mallory, 143 S. Ct. at 2047. The Court effectively countered the dissent’s claim that the application of Pennsylvania Fire was impeded by the absence of the term “consent” in the state’s legal framework. It emphasized that historical legal precedents have not rigidly enforced a “magic words” criterion for validating consent to personal jurisdiction. See Mallory, 143 S. Ct. at 2038 n.5.
Justice Gorsuch further dismissed Norfolk Southern’s request for the Court to overturn Pennsylvania Fire, countering that this case was consistent with International Shoe Co. v. Washington, 326 U.S. 310 (1945). See Mallory, 143 S. Ct. at 2041. International Shoe established that out-of-state corporations lacking consent for in-state suits could still be sued if they had substantial connections with the state. The plurality contended that these two precedents coexisted harmoniously, with International Shoe expanding jurisdiction and Pennsylvania Fire reinforcing the principle that consent, whether explicit or implied, can independently establish personal jurisdiction. See Mallory, 143 S. Ct. at 2038.
Justice Alito’s concurred in part and concurred in the judgment. However, he offered compelling dicta concerning the Commerce Clause. Alito emphasized the importance in looking to the dormant Commerce Clause when evaluating the constitutionality of Pennsylvania registration law. See Mallory, 143 S. Ct. at 2052. This is relevant since, “the right of an out-of-state corporation to do business in another State is based on the dormant Commerce Clause, it stands to reason that this doctrine may also limit a State’s authority to condition that right.” Id. He doubles down on this view by stating, “there is a good prospect that Pennsylvania’s assertion of jurisdiction here—over an out-of-state company in a suit brought by an out-of-state plaintiff on claims wholly unrelated to Pennsylvania—violates the Commerce Clause.” Id. at 2053.
Alito further highlights the absence of a legitimate local interest in cases where an out-of-state company is sued by an out-of-state plaintiff for claims unrelated to the forum state, casting doubt on the justification for such jurisdiction. He notes that for a law to survive Commerce Clause scrutiny under the Supreme Court’s well-established framework, the law must advance a “‘legitimate local public interest’” and the burdens must not be “‘clearly excessive in relation to the putative local benefits.’” Id. at 2054 (citing South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018)). With this framework in mind, Alito found it difficult to, “identify any legitimate local interest that is advanced by requiring an out-of-state company to defend a suit brought by an out-of-state plaintiff on claims wholly unconnected to the forum State.” See Mallory, 143 S. Ct. at 2054. (Citations omitted)
The Mallory decision has far-reaching implications for corporate litigation and due process considerations in Pennsylvania, and potentially beyond. It signals that states can enforce consent to jurisdiction through registration requirements, allowing legal actions with limited connection to the state’s activities. The practical impact that this ruling could have may not reveal itself for several years. It would take multiple states, all implementing statutes with similar jurisdictional consent and registration requirements for business, to begin to see how corporations react to the ruling on a broader scale. We could also see a future challenge based on Justice Alito’s dicta in Mallory. A successful argument using the Commerce Clause to challenge Pennsylvania’s registration law could force a change in the Commonwealth’s statute.