June 28, 2023

You May Have Already Agreed to Be Sued in Pennsylvania and Georgia: The Supreme Court Makes Jurisdiction Easier For State-Court Plaintiffs But Hints at a New Defense

The US Supreme Court has held that companies can be forced, as a condition of doing business in a state, to agree to be sued in that state’s courts — even if the lawsuit has nothing to do with that state. In its June 27, 2023, decision in Mallory v. Norfolk Southern Railway Co., a splintered Supreme Court held that the Due Process Clause does not protect companies against state laws providing that registration to do business equals consent to suit in state court. As the dissenters noted, this is a potential “sea change” in the law governing where a company may be sued, possibly making the constitutional limits on personal jurisdiction “obsolete.”

At present, only two states have imposed such a consent-by-registration condition, and the swing Justice in this case strongly hinted that another part of the Constitution, the Commerce Clause, may provide companies with additional protection. But unless state law changes, out-of-state companies that have registered to do business in Pennsylvania or Georgia should be prepared to be sued there and to litigate this additional constitutional defense.

Background: General and Specific Personal Jurisdiction

The Supreme Court has long held that the Constitution’s Due Process Clause protects defendants against being forced to litigate in state court without having meaningful contact with that state. The Court has outlined two basic ways that a state court can acquire jurisdiction: general jurisdiction and specific jurisdiction.

General jurisdiction, as the name suggests, allows the defendant to be sued for anything, whether or not it is connected to the forum. But the Supreme Court has held that a defendant is subject to general jurisdiction only where it is “at home” — for a business, its state of incorporation or its principal place of business (headquarters).

Specific jurisdiction allows defendants to be sued in places relevant to the controversy. So, for example, a Maine company with limited operations in Arizona cannot be sued in Arizona for just anything; among other things, the suit must relate to the company’s contacts with Arizona.

The Mallory case involved another way of obtaining general jurisdiction: by compelling consent. Personal jurisdiction limits are waivable: a state court can hear a case if the defendant does not object. State law commonly requires out-of-state companies to file a registration in order to do business in that state. And in two states, Pennsylvania and Georgia, the state registration laws provide that any company registering to do business in that state is consenting to general jurisdiction in the courts of that state.

In the Mallory case, a tort action against a railroad company with substantial operations in Pennsylvania, the Pennsylvania Supreme Court held that the suit could not proceed. It ruled that the Due Process Clause prohibited the state Legislature from extracting that sort of consent to general jurisdiction from Norfolk Southern as a condition of doing business. The Georgia Supreme Court had disagreed and upheld its state consent-by-registration statute against a due process challenge. The US Supreme Court granted review to resolve the conflict.

Holding: States Can Require Out-of-State Companies to Consent to Jurisdiction

By a 5-4 vote, the Supreme Court sided with the plaintiff and held that the Due Process Clause allows the suit to proceed in Pennsylvania state court. But the Court vacated, rather than reversing, and remanded for the state courts to consider an additional constitutional defense that the Supreme Court did not address.

Justice Neil Gorsuch wrote an opinion that, in part, represented the opinion of a five-Justice majority. The remainder garnered only four votes and therefore may not be binding precedent, as discussed below.

In the majority portions of the opinion, the Court held that a century-old precedent compelled it to conclude that consent-by-registration statutes are consistent with due process. In that 1917 decision, Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co., the Court had upheld a similar law in Missouri and held that it did not violate due process.

The Court held that the Pennsylvania Fire precedent was dispositive and declined to overrule it, as Norfolk Southern had requested. It observed that Norfolk Southern had registered to do business in Pennsylvania, had in fact done considerable business there, had maintained a registered agent there for service of process, and could read the express provision of the Pennsylvania law stating that registration equals consent to general jurisdiction. The Due Process Clause requires no more, the Court held.

In the remainder of Justice Gorsuch’s opinion, for only four Justices, he rejected arguments that this rule is unfair, or inconsistent with the fairness-based rationale of other decisions on personal jurisdiction. He emphasized that Norfolk Southern had voluntarily registered to do business. And he noted that Norfolk Southern’s operations in the state were more than sufficient for it to expect at least some litigation in state court. A concurrence by Justice Ketanji Brown Jackson (who also joined Justice Gorsuch’s opinion in full) echoed the point that personal-jurisdiction limitations are waivable.

The Court noted that the railroad defendant had an additional defense, under the Commerce Clause, but that the Supreme Court was not deciding that issue.

The Controlling Concurrence: A New Way to Resist Consent-by-Registration Laws

Justice Samuel Alito joined the portions of the Court’s decision applying Pennsylvania Fire, but no more — thus depriving the remainder of Justice Gorsuch’s opinion of majority support. He emphasized that the Court was not deciding the Commerce Clause issue, and he noted that “the federalism concerns that this case presents fall more naturally within the scope of the Commerce Clause.” He explained at some length that, in his view, “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.”

Briefly, in his view, a state consent-by-registration law imposes a serious and unjustified burden on interstate commerce. The Constitution gives Congress primary power to regulate interstate commerce, and states cannot discriminate against interstate commerce or substantially burden it. Justice Alito explained why a law like Pennsylvania’s “injects intolerable unpredictability into doing business across state borders.”

Four-Justice Dissent: Registration Is Not Valid Consent

A four-Justice dissent, authored by Justice Amy Coney Barrett and joined by Chief Justice John Roberts, Justice Elena Kagan, and Justice Brett Kavanaugh, would have upheld Norfolk Southern’s due process defense and rejected the “sea change” that the Mallory decision represented. The dissent did not view the Pennsylvania Fire decision as controlling. And the dissent warned of the significant potential impact of the new holding: “If States take up the Court’s invitation to manipulate jurisdiction,” the due process limits on general jurisdiction “will be obsolete, and, at least for corporations, specific jurisdiction will be superfluous.”

Implications for Business Defendants: Prepare for New Battles

The Supreme Court’s decision applies only where a state has chosen to extract consent to jurisdiction as a condition of doing business. Thus far, most states have rejected that approach; indeed, some state courts have also declined plaintiffs’ requests to read their existing registration statutes as requiring consent to jurisdiction. The Supreme Court’s Mallory decision may embolden some new states to follow the lead of Pennsylvania and Georgia and adopt consent-by-registration laws, if they want to open their state courts to unrelated litigation. To be sure, there could be fair-notice objections to applying a new statute (or a reinterpretation of an old one) to companies that have already registered to do business. But going forward, in jurisdictions where the consequences of registration are clear, the federal Due Process Clause will not restrict these laws.

Companies that have registered to do business in Pennsylvania and Georgia need to understand that they are now subject to personal jurisdiction in those states’ courts (though they may be able to remove some such suits to federal court). Although Georgia’s law is less clear on its face than Pennsylvania’s, the Georgia Supreme Court held that its own precedent dating to 1992 resolves any fair-notice considerations. Accordingly, the potential for general jurisdiction in state court will remain unless those states change their laws. The Georgia Supreme Court hinted in its most recent decision that the Georgia legislature might want to make such changes, and the Supreme Court’s decision may encourage it to do so. Absent changes in Georgia and Pennsylvania law, companies that do not intend to do business in those states may want to reconsider whether to keep their registrations on file.

Companies that are deemed to have consented to jurisdiction by registering, and are sued in a state court as a result, should raise the Commerce Clause defense that Justice Alito suggested. The business community may even consider bringing affirmative litigation against Pennsylvania and Georgia to raise the Commerce Clause issue proactively.