Major Victory for Out of State Businesses in PA Supreme Court Ruling

Pennsylvania Supreme Court declares jurisdictional statute unconstitutional in major victory for out-of-state businesses.

On December 22, 2021, The Pennsylvania Supreme Court issued a decision in Mallory v. Norfolk Southern Railway Company, declaring a jurisdiction-by-registration statute unconstitutional, and bringing Pennsylvania jurisdictional law in line with recent due process decisions by the United States Supreme Court and the neighboring jurisdiction of Delaware.

The Plaintiff in Mallory, a Virginia resident, filed suit in Pennsylvania against Norfolk Southern Railroad, a Virginia Corporation. The injury causing activities alleged by Plaintiff took place entirely outside of Pennsylvania – in Virginia and Ohio. The plaintiff nonetheless asserted that the Pennsylvania Courts had general jurisdiction over Norfolk under the Pennsylvania jurisdictional statute, 42 Pa.C.S. § 5301(a)(2), due to Norfolk’s prior registration to do business in the Commonwealth as a foreign corporation.

The Pennsylvania statute provides in part that “qualification as a foreign corporation” provides “a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction” over such corporation. This statute has frequently been used by out-of-state Plaintiffs to call out-of-state businesses into court in Pennsylvania, despite having no other connection with the Commonwealth. This is particularly prevalent in product liability actions, often resulting in increased expense and inconvenience to all parties.

In Mallory, Norfolk filed preliminary objections to the Plaintiff’s Complaint, seeking dismissal due to the lack of either specific or general jurisdiction, and alleging that the assertion of general jurisdiction over Norfolk in Pennsylvania would violate the company’s due process rights. Plaintiff argued that a corporation may choose to register and operate in Pennsylvania and are put on notice by statute of the effects of such registration; by registering they are thus voluntarily consenting to jurisdiction.

In reviewing the constitutionality of the jurisdictional statute, the Court looked to Daimler AG v. Bauman, 571 U.S. 117 (2014) and Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011), in which the United States Supreme Court clarified the Constitutional standard for the exercise of general personal jurisdiction over a corporation. In both Daimler and Goodyear, the Supreme Court reaffirmed that general jurisdiction as to a corporation is only proper in locations where the corporation has such “continuous and systematic” contacts that it may be considered “at home” – such as the place of incorporation or principal place of business.

The Pennsylvania Court noted that, unlike many other jurisdictions, Pennsylvania expressly conditions the privilege to do business upon consent to general jurisdiction in Pennsylvania. As such, “a foreign corporation’s registration to do business in the Commonwealth does not constitute voluntary consent to general jurisdiction but, rather, compelled submission to general jurisdiction by legislative command.” The Court further held that, by enacting the jurisdictional statute, Pennsylvania “impermissibly conditioned the privilege of doing business in Pennsylvania upon a foreign corporation’s surrender of its constitutional right to due process in violation of the protections delineated in Goodyear and Daimler”.

The Court further noted that, if Pennsylvania’s statute were found to be constitutional, all states could simply enact similar statutes, thereby rendering every national corporation subject to the general jurisdiction of every state – a result that is clearly contrary to the intent of Goodyear and Daimler. Accordingly, the Court found the Pennsylvania statutory scheme unconstitutional to the extent it is used to afford Pennsylvania courts general jurisdiction over foreign corporations that are not “at home in the Commonwealth”.

Notably, this decision does not affect Pennsylvania’s ability to exercise specific jurisdiction over an out-of-state corporation, i.e., in those claims in which the alleged injury occurred within the Commonwealth. Pennsylvania also remains restrictive as to the methods by which a defendant may raise an objection to personal jurisdiction; such an objection is deemed waived unless made by a timely preliminary objection. This can be especially troublesome in complex litigation matters in which the basis for general or specific jurisdiction, or lack thereof, may not become evident until discovery has been completed. Thus, while the Mallory decision does represent a significant step forward, defendants must remain vigilant in asserting jurisdictional defenses – or risk waiving them.

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