Shoe on the Other Foot? Fractured Supreme Court Blesses “Registration Jurisdiction” Statutes (Part Two)

In our Part One alert from September 2022, we reported on the potential that the Court could uphold the constitutionality of “registration jurisdiction,” whereby a businesses may be subjected to a state court’s jurisdiction merely because they registered to do business there. And that is exactly what the Court decided, through an unusual grouping of justices and accompanied by a robust dissent.

The Plurality Opinion

The plurality – comprised of Justices Neil Gorsuch, Clarence Thomas, Sonia Sotomayor, and Ketanji Brown Jackson – held that the Due Process Clause of the 14th Amendment is not violated when a business is required to consent to a state’s jurisdiction merely by registering to conduct business there. Robert Mallory sued Norfolk Southern Railroad for damages related to exposure to carcinogens. Rather than file his case where the exposure occurred (Ohio and Virginia) or where Norfolk Southern is headquartered (Virginia), Mallory instead filed in Pennsylvania where he lives. Norfolk Southern had previously registered as a business in Pennsylvania and maintained several railyards and thousands of miles of track there, but successfully convinced the Pennsylvania Supreme Court to dismiss the case on constitutional grounds because Mallory’s claims had no nexus with Pennsylvania.

On appeal to the US Supreme Court, Mallory contended that consent-to-jurisdiction statutes remain viable pursuant to Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917). Norfolk Southern, however, argued that Pennsylvania Fire is incompatible with the minimum contacts test enshrined in International Shoe Co. v. Washington, 326 U.S. 310 (1945). The Court held that International Shoe did not overrule or abrogate Pennsylvania Fire, reasoning that “[t]he two precedents sit comfortably side by side” and that Pennsylvania Fire merely “stake[d] out an additional road to jurisdiction over out-of-state corporations.” Slip op. at 17.[1] More specifically, a critical distinction exists between a company that consents to being sued in a state so it can do business and a company that never consented but is fairly subject to jurisdiction as a result of its conduct. Id. When the latter circumstances are implicated, International Shoe still controls.[2]

The Dissent

Justice Amy Coney Barrett authored a lengthy dissent which was joined by Chief Justice John Roberts, and Justices Elena Kagan and Brett Kavanaugh. The dissent lamented that the majority ignored decades of established precedent and upended the “traditional” concept of the minimum contacts test from International Shoe. Slip op., at 47 (describing how the opinion “finds a way around this settled rule”). In the dissent’s view, states are now effectively empowered to “manufacture consent” from entities that may have miniscule substantive links with a particular state but must provide consent when registering as a business there.

While Norfolk Southern’s presence in Pennsylvania is significant (5,000 employees, 2,000 miles of rail track, and around two dozen structures), the dissenting justices are clearly wary of future cases in which companies with de minimis connections to a state are nonetheless haled into its courts. For example, imagine another railroad company but one with far fewer employees, very little track, and a single office – that company may instead elect to incur greater expenses simply to avoid establishing a presence in a particular state.

Subsequent Case Expands Mallory’s Holding

The plurality opinion focused on how Pennsylvania’s business registration statute explicitly states “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,” Id. at 2030. Consequently, the opinion appeared limited to instances where a registration statute explicitly requires a business to consent to a state’s jurisdiction. However, on June 30, 2023, the US Supreme Court declined to grant review of Cooper Tire & Rubber Co. v. McCall, 312 Ga. 422 (2021), a Georgia Supreme Court decision, which upheld registration jurisdiction, even though Georgia’s business registration statute does contain any language conditioning registration upon jurisdictional consent. Rather, the Georgia Supreme Court determined that because Georgia law implicitly treated a registered foreign company as a resident of Georgia, such foreign company could, for jurisdictional purposes, be treated as if it were a Georgia company. By denying review of Cooper Tire, the Supreme Court may be signaling that states will have substantial leeway in applying their statutes to subject foreign entities to registration jurisdiction. 

Takeaways

It will take time to appreciate the full and complete impact of the Court’s opinion in Mallory. The type of language used by other states within their own business registration statutes varies widely, meaning that trial court judges across the country will spend the next few years determining Mallory’s effect in their respective states.[3] Moreover, the dissenting justices and Justice Alito will likely be on the hunt for a forthcoming case in which to consider the application of the Dormant Commerce Clause to these sorts of statutes. We will continue to monitor this area of law for any significant developments.

[1] The Court squarely addressed the impact of two relevant precedents – Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011) and Daimler AG v. Bauman, 571 U.S. 117 (2014) – which held that a business is “essentially at home” in the state where it is incorporated or operates its principal place of business. But the majority noted that in both cases, the corporate defendants never consented to being sued, which leaves Pennsylvania Fire – and Mallory’s case – distinguishable. The passing of Justice Ruth Bader Ginsburg, who wrote the Goodyear and Daimler opinions and had created and long championed the concept of “at home” jurisdiction, very likely played a role in the outcome of this case.

[2] Justice Samuel Alito concurred with the Court’s judgment but departed from the primary underlying reasoning of the plurality opinion. He wrote that although the Due Process Clause was clearly not implicated, consent-to-jurisdiction statutes like the one at issue could instead be subject to a strenuous constitutional challenge under the Dormant Commerce Clause, which prohibits states from enacting legislation which negatively impacts interstate commerce. Slip op., at 39.

[3] The Minnesota Supreme Court had previously upheld registration jurisdiction based its state’s business registration statutes. See Rykoff-Sexton, Inc. v. Am. Appraisal Assocs., Inc., 469 N.W.2d 88 (Minn. 1991). However, New York, New Mexico, Montana and Delaware’s highest courts have held that their states’ statutes did not compel foreign companies to consent to their jurisdiction. See Aybar v Aybar, 156 N.Y.S.3d 104 (2021); Chavez v. Bridgestone Americas Tire Operations, LLC, 503 P.3d 332 (N.M., 2021); DeLeon v. BNSF Railway Company, 426 P.3d (Mont., 2018); Genuine Parts Company v. Cepec, 137 A.3d 123 (Del.Supr., 2016).