Corporate Jurisdiction: A Discussion of Due Process and the Dormant Commerce Clause

Introduction

On June 27, 2023, The United States Supreme Court ruled to expand and reinforce state authority over registered corporations within a state’s respective jurisdiction. Per Mallory v. Norfolk Southern Railway Co. (2023), even if a lawsuit pertains to events occurring outside the state in which a corporation primarily operates, a corporation may be sued in said different state. As an attempt to determine the constitutionality of Pennsylvania state law under the Fourteenth Amendment’s Due Process Clause, the case’s ruling concerns Pennsylvania’s contested Consent-by-Registration law. Consent by registration requires that corporations must agree to be sued in the state in which they are conducting business, prior to beginning operations. Thus, as was the case for Norfolk Southern Railway Co., even just as much as a railway built going through any territory in the state would obligate the firm to appear in the state’s court. [1]

Robert Mallory, a freight-car mechanic for Norfolk Southern, first filed suit in Pennsylvania, alleging exposure to carcinogens during his tenure. Having been diagnosed with cancer soon after his retirement, Mallory cited the Federal Employers’ Liability Act and claimed that work conditions at the firm were a direct cause of his illness. [2] However, Norfolk Southern opposed the case on the grounds of jurisdiction. During his time at Norfolk Southern, Mallory did not live or work in Pennsylvania, but rather was located in Virginia and Ohio. Thus, a suit in Pennsylvania would lack due process—or fair and efficient court processes. The Pennsylvania Supreme Court eventually ruled in favor of Norfolk Southern, but Mallory soon appealed the decision to the Supreme Court of the United States (SCOTUS), highlighting the conflict between Pennsylvania’s Consent-by-Registration law and the 14th Amendment's due process clause. [3] Despite SCOTUS’s decision to consider the Consent-by-Registration law constitutional, this decision does not actually substantively expand an individual's geographic bounds for suing a corporation yet; Consent-by-Registration poses a potential violation of the commerce clause and may not be valid for long.  

The Context of Personal and Corporate Jurisdiction

The court’s interpretation of the Fourteenth Amendment’s Due Process Clause is at the core of determining the constitutionality of Pennsylvania’s consent-by-registration law. Due process requires that parties cannot be compelled to litigate in a jurisdiction to which they have no physical or commercial connection, as this places undue burdens upon them. For instance, the party may need to travel extensively to reach court or may not be familiar with the location’s respective legal standards. Due process is also meant to protect parties against foreigner bias, whereby the party is forced to litigate as an outside entity and thus may face unfair bias during legal proceedings. [4]

Originally, the premise of personal jurisdiction was straightforward: lawsuits could be brought either “with respect to a piece of property” or “against individuals.” [5] Hence,  determining appropriate jurisdiction was relatively simple. Lawsuits concerning real property were handled in the locality where the property was situated. In contrast, lawsuits against individuals were considered personal and transitory, permitting legal action in any jurisdiction where the individual could be located. [6] However, as corporate legal structures further developed, the notion of personal jurisdiction became more complex because most believe corporations ought to be treated differently than individuals. Application of the "tag" jurisdiction rules, where a corporation can be sued or ‘tagged’ in the locale of a physical office, faced challenges as many corporations, unlike individuals, do not have a physical presence that can be served. [7] Consequently, several states, such as Pennsylvania, introduced consent-by-registration legislation to regulate corporate personal jurisdiction and establish proper compliance with these laws, a prerequisite for conducting business within the state. State by state, these laws varied in form, subsequently leading to a lack of uniformity in approaching corporate jurisdiction.

Relevant Precedents

In 1917, the Supreme Court ruled in the case of Gold Issue Milling Co. v. Pennsylvania Fire Insurance Company of Philadelphia (1917). The case involved Pennsylvania Fire, a company chartered in Pennsylvania, and Gold Issue Mining, a company chartered in Arizona and insuring a mining project in Colorado. When a fire destroyed the mining facility, Gold Issue Mining sought payment from Pennsylvania Fire, leading to a lawsuit in Missouri where Pennsylvania Fire was registered to do business, despite the absence of any relevant connections between the case and the state. The Missouri Supreme Court issued a ruling in favor of Gold Issue Mining, a decision that was ultimately upheld by the U.S. Supreme Court. The Court asserted that since Pennsylvania Fire complied with Missouri's corporate registration regulations, it had effectively consented to jurisdiction in the state. [9] In the subsequent 1945 case, International Shoe Co. v. Washington (1945), the Supreme Court further defined corporate jurisdiction: a corporation could be subject to jurisdiction in any state where it engaged in a consistent and systematic level of commercial activity or where the specific actions upon which a lawsuit was based occurred. This case introduced the distinction between general and specific jurisdiction, whereby general jurisdiction was utilized thus giving the court authority to hear any type of case involving a particular defendant regardless of where the events giving rise to the lawsuit occurred. [10] Over time, courts interpreted International Shoe as superseding the precedent set by Pennsylvania Fire, which allowed states to exert general jurisdiction over out-of-state corporate defendants. Against this legal backdrop, the legal dispute between Robert Mallory and Norfolk Southern Railway Co. gained momentum.

Mallory v. Norfolk Southern Railway

Relying on the aforementioned precedent in International Shoe Co. v. Washington, Norfolk Southern Railway argued that there was absolutely “no connection” between Pennsylvania and either parties of the lawsuit. [11] Mr. Mallory was a Virginia resident and his tenure at the railway was in Ohio. Thus, according to Norfolk Southern, due process exonerated them from needing to be legally active in any capacity in Pennsylvania–they were protected by personal jurisdiction. Yet, Mallory maintained that Norfolk Southern was liable in Pennsylvania as it “manages over 2,000 miles of track, operates 11 rail yards, and runs three locomotive repair shops in Pennsylvania.'' [12] As was decided in Issue Milling Co. v. Pennsylvania Fire Insurance Company of Philadelphia, Mallory believed the presence of Norfolk’s Pennsylvanian rail tracks constitutes Pennsylvania's corporate jurisdiction. The Supreme Court additionally validated the decision in Issue Milling Co. v. Pennsylvania Fire Insurance Company of Philadelphia, effectively granting constitutionality of consent-by-registration clauses with regards to due process; that said, SCOTUS’s opinion only ruled with regards to due process and it is possible that these clauses will be further probed for constitutionality with regards to “The Dormant Commerce Clause.'' [13] In his concurrence to the Court’s ruling, Justice Alito illuminated that though not in violation of due process, consent-by-registration may discriminate against interstate commerce due to the undue burden of out-of-state legal transaction costs imposed on corporations. So, proponents of individual rights over corporate rights cannot celebrate yet; it is likely that courts have not yet completely addressed Pennsyvlvania’s consent-by-registration.

Justice Alito suggests that, “presumably, Norfolk Southern can renew the challenge on remand.” [14] Under the dormant commerce clause, “courts may measure state legislation against Commerce Clause values even in the absence of congressional regulation.” [15] Thus, as Congress has yet to address state-level consent-by-registration issues, SCOTUS has authority. Originally, Norfolk Southern Railway had brought the claim that consent-by-registration poses a threat to interstate commerce to the Pennsylvania Supreme Court; however, they did not address it in their decision. Would Norfolk Southern’s challenge stand a chance?

Jurisdiction-via-registration poses a serious threat to commerce when “imposed by a state lacking any connection to the suit” on the grounds that it “impermissibly discriminates against interstate commerce.” [16] The Granholm v. Heald (2005) case serves as a poignant illustration of the negative impact of discriminatory regulations on commerce and the violation of the dormant commerce clause. In this case, New York and Michigan allowed in-state wineries to sell directly to consumers while requiring out-of-state wineries, such as those from Pennsylvania, to go through less lucrative wholesaler-retailer channels. The Supreme Court deemed this preferential treatment discriminatory and against the interstate commerce clause, as it hindered Pennsylvania wineries from competing on an equal footing with their New York counterparts. Such discriminatory laws, whether through facial discrimination or discriminatory effects, disadvantage out-of-state businesses, preventing them from competing fairly in the market. Even if these laws do not dissuade companies from operating in a state, the Supreme Court holds that discriminatory effects, regardless of their magnitude, are impermissible under the dormant commerce clause. [17]

 The Supreme Court, as seen in cases like Hughes v. Oklahoma (1979) and Maine v. Taylor (1986), scrutinizes the justifications for discriminatory laws. For instance, in Hughes, Oklahoma's attempt to conserve its minnow population was rejected because less discriminatory alternatives existed, highlighting the Court's insistence on choosing the least discriminatory means to achieve a legitimate state interest. [18] Conversely, in Maine v. Taylor, the Court found Maine's prohibition against importing certain baitfish justified, as the state demonstrated a lack of satisfactory alternatives to protect its unique fisheries from parasites. Certainly, an alternative to Pennsylvania’s unique consent-by-registration would be to abide in line with the majority of US states which require either the individual or the corporation to have direct ties to the locale in which the suit takes place. [19]  Ultimately, the Court is committed to evaluating the legitimacy of state interests and the necessity of discriminatory measures while maintaining an unwavering stance against laws that unduly burden interstate commerce; consent-by-registration may soon be overturned.

Conclusion

The Mallory decision ultimately extirpates the notion that a company can only be sued in their home state or wherever there are sufficient ties to the company and the facts of the case. States such as Pennsylvania with pre-existing consent-by-registration laws comply with the Due Process Clause of the Fourteenth Amendment, according to the Supreme Court. Yet, compliance with the Fourteenth Amendment may not be enough; if consent-by-registration is unconstitutional by the commerce clause, then we will see further litigation around the permissibility of these policies.

Practically speaking, as a result of the Mallory decision, businesses might have to protect themselves in distant jurisdictions that are favorable to plaintiffs. [20] Businesses must be ready for potential challenges in various state courts, particularly in Pennsylvania and Georgia, where plaintiffs might engage in forum shopping, seeking favorable jurisdictions for their cases. [21] With the removal of certain jurisdictional hurdles, companies may face increased logistical difficulties, such as obtaining witnesses and evidence from distant locations. This could significantly impact litigation, budgeting, and case valuation. Additionally, the implications of the Mallory case extend to transnational litigation in Pennsylvania, where foreign corporations, even without a general jurisdiction presence, could be subjected to legal proceedings based on their business registrations. The Biden Administration has expressed concerns about potential damage to international relationships if U.S. courts continue to hear cases involving foreign corporations. [22]

In response to the Mallory ruling, businesses with operations across multiple states need to stay informed and vigilant about any changes to corporate registration statutes in various jurisdictions. Despite these concerns, the situation may not be permanent. Pennsylvania, for instance, could revise its corporate-registration statute to eliminate the consent-to-jurisdiction requirement, if the policy is deemed unconstitutional by means of the dormant commerce clause. Considering the potential strain on judicial resources and dockets, there might be a push for reform from various interest groups during Pennsylvania's next legislative session.

Edited by Anusha Merchant

[1] Mallory v. Norfolk Southern Railway Co., 1, 3, (U.S. 2022).

[2] Mallory v. Norfolk Southern Railway Co., 1, 3, (U.S. 2022).

[3]“Supreme Court of the United States. Mallory v. Norfolk Southern Railway ...” Thomson Reuters, West Law. Accessed December 28, 2023. https://fingfx.thomsonreuters.com/gfx/legaldocs/klpygarkmpg/frankel-malloryvnorfolksouthern--supremecourtopinion.pdf.

[4]“Due Process and Personal Jurisdiction: Doctrine and Practice.” Legal Information Institute. Accessed December 27, 2023. https://www.law.cornell.edu/constitution-conan/amendment-5/due-process-and-personal-jurisdiction-doctrine-and-practice.

[5] “Mallory v. Norfolk Southern Railway - a Crossroads of Consent and Corporate Jurisdiction.” JD Supra. Accessed December 27, 2023. https://www.jdsupra.com/legalnews/mallory-v-norfolk-southern-railway-a-9893889/.

[6] JD Supra, Mallory v. Norfolk Southern Railway - a Crossroads of Consent and Corporate Jurisdiction.”

[7] “Transient Jurisdiction.” Law Dictionary, LexRoll. Accessed December 27, 2023. https://encyclopedia.lexroll.com/encyclopedia/transient-jurisdiction/#:~:text=Transient%20jurisdiction%2C%20also%20referred%20to,Supreme%20Court%20in%20Burnham%20v.

[8] Keaton, Brandon. “U.S. Supreme Court Upholds State’s Ability to Obtain General Personal Jurisdiction over out-of-State Corporations Using ‘Consent to Registration’ Statutes.” Kane Russell Coleman Logan PC, August 9, 2023. https://www.krcl.com/insights/u-s-supreme-court-upholds-state-s-ability-to-obtain-general-personal-jurisdiction-over-out-of-state-corporations-using-consent-to-registration-statutes#:~:text=Pennsylvania%27s%20consent%20by%20registration%20approach,and%2For%20%22at%20home%22.

[9] Mallory v. Norfolk Southern Railway Co., 1, 10, (U.S. 2022).

[10] “International Shoe Co. v. State of Washington, Office of Unemployment Compensation and Placement et Al..” Legal Information Institute. Accessed December 27, 2023. https://www.law.cornell.edu/supremecourt/text/326/310.

[11] Mallory v. Norfolk Southern Railway Co., 1, 8, (U.S. 2022).

[12] Mallory v. Norfolk Southern Railway Co., 1, 8, (U.S. 2022).

[13] Mallory v. Norfolk Southern Railway Co., 1, 8, (U.S. 2022).

[14]“Dormant Commerce Power: Overview.” Legal Information Institute. Accessed December 27, 2023. https://www.law.cornell.edu/constitution-conan/article-1/section-8/clause-3/dormant-commerce-power-overview#:~:text=This%20aspect%20of%20the%20Commerce,of%20its%20power%20is%20dormant.

[15] Sachs, Stephen E. “‘Dormant Commerce’ and Corporate Powers.” Perma.cc, June 28, 2023. https://perma.cc/Z4MB-3JPS.

[16] Preis, John F. The Dormant Commerce Clause As a Limit on Personal Jurisdiction. Accessed December 27, 2023. https://ilr.law.uiowa.edu/sites/ilr.law.uiowa.edu/files/2022-10/The%20Dormant%20Commerce%20Clause%20As%20a%20Limit%20on%20Personal%20Jurisdiction%20.pdf.

[17] Preis, “The Dormant Commerce Clause As a Limit on Personal Jurisdiction.”

[18] Preis, “The Dormant Commerce Clause As a Limit on Personal Jurisdiction.”

[19] “Supreme Court Decides Important Dormant Commerce Clause Case.” National League of Cities, June 15, 2023. https://www.nlc.org/article/2023/06/15/supreme-court-decides-important-dormant-commerce-clause-case/. 

[20] Dixon, Calin. “Welcome to Pennsylvania? U.S. Supreme Court Upholds Consent-to-Jurisdiction-by-Registration Law.” Davis+Gilbert LLP, July 19, 2023. https://www.dglaw.com/welcome-to-pennsylvania-u-s-supreme-court-upholds-consent-to-jurisdiction-by-registration-law/.

[21] “Mallory v. Norfolk Southern Railway-a Crossroads of Consent and Corporate Jurisdiction.” JD Supra. Accessed December 27, 2023. https://www.jdsupra.com/legalnews/mallory-v-norfolk-southern-railway-a-9893889/.

[22] JD Supra, “Mallory v. Norfolk Southern Railway-a Crossroads of Consent and Corporate Jurisdiction.”