U.S. Supreme Court Changes Jurisdictional Landscape in Holding that Consent-by-Registration Laws Suffice to Allow General Personal Jurisdiction over Corporate Defendants

U.S. Supreme Court Rejects Challenge to Pennsylvania’s Corporate Consent-by-Registration Statute, Allowing Suits Against Foreign Companies Whether Arising from Acts in Pennsylvania or Elsewhere

The U.S. Supreme Court on June 27 in Mallory v. Norfolk Southern Railway Co., Case No. 21-1168 (2023) affirmed a statute that grants state courts general personal jurisdiction over out-of-state companies registered to do business in the state, even when an alleged injury occurred elsewhere, by virtue of registration alone.  The Court rejected an out-of-state railway company’s Fourteenth Amendment Due Process challenge to Pennsylvania’s consent-by-registration statute.  For a company registered as a foreign corporation in Pennsylvania, this is now the equivalent of being headquartered there, and that company may be hauled into court in Pennsylvania for any suit, whether the suit arises from acts in Pennsylvania or anywhere else in the country. 

Expected Impact on Corporate Clients

We expect there to be an immediate impact on corporate clients with presences in consent-by-registration states, with filings based solely on the fact that the corporation is registered to do business in the state.  Presently, Pennsylvania and Georgia have consent-by-registration laws for out-of-state corporations that have been upheld.  We will be watching to see whether other state legislatures amend their corporate registration statutes to impose consent to jurisdiction by way of registration. 

1917 Precedent Upheld as Basis for Opinion

The Court in Mallory held that its century-old decision in Pennsylvania Fire Insurance v. Gold Issue Mining, 243 U.S. 93 (1917) – which allowed a Pennsylvania insurer to be sued in Missouri by an out-of-state plaintiff on an out-of-state contract – remains controlling precedent.  The Court reasoned that Pennsylvania’s law, like the Missouri law upheld in Pennsylvania Fire, explicitly provides that registration to conduct business as an out-of-state corporation allows state courts to exercise general personal jurisdiction over an out-of-state corporation as if it were a domestic corporation. 

Factual Background and Statutory Scheme

Virginia resident Robert Mallory sued his former employer, Norfolk Southern, after being diagnosed with cancer that he attributed to his work as a freight-car mechanic in Ohio and Virginia.  Norfolk Southern, incorporated and headquartered in Virginia, claimed that a Pennsylvania court’s exercise of personal jurisdiction over it would violate the Due Process Clause of the Fourteenth Amendment.  Mr. Mallory pointed to Norfolk Southern’s corporate registration and presence in Pennsylvania, including that the company manages over 2,000 miles of track, operates 11 rail yards, and runs 3 locomotive repair shops in the Commonwealth. 

Pennsylvania law provides that a foreign corporation may not conduct business in the Commonwealth until it registers with the Pennsylvania Department of Business.  15 Pa. Cons. Stat. §411(a).  Pennsylvania’s long-arm statute allows Pennsylvania courts to exercise general personal jurisdiction over foreign corporations that are registered in Pennsylvania on “any cause” in the Commonwealth’s courts.  42 Pa. Cons. Stat. §5301(b).

Jurisdiction Held to be Appropriate Based on Corporate Registration

The Pennsylvania Supreme Court held that this statutory scheme violates the Due Process Clause because it grants general personal jurisdiction over foreign corporations without an affiliation that is so continuous and systematic as to render the foreign corporation essentially at home in Pennsylvania, and because compliance with Pennsylvania’s mandatory registration requirement does not constitute voluntary consent.

In vacating the Pennsylvania Supreme Court’s judgment and remanding the case, the Court held that Pennsylvania Fire remains the law and that jurisdiction was appropriate over Norfolk Southern.  The Court leaned heavily on its 1917 precedent for the proposition that statutes requiring corporate “consent” to jurisdiction do not violate the Due Process Clause of the Fourteenth Amendment.  The Court reasoned that a Certificate of Authority to do business within the Commonwealth confers benefits and burdens shared by domestic corporations, including amenability to suit in state court on any claim regardless of how much business a company actually conducts in Pennsylvania. 

Intervening Jurisdictional Decisions

The Supreme Court found that the Pennsylvania Supreme Court improperly concluded that intervening decisions implicitly had overruled Pennsylvania Fire.  Specifically, Norfolk Southern had argued that International Shoe, 326 U.S. 310 (1945), and others undermined Pennsylvania Fire.  The Court disagreed, stating:

All International Shoe did was stake out an additional road to jurisdiction over out-of-state corporations . . . . Pennsylvania Fire held that an out-of-state corporation that has consented to in-state suits in order to do business in the forum is susceptible to suit there.  International Shoe held that an out-of-state corporation that has not consented to in-state suits may also be susceptible to claims in the forum state based on “the quality and nature if its activity” in the forum.

The Court also rejected Norfolk Southern’s argument that requiring companies to face suits in Pennsylvania would violate the “fair play and substantial justice” principle in International Shoe, pointing to Norfolk Southern’s tracks crisscrossing Pennsylvania, the freight tonnage it moved, and its many facilities in the Commonwealth.  The plurality specifically held that Pennsylvania Fire (holding that an out-of-state corporation that has consented to in-state suits to do business in a forum is susceptible to suit there) and International Shoe (holding that an out-of-state corporation that has not consented to in-state suits may be susceptible to claims in the forum State based on the quality and nature of its activity in the forum) “sit comfortably side by side.” 

Auto-Jurisdiction Based on Corporate Registration

Until Mallory, general personal jurisdiction over a corporation could be found in two very distinct places:  (1) the state of a company’s headquarters, and (2) the state of a company’s incorporation.  Mallory now also will allow a corporation to be hauled into court in any state in which it has consented to jurisdiction.  It is very clear now that state statutes explicitly requiring a company to submit to state court jurisdiction are viable and constitutional, thus creating auto-jurisdiction for any and all lawsuits where such statutes exist, regardless of where the actual basis for a suit arises or the residency of the plaintiff.

Immediate and Potential Practical Impacts of Decision

What do we make of states that simply require a company to have a registered agent of service?  Is that enough to create automatic general personal jurisdiction?  The Court did not answer that question directly, but based on its heavy reliance on Pennsylvania Fire, it appears the Court may venture there in the future.  The practical and immediate impact of this opinion is all but certain – plaintiffs will view it as a license to forum-shop in favorable jurisdictions with little actual connection to a venue, likely resulting in a near-term increase in forum shopping and challenges to general personal jurisdiction.

Of additional concern is the Court’s repeated citation to facts regarding Norfolk Southern’s continuous and expansive business presence in Pennsylvania as justification for the fairness of making it open to suit in the Commonwealth.  Is this a glimpse at the majority’s future plans to extend general personal jurisdiction over all corporations in any state in which those companies choose to do business?  The Court made the point several times that Norfolk Southern has taken full advantage of the business opportunities that Pennsylvania has to offer as if it were a domestic corporation and thus must also suffer the burdens of a domestic corporation.  In the modern world of extensive e-commerce, one must wonder whether a future court may hold simply that by selling products online a company has consented to jurisdiction in any place where someone may access the internet.

The future of corporate personal jurisdiction is now unclear.  This will undoubtedly lead to rampant forum shopping by plaintiffs, with plaintiffs bringing suits in states with jurisdictional consent statutes where the state’s laws are favorable to plaintiffs.  Product liability and toxic tort defendants will be at significant risk of being sued in courts with plaintiff-friendly rules on issues like apportionment of liability, expert witness qualifications, and causation burdens of proof, regardless of that forum’s actual relationship to the underlying facts of a case.  This decision will increase the unpredictability of doing business across state borders.  Companies may start to think long and hard about registering an agent for service in a state with a jurisdictional consent statute or even do business there at all, with impacts on the economic health of the state.

Moreover, Mallory may leave the door open for state courts to determine that registration is a significant – perhaps even dispositive – part of any “purposeful availment” determination for specific personal jurisdiction, even if not general jurisdiction as in this case.

Prior Related Posts

For our prior posts on this case, please see Personal Jurisdiction: Open Season on Forum Shopping? and Supreme Court of Pennsylvania to Address Whether Registration of Out-of-State Businesses Creates General Jurisdiction | Environmental and Toxic Tort Defense Insight (ettdefenseinsight.com).

Rhode Island Superior Court Finds Limited Discovery Insufficient to Waive Personal Jurisdiction, Reaffirms Importance of Minimum Contacts

Since the U.S. Supreme Court’s decision  in Daimler AG v. Bauman (2014) 134 S.Ct. 746, personal jurisdiction has quickly become a critical issue for asbestos defendants nationally. Perhaps because asbestos cases involve dozens of parties from multiple states, and are often commenced in jurisdictions far from where the exposures occurred, personal jurisdiction has quickly become a “first line” defense.  When and how this defense may be employed, however, is evolving, with Rhode Island being one of the most recent jurisdictions to address these issues in Harold Wayne Murray and Janice M. Murray v. 3M Company, et al., C.A. No. PC-16-0151 (R.I. Super October 13, 2016, Alice B. Gibney, J.).

In the wake of  Bazor v. Abex Corporation et al., C.A. No. PC-10-3965 (R.I. Super. May 2, 2016),  the Superior Court of Rhode Island answered the “when and how” questions by issuing an instructive ruling on what a defendant must do to preserve its right to contest jurisdiction.  The court held that a defense counsel’s “active conduct constitute[d] forfeiture of the defense of lack of personal jurisdiction.”  Although the defendant in Bazor forfeited its jurisdictional defense, the court nonetheless analyzed its underlying personal jurisdiction argument, holding that the moving defendant did not have sufficient minimum contacts to exercise specific or general jurisdiction over the defendant or its predecessor.  The court’s analysis therefore addressed two issues: 1) What must a defendant do to preserve a personal jurisdiction defense; and 2) What are the sufficient minimum contacts Rhode Island must have in order do exercise jurisdiction?

First, in regard to preservation of a personal jurisdiction defense, the court clarified its ruling in Bazor.  In Murray, the plaintiff served his complaint on defendant on January 29, 2016.  Defendant acted promptly and filed a motion to dismiss on February 29, 2016.  Though defendant’s counsel participated in four days of depositions prior to filing its motion, the court nonetheless found that defendant’s counsel’s participation in an exigent deposition was insufficient to constitute “forfeiture” of a motion to dismiss based on lack of personal jurisdiction.

Looking to federal jurisprudence for guidance, the court noted that it must examine (1) “any delay in the defendant’s assertion [of the 12(b)(6) defense] and the nature of said delay,” as well as (2) “the nature and extent of a defendant’s conduct prior to raising the motion to dismiss.”  The court further held that the first factor could be met by as little as four months’ delay; but reasoned that the second factor weighed more heavily than the mere passage of time.  The court held that the analysis under the second factor “requires proof that defendant’s conduct was inconsistent with defendant’s assertion that the court lacked personal jurisdiction over them.”  (internal citation and quotation omitted).  The level of participation, therefore, appears to be the deciding factor in cases like Bazor and Murray.  Notably, the court found that “Defendant’s participation in discovery was limited and reasonable,” and defendant’s post-filing participation in an additional eleven (11) deposition days did not amount to forfeiture of the lack of personal jurisdiction defense.  Notwithstanding the above, the court did not establish a “bright line” rule to precisely outline the necessary amount of participation required to forfeit a jurisdictional defense.  At most, the court established “[d]elays as short as four (4) months can constitute forfeiture,” however, one-month delays with limited participation in discovery will not.

Although Murray provides more guidance than Bazor, it is not entirely clear where this decision leaves litigants who want to participate in early discovery.  While the Murray decision assuages some fears that participating in any discovery will result in inadvertent forfeiture of a jurisdictional defense, there remains uncertainty of where on the timetable the line crosses from limited and reasonable discovery to potential forfeiture.  Ultimately, the lesson of Murray may be that the defense counsel should file its motion to dismiss timely; i.e. within one-month after being served.  Thereafter, it appears that defense counsel should limit its participation in discovery and timely pursue adjudication of the motion to dismiss.

The court also ruled on the underlying personal jurisdiction argument.  In doing so, the court addressed whether the defendant had sufficient minimum contacts with the forum enabling it to properly exercise specific or general jurisdiction. See Daimler AG v. Bauman, 134 S. Ct. 746, 754 (2014). When faced with the decision as to whether to assert specific jurisdiction over a party, the Rhode Island Supreme Court has employed a two part test:  1) does the cause of action arise out of the defendant’s contacts with Rhode Island; and if so, 2) whether any relationship among the defendant, forum, and the litigation exists.”

In employing this test in Murray, the superior court concluded it did not have a basis to assert specific jurisdiction over the defendant because “the cause of action does not arise out of Defendants’ contacts with Rhode Island.”  Moreover, plaintiff did not reside in Rhode Island and the cause of action was not based on an occurrence in Rhode Island.  Finally, there was no connection between the moving defendant’s Rhode Island based clients and the current cause of action.  Therefore, the court found that it could not assert specific jurisdiction over the defendant.

The court likewise determined that general jurisdiction did not exist.  In making this finding, the court noted that defendant was incorporated in Virginia, with is principal place of business in Ohio; its officers and executive employees were always located solely in Ohio; it has no offices or employees in Rhode Island; and it did not own or lease any property, sell products, nor has it ever registered to conduct business in Rhode Island.  Although the court found that defendant earned approximately one-tenth percent of its total annual net sales from Rhode Island, the totality of the evidence “cannot suggest that [defendant was] virtually at home in the forum state for the purposes of general jurisdiction.”  (internal citation and quotation omitted).

Ultimately, the Murray court’s holding is welcome news for defendants needing to engage in limited discovery to evaluate a motion to dismiss on personal jurisdiction grounds.  In addition, the court made clear that “minimum contacts” means what it says, and a defendant with de minimis sales in the state should not be deemed “at home” there.

 

Criminal Prosecution and “Restitution” in Toxic Tort Cases?

As they are wont to do, the voters in the State of California in 2008 passed an initiative amending the state constitution. The admirable purpose was to ensure that victims of crimes, who suffered pecuniary loss as a result of a crime would have a right to monetary “restitution” from the criminal this will be implemented in all the types of correctional facilities. There is now a plethora of statutes and regulations governing who may seek restitution in California, in what amount and under what circumstances (see California Government Code section 13959 et seq).

Numerous other states have their own statutory schemes providing for similar rights, and working with specialized lawyers like David Mirsky could help bring resolution for cases happening in these states. Indeed, there are lawyers you can find on the internet who proclaim their expertise in obtaining restitution for victims.

You might ask what that has to do with toxic torts? But think of all the statutes and regulations that make toxic spills, releases or dumping a crime. As an example of how this constitutional amendment might impact a toxic case in California, consider our recent experience in Santa Clara County, CA.

A client was in the business of selling, and sometimes delivering, chemicals for public swimming pools. One on occasion, the unfortunate happened: the wrong chemical was placed in the wrong tank and a cloud of potentially hazardous gas was released at the pool. Numerous swim instructors and patrons of the pool were exposed. Paramedics, ambulances, fire trucks, police vehicles, and even TV news helicopters were soon on the scene.

Though to our knowledge none of the exposed people suffered anything more than transitory discomfort, the District Attorney elected to pursue a criminal prosecution against the deliverer of the chemicals.

California’s Health and Safety Code section 42400.1(a) makes it a criminal misdemeanor to cause a “negligent emission of air contaminants” under certain circumstances:

Any person who negligently emits an air contaminant in violation of any provisions of this part or any rule, regulation, permit or order of the state board or of a district pertaining to emission regulations or limitations is guilty of a misdemeanor and is punishable by a fine of not more than twenty-five thousand dollars ($25,000), or imprisonment in a county jail for not more than nine months, or by both that fine and imprisonment.

The chemical delivery man was arrested, he and his corporate employer were prosecuted and pled nolo contendere to the criminal charges.

Pursuant to California Penal Code section 1191.2, the Probation Department and the District Attorney undertook to ensure that all the victims were provided information regarding their rights, including the right to seek monetary restitution. The Probation Department is directed to contact each victim for which it has a mailing address. Curiously, the Court of Appeal of California has held that this language is “directory” as opposed to “mandatory,” so that the Department has some latitude in deciding when to issue such notice (People v. Superior Court (1984) 154 Cal.App.3d 319.) Several victims did provide information supporting such claims for pecuniary losses and the court ordered restitution to be made.

This process did not include or even contemplate the filing of a civil complaint. There was no formal discovery and certainly no depositions. No records were subpoenaed, and no sworn testimony was heard. There was no trial, though there was a hearing before the court when it considered adopting the recommendations of the Probation Dept. for orders requiring restitution.

The number of questions and issues proceedings like these may raise in any subsequent civil case for damages is daunting. Certainly one has to think of res judicata or collateral estoppel. And does insurance coverage play a role in paying the restitution or any part of it? The answers to these questions will vary depending on the jurisdictions, statutes and insurance policies that are at play in any given case. We were frankly very surprised to learn that there was going to be a criminal prosecution in connection with our swimming pool chemical mishap case and an order for restitution entered. Defense counsel should be cognizant of the possibility for criminal prosecution affecting the disposition of cases involving purportedly hazardous chemical exposures.

Since Mesothelioma Uncertain to Occur from Asbestos Exposure, Washington Court of Appeals Affirms Summary Judgment for Plaintiff’s Former Employer

Last year’s decision of the Washington Supreme Court in Walston v. Boeing, 181 Wn.2d 391, 334 P.3d 519 (2014), affirmed the narrow scope of the state’s statutory exception from worker’s compensation pre-emption – a plaintiff must prove an employer’s deliberate intention to cause his injury to avoid pre-emption and file a civil lawsuit for tort damages in excess of worker’s compensation benefits. In Kalahar v. Alcoa, Appeal No. 72635-8-1 (August 24, 2015) (unpublished), the plaintiff tried an end-run around Walston which, if adopted, would have rendered pre-emption illusory and opened employers up to civil liability in myriad circumstances. Instead, the Court of Appeals saw through the attempt to circumvent Walston and reaffirmed that the deliberate injury exception to workers compensation immunity did not apply as a matter of law because – citing the plaintiff’s own medical experts – there was no evidence that the employer knew asbestos exposure was certain to cause compensable injury to the plaintiff.

Plaintiff John Kalahar worked at the defendant’s aluminum smelter plant in Wenatchee, Washington in the 1960s and early 1970s. Mr. Kalahar and his wife sued his former employer in 2014 after he was diagnosed with mesothelioma, a form of lung cancer generally associated with asbestos exposure. Under the Washington Industrial Insurance Act, employees injured in the course and scope of their employment are generally limited to the recovery of workers compensation benefits without proof of fault, while employers receive immunity from civil suits by workers. However, plaintiffs argued here for application of the statute’s narrow exception allowing an employee to sue an employer in tort for a work-related injury which results “from the deliberate intention of his or her employer to produce such injury.” RCW 51.24.020. The trial court granted the defendant employer’s motion for summary judgment based on its lack of actual knowledge that (1) the plaintiff was certain to develop mesothelioma and (2) the company willfully disregarded such knowledge.

Applying the Washington Supreme Court’s recent decision in Walston, the Court of Appeals upheld summary judgment for the former employer. In Walston, the Supreme Court held an employer’s knowledge that asbestos exposure to its employees may cause an asbestos-related disease does not establish a “deliberate” injury because asbestos exposure is not certain to cause mesothelioma and thus the employer cannot have actual knowledge that compensable injury was certain to occur. Walston rejected as insufficient the testimony offered by plaintiff’s expert Dr. Arnold Brody that asbestos exposure would cause changes at the cellular level, because the claimed compensable injury was mesothelioma, not cellular changes. The Supreme Court also relied on testimony by plaintiff’s expert Dr. Andrew Churg admitting that asbestos exposure is not certain to cause mesothelioma or any other disease. The Kalahars used the same experts (Dr. Brody and Dr. Churg) as the plaintiffs had in Walston and could not demonstrate the certainty that Mr. Kalahar would actually develop mesothelioma more than forty years after he left the defendant’s employment.

The Court of Appeals in Kalahar rejected the plaintiffs’ attempt to distinguish Walston. The Kalahars attempted to argue that – unlike in the Walston case – Mr. Kalahar had shown immediate symptoms from asbestos exposure demonstrated by coughing, sneezing, and skin irritation. But the Court of Appeals held that Walston reached its holding because asbestos exposure is not certain to cause disease regardless of whether contemporaneous physical symptoms existed:

The Kalahars attempt to distinguish Walston based on their evidence of Kalahar’s contemporaneous physical symptoms claiming that none existed in Walston. But, the Walston court ultimately reached its conclusion by reasoning that asbestos exposure is not certain to cause mesothelioma or any other disease – not because Walston failed to provide evidence of physical injury – contemporaneous or delayed. 181 Wn.2d at 397. (“[Asbestos exposure] does cause a risk of disease, but as we have previously held, that is insufficient to meet the [applicable] standard.”). Like the expert in Walston, the Kalahars’ expert admitted that asbestos exposure, at any level, is never certain to cause mesothelioma or any other disease. We are bound by the Supreme Court’s decision in Walston. Therefore, we conclude that the Kalahars have not raised a genuine issue of material fact as to whether Alcoa had actual knowledge that the injury—mesothelioma – was certain to occur.

The Court of Appeals further rejected the plaintiff’s argument that Walston effectively “removes occupational diseases from the intentional injury exception” by noting that prior Supreme Court precedent have required that an employer knew with certainty that the injury would occur and that “the legislature has not taken issue” with those cases.

Seattle Partners Mark Tuvim and Kevin Craig handled the appeal, with Tuvim arguing the case before the Court of Appeals. The Kalahars have thirty days to file an expected petition for review to the Washington Supreme Court.