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Unsettled Jurisdiction: Does a Foreign Corp. Consent To Be Sued in Pa. When It Registers To Do Business in State?

Client Alert

Authors: A. Christopher Young and Kaitlin Meola

7/23/2018
Unsettled Jurisdiction: Does a Foreign Corp. Consent To Be Sued in Pa. When It Registers To Do Business in State?

Two Pennsylvania courts recently issued significant, and contradictory, opinions regarding general jurisdiction over foreign corporations. On May 30, Judge Arnold New of the Philadelphia Court of Common Pleas held that a Pennsylvania court cannot exercise jurisdiction over a foreign corporation merely because it registered to do business in the Commonwealth. See Mallory v. Norfolk Southern Ry. Co., No. 1961 8-2 EDA. On June 28, the Pennsylvania Superior Court held to the contrary — that foreign corporations consent to general jurisdiction by virtue of their registration to do business in Pennsylvania. See Webb-Benjamin, LLC v. Int'l Rug Grp., 2018 Pa. Super. LEXIS 742. Judge New’s decision in Mallory is on appeal and is likely to be overturned if the Superior Court follows its Webb-Benjamin reasoning. A further appeal could give the Commonwealth’s highest court an opportunity to decide whether registering to do business in Pennsylvania equates to consenting to the general jurisdiction of Pennsylvania courts.

Mallory Decision

Judge New’s Mallory opinion falls in line with recent decisions from the U.S. Supreme Court and other state supreme courts limiting state courts’ ability to exercise personal jurisdiction over foreign corporations. In Mallory, plaintiff Robert Mallory, a resident of Virginia, sued his former employer, Norfolk Southern, under the Federal Employers’ Liability Act. Mallory, who worked outside Pennsylvania, claimed that he developed colon cancer due to his alleged workplace exposure to carcinogens. Norfolk Southern challenged the court’s general jurisdiction over the company because the conduct at issue occurred outside Pennsylvania and because the company was incorporated and had its principal place of business in Virginia. Mallory contended that Norfolk Southern consented to the jurisdiction of the Pennsylvania courts when it registered to do business in the state.

Judge New disagreed. He held that exercising jurisdiction over a foreign corporation merely because it is registered to do business in the Commonwealth violates the Due Process Clause of the Fourteenth Amendment. The court identified the parameters of state courts’ exercise of jurisdiction over corporations set forth by the U.S. Supreme Court in Daimler AG v. Bauman, 134 S. Ct. 746 (2014), and Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011), which prevent the exercise of jurisdiction over foreign corporations based solely on the fact that they do business in a given state if that business is not “so continuous and systematic as to render [the corporation] essentially at home” in the state.

The court in Mallory identified three circumstances under which a Pennsylvania court could exercise general personal jurisdiction over a corporation absent “continuous and systematic” contacts within the state: (1) if the corporation is incorporated in Pennsylvania; (2) if the corporation has its principal place of business in Pennsylvania; or (3) if the corporation consents to the exercise of jurisdiction. Because Norfolk Southern was neither incorporated nor headquartered in Pennsylvania, the court focused its analysis on the third prong. Describing a foreign corporation’s decision to comply with Pennsylvania law as a ‘Hobson’s choice’ between registering to do business or not doing business at all within the state, Judge New rejected Mallory’s suggestion that registering was a voluntary act constituting legal consent to the jurisdiction of the court.

The Mallory decision is consistent with a recent trend of U.S. Supreme Court cases limiting states’ exercise of general personal jurisdiction over foreign corporations. This includes BNSF Railway Co. v. Tyrrell, 137 S. Ct. 1549 (2017), where the Supreme Court declined to find that a Montana court had general personal jurisdiction over a railroad based solely on its business activity within Montana. In BNSF, the Court held that, for a state to have general jurisdiction over a corporation when the corporation is neither incorporated nor headquartered in that state, the corporation’s activities in the state must be so continuous and systematic as to render it at home. Simply conducting business there is not enough.

By rejecting registration to do business as a basis for consent to jurisdiction, the Mallory decision heeds the Supreme Court’s directive in Daimler, Goodyear and BNSF that “a state cannot claim general jurisdiction over every corporation doing business within its borders.” At the same time, the Mallory decision is at odds with the Third Circuit Court of Appeals in Bane v. Netlink, Inc., 925 F.2d 637, 640 (3d Cir. 1991), which held that, by registering to do business in Pennsylvania, foreign corporations consent to general personal jurisdiction in Pennsylvania.

Webb-Benjamin Decision

On the heels of Judge New’s opinion in Mallory, the Pennsylvania Superior Court took up the same question in Webb-Benjamin, LLC v. International Rug Group, but it came to a different conclusion. Like the plaintiff in Mallory, the plaintiff in Webb-Benjamin based the exercise of general jurisdiction over a foreign corporation on its status as a corporation registered to do business in Pennsylvania. But in Webb-Benjamin, the Superior Court accepted at face value that registering to do business in the state equals consent.

While both Mallory and Webb-Benjamin relied on Daimler, the Superior Court took a narrower view, noting that Daimler “makes a clear distinction between jurisdiction by consent, and the method of establishing personal jurisdiction that forms the basis of [Daimler’s] analysis and holding.” Ultimately, the Superior Court concluded that “Daimler does not eliminate consent as a method of obtaining personal jurisdiction.” Thus, according to the Superior Court in Webb-Benjamin, nothing in Daimler prevents courts from imputing jurisdiction on the basis of consent by registration.

At this point, the law is best stated by the Superior Court in Webb-Benjamin until it rules on the Mallory appeal. The appellant’s brief in Mallory is due to be filed on August 10, 2018. This means a decision will not be handed down until October or November 2018, at the earliest. Whether the Superior Court’s face value acceptance of the consent provision as a valid basis for jurisdiction in Webb-Benjamin will endure may depend on whether the Superior Court and ultimately the Supreme Court address the issue critical to Judge New’s opinion: whether consent by registration is a voluntary act such that exercising jurisdiction on that basis comports with Due Process. Until then, consent by registration remains a valid means of exercising general jurisdiction over a foreign company in Pennsylvania.

Christopher Young is a member of the firm’s Trial and Dispute Resolution Practice Group, a seasoned and trial-ready team of advocates who help clients analyze and solve their most emergent and complex problems through negotiation, arbitration and litigation. Kaitlin Meola, a 2018 summer associate in Pepper's Philadelphia office, contributed to the research and drafting of this alert. She is not admitted to practice law.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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