The Supreme Court Expands the Cost of Doing Business: New Rules for Jurisdiction by Consent After Mallory?

Can a state require a company, as a condition of doing business in the state, to consent to being sued there for any and all claims? In Mallory v. Norfolk Southern Railway Co., 599 U.S. __ (2023), the Supreme Court concluded that such a requirement is consistent with the Fourteenth Amendment’s due process clause. Mallory opens the door to a major increase in out-of-state corporations’ exposure to suit—if states decide to walk through that door.

Background

The Due Process Clause limits courts’ authority to exercise personal jurisdiction over out-of-state defendants.  Personal jurisdiction comes in two varieties: specific and general.  A court with specific personal jurisdiction over an out-of-state defendant can only hear claims that arise from the defendant’s contacts with the state.  But a court with general personal jurisdiction can “hear any and all claims against” a defendant, regardless of whether there is a connection between the claims and the state.  Daimler AG v. Bauman, 571 U.S. 117, 127 (2014) (internal quotation marks and alterations omitted). The Supreme Court has held that for a defendant to be subject to general jurisdiction based on its contacts with a forum state, those contacts must be “so constant and pervasive as to render it essentially at home” there. Id. Barring exceptional circumstances, this “at home” standard is satisfied only where a business is incorporated or has its principal place of business.

Pennsylvania law, however, departs from this requirement. The state’s long-arm statute authorizes Pennsylvania courts to exercise “general personal jurisdiction” over any corporation that is registered with the state—which is a requirement of doing business in the state. The plaintiff in Mallory relied on this statutory scheme when he sued Norfolk Southern, a Virginia corporation, in Pennsylvania state court. Plaintiff, a former Norfolk Southern employee, is a Virginia resident who alleged that during his decades of employment, he was exposed to harmful carcinogens (partially in Virginia, but never in Pennsylvania). Although Pennsylvania had no connection to the facts underlying the suit, plaintiff argued that Norfolk Southern had consented to general jurisdiction when it registered to do business in the state.

The Pennsylvania courts disagreed, holding that the state’s law violated the Due Process Clause. The Pennsylvania Supreme Court acknowledged that at first glance, a prior Supreme Court case—Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U. S. 93 (1917)—appeared to permit this scheme. In Pennsylvania Fire, the Supreme Court upheld the constitutionality of a Missouri law that, like Pennsylvania’s, required out-of-state corporations to consent to suit in any case as a requirement of transacting business in Missouri. But according to the Pennsylvania Supreme Court, cases like Daimler—which articulated the “at home” standard—“implicitly overruled” Pennsylvania Fire by narrowing the constitutional bases on which a court could exercise general jurisdiction. Moreover, the state court concluded, Pennsylvania’s law was not a valid consent scheme, but a “compelled submission to general jurisdiction by legislative command.”

Supreme Court Decision

In a fractured opinion, the Supreme Court vacated and remanded, ruling that Pennsylvania’s consent scheme does not violate the Due Process Clause. Although five Justices agreed that the state court ruling should be vacated and remanded, Justice Gorsuch wrote for a majority of the Court only for portions of his opinion.  Justice Alito filed an opinion concurring in part and concurring in the judgment, and Justice Barrett filed a dissenting opinion for four Justices.  Justice Jackson also filed a concurring opinion.

Writing for the Court, Justice Gorsuch explained that “Pennsylvania Fire controls this case,” and that the Pennsylvania Supreme Court had “erred” in concluding that subsequent decisions had overruled that precedent. The Court admonished that if its precedent had “direct application in a case,” then “a lower court should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions”—even if that lower court “thinks the precedent is in tension with some other line of decisions.”

Applying that precedent, the Court explained that respondent Norfolk Southern had consented to general personal jurisdiction. The Court noted that the dissenting opinion believed Pennsylvania Fire did not apply because Pennsylvania law “does not use the word consent.”  The Court stated that no prior precedents “have ever imposed some sort of ‘magic words’ requirement” for consenting to personal jurisdiction.

Writing for a plurality of the Court, Justice Gorsuch rejected Norfolk Southern’s request that the Court overrule Pennsylvania Fire as inconsistent with International Shoe Co. v. Washington, 326 U.S. 310 (1945), which held that an out-of-state corporation that has not consented to in-state suit may be sued in that state only if it has sufficient connections with the state. “The two precedents,” the plurality responded, “sit comfortably side by side.” International Shoe merely “stake[d] out an additional road to jurisdiction over out-of-state corporations”; it did nothing to disrupt the longstanding rule that consent, express or implied, can independently ground personal jurisdiction.

The plurality also rejected Norfolk Southern’s appeal to fairness concerns, pointing to the vast amount of business the company did in Pennsylvania. Finally, the plurality disagreed with Norfolk Southern that its consent was a mere formality, observing that under the Court’s “precedents a variety of actions of the defendant that may seem like technicalities nonetheless can amount to a legal submission to the jurisdiction of a court.”

Justice Alito concurred in part and concurred in the judgment. He agreed that Norfolk Southern’s due-process argument was foreclosed by Pennsylvania Fire and that consent remained a separate basis for personal jurisdiction. But he believed there was “a good prospect that Pennsylvania’s assertion of jurisdiction” violated the dormant Commerce Clause, either because it discriminated against out-of-state companies or because it imposed a significant burden on interstate commerce without a legitimate local public interest. Because that argument was not before the Court, he agreed the case should be vacated and remanded (after laying out a roadmap for how a dormant Commerce Clause argument might go).

Justice Barrett, writing for the dissent, characterized the majority’s consent framework as a “clever theory” that “falls apart on inspection.” She opined that Pennsylvania’s registration statute was based on “legally implied consent,” a “fiction” that was swept away by the Court’s contacts-based test in International Shoe. Without that fiction, Pennsylvania’s notification to corporations that they would be subject to suit could not be deemed true consent. The dissent also objected to the majority’s consent framework on federalism grounds: it argued that while due-process rights are individual, Pennsylvania’s law also infringed on the sovereignty of other states by asserting jurisdiction over a case to which Pennsylvania had no connection. The dissent viewed today’s opinion as circumventing, if not dispensing with, the core holding in Daimler that companies cannot be subject to general jurisdiction in every state where they engage in substantial and continuous business.

Conclusion

Mallory represents a potentially vast increase in out-of-state corporations’ exposure to jurisdiction in unexpected places, often where jury verdicts are excessive. After the decision, states can now require companies to consent to personal jurisdiction as a condition of doing business there (even if another state has a greater interest in the underlying dispute). And while the Court’s opinion is fractured, it is clear that a majority of Justices agree that consent remains an independently sufficient ground for exercising general personal jurisdiction.

What remains unclear, however, is how many states will accept that invitation. As discussed in oral argument, laws like Pennsylvania’s may deter smaller businesses from operating in a particular state. States may conclude that those concerns outweigh any interest in providing a forum for suit.  And even if states do enact such laws, a majority of the Court may view them as invalid, between the dissent’s due-process/federalism reasoning and Justice Alito’s dormant-Commerce-Clause analysis, which is likely to be tested in the next phase of this case.