Supreme Court Revisits the Extent Due Process Permits Businesses to be Subject to Personal Jurisdiction Before Out-of-State Courts
June 28, 2023
By: Stephen B. Stern
In Mallory v. Norfolk Southern Railway, Co., No. 21-1168, 600 U.S. ____ (2023), the United State Supreme Court revisited the extent the Due Process Clause permits businesses to be subject to personal jurisdiction before courts from another state. In doing so, the Court reaffirmed existing principles that recognize when a business entity voluntarily submits to the jurisdiction of an out-of-state court.
In Mallory, Robert Mallory worked as a freight car mechanic for Norfolk Southern for nearly 20 years. His duties included spraying boxcar pipes with asbestos, handling chemicals, and demolishing car interiors that allegedly contained carcinogens. He initially worked in Ohio, and then worked in Virginia. He left the company, moved to Pennsylvania, and ultimately returned to Virginia. Mallory later developed cancer and filed a lawsuit against Norfolk Southern in Pennsylvania state court. Norfolk Southern contended that Pennsylvania courts could not assert personal jurisdiction over the company under the Due Process Clause of the Fourteenth Amendment because Mallory never worked for the company in Pennsylvania, Mallory returned to residing in Virginia by the time he filed his lawsuit, the company was incorporated in Virginia, and the company’s principal place of business also was located in Virginia. In response, Mallory noted that Norfolk Southern had substantial operations in Pennsylvania, where it managed more than 2,000 miles of track, operated eleven rail yards, and ran three locomotive repair shops. Mallory also noted that Norfolk Southern registered to do business in Pennsylvania based on its “regular, systematic, [and] extensive” operations in Pennsylvania. The Pennsylvania state court agreed with Norfolk Southern and held that it could not assert personal jurisdiction over the company. Mallory then sought relief before the Supreme Court.
The Supreme Court began its analysis by noting that this issue had already been decided by the Court in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917), and it proceeded to summarize that case. In Pennsylvania Fire, Pennsylvania Fire Insurance Company of Philadelphia (“Pennsylvania Fire”) executed a contract in Colorado to insure a smelter located near the town of Cripple Creek, which was owned by Gold Issue Mining & Milling Company (“Gold Issue”), a company incorporated in Arizona. When the smelter was destroyed and Pennsylvania Fire refused to pay for the loss under the insurance policy, Gold Issue sued Pennsylvania Fire in Missouri, not Pennsylvania, Colorado, or Arizona. Pennsylvania Fire objected to personal jurisdiction before the Missouri state court, claiming it did not have sufficient connections to the state. The Missouri Supreme Court rejected Pennsylvania Fire’s argument on multiple grounds, including the fact that Missouri had enacted a statute that required any out of state insurer “desiring to transact any business” in the State of Missouri to appoint a state official to serve as the company’s registered agent for service of process and that the company accept service on that individual. The United States Supreme Court agreed with the Missouri Supreme Court, finding that there was “no doubt” that Pennsylvania Fire could be sued in Missouri by an out-of-state plaintiff on an out-of-state contract because, based on the statute, Pennsylvania Fire “had agreed to accept service of process in Missouri on any suit as a condition of doing business there.”
The Court then compared the instant case to the Pennsylvania Fire case. The Court noted that Pennsylvania enacted a law similar to the one that was at issue in Pennsylvania Fire in that an out-of-state corporation “may not do business in this Commonwealth [of Pennsylvania] until it registers with” the Department of State and the registration process requires the corporation to identify an “office” it will “continuously maintain” in Pennsylvania. The Supreme Court further noted that, by completing the registration, pursuant to the statute, the out-of-state corporation “shall enjoy the same rights and privileges as a domestic entity and shall be subject to the same liabilities, restrictions, duties and penalties . . . imposed on domestic entities.” Moreover, the Supreme Court noted that, under the Pennsylvania statute, Pennsylvania state courts shall be permitted to “exercise general personal jurisdiction” over registered foreign corporations. Because Norfolk Southern had complied with the requirements of this foreign corporation registration statute, and based on Court precedent that found such statutes did not violate due process, the Court concluded that Norfolk Southern was subject to personal jurisdiction before the Pennsylvania state courts and the Pennsylvania Supreme Court erred in affirming the dismissal of the lawsuit on personal jurisdiction grounds.
Norfolk Southern further argued that the Court’s decision in Pennsylvania Fire should be overruled, contending that the foundation for such an outcome was established in the Court’s decision in International Shoe Co. v. Washington, 326 U.S. 310 (1945). In rejecting this argument, the Court summarized its earlier decision in International Shoe, and found that Norfolk Southern misread and misapplied the analysis in International Shoe.
The Court then proceeded to rebut Norfolk Southern’s claim that allowing Mallory’s suit to proceed in Pennsylvania would be “unfair.” In this regard, the Court noted that, in 2017, when Mallory first filed suit, Norfolk Southern had been registered to do business in Pennsylvania for many years. In doing so, Norfolk Southern established an office for receiving service of process pursuant to a statute that gave the company the right to do business in Pennsylvania “in return for agreeing to answer any suit against it.” The Court found the company “had taken full advantage of its opportunity to do business in the Commonwealth” of Pennsylvania, even “boasting” about its presence in Pennsylvania. The Court further found that, at the time of Mallory’s lawsuit, Norfolk Southern employed approximately 5,000 people in Pennsylvania, maintained more than 2,400 miles of track in Pennsylvania, operated a 70-acre locomotive shop in Pennsylvania (which was the largest shop of its kind in North America), and proclaimed itself a “proud part of ‘the Pennsylvania Community.’” Given these and other factual connections between Norfolk Southern and Pennsylvania, the Court seemed incredulous that Norfolk Southern contended that allowing Mallory’s suit to proceed in Pennsylvania conflicted with notions of “fair play and substantial justice.”
The Supreme Court, however, did acknowledge some merit to one of Norfolk Southern’s alternative arguments – that being the Due Process Clause prohibits one state from infringing on the sovereignty of another state through exorbitant claims of personal jurisdiction. While the Court acknowledged this legitimate concern, the Court noted those cases have not arisen where an out-of-state defendant had submitted to suits in the forum state, as Norfolk Southern had done here.
Lastly, Norfolk Southern argued that each of its connections with the Commonwealth of Pennsylvania were “meaningless formalities.” As with Norfolk Southern’s other arguments, the Court rejected this one too, noting that, if it took this argument seriously, it would require undoing not only Pennsylvania Fire, but also “a legion of precedents that attach jurisdictional consequences to what some might dismiss as mere formalities.” To this end, the Court noted that parties can “specially” appear to contest personal jurisdiction, but a party that forgets to designate a special appearance can lose that defense. Other examples cited by the Court that result in a party submitting to personal jurisdiction before an out-of-state court include failing to comply with certain pretrial orders, signing a contract with a forum selection clause, and accepting an in-state benefit with jurisdictional strings attached.
The Supreme Court’s decision in Mallory is significant in that it is a reminder that the Due Process Clause has been read broadly to allow parties to submit to personal jurisdiction before out-of-state courts in a variety of manners. In this case, when a company registered to do business in a state as a condition to doing business in that state and agreed it may be sued in that state, there was nothing unfair about requiring the company to defend all sorts of suits in that jurisdiction, including a lawsuit where the underlying suit did not have any or had very limited connections with the forum state. With that said, the Court did not address the forum non conveniens doctrine, which constitutes a separate and independent ground for challenging venue in a court where the lawsuit has limited connections to the forum state.