Corporate Registration in Pennsylvania: A Hobson’s Choice
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Key Points:
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The Pennsylvania Supreme Court’s decision in Mallory v. Norfolk Southern, 2020 WL 6375871 (Pa. Super. Oct. 30, 2020), will have a significant and long-term influence on future mass tort and product liability litigation in Pennsylvania. It will impact the ability of Pennsylvania state courts to hear cases that have no apparent connection to the Commonwealth.
A “Hobson’s choice” is often used to describe circumstances where there appears to be a choice between two options but there really is no alternative. Many legal commentators view Pennsylvania’s corporate consent law as presenting such a conundrum to non-resident corporations.
Consider this simple fact pattern: You run a small business in California manufacturing widgets. Your business is incorporated in California, and you maintain your principal place of business there. A resident of California alleges he was injured while using one of your widgets that he contends was defective, and he sues your company in Pennsylvania. You question whether your company can really be sued in Pennsylvania even though the incident has no apparent connection to the Commonwealth. As the law currently stands, the answer is yes, if your company is registered to conduct business in Pennsylvania.
Pursuant to to 15 Pa. C.S. § 411(a), a non-resident corporation is required to register with the Department of State before it is permitted to conduct business in Pennsylvania. At the same time, 42 Pa. C.S. § 5103(a) operates to equate registration with consent to general personal jurisdiction in Pennsylvania:
The existence of any of the following relationships between a person and this Commonwealth shall constitute a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction over such person . . . (2) Corporations.-- (i) Incorporation under or qualification as a foreign corporation under the laws of this Commonwealth. (ii) Consent, to the extent authorized by the consent.
Read together, the foregoing statutes present non-resident corporations with a difficult choice with seemingly no reasonable alternative: (1) register to conduct business in Pennsylvania while simultaneously consenting to general personal jurisdiction in the Commonwealth; or (2) not conducting business in Pennsylvania. That choice, however, may not have to be made for much longer as the legal landscape is rapidly changing.
On October 30, 2020, the Superior Court of Pennsylvania transferred Mallory v. Norfolk Southern, 2020 WL 6375871 (Pa. Super. Oct. 30, 2020), to the Commonwealth’s highest court. Mallory involves a Virginia resident who commenced suit in the Court of Common Pleas of Philadelphia County, Pennsylvania. The plaintiff-appellant alleged his employment with Norfolk Southern in Ohio and Virginia exposed him to harmful carcinogens, which caused him to develop cancer. Norfolk Southern is a corporation with its principal place of business located in Virginia. Norfolk Southern filed preliminary objections, arguing that it was not subject to personal jurisdiction in Pennsylvania.
The trial court sustained Norfolk Southern’s preliminary objections and dismissed the case. The court found that Pennsylvania’s statutory scheme requiring consent to jurisdiction was unconstitutional under the Due Process Clause of the Fourteenth Amendment and recent United States Supreme Court jurisprudence, including Daimler AG v. Bauman, 571 U.S. 117 (2014). In Daimler, the United States Supreme Court held that a corporate defendant can only be subject to general personal jurisdiction where it is “at home.” The Court defined “at home” as either the corporate defendant’s state of incorporation or its principal place of business. Because Norfolk Southern was neither incorporated in nor maintained its principal place of business in Pennsylvania, the Commonwealth could not exercise general personal jurisdiction over it.
On appeal, the Superior Court of Pennsylvania held that the Judiciary Code required that it transfer the case. It moved the case to the Commonwealth’s highest court as the appeal stemmed from a ruling that found a Pennsylvania statute to be “repugnant to the Constitution of the United States.”
The Supreme Court of Pennsylvania will now have to make its own choice and effectively decide the issue once and for all. It can affirm the now-controlling law in Pennsylvania, which is that 42 Pa. C.S. §5103(a) is constitutional. See Webb-Benjamin, LLC v. International Rug Group, LLC, 192 A.3d 1133 (Pa. Super. 2018). Or, it can go in the opposite direction and follow cases that have recently come out of federal courts in Pennsylvania. For instance, in In re Asbestos Prod. Liab. Litig. (No. VI), 384 F. Supp. 3d. 532, 543 (E.D. Pa. 2019), the United States District Court for the Eastern District of Pennsylvania held:
[A]bsent voluntary consent, Daimler teaches that a corporation is only subject to general jurisdiction where it is ‘at home.’ The Pa. Statutory Scheme impermissibly re-opens the door to nation-wide general jurisdiction that Daimler firmly closed. Therefore, the Court concludes that the Pa. Statutory Scheme violates the Due Process Clause and is unconstitutional.
Regardless of which way the Pennsylvania Supreme Court decides to go, its decision will have significant legal implications for foreign corporations that wish to conduct business in Pennsylvania. Will non-resident corporations continue to be faced with a Hobson’s choice or will they be free to conduct business in Pennsylvania without being concomitantly subject to general personal jurisdiction in the Commonwealth? The answer should come soon.
*Andrew is an associate in our Philadelphia, Pennsylvania office. He can be reached at (215) 575-2814 or acgoldstein@mdwcg.com.
Defense Digest, Vol. 27, No. 1, January 2021 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2021 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.