Pennsylvania Federal Court Declares the Exercise of Registration-Based General Jurisdiction Unconstitutional

Introduction:

Companies residing outside of Pennsylvania received good news late last week when a federal district court ruled that complying with Pennsylvania’s business-registration statute does not comprise consenting to general jurisdiction there. The ruling was a welcome departure from recent decisions by other state and federal trial courts in Pennsylvania, which have held that registration is tantamount to consent. Last week’s opinion serves as a reminder that this area of law is still developing and susceptible to change, reinforces the importance of objecting to personal jurisdiction when appropriate (Pennsylvania is a use-it-or-lose-it jurisdiction), and provides additional, well-reasoned authority for rejecting the jurisdiction-by-registration argument once and for all.

Background:

In Daimler AG v. Bauman, the U.S. Supreme Court ruled that a formulation of personal jurisdiction that permitted a state to assert general jurisdiction over a foreign corporation based on the corporation doing business in the state is “unacceptably grasping” and unconstitutional.[1] Since then, barring exceptional circumstances, a corporation may be subject to general jurisdiction only in the state in which it is incorporated or the state in which it maintains its principal place of business.[2]

Nevertheless, some plaintiffs persisted. Unable to quit their forum-shopping habits, these plaintiffs sought to blunt Daimler’s impact by invoking a century-old argument to justify the exercise of general jurisdiction over foreign corporations—registration-based consent. Noting that states may exercise jurisdiction over a foreign corporation without violating the Due Process Clause if the corporation consented to the state doing so, these plaintiffs argue that foreign corporations, by complying with states’ mandatory business-registration laws, effectively consent to being subject to general jurisdiction in those states.

This consent-by-registration argument was met with skepticism in most of the country. Some courts questioned the legitimacy of construing a company’s registration as consent.[3] Other courts suggested that a law extracting consent to general jurisdiction in exchange for the privilege of doing business in the state might violate the Commerce Clause.[4] Still other courts recognized that such a statutory scheme was inherently irreconcilable with the Supreme Court’s holding and reasoning in Daimler.[5] After all, “[i]f mere registration and the accompanying appointment of an in-state agent … sufficed to confer general jurisdiction by implicit consent, every corporation would be subject to general jurisdiction in every state in which it registered, and Daimler’s ruling would be robbed of meaning by a backdoor thief.”[6]

But while most courts strode forward into the post-Daimler future, courts in Pennsylvania stubbornly clung to the pre-Daimler past. State and federal courts in Pennsylvania have continued to rule post-Daimler that a foreign company’s compliance with Pennsylvania’s registration statute constitutes that company’s consent to Pennsylvania exercising general jurisdiction over it. These courts justify their departure from the mainstream by arguing Pennsylvania’s registration statute is special because, unlike the registration statutes of other states, Pennsylvania’s registration statute purportedly “spells out the jurisdictional consequences associated with registering to do business.”[7]

As a result of the outlier position adopted by Pennsylvania courts, the constitutional defects in the consent-by-registration theory, and the lack of settled guidance from Pennsylvania’s appellate courts,[8] Pennsylvania trial courts have been seized by uncertainty. Plaintiffs continue to sue foreign companies for claims arising elsewhere, defendants continue objecting to Pennsylvania’s jurisdiction, and all parties wait to see where the chips will fall. Judge Robreno’s opinion in In re Asbestos Prods. Liab. Litig. (No. VI)[9]—in which he dismantled the consent-by-registration argument brick by brick and cleared a path for other courts to follow suit—therefore is a welcome contribution to the current body of law on this issue. 

Case Summary:

In re Asbestos Prods. involved claims that exposure to asbestos from the defendants’ products led the plaintiff to develop, and ultimately succumb to, cancer. Plaintiffs filed a product-liability wrongful-death action in the Philadelphia County Court of Common Pleas, after which the case was removed to the U.S. District Court for the Eastern District of Pennsylvania. There, a defendant moved to dismiss for a lack of personal jurisdiction, explaining Pennsylvania lacked general jurisdiction over it because it is incorporated and maintains its principal place of business in Virginia, and that Pennsylvania lacked specific jurisdiction over it because the plaintiff’s alleged exposure attributable to the defendant occurred in Louisiana.[10] Plaintiffs conceded the defendant was headquartered and incorporated in Virginia and that the alleged exposure occurred outside Pennsylvania, but argued the defendant had consented to Pennsylvania’s general jurisdiction because it and its predecessors in interest had, at various times, registered to do business there.[11]

Judge Robreno began his analysis by accepting plaintiffs’ assertion that Pennsylvania’s statutory scheme authorized Pennsylvania courts to exercise general jurisdiction over a foreign company that has registered. He also accepted that Pennsylvania’s “unique” statutory scheme “provides explicitly that by the act of registering to do business in Pennsylvania, the foreign corporation consents to general jurisdiction.”[12] But there he balked. “[C]onsent is only valid if it is given both knowingly and voluntarily,” Judge Robreno reasoned, and a statutory scheme that extracts “consent” in exchange for mandated compliance with the state’s registration statute is “functionally involuntary.”[13] The ability to engage in interstate commerce is of “fundamental importance” to today’s corporation, so forcing a company to either register and therefore consent to general jurisdiction or to not register and be denied the opportunity to do business in the state presents an illusory, Hobson’s choice.[14] Such “consent,” Judge Robreno concluded, “is not true consent at all.”[15]

And that is just one problem with the consent-by-registration argument. Construing the Pennsylvania statutory scheme to permit consent by registration leads to an unconstitutional result.[16] States “cannot condition a benefit generally available to others in the state on the surrender of a constitutional right.”[17] Yet Pennsylvania’s statutory scheme does exactly that. To gain lawful access to the benefits of doing business in Pennsylvania (a benefit generally available to others), the law requires foreign corporations surrender their due-process protections (a constitutional right). Judge Robreno consequently held that “the Pennsylvania statutory scheme violates the unconstitutional conditions doctrine,” and therefore is invalid for this reason too.[18]

Judge Robreno also offered a third reason why Pennsylvania courts cannot assert general jurisdiction over a foreign corporation based on its registration—Daimler and the Due Process Clause. The Supreme Court in Daimler emphasized that a corporation may be subject to general jurisdiction only in the limited forum(s) in which it could be found “at home.”[19] Noting that a corporation “can scarcely be deemed at home in all of” the places it operates, the Supreme Court admonished that a formulation of general jurisdiction that would subject a corporation to general jurisdiction wherever the corporation transacts business “is unacceptably grasping” and unconstitutional.[20] The consent-by-registration theory attempts to end-run Daimler by characterizing the basis for exercising jurisdiction as statutorily extracted “consent” rather than as the corporate defendant’s in-state activity. But shedding one label for another does not alter the effect Daimler proscribes—namely, that companies would be subject to jurisdiction everywhere they operated, regardless of whether they are at home there. Because Daimler “firmly closed” the door to general jurisdiction outside of the state(s) in which a corporation is at home, a consent-by-registration statutory scheme irreconcilably conflicts with Daimler’s mandate, and is unconstitutional.[21]

Conclusion:

Why should you care? If you are a foreign corporation that registered to do business in Pennsylvania, the first lesson offered by In re Asbestos Prods. is not to give up. The law in this area continues to develop rapidly and remains far from settled. It is important that foreign defendants continue to raise and maintain this defense in a timely manner to ensure that, when the law takes a favorable turn, the defense is not found to have been waived.

In addition to underscoring the importance of objecting to the improper assertion of jurisdiction, In re Asbestos Prods. offers a roadmap for some of the key arguments companies should raise where appropriate.[22] Registration is not consent to general jurisdiction. If Pennsylvania’s statutory scheme does extract consent in exchange for the right to do business in Pennsylvania, it violates the unconstitutional-conditions doctrine. And the theory of consent by registration irreconcilably conflicts with Daimler’s description of defendants’ due-process protections.


NOTES:

[1] 571 U.S. 117, 137-138 (2014).

[2] Id.

[3] E.g., Mallory v. Norfolk Southern Ry., No. 1961, 2018 WL 3025283, at *3 (Pa. Com. Pl. May 30, 2018) (appeal pending).

[4] E.g., In re Syngenta Ag MIR 162 Corn Litig., MDL No. 2591, 2016 WL 2866166, at *5-6 (D. Kan. May 17, 2016) (relying on Davis v. Farmers’ Co-op. Equity Co., 262 U.S. 312 (1923)).

[5] E.g., Genuine Parts Co. v. Cepec, 137 A.3d 123 (Del. 2016); Brown v. Lockheed Martin Corp., 814 F.3d 619 (2d Cir. 2016).

[6] Brown, 814 F.3d at 640.

[7] See, e.g., Gorton v. Air & Liquid Sys. Corp., 303 F. Supp. 3d 278, 296 (W.D. Pa. 2018) (quoting Tonya J. Monestier, Registration Statutes, General Jurisdiction, and the Fallacy of Consent, 36 Cardozo L. Rev. 1343, 1368, (2015)).

[8] In late September 2018, a three-judge panel of the Superior Court of Pennsylvania ruled that Pennsylvania courts may exercise general jurisdiction over a foreign corporation based on the company’s compliance with Pennsylvania’s registration statute. A few months later, the Superior Court withdrew its opinion and granted re-argument en banc. That re-argument has yet to be scheduled.

[9] — F. Supp. 3d —, 2019 WL 2399738 (E.D. Pa. Jun. 6, 2019).

[10] Id. at *1.

[11] Id. at *1, *2.

[12] Id. at *5.

[13] Id. at *5, 8 (emphasis added).

[14] Id. at *8.

[15] Id.

[16] Id.

[17] Id. at *8 (citing Koontz v. St. Johns River Water Mgmt. Dist., 570 U.S. 595, 604 (2013).

[18] Id.

[19] Daimler, 571 U.S. at 137.

[20] Id. at 137-138.

[21] In re Asbestos Prods., 2019 WL 2399738 at *9.

[22] These are only some of the arguments defendants should be raising in the appropriate circumstances. If you would like to discuss which other arguments or defenses might be appropriate, please do not hesitate to contact the article’s authors.

This client alert is not intended to be legal advice. If you have any questions, please contact Eli Granek at (215) 851-8421 (egranek@eckertseamans.com),  or Albert Bixler at (215) 851-8412 (abixler@eckertseamans.com), or any other attorney with whom you have been working.

© Eckert Seamans Cherin & Mellott, LLC, 2019, all rights reserved

 

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Authors

Eli Granek

Associate - Philadelphia

Albert G. Bixler

Member-in-Charge - Philadelphia