The U.S. Supreme Court has made a significant ruling today, June 27, 2023, stating that companies can be sued in states where they are registered to do business, regardless of how much business the company actually does there.
The decision stemmed from a case involving a Virginia man, Robert Mallory, who filed a lawsuit against his former employer, Norfolk Southern, claiming injuries from exposure to toxic chemicals in Virginia and Ohio. Although the dispute did not have any meaningful connection to Pennsylvania, Mallory wanted the case to be pursued in Pennsylvania, where Norfolk Southern was registered, arguing that the registration itself gave Pennsylvania’s courts jurisdiction over the dispute.
Companies Can Be Sued in States Other Than Where They are Headquartered
The Pennsylvania Supreme Court previously dismissed the case, deeming Pennsylvania’s long-arm statute, which granted jurisdiction over registered out-of-state corporations, to be in violation of due process rights. However, the U.S. Supreme Court, in a 5-4 majority ruling, found that Pennsylvania’s “registration by consent” laws were valid, referencing the court’s 1917 ruling in Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co. The United States Supreme Court’s majority opinion stated that Norfolk Southern had agreed to be subject to Pennsylvania’s jurisdiction by applying for a “Certificate of Authority” which provided Norfolk Southern both the benefits and burdens of a domestic Pennsylvania company, including an implicit agreement to be sued in Pennsylvania’s state courts for any claim.
Norfolk Southern argued that its consent to jurisdiction in Pennsylvania was coerced, as companies often had no choice but to register in the state if they wanted to conduct business beyond just passing through it. The railroad contended that more recent Supreme Court decisions had superseded the ruling and precedent in Pennsylvania Fire Insurance Co. However, those arguments ultimately failed.
The U.S. Supreme Court agreed to hear the case and ultimately sided with Mallory, reviving the lawsuit. The court emphasized that Norfolk Southern voluntarily registered in Pennsylvania, thereby accepting the benefits and responsibilities, including being the company being sued in Pennsylvania. The decision focused on the specific state law and facts of the case but did not address the validity of other statutory schemes.
The ruling has potential implications for companies facing any types of lawsuits, as they may now be subject to litigation in states where they are registered, regardless of where their main operations are located and irrespective of how much business the company actually does in that state. The decision raises questions about the balance between corporate accountability and the potential burden on businesses. The impact of this ruling on the broader legal landscape and international corporations will be closely observed.
The case is known as Mallory v. Norfolk Southern Railway Co. and was heard in the Supreme Court of the United States (case number 21-1168). You can read the Supreme Court’s Opinion here.
What changed for out-of-state companies being sued in Pennsylvania?
Before this ruling, it was more difficult to make an out-of-state company legally responsible for its actions in Pennsylvania. Pennsylvania courts required a sufficient connection between the company and the state to have authority over the case. This connection could include the company conducting significant business, having a physical presence, or causing harm within Pennsylvania.
To hold an out-of-state company liable in Pennsylvania, individuals had to show that the company had enough involvement in the state, such as conducting substantial business operations or causing harm there. However, this could be challenging if the company had limited connections to Pennsylvania.
Why does the Supreme Court Ruling in Mallory v. Norfolk Southern Railway Co. mean for an individual?
For Pennsylvania residents, this ruling provides an avenue to pursue legal action against out-of-state companies in their home state, even if the harm occurred elsewhere. This means that individuals who allege harm or injuries caused by these companies in other states can now bring their lawsuits in Pennsylvania courts. It expands the jurisdiction of Pennsylvania courts and potentially increases the number of cases that can be filed against out-of-state corporations, as long as they have registered in the state–even if they conduct little to no business in Pennsylvania.
What does the Ruling in Mallory v. Norfolk Southern Railway Co. mean for my business?
The important take away is to make sure that you have good small business representation. Your company should be is incorporated properly–and not in any states where you don’t plan to do business. Also, to the extent possible, our small business clients may want to update their contracts, non-competes, and other business terms and conditions with forum selection clauses that require that any lawsuit be filed in Pennsylvania. Preferably in the city or county where the business is headquartered.
At Kaminsky Law, we can help you form a business, register it appropriately, and provide you with guidance and assistance with drafting the types of contractual agreements that you might need to operate. Moreover, if your company is involved in a lawsuit or other business dispute then we can also help as small business disputes is one of our core practice areas.
If you have specific questions or would like a free consultation, call us at 215-876-0800 or fill out a contact form on our Contact Us page.