Legal Alert

PA Federal Court Nixes Out-of-State Business Entities' Supposed “Consent” to General Personal Jurisdiction as Unconstitutional

June 11, 2019

In a decision that should have a ripple effect in Pennsylvania state and federal courts, the U.S. District Court for the Eastern District of Pennsylvania held in a June 6, 2019, opinion that “the Pennsylvania statutory scheme that requires foreign [i.e., out-of-state] corporations to register to do business and, therefore, to consent to general jurisdiction in Pennsylvania” is unconstitutional. In so holding, the court granted a defendant company’s motion to be dismissed from the case for lack of personal jurisdiction.

The basic factual framework of the case, Sullivan v. A. W. Chesterton, Inc., et al., is not unique. A products liability plaintiff lodged claims against several defendants, many of which were not “at home” in Pennsylvania because they were incorporated elsewhere and maintained their principal places of business elsewhere. Because those out-of-state defendants were not “at home” in Pennsylvania, they should not have been subjected to the exercise of general jurisdiction there. See, e.g., Daimler AG v. Bauman, 571 U.S. 117, 137 (2014).

Pennsylvania courts have, however, historically held to the theory that the mere act of business registration subjects out-of-state business entities to general personal jurisdiction. That theory arises from 15 Pa.C.S. § 411 and 42 Pa.C.S. § 5301, under which: (1) a foreign business entity “may not do business in [Pennsylvania] until it registers” with the Pennsylvania Department of State; and (2) the act of business registration “shall constitute a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction....”

In Sullivan, that statutory scheme was challenged as violating the Due Process Clause of the 14th Amendment to the U.S. Constitution. The court agreed that the statutory scheme was unconstitutional. District Judge Eduardo Robreno recognized that the U.S. Supreme Court’s 2014 decision in Daimler AG was a “sea change in...general jurisdiction,” under which a corporation is “at home” only where it is incorporated or maintains its principal place of business. Accordingly, “a mandatory statutory regime purporting to confer consent to general jurisdiction in exchange for the ability to legally do business in a particular state” cannot stand.

The court rejected the plaintiff’s argument that the act of business registration fit into a narrow exception under Daimler AG, under which an out-of-state corporation might “consent” to the exercise of jurisdiction. The court recognized that the Pennsylvania statutory scheme leaves out-of-state corporations “with a Hobson’s choice: [to] consent to general personal jurisdiction or be denied the benefits of doing business in Pennsylvania.” Given those “choices,” out-of-state business entities had no choice at all, and they could not be said to voluntarily “consent” to the exercise of general jurisdiction. “Given the fundamental importance of the ability to engage in interstate commerce, . . . the mandatory nature of the statutory consent extracted by the Pa. Statutory Scheme is . . . functionally involuntary. As a result, it is not true consent at all.”

The court also rejected the assertion that it was bound by the Third Circuit’s 1991 decision in Bane v. Netlink, 925 F.2d 637, in which the appellate court upheld Pennsylvania’s consent-by-business-registration scheme. Judge Robreno concluded that the jurisdictional theory on which Bane was premised “has been superseded by a newer standard”—the standard articulated by the U.S. Supreme Court in Daimler AG.

Judge Robreno’s decision could have far-reaching effects. Earlier this year, the Pennsylvania Superior Court agreed to hold en banc argument in Murray v. American LaFrance, LLC, in which it is confronted with the same constitutional question. It is likely that the defendant/appellee in that case (or the amici curiae that also filed briefs) will bring the well-reasoned decision in Sullivan to the Superior Court’s attention.

Ballard Spahr's Product Liability and Mass Tort Group actively monitors the evolution of personal jurisdiction jurisprudence on behalf of its manufacturing clients. The Group has a track record of success state and federal courts across the country, and in coordinating controversies toward early and favorable resolutions.

Copyright © 2019 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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