Consent or Coercion Before Supreme Court in Corporate Dispute

The US Supreme Court on Tuesday considers whether companies can be sued by customers, employees, and those alleging harm from their products in states where they aren’t based but simply registered to operate.

The question over so-called general jurisdiction presented in Mallory v. Norfolk Southern Railway Corp. tests whether states, like Pennsylvania in this case, can compel companies to consent to being sued in order to do business there. That’s long been a source of jurisdiction over corporations, but the Supreme Court in recent terms has pulled back on the places where business can be hauled into court.

Mallory is the latest case seeking to further limit the reach of state courts and halt “forum shopping” by plaintiffs seeking friendly venues for their claims. Such shopping is a particular concern for larger corporations, who often do business in all 50 states.

The consent law in question “upsets the careful balance of interstate commerce, federalism and liberty underlying those practices,” the US Chamber of Commerce said in a friend-of-the court filing with other pro-business groups. The Biden administration supports business in this case, while supporters of consent laws say individuals fighting corporations are otherwise short-changed when it comes to jurisdiction.

Virginia-Pennsylvania

Virginia resident Robert Mallory sued Norfolk Southern, one of the nation’s largest freight railroads, in Pennsylvania state court over his alleged exposure to cancer-causing toxins while working for the company in Virginia and Ohio. Norfolk Southern operates track, yards, and repair facilities in Pennsylvania but is based in Virginia.

Mallory argued the state statute is consistent with the Due Process Clause of the 14th Amendment, and that consenting to jurisdiction by registering is backed up by a century-old precedent in Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co. But the trial court tossed Mallory’s claim and the Pennsylvania Supreme Court ruled against him in December 2021, holding the statutory scheme unconstitutional.

The consent requirement is at odds with recent US Supreme Court opinions limiting the application of general jurisdiction to where a company calls home—that is where its incorporated or has its principal place of business, the state high court said. Registration to do business doesn’t constitute voluntary consent, noting that the “Hobson’s choice”—agree to be sued or get out—went too far.

Norfolk Southern told the justices in its Aug. 26 brief that the consent-by-registration law was “developed in a different era to solve a problem that no longer exists, based on a doctrinal foundation that disappeared decades ago.” It claims the Pennsylvania law amounts to coercion, not consent.

There’s no consent because there’s not a meaningful chance to withhold it, said Tanya Monestier of the University at Buffalo who also filed an amicus brief in the case in support of the rail line. In contract law, for example, “if you can show that there’s undue coercion,” said Hogan Lovells partner Sean Marotta, “you can get out of it.” Marotta joined Monestier in her brief.

People v. Corporations

Supporters of consent laws say they have a deep history rooted in the Constitution. The unfairness in this case is in how the Supreme Court treats corporations versus actual people when it comes to jurisdiction, said Scott Nelson, an attorney with the progressive group Public Citizen.

He said the Supreme Court is setting up a system that treats corporations better than people—at least when it comes to where they can be sued.

If you can find a person in a jurisdiction, even if they are just passing through, you can be sued there, Nelson said. So think about making a connection O’Hare Airport in Chicago, “if a process server can find you there and hand you a piece of paper, you can be sued in Chicago,” then “you can be sued there for anything, even if it took place in Timbuktu.”

But “a corporation can have an office in Chicago, it can have employees in Chicago, and it can now argue it’s not in Illinois because its main office is in New York, and it’s incorporated in Delaware,” Nelson said.

—With assistance from Martina Barash

https://news.bloomberglaw.com/us-law-week/consent-or-coercion-before-supreme-court-in-corporate-dispute