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

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 DaimlerAG 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.

Copyright © by Ballard Spahr LLP

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About this Author

Neal Walters, Products Liability, New Jersey, Attorney, Lawyer, Ballard Spahr, Law Firm
Partner

Neal Walters is the Practice Leader of Ballard Spahr's Product Liability and Mass Tort Group, and a member of the firm's Manufacturing and Retail Industry Groups. Mr. Walters has a diverse trial and litigation practice focused on protecting product companies, as well as clients involved in technical matters, against a broad range of risks. As counsel for several consumer product manufacturers, he has defended and coordinated product liability and consumer claims, including class actions, through trial in jurisdictions across the country. He also counsels companies on contractual,...

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Justin E. Kerner Ballard Spahr Litigation, Commercial Litigation, Appellate, Class Action Litigation, Environment and Natural Resources, Product Liability and Mass Tort
Associate

Justin Kerner is an associate in the Litigation Department. He handles complex commercial cases in state and federal courts, including class actions and single-plaintiff litigation pertaining to product liability, environmental liability, fraud, insurance coverage, IP infringement, and other commercial disputes.

Prior to attending law school, Justin worked for several years in the produce and transportation industries, serving a variety of clients in the food and beverage sector. He has practical experience negotiating industry contracts and resolving disputes between growers, shippers, wholesalers, and retail and food service operators.

Justin has relied on his in-depth legal knowledge to write alerts and articles on a variety of litigation matters, including class actions, civil RICO matters, and false endorsement claims. He currently serves as a Judge Pro Tem for the Philadelphia County Court of Common Pleas, and is participating in the Jewish Federation of Southern New Jersey's Leadership Institute.

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