The rise of the “consent by registration” theory
Although the Due Process Clause protects corporations from being sued in states that lack personal jurisdiction over them, a corporation can waive the Due Process Clause’s protection.
One way to waive that protection is to consent to the personal jurisdiction of a state’s courts. This can be seen, for example, in the forum selection clauses found in many contracts, whereby the parties agree to be sued in a particular state in any dispute arising out of the contract. The state they select does not have to be one that otherwise would have had personal jurisdiction over them.
The consent by registration theory alleges that a corporation, by registering to do business in a foreign state (e.g., any state other than its state of incorporation) consents to the general jurisdiction of that state’s courts. As the plaintiffs making that argument point out, Daimler held it was unconstitutional to impose general jurisdiction based solely on the fact the corporation conducts a substantial amount of business in the state. However, the Court did not address whether or under what circumstances a corporation consents to general jurisdiction.
Recent court decisions on consent by registration
Most courts addressing the issue of consent by registration have held that a corporation does not consent to general jurisdiction by registering to do business. However, that has not been a unanimous opinion. Here are some recent case law examples:
Aybar v. Aybar, 177 N.E.3d 1257 (N.Y. 2021)
In Aybar v. Aybar, the New York Court of Appeals rejected the consent by registration theory. The court noted that the New York Business Corporation Law, while clearly requiring a foreign corporation to register and designate an in-state agent for service of process if it wants to do business in the state, does not condition registration on the corporation consenting to general jurisdiction. Nor does the Business Corporation Law confer general jurisdiction to New York courts on corporations that comply.
The court acknowledged that the Daimler court held that exercising general jurisdiction in every state where a corporation engages in substantial business is unacceptably grasping and in violation of due process. However, the court declined to rule on the constitutionality of consent by registration, finding instead that it could base its decision on the plain terms of the corporation law.
Chavez v. Bridgestone Ams. Tire Operations, LLC, 503 P.3d 332 (N.Mex. 2021)
In Chavez v. Bridgestone, the New Mexico Supreme Court rejected the consent by registration theory and overturned a 30-year-old decision holding otherwise. The New Mexico court, like the New York court, based its decision on the fact that the state’s Business Corporation Act does not require a foreign corporation to consent to jurisdiction, nor does it state that a foreign corporation consents to general jurisdiction by registering and appointing an in-state registered agent.
Although the court referred to consent by registration as a relic of a now-discarded era of personal jurisdiction jurisprudence, the court declined to rule on whether the theory is unconstitutional. The court found that unnecessary because it could be rejected as a matter of state statutory law.
Mallory v. Norfolk Southern Railway Co., 266 A.3d 542 (Pa. 2021) (The Pennsylvania Supreme Court decision)
Perhaps the most anticipated decision on consent by registration came from the Pennsylvania Supreme Court. The importance of this case came from the fact that Pennsylvania is the only state that has a statutory provision stating that a foreign corporation consents to the general jurisdiction of the state’s courts by registering to do business. And one of the main arguments raised by those who claim consent by registration is unconstitutional is that the states provide no notice to corporations that they are consenting to general jurisdiction by registering to do business. However, Pennsylvania does provide notice.
In Mallory, the Pennsylvania Supreme Court held that Pennsylvania’s statutory scheme - under which foreign corporations consent to general jurisdiction by registering – is unconstitutional. The court acknowledged that consent is an independent basis for asserting personal jurisdiction – but only if consent is given voluntarily. And a foreign corporation’s registration to do business in Pennsylvania is not a voluntary consent to general jurisdiction, but rather is a compelled submission to general jurisdiction by legislative command. Although the statutes do provide notice that registration constitutes consent, that notice does not render the consent voluntary.
The court pointed out that if every state enacted a statute mandating consent by registration, that would render every national corporation subject to general jurisdiction in every state – a reality flying in the face of recent U.S. Supreme Court decisions.
Cooper Tire & Rubber Co. v. McCall, 863 S.E.2d 81 (Ga. 2021)
Georgia’s Supreme Court, in Cooper Tire & Rubber, held that a corporation does consent to the general jurisdiction of Georgia’s courts by registering to do business. The court declined to overturn its 1992 decision holding that a corporation consents to jurisdiction – a decision, which, according to the court provided notice that registration equaled consent to jurisdiction.
The court also declined to follow the U.S. Supreme Court’s recent personal jurisdiction jurisprudence and instead based its decision on the U.S. Supreme Court’s 1917 decision in Pennsylvania Fire Insurance Co. of Philadelphia v. Gold Issue Mining & Mill Co., 243 U.S. 93 (1917) – which upheld the constitutionality of consent by registration and which the U.S. Supreme never explicitly overruled.
U.S. Supreme Court agrees to review Mallory v. Norfolk Southern Railway Co.
The unsuccessful parties in the Georgia and Pennsylvania cases petitioned the U.S. Supreme Court to review those decisions. The Court agreed to review the Pennsylvania Supreme Court’s decision in Mallory v. Norfolk Southern Railway Co. in order to decide whether the Due Process Clause of the 14th Amendment prohibits a state from requiring a corporation to consent to personal jurisdiction to do business in a state.
Mallory v. Norfolk Southern Railway Co., No. 21-1168 (The U.S. Supreme Court decision)
The U.S. Supreme Court, in a 5-4 decision, ruled in favor of the plaintiff, and vacated the Pennsylvania Supreme Court’s decision. The Court based its decision on the 1917 Pennsylvania Fire decision. The Court, in a decision delivered by Justice Gorsuch, held that Pennsylvania Fire controls this case. And the Court in Pennsylvania Fire held that a statute similar to the consent by registration statute at issue in Mallory did not violate the Due Process Clause.
According to the Court, the personal jurisdiction cases issued by the Court since 1917 did not overrule Pennsylvania Fire. The Court rejected the assertion that the Pennsylvania Fire decision is incompatible with International Shoe Co. v. Washington, 326 U.S. 310 (1945), the seminal Supreme Court decision on personal jurisdiction. According to the Court, Pennsylvania Fire held that a state could assert personal jurisdiction over an out-of-state corporation that has consented to jurisdiction while International Shoe held that a state could also assert personal jurisdiction over an out-of-state corporation that has not consented but that has substantial contacts based on the quality and nature of its in state activities. Thus, those decisions stand side by side.
Justices Jackson and Alito issued concurring opinions. Justice Jackson, while agreeing that under Pennsylvania Fire the Pennsylvania statute did not violate the Due Process Clause, said that the statute could also be upheld under another U.S. Supreme Court ruling – Insurance Corp. of Ireland v. Companie des Bauxites de Guinee, 456 U.S. 694 (1982) which makes clear that personal jurisdiction is a waivable right. And Justice Jackson agreed with Justice Gorsuch that the corporate defendant here waived its right by choosing to register as a foreign corporation.
Justice Alito, while also agreeing that the Pennsylvania statute did not violate the Due Process Clause, asserted that it may violate the dormant Commerce Clause – an issue that was not before the Court here.
A dissenting opinion, issued by Justice Barrett, stated that the Court’s opinion flew in the face of recent Court decisions that held that merely doing business in a state is not sufficient for a state to assert general jurisdiction over a nonresident corporation. The dissent also rejected the Court’s attempt to avoid that precedent by characterizing this case as one about consent and not contacts based jurisdiction. According to the dissent, complying with a corporate registration statute is not consent. The dissent also stated that the Due Process Clause allows a state to place reasonable conditions on nonresident corporations but there is nothing reasonable about extracting consent in cases with no connection at all to the state. And furthermore, the Pennsylvania statute infringes on the sovereignty of sister states.
Implications of the Mallory decision
What Mallory basically means is that a state can enact a statute similar to Pennsylvania, providing that foreign corporations consent to the jurisdiction of the state’s courts by registering to do business and appointing a registered agent, and it will not violate the Due Process Clause. And while that might seem to mean that every large, multi-state corporation that has registered to do business and appointed a registered agent is at risk of having to defend itself in every state in which it has registered regardless of where the plaintiff is located or the events resulting in the lawsuit took place, that is not necessarily the end of the story.
There is no guarantee that the remaining states will enact a statutory provision similar to Pennsylvania’s. For example, before the Court’s Mallory decision, the New York legislature passed a bill that would have amended the Business Corporation Law to provide that a foreign corporation applying for authority to do business consents to the jurisdiction of New York’s courts in all actions against the corporation. New York Governor Hochul vetoed the bill, not because of Constitutional concerns but because it would deter out-of-state corporations from doing business in New York, create substantial uncertainty for businesses, increase lawsuits over disputes with no nexus to New York, and was fundamentally not in the public interest.
In addition, as Justice Alito pointed out in his concurring opinion, there is still the issue of whether consent by registration statutes violate the Commerce Clause.
So it remains to be seen how both the state legislatures and lower courts react to the U.S. Supreme Court’s decision in Mallory v. Norfolk Southern Railway Co.
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