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Thursday, April 28, 2022

Supreme Court to Address Jurisdiction through Corporate Registration

SCOTUS granted cert for in Mallory v. Norfolk S. Ry. Co., on whether a state can require businesses to consent to general jurisdiction as a condition of registration. Before co-authoring the authoritative works on SB8 with me, Rocky Rhodes (South Texas)  published several piece on jurisdiction and consent/registration with Cassandra Robertson (Case). They have agreed to write a few posts now and perhaps to come back when the case is argued next Term.

The Roberts Court is still interested in personal jurisdiction, despite already hearing seven such cases over the last eleven years. These cases have re-shaped adjudicative jurisdiction, substantially narrowing the fora where plaintiffs can bring suit. Now, with its cert grant this week in Mallory v. Norfolk S. Ry. Co., the Court is poised to reconsider its cryptic century-old holding that states can require corporations to consent to personal jurisdiction within the state—even for claims arising outside the state—as a condition of registering to do business.

The Court’s earlier holding on jurisdiction predicated on registration pre-dated the “minimum contacts” approach that the Court adopted in International Shoe Co. v. Washington (1945).  The issue of whether a corporation’s registration authorizes adjudicative jurisdiction was a difficult question after International Shoe, befuddling courts and commentators for generations. But the question has become especially salient—and even more difficult—after the Roberts Court’s increasingly restrictive approach to personal jurisdiction, so it is not surprising that the Supreme Court finally agreed to address the issue. We’re very grateful for Howard’s invitation to post on this grant and its importance.

Contacts Jurisdiction and Consent Jurisdiction

Scholars familiar with civil procedure and conflicts are well aware that the Roberts Court has curtailed the scope of a state’s adjudicative jurisdiction. The Court limited “general” or “dispute-blind” jurisdiction to the forum in which the defendant is “at home,” such as a corporate defendant’s place of incorporation or principal place of business, rather than allowing such jurisdiction in any forum in which the defendant conducts substantial, continuous, and systematic activities. The Court further limited “specific” or “forum-linked” jurisdiction, which arises in states connected to the dispute, by demanding a tighter showing that the defendant itself established purposeful contacts with the forum state, rather than the contacts being created by an intermediary or the plaintiff. While the Supreme Court’s decision last summer in Ford Motor Co. v. Montana Eighth Judicial District Court recognized that, if purposeful availment exists, the state can exercise jurisdiction even if the dispute merely “relates to” rather than “arises from” such contacts, the Court repeated its prior normative objection to forum shopping by plaintiffs. So, while Ford was a step in the right direction, the overall impact of the Roberts Court’s decisions has limited the available fora that plaintiffs may choose under the traditional “minimum contacts” analysis from International Shoe.

But there are alternative grounds to establish personal jurisdiction. One that has been long recognized is that defendants may consent to personal jurisdiction, either by contract or litigation conduct. Even if contacts jurisdiction is lacking, consent may provide another jurisdictional hook. Plaintiffs have sought to employ this alternative jurisdictional hook as the Roberts Court has restricted contacts jurisdiction, asserting that a defendant’s consent to jurisdiction is conferred when a defendant corporation registers to do business in the forum state, which is the issue squarely presented in Mallory. This jurisdictional basis has a long history, although it largely became unnecessary until the Supreme Court’s sharp curtailment of general jurisdiction.

State Corporate Registration Statutes

            Every state statutorily requires out-of-state corporations transacting in-state business to register with and obtain a certificate of authority from a designated official to do business in the state. Without obtaining the required authorization, a nonresident corporation cannot access the state’s judicial system under all or almost all these registration statutes, with many states also imposing fines and other penalties, including the restraint of further intrastate business transactions, for the failure to comply. The Supreme Court has consistently upheld the constitutionality of both these registration and authorization statutes and their associated consequences for non-compliant nonresident corporations.

            Not all corporate business transactions, though, can constitutionally trigger a registration responsibility in the absence of congressional approval. The dormant Commerce Clause prohibits states from placing, in the absence of congressional authorization, an undue burden on interstate or international commerce, thereby barring state-compelled registration or the accompanying burdens on out-of-state or international corporations not conducting local business operations within the state. General corporate registration statutes thus limit their application to those nonresident corporations that “transact business” in the state, which is typically statutorily defined by excluding those in-state activities that are not sufficient to transact business (such as interstate business activities, isolated in-state transactions, or mere solicitations). Only those corporations engaging in an ongoing and regular course of intrastate or local business activity must register and obtain a certificate of authority, which implicates the regulatory authority of the state to attach conditions on the terms under which the nonresident corporation operates within the state.           

            Historically, the primary purpose of such statutes was to provide a basis for service on an in-state agent within state territory that would authorize jurisdictional power over the nonresident corporation while comporting with the then-prevailing sovereignty limitations on adjudicative authority. States in the mid-nineteenth century began enacting such statutes compelling corporations, as a condition for transacting in-state business, to register with the state and appoint an agent for service of process, thereby ensuring the registering corporation’s amenability for its in-state obligations. The Supreme Court first upheld such a scheme in Lafayette Insurance Co. v. French (1856), reasoning that a corporation “must be taken to assent to the condition upon which alone such business could be there transacted.” Yet the Court explicitly limited its decision to situations in which the suits were related to the business conducted within the forum.

            Subsequent nineteenth-century cases from the Supreme Court continued to describe the permissible corporate consent for the privilege of conducting business as limited to actions related to the corporation’s conduct of business within the forum. As the corporate presence fiction developed, though, service on a statutory agent became a jurisdictional basis in early twentieth-century cases to adjudicate claims unrelated to the corporation’s activities within the state, with some cases indicating that service on a registered corporate agent within the state sufficed for amenability. Yet these cases were linked to the then-prevailing “presence” by “doing business” construct. The Court was hesitant to predicate a defendant’s amenability on serving a registered agent when the defendant no longer was conducting business within the forum, several times construing state registration statutes as not encompassing such a questionable jurisdictional reach.

            Yet if the defendant was conducting business in the forum, the Supreme Court did not need to evaluate the impact of registration on the defendant’s amenability under other jurisdictional doctrines that developed in the twentieth century, such as corporate presence and implicit consent through in-state activities. While these early twentieth-century fictions were cast aside by International Shoe in favor of a more realistic analysis of the reasonableness of the jurisdictional assertion in light of the defendant’s forum activities, the new Shoe paradigm precluded the need in most cases to evaluate the continuing relevance of jurisdiction predicated on corporate registration alone. This caused the Supreme Court to never return to the constitutionality of jurisdiction predicated on corporate registration except in dicta until its recent grant in Mallory.

            The Split in the Constitutionality of Jurisdiction by Registration

            The permissibility of such jurisdiction based on corporate registration depends on interpreting the state’s corporate registration statute while recognizing the constitutional limits that may exist.

            Existing state registration statutes rarely specify the jurisdictional consequences, if any, of a corporation’s in-state registration to do business. Most of these consequences have depended upon case law interpretation. In Georgia, for example, Cooper Tire & Rubber Co. v. McCall reasoned its earlier decisions had interpreted registration as authorizing general jurisdiction, even though the state registration statute did not specify such a jurisdictional consequence. Pennsylvania, on the other hand, is the only state with an unambiguous statutory provision that a nonresident corporation’s registration to do business “shall constitute a sufficient basis of jurisdiction to enable the tribunals of this Commonwealth to exercise general personal jurisdiction . . . .”

            But the statutory or case law interpretation must also comply with constitutional limits. Before the Supreme Court limited general jurisdiction to only those locales where the defendant was “at home,” state and lower federal courts were hopelessly split on the constitutionality of state authorization of jurisdiction based on registration to do business. But there has been a definitive trend in the decisions of state supreme courts and the federal circuit courts since the Roberts Court explicitly limited general jurisdiction to a defendant’s home states in Daimler AG v. Bauman.  

            These courts have indicated that the continued constitutional validity of all-purpose jurisdictional assertions via corporate registration is doubtful after Daimler’s stated concerns with “grasping” or “exorbitant” jurisdictional rules. The Second Circuit, for example, argued that all-purpose consent from registration would subject every corporation “to general jurisdiction in every state in which it registered,” which would rob the “at home” requirement “of meaning by a back-door thief.” But rather than confronting the issue directly, state high courts and federal circuit courts have adopted statutory interpretations of the registration statutes to avoid the constitutional issue, even in jurisdictions such as Delaware, Nebraska, and New York that previously interpreted their registration statutes as authorizing all-purpose jurisdictional assertions.

            There are only two recent cases where a state supreme court did reach the constitutional holding: Mallory, declaring the Pennsylvania explicit statute unconstitutional, and Cooper Tire, upholding jurisdiction under past Georgia case law. The losing parties in both cases sought certiorari review at the Supreme Court, with Cooper Tire filed first and attracting all the attention of amici. Our next post will discuss some of the differences between the two cases, exploring why the Court might have chosen to grant Mallory as the vehicle to examine registration while presumably holding Cooper Tire.      

Posted by Howard Wasserman on April 28, 2022 at 01:26 PM in Civil Procedure, Judicial Process | Permalink

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