This sleeper Supreme Court case could be a nightmare for corporations

(Reuters) - A little-noticed U.S. Supreme Court case involving a Virginia railroad worker’s Pennsylvania state court suit against his onetime employer could drastically expand plaintiffs’ ability to sue corporations in states where businesses are neither headquartered nor incorporated.

If you needed proof that companies ought to be paying close attention to the case, Mallory v. Norfolk Southern Railway Co., you got it this week in amicus briefs backing the Virginia plaintiff, Robert Mallory. The American Association for Justice, the Pennsylvania Association for Justice, the Academy of Rail Labor Attorneys, The Center for Auto Safety and U.S. citizens pursuing Anti-Terrorism Act claims all urged the Supreme Court to embrace Mallory’s arguments that corporations are subject to suit in states where they have consented to jurisdiction as a condition of registering to conduct business.

When plaintiffs' lawyers throw this kind of combined muscle into Supreme Court litigation, you can be sure the case matters for corporations – otherwise known as defendants.

The Norfolk Southern case, as Mallory counsel Ashley Keller of Keller Postman laid out in his July 5 merits brief, presents the question of whether the Due Process Clause of the Fourteenth Amendment prohibits a state from requiring corporations to consent to personal jurisdiction as a condition of registering to conduct business within the state. The Pennsylvania Supreme Court ruled last December that the state’s consent-by-registration regime was coercive, not voluntary, and therefore “palpably” unconstitutional.

The state justices rooted their decision in the line of U.S. Supreme Court cases that began with 1945’s International Shoe Co v. State of Washington, holding that International Shoe and its progeny focused jurisdictional analysis on a corporation’s contacts with the state.

But Mallory contends that consent via registration is a completely separate route to jurisdiction that does not depend on the business’ contacts with a state. Keller Postman’s Supreme Court brief argues that the Pennsylvania Supreme Court misconstrued “a mountain of historical evidence” in its interpretation of the Fourteenth Amendment’s Due Process clause.

When the amendment was ratified in 1868, the brief said, every state had a law in place that required out-of-state corporations to consent to jurisdiction, reflecting the increasingly interstate nature of the American economy. So it cannot be, the brief argued, that “when the Fourteenth Amendment was ratified, it invalidated important statutes in every state.” Back in 1868, Keller Postman said, that interpretation “would have shocked the states and Congress, and it would have produced a result that was widely viewed as ‘illogical and unjust.’”

The U.S. Supreme Court, as Mallory and his amici pointed out, ruled way back in 1917’s Pennsylvania Fire Insurance Company of Philadelphia v. Gold Issue Mining and Milling Company that the Fourteenth Amendment did not preclude Missouri from exercising jurisdiction against an Arizona corporation that consented when it registered to conduct business in the state. The Supreme Court’s rulings after International Shoe, said Mallory and his amici, addressed an alternative theory of personal jurisdiction based on a corporation’s contacts with a state. But the court has never explicitly overturned Pennsylvania Fire, they argued.

Norfolk Southern is represented at the Supreme Court by Carter Phillips of Sidley Austin. Phillips declined to comment on the new briefs by Mallory and his amici. But in the railroad’s brief opposing Supreme Court review, Norfolk Southern argued that Pennsylvania Fire, with its “territorial approach” to jurisdiction, has been displaced by International Shoe and successive cases building on its principles.

In particular, the railroad said, the justices’ rulings in 2011’s Goodyear Dunlop Tires Operations, S.A. v. Brown and 2014’s Daimler AG v. Bauman “dramatically altered” jurisdictional analysis for out-of-state corporations. Those decisions made clear, according to Norfolk Southern, that states cannot assert jurisdiction over every business that operates within their borders, without regard for whether the state has a legitimate interest in the litigation.

In a phone interview, Mallory counsel Keller told me that the contact-oriented analysis of Goodyear and Daimler does not undermine Mallory’s alternative basis for Pennsylvania jurisdiction based on the railroad’s consent. “It’s completely separate,” Keller said. “We are very comfortable that our position is well-grounded in history and tradition.”

I asked Keller why Mallory, a Virginia man who alleges that he was exposed to asbestos while working in Virginia and Ohio, chose to sue Norfolk Southern, a Virginia corporation, in Pennsylvania. Keller said Mallory’s trial lawyers are based in Pennsylvania. He politely rebuffed my follow-up question about whether it made sense for Pennsylvania to hear Mallory’s case, arguing that his jurisdictional arguments are instead based on constitutional text and history.

Keller also said, in an argument echoed by some of Mallory’s amici, that corporations routinely require customers and employees to consent to particular jurisdictions under circumstances no more coercive than Pennsylvania’s consent-by-registration requirement. Why, he said, should corporations get special rights and treatment?

Moreover, Keller argued, corporations that consent to jurisdiction in business registrations can nevertheless argue that an out-of-state forum is not convenient. And judges will still apply choice of law analysis in cases involving out-of-state plaintiffs and defendants. “This is not, ‘come one, come all,’” Keller said. (Mallory’s petition does not address the dormant commerce clause, which was cited in two Supreme Court briefs filed by law professors who said interstate commerce, rather than due process, is the correct analytical framework.)

But it’s also true that if Keller’s side wins at the Supreme Court, you can expect plaintiffs' lawyers to make a big push for state legislatures to adopt or strengthen consent-by-registration laws, which many states have abandoned or substantially weakened after Goodyear and Daimler. “The political process,” Keller acknowledged, “will likely come into play.”

We’ll see later this summer, when Norfolk Southern’s amici surface, if pro-business groups like the U.S. Chamber of Commerce are aware of the risk this case poses for multistate corporations. Business cases haven’t exactly topped the court’s agenda in the last couple of terms. But for litigators, this one could be big.

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