In order for a corporation to do business in a state other than its state of incorporation, it must register to do business and appoint a registered agent in the state. Every state has this requirement. But is a corporation also consenting to the general jurisdiction of a state’s courts when it registers there? And can a state, either through statute or judicial decision, provide that a corporation consents to general jurisdiction by registering to do business?
This is a concern for any corporation, but it is of particular concern for large corporations — most of which have registered to do business in many, if not all states. If registration constitutes consent to general jurisdiction, that means that large corporations can be forced to defend lawsuits in any state in which they have registered — even if the dispute is completely unrelated to their activities in the state and even if they weren’t actively doing business in the state.
This “consent by registration” issue is one the courts have been dealing with on an increasing basis in the last few years. In fact, late in 2021 the high courts of four states — New York, New Mexico, Pennsylvania, and Georgia — issued rulings on whether corporations consent to general jurisdiction by registering to do business. And on April 25, 2022, the U.S. Supreme Court agreed to review the Pennsylvania case, which should bring some clarity to this important issue.
This article will discuss the “consent by registration” theory, look at how the four courts ruled, and discuss the implications of the U.S. Supreme Court’s pending decision on whether a state can require a corporation to consent to personal jurisdiction to do business in the state.
Specific vs. general jurisdiction
A corporation can only be forced to defend itself in a state that has personal jurisdiction over it. This is guaranteed by the Due Process Clause of the U.S. Constitution.
Personal jurisdiction can be specific or general. Specific jurisdiction exists when the claim arose out of or was related to the corporate defendant’s activities in the state where the suit was filed.
General jurisdiction extends to all claims brought against the corporation, regardless of whether the dispute involved the corporation’s in-state activities or had any other connection to the state.
General jurisdiction since Daimler A.G. v. Bauman
The law governing general jurisdiction changed dramatically in 2014 when the U.S. Supreme Court issued its decision in Daimler A.G. v. Bauman, 571 U.S. 117 (2014). Before Daimler, general jurisdiction could exist in any state in which the defendant corporation engaged in substantial, continuous, and systematic activities — which, in the case of large corporations was many states.
However, in Daimler, the Court held that general jurisdiction exists only where the corporation is “at home”. The Court also stated that considering a corporation at home in every state where it conducts substantial business is “unacceptably grasping” and in violation of the Due Process Clause.
Instead, the Court held that other than in exceptional cases, general jurisdiction over a corporation exists only in its state of incorporation and in the state where its principal place of business is located.
Daimler greatly restricted a plaintiff’s ability to sue a large corporation in what the plaintiff considered a friendly state. Now, if a plaintiff wants to sue a corporation in a state other than the one where the claim arose or where the corporation was incorporated or headquartered, the plaintiff has to come up with another theory. And one that a number of plaintiffs have used is the “consent by registration” theory.
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, decided on October 7, 2021, 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.
Following the court’s decision, there was another important development concerning the consent by registration issue. 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.
However, on December 31, New York Governor Hochul vetoed the bill, stating 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.
Chavez v. Bridgestone Ams. Tire Operations, LLC, 503 P.3d 332 (N.Mex. 2021)
In Chavez v. Bridgestone, which was decided on November 15, 2021, 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)
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, which was decided on December 22, 2021, 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)
As noted earlier, not every court has rejected the consent by registration theory. In September, 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. On April 25, 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. (As of the date of publication, the Court had not decided whether to grant the petition in the Georgia case.)
If the Court affirms the ruling in Mallory, that will lessen the concern of large, national corporations that they may have to defend lawsuits in many states based only on the fact they registered to do business in those states.
However, even if the U.S. Supreme Court upholds the Pennsylvania statute that provides that a corporation consents to jurisdiction by registering, that does not necessarily mean that other states will enact similar statutory provisions. As the New York governor’s veto showed, there are drawbacks to these provisions.
In addition, if the Court reverses the ruling in Mallory and holds that a state can require a corporation to consent to the jurisdiction of a state’s courts in order to do business, there are steps a corporation can take to protect itself. This includes taking into consideration a state’s law on that issue when deciding whether to do business in that state. The corporation can also formally withdraw from all states in which the corporation no longer does business, which will result in the corporation no longer being registered as a foreign corporation in those states.
The U.S. Supreme Court is expected to render its decision in early fall, which will hopefully provide some much needed clarity on this issue, and let large corporations know what, if any, actions they should take as a response.