Registering To Do Business At The Price Of General Jurisdiction

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by Justin DiCharia, Senior Associate

Introduction

To be sued for any reason, by any person, within a state where a corporation is not incorporated or headquartered seems an absurd fantasy following the United States Supreme Court decisions in both Goodyear Dunlop Tires Operations, S.A. v. Brown[1] and Daimler AG v. Bauman.[2] Such a fantasy drifts into the realm of reality, however, in courts where the ghost of Justice Oliver Wendell Holmes’ opinions in Pennsylvania Fire[3] and Robert Mitchell[4] live on. The 1917 Pennsylvania Fire ruling allowed an Arizona corporation to sue a Pennsylvania company in Missouri on a personal jurisdiction theory that would today equate to general jurisdiction.[5] Because the Pennsylvania corporation registered to do business within Missouri—a common statutory prerequisite to conducting business in most states—which required the corporation to appoint an agent for service for “all proceedings that may be instituted against such company in any court of this state,”[6] the Court found that the corporation took on the risk that Missouri may interpret the statute as allowing service, and then jurisdiction, for suits not arising out of contacts within the state.[7] Four years following Pennsylvania Fire, Justice Holmes wrote the majority opinion in Robert Mitchell and found that “[u]nless the state law [requiring appointment of a statutory agent] either expressly or by local construction gives to the appointment a larger scope, we should not construe it to extend to suits in respect of business transacted by the foreign corporation elsewhere.”[8] If  Pennsylvania Fire and Robert Mitchell remain good law, as some courts believe,[9] statutes requiring corporations to register to do business by appointing an agent for service or explicitly requiring consent to general jurisdiction are constitutional. There is, however, substantial concern among federal and state courts over the constitutionality of these statutes following Goodyear and Daimler.[10]

I. Justifying Implicit Consent to General Jurisdiction through Pennsylvania Fire

The Holmesian consent-through-registration opinions provided two possibilities in which a state could impose general jurisdiction over a foreign corporation: (1) the statute could explicitly provide that registration would confer general jurisdiction; or (2) the state courts could interpret the statute to impose general jurisdiction. The state court interpretation option is the easier of the two to find constitutionally problematic.

The Supreme Court has not cited Pennsylvania Fire or Robert Mitchell as personal jurisdiction jurisprudence since 1952 when it decided Perkins v. Benguet Consolidated Mining Co.[11] In a footnote, the Court cited the Holmesian opinions, stating that service of process for an action in general jurisdiction was improper for a foreign corporation that had not “appointed a statutory agent upon whom service of process against the corporation can be made in that state or otherwise consented to service of summons upon it in actions brought in that state.”[12] The Court, though, could not have meant that the appointment of a statutory agent for purposes of service of process allows a state to impose general jurisdiction on the basis of contacts, considering International Shoe expressly disclaimed the legal fictions of “presence” and “implicit consent” when based on a registered agent for service.[13] In the same paragraph in which the Court disclaimed those theories in International Shoe, it equivocated that the cases that used those legal fictions were likely still proper based on the acts of the registered agent.[14] This equivocation, while justifying specific jurisdiction, provided no defense of legal fictions used to impose general jurisdiction upon foreign corporations. Because the Court abandoned the legal fictions relied on by courts for suits connected to forum states, it makes little sense that the Court would sanction the use of legal fictions to justify suits unrelated to forum states. Rather, the Court in Perkins could only have been discussing the propriety of service of process, not personal jurisdiction.

Therefore, implied consent through a registration statute and court interpretation of that statute does not comport with the Due Process Clause; such a legal fiction was not only abandoned by International Shoe,[15] but such an imposition of state authority over a foreign corporation without express consent would be “unacceptably grasping.”[16] All 50 states maintain corporate registration statutes, and, although only six states have found their statutes to equate to consent to general jurisdiction, 32 states have not defined the jurisdictional effect of their statutes.[17] If most of these states’ statutes do not expressly confer general jurisdiction through registration, then corporations would be at the whim of state courts interpreting what the state legislature intended when it passed a generic corporate registration statute. Any sense of certainty for where a corporation may be sued would be lost.

II. Express Consent

Although corporations would lack a sense of stability in constitutionalizing implicit consent through registration statutes, statutes that explicitly provide for consent to general jurisdiction in exchange for the ability to conduct business trigger constitutional concerns as well as troubling economic ramifications. As a starting point, the Due Process Clause purportedly requires consent to be voluntary.[18] The Court, in M/S Bremen v. Zapata Off-Shore Co., found that consent to forum selection clauses in commercial contracts must be “freely negotiated[,] . . .  unaffected by fraud, undue influence, or overweening bargaining power . . . [and] should be given full effect” unless their “enforcement would be unreasonable and unjust.”[19] Indeed, the Court did not require voluntariness in upholding a forum selection clause between a pair of individuals and a corporation in Carnival Cruise Lines, Inc. v. Shute.[20] The forum selection clause in Carnival Cruise Lines most definitely failed the M/S Bremen voluntariness formulation,[21] which indicates that the Court is willing to allow a certain degree of involuntariness in determining “consent” to jurisdiction.

It is possible that the demarcation line for voluntariness, and therefore constitutionality, comes down to a policy determination of what is unreasonable. If this is the case, then the policy considerations for general jurisdiction consent statutes strongly weigh against constitutionality. First, once certain states begin to impose general jurisdiction consent as a prerequisite to conducting business, a race to the bottom will likely ensue. States could begin passing these statutes in order to gain power and influence within the nation. Second, because of the potent economies of states like California[22] and Texas,[23] corporations wishing to compete in the national market will be forced to consent to general jurisdiction if those states require said consent to conduct business within their borders. These considerations likely would convince the Court to find that a state sovereign forcing consent to general jurisdiction in exchange for permission to exist within its borders is an example of “overweening bargaining power” that is unreasonable, and therefore involuntary.[24]

Conclusion

Although some courts continue to follow Justice Holmes’ pre-International Shoe rulings, others have recognized the abandoned reasoning at the center of those opinions. Consent to general jurisdiction in exchange for the opportunity to conduct business within a state will likely be held unconstitutional if it ever comes before the current U.S. Supreme Court.

[1] Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011).

[2] Daimler AG v. Bauman, 571 U.S. 117 (2014).

[3] Pa. Fire Ins. Co. of Pa. v. Gold Issue Mining & Milling Co., 243 U.S. 93 (1917).

[4] Robert Mitchell Furniture Co. v. Selden Breck Constr. Co., 257 U.S. 213 (1921).

[5] Pennsylvania Fire, 243 U.S. at 94–95.

[6] Mo. Rev. Stat. § 7042 (1909).

[7] Pennsylvania Fire, 243 U.S. at 94–95.

[8] King v. American Family Mut. Ins. Co., 632 F.3d 570, 575 (9th Cir. 2011) (citing Robert Mitchell, 257 U.S. at 216).

[9] See Rascon Rodriguez v. Ford Motor Co., No. A-1-CA-35910, 2018 WL 7021969 (N.M. Ct. App. Dec. 21, 2018); King, 632 F. 3d at 575.

[10] See Brown v. Lockheed, 814 F.3d 619, 640 (2d Cir. 2016); Aybar v. Aybar, 93 N.Y.S.3d 159 (N.Y. Ct. App. 2019); DeLeon v. BNSF Ry. Co., 426 P.3d 1, 8 (Mont. 2018); Segregated Account of Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 898 N.W.2d 70, 82 (Wis. 2017); Wal-Mart Stores, Inc. v. LeMaire, 395 P.3d 1116, 1120 (Ariz. Ct. App. 2017).

[11] Perkins v. Benguet Consol. Mining Co., 342 U.S. 437 (1952).

[12] Id. at 443 n.4.

[13] Int’l Shoe v. Washington, 326 U.S. 310, 318 (1945)

[14] Id.

[15] Id.

[16] Aybar v. Aybar, 93 N.Y.S.3d 159, 164–65 (N.Y. Ct. App. 2019) (citing Daimler AG v. Bauman, 571 U.S. 117, 138 (2014)).

[17] Kevin D. Benish, Pennoyer’s Ghost: Consent, Registration Statutes, and General Jurisdiction after Daimler AG v. Bauman, 90 N.Y.U. L. Rev. 1609, 1647 (2015).

[18] Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 n.14 (1985).

[19] M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 12–15 (1972).

[20] Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991).

[21] The couple who allegedly “consented” to the forum selection clause only would have seen the forum selection clause after they purchased their tickets. Id. at 597 (Stevens, J., dissenting).

[22] Jonathan J. Cooper, California now world’s 5th largest economy, surpassing UK, USA Today Network (May 5, 2018), https://www.usatoday.com/story/news/nation-now/2018/05/05/california-now-worlds-5th-largest-economy-beating-out-uk/583508002/ [https://perma.cc/F9MQ-VX9B].

[23] Texas: 10th Largest Economy in the World, Bus. Xpansion J. (Apr. 5, 2018), http://bxjmag.com/texas-10th-largest-economy-in-the-world/ [https://perma.cc/Z6JJ-XUH8].

[24] See M/S Bremen, 407 U.S. at 12–15.