The High Price of Doing Business in Pennsylvania

Mallory v. Norfolk S. Railway, No. 21-1168 (U.S. Jun. 27, 2023)

Like most states, Pennsylvania has statutes that require foreign corporations doing business in the state to register and designate an agent for service of process. Unlike most states, however, Pennsylvania’s statutes say that, by availing oneself of that process, a foreign corporation consents to general jurisdiction in the state. That is, it consents to personal jurisdiction, even in cases, like this one, that have no relationship to the corporation’s contacts with the state. The question is whether that kind of setup satisfies due process.

In a weird 4-1-4 decision, the Supreme Court says it does. The opinion of the Court is written by Justice Gorsuch and joined by Justices Thomas, Alito, Sotomayor and Jackson. The Court explains that because personal jurisdiction is a personal right that can be waived, there is nothing wrong with jurisdiction by consent, including when that consent is required to be given as a condition of obtaining privileges under state law. A pre-International Shoe decision from the Court—Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., 243 U. S. 93 (1917)—so holds. And because the Court holds that Pennsylvania Fire remains good law on jurisdiction by consent, that pretty much resolves the question.

Justice Alito, however, doesn’t join the whole opinion. He agrees Pennsylvania Fire controls the due process question, and that the Court needn’t overrule it. But he has doubts about whether a state can impose such conditions under Dormant Commerce doctrine. He says forcing a foreign corporation to submit to personal jurisdiction over claims that are unrelated to its contacts with the state is effectively a form of discrimination against out of state companies that is unjustified by any legitimate local interests.

Justice Barrett dissents, joined by the Chief Justice and Justices Kagan and Kavanaugh. She says that the Court’s ruling effectively nullifies the recent Daimler/Goodyear/BNSF line of cases that hold that just doing business in a state is inadequate to create general jurisdiction. The consent that Pennsylvania secures by virtue of registration goes too far. Indeed, it would effectively permit a state to write a long-arm statute conferring general jurisdiction over any company that did business in the state. 

Reversed.

For what it’s worth, amongst us Californians, California has a registration and agent for service of process requirement for foreign corporations doing business here. See Corps Code § 2105. But the Court of Appeal has consistently interpreted it not to provide a foreign corporation’s consent to general jurisdiction unrelated to the corporation’s California contacts. See Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 195 (1987); DVI, Inc. v. Superior Court, 104 Cal. App. 4th 1080, 1095 (2002).

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Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 195 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 194 (Cal. Ct. App. 1987)

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Gray Line Tours v. Reynolds Elec. & Eng'g Co., 193 Cal. App. 3d 190, 195 (Cal. Ct. App. 1987)

More Talk About Ford

LG Chem, Ltd. v. Superior Court, No. D079718 (D4d1 Jun. 27, 2022)

Plaintiff was injured when a lithium-ion battery called an “18650” that he bought from a San Diego vape shop blew up in his pocket. He sued a Korean Manufacturer that makes 18650 batteries. Manufacturer moved to dismiss for lack of personal jurisdiction. The trial court granted the motion, and the Manufacturer took a writ.

Jurisdictional discovery revealed that Manufacturer did sell a large number of 18650 batteries to three customers in California. These customers all approached Manufacturer—it did not market, advertise, or solicit their business. And these customers were all industrial. They would encase the batteries in an enclosure with protective circuitry for use in products like electric cars and power tools. Manufacturer did not sell to anyone in California that re-sold batteries for direct sale to consumers, including vape shops or vape shop supply businesses. Indeed, owing out of a vaping battery incident in 2016, Manufacturer made all of its customers certify that its batteries would used only for the aforementioned industrial uses and that they would not be sold or re-sold for individual consumer use.

On these facts, the court finds specific personal jurisdiction to be lacking. It finds that the sales were adequate to constitute purposeful availment. But the jurisdiction founders on the second—relatedness—element of the specific jurisdiction test.  There’s not much dispute that Plaintiff’s injury does not “arise” out of Manufacturer’s industrial sales in California. But the question is whether the claims “relate” to those contacts, a la, the Supreme Court's Ford decision, which we recently discussed in the Daimler Trucks case.*

The Court rejects the Ford analogy, however, based on both the quality and quantity of the contacts. First, unlike Ford, manufacturer did not extensively market and advertise sales of its product to anyone in California. And second, the California market that Manufacturer served was industrial, not consumer. So unlike Ford—where Ford sold trucks in Montana, just not plaintiffs truck—here Manufacturer did not systematically serve a market for consumers like Plaintiff to purchase or use its 18650 batteries.

Writ granted.

Interestingly, this falls on the other side of the “junior varsity general jurisdiction” line I discussed in my post on Daimler Trucks. As I said there, in Ford, the U.S. Supreme Court basically created a third jurisdictional category for certain tort cases—one with a more malleable relatedness prong—where there are (1) home-state plaintiffs; (2) defendants who would have satisfied the pre-Daimler “systematic and continuous” test; and (3) where the instrumentality that hurt the plaintiff is marketed and sold to others in the jurisdiction where the defendant lives. Unlike in Daimler, this case fails in both elements (2)—Manufacturer doesn’t satisfy the old systematic and continuous test from Helicopteros Nacionales v. Hall—and (3) Manufacturer didn’t market or sell 18650 batteries to consumers in California.

*Daimler Trucks was actually decided a few weeks after this case. I was in trial when this case came down and I am working through some backlog.

Relatedness Is Not Liability

Bader v. Avon Prods., Inc., No. A157401 (D1d4 Sept. 29, 2020)

Plaintiff in this case is a lifelong Californian who claims she got mesothelioma from a lifetime of using Avon products containing talc that was allegedly contaminated by asbestos. Avon objected to personal jurisdiction, claiming that Plaintiff had not satisfied the “relatedness” prong of the specific jurisdiction inquiry, which asks whether the plaintiff’s claims are substantially connected to the defendant’s in-state contacts. The trial court found that relatedness had not been established and dismissed for lack of personal jurisdiction.

Avon’s relatedness argument here is, charitably, a stretch. Plaintiff says Avon sold her talc products in California and that the talc gave her cancer. That seems like it should be enough relatedness for specific jurisdiction. (Generally, in products liability cases, relatedness arguments come up when plaintiffs engage in forum shopping by suing where they have only tenuous connection, such that their injuries have little to do with the defendant’s in-forum sales. Like when someone from Iowa sues in California based on a product that was purchased in Iowa.) 

Avon, however, says that the Supreme Court’s rejection of California’s “sliding scale” relatedness test in Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773, 1776 (2017) also requires Plaintiff to show that the talc that Avon sold her in California actually contained asbestos in order to establish personal jurisdiction. The Court of Appeal rejects the argument, more kindly than I would. Because it’s basically nonsense. 

Sliding scale relatedness was a short lived effort to concoct a junior varsity version of general jurisdiction after the Supreme Court limited general jurisdiction to states where the defendant is “essentially at home.” See Daimler AG v. Bauman, 134 S. Ct. 746 (2014); Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915 (2011). Skirting that rule, a 4-3 majority of the California Supreme Court held that when a defendant has lots and lots of connections in the forum state—sort of akin to the “systematic and continuous” test that applied for general jurisdiction pre-Goodyear and Daimler, see Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984)—the nexus between the defendant’s contacts and the plaintiff’s claims could be pretty tenuous. But the U.S. Supreme Court granted cert from that decision, ultimately finding that the sliding scale test was inconsistent with due process. Bristol-Myers, 137 S. Ct. at 1781–82. Specific jurisdiction thus requires some substantial relationship between the contacts and the claim irrespective of what other non-claim related contacts the defendant might have in the forum, regardless of how significant those contacts are.

So far, all good. 

But what neither Bristol Meyers nor any other court has ever said is that, to show relatedness, the plaintiff has to affirmatively prove, as jurisdictional matter, that the defendant’s in-forum sales actually caused her injury. That would make the test for personal jurisdiction—a question usually resolved at the outset of the case—impossibly high and unduly complicated. So high and complicated that a plaintiff couldn’t hale a defendant into a court in her home state for selling her an allegedly defective product in her home state unless she arrives at the courthouse on day one loaded for bear with expert testimony on causation. That doesn’t make any sense.

Reversed.

When You Get There, Remember It's Nev-æd-uh, Not Na-Vah-Duh.

Farina v. SAVWCL III, LLC, No. B294516 (D2d8 Jun. 10, 2020)

Back in what we will probably soon start calling the last financial crisis, there was a hard money Lender in pooling Investor money to loan to real estate Developers in Las Vegas. Lender, which was also a Nevada entity located in Nevada, facilitated contractual arrangements between Developers and Investors. There were contracts (promissory notes) but no contact between Developers and Investors. Most of Investors in Nevada. But about 10 percent of the Investors were from California.

The music came to a stop in the Vegas real estate market in late 2007. The loans failed. Lender apparently went bk. Investors sued Developers for fraud, not in Vegas, but in LA Superior. (Lender isn’t a party to the case.) Developers moved to dismiss for lack of personal jurisdiction. The trial court granted the motion. 

The issue comes down to personal availment. The evidence showed that Developers weren’t directing Lender to reach out to Californians. At best, someone at Developers once sent a letter to someone at Lender, proposing that Investors trade their loans for equity interests in a joint venture to work out the souring debt.* (It was this swap that purportedly consummated the fraud.) Lender then sent that letter along to Investors with a letter of its own explaining the proposal. 

There was no evidence, however, that at the time Developers wrote the letter that they directed Lender to send their letter to Investors in California. Indeed, there was no evidence that Developer even knew at the time that any Investor was in California. That’s not personal availment. 

Nor was the mere promissory notes between California Investors and Developer enough to create personal jurisdiction here. The notes lent money to invest in real estate in Nevada, facilitated by a Nevada entity, governed by Nevada law and they were executed by Developers in Nevada. They specifically state that Investors’ addresses were on file with Lender (at its Nevada address.) Absent any evidence that Developers knew they were dealing with Californians, that’s not enough.

Finally, the fact that Developers retained some California-based architects and consultants to work on the developments did not create jurisdiction. For specific jurisdiction, the claims need to arise from or relate to the in-state contacts. But Plaintiff’s fraud claims had nothing to do with who Developers hired to work on their project. Indeed, there was not even any evidence that Investors even knew who Developers hired.

Affirmed.

*In what has to be the funniest parenthetical naming reference in a recent Court of Appeal decision, the Court explains, “[t]he joint venture’s name is SAVWCL III, LLC. We are unsure how to pronounce that, so we call it Joint Venture.”

Refurber Madness.

Strasner v. Touchstone Wireless Repair & Logistics, LP, No. D068865 (D4d1 Nov. 4, 2016)

Plaintiff—a California native living at the time in NYC—returned a cell phone to a T-Mobile store in New York. In the process of refurbing the phone, an employee of the Refurber found some apparently sensitive pictures of Plaintiff on the phone and posted them to her Facebook wall. Plaintiff sued T-Mobile, four companies related to the refurbing, and those companies’ parent for invasion of privacy and related torts. Refurbers moved to quash service of lack of personal jurisdiction, which the trial court granted.