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Defense Digest

Important New Developments in Jurisdiction and Venue in Pennsylvania

Defense Digest, Vol. 28, No. 3, October 2022

October 1, 2022

Key Points:

  • The Pennsylvania Superior Court has made it more difficult for businesses to challenge venue based on having minimal contact in the county where suit was filed.
  • The Pennsylvania Supreme Court has held that a business is not subject to jurisdiction in Pennsylvania solely on the basis that it has registered to do business here.

Two new appellate cases in Pennsylvania have, at least for now, significantly altered the landscape on jurisdiction and venue in Pennsylvania.

The change in jurisdiction comes as a result of a Pennsylvania Superior Court ruling in Mallory v. Southern Railway Co., 266 A.3d. 542 (Pa. Super. 2021), where the court decided that a corporation cannot be made subject to jurisdiction in Pennsylvania based solely on the fact that it has registered to do business in Pennsylvania, which has long been the standard. Mallory arose out of a claim by a former Norfolk Southern employee who brought suit in the Philadelphia Court of Common Pleas for cancer alleged to have been caused by asbestos exposure while he worked for the company in Ohio and Virginia. The plaintiff did not allege that any harmful exposure occurred in Pennsylvania, and the Virginia-based defendant did not have any direct connection to Pennsylvania.

However, Pennsylvania has a requirement, pursuant to Pa.C.S. § 5301(a)(2), that a corporation which desires to do business in Pennsylvania must register to do business and submit to general jurisdiction in Pennsylvania. Norfolk Southern argued that it had no connection to Pennsylvania and that it had not consented to jurisdiction by merely registering to do business. The trial court agreed and dismissed the plaintiff’s action.

On appeal by the plaintiff, the Superior Court upheld the ruling by the trial court, as did the Pennsylvania Supreme Court, which noted that the corporation, faced with the choice between registering or not being allowed to do business in the state, had not voluntarily consented to jurisdiction. Instead, “(f)aced with this Hobson’s Choice, a foreign corporation’s consent to general jurisdiction in Pennsylvania can hardly be considered voluntary.” As such, Pennsylvania’s general jurisdiction statute violated the defendant’s 14th Amendment right to due process under the law.

As a result of this holding, at least for now, there is no general jurisdiction over corporations in Pennsylvania based solely on registering to do business in the Commonwealth. However, the United States Supreme Court has taken up the case. That court’s decision could have important implications for corporations across the nation.

On the one hand, a ruling affirming the Pennsylvania Supreme Court’s holding would not have a great impact, as the majority of states do not have similar laws regarding consent to jurisdiction through registration to do business. On the other hand, if the United States Supreme Court rules in favor of the plaintiff, it could broaden the venues where corporations could be sued and might prompt forum shopping by plaintiffs seeking more plaintiff-friendly venues. Certainly, corporations and their insurers will be opposing venue based on registration for the time being and awaiting the decision of the United States Supreme Court.

The new, and unfortunate, change in Pennsylvania law on venue arises out of the ruling in Hangey v. Husqvarna, et al., 247 A.3d. 1136 (Pa. Super. 2021), which makes it much easier for plaintiffs to obtain venue over businesses and correspondingly more difficult for businesses to challenge venue in unfavorable venues, such as Philadelphia County, based on a lack of contact with the county. The plaintiff, a Bucks County resident, purchased a riding mower from a dealer in Bucks County and was injured in Bucks County when he fell off his mower and it ran over him. The plaintiff filed suit in Philadelphia County. The defendant challenged venue, arguing that it did not regularly conduct business in Philadelphia County. It established that it did $1.4 billion in sales in the United States in the year of the accident, of which a mere $75,310 came from sales in Philadelphia County, almost all of which came from a single dealer. This amounted to an infinitesimal fraction of its sales, only 0.005%. The Philadelphia trial court found that the defendant’s contact with Philadelphia was not sufficient to establish venue there and transferred the case out of Philadelphia to Bucks County. The plaintiff appealed the ruling to the Pennsylvania Superior Court.

In order to determine venue, courts have traditionally assessed whether a defendant’s contacts with the plaintiff’s chosen venue are of sufficient quantity and quality. The previous rule had been that the quantity test was satisfied if the defendant did about one percent or more of its business in a chosen venue. This percentage standard was equitable because it applied the same standard to large and small businesses.

Unfortunately, Hangey has thrown out this standard and completely changed the applicable venue analysis. The Hangey decision held that:

The percentage of a company’s overall business that it conducts in a given county, standing alone, is not meaningful and is not determinative of the ‘quantity’ prong. Each case turns on its own facts and we must evaluate evidence of the extent of a Defendant’s business against the nature of the business at issue. A small or local business may do all of its work in just a few counties or even a single one, while a large may span the entire nation. Indeed, the percentage of sales in a multi-billion-dollar company makes in a particular county will almost always be a tiny percentage of its total sales. Courts thus should not consider percentages in isolation. Rather, Courts must consider all of the evidence in context to determine whether the Defendant’s business activities in the county were regular, continuous and habitual.

Boiled down, the effect of this decision is that venue can now be established by either a tiny percentage of business done in a county or a very low dollar amount of revenue, especially for a large company. Large companies can now be subject to venue merely because they generate significant revenue in a county, even if the percentage of that revenue is miniscule. For example, venue over a company that produces expensive products could foreseeably be established by the sale of only a few units of that product within the county. In challenging venue, defendants can no longer rely on a low percentage of business in a county, but must go beyond that to address the volume of revenue. Unfortunately, that bar has been set very low at $75,000.

In May 2022, the Pennsylvania Supreme Court granted review of Hangey. Defendants should still consider asserting improper venue in case the Pennsylvania Supreme Court reverses Hangey. Nevertheless, if the issue is not raised, a reversal by the Pennsylvania Supreme Court would be a change in the law, which could also be a fair basis to raise the issue for the first time.


 

Defense Digest, Vol. 28, No. 3, October 2022 is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2022 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

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