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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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In their analysis, the Supreme Court of Ohio broke down the elements of a claim preclusion analysis: 1) a prior final, valid decision on the merits by a court of competent jurisdiction; (2) a second action involving the same parties, or their privies, as the first; (3) a second action raising claims that were or could have been litigated in the first action; and (4) a second action arising out of the transaction or occurrence that was the subject matter of the previous action. The Court held that R.C. Ch. 2506 does not permit a party to argue damages as R.C. Ch. 2506 limits the common pleas jurisdiction as if it were sitting on appeal, and therefore can only affirm, reverse, vacate, or modify the appealed order, or can remand the case to the administrative body. Further, the Court held that Grava’s conclusion that a final judgment precludes additional litigation for different relief is inapplicable under this fact pattern because it was meant only to apply to those matters in which the plaintiff brings the exact same case twice, but for new relief. The Court found Grava was inapplicable because Sheetz could have requested damages or declaratory relief in the R.C. 2506 appeal. Therefore, Grava would be nothing more than dicta if it even did apply. Going further, the Ohio Supreme Court disavowed Sixth Circuit precedent which, in reliance on Grava and other district court decisions, permitted an owner to seeking relief under 42 U.S.C. § 1983 alongside an administrative appeal. See Moore v Hiram Twp., 988 F.3d 353 (6th Cir.2021). The Ohio Supreme Court found that the Sixth Circuit had disregarded a critical decision in Community Concerned Citizens, Inc. v. Union Twp. Bd. of Zoning Appeals, 1993-Ohio-115, which clearly held that a R.C. Ch. 2506 appeal cannot be combined with a complaint seeking other claims for relief. Id. at ¶ 11. To that end, the Ohio Supreme Court has determined that the decisions Moore relied on (outside of Grava) are no longer good law, and that Moore was wrongly decided. The decision draws a clear procedural boundary: Chapter 2506 provides judicial review of an administrative decision, not a forum for independent claims seeking affirmative relief. Although Grava may place claims arising from a single transaction within the potential scope of claim preclusion, those claims are not barred unless the complete claim-preclusion test is satisfied. Because Sheetz could not have pursued damages or declaratory relief in its Chapter 2506 appeal, the separate action was not precluded. The remaining question for practitioners looking to apply or defend against this exception is when does the statute of limitations begin to run on damages and declaratory relief claims related to an administrative decision on appeal? A takings action in federal court has a 2-year statute of limitations, or as a state claim, 4 years (like the other tortious claims raised therein). Correlating this case with others, an administrative appeal will not likely toll the statute of limitations on claims based on a final decision by a municipal authority. Therefore, practitioners should look for these cases to be brought simultaneously.