We are trying hard not to fall into the current fashion of catastrophizing everything. But the SCOTUS opinion in Mallory might have been the worst recent High Court ruling for corporate defendants. This blog has spilled a lot of tears and ink on Mallory (including here, here, and here, and several other posts.) Last week, we discussed some post-Mallory developments that might furnish cause for optimism.
In Mallory the Court held that, despite the Court’s decisions in Daimler and BMS limiting personal jurisdiction over corporations, such limitations vanished if a state made acceptance of general personal jurisdiction a condition of a corporation’s registration to do business in that state. Thus, an employee not a citizen of Pennsylvania, claiming an injury that did not occur in Pennsylvania, could sue his employer, which was not incorporated in Pennsylvania and did not have its principal place of business there — but had registered to do business in Pennsylvania and thereby consented to general jurisdiction, even in a “foreign-cubed” case.
Pennsylvania is the one state that explicitly imposed that condition on corporate registration. But if there are other states that want to enliven their decaying downtowns by luring litigation tourists, perhaps we will see widescale replication of the practice. One shudders.
The Mallory decision was a bolt from the blue. After the oral argument (we commented on it here), most commentators thought the corporate defendant had the better of the dispute, and that only two of the Justices would side with the plaintiff. The Pennsylvania courts in the Mallory case had held that the Pennsylvania corporate registration statute was not consistent with the due process analyses in Daimler and BMS, and the smart money was on a High Court affirmance.
The smart money was wrong. In a strange 5-4 (or 4-1-4) outcome, the court held that Daimler and BMS had not overruled the ancient Pennsylvania Fire (1917) case, which had blessed general jurisdiction by consent. Never mind that Pennsylvania Fire was from the Pennoyer v. Neff bad old days, and the territorial view of personal jurisdiction was supposedly superseded by the fairness analysis in the International Shoe (1945) case. (The tension between the territorial and due process analyses gave rise to one of the really lame examples of legal humor, as scholars said they waiting for the other International Shoe to drop.) And never mind that the last couple of court terms have not exactly been marked by fidelity to precedent. And never mind that the Pennsylvania statute seemed like a classic case of an unconstitutional condition.
Justice Gorsuch authored the majority opinion in Mallory, in which Justices Thomas, Sotomayor, and Jackson joined. Justice Alito concurred in the result, but wondered whether the consent statute might flunk the dormant commerce clause even if it satisfied due process. Put a pin in that issue. Justice Barrett wrote the dissent, in which Chief Justice Roberts, and Justices Kagan and Kavanaugh joined. Note that the voting breakdown does not fit any sort of ideological theme. Note also that the two Justices who once upon a time taught Civil Procedure (Kagan and Barrett) would have struck down the consent statute.
This is all old news. Why are we harping on it today? Last week a new article visited our inbox: Sachs, Dormant Commerce Clause and Corporate Jurisdiction, 2023 The Supreme Court Review 213 (2024). Sachs had been an active commentator and blogger (The Volokh Conspiracy) on the Mallory case. He submitted an amicus brief in the case. Sachs is considered a prominent conservative/originalist legal scholar.
We were hoping that the article would furnish support for the dormant commerce clause. We were disappointed. But perhaps we should not have been surprised. Originalists are, by and large, not huge fans of the dormant commerce clause. Sachs pointed out that Justice Alito’s concurrence referred to the “so-called” dormant commerce clause. Nevertheless, Alito made it pretty clear that he thought the Pennsylvania statute would flunk the Pike v. Bruce Church balancing test for the dormant commerce clause. Pennsylvania simply had no legitimate interest in having its courts resolve disputes between two non-citizens over a matter having nothing to do with Pennsylvania.
We are not blind to the fact that the most recent SCOTUS pronouncement on the dormant commerce clause, National Pork Producers Council v. Ross, 598 U.S. —, 2023 WL 3356528 (U.S. May 11, 2023), rejected application of the clause. That case upheld California humane animal husbandry rules even those rules imposed enormous costs on pork producers outside of California due to the great difficulty in segregating pork products sold in one large state. Like Mallory, National Pork Producers had multiple opinions (five), with Justice Gorsuch authoring the controlling opinion. The Court held that significant extraterritorial impacts of state law do not invalidate the law without proof of an intent to discriminate against out-of-state economic interests to the advantage of in-state interests. In National Pork Producers, there was no such discrimination. The plurality opinion also suggested that the compliance costs of revamping pork production were insufficient to require a court to weigh those costs against the moral benefits California voters wanted via mandating humane animal husbandry.
But at least California would realize such benefits. What is the benefit to Pennsylvania of dragging in foreign corporations on foreign matters? Maybe some lawyers and court personnel would enjoy the heightened local litigation activity, but from the perspective of the state overall, clogging the court system cannot be a net plus.
Sachs looks at the Mallory ruling and its implications in a different way. He sees Mallory as a triumph of “very old doctrines of personal jurisdiction,” and a coda to the tug of war between territorial and due process analyses that resulted in “a complex and contradictory body of case law.” Well, we have to agree with that, having felt that way since we first read Pennoyer and International Shoe back in our first year of law school. Personal jurisdiction law, particularly with respect to corporations, has long been a mess. But Daimler and BMS were clear, consistent rules, appearing to rescue us from the mess.
If all that Sachs said was that corporate personal jurisdiction law was sloppy, we’d nod our head in agreement and move on with things. But Sachs goes on to examine the “Dormant Commerce Clause on Original Grounds.” The “Founding-era picture was that corporations had no right of their own to operate in other states.” They needed permission from other states, and those other states could impose conditions. The notion was that a corporation carried on activities in a state only by grace of that state’s permission. Then as corporations became more important in carrying on interstate commerce, they claimed greater rights (even though they lacked the privileges guaranteed to citizens under Article IV), and the dormant commerce clause carried the day, “rendering incoherent both the theory and practice of corporate jurisdiction.” It’s sort of a materialist (though not Marxist) account. It’s also radical. (Remember that Sachs has also argued against Erie v. Tompkins.) The consent theory got stomped on by International Shoe. SCOTUS “began to phrase its theory in terms of ‘presence’ or ‘doing business’ rather than ‘consent.’”
So Sachs sees modern corporate jurisdiction doctrine as a mess, mostly wrought by International Shoe. He seems to think that the consent theory was closer to the original understanding (and he repeats that “the Constitution has no corporate law”). His conclusion is that until Congress gives corporations the right to operate in other states, “or until it mandates mutual recognition of corporate privileges, these powers are still ‘reserved to the States respectively’ — right where the Constitution left them.”
For the moment we’ll take a pass on whether Sachs’s application of originalism is correct or whether it shows the problems with that approach. Let’s instead seize on his suggestion that there might be legislative solutions available to the corporate jurisdiction mess (created by Mallory, not International Shoe). First, state legislatures should not pass corporate registration statutes that impose consent to jurisdiction. Look at court budgets Consider whether it is fair or wise to turn one’s state into a litigation hellhole. Second, Congress could step in and put an end to corporate registration that extracts phony consents to jurisdiction. But even as we propose these solutions, we feel the futility. Many important court opinions come down to, ‘Congress, do your job.’ Think about the recent bump-stock decision. The problem is that Congress hardly ever does its job. Even the most enlightened legislation rationalizing corporate interstate activities would be buried under demagoguery and trial lawyer campaign contributions.
And so we continue to litigate, pushing jurisprudential boulders up steep hills.
Sachs’s article is interesting. It is insightful. It might even be brilliant. What it is not is useful.