The United States Supreme Court’s fractured ruling in Mallory v. Norfolk Southern addressed personal jurisdiction under a Pennsylvania law that required out-of-state corporations to consent to jurisdiction for “any cause of action” as part of registering to do business in the Commonwealth. Other commentators have covered varying aspects and implications of the case, but we write to highlight that the opinion should not be read to limit the ability of Delaware corporations to use exclusive forum provisions to govern internal corporate claims.
As background, the plaintiff in Mallory was a freight car mechanic and a citizen of Virginia. He sued his former employer, Norfolk Southern, in Pennsylvania, even though the injuries for which he sought workers’ compensation allegedly occurred in Ohio and Virginia, and Norfolk Southern was incorporated and had its principal place of business in Virginia. Norfolk Southern had prevailed in the Pennsylvania Supreme Court on its argument that the Commonwealth’s registration statute violated the Fourteenth Amendment’s Due Process Clause, and Mallory appealed to the Supreme Court. Five justices of the U.S. Supreme Court voted to reverse that decision and concluded that the Due Process Clause did not prohibit a state from requiring an out-of-state corporation to consent to personal jurisdiction as part of registering to do business. But Justice Alito joined only portions of Justice Gorsuch’s plurality decision and concurred based on the assumption “that the Constitution allows a State to impose such a registration requirement.” Given that assumption and the dormant commerce clause discussion in Justice Alito’s concurrence, the remanded case may eventually return to the Supreme Court on other grounds.
Much of the reaction to Mallory has been to portray the ruling as a setback for corporations that permits them to be hailed into plaintiff-friendly venues throughout the country. To start, this misses what the Supreme Court justices agreed on: the statutory scheme in Pennsylvania is not one that exists in most states.
But even assuming laws like Pennsylvania’s sweep the nation and are upheld against future constitutional challenges, the impact of the ruling can be mitigated in the realm of stockholder and derivative corporate litigation, given the ability to adopt exclusive forum provisions for internal corporate claims. Admittedly, Mallory did not involve an internal corporate dispute. But assuming the plaintiff was a stockholder rather than an injured employee, it should play out as follows. The stockholder files suit in Pennsylvania state court. The corporation moves to dismiss based on the exclusive forum provision in its charter or bylaws. The stockholder’s argument would need to be that the corporation’s registration to do business in Pennsylvania, and agreement to be subject to suit there for “any cause of action,” would trump the corporation’s exclusive forum provision. But they have a problem. As a stockholder, they too are committed to litigate in the designated forum. Existing precedent does not elevate general jurisdiction above the parties’ agreed-upon forum, as courts enforce exclusive forum provisions even if the corporation is unquestionably subject to general jurisdiction in that state’s courts. The result should thus be the corporation prevailing on its motion to dismiss, and the stockholder refiling in the designated forum.
All of this is to say that Mallory should not impact where stockholder and derivative litigation occurs. Mallory simply highlights the need for corporations to adopt exclusive forum provisions to ensure consistency and predictability in the forum for any internal corporate disputes.
Myron T. Steele is senior counsel in the Corporate Litigation Group of Potter Anderson & Corroon LLP. He is the former Chief Justice of the Supreme Court of Delaware. Nicholas D. Mozal is counsel in the Corporate Litigation Group of Potter Anderson & Corroon LLP. The views expressed by the authors are not necessarily the views of Potter Anderson & Corroon LLP or any of its clients.
8 Del. C. § 115. ↑
See Boilermakers Loc. 154 Ret. Fund v. Chevron Corp., 73 A.3d 934, 939 (Del. Ch. 2013) (“As our Supreme Court has made clear, the bylaws of a Delaware corporation constitute part of a binding broader contract among the directors, officers, and stockholders formed within the statutory framework of the DGCL.”). ↑
See City of Providence v. First Citizens BancShares, Inc., 99 A.3d 229, 231 (Del. Ch. 2014) (holding Delaware corporation could enforce provision requiring suit to be brought in North Carolina); Wong v. Restoration Robotics, Inc., 78 Cal. App. 5th 48, 57 (2022) (enforcing federal forum provision in bylaws of Delaware corporation governing claims under Securities Act of 1933 and stating stockholder could not press such claims against corporation headquartered in California in California state court). ↑
Although a current split exists between the Seventh and Ninth Circuits as to the reach of such provisions for certain claims and the Supreme Court may eventually weigh in on that question, compare Lee v. Fisher, No. 21-15923 (9th Cir. June 1, 2023) with Seafarers Pension Plan v. Bradway, 23 F.4th 714, 717 (7th Cir. 2022), there is no reason to think the current scheme will be entirely upended. ↑