Qualifying to Do Business in Another State:
The CSC 50-State Guide to Qualification

In June 2023, the United States Supreme Court rendered a decision that could significantly impact companies’ decisions on whether to qualify to do business in foreign states.

The following excerpt from the 2024 edition of CSC’s Qualifying to Do Business in Another State: The CSC 50-State Guide to Qualification summarizes the Supreme Court’s decision and the possible ramifications for companies looking to qualify outside their state of formation.

In Mallory v. Norfolk Southern Railway, the Supreme Court majority ruled that states can require corporations to agree to the jurisdiction of their courts as a condition of doing business there.¹ This potentially means that businesses can be sued in any state where they’ve registered to do business.

The case originated in Pennsylvania, where the plaintiff, a resident of Virginia, sued Norfolk Southern Railway, a Virginia corporation, in Philadelphia’s Court of Common Pleas. The plaintiff, a former employee of the railroad company, sued the company for negligence, claiming he developed colon cancer as a result of on-the-job exposure to asbestos and other toxic chemicals.

The plaintiff made the unusual decision to bring the suit in Pennsylvania — despite the fact he was a resident of Virginia and Norfolk Southern Railway is domiciled in the same state — arguing there was personal jurisdiction over the defendant under a Pennsylvania statute² that stipulates if a foreign corporation qualifies to do business in Pennsylvania, general personal jurisdiction is established in the Pennsylvania courts.

The railroad company contested jurisdiction on the grounds that the assertion of personal jurisdiction in Pennsylvania violated the due process clause of the Fourteenth Amendment. The trial court agreed³ — and the Pennsylvania Supreme Court affirmed — that establishing general personal jurisdiction through qualification was a violation of the defendant corporation’s due process rights. The court decisions found that a company is subject to personal jurisdiction in the state where it maintains its principal place of business, and that bringing a suit in a foreign state where it’s not “at home” violates its right to due process.

Mallory appealed to the U.S. Supreme Court, which agreed to hear the case in April 2022. During oral arguments in November 2022, Mallory’s attorneys contended that, according to the Pennsylvania statute in question, any company that registers to do business there automatically consents to general jurisdiction in the state, arguing further that the statute is consistent with the “original” intent of the Fourteenth Amendment. For its part, the defendant argued that the originalist interpretation of the Amendment was rendered obsolete by the 1945 International Shoe Co. v. Washington decision, where U.S. Supreme Court justices found that companies can be sued based on their business activities in a state, not merely because they’ve registered to do business there.

The Supreme Court, in a 5-4 decision on June 27, 2023, disagreed with the defendant and sided with Mallory, ruling that consent-by-registration jurisdiction doesn’t violate the Due Process Clause of the Fourteenth Amendment and found that general personal jurisdiction can be established just by qualifying to do business in a state.⁴ As a result, foreign corporations that are neither organized under Pennsylvania law nor have Pennsylvania as their principal place of business should consider very carefully whether they are required to, or should, register in Pennsylvania. Mallory makes it clear that 42 Pa. C.S. §5301, requiring out-of-state companies that register to do business in Pennsylvania to agree to appear in Pennsylvania courts on “any cause of action,” will be read literally.

As of the date of publication of this book, Pennsylvania, Minnesota, and Georgia are the only states that have a statute like this. Similar legislation has been introduced twice in New York, the latest being Senate Bill S7476 in 2023. New York Governor Kathy Hochul vetoed the bill at the end of 2023. This is in line with a holding by the Court of Appeals of New York on October 7, 2021, in which the court stated that “[New York’s] Business Corporation Law does not deem a foreign corporation’s registration to do business in New York as consent to be sued in the state for all causes of action.^”5

Pennsylvania federal courts have already begun to interpret the Mallory ruling. In September 2023, the United States District Court for the Eastern District of Pennsylvania found that Mallory only applies if a foreign entity has registered to do business in Pennsylvania.⁶The court refused to entertain an argument that failure to properly qualify created ’consent’ to general jurisdiction over all claims against defendants, whatever other penalties may exist.^”7

Federal courts in other states, such as North Carolina, have held that the Mallory ruling doesn’t apply to their state statutes.⁸ In January 2024, the United States District Court for the Eastern District of North Carolina agreed with a decision by a Missouri federal court, in which the following was stated: “absent a [state] statute providing an explicit grant of general jurisdiction over registered foreign corporations, the holding in Mallory is not applicable.^”9

Similarly, in January 2024, the U.S. District Court for the District of New Jersey granted defendants’ motion to dismiss in a case where a remote employee who was a New Jersey resident sued their employer, a New York corporation, for breach of contract under their employment agreement.¹⁰ The employee filed the suit in a New Jersey court, arguing that the jurisdiction was established over the defendant there because the defendant registered to do business as a foreign corporation in New Jersey. The District Court, disagreed, finding that the defendant hadn’t consented to jurisdiction in New Jersey by registering to do business there, and New Jersey had no statute like Pennsylvania which decrees that registering to do business is consenting to be sued in New Jersey.¹¹

The Missouri Supreme Court found similarly in November 2023. ¹² The court determined that the Missouri trial court doesn’t have personal jurisdiction over a foreign corporation registered to do business in Mississippi because the Mississippi Code provision subjecting foreign corporations to the same treatment as domestic corporations—when considered together with another Mississippi Code provision that the appointment or maintenance in the state of a registered agent is not by itself a basis for personal jurisdiction—doesn’t confer general personal jurisdiction over registered foreign corporations. The corporation didn’t waive its objection because its notices of appearance were not responsive pleadings and it complied with the state civil rules of procedure by asserting in a timely filed answer that personal jurisdiction was lacking. ¹³

Qualifying to Do Business in Another State: The CSC 50-State Guide to Qualification

Qualifying to Do Business in Another State: The CSC 50-State Guide to Qualification is a comprehensive toolbox to help business and legal professionals better understand foreign qualification and avoid the consequences of failing to qualify. Using case illustrations, the book provides insight and analysis of the types of activities that do and do not trigger the qualification requirement.

The book explores the Model Business Corporation Act (MBCA), which serves as a template for most states’ laws governing foreign corporations’ business activities within their borders. It examines the activities listed in the MBCA that are not subject to regulation, and the activities that require a foreign corporation to register to business. There is also a discussion of how internet and e-commerce activity could trigger qualification requirements, and a look at the consequences of doing business without qualifying.

Step-by-step instructions are provided for qualifying to do business in foreign states, as well as registration procedures for charitable organizations.

The book also includes a comprehensive scope of annotated qualification statutes for all jurisdictions, giving legal practitioners easy access to the current statutes and relevant case notes that relate to doing business in a foreign state. Statutes have been updated for the 2024 Edition.

Two charts summarize the activities that do not constitute doing business and the consequences of failing to qualify. Both charts are up-to-date and include comments and statutory citations.

The guide also includes online access to qualification forms for all U.S. jurisdictions via the LexisNexis^® Store download center. The forms appendix provides a complete listing of forms and contact information for each jurisdiction's Secretary of State or equivalent agency.

The 2024 Edition of Qualifying to do Business in Another State is available as a softbound book or as an eBook, compatible with dedicated eReader devices, computers, tablets, and smartphones that use eReader software or applications. It is also available on the LexisNexis^® Digital Library.

To learn more about the 2024 Edition of Qualifying to do Business in Another State, call 1.800.533.1637 or visit us online at www.lexisnexis.com/csc.

References
1.600 U.S. 122 (2023).
2.42 Pa.C.S. § 5301.
3.Mallory v. Norfolk S. Ry. Co., 266 A.3d 542, 546 (Pa. 2021).
4.Mallory v. Norfolk Southern Railway Co., 600 U.S. 122.
5.Aybar v. Aybar, 177 N.E.3d 1257 (N.Y. Ct. App. 2021).
6.Simon v. First Sav. Bank of Ind., U.S. Dist. LEXIS 163061 (E.D. Pa. Sep. 14, 2023).
7.Simon, 2023 U.S. Dist. LEXIS 163061 at *8.
8.Bancredito Holding Corp. v. Driven Admin. Servs. LLC, 2024 U.S. Dist. LEXIS 36571 (E.D.N.C. Jan. 8, 2024).
9.Bancredito Holding Corp. v. Driven Admin. Servs. LLC, 2024 U.S. Dist. LEXIS at *6, citing Sahm, v. Avco Corp. et al., 2023 U.S. Dist. LEXIS 215983 at *4 (E.D. Mo. Dec. 5, 2023).
10.Haller v. Usman, 2024 U.S. Dist. LEXIS 5845 (D.N.J. Jan. 10, 2024).
11.Haller, 2024 U.S. Dist. LEXIS at *11.
12.K&C Logistics, LLC v. Old Dominion Freight Line, Inc., 374 So. 3d 515 (Miss. 2023).
13.K&C Logistics, LLC, 374 So. 3d at 515.