U.S. District Court for Eastern District of Pennsylvania Concludes Pennsylvania Has No Jurisdiction Over German Company, Porsche AG

U.S. District Court for Eastern District of Pennsylvania Concludes Pennsylvania Has No Jurisdiction Over German Company, Porsche AG

U.S. District Court for Eastern District of Pennsylvania Concludes Pennsylvania Has No Jurisdiction Over German Company, Porsche AG

Joseph Riad (“Riad”) purchased a used Porsche Cayenne from an unauthorized Porsche-brand dealer. Approximately five years after he purchased the Porsche, Riad noticed problems with the vehicle’s engine, and claimed that smoke came through the air conditioning vents into the interior of the vehicle causing him permanent lung damage and asthma. Riad then sued Porsche Cars North America Inc. (“Porsche NA”) and Dr. Ing. h.c. F. Porsche Aktiengellschaft (“Porsche AG”).

Porsche AG filed a motion to dismiss arguing that in accordance with Supreme Court of Pennsylvania’s decision in Mallory v. Norfolk Southern Railway Company, 266 A.3d 542 (Pa. 2021) the Court did not have personal jurisdiction over it. In Mallory, the Supreme Court of Pennsylvania concluded that Pennsylvania’s “statutory scheme of conditioning the privilege of doing business in the Commonwealth on the submission of the foreign corporation to general jurisdiction in Pennsylvania courts strips foreign corporations of the due process safeguards guaranteed in Goodyear and Daimler, and therefore, was unconstitutional.

There are two types of personal jurisdiction: general and specific. O’Connor v. Sandy Lane Hotel Co., Ltd., 496 F.3d 312, 317 (3d Cir. 2007).  General personal jurisdiction requires that the defendant have “continuous and systematic” contacts with the forum state. Id. Specific jurisdiction involves a three-part test. Id. First, the defendant must have `purposefully directed [its] activities’ at the forum. Id. Second, the litigation must arise out of or relate to’ at least one of those activities. Id. And third, if the prior two requirements are met, a court may consider whether the exercise of jurisdiction otherwise comports with fair play and substantial justice. Id.

For the Court to exercise general jurisdiction over a corporation, the corporation must be “at home” in the forum seeking to exercise jurisdiction. Daimler AG v. Bauman, 571 U.S. 117, 137 (2014). A corporation is “at home” in its place of incorporation and its principal place of business. Id. Here, the Court concluded that because Porsche AG is incorporated under the laws of the Federal Republic of Germany, and maintains its principal place of business and corporate headquarters in Stuttgart, Germany, the Court is unable to exercise general jurisdiction over Porsche AG under the traditional principles governing general jurisdiction.

Reid however contended that the Court had jurisdiction over Porsche AG under the “alter ego theory,” which permits a court to impute the in-forum contacts of one corporate entity to another, related corporate entity where the plaintiff can `demonstrate that the out-of-forum corporation either controls or is controlled by an in-forum affiliate to such a degree that the two corporations operate as a single, amalgamated entity.'” Katz v. DNC Servs. Corp., No. 16-cv-5800, 2017 WL 5885672, at *4 (E.D. Pa. Nov. 29, 2017). The alter ego theory instructs that, if a subsidiary is merely the agent of a parent corporation, or if the parent corporation otherwise controls the subsidiary, then personal jurisdiction exists over the parent whenever personal jurisdiction (whether general or specific) exists over the subsidiary. Shuker v. Smith & Nephew, PLC, 885 F.3d 760, 781 (3d Cir. 2018).

The Court determined that Porsche AG and Porsche NA are related entities, who interact with each other pursuant to an “Importer Agreement.” The Importer Agreement provides that “[Porsche NA] shall conclude all business transactions arising from this contract, in its own name, and for its own account. [Porsche NA] is not authorized as a legal representative of Porsche [AG].” According to the Court, this specific language undermined Riad’s argument that Porsche NA is merely a “shell” of Porsche AG. Because the Court determined that Porsche NA is not an alter ego of Porsche AG, it declined to impute its exercise of general jurisdiction over Porsche NA to Porsche AG.

The Court also declined to accept specific jurisdiction over Porsche AG because it did not purposefully direct its business activities at Pennsylvania. See O’Connor, 496 F.3d at 317. The Court rejected Riad’s “stream-of-commerce” argument, which confers personal jurisdiction over a non-resident defendant when that defendant has injected its goods into the forum state indirectly, rendering it foreseeable that one of the defendant’s goods could cause injury in the forum state.” Shuker v. Smith & Nephew, PLC, 885 F.3d 760, 780 (3d Cir. 2018). Specifically, the Court determined that the stream-of-commerce theory has been rejected by the U.S. Supreme Court. See J. McIntyre Mach., Ltd. v. Nicastro, 564 U.S. 873, 877-85, 131 S. Ct. 2780, 180 L.Ed.2d 765 (2011)Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 108-13, 107 S. Ct. 1026, 94 L.Ed.2d 92 (1987).

Riad v. Porsche Cars N. Am., Inc., No. 18-5175 (E.D. Pa. Feb. 24, 2023)