Georgia's Unconstitutional Business Venue Provision: a Kingdom With Impermissible Borders

• Publication year: 2018

Georgia's Unconstitutional Business Venue Provision: A Kingdom with Impermissible Borders

Lucas Bradley

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Georgia's Unconstitutional Business Venue Provision: A Kingdom with Impermissible Borders

by Lucas Bradley^*

I. Introduction

A sub-clause of Georgia's business venue statute, as construed in October 2016, violates the Commerce Clause of the United States Constitution.¹ That statute, section 14-2-510(b) of the Official Code of Georgia Annotated (O.C.G.A.),² provides four venues (counties) in which a company can be sued for an act or omission, depending on the kind of act or omission at issue. The first three venue options apply equally to in-state and out-of-state companies.³ The fourth venue option does not. This fourth option grants in-state companies an unwarranted advantage compared to out-of-state companies and as a result, runs afoul of the Constitution's Dormant (or Negative) Commerce Clause.⁴

That fourth option allows a plaintiff to sue a company in the county where the "cause of action originated."⁵ However, the Georgia General

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Assembly realized this provision might be onerous for a corporate defendant. For example, a company could be sued in a far-flung county where the isolated event triggering a cause of action occurred, so the company would constantly risk being "home-cooked" in remote and hostile counties. Because of this risk, the provision contains a safety valve for the corporate defendant. If the fourth venue option is the sole statutory reason that venue is appropriate in a county, a company can remove the suit back to its "principal place of business."⁶ Put simply, if a company is only being sued in County X because County X is where an incident occurred, it can remove the suit back to its home county in Georgia.

The statue's plain language does not obviously discriminate between in-state and out-of-state companies. But, in Pandora Franchising, LLC v. Kingdom Retail Group, LLLP,⁷ the Georgia Supreme Court held that a company can only remove a suit back to its principal place of business if its worldwide "principal place of business" is in Georgia.⁸ A company whose worldwide principal place of business is out of state may not remove a Georgia suit to its Georgia headquarters. Because of this interpretation, a company with out-of-state headquarters lacks a crucial litigation advantage that a company with its headquarters in Georgia has.

The business venue provision thus conflicts with the Dormant Commerce Clause. That clause proscribes any law that is passed with the sole intent of disadvantaging foreign businesses—in other words, it proscribes "simple economic protectionism" that inhibits interstate trade.⁹ Moreover, even if a statute was not passed for simple economic protectionism, the Dormant Commerce Clause still requires courts to balance the government interest behind the statute against the net negative effect on interstate trade it imposes.¹⁰

The interpretation of Georgia's business venue removal provision in Pandora Franchising fails both tests. It facially discriminates against companies whose principal places of business are outside Georgia without offering much, if anything, in the way of justification. Accordingly, it is likely per se invalid. Even if the business venue removal provision is not per se invalid, it denies a key litigation advantage to out-of-state companies that it allows to in-state companies, and that discrimination serves no compelling state purpose. The burdensome

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effects on out-of-state businesses are clear: Companies that litigate in their home counties face lower transactional costs throughout litigation and enjoy a home-turf advantage that can help win at trial and drive down settlement values. Those companies also have at least two venue options to choose from; if nothing else, a company can make a reasoned choice between the venue where the alleged tort occurred and its home county.

Under Pandora Franchising, out-of-state companies are denied all these advantages.¹¹ This Article will show that the limited justifications that the Georgia General Assembly and the Georgia Supreme Court offered for the decision are of little value (if any at all). Pandora Franchising thus subjects Georgia's business venue statute to a federal constitutional challenge.

II. Georgia's Business Venue Provisions and Pandora Franchising

Two factors control where a party can bring a suit in Georgia: jurisdiction and venue.¹² While jurisdiction determines whether a defendant may constitutionally be sued in Georgia, venue determines the county in which that defendant may be sued.¹³ Like other defendants, businesses have a right under the Georgia Constitution to be sued in a constitutionally and statutorily prescribed venue.¹⁴

This Article does not address the well-established jurisdictional parameters that apply to suits against businesses in Georgia.¹⁵ However, after Pandora Franchising, venue for suits against businesses is an important and open topic. O.C.G.A. § 14-2-510(b) provides a set of four potential venues in which a business can be sued. The first three venue provisions are relatively straightforward. A domestic or foreign company can be sued:

(1) in the county in Georgia where it maintains its registered office;

(2) in the county where a contract to be enforced was made or is to be performed (for contract cases); or

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(3) "in the county where the cause of action originated, if the corporation has an office and transacts business in that county" (for tort cases).¹⁶

For most other suits against companies, Georgia established a catch-all rule, O.C.G.A. § 14-2-510(b)(4), which provides:

In actions for damages because of torts, wrong, or injury done, in the county where the cause of action originated. If venue is based solely on this paragraph, the defendant shall have the right to remove the action to the county in Georgia where the defendant maintains its principal place of business.¹⁷

In other words, a litigant may sue a company in any Georgia county where the company causes a harm, but if that is the only reason that venue exists in that county, the company may remove the case back to the "county in Georgia where [it] maintains its principal place of business."¹⁸

That raises the question—does the "county in Georgia" where a company maintains its "principal place of business" refer to: (1) the company's worldwide principal place of business, if it happens to be in Georgia; or (2) the company's principal place of doing business in Georgia? If a company with a worldwide headquarters out of state nevertheless maintains a large Georgia office in Atlanta, can it remove a suit in a far-flung county back to that primary Georgia hub?

In the 2016 case, Pandora Franchising,¹⁹ the Georgia Supreme Court answered these questions. Kingdom Retail Group filed suit against Pandora Franchising, a Maryland company, in Thomas County, Georgia pursuant to O.C.G.A. § 14-2-510(b)(4). Pandora Franchising removed the case to Gwinnett County, Georgia, noting that Gwinnett was where it "maintains its registered office as its principal place of business in Georgia." The trial court allowed this removal, the Georgia Court of Appeals reversed, and the Georgia Supreme Court granted certiorari to settle the interpretation of O.C.G.A. § 14-2-510(b)(4).²⁰

The Georgia Supreme Court held that Pandora Franchising was not allowed to remove the case back to its primary Georgia place of doing business.²¹ The court reasoned that the principal place of business described in O.C.G.A. § 14-2-510(b)(4) is analogous to a corporation's

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"nerve center" for purposes of federal diversity jurisdiction and that a company has only one such nerve center²² :

Applying the rules of statutory construction . . . we conclude the language of subsection (b)(4) confers the right of a company to remove an action in which venue is based upon this subsection only to the county in Georgia where the defendant maintains its worldwide principal place of business. If that place is not located in a Georgia county, then no right to remove is granted.²³

The court's analysis was largely textualist, exploring in detail whether its interpretation "renders the phrase 'in Georgia' meaningless" and comparing the phrasing and linguistic structure of the statute to other Georgia venue provisions.²⁴ The supreme court attempted to account for the rationale of the Georgia General Assembly—the court said that allowing companies to remove to its principal place of business in Georgia would "be subject to manipulation and forum shopping, which appears to be contrary to the purpose for which this subsection was added."²⁵ Weighing all of these factors, the Georgia Supreme Court concluded that removal was an advantage reserved only for companies whose worldwide principal places of business were within Georgia; companies with out-of-state headquarters were simply out of luck.

Filtered through the Pandora Franchising lens, O.C.G.A. § 14-2-510(b)(4) now allows a Georgia company that is subject to venue in Georgia County X, solely because the cause of action against it originated there, to remove that case to the county containing its principal place of business. However, a company whose worldwide headquarters are in Tennessee, subject to venue in the same County X for the same tort, must remain in the hostile county. As explored in subsequent sections, this arrangement does not just seem unfair—it is unconstitutional under the federal Constitution's Commerce Clause.

III. The Dormant Commerce Clause

Long ago, the Supreme Court of the United States judicially engrafted the Dormant Commerce Clause onto the Constitution's Commerce Clause.²⁶ It constitutes a "silent command that the states abstain from

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discriminating against interstate commerce."²⁷ Specifically, the clause "forbids States and their subdivisions [from] regulat[ing] interstate commerce"²⁸ or trying to advantage in-state economic...