v. Simonds Abrasive Co.
(1) In footnote 10 of Hughes, the Court mentioned that the case did not involve the typical choice-of-law problem in which the forum sought to supplant the law of the alternative state by applying its own law instead. What kind of problem is this, then? Note that the claim was that Wisconsin law was invalid rather than (as in the usual choice-of-law context) that it was a valid law that could not constitutionally be applied. Does this matter?
(2) Brainerd Currie found Hughes paradoxical because it compelled the forum to entertain the case but did not compel it to apply Illinois law. The Constitution and the “Transitory” Cause of Action, in Selected Essays on the Conflict of Laws 282, 282-283 (1963). Whether this is in fact paradoxical has been disputed. Martin, Constitutional Limits on Choice of Law, 61 Cornell L. Rev. 185, 219-220 (1976); Kirgis, The Roles of Due Process and Full Faith and Credit in Choice of Law, 62 Cornell L. Rev. 94, 118 (1976).
(3) Can Hughes be squared with Gulf Oil Co. v. Gilbert, 330 U.S. 501 (1947), in which the Supreme Court approved the doctrine of forum non conveniens for the federal courts? Are the federal courts and the Wisconsin courts different enough to require one court to entertain a cause of action and not another? Or is forum non conveniens constitutional only when there are not as many contacts between the case and the forum as in Hughes? Or is the reason for the refusal to hear the case the critical factor? Can Hughes be squared with long-arm jurisdictional statutes that provide jurisdiction only where the cause of action accrued within the state?
(4) Shouldn’t the recovery portions of the Illinois wrongful-death statute, to which Hughes said Wisconsin must give full faith and credit, be read together with that provision of the Illinois act (referred to in the last paragraph of the Frankfurter dissent and in the preceding note by Professor Currie), which would have done exactly the same thing that the Wisconsin courts attempted in Hughes if the facts had been reversed? In light of the no-foreign-accident provision of the Illinois statute, how can the Wisconsin courts be said to have ignored the policy of the Illinois statute?
(5) How does Wells compare with Sun Oil v. Wortman, reprinted at page 333 supra? Note that Wortman cannot be phrased in terms of whether the forum gave too little credit to the substantive cause of action under another state, for the forum limitations period in Wortman was longer, not shorter, as in Wells. At most, Wortman involves a claim of lack of respect for the foreign statute of limitations; that is, Wortman necessarily involves only a choice-of-law question (which limitations period to apply), while Wells raises arguments about respect for both the limitations period and the substantive cause of action. The latter is not really a choice-of-law problem because the forum has already agreed to apply the other state’s substantive law.
(6) Professor Kramer provocatively argues that the public policy exception in choice of law, discussed supra pages 290, cannot survive Hughes and Wells:
An accurate statement of the holding in Hughes would thus seem to be that state rules that discriminate against the laws of other states are subject to some form of intermediate constitutional scrutiny; that is, they must be justified by substantial reasons, and the discrimination must bear a substantial relationship to the state’s objectives.… This antidiscrimination principle is, in fact, how the Court explained Hughes in its subsequent decision in Wells, which said that the result turned on the fact that “the forum laid an uneven hand on causes of action arising within and without the forum state. Causes of action arising in sister states were discriminated against.” But if that is the test, the public policy doctrine must be unconstitutional. For surely “offensiveness” cannot be an appropriate reason under the Full Faith and Credit Clause for refusing to entertain a claim based on another state’s law. It is difficult to think of a justification more at odds with the principal mission of the Clause.… [The Clause forbids] a state’s refusal to apply another state’s law, otherwise applicable under the forum’s choice of law rules, on the ground that it promotes a policy the forum finds repugnant.
See Kramer, Same-Sex Marriage, Conflict of Laws, and the Unconstitutional Public Policy Exception, 106 Yale L.J. 1965, 1984-1987 (1997). Do you agree with this reasoning? Kramer goes on to argue that the purposes animating the full faith and credit clause—to bind states “more closely together,” and to impose “mutual obligations to respect each other’s laws and judgments,” id. at 1986—are best served by elimination of the public policy exception. Couldn’t one just as well argue that the public policy exception promotes interstate harmony by giving states a safety valve to avoid application of laws they deem unjust? Kramer thinks not. See id. at 1987-1991.
(7) Hughes concerns the constitutional obligation to provide a forum for a foreign cause of action. What if the state that created the cause of action does not want the action brought in another state’s courts? In Tennessee Coal, Iron & Railroad Co. v. George, 233 U.S. 354 (1914), a plaintiff injured on the job in Alabama sued his employer in a Georgia state court under §3910 of the 1907 Alabama Code, which provided for vicarious liability under certain circumstances. A different section of the Alabama Code stated that all actions under §3910 must be brought “in a court of competent jurisdiction within the State of Alabama and not elsewhere.” The defendant argues that the full faith and credit clause required the Georgia court to respect this provision and dismiss the case. The Supreme Court disagreed. After asserting that the right to sue was separable from the remedy, it stated that “a State cannot create a transitory cause of action and at the same time destroy the right to sue on the transitory cause of action in any court having jurisdiction. That jurisdiction is to be determined by the law of the court’s creation and cannot be defeated by the extraterritorial operation of a statute of another State, even though it created the right of action.” Is Tennessee Coal a First Restatement relic?
Tennessee Coal was followed in Crider v. Zurich Insurance Co., 380 U.S. 39 (1965). There the forum had disregarded a provision by the state creating the cause of action, which required that the cause of action be enforced only before a local administrative tribunal. The Court agreed, relying on the fact that the forum had an interest in providing a means of recovery for the plaintiff who was a forum resident. Should such an interest be a necessary condition for entertaining the cause of action? How can the forum have an “interest” in providing recovery under another state’s law?
(8) Justice Black holds that “full faith and credit does not automatically compel a forum state to subordinate its own statutory policy to a conflicting public act of another state; rather, it is for this Court to choose in each case between the competing public policies involved.” However, he does not offer a concrete rule or principle that would guide federal courts in making this judgment. Without an overarching guideline, how could courts apply the full faith and credit clause in a consistent fashion? Just six years after Hughes, Vanderbilt v. Vanderbilt, 354 U.S. 416 (1957) tested the consistency of the Supreme Court’s own application of the full faith and credit clause.
Cornelius Vanderbilt IV, of the famous tycoon family, separated from his wife Patricia in 1952. Id. at 416. Patricia moved to New York, while Cornelius moved to Nevada. Id. There, Cornelius secured a decree of divorce providing that “both husband and wife were ‘freed and released from the bonds of matrimony and all the duties and obligations thereof.’” Id. at 417. Patricia was not served in Nevada and did not appear before the divorce court. Id. Patricia successfully sued Cornelius in New York for alimony and Cornelius appealed, arguing that the full faith and credit clause compelled the New York court to treat the Nevada divorce as having freed him from “all the duties and obligations” resulting from the marriage. Id. The Supreme Court ruled that “to the extent it purported to affect the wife’s right to support … [the divorce decree] was void and the Full Faith and Credit Clause did not obligate New York to give it recognition” because Nevada courts, having no jurisdiction over Patricia, could not “extinguish any right which she had under the law of New York to financial support from her husband.” Id. at 418.
The Court implies that the Nevada courts can grant divorce without the presence of one spouse, but cannot extinguish the right to alimony ex parte. Why should states grant full faith and credit to one kind of ex parte action but not the other? Justice Frankfurter dissented from Vanderbilt on this ground, arguing that the majority provides “no explanation … [for] why the dissolution of the marital relation is not so ‘personal’ as to require personal jurisdiction, while the denial of alimony incident thereto is.” Id. at 424 (Frankfurter, J., dissenting). Can Hughes explain the Court’s decision in Vanderbilt?
(9) In addition to their obligation to admit certain causes of action created by other states, states also have an obligation to admit certain causes of action created by federal law. In Haywood v. Drown, 556 U.S. 729, 740 n.7 (2009), the Court explained that it “saw no reason to treat the Supremacy Clause differently” from the full faith and credit clause, citing to Hughes. However, the Court has also ruled in an analogous case that “[a] valid excuse to [the Supremacy Clause] may exist when a state court refuses jurisdiction because of a neutral state rule of judicial administration … unless that rule is pre-empted by federal law.” Howlett By and Through Howlett v. Rose, 496 U.S. 356, 357 (1990). What would be an intelligible principle delineating permissible exceptions to the Supremacy Clause?
The Court has not yet elaborated on the “valid excuse” it referred to in Howlett. In Haywood v. Drown, 556 U.S. 729 (2009), the most recent in the line of cases arising from a state’s attempted exclusion of a federal cause of action, a state prisoner brought civil rights actions in New York state court against several correction employees. The trial court dismissed the action as barred by a state jurisdictional statute requiring such causes of action to be tried in the New York Court of Claims, and the prisoner appealed. The Supreme Court held for the petitioner, ruling that “having made the decision to create courts of general jurisdiction that regularly sit to entertain analogous suits [civil rights actions against state officials other than corrections officers], New York is not at liberty to shut the doors to federal claims that it considers at odds with its local policy. Id. at 740. Does the Court mean that, if New York courts did not allow civil rights actions against other types of state officials, New York could have denied Haywood’s suit against its correction officers? For further discussion of the supremacy clause and its constraint on states’ ability to exclude unwanted federal causes of action, see Brilmayer & Underhill, Congressional Obligation to Provide a Forum for Constitutional Claims: Discriminatory Jurisdictional Rules and Conflict of Laws, 69 Va. L. Rev. 819 (1983).
State of Nevada v. Hall
440 U.S. 410 (1979)
Justice STEVENS delivered the opinion of the Court.
In this tort action arising out of an automobile collision in California, a California court has entered a judgment against the State of Nevada that Nevada’s own courts could not have entered. We granted certiorari to decide whether federal law prohibits the California courts from entering such a judgment or, indeed, from asserting any jurisdiction over another sovereign State.
The respondents are California residents. They suffered severe injuries in an automobile collision on a California highway on May 13, 1968. The driver of the other vehicle, an employee of the University of Nevada, was killed in the collision. It is conceded that he was driving a car owned by the State, that he was engaged in official business, and that the University is an instrumentality of the State itself.
… A Nevada statute places a limit of $25,000 on any award in a tort action against the State pursuant to its statutory waiver of sovereign immunity. Nevada argued that the Full Faith and Credit Clause of the United States Constitution required the California courts to enforce that statute. Nevada’s motion was denied, and the case went to trial.
The jury concluded that the Nevada driver was negligent and awarded damages of $1,150,000. The Superior Court entered judgment on the verdict and the Court of Appeal affirmed. After the California Supreme Court denied review, the State of Nevada and its University successfully sought a writ of certiorari.
Despite its importance, the question whether a State may claim immunity from suit in the courts of another State has never been addressed by this court. The question is not expressly answered by any provision of the Constitution; Nevada argues that it is implicitly answered by reference to the common understanding that no sovereign is amenable to suit without its consent—an understanding prevalent when the Constitution was framed and repeatedly reflected in this Court’s opinions. In order to determine whether that understanding is embodied in the Constitution, as Nevada claims, it is necessary to consider (1) the source and scope of the traditional doctrine of sovereign immunity; (2) the impact of the doctrine on the framing of the Constitution; (3) the Full Faith and Credit Clause; and (4) other aspects of the Constitution that qualify the sovereignty of the several States.
Unquestionably the doctrine of sovereign immunity was a matter of importance in the early days of independence. Many of the States were heavily indebted as a result of the Revolutionary War. They were vitally interested in the question whether the creation of a new federal sovereign, with courts of its own, would automatically subject them, like lower English lords, to suits in the courts of the “higher” sovereign.
But the question whether one State might be subject to suit in the courts of another State was apparently not a matter of concern when the new Constitution was being drafted and ratified. Regardless of whether the Framers were correct in assuming, as presumably they did, that prevailing notions of comity would provide adequate protections against the unlikely prospect of an attempt by the courts of one State to assert jurisdiction over another, the need for constitutional protection against that contingency was not discussed.
The debate about the suability of the States focused on the scope of the judicial power of the United States authorized by Art. III. In The Federalist, Hamilton took the position that this authorization did not extend to suits brought by an individual against a nonconsenting State. The contrary position was also advocated and actually prevailed in this Court’s decision in Chisholm v. Georgia.
The Chisholm decision led to the prompt adoption of the Eleventh Amendment. That Amendment places explicit limits on the powers of federal courts to entertain suits against a State.19
The language used by the Court in cases construing these limits, like the language used during the debates on ratification of the Constitution, emphasized the widespread acceptance of the view that a sovereign State is never amenable to suit without its consent. But all of these cases, and all of the relevant debate, concerned questions of federal court jurisdiction and the extent to which the States, by ratifying the Constitution and creating federal courts, had authorized suits against themselves in those courts. These decisions do not answer the question whether the Constitution places any limit on the exercise of one State’s power to authorize its courts to assert jurisdiction over another State. Nor does anything in Art. III authorizing the judicial power of the United States, or in the Eleventh Amendment limitation on that power, provide any basis, explicit or implicit, for this Court to impose limits on the powers of California exercised in this case. A mandate for federal-court enforcement of interstate comity must find its basis elsewhere in the Constitution.
Nevada claims that the Full Faith and Credit Clause of the Constitution requires California to respect the limitations on Nevada’s statutory waiver of its immunity from suit. That waiver only gives Nevada’s consent to suits in its own courts. Moreover, even if the waiver is treated as a consent to be sued in California, California must honor the condition attached to that consent and limit respondent’s recovery to $25,000, the maximum allowable in an action in Nevada’s courts.
The Full Faith and Credit Clause does require each State to give effect to official acts of other States. A judgment entered in one State must be respected in another provided that the first State had jurisdiction over the parties and the subject matter.… But this Court’s decision in Pacific Insurance Co. v. Industrial Accident Commission clearly establishes that the Full Faith and Credit Clause does not require a State to apply another State’s law in violation of its own legitimate public policy.… The interest of California afforded such respect in the Pacific Insurance case was in providing for “the bodily safety and economic protection of employees injured within it.” In this case, California’s interest is the closely related and equally substantial one of providing “full protection to those who are injured on its highways through the negligence of both residents and nonresidents.” To effectuate this interest, California has provided by statute for jurisdiction in its courts over residents and nonresidents alike to allow those injured on its highways through the negligence of others to secure full compensation for their injuries in the California courts.
In further implementation of that policy, California has unequivocally waived its own immunity from liability for the torts committed by its own agents and authorized full recovery even against the sovereign. As the California courts have found, to require California either to surrender jurisdiction or to limit respondents’ recovery to the $25,000 maximum of the Nevada statute would be obnoxious to its statutorily based policies of jurisdiction over nonresident motorists and full recovery. The Full Faith and Credit Clause does not require this result.24
Even apart from the Full Faith and Credit Clause, Nevada argues that the Constitution implicitly establishes a Union in which the States are not free to treat each other as unfriendly sovereigns, but must respect the sovereignty of one another. While sovereign nations are free to levy discriminatory taxes on the goods of other nations or to bar their entry altogether, the States of the Union are not. Nor are the States free to deny extradition of a fugitive when a proper demand is made by the executive of another State. And the citizens in each State are entitled to all privileges and immunities of citizens in the several States.
Each of these provisions places a specific limitation on the sovereignty of the several States. Collectively they demonstrate that ours is not a union of 50 wholly independent sovereigns. But those provisions do not imply that any one State’s immunity from suit in the courts of another State is anything other than a matter of comity. Indeed, in view of the Tenth Amendment’s reminder that powers not delegated to the Federal Government nor prohibited to the States are reserved to the States or to the people, the existence of express limitations on state sovereignty may equally imply that caution should be exercised before concluding that unstated limitations on state power were intended by the Framers.
In the past, this Court has presumed that the States intended to adopt policies of broad comity toward one another. But this presumption reflected an understanding of state policy, rather than a constitutional command. As this Court stated in Bank of Augusta v. Earle,
The intimate union of these states, as members of the same great political family; the deep and vital interests which bind them so closely together; should lead us, in the absence of proof to the contrary, to presume a greater degree of comity, and friendship, and kindness towards one another, than we should be authorized to presume between foreign nations. And when (as without doubt must occasionally happen) the interest of policy of any state requires it to restrict the rule, it has but to declare its will, and the legal presumption is at once at an end.
In this case, California has “declared its will”; it has adopted as its policy full compensation in its courts for injuries on its highways resulting from the negligence of others, whether those others be residents or nonresidents, agents of the State, or private citizens. Nothing in the Federal Constitution authorizes or obligates this Court to frustrate that policy out of enforced respect for the sovereignty of Nevada.29 In this Nation each sovereign governs only with the consent of the governed. The people of Nevada have consented to a system in which their State is subject only to limited liability in tort. But the people of California, who have had no voice in Nevada’s decision, have adopted a different system. Each of these decisions is equally entitled to our respect.
It may be wise policy, as a matter of harmonious interstate relations, for States to accord each other immunity or to respect any established limits on liability. They are free to do so. But if a federal court were to hold, by inference from the structure of our Constitution and nothing else, that California is not free in this case to enforce its policy of full compensation, that holding would constitute the real intrusion on the sovereignty of the States—and the power of the people—in our Union.
The judgment of the California Court of Appeal is affirmed.
Justice BLACKMUN, with whom THE CHIEF JUSTICE and Justice REHNQUIST join, dissenting.
[T]he Court paints with a very broad brush, and I am troubled by the implications of its holding. Despite a fragile footnote disclaimer, ante … n.24, the Court’s basic and undeniable ruling is that what we have always thought of as a “sovereign State” is now to be treated in the courts of a sister State, once jurisdiction is obtained, just as any other litigant. I fear the ultimate consequences of that holding, and I suspect that the Court has opened the door to avenues of liability and interstate retaliation that will prove unsettling and upsetting for our federal system. Accordingly, I dissent.
It is important to note that at the time of the Constitutional Convention, as the Court concedes, there was “widespread acceptance of the view that a sovereign State is never amenable to suit without its consent.” … The Court also acknowledges that “the notion that immunity from suit is an attribute of sovereignty is reflected in our cases.” … Despite these concessions, the Court holds that the sovereign immunity doctrine is a mere matter of “comity” which a State is free to reject whenever its “policy” so dictates.…
There is no limit to the breadth of the Court’s rationale, which goes beyond the approach taken by the California Court of Appeal in this case. That court theorized that Nevada was not “sovereign” for purposes of this case because sovereignty ended at the California-Nevada line.…
That reasoning finds no place in this Court’s opinion. Rather, the Court assumes that Nevada is “sovereign,” but then concludes that the sovereign-immunity doctrine has no constitutional source. Thus, it says, California can abolish the doctrine at will.…
The Court, by its footnote 24 … purports to confine its holding to traffic-accident torts committed outside the defendant State, and perhaps even to traffic “policies.” Such facts, however, play absolutely no part in the reasoning by which the Court reaches its conclusion.… If, indeed, there is “[n]othing in the Federal Constitution” that allows frustration of California’s policy, it is hard to see just how the Court could use a different analysis or reach a different result in a different case.…
I must agree with the Court that if the judgment of the California Court of Appeal is to be reversed, a constitutional source for Nevada’s sovereign immunity must be found. I would find that source not in an express provision of the Constitution but in a guarantee that is implied as an essential component of federalism.…
… The Court’s acknowledgment, referred to above, that the Framers must have assumed that States were immune from suit in the courts of their sister States lends substantial support. The only reason why this immunity did not receive specific mention is that it was too obvious to deserve mention. The prompt passage of the Eleventh Amendment nullifying the decision in Chisholm v. Georgia, is surely significant. If the Framers were indeed concerned lest the States be haled before the federal courts—as the courts of a “‘higher’ sovereign,”—how much more must they have reprehended the notion of a State’s being haled before the courts of a sister State. The concept of sovereign immunity prevailed at the time of the Constitutional Convention. It is, for me, sufficiently fundamental to our federal structure to have implicit constitutional dimension. Indeed, if the Court means what it implies in its footnote 24—that some state policies might require a different result—it must be suggesting that there are some federalism constraints on a State’s amenability to suit in the courts of another State. If that is so, the only question is whether the facts of this case are sufficient to call the implicit constitutional right of sovereign immunity into play here. I would answer that question in the affirmative.…
Justice REHNQUIST, with whom THE CHIEF JUSTICE joins, dissenting. I am … concerned about the practical implications of this decision. The federal system as expressed in the Constitution—with the exception of representation in the House—is built on notions of state parity. No system is truly federal otherwise. This decision cannot help but induce some “Balkanization” in state relationships as States try to isolate assets from foreign judgments and generally reduce their contacts with other jurisdictions. That will work to the detriment of smaller States—like Nevada—who are more dependent on the facilities of a dominant neighbor—in this case, California.
The problem of enforcement of a judgment against a State creates a host of additional difficulties. Assuming Nevada has no seizable assets in California, can the plaintiff obtain enforcement of California’s judgment in Nevada courts? Can Nevada refuse to give the California judgment “full faith and credit” because it is against state policy? Can Nevada challenge the seizure of its assets by California in this Court? If not, are the States relegated to the choice between the gamesmanship and tests of strength that characterize international disputes, on the one hand, and the midnight seizure of assets associated with private debt collection on the other? …
Questions and Comments
(1) States may ordinarily apply their own law to the collection of judgments—for example, a state’s homestead exemption applies not only to its own judgments but to judgments it renders to enforce the judgments of other states with different homestead exemptions. Such rules may not, of course, discriminate in favor of in-state judgment debtors or against out-of-state judgment creditors. What would happen if Nevada withdrew its assets from California to avoid judgment collection there and further provided that state assets were exempt within Nevada? Such a statute would not clearly run afoul of prescriptions against discrimination since presumably even Nevada judgments against the state cannot be satisfied by seizure and sale of the state capitol. Could other states also exempt the assets of any state, thus keeping California from seizing Nevada assets elsewhere?
Could a similar result be accomplished by making the University of Nevada a separate legal entity, so that assets belonging to the state of Nevada and deposited in California bank accounts would not belong to the defendant? Under such circumstances, wouldn’t the California plaintiff have to try to collect its judgment in Nevada, subject to Nevada collection laws? Or could California also ignore the law of Nevada making the university a separate legal entity? Note that the court justifies the application of California law in Hall because of the significant connection between the issue and the state of California and the physical intrusion of Nevada activity into California. The university’s separate legal identity could not be said, of course, to intrude physically into California.
The Nevada legislature petitioned Congress to begin the process of amending the Constitution to add the following:
Each state of the United States shall be immune from any suits in law or equity commenced or prosecuted in the courts of another state by citizens of any other state or by citizens or subjects of any foreign state except to the extent that any state has waived its sovereign immunity in its own courts or has waived its immunity as a matter of comity with any other state.
Assembly Joint Resolution, No. 29, 1979. Isn’t that resolution a bit of overkill? Can’t Congress, by statute, achieve the same effect under the implementing authority of the full faith and credit clause, by requiring states to give full faith and credit to the law of the defendant state on sovereign immunity?
(2) Why is there no due process objection to subjecting Nevada to suit in California? Both as a matter of personal jurisdiction and as a matter of choice of law, isn’t it clear that California has adequate authority under the due process clause? If there were no issue of sovereign immunity (because, for example, Nevada had waived its immunity), would there be any plausible due process objection to application of, say, California traffic rules?
Would there be any full faith and credit objection, in such an example, to application of California traffic rules? Then wasn’t Nevada’s argument really a claim that sovereign immunity is different, for full faith and credit purposes, from all other rules of substantive law? Is this plausible, as a matter of full faith and credit?
(3) Would the result in Hall have been the same if California law retained California’s immunity but did not honor the immunity of other states? Note that such discrimination would be hard to criticize under the equal protection clause of the Fourteenth Amendment, which refers to “persons,” or under the privileges and immunities clause of Article IV, which protects “citizens.” Would such “discrimination” be more vulnerable under full faith and credit than the evenhanded rule that California applied here?
(4) Why didn’t the Court rely on the argument, used by the California courts, that Nevada was simply not sovereign when it acted outside its territory? Wouldn’t that allow holding Nevada liable even if both the involved states retained sovereign immunity for domestic purposes?
(5) If, contrary to the holding of Hall, California had been required to apply Nevada’s limitation on state liability, could it also be required to yield to a Nevada statute requiring claims against the state to be brought in the Nevada Court of Claims?
(6) In Great Western United Corporation v. Kidwell, 577 F.2d 1257 (5th Cir. 1978), the court held that an action to declare an Idaho law unconstitutional on the grounds of preemption by the Securities Exchange Act of 1934 and the commerce clause could be brought in a federal district court in Texas. The defendant was the attorney general of Idaho and personal jurisdiction was asserted under the Texas long-arm statute on the grounds that the objected-to application of the law in question had had foreseeable effects in Texas. Could a similar action have been maintained (for damages, rather than to have a law declared unconstitutional) under Texas law, using Hall to support the proposition that as long as the activity in question by an Idaho official had an effect in Texas, Texas was free to apply its own law rather than that of Idaho even though the activity in question took place in Idaho? Has Pandora struck again?
(The Supreme Court reversed Kidwell sub nom. Leroy v. Great Western United Corp., 443 U.S. 173 (1979), on federal venue grounds. It specifically refused to reach the question of in personam jurisdiction in Texas.)
(7) In Underwood v. University of Kentucky, 390 So. 2d 433 (Fla. Dist. Ct. App. 1980), a Kentucky resident sued the University of Kentucky in Florida, alleging that he had been libeled in a book published by the university. The majority dismissed on jurisdictional grounds, finding insufficient contacts between the university and the state of Florida. A concurring opinion, however, would have decided the case on sovereign immunity grounds, finding the university to be the alter ego of the state of Kentucky. Nevada v. Hall was distinguished on the grounds that it involved and was limited to a case involving “California’s interest in providing protection to those who are injured on its highways through the negligence of both residents and non-residents.” 390 So. 2d at 436. Is the distinction consistent with the majority’s reasoning?
(8) An excellent critique of Nevada v. Hall can be found in Rogers, Applying the International Law of Sovereign Immunity to the States of the Union, 1981 Duke L.J. 449.
(9) As it turns out, what goes around comes around. Franchise Tax Board of California v. Hyatt, 538 U.S. 488 (2003), involved a Nevada resident who moved from California to Nevada. Hyatt filed a “part-year” resident income tax return in California for 1991, claiming that he moved to Nevada in October of that year. In 1993, the California Franchise Tax Board (CFTB) conducted an audit to determine whether Hyatt had underpaid the taxes that he owed to California, concluded that Hyatt remained a resident of California until sometime in 1992, and imposed substantial assessments and penalties against Hyatt. In 1998, with the tax issues and appeals still unresolved in California, Hyatt filed a lawsuit against CFTB in Nevada state courts asserting several tort claims, including invasion of privacy, outrageous conduct, abuse of process, fraud, and negligent misrepresentation. CFTB argued that the court lacked subject matter jurisdiction over the claims because under California sovereign immunity law the CFTB is immune from being subject to suit for its tax collection activities. The Nevada Supreme Court concluded that under principles of comity it was appropriate to decline to exercise jurisdiction over the negligence claims. However, the intentional tort claims could be litigated in Nevada courts based on Nevada’s sovereign immunity principles as applied to state tax authorities: Nevada state agencies are immune from suit with the exception of suits alleging intentional torts committed within the course and scope of employment. The Nevada Supreme Court declined to apply California’s absolute immunity rule, reasoning that “Nevada’s interest in protecting its citizens from injurious intentional torts and bad faith acts committed by sister states’ governmental employees” should be accorded greater weight “than California’s policy favoring complete immunity for its taxation agency.” On appeal, the U.S. Supreme Court, in a unanimous opinion, rejected California’s argument that the full faith and credit clause requires that Nevada courts respect California’s sovereign immunity rules. Instead, it found the case to be constitutionally indistinguishable from California’s actions in the Hall case:
The question presented here … implicates Hall’s second holding: that the Full Faith and Credit Clause did not require California to apply Nevada’s sovereign immunity statutes where such application would violate California’s own legitimate public policy.… The Court observed in a footnote:
“California’s exercise of jurisdiction in this case poses no substantial threat to our constitutional system of cooperative federalism. Suits involving traffic accidents occurring outside of Nevada could hardly interfere with Nevada’s capacity to fulfill its own sovereign responsibilities. We have no occasion, in this case, to consider whether different state policies, either of California or of Nevada, might result in a different analysis or a different result.… [footnote 24]
CFTB asserts that an analysis of this lawsuit’s effects should lead to a different result: that the Full Faith and Credit Clause requires Nevada to apply California’s immunity statute to avoid interference with California’s “sovereign responsibility” of enforcing its income tax laws.…
Our past experience with appraising and balancing state interests under the Full Faith and Credit Clause counsels against adopting CFTB’s proposed new rule. Having recognized in Hall, that a suit against a State in a sister State’s court “necessarily implicates the power and authority” of both sovereigns, … the question of which sovereign interest should be deemed more weighty is not one that can be easily answered. Yet petitioner’s rule would elevate California’s sovereignty interests above those of Nevada, were we to deem this lawsuit an interference with California’s “core sovereign responsibilities.” We rejected as “unsound in principle and unworkable in practice” a rule of sovereign immunity from federal regulation under the Tenth Amendment that turned on whether a particular state government function was “integral” or “traditional.” Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528, 546-547 (1985). CFTB has convinced us of neither the relative soundness nor the relative practicality of adopting a similar distinction here.
Even if we were inclined to embark on a course of balancing States’ competing sovereign interests to resolve conflicts of laws under the Full Faith and Credit Clause, this case would not present the occasion to do so. There is no principled distinction between Nevada’s interests in tort claims arising out of its university employee’s accident, at issue in Hall, and California’s interests in the tort claims here arising out of its tax collection agency’s residency audit. To be sure, the power to promulgate and enforce income tax laws is an essential attribute of sovereignty.… But the university employee’s educational mission in Hall might also be so described. Cf. Brown v. Board of Education, 347 U.S. 483, 493 (1954) (“education is perhaps the most important function of state and local governments”).
If we were to compare the degree to which the alleged tortious acts here and in Hall are related to a core sovereign function, we would be left to ponder the relationship between an automobile accident and educating, on the one hand, and the intrusions alleged here and collecting taxes, on the other. We discern no constitutionally significant distinction between these relationships. To the extent CFTB complains of the burdens and expense of out-of-state litigation, and the diversion of state resources away from the performance of important state functions, those burdens do not distinguish this case from any other out-of-state lawsuit against California or one of its agencies.
States’ sovereignty interests are not foreign to the full faith and credit command. But we are not presented here with a case in which a State has exhibited a “policy of hostility to the public Acts” of a sister state.… The Nevada Supreme Court sensitively applied principles of comity with a healthy regard for California’s sovereign status, relying on the contours of Nevada’s own sovereign immunity from suit as a benchmark for its analysis.…
… Without a rudder to steer us, we decline to embark on the constitutional course of balancing coordinate States’ competing sovereign interests to resolve conflicts of laws under the Full Faith and Credit Clause.
Hyatt, 538 U.S. at 497-498. Is there really no way to distinguish the two cases? Could we not say that in Hall Nevada called on California resources to fulfill its government functions and therefore should be subject to suit there to answer for injury it caused while relying on those resources, whereas the same is not true in Hyatt? And if the two cases are not distinguishable, which is the right result? Should states be required to recognize one another’s sovereign immunity laws?
(10) If state sovereign immunity laws essentially fall outside of the bounds of constitutional scrutiny, then states are left, like nations, to decide, based purely on principles of comity, whether they wish to respect one another’s laws. Not surprisingly, the notion of reciprocity/mutuality has already crept into state court jurisprudence on the question. As one Texas court wrote, while determining the question of whether to respect Arkansas sovereign immunity laws in Texas state courts, “[t]he Texas Supreme Court has held that Texas will extend comity to another state unless that other state has declined to extend comity to Texas or other states under same or similar circumstances or the extension of comity would violate Texas public policy.” Greenwell v. Davis, 180 S.W.3d 287, 296 (Ct. App. Tex. 2005). Is it possible that California won the battle but lost the war in Hall?
C. Constitutional Limitations on Interstate Discrimination
Two sources of constitutional limitation on choice of law, other than due process and full faith and credit, are the equal protection clause and the privileges and immunities clause. These provisions place limits on interstate discrimination, as do the commerce clause (discussed in Section D, infra) and the right to travel. In general, the First Restatement avoided equal protection and other discrimination problems by concentrating on places rather than people. The opportunity arose under interest analysis, however, to make arguments that equal protection was being denied. For example, if a driver from State A, with a guest statute, carries one passenger from State A, and one from State B, which has no guest statute, and is involved in an accident in State B, Judge Fuld’s first rule would seem to dictate that the first passenger could not recover from the driver, while Judge Fuld’s second rule would seem to allow the second passenger to recover. The different treatment received by the two passengers involved in the same accident strongly suggests a denial of equal protection. The cases do not yet seem to have addressed this problem, but Professors Brainerd Currie and Herma Hill Kay concluded that there are some situations in which discrimination on the basis of one’s home state’s law may be upheld against attack under the privileges and immunities clause. Since that clause is designed to prevent discrimination based on state citizenship, the suggestion would seem equally pertinent for equal protection. See Currie, Selected Essays on the Conflict of Laws 503-511 (1963). In response, it has been forthrightly argued that the domiciliary-based discrimination-of-interest analysis is unconstitutional. Laycock, Equality and the Citizens of Sister States, 15 Fla. St. L. Rev. 431 (1987) and Equal Citizens of Equal and Territorial States: The Constitutional Foundations of Choice of Law, 92 Colum. L. Rev. 249 (1992).
The problem is more complicated than might first appear. First, some of the old-style First Restatement rules relied upon domiciliary-connecting factors. See, e.g., White v. Tennant, supra page 51. Arguably, these rules are different from modern choice-of-law theory in the way that they use the parties’ domicile. Under the Restatement, the local person is as likely to be hurt as helped by application of local law, while under modern theory, a state may have an “interest” only if local law is of benefit to the local person.
Second, it is not always unconstitutional to give locals an advantage; different treatment is acceptable where there is an adequate justification, as the cases below demonstrate.
Third, choice of law necessarily involves the making of differentiations. The forum is not entitled simply to apply forum law to every case that comes before it. These discriminations must obviously turn on either the location of events or on the personal affiliations of individuals. Why are domiciliary connections the suspect factors? It would be possible to argue in the alternative that First Restatement rules are the ones that are unconstitutional because they treat people differently depending on “obviously irrelevant” factors, such as where an accident occurs. This view was set forth by Professors Currie and Kay in Currie, Selected Essays in the Conflict of Laws (1963), at 454-455 (privileges and immunities) and 575-583 (equal protection). Discrimination based on territorial factors and discrimination based on the domicile of the benefited party are therefore constitutional competitors of one another; at least one must be constitutional, and it is possible that only one is. See generally Gergen, Equality and the Conflict of Laws, 73 Iowa L. Rev. 893 (1988).
Both sides of the dispute tend to argue that the differentiation that they favor is simply a result of our having a federal system of government. Division into 50 states means a division of lawmaking power, and thus a difference in treatment. To this date, courts have not been convinced that an equal protection or privileges violation results from reliance on territorial factors. Given the Supreme Court’s recent approval of traditional choice-of-law rules in Sun Oil Co. v. Wortman, supra page 333, one suspects that the Currie analysis of equal protection is unlikely to be adopted. Discrimination on the basis of personal affiliation, on the other hand, has long been thought problematic. The cases below survey some interstate discrimination principles and suggest that in at least certain circumstances, discrimination against nonresidents is unconstitutional.
Austin v. New Hampshire
420 U.S. 656 (1975)
Justice MARSHALL delivered the opinion of the Court.
Appellants are residents of Maine who were employed in New Hampshire during the 1970 tax year and as such were subject to the New Hampshire Commuters Income Tax. On behalf of themselves and others similarly situated, they petitioned the New Hampshire Superior Court for a declaration that the tax violates the Privileges and Immunities and Equal Protection Clauses of the Constitutions of New Hampshire and of the United States. The cause was transferred directly to the New Hampshire Supreme Court, which upheld the tax. We noted probable jurisdiction of the federal constitutional claims, and on the basis of the Privileges and Immunities Clause of Art. IV, we now reverse.
The New Hampshire Commuters Income Tax imposes a tax on nonresidents’ New Hampshire-derived income in excess of $2,000. The tax rate is 4% except that if the nonresident taxpayer’s State of residence would impose a lesser tax had the income been earned in that State, the New Hampshire tax is reduced to the amount of the tax that the State of residence would impose. Employers are required to withhold 4% of the nonresident’s income, however, even if his home State would tax him at less than the full 4%. Any excess tax withheld is refunded to the nonresident upon his filing a New Hampshire tax return after the close of the tax year showing that he is entitled to be taxed at a rate less than 4%.
The Commuters Income Tax initially imposes a tax of 4% as well on the income earned by New Hampshire residents outside the State. It then exempts such income from the tax, however: (1) if it is taxed by the State from which it is derived; (2) if it is exempted from taxation by the State from which it is derived; or (3) if the State from which it is derived does not tax such income. The effect of these imposition and exemption features is that no resident of New Hampshire is taxed on his out-of-state income. Nor is the domestic earned income of New Hampshire residents taxed. In effect, then, the State taxes only the incomes of nonresidents working in New Hampshire; it is on the basis of this disparate treatment of residents and nonresidents that appellants challenge New Hampshire’s right to tax their income from employment in that State.
The Privileges and Immunities Clause of Art. IV, §2, cl. 1, provides:
The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.
The Clause thus establishes a norm of comity without specifying the particular subjects as to which citizens of one State coming within the jurisdiction of another are guaranteed equality of treatment. The origins of the Clause do reveal, however, the concerns of central import to the Framers. During the preconstitutional period, the practice of some States denying to outlanders the treatment that its citizens demanded for themselves was widespread. The fourth of the Articles of Confederation was intended to arrest this centrifugal tendency with some particularity. It provided:
The better to secure and perpetuate mutual friendship and intercourse among the people of the different States in this Union, the free inhabitants of each of these States, paupers, vagabonds and fugitives from justice excepted, shall be entitled to all privileges and immunities of free citizens in the several States; and the people of each State shall have free ingress and regress to and from any other State, and shall enjoy therein all the privileges of trade and commerce, subject to the same duties, impositions and restrictions as the inhabitants thereof respectively.
The discriminations at which the Clause was aimed were by no means eradicated during the short life of the Confederation, and the provision was carried over into the comity article of the Constitution in briefer form but with no change of substance or intent, unless it was to strengthen the force of the Clause in fashioning a single nation. Thus, in the first, and long the leading, explication of the Clause, Mr. Justice Washington, sitting as Circuit Justice, deemed the fundamental privileges and immunities protected by the Clause to be essentially coextensive with those calculated to achieve the purpose of forming a more perfect Union, including “an exemption from higher taxes or impositions than are paid by the other citizens of the state.”
In resolving constitutional challenges to state tax measures this Court has made it clear that “in taxation, even more than in other fields, legislatures possess the greatest freedom in classification.” Our review of tax classifications has generally been concomitantly narrow, therefore, to fit the broad discretion vested in the state legislatures. When a tax measure is challenged as an undue burden on an activity granted special constitutional recognition, however, the appropriate degree of inquiry is that necessary to protect the competing constitutional value from erosion.
This consideration applies equally to the protection of individual liberties and to the maintenance of our constitutional federalism. The Privileges and Immunities Clause, by making noncitizenship or nonresidence8 an improper basis for locating a special burden, implicates not only the individual’s right to nondiscriminatory treatment but also, perhaps more so, the structural balance essential to the concept of federalism. Since nonresidents are not represented in the taxing State’s legislative halls, judicial acquiescence in taxation schemes that burden them particularly would remit them to such redress as they could secure through their own State; but “to prevent [retaliation] was one of the chief ends sought to be accomplished by the adoption of the Constitution.” Our prior cases, therefore, reflect an appropriately heightened concern for the integrity of the Privileges and Immunities Clause by erecting a standard of review substantially more rigorous than that applied to state tax distinctions among, say, forms of business organizations or different trades and professions.
The first such case was Ward v. Maryland, 12 Wall. 418 (1871), challenging a statute under which nonresidents were required to pay $300 per year for a license to trade in goods not manufactured in Maryland, while resident traders paid a fee varying from $12 to $150, depending upon the value of their inventory. The State attempted to justify this disparity as a response to the practice of “runners” from industrial States selling by sample in Maryland, free from local taxation and other overhead expenses incurred by resident merchants. It portrayed the fee as a “tax upon a particular business or trade, carried on in a particular mode,” rather than a discrimination against traders from other States. Although the tax may not have been “palpably arbitrary,” the discrimination could not be denied and the Court held that it violated the guarantee of the Privileges and Immunities Clause against “being subjected to any higher tax or excise than that exacted by law of … permanent residents.”
In Travelers’ Insurance Co. v. Connecticut, 185 U.S. 364 (1902), the Court considered a tax laid on the value of stock in local insurance corporations. The shares of nonresident stockholders were assessed at their market value, while those owned by residents were assessed at market value less the proportionate value of all real estate held by the corporation and on which it had already paid a local property tax. In analyzing the apparent discrimination thus worked against nonresidents, the Court took account of the overall distribution of the tax burden between resident and nonresident stockholders. Finding that nonresidents paid no local property taxes, while residents paid those taxes at an average rate approximating or exceeding the rate imposed by the State on nonresidents’ stock, the Court upheld the scheme. While more precise equality between the two classes could have been obtained, it was “enough that the State has secured a reasonably fair distribution of burdens, and that no intentional discrimination has been made against non-residents.” Their contribution to state and local property tax revenues, that is, was no more than the ratable share of their property within the State.
The principles of Ward and Travelers’ were applied to taxes on nonresidents’ local incomes in Shaffer v. Carter, 252 U.S. 37 (1920), and Travis v. Yale & Towne Mfg. Co., supra. Shaffer upheld the Oklahoma tax on income derived from local property and business by a nonresident where the State also taxed the income—from wherever derived—of its own citizens. Putting aside “theoretical distinctions” and looking to “the practical effect and operation” of the scheme, the nonresident was not treated more onerously than the resident in any particular, and in fact was called upon to make no more than his ratable contribution to the support of the state government. The New York tax on residents’ and nonresidents’ income at issue in Travis, by contrast, could not be sustained when its actual effect was considered. The tax there granted personal exemptions to each resident taxpayer for himself and each dependent, but it made no similar provision for nonresidents. The disparity could not be “deemed to be counterbalanced” by an exemption for nonresidents’ interest and dividend income because it was not likely “to benefit non-residents to a degree corresponding to the discrimination against them.” Looking to “the concrete, the particular incidence” of the tax, therefore, the Court said of the many New Jersey and Connecticut residents who worked in New York:
They pursue their several occupations side by side with residents of the State of New York—in effect competing with them as to wages, salaries, and other terms of employment. Whether they must pay a tax upon the first $1,000 or $2,000 of income, while their associates and competitors who reside in New York do not, makes a substantial difference.… This is not a case of occasional or accidental inequality due to circumstances personal to the taxpayer … but a general rule, operating to the disadvantage of all non-residents … and favoring all residents.…
252 U.S., at 80-81 (citations omitted).
Against this background establishing a rule of substantial equality of treatment for the citizens of the taxing State and nonresident taxpayers, the New Hampshire Commuters Income Tax cannot be sustained. The overwhelming fact, as the State concedes, is that the tax falls exclusively on the income of nonresidents; and it is not offset even approximately by other taxes imposed upon residents alone. Rather, the argument advanced in favor of the tax is that the ultimate burden it imposes is “not more onerous in effect,” Shaffer v. Carter, supra, on nonresidents because their total state tax liability is unchanged once the tax credit they receive from their State of residence is taken into account. See n.4, supra [omitted]. While this argument has an initial appeal, it cannot be squared with the underlying policy of comity to which the Privileges and Immunities Clause commits us.
According to the State’s theory of the case, the only practical effect of the tax is to divert to New Hampshire tax revenues that would otherwise be paid to Maine, an effect entirely within Maine’s power to terminate by repeal of its credit provision for income taxes paid to another State. The Maine Legislature could do this, presumably, by amending the provision so as to deny a credit for taxes paid to New Hampshire while retaining it for the other 48 States. Putting aside the acceptability of such a scheme, and the relevance of any increase in appellants’ home state taxes that the diversionary effect is said to have, we do not think the possibility that Maine could shield its residents from New Hampshire’s tax cures the constitutional defect of the discrimination in that tax. In fact, it compounds it. For New Hampshire in effect invites appellants to induce their representatives, if they can, to retaliate against it.
A similar, though much less disruptive, invitation was extended by New York in support of the discriminatory personal exemption at issue in Travis. The statute granted the nonresident a credit for taxes paid to his State of residence on New York-derived income only if that State granted a substantially similar credit to New York residents subject to its income tax. New York contended that it thus “looked forward to the speedy adoption of an income tax by the adjoining States,” which would eliminate the discrimination “by providing similar exemptions similarly conditioned.” To this the Court responded in terms fully applicable to the present case. Referring to the anticipated legislative response of the neighboring States, it stated:
This, however, is wholly speculative; New York has no authority to legislate for the adjoining States; and we must pass upon its statute with respect to its effect and operation in the existing situation.… A State may not barter away the right, conferred upon its citizens by the Constitution of the United States, to enjoy the privileges and immunities of citizens when they go into other States. Nor can discrimination be corrected by retaliation; to prevent this was one of the chief ends sought to be accomplished by the adoption of the Constitution.
252 U.S., at 82.12
Nor, we may add, can the constitutionality of one State’s statutes affecting nonresidents depend upon the present configuration of the statutes of another State.
Since we dispose of this case under Art. IV, §2, of the Constitution, we have no occasion to address the equal protection arguments directed at the disparate treatment of residents and nonresidents and at that feature of the statute that causes the rate of taxation imposed upon nonresidents to vary among them depending upon the rate established by their State of residence.
Justice DOUGLAS took no part in the consideration or decision of this case.
Justice BLACKMUN, dissenting. For me, this is a noncase. I would dismiss the appeal for want of a substantial federal question. We have far more urgent demands upon our limited time than this kind of litigation.
Because the New Hampshire income tax statutes operate in such a way that no New Hampshire resident is ultimately subjected to the State’s income tax, the case at first glance appears to have some attraction. That attraction, however, is superficial and, upon careful analysis, promptly fades and disappears entirely. The reason these appellants, who are residents of Maine, not of New Hampshire, pay a New Hampshire tax is because the Maine Legislature—the appellant’s own duly elected representatives—has given New Hampshire the option to divert this increment of tax (on a Maine resident’s income earned in New Hampshire) from Maine to New Hampshire, and New Hampshire willingly has picked up that option. All that New Hampshire has done is what Maine specifically permits and, indeed, invites it to do. If Maine should become disenchanted with its bestowed bounty, its legislature may change the Maine statute. The crux is the statute of Maine, not the statute of New Hampshire. The appellants, therefore, are really complaining about their own statute. It is ironic that the State of Maine, which allows the credit, had made an appearance in this case as an amicus urging, in effect, the denial of the credit by an adjudication of unconstitutionality of New Hampshire’s statute. It seems to me that Maine should be here seeking to uphold its own legislatively devised plan or turn its attention to its own legislature.…
One wonders whether this is just a lawyers’ lawsuit. Certainly, the appellants, upon prevailing today, have no direct or apparent financial gain. Relief for them from the New Hampshire income tax results only in a corresponding, pro tanto, increase in their Maine income tax. Dollarwise, they emerge at exactly the same point. The single difference is that their State, Maine, enjoys the tax on the New Hampshire-earned income, rather than New Hampshire. Where, then, is the injury? If there is an element of injury, it is Maine-imposed.
We waste our time, therefore, theorizing and agonizing about the Privileges and Immunities Clause and equal protection in this case. But if that exercise in futility is nevertheless indicated, I see little merit in the appellants’ quest for relief. It is settled that absolute equality is not a requisite under the Privileges and Immunities Clause. And I fail to perceive unconstitutional unequal protection on New Hampshire’s part. If inequality exists, it is due to differences in the respective income tax rates of the States that border upon New Hampshire.
I say again that this is a noncase, made seemingly attractive by high-sounding suggestions of inequality and unfairness. The State of Maine has the cure within its grasp, and if the cure is of importance to it and to its citizens, such as appellants, it and they should be about adjusting Maine’s house rather than coming here complaining of a collateral effect of its own statute.
Questions and Comments
(1) Under interest analysis it is assumed that the forum has an interest in the well-being of its own residents but not, generally, in the well-being of nonresidents. When forum law favors a resident, it is to be applied under the Currie approach (either because the forum is the only interested jurisdiction or because forum law applies in the face of a true conflict). On the other hand, if we substitute a nonresident for the resident, the forum interest may disappear, and the analysis may yield application of a different state’s law. That looks a lot like discrimination on the basis of state citizenship, forbidden by the privileges and immunities clause. That worried Currie, and he addressed the problem at length (with coauthor Herma Kay) in Chapter 10 of Currie, Selected Essays on the Conflict of Laws (1963). The basic answer was that such “discrimination” was acceptable if it merely resulted in subjecting the nonresident to the law of his home state.
Does Austin undermine the Currie solution? Professor Ely thinks so: “If Austin is right as written, the dominant contemporary choice-of-law theory is unconstitutional.” Ely, Choice of Law and the State’s Interest in Protecting Its Own, 23 Wm. & Mary L. Rev. 173, 186-187 (1981).
Ely notes two possible ways of avoiding that conclusion. First, Austin may be wrong: If the purpose of the privileges and immunities clause is to protect people from legislatures and courts of other states, with whom they have no political influence, adequate protection is afforded by treating them the way that their own legislature and courts would—that is, applying their own home state’s law to them. Note, however, that under interest analysis, the nonresident is not always treated according to home-state law, because if the forum has an interest in applying its own law, it will do so. The nonresident, in other words, is held to his or her home-state law only in those circumstances where it is disadvantageous. Where home-state law helps the nonresident, its application is not guaranteed. Second, Ely says, the Court was obviously unaware of the conflicts implication of its decision in Austin since the plurality in Hague, page 311 supra, seemed to uphold the legitimacy of Minnesota’s interest in one who had acquired a domicile in Minnesota. Such an interest should not be both a defense of applying Minnesota law against a due process attack and the basis for a privileges and immunities attack (because Minnesota would have “discriminated” against someone who had not acquired Minnesota residency by not applying its law to such a person). Ely, at 187-189.
(2) Austin’s implications for interest analysis might be further limited by noting: (a) In Austin, New Hampshire applied New Hampshire law, which itself discriminated on the basis of state residency; in a conflicts case, the forum is not applying its own law, with two different results depending on residency, but in a sense is applying two different states’ laws, each of which has a legitimate claim to application; and (b) the privileges and immunities cases decided by the Supreme Court involve the state as litigant (tax cases, etc.), while conflicts cases involve the state merely as arbitrator. Are these observations enough to save interest analysis from constitutional invalidity?
(3) In Pennsylvania v. New Jersey, 426 U.S. 660 (1976), the Court turned down a suit to recover taxes “diverted” from the treasuries of the plaintiff states to the treasury of New Jersey by a New Jersey scheme virtually identical to that condemned in Austin.
The heart of the Court’s reasoning lay in the fact that
[i]n neither of the suits at bar has the defendant State inflicted any injury upon the Plaintiff States through the imposition of the taxes held [or] alleged … to be unconstitutional. The injuries to the plaintiffs’ fiscs were self-inflicted, resulting from decisions by their respective legislatures.… [N]othing prevents Pennsylvania from withdrawing that credit for taxes paid to New Jersey. No State can be heard to complain about damage inflicted by its own hand.
426 U.S. at 664.
The Court went on to say that the equal protection and privileges and immunities clauses protect “people, not states.” Id. at 664-665. The right of a state to maintain actions of this nature as parens patriae was rejected as carrying the potential of converting any private suit desired by the state into a case within the original jurisdiction of the Supreme Court.
(4) In Baldwin v. Montana Fish & Game Commn., 436 U.S. 371 (1978), the Supreme Court rejected a privileges and immunities attack on a Montana law that charged a substantially higher fee for nonresidents than residents for fishing and hunting licenses. Only those privileges and immunities that bear on the vitality of the nation as a whole were deemed to be within the protection of the clause. But very shortly thereafter, the Court struck down Alaska’s law preferring state residents for jobs arising out of oil and gas leases or permits for oil and gas pipelines to which the state was a party. Hicklin v. Orbeck, 437 U.S. 518 (1978). Justice Brennan, who had dissented in Baldwin, wrote for a unanimous Court in rejecting an earlier line of cases (e.g., Corfield v. Coryell, 6 F. Cas. 546 (C.C.E.D. Pa. 1823)) that had allowed states to discriminate with respect to benefits derived from state-owned property. Can Baldwin be squared with Orbeck?
(5) In Zobel v. Williams, 457 U.S. 55 (1982), the Supreme Court struck down on equal protection grounds an Alaskan plan that distributed state oil revenues to citizens on the basis of how long they had been state residents. Justice O’Connor concurred but urged a privileges and immunities rationale—forbidding discrimination because of past noncitizenship. Would her approach require a court in an ordinary conflicts case to treat one with after-acquired domicile the same as one with preacquired domicile?
(6) In 1997, Texas amended its procedural law to discourage out-of-state plaintiffs from filing claims in Texas on the basis of out-of-state injuries. It enacted a borrowing statute that required a nonresident plaintiff suing in Texas on a claim that arose in another state to satisfy the statute of limitations of both Texas and the state where the claim arose. And it amended its forum non conveniens statute to permit dismissal of out-of-state asbestos exposure claims unless the claim is brought by a legal resident of Texas. The Texas Supreme Court rejected a challenge to these statutes based on the privileges and immunities clause. See Owens Corning v. Carter, 997 S.W.2d 560 (Tex. 1999). Is this decision consistent with Austin?
The Supreme Court of West Virginia, despite one dissenting and two concurring opinions, came to a very different conclusion in a case involving a somewhat similar statute. Morris v. Crown Equipment Corp., 633 S.E.2d 292 (W. Va. 2006). Plaintiff, a citizen and resident of Virginia, was injured at his place of employment in Virginia while operating a forklift distributed and serviced by a West Virginia corporation and manufactured by an Ohio corporation. The plaintiff sued both corporate defendants in West Virginia state court, alleging a variety of product liability theories for recovery. Defendants moved to dismiss the complaint for improper venue, relying on a portion of the West Virginia code that disallows nonresidents from suing in West Virginia courts “unless all or a substantial part of the acts or omissions giving rise to the claim asserted occurred in this state.” Under the code provision, an exception is provided in cases where the plaintiff can establish that neither state nor federal courts where the cause of action arose can maintain the claim against defendant. The court could have determined that this suit was properly filed in West Virginia because a substantial part of the acts and omissions giving rise to the lawsuit likely occurred in West Virginia; that is, faulty servicing of the forklift. Instead, the court deemed the statute as potentially running afoul of the privileges and immunities clause because it categorically denies to nonresidents the ability to bring claims in West Virginia courts even though the identical claim could be filed by a resident. To avoid this constitutional difficulty, the West Virginia Supreme Court interpreted the statute to refer only to cases where the defendant is a nonresident of West Virginia. By its terms, the statute at issue in Morris discriminated against nonresidents rather than noncitizens of West Virginia. The majority, citing Austin, asserted that the terms “citizen” and “resident” are essentially interchangeable for purposes of the analysis of most privileges and immunities clause cases. The dissenting judge took issue with this conclusion and took the position that discrimination against all nonresidents of West Virginia (citizen or no) does not violate the privileges and immunities clause. Rather, it simply enables the state to ration the use of its courts in cases where plaintiffs must travel to the state to sue. 633 S.E.2d at 303-304. Which reading of the privileges and immunities clause seems more correct to you?
(7) The Supreme Court invalidated on privileges and immunity grounds two statutes imposing residency requirements for admission to the bar. Supreme Court of Virginia v. Friedman, 487 U.S. 59 (1988) (invalidating a Virginia rule requiring out-of-state lawyers to become permanent residents in order to be admitted without examination); Barnard v. Thorstenn, 489 U.S. 546 (1989) (invalidating requirement that applicants live in Virgin Islands one year prior to admission and declare intention to reside in the Virgin Islands thereafter).
(8) Another issue that involves the treatment of citizens based upon their relationship with a state is that of residency requirements. The issue is not within the purview of the privileges and immunities clause because a residency requirement denies a privilege to those who may have acquired state citizenship before the end of the required residency period. Nonetheless, in Shapiro v. Thompson, 394 U.S. 618 (1969), the Court struck down one-year residency requirements for welfare benefits based on the right to travel (a right that has never been tied firmly to specific language of the Constitution). In Dunn v. Blumstein, 405 U.S. 330 (1972), the Court also struck down a year’s residency requirement before voter registration. In Vlandis v. Kline, 412 U.S. 441 (1973), the Court invalidated a Connecticut statute that prevented a person from becoming a resident (for in-state tuition purposes) while a student. And most recently, in Saenz v. Roe, 526 U.S. 489 (1999), the Court struck down a California statute limiting welfare benefits during the recipient’s first year of state residence. Saenz is important because it grounded the right to travel in the Fourteenth Amendment’s privileges or immunities clause, a constitutional provision that most commentators viewed as moribund. For commentary, see Tribe, Saenz Sans Prophecy: Does the Privileges or Immunities Revival Portend the Future—Or Reveal the Structure of the Present? 113 Harv. L. Rev. 110 (1999); Hills, Poverty, Residency, and Federalism: States’ Duty of Impartiality Toward Newcomers, 1999 Sup. Ct. Rev. 277.
The decisions from Shapiro through Saenz do not deny that states have interests that are served by residency requirements. Rather, they hold that financial and administration interests are not “compelling” interests that warrant restriction of the right to travel. The Court recognized such a compelling interest in Sosna v. Iowa, 419 U.S. 393 (1975), which upheld an Iowa statute requiring one year of state residence prior to obtaining a divorce from state courts. The Court differentiated this durational residency requirement from the one struck down in Shapiro on the ground that Iowa’s requirement did not deprive the applicant of the benefit altogether. The Court reasoned that while the welfare benefits denied by the statute in Shapiro were irretrievably lost, the right to file for a divorce was only temporarily delayed by the Iowa statute. The Court also noted that significant social consequences were likely to follow from divorce and that the State has interests both in protecting itself from use as a “divorce mill” and in protecting its judgment from collateral attacks in other states.
(9) Massachusetts legalized same-sex marriage but denied to nonresident same-sex couples the ability to enter into a same-sex marriage in cases where the nonresident couple intended to continue living in a jurisdiction which prohibits same-sex marriages. General Laws c. 207, §11, provided as follows:
No marriage shall be contracted in this commonwealth by a party residing and intending to continue to reside in another jurisdiction if such marriage would be void if contracted in such other jurisdiction, and every marriage contracted in this commonwealth in violation hereof shall be null and void.
General Laws c. 207, §12, directed at the responsibilities of municipal clerks, provided as follows:
Before issuing a license to marry a person who resides and intends to continue to reside in another state, the officer having authority to issue the license shall satisfy himself, by requiring affidavits or otherwise, that such person is not prohibited from intermarrying by the laws of the jurisdiction where he or she resides.
Nonresident same-sex couples have challenged the constitutional validity of these statutes. Are the statutes constitutional? See Cote-Whiteacre v. Department of Public Health, 446 Mass. 350 (2006).
455 U.S. 404 (1982)
Justice BLACKMUN delivered the opinion of the Court.
A New Jersey statute, N.J. Stat. Ann. §2A:14-22 (West) (1952), tolls the limitation period of an action against a foreign corporation that is amenable to jurisdiction in New Jersey courts but that has in New Jersey no person or officer upon whom process may be served. The United States Court of Appeals for the Third Circuit in this case held that the statute does not violate the Equal Protection and Due Process Clauses of the Fourteenth Amendment. We agree, but we vacate the Court of Appeals’ Judgment and remand the case for consideration of petitioner’s Commerce Clause challenge to the statute.
Respondents, Susan and Walter Cohn, are husband and wife. In 1963, Susan Cohn suffered a stroke. Eleven years later, in 1974, the Cohns sued petitioner, G.D. Searle & Co., in the Superior Court of New Jersey, Essex County, alleging that Susan Cohn’s stroke was caused by her use of an oral contraceptive manufactured by petitioner. Petitioner was served under New Jersey’s long-arm rule, N.J. Ct. Rule 4:4-4(c)(1) (1969). Petitioner removed the suit to federal court and thereafter moved for summary judgment based upon New Jersey’s two-year statute of limitation, N.J. stat. Ann. §2A:14-2 (West) (1952), governing an “action at law for an injury to the person caused by … wrongful act.” Respondents countered with §2A:14-22. That section tolls the statute of limitation for a cause of action against a foreign corporation that “is not represented” in New Jersey “by any person or officer upon whom summons or other original process may be served.”
The District Court ruled that petitioner was not represented in New Jersey for the purposes of the tolling provision. Nevertheless, it held that respondents’ suit was barred. According to the District Court, the tolling provision had operated to preserve only causes of action against corporate defendants that were not subject to in personam jurisdiction in New Jersey. With the enactment of New Jersey’s long-arm rule, now N.J. Ct. Rule 4:4-4(c), the rationale for the pre-existing tolling provision ceased to exist. On this reasoning, the court held that the tolling provision served no logical purpose, found it invalid under the Equal Protection Clause, and ruled that the two-year statute of limitation therefore barred respondent’s suit.
Respondents appealed. Before the Court of Appeals reached a decision, however, the Supreme Court of New Jersey decided Velmohos v. Maren Engineering Corp. That court ruled, as a matter of New Jersey law, that the tolling provision continued in force despite the advent of long-arm jurisdiction. In addition, the court concluded that the tolling provision did not violate the Equal Protection or Due Process Clauses of the Fourteenth Amendment, because the increased difficulty of out-of-state service provided a rational basis for tolling the statute of limitation in a suit against an unrepresented foreign corporation.
The Court of Appeals then followed the New Jersey Supreme Court’s lead and reversed the District Court. Summing up what it felt to be the rational basis for the tolling provision, the Court of Appeals explained:
Since service of process under the long-arm statute is more difficult and time-consuming to achieve than service within the state, and since out-of-state, non-represented corporate defendants may be difficult to locate let alone serve, tolling the statute of limitations protects New Jersey plaintiffs and facilitates their lawsuits against such defendants.
Because of the novel and substantial character of the federal issue involved, we granted certiorari.
Like the Court of Appeals, we conclude that the New Jersey statute does not violate the Equal Protection Clause. In the absence of a classification that is inherently invidious or that impinges upon fundamental rights, a state statute is to be upheld against equal protection attack if it is rationally related to the achievement of legitimate governmental ends. The New Jersey tolling provision need satisfy only this constitutional minimum. As the Court explained in Chase Securities Corp. v. Donaldson:
[Statutes of limitation] represent a public policy about the privilege to litigate. Their shelter has never been regarded as what now is called a “fundamental” right or what used to be called a “natural” right of the individual. He may, of course, have the protection of the policy while it exists, but the history of pleas of limitation shows them to be good only by legislative grace and to be subject to a relatively large degree of legislative control.
See also Campbell v. Holt.6
Petitioner insists that the tolling statute no longer is rationally related to a legitimate state objective. Repeating the argument it made below, petitioner claims that the statute’s only purpose was to preserve causes of action for those New Jersey plaintiffs unable to obtain in personam jurisdiction over unrepresented foreign corporations. With the presence now of long-arm jurisdiction, petitioner contends, there is no longer a valid reason for tolling the limitation period for a suit against an amenable foreign corporation without a New Jersey representative.
We note at the outset, and in passing, that petitioner’s argument fails as a matter of state law. The New Jersey Supreme Court disagreed with petitioner’s interpretation of the statute. That court observed that the State’s original tolling provision did not mention corporations and thus treated them like all other defendants. In 1949, the state legislature amended the statute and exempted corporations except those foreign corporations “not represented” in New Jersey. Consequently, the court reasoned, the tolling provision was not rendered meaningless by the subsequent acceptance of long-arm jurisdiction. As construed by the highest judicial authority on New Jersey law, the meaning of the tolling statute cannot be confined as narrowly as petitioner would like.
When the statute is examined under the Equal Protection Clause, it survives petitioner’s constitutional challenge because rational reasons support tolling the limitation period for unrepresented foreign corporations despite the institution of long-arm jurisdiction in New Jersey. First, the unrepresented foreign corporation remains potentially difficult to locate. Long-arm jurisdiction does not alleviate this problem, since a New Jersey plaintiff must find the unrepresented foreign corporation before it can be served. It is true, of course, that respondents had little or no trouble locating this particular, well-known defendant-petitioner, but the tolling provision is premised on a reasonable assumption that unrepresented foreign corporations, as a general rule, may not be so easy to find and serve.
Second, the institution of long-arm jurisdiction in New Jersey has not made service upon an unrepresented foreign corporation the equivalent of service upon a corporation with a New Jersey representative. The long-arm rule, N.J. Ct. Rule 4:4-4(c)(1) (1969), prescribes conditions upon extraterritorial service to ensure that New Jersey’s long-arm jurisdiction has been properly invoked. In Velmohos, the New Jersey Supreme Court explained:
Under our rules, extra-territorial service is not simply an alternative to service within the State. Plaintiffs may not resort to out-of-state service unless proper efforts to effect service in New Jersey have failed. The rule imposes a further burden on a plaintiff by requiring him to gather sufficient information to satisfy a court that service is “consistent with due process of law.”
Thus, there are burdens a plaintiff must bear when he sues a foreign corporation lacking a New Jersey representative that he would not bear if the defendant were a domestic corporation or a foreign corporation with a New Jersey representative.
In response to these rationales for treating unrepresented foreign corporations differently from other corporations, petitioner argues that the tolling provision is unnecessary. Petitioner cites N.J. Ct. Rule 4:2-2 and contends that a plaintiff can preserve his cause of action against a hard-to-locate corporate defendant by filing a complaint and thereby halting the running of the limitation period. But this is not an adequate substitute for the tolling provision. A court may dismiss a case if it has not been prosecuted after six months, N.J. Ct. Rule 1:13-7, or if summons is not issued within 10 days of the filing of the complaint, N.J. Ct. Rule 4:4-1. In any event, a State may provide more than one solution for a perceived problem. The Court of Appeals appropriately commented: “Nothing in law or logic prevents the New Jersey legislature from providing New Jersey plaintiffs with a mechanism for relief from the burdens of suits against nonrepresented foreign corporations which is additional to any mechanism found in the Court Rules.”
Petitioner also argues that a New Jersey plaintiff’s burdens do not justify leaving a defendant open to suit without any time limit. In Velmohos, however, the New Jersey Supreme Court expressly authorized an unrepresented foreign corporation to plead another defense in response to a tardy suit. While the tolling provision denies an unrepresented foreign corporation the benefit of the statute of limitation, the corporation, the court stated flatly, remains free to plead laches. “If a plaintiff’s delay is inexcusable and has resulted in prejudice to the defendant, the latter may raise the equitable defense of laches to bar the claim.” Thus, under New Jersey law, an amenable, unrepresented foreign corporation may successfully raise a bar to a plaintiff’s suit if the plaintiff’s delay cannot be excused and the corporation has suffered “prejudice.”
In sum, because of the burdens connected with serving unrepresented foreign corporations, we agree with the Court of Appeals and the New Jersey Supreme Court that the tolling provision does not deprive an unrepresented foreign corporation of the equal protection of the laws.7
[The Court remanded for consideration of a Commerce Clause challenge to the New Jersey statute.]
[Justice POWELL, joined by CHIEF JUSTICE BURGER, concurred in parts I and II of the Court’s opinion but dissented from Part III, feeling that it was appropriate for the Court to consider and determine the commerce clause issue. They expressed no opinion, however, on the merits of that issue.]
Justice STEVENS, dissenting.
The equal protection question in this case is novel. I agree with the Court that there is a rational basis for treating unregistered foreign corporations differently from registered corporations because they are somewhat more difficult to locate and to serve with process. Thus, a provision that merely gave plaintiffs a fair opportunity to overcome these difficulties—for example, a longer period of limitations for suits against such corporations, or a tolling provision limited to corporations that had not filed their current address with the Secretary of State—would unquestionably be permissible. But does it follow that it is also rational to deny such corporations the benefit of any statute of limitations? Because there is a rational basis for some differential treatment, does it automatically follow that any differential treatment is constitutionally permissible? I think not; in my view the Constitution requires a rational basis for the special burden imposed on the disfavored class as well as a reason for treating that class differently.
The Court avoids these troubling questions by noting that the New Jersey Supreme Court has stated that an unrepresented foreign corporation may plead the defense of laches in an appropriate case. But there are material differences between laches—which requires the defendant to prove inexcusable delay and prejudice—and the bar of limitations, which requires no such proof. Thus, the availability of this alternative defense neither eliminates the differential treatment nor provides a justification for it; the defense merely lessens its adverse consequences.
I can find no legitimate state purpose to justify the special burden imposed on unregistered foreign corporations by the challenged statute. I would reverse the judgment of the Court of Appeals.
Questions and Comments
(1) What is the difference between the privileges and immunities clause and the equal protection clauses as they bear on discrimination on the basis of state citizenship? Professor Ely implies that the rational-basis test might always be satisfied when a state treats nonresidents differently because they are nonresidents, making equal protection irrelevant, while the privileges and immunities clause is directed specifically at such discrimination. See Ely, Choice of Law and the State’s Interest in Protecting Its Own, 23 Wm. & Mary L. Rev. 173, 181 (1981). Do the opinions in Austin and G.D. Searle support this view? Another difference is that corporations cannot benefit from the privileges and immunities clause because they are not “citizens.” Blake v. McClung, 172 U.S. 239 (1898).
(2) Are the distinctions between laches and a statute of limitations mentioned in Justice Stevens’s dissent enough to establish his point that the discrimination against unrepresented foreign corporations is too great (even though some discrimination may be justified)? Does the majority’s reference to the applicability of the laches doctrine concede the underlying point that discrimination may not be too severe, even under a rational-basis test (while denying the applicability of the point to the facts of the case)?
(3) In Burlington Northern Railroad Co. v. Ford, 504 U.S. 648 (1992), the Supreme Court rejected an equal protection challenge to a Montana venue provision that made venue in cases brought against out-of-state corporate defendants proper in any county in the state but that restricted venue in cases brought against local corporate defendants to the county of their principal place of business. The rationale for the statute, which was upheld under a rational-basis test, was that with local defendants there was a substantial convenience justification for limiting venue to the principal place of business, but with out-of-state defendants there was very little convenience reason to favor one place of trial over another.
(4) Before this case came to the Supreme Court, the district court had dismissed an argument that the tolling provision was intended as a penalty to induce foreign corporations to obtain New Jersey licenses because it could not find any such intent in the relevant statutes. Cohn v. G.D. Searle & Co., 447 F. Supp. 903, 910-11 (D.N.J. 1978). The Supreme Court stated that “it seems to us that the District Court[’s determination] was on sound ground,” 455 U.S. at 413 n.8, but declined to resolve whether “New Jersey violate[d] the Commerce Clause by requiring it to register to do business in New Jersey in order to gain the benefit of the statute of limitation.” Id. at 413. The Supreme Court addressed this question with respect to an analogous law in Ohio. See Bendix Autolite Corp. v. Midwesco Enterprises, Inc., 486 U.S. 888 (1988).
D. “Extraterritorial” and “Inconsistent” Regulations
The Supreme Court has long invoked the “dormant” commerce clause as a basis for judicial preemption of state law that unduly burdens interstate commerce. The Court has devised a number of tests to serve this end. The central prohibition of the dormant commerce clause, like the prohibitions of the privileges and immunities and equal protection clauses, concerns state legislation that discriminates against out-of-staters. See CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 87 (1987). If a state law discriminates against out-of-staters, it is subject to “the strictest scrutiny of any purported legitimate local purpose and of the absence of nondiscriminatory alternatives.” Hughes v. Oklahoma, 441 U.S. 322, 337 (1979). A second dormant commerce clause test applies when a state law is nondiscriminatory on its face but nonetheless significantly burdens interstate commerce. In this context the Court applies a balancing test: “Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
The Supreme Court has also said that the dormant commerce clause prohibits certain state laws that regulate extraterritorially and others that lead to inconsistent regulatory burdens. These aspects of the dormant commerce clause are unsettled and poorly understood. But they are most relevant to conflict of laws and thus are the focus of the cases below.
Brown-Forman Distillers Corp. v. New York State Liquor Authority
476 U.S. 573 (1986)
Justice MARSHALL delivered the opinion of the Court. The State of New York requires every liquor distiller or producer that sells liquor to wholesalers within the State to sell at a price that is no higher than the lowest price the distiller charges wholesalers anywhere else in the United States. The issue in this case is whether that requirement violates the Commerce Clause of the Constitution.
New York extensively regulates the sale and distribution of alcoholic beverages within its borders. The State’s Alcoholic Beverage Control Law (ABC Law) prohibits the manufacture and sale of alcoholic beverages within the State without the appropriate licenses, ABC Law §100(1) (McKinney 1970), and regulates the terms of all sales.…
This litigation concerns §101-b(3)(d) of the ABC Law, which requires any distiller or agent that files a schedule of prices to include an affirmation that “the bottle and case price of liquor to wholesalers set forth in such schedule is no higher than the lowest price at which such item of liquor will be sold by such [distiller] to any wholesaler anywhere in any other state of the United States or in the District of Columbia, or to any state (or state agency) which owns and operates retail liquor stores” during the month covered by the schedule.…
This Court has adopted what amounts to a two-tiered approach to analyzing state economic regulation under the Commerce Clause. When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry. When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have examined whether the State’s interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits. We have also recognized that there is no clear line separating the category of state regulation that is virtually per se invalid under the Commerce Clause, and the category subject to the Pike v. Bruce Church balancing approach. In either situation the critical consideration is the overall effect of the statute on both local and interstate activity.
Appellant does not dispute that New York’s affirmation law regulates all distillers of intoxicating liquors evenhandedly, or that the State’s asserted interest—to assure the lowest possible prices for its residents—is legitimate. Appellant contends that these factors are irrelevant, however, because the lowest-price affirmation provision of the ABC Law falls within that category of direct regulations of interstate commerce that the Commerce Clause wholly forbids. This is so, appellant contends, because the ABC Law effectively regulates the price at which liquor is sold in other States. By requiring distillers to affirm that they will make no sales anywhere in the United States at a price lower than the posted price in New York, appellant argues, New York makes it illegal for a distiller to reduce its price in other States during the period that the posted New York price is in effect. Appellant contends that this constitutes direct regulation of interstate commerce. The law also disadvantages consumers in other States, according to appellant, and is therefore the sort of “simple economic protectionism” that this Court has routinely forbidden.…
This Court has once before examined the extraterritorial effects of a New York affirmation statute. In Joseph E. Seagram & Sons, Inc. v. Hostetter, 384 U.S. 35 (1966), the Court considered the constitutionality, under the Commerce and Supremacy Clauses, of the predecessor to New York’s current affirmation law. That law differed from the present version in that it required the distiller to affirm that its prices during a given month in New York would be no higher than the lowest price at which the item had been sold elsewhere during the previous month. The Court recognized in that case, as we have here, that the most important issue was whether the statute regulated out-of-state transactions. It concluded, however, that “[t]he mere fact that [the statute] is geared to appellants’ pricing policies in other States is not sufficient to invalidate the statute.” The Court distinguished [Baldwin v. Seelig, 294 U.S. 511 (1935)], supra, by concluding that any effects of New York’s ABC Law on a distiller’s pricing policies in other States were “largely matters of conjecture,” ibid.
Appellant relies on United States Brewers Assn. v. Healy, 692 F.2d 275 (CA2 1982), aff’d, 464 U.S. 909 (1983), in seeking to distinguish the present case from Seagram. In Healy, the Court of Appeals for the Second Circuit considered a Connecticut price-affirmation statute for beer sales that is not materially different from the current New York ABC Law. The Connecticut statute, like the ABC Law, required sellers to post prices at the beginning of a month, and proscribed deviation from the posted prices during that month. The statute also required brewers to affirm that their prices in Connecticut were as low as the price at which they would sell beer in any bordering State during the effective month of the posted prices. The Court of Appeals distinguished Seagram based on the “prospective” nature of this affirmation requirement. It concluded that the Connecticut statute made it impossible for a brewer to lower its price in a bordering State in response to market conditions so long as it had a higher posted price in effect in Connecticut. By so doing, the statute “regulate[d] conduct occurring wholly outside the state,” 692 F.2d, at 279, and thereby violated the Commerce Clause. We affirmed summarily, 464 U.S. 909 (1983).
We agree with appellants and with the Healy court that a “prospective” statute such as Connecticut’s beer affirmation statute, or New York’s liquor affirmation statute, regulates out-of-state transactions in violation of the Commerce Clause. Once a distiller has posted prices in New York, it is not free to change its prices elsewhere in the United States during the relevant month. Forcing a merchant to seek regulatory approval in one State before undertaking a transaction in another directly regulates interstate commerce. While New York may regulate the sale of liquor within its borders, and may seek low prices for its residents, it may not “project its legislation into [other States] by regulating the price to be paid” for liquor in those States.
That the ABC Law is addressed only to sales of liquor in New York is irrelevant if the “practical effect” of the law is to control liquor prices in other States. Southern Pacific Co. v. Arizona ex rel. Sullivan, 325 U.S. 761, 775 (1945). We cannot agree with New York that the practical effects of the affirmation law are speculative. It is undisputed that once a distiller’s posted price is in effect in New York, it must seek the approval of the New York State Liquor Authority before it may lower its price for the same item in other States. It is not at all counter-intuitive, as the dissent maintains, to assume that the Liquor Authority would not permit appellant to reduce its New York price after the posted price has taken effect …
Moreover, the proliferation of state affirmation laws following this Court’s decision in Seagram has greatly multiplied the likelihood that a seller will be subjected to inconsistent obligations in different States. The ease with which New York’s lowest-price regulation can interfere with a distiller’s operations in other States is aptly demonstrated by the controversy that gave rise to this lawsuit. By defining the “effective price” of liquor differently from other States, New York can effectively force appellant to abandon its promotional allowance program in States in which that program is legal, or force those other States to alter their own regulatory schemes in order to permit appellant to lower its New York prices without violating the affirmation laws of those States. Thus New York has “project[ed] its legislation” into other States, and directly regulated commerce therein, in violation of Seelig, supra.6
Questions and Comments
(1) How broadly should Brown-Forman be read? The opinion seems to suggest that there could be a commerce clause violation whenever a statute regulates conduct occurring wholly outside the state. See also Healy v. Beer Inst. Inc., 491 U.S. 324, 336 (1989) (similar case to Brown-Forman, asserting that “a statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State’s authority and is invalid regardless of whether the statute’s extraterritorial reach was intended by the legislature”). Is the Court constitutionalizing territorialism? Should a commerce clause argument have been made in Allstate v. Hague, supra page 311? Doesn’t the application of one state’s law to a cross-border transaction or event always indirectly regulate conduct in another state?
(2) Note the Court’s concern about potential proliferation of state laws, leading to possible inconsistent regulations. This problem is present also in garden-variety choice-of-law problems, is it not? Again, what about Allstate?
(3) Professors Goldsmith and Sykes note that it is commonplace in our federal system for one state’s laws to have effects in another, and for multistate actors to face different regulations across states. They argue that the “extraterritoriality” and “inconsistency” prongs of the dormant commerce clause are best viewed as disguised forms of the Supreme Court’s traditional dormant commerce clause “balancing” test. See Goldsmith & Sykes, The Internet and the Dormant Commerce Clause, 110 Yale L.J. 785, 803-808 (2001).
(4) California recently became the subject of a similar legal controversy, this time over California’s statutes governing the production and sale of chicken eggs. In 2010, the California State Legislature passed A.B. 1437 (codified as §25996 of the California Health and Safety Code), which states that “[c]ommencing January 1, 2015, a shelled egg shall not be sold or contracted for sale for human consumption in California if the seller knows or should have known that the egg is the product of an egg-laying hen that was confined on a farm or place that is not in compliance with animal care standards set forth in Chapter 13.8 (commencing with Section 25990).” California law would “require 116 square inches [of cage space] per [hen], compared to the industry standard 67 square inches.” Stephanie Strom, Wishing They All Could Be California Hens, N.Y. Times, Mar. 3, 2014, available at www.nytimes.com/2014/03/04/business/theyre-going-to-wish-they-all-could-be-california-hens.html.
On February 3, 2014, the Attorney General of Missouri sued in the federal district court of the Eastern District of California to enjoin enforcement of A.B. 1437. Missouri ex rel. Koster v. Harris, No. 14-0067 (E.D. Cal. 2014). In the complaint, Missouri Attorney General Chris Koster argued that the California law would force Missouri farmers to “incur massive capital improvement costs to build larger habitats for some or all of Missouri’s seven million egg-laying hens, or they can walk away from the state whose consumers bought one third of all eggs produced in Missouri last year.” Id. The complaint alleges that the California law violates the Commerce Clause because it amounts to a protectionist measure against more price-competitive producers in other states. Is this case controlled by Brown-Forman? Why does the complaint not raise a due process objection?
The complaint alleges that the purpose of the law was protectionism; without the law, out-of-state producers would have a competitive advantage. But isn’t there an argument that the real purpose was the protection of out-of-state chickens? Does that matter? Does the Commerce Clause prohibit all “extraterritorial legislation,” or only protectionist measures? Do states have legitimate interests in the well-being of chickens residing elsewhere?
(5) Why are some cases perceived as choice-of-law problems, while others (like Brown-Forman and the chicken eggs case) are analyzed without reference to traditional choice-of-law reasoning? Would Brown-Forman look more like a choice-of-law problem if there were a private right of action in which some plaintiff sought to recover damages for violation of liquor pricing laws? If the defendant then claimed that its sales in other states could be regulated only under that state’s laws, would this constitute a due process claim?
(6) The Supreme Court addressed the Commerce Clause issue left open in G.D. Searle & Co., supra page 372, in Bendix Autolite Corp. v. Midwesco Enterprises, Inc., 486 U.S. 888 (1988). Ohio’s four-year statute of limitations was tolled for any corporation not “present” in Ohio, and to be present a foreign corporation had to appoint an agent for service of process, thereby consenting to the general jurisdiction of Ohio courts. The Court invalidated the Ohio statute on the ground that it “imposes a greater burden on out-of-state companies than it does on Ohio companies, subjecting the activities of foreign and domestic corporations to inconsistent regulations.” Id. at 894. Acknowledging its ruling in Searle, the Court ruled that “it is true that serving foreign corporate defendants may be more arduous than serving domestic corporations … and we have held for equal protection purposes that a State rationally may make adjustments for this difference. However, the Court distinguished G.D. Searle & Co., stating: “State interests that are legitimate for equal protection or due process purposes may be insufficient to withstand Commerce Clause scrutiny.” Id. Why should commerce clause scrutiny be more demanding than equal protection and due process scrutiny? The Bendix Autolite case is also discussed prominently in Sternberg v. O’Neil, infra page 396.
(7) While Brown-Forman uses the commerce clause to invalidate state regulatory action that is “extraterritorial,” the due process clause is occasionally used to similar effect. In BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), the Court struck down an Alabama award of punitive damages that was designed to change defendant BMW’s lawful conduct in other states. Invoking the due process clause, the Court explained that “Alabama may insist that BMW adhere to a particular disclosure policy in that State,” but it “does not have the power … to punish BMW for conduct that was lawful where it occurred and that had no impact on Alabama or its residents.” Id. at 572-573; see also State Farm Mutual Automobile Ins. Co. v. Campbell, 538 U.S. 408 (2003) (applying Gore analysis to strike down punitive damages award rendered by jury in Utah state court). In State Board of Insurance v. Todd Shipyards, 370 U.S. 451 (1962), the Court relied upon due process in holding that a state might not tax or regulate insurance contracts where its only connection to the contact was that the insured risk was located in the state. The Court could not have based its decision upon the commerce clause because the business of insurance has been left to state regulation under the McCarran-Ferguson Act, 15 U.S.C. §§1011-1012.
(8) The commerce clause imposes limits on a state’s power to tax activities and property that are located primarily in another state or in a foreign nation. Quill Corp. v. North Dakota, 504 U.S. 298 (1992), invalidated on commerce clause grounds a state effort to tax out-of-state mail order businesses with no physical presence within the state. (As noted above, page 313, the Court in Quill reversed earlier holdings that such taxation was also a violation of the due process clause.) The Court applied a four-part test derived from Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977), upholding a tax where it “ is applied to an activity with a substantial nexus with the taxing State,  is fairly apportioned,  does not discriminate against interstate commerce, and  is fairly related to the services provided by the State.” This test blends elements of antidiscrimination analysis with elements of extraterritoriality analysis. Note that one consequence of invalidating the state tax under the commerce clause rather than the due process clause is that Congress has the power to overrule the Court’s commerce clause decisions, a fact on which the opinion relied.
CTS Corp. v. Dynamics Corporation of America
481 U.S. 69 (1987)
Justice POWELL delivered the opinion of the Court.
These cases present the questions whether the Control Share Acquisitions Chapter of the Indiana Business Corporation Law, Ind. Code §23-1-42-1 et seq. (Supp. 1986), is pre-empted by the Williams Act, 82 Stat. 454, as amended, 15 U.S.C. §§78m(d)-(e) and 78n(d)-(f) (1982 ed. and Supp. III), or violates the Commerce Clause of the Federal Constitution, Art. I, §8, cl. 3.
On March 4, 1986, the Governor of Indiana signed a revised Indiana Business Corporation Law, Ind. Code §23-1-17-1 et seq. (Supp. 1986). That law included the Control Share Acquisitions Chapter (Indiana Act or Act). Beginning on August 1, 1987, the Act will apply to any corporation incorporated in Indiana, §23-1-17-3(a), unless the corporation amends its articles of incorporation or bylaws to opt out of the Act, §23-1-42-5. Before that date, any Indiana corporation can opt into the Act by resolution of its board of directors. §23-1-17-3(b). The Act applies only to “issuing public corporations.” The term “corporation” includes only businesses incorporated in Indiana. See §23-1-20-5. An “issuing public corporation” is defined as:
a corporation that has:
(1) one hundred (100) or more shareholders;
(2) its principal place of business, its principal office, or substantial assets within Indiana;
(A) more than ten percent (10%) of its shareholders resident in Indiana;
(B) more than ten percent (10%) of its shares owned by Indiana residents; or
(C) ten thousand (10,000) shareholders resident in Indiana.
The Act focuses on the acquisition of “control shares” in an issuing public corporation. Under the Act, an entity acquires “control shares” whenever it acquires shares that, but for the operation of the Act, would bring its voting power in the corporation to or above any of three thresholds: 20%, 33⅓%, or 50%. §23-1-42-1. An entity that acquires control shares does not necessarily acquire voting rights. Rather, it gains those rights only “to the extent granted by resolution approved by the shareholders of the issuing public corporation.” §23-1-42-9(a). Section 23-1-42-9(b) requires a majority vote of all disinterested shareholders holding each class of stock for passage of such a resolution. The practical effect of this requirement is to condition acquisition of control of a corporation on approval of a majority of the pre-existing disinterested shareholders.
The shareholders decide whether to confer rights on the control shares at the next regularly scheduled meeting of the shareholders, or at a specially scheduled meeting. The acquiror can require management of the corporation to hold such a special meeting within 50 days if it files an “acquiring person statement,” requests the meeting, and agrees to pay the expenses of the meeting. See §23-1-42-7. If the shareholders do not vote to restore voting rights to the shares, the corporation may redeem the control shares from the acquiror at fair market value, but it is not required to do so. §23-1-42-10(b). Similarly, if the acquiror does not file an acquiring person statement with the corporation, the corporation may, if its bylaws or articles of incorporation so provide, redeem the shares at any time after 60 days after the acquiror’s last acquisition. §23-1-42-10(a).
On March 10, 1986, appellee Dynamics Corporation of America (Dynamics) owned 9.6% of the common stock of appellant CTS Corporation, an Indiana corporation. On that day, six days after the Act went into effect, Dynamics announced a tender offer for another million shares in CTS; purchase of those shares would have brought Dynamics’ ownership interest in CTS to 27.5%. Also on March 10, Dynamics filed suit in the United States District Court for the Northern District of Illinois, alleging that CTS had violated the federal securities laws in a number of respects no longer relevant to these proceedings. On March 27, the board of directors of CTS, an Indiana corporation, elected to be governed by the provisions of the Act, see §23-1-17-3.
Four days later, on March 31, Dynamics moved for leave to amend its complaint to allege that the Act is pre-empted by the Williams Act, 15 U.S.C. §§78m(d)-(e) and 78n(d)-(f) (1982 ed. and Supp. III), and violates the Commerce Clause, Art. I, §8, cl. 3. Dynamics sought a temporary restraining order, a preliminary injunction, and declaratory relief against CTS’ use of the Act. On April 9, the District Court ruled that the Williams Act preempts the Indiana Act and granted Dynamics’ motion for declaratory relief. 637 F. Supp. 389 (ND Ill. 1986). Relying on Justice White’s plurality opinion in Edgar v. MITE Corp., 457 U.S. 624 (1982), the court concluded that the Act “wholly frustrates the purpose and objective of Congress in striking a balance between the investor, management, and the takeover bidder in takeover contests.” 637 F. Supp., at 399. A week later, on April 17, the District Court issued an opinion accepting Dynamics’ claim that the Act violates the Commerce Clause. This holding rested on the court’s conclusion that “the substantial interference with interstate commerce created by the [Act] outweighs the articulated local benefits so as to create an impermissible indirect burden on interstate commerce.” Id. at 406. The District Court certified its decisions on the Williams Act and Commerce Clause claims as final under Federal Rule of Civil Procedure 54(b).
CTS appealed the District Court’s holdings on these claims to the Court of Appeals for the Seventh Circuit. Because of the imminence of CTS’ annual meeting, the Court of Appeals consolidated and expedited the two appeals. On April 23—23 days after Dynamics first contested application of the Act in the District Court—the Court of Appeals issued an order affirming the judgment of the District Court.…
After disposing of a variety of questions not relevant to this appeal, the Court of Appeals examined Dynamics’ claim that the Williams Act preempts the Indiana Act …
The court next addressed Dynamic’s Commerce Clause challenge to the Act. Applying the balancing test articulated in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), the court found the Act unconstitutional:
Unlike a state’s blue sky law the Indiana statute is calculated to impede transactions between residents of other states. For the sake of trivial or even negative benefits to its residents Indiana is depriving nonresidents of the valued opportunity to accept tender offers from other nonresidents.
… Even if a corporation’s tangible assets are immovable, the efficiency with which they are employed and the proportions in which the earnings they generate are divided between management and shareholders depends on the market for corporate control—an interstate, indeed international, market that the State of Indiana is not authorized to opt out of, as in effect it has done in this statute.
794 F.2d, at 264.
Finally, the court addressed the “internal affairs” doctrine, a “principle of conflict of laws … designed to make sure that the law of only one state shall govern the internal affairs of a corporation or other association.” It stated:
We may assume without having to decide that Indiana has a broad latitude in regulating those affairs, even when the consequence may be to make it harder to take over an Indiana corporation … But in this case the effect on the interstate market in securities and corporate control is direct, intended, and substantial … [T]hat the mode of regulation involves jiggering with voting rights cannot take it outside the scope of judicial review under the commerce clause.
Ibid. Accordingly, the court affirmed the judgment of the District Court.
Both Indiana and CTS filed jurisdictional statements. We … reverse.
[The Court then discussed why the Indiana statute was not preempted by the Williams Act.]
As an alternative basis for its decision, the Court of Appeals held that the Act violates the Commerce Clause of the Federal Constitution. We now address this holding. On its face, the Commerce Clause is nothing more than a grant to Congress of the power “[t]o regulate Commerce … among the several States …,” Art. I, §8, cl. 3. But it has been settled for more than a century that the Clause prohibits States from taking certain actions respecting interstate commerce even absent congressional action. See, e.g., Cooley v. Board of Wardens, 12 How. 299 (1852). The Court’s interpretation of “these great silences of the Constitution,” H. P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 535 (1949), has not always been easy to follow. Rather, as the volume and complexity of commerce and regulation have grown in this country, the Court has articulated a variety of tests in an attempt to describe the difference between those regulations that the Commerce Clause permits and those regulations that it prohibits.
The principal objects of dormant Commerce Clause scrutiny are statutes that discriminate against interstate commerce. See, e.g., Lewis v. BT Investment Managers, Inc., 447 U.S. 27, 36-37 (1980).… The Indiana Act is not such a statute. It has the same effects on tender offers whether or not the offeror is a domiciliary or resident of Indiana. Thus, it “visits its effects equally upon both interstate and local business,” Id. at 36.
Dynamics nevertheless contends that the statute is discriminatory because it will apply most often to out-of-state entities. This argument rests on the contention that, as a practical matter, most hostile tender offers are launched by offerors outside Indiana. But this argument avails Dynamics little. “The fact that the burden of a state regulation falls on some interstate companies does not, by itself, establish a claim of discrimination against interstate commerce.” Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 126 (1978). See Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 471-472 (1981) (rejecting a claim of discrimination because the challenged statute “regulate[d] evenhandedly … without regard to whether the [commerce came] from outside the State”); Commonwealth Edison Co. v. Montana, 453 U.S. 609, 619 (1981) (rejecting a claim of discrimination because the “tax burden [was] borne according to the amount … consumed and not according to any distinction between in-state and out-of-state consumers”). Because nothing in the Indiana Act imposes a greater burden on out-of-state offerors than it does on similarly situated Indiana offerors, we reject the contention that the Act discriminates against interstate commerce.
This Court’s recent Commerce Clause cases also have invalidated statutes that adversely may affect interstate commerce by subjecting activities to inconsistent regulations. E.g., Brown-Forman Distillers Corp. v. New York State Liquor Authority, Edgar v. MITE Corp., Kassel v. Consolidated Freightways Corp. See Southern Pacific Co. v. Arizona, 325 U.S. 761, 774 (1945) (noting the “confusion and difficulty” that would attend the “unsatisfied need for uniformity” in setting maximum limits on train lengths); Cooley v. Board of Wardens, supra, at 319 (stating that the Commerce Clause prohibits States from regulating subjects that “are in their nature national, or admit only of one uniform system, or plan of regulation”). The Indiana Act poses no such problem. So long as each State regulates voting rights only in the corporations it has created, each corporation will be subject to the law of only one State. No principle of corporation law and practice is more firmly established than a State’s authority to regulate domestic corporations, including the authority to define the voting rights of shareholders. See Restatement (Second) of Conflict of Laws §304 (1971) (concluding that the law of the incorporating State generally should “determine the right of a shareholder to participate in the administration of the affairs of the corporation”). Accordingly, we conclude that the Indiana Act does not create an impermissible risk of inconsistent regulation by different States.
The Court of Appeals did not find the Act unconstitutional for either of these threshold reasons. Rather, its decision rested on its view of the Act’s potential to hinder tender offers. We think the Court of Appeals failed to appreciate the significance for Commerce Clause analysis of the fact that state regulation of corporate governance is regulation of entities whose very existence and attributes are a product of state law. As Chief Justice Marshall explained:
A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of its creation confers upon it, either expressly, or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created.
Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, 636 (1819). See First National Bank of Boston v. Bellotti, 435 U.S. 765, 822-824 (1978) (Rehnquist, J., dissenting). Every State in this country has enacted laws regulating corporate governance. By prohibiting certain transactions, and regulating others, such laws necessarily affect certain aspects of interstate commerce. This necessarily is true with respect to corporations with shareholders in States other than the State of incorporation. Large corporations that are listed on national exchanges, or even regional exchanges, will have shareholders in many States and shares that are traded frequently. The markets that facilitate this national and international participation in ownership of corporations are essential for providing capital not only for new enterprises but also for established companies that need to expand their business. This beneficial free market system depends at its core upon the fact that a corporation—except in the rarest situations—is organized under, and governed by, the law of a single jurisdiction, traditionally the corporate law of the State of its incorporation.
These regulatory laws may affect directly a variety of corporate transactions. Mergers are a typical example. In view of the substantial effect that a merger may have on the shareholders’ interests in a corporation, many States require supermajority votes to approve mergers. See, e.g., MBCA §73 (requiring approval of a merger by a majority of all shares, rather than simply a majority of votes cast); RMBCA §11.03 (same). By requiring a greater vote for mergers than is required for other transactions, these laws make it more difficult for corporations to merge. State laws also may provide for “dissenters’ rights” under which minority shareholders who disagree with corporate decisions to take particular actions are entitled to sell their shares to the corporation at fair market value. See, e.g., MBCA §§80, 81; RMBCA §13.02. By requiring the corporation to purchase the shares of dissenting shareholders, these laws may inhibit a corporation from engaging in the specified transactions.12
Nor is it unusual for partnership law to restrict certain transactions. For example, a purchaser of a partnership interest generally can gain a right to control the business only with the consent of other owners. See Uniform Partnership Act §27, 6 U.L.A. 353 (1969); Uniform Limited Partnership Act §19 (1916 draft), 6 U.L.A. 603 (1969); Revised Uniform Limited Partnership Act §§702, 704 (1976 draft), 6 U.L.A. 259, 261 (Supp. 1986). These provisions—in force in the great majority of the States—bear a striking resemblance to the Act at issue in this case.
It thus is an accepted part of the business landscape in this country for States to create corporations, to prescribe their powers, and to define the rights that are acquired by purchasing their shares. A State has an interest in promoting stable relationships among parties involved in the corporations it charters, as well as in ensuring that investors in such corporations have an effective voice in corporate affairs.
There can be no doubt that the Act reflects these concerns. The primary purpose of the Act is to protect the shareholders of Indiana corporations. It does this by affording shareholders, when a takeover offer is made, an opportunity to decide collectively whether the resulting change in voting control of the corporation, as they perceive it, would be desirable. A change of management may have important effects on the shareholders’ interests; it is well within the State’s role as overseer of corporate governance to offer this opportunity. The autonomy provided by allowing shareholders collectively to determine whether the takeover is advantageous to their interests may be especially beneficial where a hostile tender offer may coerce shareholders into tendering their shares.
Appellee Dynamics responds to this concern by arguing that the prospect of coercive tender offers is illusory, and that tender offers generally should be favored because they reallocate corporate assets into the hands of management who can use them most effectively.… As indicated supra, at 82-83, Indiana’s concern with tender offers is not groundless. Indeed, the potentially coercive aspects of tender offers have been recognized by the SEC, see SEC Release No. 21079, p. 86,916, and by a number of scholarly commentators.… The Constitution does not require the States to subscribe to any particular economic theory. We are not inclined “to second-guess the empirical judgments of lawmakers concerning the utility of legislation,” Kassel v. Consolidated Freightways Corp., 450 U.S., at 679 (Brennan, J., concurring in judgment). In our view, the possibility of coercion in some takeover bids offers additional justification for Indiana’s decision to promote the autonomy of independent shareholders.
Dynamics argues in any event that the State has “no legitimate interest in protecting the nonresident shareholders.” Dynamics relies heavily on the statement by the MITE Court that “[i]nsofar as the … law burdens out-of-state transactions, there is nothing to be weighed in the balance to sustain the law.” 457 U.S., at 644. But that comment was made in reference to an Illinois law that applied as well to out-of-state corporations as to in-state corporations. We agree that Indiana has no interest in protecting nonresident shareholders of nonresident corporations. But this Act applies only to corporations incorporated in Indiana. We reject the contention that Indiana has no interest in providing for the shareholders of its corporations the voting autonomy granted by the Act. Indiana has a substantial interest in preventing the corporate form from becoming a shield for unfair business dealing. Moreover, unlike the Illinois statute invalidated in MITE, the Indiana Act applies only to corporations that have a substantial number of shareholders in Indiana. See Ind. Code §23-1-42-4(a)(3) (Supp. 1986). Thus, every application of the Indiana Act will affect a substantial number of Indiana residents, whom Indiana indisputably has an interest in protecting.
Dynamics’ argument that the Act is unconstitutional ultimately rests on its contention that the Act will limit the number of successful tender offers. There is little evidence that this will occur. But even if true, this result would not substantially affect our Commerce Clause analysis. We reiterate that this Act does not prohibit any entity—resident or nonresident—from offering to purchase, or from purchasing, shares in Indiana corporations, or from attempting thereby to gain control. It only provides regulatory procedures designed for the better protection of the corporations’ shareholders. We have rejected the “notion that the Commerce Clause protects the particular structure or methods of operation in a … market.” The very commodity that is traded in the securities market is one whose characteristics are defined by state law. Similarly, the very commodity that is traded in the “market for corporate control”—the corporation—is one that owes its existence and attributes to state law. Indiana need not define these commodities as other States do; it need only provide that residents and nonresidents have equal access to them. This Indiana has done. Accordingly, even if the Act should decrease the number of successful tender offers for Indiana corporations, this would not offend the Commerce Clause.14
On its face, the Indiana Control Share Acquisitions Chapter evenhandedly determines the voting rights of shares of Indiana corporations. The Act does not conflict with the provisions or purposes of the Williams Act. To the limited extent that the Act affects interstate commerce, this is justified by the State’s interests in defining the attributes of shares in its corporations and in protecting shareholders. Congress has never questioned the need for state regulation of these matters. Nor do we think such regulation offends the Constitution. Accordingly, we reverse the judgment of the Court of Appeals.
Justice SCALIA, concurring in part and concurring in the judgment.
I join Parts I, III-A, and III-B of the Court’s opinion. However, having found, as those Parts do, that the Indiana Control Share Acquisitions Chapter neither “discriminates against interstate commerce” nor “create[s] an impermissible risk of inconsistent regulation by different States,” I would conclude without further analysis that it is not invalid under the dormant Commerce Clause. While it has become standard practice at least since Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), to consider, in addition to these factors, whether the burden on commerce imposed by a state statute “is clearly excessive in relation to the putative local benefits,” id., at 142, such an inquiry is ill suited to the judicial function and should be undertaken rarely if at all. This case is a good illustration of the point. Whether the control shares statute “protects shareholders of Indiana corporations,” or protects incumbent management seems to me a highly debatable question, but it is extraordinary to think that the constitutionality of the Act should depend on the answer. Nothing in the Constitution says that the protection of entrenched management is any less important a “putative local benefit” than the protection of entrenched shareholders, and I do not know what qualifies us to make that judgment—or the related judgment as to how effective the present statute is in achieving one or the other objective—or the ultimate (and most ineffable) judgment as to whether, given importance-level x, and effectiveness-level y, the worth of the statute is “outweighed” by impact-on-commerce z.
One commentator has suggested that, at least much of the time, we do not in fact mean what we say when we declare that statutes which neither discriminate against commerce nor present a threat of multiple and inconsistent burdens might nonetheless be unconstitutional under a “balancing” test. See Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich. L. Rev. 1091 (1986). If he is not correct, he ought to be. As long as a State’s corporation law governs only its own corporations and does not discriminate against out-of-state interests, it should survive this Court’s scrutiny under the Commerce Clause, whether it promotes shareholder welfare or industrial stagnation. Beyond that, it is for Congress to prescribe its invalidity.…
I do not share the Court’s apparent high estimation of the beneficence of the state statute at issue here. But a law can be both economic folly and constitutional. The Indiana Control Share Acquisitions Chapter is at least the latter. I therefore concur in the judgment of the Court.
Justice WHITE, with whom Justice BLACKMUN and Justice STEVENS join as to Part II, dissenting.
The majority today upholds Indiana’s Control Share Acquisitions Chapter, a statute which will predictably foreclose completely some tender offers for stock in Indiana corporations. I disagree with the conclusion that the Chapter is neither pre-empted by the Williams Act nor in conflict with the Commerce Clause. The Chapter undermines the policy of the Williams Act by effectively preventing minor shareholders, in some circumstances, from acting in their own best interests by selling their stock. In addition, the Chapter will substantially burden the interstate market in corporate ownership, particularly if other States follow Indiana’s lead as many already have done. The Chapter, therefore, directly inhibits interstate commerce, the very economic consequences the Commerce Clause was intended to prevent. The opinion of the Court of Appeals is far more persuasive than that of the majority today, and the judgment of that court should be affirmed.
[The dissenting opinion then discussed the William Act.]
Given the impact of the Control Share Acquisitions Chapter, it is clear that Indiana is directly regulating the purchase and sale of shares of stock in interstate commerce. Appellant CTS’ stock is traded on the New York Stock Exchange, and people from all over the country buy and sell CTS’ shares daily. Yet, under Indiana’s scheme, any prospective purchaser will be effectively precluded from purchasing CTS’ shares if the purchaser crosses one of the Chapter’s threshold ownership levels and a majority of CTS’ shareholders refuse to give the purchaser voting rights. This Court should not countenance such a restraint on interstate trade.
The United States, as amicus curiae, argues that Indiana’s Control Share Acquisitions Chapter
is written as a restraint on the transferability of voting rights in specified transactions, and it could not be written in any other way without changing its meaning. Since the restraint on the transfer of voting rights is a restraint on the transfer of shares, the Indiana Chapter, like the Illinois Act [in MITE], restrains “transfers of stock by stockholders to a third party.”
Brief for Securities and Exchange Commission and United States as Amici Curiae 26. I agree. The majority ignores the practical impact of the Chapter in concluding that the Chapter does not violate the Commerce Clause. The Chapter is characterized as merely defining “the attributes of shares in its corporations,” ante, at 94. The majority sees the trees but not the forest.
The Commerce Clause was included in our Constitution by the Framers to prevent the very type of economic protectionism Indiana’s Control Share Acquisitions Chapter represents:
The few simple words of the Commerce Clause—“The Congress shall have Power.… To regulate Commerce … among the several States … ”—reflected a central concern of the Framers that was an immediate reason for calling the Constitutional Convention: the conviction that in order to succeed, the new Union would have to avoid the tendencies toward economic Balkanization that had plagued relations among the Colonies and later among the States under the Articles of Confederation.
Hughes, supra, at 325-326.
The State of Indiana, in its brief, admits that at least one of the Chapter’s goals is to protect Indiana corporations. The State notes that the Chapter permits shareholders “to determine … whether [a tender offeror] will liquidate the company or remove it from the State.” Brief for Appellant in No. 86-97, p.19. The State repeats this point later in its brief: “The Statute permits shareholders (who may also be community residents or employees or suppliers of the corporation) to determine the intentions of any offeror concerning the liquidation of the company or its possible removal from the State.” Id., at 90. A state law which permits a majority of an Indiana corporation’s stockholders to prevent individual investors, including out-of-state stockholders, from selling their stock to an out-of-state tender offeror and thereby frustrate any transfer of corporate control, is the archetype of the kind of state law that the Commerce Clause forbids.
Unlike state blue sky laws, Indiana’s Control Share Acquisitions Chapter regulates the purchase and sale of stock of Indiana corporations in interstate commerce. Indeed, as noted above, the Chapter will inevitably be used to block interstate transactions in such stock. Because the Commerce Clause protects the “interstate market” in such securities, Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 127 (1978), and because the Control Share Acquisitions Chapter substantially interferes with this interstate market, the Chapter clearly conflicts with the Commerce Clause.
With all due respect, I dissent.
Questions and Comments
(1) As the opinion indicates, CTS was preceded by Edgar v. MITE Corp., 457 U.S. 624 (1982), which invalidated a state antitakeover law that was by its terms applicable to companies not incorporated locally. It should not be surprising that state laws that have a significant effect in other states are often faced with preemption challenges as well as commerce clause challenges; for large-scale commercial transactions are often regulated by federal substantive law. See, e.g., Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691 (1984) (inconsistency between FCC regulation and attempts by Oklahoma to regulate broadcasting certain kinds of television advertising).
(2) The commerce clause cases in the area of corporate takeovers have generated a substantial literature. In addition to discussions of the common-law internal affairs doctrine (pages 102–108 supra), see Pinto, The Constitution and the Market for Corporate Control: State Takeover Statutes After CTS Corp., 29 Wm. & Mary L. Rev. 699 (1988); Regan, Siamese Essays: (I) CTS Corp. v. General Dynamics Corp. of America and Dormant Commerce Clause Doctrine; (II) Extraterritorial State Legislation, 85 Mich. L. Rev. 1865 (1985); Langevoort, The Supreme Court and the Politics of Corporate Takeovers: A Comment on CTS Corp. v. General Dynamics Corp. of America, 101 Harv. L. Rev. 96 (1987); Buxbaum, The Threatened Constitutionalization of the Internal Affairs Doctrine in Corporation Law, 75 Cal. L. Rev. 29 (1987). For a criticism of the Regan article that is not limited to the topic of corporate takeovers, see Gergen, Territoriality and the Perils of Formalism, 86 Mich. L. Rev. 1735 (1988).
(3) CTS is in one respect a case of public regulation because the Indiana Act represents a direct attempt to regulate the transfer of corporate control. From another point of view, however, the transaction in question was simply a private contract to sell shares of stock. If one focuses on the “private” characterization of the case, CTS resembles more nearly a typical choice-of-law dispute. The question is simply, which state’s law may constitutionally be applied to the sale of stock in an Indiana corporation? The answer then seems to be, “only Indiana’s.” Is this correct? Does CTS have any relevance for private contracts for a sale of stock?
(4) To what other sorts of substantive problems might you expect the MITE/CTS analysis to apply? In what substantive areas is there a serious threat of inconsistent regulation?
(5) Should there be a general prohibition on extraterritorial injunctions? For a discussion of the dormant commerce clause authority bearing on this issue, see Welkowitz, Preemption, Extraterritoriality, and the Problem of State Antidilution Laws, 67 Tul. L. Rev. 1 (1992). The author’s main concern is with multistate tort litigation, such as antidilution actions, in which state courts have granted nationwide injunctions. The article also discusses other possible objections to extraterritorial injunctions, based on due process and jurisdiction to tax principles.
(6) The “extraterritoriality” and “inconsistent regulations” prongs of the dormant commerce clause have been invoked a great deal in recent years in litigation over the validity of state regulation of the Internet. See, e.g., American Booksellers Foundation for Free Expression v. Strickland, 601 F.3d 622 (6th Cir. 2010) (Ohio statutory provision prohibiting personally directed Internet communications that disseminate material harmful to juveniles did not violate Commerce Clause); MaryCLE, LLC v. First Choice Internet, Inc., 166 Md. App. 481 (2006) (Maryland spam e-mail statute did not violate Commerce Clause); Washington v. Heckel, 24 P.3d 404 (Wash. 2001) (application of Washington statute regulating spam e-mail to Oregon resident did not violate Commerce Clause); Cyberspace Communications, Inc. v. Engler, 142 F. Supp. 2d 827 (E.D. Mich. 2001) (state statute attempting to regulate dissemination of sexually explicit material to minors violates Commerce Clause); PSINET, Inc. v. Chapman, 167 F. Supp. 2d 878 (W.D. Va. 2001) (Virginia statute prohibiting sale, rental, or loan of indecent or obscene materials to juveniles violate Commerce Clause because it remains technologically impossible to restrict access by geographic origin); American Library Association v. Pataki, 969 F. Supp. 160 (S.D.N.Y. 1997) (New York statute prohibiting use of the Internet to communicate with minors with sexually explicit depictions violates Commerce Clause).
There also is a robust literature on the Internet and the dormant commerce clause. See Goldsmith & Sykes, The Internet and the Dormant Commerce Clause, 110 Yale L.J. 785 (2001); Biddle, State Regulation of the Internet: Where Does the Balance of Federalist Power Lie? 37 Cal. W. L. Rev. 161, 167 (2000); Denning, Smokey and the Bandit in Cyberspace: The Dormant Commerce Clause, the Twenty-first Amendment, and State Regulation of Internet Alcohol Sales, 19 Const. Comm. 297 (2002); Burk, Federalism in Cyberspace, 28 Conn. L. Rev. 1095 (1996).
1. The insurance policy was issued to “The Toni Company, a Division of the Gillette Safety Razor Company.… ” Gillette is a Delaware Corporation with headquarters in Boston where the contract was negotiated with the Boston office of Employers. The Toni Company manufactures the hair-waving product in Chicago, Illinois.
3. Ralph Hague paid a separate premium for each automobile including an additional separate premium for each uninsured motorist coverage.
6. Respondent has suggested that this case presents a “false conflict.” The court below rejected this contention and applied Minnesota law. Even though the Minnesota Supreme Court’s choice of Minnesota law followed a discussion of whether this case presents a false conflict, the fact is that the court chose to apply Minnesota law. Thus, the only question before this Court is whether that choice was constitutional.
7. Minnesota had previously adopted the conceptual model developed by Professor Leflar in Milkovich v. Saari [page 229 supra].
8. The court apparently was referring to sufficiency as a matter of choice of law and not as a matter of constitutional limitation on its choice-of-law decision.
10. This Court has taken a similar approach in deciding choice-of-law cases under both the Due Process Clause and the Full Faith and Credit Clause. In each instance, the Court has examined the relevant contacts and resulting interests of the State whose law was applied. See, e.g., Nevada v. Hall [infra page 351]. Although at one time the Court required a more exacting standard under the Full Faith and Credit Clause than under the Due Process Clause for evaluating the constitutionality of choice-of-law decisions, see Alaska Packers Assn. v. Industrial Accident Commn. (interest of State whose law was applied was no less than interest of State whose law was rejected), the Court has since abandoned the weighting-of-interests requirement. Carroll v. Lanza; see Nevada v. Hall, supra; Weintraub, Due Process and Full Faith and Credit Limitations on a State’s Choice of Law, 44 Iowa L. Rev. 449 (1959). Different considerations are of course at issue when full faith and credit is to be accorded to acts, records, and proceedings outside the choice-of-law area, such as in the case of sister state-court judgments.
11. Prior to the advent of interest analysis in the state courts as the “dominant mode of analysis in modern choice of law theory,” the prevailing choice-of-law methodology focused on the jurisdiction where a particular event occurred.…
Hartford Accident & Indemnity Co. v. Delta & Pine Land Co. can, perhaps, best be explained as an example of that period. In that case, the Court struck down application by the Mississippi courts of Mississippi law which voided the limitations provision in a fidelity bond written in Tennessee between a Connecticut insurer and Delta, both of which were doing business in Tennessee and Mississippi. By its terms, the bond covered misapplication of funds “by an employee in any position, anywhere.… ” After Delta discovered defalcations by one of its Mississippi-based employees, a lawsuit was commenced in Mississippi.
That case, however, has scant relevance for today. It implied a choice-of-law analysis which, for all intents and purposes, gave an isolated event—the writing of the bond in Tennessee—controlling constitutional significance, even though there might have been contacts with another State (here Mississippi) which would make application of its law neither unfair nor unexpected.
22. Of course Allstate could not be certain that Wisconsin law would necessarily govern any accident which occurred in Wisconsin, whether brought in the Wisconsin courts or elsewhere. Such an expectation would give controlling significance to the wooden lex loci delicti doctrine. While the place of the accident is a factor to be considered in choice-of-law analysis, to apply blindly the traditional, but now largely abandoned, doctrine, would fail to distinguish between the relative importance of various legal issues involved in a lawsuit as well as the relationship of other jurisdictions to the parties and the occurrence or transaction. If, for example, Mr. Hague had been a Wisconsin resident and employee who was injured in Wisconsin and was then taken by ambulance to a hospital in Red Wing, Minn., where he languished for several weeks before dying, Minnesota’s interest in ensuring that its medical creditors were paid would be obvious. Moreover, under such circumstances, the accident itself might be reasonably characterized as a bistate occurrence beginning in Wisconsin and ending in Minnesota. Thus, reliance by the insurer that Wisconsin law would necessarily govern any accident that occurred in Wisconsin, or that the law of another jurisdiction would necessarily govern any accident that did not occur in Wisconsin, would be unwarranted. See n.11, supra.
If the law of a jurisdiction other than Wisconsin did govern, there was a substantial likelihood, with respect to uninsured motorist coverage, that stacking would be allowed. Stacking was the rule in most States at the time the policy was issued.…
24. There is no element of unfair surprise or frustration of legitimate expectations as a result of Minnesota’s choice of its law. Because Allstate was doing business in Minnesota, and was undoubtedly aware that Mr. Hague was a Minnesota employee, it had to have anticipated that Minnesota law might apply to an accident in which Mr. Hague was involved. Indeed, Allstate specifically anticipated that Mr. Hague might suffer an accident either in Minnesota or elsewhere in the United States, outside of Wisconsin, since the policy it issued offered continental coverage. At the same time, Allstate did not seek to control construction of the contract since the policy contained no choice-of-law clause dictating application of Wisconsin law.
28. The dissent suggests that considering respondent’s postoccurrence change of residence as one of the Minnesota contacts will encourage forum shopping. This overlooks the fact that her change of residence was bona fide and not motivated by litigation considerations.
29. We express no view whether the first two contacts, either together or separately, would have sufficed to sustain the choice of Minnesota law made by the Minnesota Supreme Court.
3. The two questions presented by the choice-of-law issue arise only after it is assumed or established that the defendant’s contacts with the forum State are sufficient to support personal jurisdiction. Although the choice-of-law concerns—respect for another sovereign and fairness to the litigants—are similar to the two functions performed by the jurisdictional inquiry, they are not identical. In World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 291-292 (1980), we stated: “The concept of minimum contacts, in turn, can be seen to perform two related, but distinguishable, functions. It protects the defendant against the burdens of litigating in a distant or inconvenient forum. And it acts to ensure that the States, through their courts, do not reach out beyond the limits imposed on them by their status as coequal sovereigns in a federal system.” While it has been suggested that this same minimum-contacts analysis be used to define the constitutional limitations on choice of law, the Court has made it clear over the years that the personal jurisdiction and choice-of-law inquiries are not the same. See Kulko v. California Superior Court; Shaffer v. Heitner; Hanson v. Denckla.
13.… It is … clear that a state court’s decision to apply its own law cannot violate the Full Faith and Credit Clause where the application of forum law does not impinge at all upon the interests of other States.
15. Discrimination against nonresidents would be constitutionally suspect even if the Due Process Clause were not a check upon a State’s choice-of-law decisions. Moreover, both discriminatory and substantively unfair rules of law may be detected and remedied without any special choice-of-law analysis; familiar constitutional principles are available to deal with both varieties of unfairness.
16. Upon careful analysis, most of the decisions of this Court that struck down on due process grounds a state court’s choice of forum can be explained as attempts to prevent a State with a minimal contact with the litigation from materially enlarging the contractual obligations of one of the parties where that party had no reason to anticipate the possibility of such enlargement.
20.… While such express provisions are obviously relevant, they are not always dispositive. In Clay v. Sun Insurance Office, Ltd., the Court allowed the lower court’s choice of forum law to override an express contractual limitations period. The Court emphasized the fact that the insurer had issued the insurance policy with the knowledge that it would cover the insured property wherever it was taken. Id., at 181-182. The Court also noted that the insurer had not attempted to provide in the policy that the law of another State would control. Id., at 182.
In Watson v. Employers Liability Assurance Corp., the insurance policy expressly provided that an injured party could not maintain a direct action against the insurer until after the insured’s liability had been determined. The Court found that neither the Due Process Clause nor the Full Faith and Credit Clause prevented the Louisiana courts from applying forum law to permit a direct action against the insurer prior to determination of the insured’s liability. As in Clay, the Court noted that the policy provided coverage for injuries anywhere in the United States.…
23. Comparison of this case with Home Ins. Co. v. Dick, confirms my conclusion that the application of Minnesota law in this case does not offend the Due Process Clause. In Home Ins. Co., the contract expressly provided that a particular limitations period would govern claims arising under the insurance contract and that Mexican law was to be applied in interpreting the contracts; in addition, the contract was limited in effect to certain Mexican waters. The parties could hardly have made their expectations with respect to the applicable law more plain. In this case, by way of contrast, nothing in the contract suggests that Wisconsin law should be applied or that Minnesota’s “stacking” rule should not be applied. In this case, unlike Home Ins. Co., the court’s choice of forum law results in no unfair surprise to the insurer.
24. Even this factor may not be of substantial significance. At the time of contracting, the parties were aware that the insurance policy was effective throughout the United States and that the law of any State, including Minnesota, might be applicable to particular claims. The fact that the decedent regularly drove to Minnesota, for whatever purpose, is relevant only to the extent that it affected the parties’ evaluation, at the time of contracting, of the likelihood that Minnesota law would actually be applied at some point in the future. However, because the applicability of Minnesota law was perceived as possible at the time of contracting, it does not seem especially significant for due process purposes that the parties may also have considered it likely that Minnesota law would be applied. This factor merely reinforces the expectation revealed by the policy’s national coverage.
25. In Kryger v. Wilson, after rejecting a due process challenge to a state court’s choice of law, the Court stated: “The most that the plaintiff in error can say is that the state court made a mistaken application of doctrines of the conflict of laws in deciding that the cancellation of a land contract is governed by the law of the situs instead of the place of making and performance. But that, being purely a question of local common law, is a matter with which this court is not concerned.”
3. The plurality today apparently recognizes that the significance of the contacts must be evaluated in light of the policies our review serves. It acknowledges that the sufficiency of the same contacts sometimes will differ in jurisdiction and choice-of-law questions. The plurality, however, pursues the rationale for the requirement of sufficient contacts in choice-of-law cases no further than to observe that the forum’s application of its own law must be “neither arbitrary nor fundamentally unfair.” … But this general prohibition does not distinguish questions of choice of law from those of jurisdiction, or from much of the jurisprudence of the Fourteenth Amendment.
5. The plurality exacts double service from this fact, by finding a separate contact in that the insured commuted daily to his job.… This is merely a repetition of the facts that the insured lived in Wisconsin and worked in Minnesota. The State does have an interest in the safety of all motorists who use its roads. This interest is not limited to employees, but extends to all nonresident motorists on its highways. This safety interest, however, cannot encompass, either in logic or in any practical sense, the determination whether a nonresident’s estate can stack benefit coverage in a policy written in another State regarding an accident that occurred on another State’s roads.…
2. Contrary to Justice Brennan’s concurrence, there is nothing unusual about our approach. This Court has regularly relied on traditional and subsisting practice in determining the constitutionally permissible authority of courts.… The concurrence’s citation, of the criticism by the plurality opinion in Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981), of Hartford Accident & Indemnity Co. v. Delta & Pine Land Co., 292 U.S. 143 (1934), is not to the contrary. That criticism merely rejected the view that the Constitution enshrines the rule that the law of the place of contracting governs validity of all provisions of the contract. By the time of Allstate, of course, such a rule could not have been characterized as a subsisting tradition, if it ever could have been, in light of escape devices such as the doctrine of public policy, characterization of an issue as procedural, and the rule that the law of the place of performance governs matters of performance.
3. Although petitioner takes up this issue after discussion of the full faith and credit claim, and devotes much less argument to it, we may note that, logically, the full faith and credit claim is entirely dependent upon it. It cannot possibly be a violation of the Full Faith and Credit Clause for a State to decline to apply another State’s law in a case where that other State itself does not consider it applicable. Although in certain circumstances standard conflicts law considers a statute of limitations to bar the right and not just the remedy, see Restatement (Second) of Conflict of Laws §143 (1971), petitioner concedes that (apart from the fact that Kansas does not so regard the out-of-state statutes of limitations at issue here) Texas, Oklahoma, and Louisiana view their own statutes as procedural for choice-of-law purposes. A full faith and credit problem can therefore arise only if that disposition by those other States is invalid—that is, if they, as well as Kansas, are compelled to consider their statute of limitations substantive. The nub of the present controversy, in other words, is the scope of constitutionally permissible legislative jurisdiction, and it matters little whether that is discussed in the context of the Full Faith and Credit Clause, as the litigants have principally done, or in the context of the Due Process Clause. Since we are largely traversing ground already covered, our discussion of the due process claim can be brief.
2. The minimum requirements imposed by the Due Process Clause are, in this context, the same as those imposed by the Full Faith and Credit Clause.…
4. The parties concede, as they must, that if the same cause of action had previously been reduced to judgment, the Full Faith and Credit Clause would compel the courts of Wisconsin to entertain an action to enforce it. Kenney v. Supreme Lodge, 252 U.S. 411.
10. The present case is not one where Wisconsin, having entertained appellant’s lawsuit, chose to apply its own instead of Illinois’ statute to measure the substantive rights involved. This distinguishes the present case from those where we have said that “prima facie every state is entitled to enforce in its own courts its own statutes, lawfully enacted.” Alaska Packers Assn. v. Commission.
11. It may well be that the wrongful death acts of Wisconsin and Illinois contain different provision in regard to such matters as maximum recovery and disposition of the proceeds of suit. Such differences, however, are generally considered unimportant.
16. In certain previous cases, e.g., Pacific Ins. Co. v. Commission; Alaska Packers Assn. v. Commission, this Court suggested that under the Full Faith and Credit Clause a forum state might make a distinction between statutes and judgments of sister states because of Congress’ failure to prescribe the extra-state effect to be accorded public acts. Subsequent to these decisions the Judicial Code was revised so as to provide: “Such Acts[of the legislature of any state] … and judicial proceedings … shall have the same full faith and credit in every court within the United States … as they have … in the courts of such State … from which they are taken.” (Italics added.) 28 U.S.C. (1946 ed., Supp. III) §1738. In deciding the present appeal, however, we have not found it necessary to rely on any changes accomplished by the Judicial Code revision.
* “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.” U.S. Const. art. VI, §2.—EDS.
19. The Eleventh Amendment provides: “The Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.”
Even as so limited, however, the Eleventh Amendment has not accorded the States absolute sovereign immunity in federal court actions. The States are subject to suit by both their sister States and the United States. Further, prospective injunctive and declaratory relief is available against States in suits in federal court in which state officials are the nominal defendants.
24. California’s exercise of jurisdiction in this case poses no substantial threat to our constitutional system of cooperative federalism. Suits involving traffic accidents occurring outside of Nevada could hardly interfere with Nevada’s capacity to fulfill its own sovereign responsibilities. We have no occasion, in this case, to consider whether different state policies, either of California or of Nevada, might require a different analysis or a different result.
29. Cf. Georgia v. Chattanooga, 264 U.S. 472, 480 (“Land acquired by one State in another State is held subject to the laws of the latter and to all the incidents of private ownership. The proprietary right of the owning State does not restrict or modify the power of eminent domain of the State wherein the land is situated.”).
8. For purposes of analyzing a taxing scheme under the Privileges and Immunities Clause the terms “citizen” and “resident” are essentially interchangeable. Travis v. Yale & Towne Mfg. Co., 252 U.S. 60, 79 (1920) (“a general taxing scheme … if it discriminates against all nonresidents, has the necessary effect of including in the discrimination those who are citizens of other States”); Smith v. Loughman, 245 N.Y. 486, 492, 157 N.E. 753, 755, cert. denied, 275 U.S. 560 (1927); see Toomer v. Witsell, 334 U.S. 385, 397 (1948).
12. Neither Travis nor the present case should be taken in any way to denigrate the value of reciprocity in such matters. The evil at which they are aimed is the unilateral imposition of a disadvantage upon nonresidents, not reciprocally favorable treatment of nonresidents by States that coordinate their tax laws.
6. Before the Court of Appeals, petitioner conceded that the tolling provision does not implicate a suspect classification. Before this court, petitioner argues for a heightened level of scrutiny because it is a corporation not doing business in New Jersey and therefore is without a voice in the New Jersey legislature. Only a rational basis, however, is required to support a distinction between foreign and domestic corporations. Western & S.L.I. Co. v. Bd. of Equalization, 451 U.S. 648 (1981). The same is true here where the tolling provision treats an unrepresented foreign corporation differently from a domestic corporation and from a foreign corporation having a New Jersey representative.
7. Petitioner also presses a due process claim. In the Court of Appeals, petitioner argued that the tolling statute violates due process “by unfairly and irrationally denying certain foreign corporations the benefit of the Statute of Limitations without furthering any legitimate societal interest.” The Court of Appeals rejected petitioner’s due process challenge to the statute at the same time that it rejected petitioner’s equal protection contention. Indeed, this due process argument is nothing more than a restatement of petitioner’s equal protection claim.
In this Court, petitioner has attempted to put forward a new due process argument. Petitioner notes that it can obtain the benefit of the statute of limitation by appointing an agent to accept service. Fearing that appointment of an agent might subject it to suit in New Jersey when there otherwise would not be the minimum contacts required for suit in the State under the Due Process Clause, see International Shoe Co. v. Washington, petitioner insists that New Jersey law violates due process by conditioning the benefit of the limitation period upon the appointment of a New Jersey agent. Because petitioner did not present this argument to the Court of Appeals, we do not address it.
6. While we hold that New York’s prospective price affirmation statute violates the Commerce Clause, we do not necessarily attach constitutional significance to the difference between a prospective statute and the retrospective statute at issue in Seagram. Indeed, one could argue that the effects of the statute in Seagram do not differ markedly from the effects of the statute at issue in the present case. If there is a conflict between today’s decision and the Seagram decision, however, there will be time enough to address that conflict should a case arise involving a retrospective statute. Because no such statute is before us now, we need not consider the continuing validity of Seagram.
12. Numerous other common regulations may affect both nonresident and resident shareholders of a corporation. Specified votes may be required for the sale of all of the corporation’s assets. See MBCA §79; RMBCA §12.02. The election of directors may be staggered over a period of years to prevent abrupt changes in management. See MBCA §37; RMBCA §8.06. Various classes of stock may be created with differences in voting rights as to dividends and on liquidation. See MBCA §15; RMBCA §6.01(c). Provisions may be made for cumulative voting. See MBCA §33, par. 4; RMBCA §7.28; n.9, supra. Corporations may adopt restrictions on payment of dividends to ensure that specified ratios of assets to liabilities are maintained for the benefit of the holders of corporate bonds or notes. See MBCA §45 (noting that a corporation’s articles of incorporation can restrict payment of dividends); RMBCA §6.40 (same). Where the shares of a corporation are held in States other than that of incorporation, actions taken pursuant to these and similar provisions of state law will affect all shareholders alike wherever they reside or are domiciled.
14. CTS also contends that the Act does not violate the Commerce Clause—regardless of any burdens it may impose on interstate commerce—because a corporation’s decision to be covered by the Act is purely “private” activity beyond the reach of the Commerce Clause. Because we reverse the judgment of the Court of Appeals on other grounds, we have no occasion to consider this argument.