Sioux Remedy Company v. Cope/Opinion of the Court

This is an action by an Iowa corporation to enforce payment of the purchase price, amounting to $80, of merchandise sold in interstate commerce under a written contract which was made in South Dakota, and required that the merchandise be shipped by the plaintiff from its place of business in Iowa to the defendants at their place of business and residence in South Dakota. The action was brought in a court of the latter state, and the defendants interposed a plea to the effect that the action could not be maintained because, as was the fact, the plaintiff had not complied with a South Dakota statute prescribing conditions upon which corporations of other states would be permitted to sue in the courts of that state. The plea was sustained and the action dismissed. An appeal to the supreme court of the state resulted in in a judgment of affirmance, from which one member of the court dissented. 28 S. D. 397, 135 N. W. 683.

In that court it was contended that the statute upon which the plea was grounded is, when applied in a case like this, repugnant to the commerce clause of the Constitution of the United States.

The statute (Rev. Civ. Code 1903) declares (§ 883) that no corporation created under the laws of any other state or territory, for other than religious and charitable purposes, 'shall transact any business within this state, or acquire, hold, and dispose of property, real, personal, or mixed, within this state, or sue or maintain any action at law or otherwise in any of the courts of this state,' until it shall have filed in the office of the secretary of state an authenticated copy of its charter or articles of incorporation, and also (§ 885) that 'no action shall be commenced or maintained in any of the courts of this state by such corporation on any contract, agreement, or transaction made or entered into in this state by such corporation,' unless it shall have appointed a resident agent upon whom process may be served in any action to which it may be a party, and shall have filed an authenticated copy of such appointment in the office of the secretary of state and of the register of deeds of the county where the agent resides. The corporation is also required to pay the fees, amounting to about $25, for filing and recording these instruments.

The supreme court of the state construed the statute as requiring a foreign corporation to subject itself to the jurisdiction of all the courts of the state as a condition to invoking the aid of any one of them, and as embracing actions to enforce contracts directly arising out of and connected with interstate commerce equally with actions having no relation to such commerce; and after so construing the statute, the court held it to be a reasonable exercise of the police power of the state and in no wise repugnant to the commerce clause of the Constitution of the United States. In two earlier cases the court had taken a different view of the statute (Rex Buggy Co. v. Dinneen, 23 S. D. 474, 122 N. W. 433; Sioux Remedy Co. v. Lindgren, 27 S. D. 123, 130 N. W. 49), but in the opinion rendered in this case they were disapproved.

Recognizing that it was within the province of the supreme court of the state to construe the statute, and to depart from prior decisions upon the subject, if deemed untenable, we accept the construction applied in this case, and confine our attention to the Federal question whether, as so construed, the statute, by its necessary operation, materially or directly burdens interstate commerce.

Through a long series of decisions dealing with the scope and effect of the commerce clause it has come to be well settled that a state, while possessing power to adopt reasonable measures to promote and protect the health, safety, morals, and welfare of its people, even though interstate commerce be incidentally or indirectly affected, has no power to exclude from its limits foreign corporations or others engaged in interstate commerce, or, by the imposition of conditions, to fetter their right to carry on such commerce, or to subject them in respect to their transactions therein to requirements which are unreasonable or pass beyond the bounds of suitable local protection. Crutcher v. Kentucky, 141 U.S. 47, 35 L. ed. 649, 11 Sup. Ct. Rep. 851; Minnesota Rate Cases (Simpson v. Shepard) 230 U.S. 352, 401, 402, 410, 57 L. ed. 1511, 1542, 1543, 1546, 48 L.R.A.(N.S.) 1151, 33 Sup. Ct. Rep. 729, and cases cited; Barrett v. New York, 232 U.S. 14, 31, 58 L. ed. 483, 490, 34 Sup. Ct. Rep. 203, and cases cited. And so the solution of the question here presented lies within narrow lines.

The contract and sale out of which the action arose were transactions in interstate commerce, and entirely legitimate notwithstanding the plaintiff's noncompliance with the state statute. International Textbook Co. v. Pigg, 217 U.S. 91, 54 L. ed. 678, 27 L.R.A.(N.S.) 493, 30 Sup. Ct. Rep. 481, 18 Ann. Cas. 1103; Buck Stove & Range Co. v. Vickers, 226 U.S. 205, 57 L. ed. 189, 33 Sup. Ct. Rep. 41; Flint & W. Mfg. Co. v. McDonald, 21 S. D. 526, 14 L.R.A.(N.S.) 673, 130 Am. St. Rep. 735, 114 N. W. 684. After delivery of the merchandise according to the contract, the plaintiff was lawfully entitled to the purchase price. The defendants were likewise obligated to pay it. And by reason of their refusal the plaintiff had a right of action on the contract. Thus much was recognized by the supreme court of the state and is now conceded by counsel for the defendants. But it was held by that court, and is here contended, that while the state could not make noncompliance with the statute a ground for forbidding or invalidating sales in interstate commerce, it could make such noncompliance a ground for preventing the maintenance of any action in the courts of the state, based upon such a sale; in other words, that the state, although unable to condition the right to make the sale or its validity upon a compliance with the statute, could so condition the right to sue for the purchase price in the courts of the state.

The argument advanced in support of this position is, first, that the right to demand and enforce payment for merchandise sold in interstate commerce is no part of such commerce, and therefore may be encumbered without burdening the latter; second, that a state may impose such conditions as it deems appropriate upon the right of foreign corporations to sue in its courts; and, third, that in any event the conditions imposed by the statute are not unreasonable or burdensome. The supreme court of the state sustained the second and third points and passed the other without comment.

Of the first point it is enough to say that the right to demand and enforce payment for goods sold in interstate commerce, if not a part of such commerce, is so directly connected with it and is so essential to its existence and continuance that the imposition of unreasonable conditions upon this right must necessarily operate as a restraint or burden upon interstate commerce. The form or mode of imposing the conditions is not nearly so important as their necessary and practical operation, for, as was said in Western U. Teleg. Co. v. Kansas, 216 U.S. 1, 27, 54 L. ed. 355, 366, 30 Sup. Ct. Rep. 190: 'If the statute, reasonably interpreted, either directly or by its necessary operation, burdens interstate commerce, it must be adjudged to be invalid, whatever may have been the purpose for which it was enacted, and although the company may do both interstate and local business. This court has repeatedly adjudged that in all such matters the judiciary will not regard mere forms, but will look through forms to the substance of things.'

It may be conceded in a general way that a state may restrict the right of a foreign corporation to sue in its courts. Bank of Augusta v. Earle, 13 Pet. 519, 589-591, 10 L. ed. 274, 308, 309; Anglo-American Provision Co. v. Davis Provision Co. 191 U.S. 373, 48 L. ed. 225, 24 Sup. Ct. Rep. 92. And in the same general way it may be conceded that a state may restrict the right of such corporations to engage in business within its limits. Paul v. Virginia, 8 Wall. 168, 19 L. ed. 357; Hooper v. California, 155 U.S. 648, 39 L. ed. 297, 5 Inters. Com. Rep. 610, 15 Sup. Ct. Rep. 207. But the power so to deal with these subjects, like all other state powers, can only be exerted within the limitations which the Constitution of the United States places upon state action. Missouri v. Lewis (Bowman v. Lewis) 101 U.S. 22, 30, 25 L. ed. 989, 992; Blake v. McClung, 172 U.S. 239, 256, 43 L. ed. 432, 438, 19 Sup. Ct. Rep. 165; Chambers v. Baltimore & O. R. Co. 207 U.S. 142, 148, 52 L. ed. 143, 146, 28 Sup. Ct. Rep. 34; Western U. Teleg. Co. v. Kansas, supra, p. 33; Southern R. Co. v. Greene, 216 U.S. 400, 413, 54 L. ed. 536, 540, 30 Sup. Ct. Rep. 287, 19 Ann. Cas. 1247. One of these limitations is that before indicated, arising from the commerce clause, whose operation, as this court has said, is such that a corporation authorized by the state of its creation to engage in interstate commerce 'may not be prevented by another state from coming into its limits for all the legitimate purposes of such commerce.' Western U. Teleg. Co. v. Kansas, supra, p. 27. We think that when a corporation goes into a state other than that of its origin to collect, according to the usual or prevailing methods, the purchase price of merchandise which it has lawfully sold therein in interstate commerce, it is there for a legitimate purpose of such commerce, and that the state cannot, consistently with the limitation arising from the commerce clause, obstruct or hamper the attainment of that purpose. If it were otherwise, the purpose of the Constitution to secure and maintain the freedom of commerce by whomsoever conducted could be largely thwarted by the states and the commerce itself seriously crippled.

We are thus brought to the question whether the particular conditions imposed by this statute can be sustained when applied to rights of action like that disclosed in the present case. Without doubt a foreign corporation seeking to enforce such a right in the courts of a state may be required to conform to the prevailing modes of proceeding in those courts, and to submit to the usual rules respecting costs, the giving of security therefor (see Blake v. McClung, 172 U.S. 239, 256, 43 L. ed. 432, 438, 19 Sup. Ct. Rep. 165), and the like. But incidents of this character commonly attending litigation may be put out of view, for it is with something quite different that we are here concerned. The conditions which the statute imposes are: First, that the company shall file in the office of the secretary of state an authenticated copy of its charter or articles of incorporation; second, that it shall appoint a resident agent upon whom process may be served in any action against it, and shall file a copy of such appointment in the office of the secretary of state and of the register of deeds of the county where the agent resides; and, third, that it shall pay the fees incident to filing and recording these instruments, approximating $25. It will be perceived that these are the conditions upon which many of the states permit foreign corporations to engage in business within their limits when no constitutional limitation is involved; that is, when the character of the business is such that the state is free to exclude such corporations or to admit them upon terms acceptable to it. But here the conditions are sought to be applied in a different way and to a different situation falling within the reach of the commerce clause. Out of this arises the question of their validity. We think the mere statement of the conditions shows that they have no natural or reasonable relation to the right to sue which they are intended to restrict. They have no bearing upon the merits or any question of procedure or costs, are not directed against any abusive use of judicial process, and are plainly onerous. The second one, respecting the appointment of a resident agent upon whom process may be served, is particularly burdensome, because, as the supreme court of the state has said, it requires the corporation to subject itself to the jurisdiction of the courts of the state in general as a prerequisite to suing in any of them; that is to say, it withholds the right to sue even in a single instance until the corporation renders itself amenable to suit in all the courts of the state by whosoever chooses to sue it there. If one state can impose such a condition others can, and in that way corporations engaged in interstate commerce can be subjected to great embarrassment and serious hazards in the enforcement of contractual rights directly arising out of and connected with such commerce. As applied to such rights we think the conditions are unreasonable and burdensome, and therefore in conflict with the commerce clause.

These views require that the judgment be reversed and the cause remanded for further proceedings not inconsistent with this opinion.

Judgment reversed.