Bendix Autolite Corporation v. Midwesco Enterprises, Inc. – Oral Argument – March 23, 1988

Media for Bendix Autolite Corporation v. Midwesco Enterprises, Inc.

Audio Transcription for Opinion Announcement – June 17, 1988 in Bendix Autolite Corporation v. Midwesco Enterprises, Inc.

del

William H. Rehnquist:

We will hear arguments next in Bendix Autolite Coproration versus Midwesco Enterprises, Inc.–

Mr. Crowley, you may proceed whenever you are ready.

Noel C. Crowley:

Mr. Chief Justice, and may it please the Court, the appellant in this lawsuit is Bendix Autolite Corporation.

It had a contract with the appellee, Midwesco Enterprises, under which Midwesco sold and installed in State of Ohio a particular boiler which turned out to be defective.

The contract was fully performed in the State of Ohio, but Bendix has been denied the right to maintain an action in the State of Ohio because the applicable four-year statute of limitations had expired, and whether the action is maintainable at this time depends on the constitutionality under the commerce clause of a particular Ohio tolling statute which suspends the running of the period of limitations in situations as we have here where the defendant can’t be served within the State of Ohio.

Both the District Court and the Circuit Court have held, and we say incorrectly, that the Ohio tolling statute constitutes an impermissible burden on interstate commerce.

Those rulings were incorrect, we contend, because the supposed burden on commerce is so slight and so speculative as to make it questionable whether the burden has any reality at all.

William H. Rehnquist:

You say then that the Ohio tolling statute should have been allowed to be applied by the Ohio courts and therefore it would not have run against you in your action against Midwesco?

Noel C. Crowley:

Precisely so.

We maintain that such theoretical burden as may exist is purely incidental to a valid state purpose and is clearly outweighed by the resultant benefits which have been achieved for the benefit of Ohio citizens, and those benefits, as I will explain in a moment, are not at all theoretical, but have been explicitly recognized as valid and legitimate objects of state concern by this Court’s 1982 decision in the case of G.D. Searle and Company against Cohn, which we cite in our brief.

Now, the obvious purpose of the Ohio tolling statute is to preserve the right of Ohio citizens to assert claims against individuals and corporations who are not amenable to service within the state either because they once lived there and later moved away or because they are concealing themselves within the state, or because they never lived there at all.

Byron R. White:

Well, it also… it just doesn’t benefit Ohio citizens, does it?

Anybody who is–

Noel C. Crowley:

No, just–

Byron R. White:

–Anybody who sues in Ohio.

Noel C. Crowley:

–Certainly that would follow.

Yes, indeed.

Byron R. White:

All right.

Noel C. Crowley:

The statute here in question is virtually identical to a particular New Jersey statute which this Court reviewed in the Searle case.

Now, we are accused by our opponents here of misreading Searle, and also as behaving as though Searle fully disposed of all the issues and compels a decision in our favor.

That is not our position, and I think our brief acknowledges that it is not the case.

But the Searle case does conclusively establish that a statute of the sort we are talking about does have a legitimate state purpose, and it is a purpose that remains valid and subsisting, notwithstanding the adoption by the State of Ohio of an alternative method of addressing the same concern, and that is the process for longarm service.

Arrangements for in-state service continue to be of benefit, as this Court pointed out in Searle, because it can’t always be guaranteed that a particular company, a particular out of state company or out of state individual can actually be found.

Sandra Day O’Connor:

Mr. Crowley–

Noel C. Crowley:

Yes, Your Honor.

Sandra Day O’Connor:

–if the only way to satisfy the requirement of Ohio’s statute is for the foreign company to come in and actual register to do business for all purposes, do you concede that it would fail under the commerce clause?

Noel C. Crowley:

No, we don’t at all concede.

We welcome the chance to point out that we don’t suppose that to be the situation at all in Ohio, that that isn’t by any means the only way–

Sandra Day O’Connor:

I guess you didn’t hear my question then or maybe I misstated it.

Noel C. Crowley:

–Forgive me.

Sandra Day O’Connor:

If the only way of complying with the Ohio statute is to register for all purposes, do you concede that the commerce clause burden would be such that the statute would fail?

Noel C. Crowley:

No, and I understand Your Honor’s question, and it is a little hard to reckon with the question if that was the only way of complying.

The Ohio statute doesn’t require any kind of behavior at all.

Sandra Day O’Connor:

We will get to that in a minute.

I would like you to address that question first, and I just wonder what authority you rely on for thinking that that would not be so burdensome as to fail.

Noel C. Crowley:

What it is not, Justice O’Connor, what it is not is a forced licensure statute.

We concede that if it were a forced licensure statute, that if as a practical matter the only way you could do business in Ohio was to qualify to do business, we would concede under that set of facts that it would fail, but there is a great disparity between what we are talking about here and the so-called forced licensure statutes.

Antonin Scalia:

I’m not sure I’m following you.

Do you concede that if the only way to get the benefit of the shorter statute of limitations were to become licensed for all purposes in Ohio, it would be unconstitutional?

Noel C. Crowley:

No, we do not so concede.

Antonin Scalia:

I thought that’s what you just said.

Noel C. Crowley:

No.

We thought if it could fairly be said of the statute that you had to qualify to do business, that–

Byron R. White:

In order to do what?

Noel C. Crowley:

–In order to seriously expect to do business in the state, as, for example, in the Allenberg Cotton case, where there is a familiar kind of statute arid where the situation is such that you are under that statute denied access to the courts of the state unless and until you qualify to do business, and they are describing business which is of an interstate character.

The Court very properly said as far as we are concerned, very properly said that a statute of that sort is so tantamount to a direct order to license–

Sandra Day O’Connor:

Well, I thought that was my question exactly.

Noel C. Crowley:

–Well, I had difficulty with–

Sandra Day O’Connor:

And I have different responses from you now to Justice Scalia and to me and I don’t know what your position is.

Noel C. Crowley:

–I am putting it badly, but I understand our position and I am going to try once again to explain it.

It is, if you, as a condition of doing business if you had an Allenberg Cotton type of situation, properly described as a forced licensure situation, and if the consequence of not being qualified to do business was that you can’t go to the courts of that state, in other words, you can sell things, but if the people don’t voluntarily pay you you have no–

Sandra Day O’Connor:

Well, here the consequence is simply that the statute of limitations is not tolled.

Noel C. Crowley:

–Yes, exactly, and we don’t think that that is sufficiently coercive.

Sandra Day O’Connor:

You think that is different somehow.

Noel C. Crowley:

It most assuredly is different.

It is not sufficiently, coercive as to obligate somebody to do anything.

It is not an intolerable situation to sell things and to be subject to suit and to have to defend suit on the merits and not have the defense of the statute of limitations.

So, again, yes, if it were true that it was forced licensure it would be invalid.

It is not, even if it was the only means of compliance, and it is not, an invalid statute here because of the great disparity in severity of sanctions between forced licensure and this.

Sandra Day O’Connor:

Now, the courts below in this case apparently did not find that the statute, the tolling statute would be met by a provision in the contract.

Noel C. Crowley:

We are puzzled and to some extent confounded by what the reasoning of the Circuit Court was in that regard.

They acknowledged that it could have happened, that there could have been a designation of an agent in this individual contract which would not have–

Sandra Day O’Connor:

But they said that didn’t answer the question.

Noel C. Crowley:

–Yes, and we are at a loss to know just what they meant by that.

If they meant that there would have been other remaining constitutional questions as applied to other people, that treatment was wrong for the reason we say it is wrong in our brief, that–

Sandra Day O’Connor:

How are we to know what the state law is on that subject?

Noel C. Crowley:

–I think there is nothing in the statute itself which even refers to licensure, so all that can be said of licensure is that it is one means of appointing an agent for the service of process.

We certainly have an Ohio state law and we have cited it in our brief that says the means by which you serve a company is among other things to serve an agent.

You serve somebody who is appointed as an agent, you have served the company.

So I take it it follows inexorably from that that any time you have somebody designated as an agent who is resident in the State of Ohio so that you can make the service within that state, you have provided a means of service and you have defeated the tolling statute, so that it simply doesn’t apply.

Antonin Scalia:

He has to be an agent for service in all matters, not just in the particular contract.

Noel C. Crowley:

No, there is nothing in the statute to suggest that that would be the case.

If he is an agent for the particular service that is being made–

Antonin Scalia:

That would do it.

Noel C. Crowley:

–that should be in all respects sufficient.

There is nothing in any of the statutes, any of the decisions to suggest anything to the contrary.

We have other cases from other jurisdictions, and we cite them in our brief, saying that with respect to the federal counterpart of the Ohio statute, saying that where there is a designation by contract it can be as limited as the parties to the contract want to make it.

In this case the designation not only could have been limited to Bendix, it could have been limited even as to Bendix to claims arising out of this particular contract.

And that would have been a full and sufficient answer to the attempt to apply the tolling statute in this case.

John Paul Stevens:

Tell me, what is the case that holds that would have been a sufficient answer?

Noel C. Crowley:

It is a particular Virginia District Court opinion, and it is quoted in our brief.

John Paul Stevens:

A Virginia case?

Noel C. Crowley:

Yes.

Sandra Day O’Connor:

Nothing from this State of Ohio?

Noel C. Crowley:

No, but it is not talking about a particular statute, it is just talking about, in general about the designation of agents.

Certainly–

John Paul Stevens:

The Ohio statute hasn’t been construed on this point, though, has it?

Noel C. Crowley:

–Forgive me.

John Paul Stevens:

The Ohio statute has not been construed on this point.

There are no Ohio authorities supporting your position?

Noel C. Crowley:

I think there are Ohio decisions that confirm that if a corporation has an agent present within the state, that that makes it present within the state for purposes of the tolling statute.

I think that much is established, and I don’t think there should be any remaining question once that is established on, of course, that point.

Antonin Scalia:

That is something of a burden, to have a general corporation resident for… what you are saying is, you have to agree in order to get the benefit of the… or not to be… not to have the burden of the tolling statute you have to have a resident there for all purposes and be sued by anybody who wants to sue you in that state.

That is something of a burden.

Noel C. Crowley:

If that were the fact that would be a substantial burden.

Antonin Scalia:

No, but those are the only cases that you have in Ohio that talk about a general agent for service, right?

Noel C. Crowley:

I don’t understand that the cases we have in mind establish whether it is general or specific, and I can’t imagine any reason why a narrow and specific appointment, if indeed it is a real appointment, should be any the less efficacious as regards the particular claim to which it is addressed.

I guess if I don’t do anything else today I should like to differentiate this case from the forced licensure kind of case.

In forced licensure, where you tell the court… correction, tell the company that it can’t use the courts of that state unless it qualifies to do business that statute has no purpose other than to induce licensure.

It doesn’t serve any interests of the state simply to deny various companies access to the courts.

It only makes sense as an inducement to make them do something.

Nothing–

William H. Rehnquist:

But isn’t one proviso of the Allenberg holding that the company has to be engaged only in interstate commerce?

Noel C. Crowley:

–Oh, very much so.

Yes, if the company is become localized and is a domesticated company, it is indistinguishable from any other company resident in Ohio, and I take it for that reason there is no constitutional problem as to that, and it would be perfectly valid to deny that company access to the courts unless and until it is qualified to do business.

But reverting to the other point, there is not the tiniest suggestion that this tolling statute here in question is intended to induce any kind of behavior at all on the part of companies or individuals or anybody else, nothing to suggest that the legislature didn’t fully achieve its purpose simply when it extended the limitation period, that it had any purpose beyond that or that it cared at all about whether somebody qualified to do business entered into business or not, and if they had had any such intent, if the idea had been to compel companies to take out a license, certainly the statute would have been poorly suited to that end, and there isn’t the tiniest hint or suggestion in the record in this case that as… that it has had that practical effect, that companies that might not have been of a mind to do so have ever felt compelled to qualify to do business, and it simply isn’t the same kind of restraint that we are talking about.

We have read the recent or modern commerce clause cases by this Court, and we understand that some of them go further than some scholarly commentators would have had it go, or than some members of the Court itself would have had it go, but at least with those cases, all of them involved matters that had the potential, at least, for some serious economic or regulatory dislocation.

If, for example, you try to regulate the width of a truck or the length of a truck, as was done in the Raymond Motor case, or the South Carolina against Barnwell Brochers case, that is a serious restraint.

We have no trouble understanding that that is something to talk about there when the conversation turns to burden on commerce.

Telling an Arizona grower that he has to stop bulk shipping his cantaloupe into nearby California and instead has to construct his own packing facility so that the State of Arizona can enjoy the good will associated with his cantaloupes by having them labeled as Arizona cantaloupes that is a serious burden.

We don’t fail to understand that.

Telling a New Jersey land fill operator that he can’t accept refuse that is generated outside the State of New Jersey.

That, you don’t have to examine that with a microscope.

Discouraging out of state banks and out of state insurance companies from setting up shop within a particular state, that is a real burden.

But in contrast to what is going on here, the restraint here, and we are indebted to Chief Justice Rehnquist for his dissent from the denial of certiorari in the case of Coons against American Honda Corporation, and we want to incorporate by reference everything he said about the supposed restraining effect of the New Jersey statute there in question, and his wording describing that burden was, it is slight.

We would say that certainly it is slight–

John Paul Stevens:

Do you also rely on his dissent in the Allenberg Cotton case?

Noel C. Crowley:

–No, I don’t think–

John Paul Stevens:

You don’t.

Noel C. Crowley:

–It occurs to us, it occurs to us that this case may be a fitting occasion for the Court saying that there is a burden that is so slight, so speculative, so insubstantial that it shouldn’t ever be subjected to hostile scrutiny either under the so-called per se test or the balancing test, and this would be an occasion for that, but to reach the result we want we certainly don’t have to go that far, and certainly don’t have to reverse Allenberg Cotton.

Noel C. Crowley:

We accept that rule as a rule of forced licensure, and our quarrel with the courts below is that they simply made the automatic association, because we are talking here, we are using some of the same concepts.

We are talking about appointments of agents for service.

We are talking about qualifying to do business.

And on the basis of that every lower court that has considered this matter either in this case or in the case of Coons against American Honda has made the automatic association that, oh, this is one of those forced licensure cases, and without any analysis at all, any examination of what truly is happening under this Ohio statute, have lept to the conclusion that on the authority of Allenberg Cotton and the Dahnke-Walker case and the other famous licensure cases, that this is simply another illustration of that same principle.

Antonin Scalia:

Mr. Crowley, I have a special concern about whether this statute is discriminatory in the sense that it is peculiarly directed against out of state companies or against interstate business.

Is it or isn’t?

Noel C. Crowley:

It most assuredly is not.

Antonin Scalia:

You could be, I take it, a domestic company in that state or could have been at the time of the alleged tort and then if you move your company elsewhere you would still be liable.

Noel C. Crowley:

Absolutely.

Antonin Scalia:

The tolling statute would apply.

Or if you were a private citizen, never mind companies–

Noel C. Crowley:

Absolutely.

Antonin Scalia:

–if you were a private citizen and didn’t even move your residence but… well, I guess you could be served at your residence, I don’t know.

If you moved out of the state and came back it would be tolled while you were gone.

Noel C. Crowley:

I take it that it would, and the case seemed… the Ohio cases seemed to indicate that where there is a sojourn of substantial length out of the state, that the tolling does apply.

If it is a vacation trip, that seems not to count.

But all of that is… proceeds on the assumption that the only way to avoid the detriment of the tolling statute is to qualify to do business.

We suppose that that is a matter of greater interest to the Court, and so we put that first.

The patent reality is that no such circumstance has been shown to be the case.

No impediment whatever to putting it in the contract, putting the appointment… and putting it in a very limited fashion.

John Paul Stevens:

Do you suppose there is any burden in the problem of having to negotiate the appropriate period of limitations in a contract?

Most people don’t have to negotiate this sort of provision.

Noel C. Crowley:

I don’t understand that any such negotiations would be necessary at all.

All you have to do is to say in the contract, I have an agent, he is in Columbus.

John Paul Stevens:

Yes, but supposing the Ohio company said, we want the benefit of the existing statute.

We are not going to give up that right.

What are you going to give us for that?

Noel C. Crowley:

I think we have sort of anticipated that question, first of all, that that would be a puzzling response for the other company to make, because presumably they benefit from having an in-state agent on whom they can effect the service, so it would be puzzling to see them resist it, but if they did, arbitrarily or whatever, the other company simply writes them a letter unilaterally designating, saying, if you have any quarrel with this contract, any claim, we have appointed somebody our agent, he is in the City of Cleveland, and here is where you can find him.

John Paul Stevens:

And how long will he be there?

Noel C. Crowley:

I think that is a sufficient answer to the whole of it.

Noel C. Crowley:

We see in the record and we concede it is a somewhat unsatisfactory record of exchanges with the Ohio Secretary of State’s office.

Byron R. White:

Well, that may be… if you make a contract, that may be right, but what about product liability?

Noel C. Crowley:

This–

Byron R. White:

You don’t write around to somebody who gets hurt by one of your products.

Noel C. Crowley:

–Well, that is a distinguishable case, not the case presented here, but we are indebted to Judge Potter in the District Court in Toledo for making the suggestion in oral argument that it might be perfectly feasible for a company to designate an agent on the product itself, and that is not an issue we are raising here–

Byron R. White:

Does Ohio have any formal mechanism by which you may appoint an agent for service of process in the state without qualifying to do business?

Noel C. Crowley:

–That is the… what I was starting to explore, talking about the correspondence that is in the record that was exchanged with the Ohio Secretary of State’s office, and there are two letters.

The letters are really contradictory.

The first letter says, we would not accept for filing any such designation apart from the licensure process, in effect.

I am paraphrasing.

The second letter said we would accept such a letter.

We didn’t mean to say what we apparently said in the earlier letter, and we would in fact accept something if we were satisfied after an appropriate investigation that it was not intended to circumvent our licensing procedure.

That is to say, if it was done by somebody wholly in interstate commerce–

Byron R. White:

Does this statute have to either stand up or fall in one piece?

Maybe it might be completely valid as applied in this case and invalid as applied in some other circumstance.

Noel C. Crowley:

–The answer to the question, put in those terms, is, assuredly not.

It doesn’t have to stand or fall in one case, and this being the kind of case it is, its validity, we would respectfully submit, should be judged on the basis of the operative considerations as we find it.

I would also, on–

John Paul Stevens:

The operative considerations are those where there is no agent been appointed, right?

Noel C. Crowley:

–Forgive me, Justice–

John Paul Stevens:

One of the operative considerations that we find is, there was no agent appointed in Ohio.

Noel C. Crowley:

–Yes, and that argument is made.

Byron R. White:

There could have been.

Noel C. Crowley:

There could have been.

Byron R. White:

That is your answer.

Noel C. Crowley:

And if there is a remaining burden, it is because they didn’t make the designations, not because of any infirmity in the statute, is our answer.

We would also point out that this matter of trying to isolate the burden becomes even more illusory when you consider is there even a single claim.

First of all, I will digress and say there is not a single transaction that is shown in the record here to have ever been discouraged, much less a company been discouraged from doing business by reason of anything we are talking about here, but on the question of what burden there is, how can you tell that a particular claim, if it was brought in the period as extended by the tolling statute would not have been brought sooner if there had been no tolling statute, if there didn’t need to be, and in this regard I am reminded of my earliest apprenticeship in the practice of law, where it was explained to me, facetiously, I am sure, that the operative principle in the scheduling of work activities is, don’t put off until tomorrow what you can put off indefinitely.

So who’s to say that what didn’t have to be done today by reason of–

John Paul Stevens:

If you represent plaintiffs, I don’t imagine you explained that operative principle to them, that we are not going to get to your work any sooner than we have to.

Noel C. Crowley:

–I hope I didn’t pay attention to the lesson and don’t observe it.

But certainly if you are given to understand you have a specified length of time to do something you can be excused for taking that seriously and acting in conformity to it.

That brings me finally to the question of retroactive application.

We concede we could have brought up the issue of retroactive application from the earliest time.

There was never any impediment.

We were discouraged from doing so because of the treatment the retroactivity issue got in the Coons case, where the State of New Jersey deliberated about that, examined the issue of retroactivity and said they weren’t going to… they were not going to make it prospective only.

Well, it was on that set of facts that it looked like an argument to which the courts were inhospitable, and we didn’t make the point.

Then, after we had written our brief in chief in the Sixth Circuit, the New Jersey court reversed itself and said, it is a case that should only be applied prospectively and not retroactively, and at that point with that enhanced value of the argument, we made it, made it only in our reply brief.

The Sixth Circuit declined to deal with it on the merits because it came only in the reply brief.

We think it should have been understandable the way it arose, and it either is or it isn’t, and that is… we don’t think it should be necessary to reach that point, our main point being that there is no… no under analysis, an analysis that has never been made in any of the lower courts, under analysis any real burden on commerce, and that is our argument.

William H. Rehnquist:

Thank you, Mr. Crowley.

Mr. Bornstein, we will hear now from you.

Ira J. Bornstein:

Mr. Chief Justice, and may it Please the Court, as counsel indicated, the issue before this Court is very simply whether or not the Ohio tolling statute is what has been construed as a forced licensure provision.

And as counsel concedes, each and every court which has been faced with this provision or a similar provision has found it to be a constitutional violation.

That includes the lower courts here as well as the courts in the Coons case, as well as the McKinley court.

And the question that we have to look at, as the Court indicated in Hughes versus Oklahoma, is the practical operation of the statute.

That is the focus, and what you have to look at is, there is a tolling statute here, and the tolling statute says that in order to obtain its benefits there must be physical presence in the state.

Now, even though it is somewhat of an anachronism as we pointed out, Ohio may very well be the only state now that holds that physical presence in the state is not the equivalent to being subject to service under the longarm jurisdiction.

It is only the same as actual physical service within the confines of the state.

And what we have here is a situation where Bendix had the defendant, Midwesco, served under longarm, and because of that fact and the fact that there must be physical presence, it is necessary to see how that physical presence can be obtained, and the only means and manner in which it can be done is via the qualifications statute of the State of Ohio.

Sandra Day O’Connor:

Well, that isn’t exactly what the Court of Appeals said in its opinion, is it?

I mean, there is a sentence in the opinion of the Sixth Circuit that says that we acknowledge that Midwesco could have chosen to name an agent as part of its contract with Bendix.

Ira J. Bornstein:

I agree, and I believe what the court said is incorrect.

I don’t believe that in the Ohio Foreign Corporation Act that is possible.

The Ohio Foreign–

Sandra Day O’Connor:

Well, do you want us then to say the Sixth Circuit was just wrong on that as a matter of Ohio law?

Ira J. Bornstein:

–Well, what the Sixth Circuit said is that they could have put their provision in there.

They didn’t state and did not make a decision as to whether or not there would be any validity of such a provision.

They merely stated that there could have been such a provision in there, and in fact I believe that there would not have been any validity because it would allow a corporation to easily circumvent the entire corporate scheme setup in the State of Ohio.

One could easily then engage in business by going ahead and entering into these agreements, these side agreements without having to become qualified and appoint an agent.

Sandra Day O’Connor:

Well, the answer to the question, though, seems to me to affect the extent of the burden on interstate commerce.

If it can be done that easily, it seems to me that is less of a burden.

Wouldn’t you agree?

Ira J. Bornstein:

If it can be done that easily, it would be less of a burden.

Sandra Day O’Connor:

And it would be helpful to know.

Ira J. Bornstein:

It would be helpful to know.

Sandra Day O’Connor:

So are we stuck just as we were in the Searle case with not knowing and having to send it back?

Ira J. Bornstein:

No, I don’t believe we are, because in Searle the reason that they were stuck was there was what was considered to be a footnote in the Velmohos case which seemed to indicate that possibly there were other means in which it could be done, and in fact after remand, and Coons turned out to be the culmination of Searle, the Supreme Court of New Jersey found there was no other way, and in fact the same argument that there could have been some type of contractual provision was raised in Coons, and the New Jersey Supreme Court said it can’t be done.

Sandra Day O’Connor:

Well, that was New Jersey, not Ohio.

Ira J. Bornstein:

That’s correct, but Ohio has the same type of Foreign Corporation Act, almost identical.

William H. Rehnquist:

But, Mr. Bornstein, in that passage from the Sixth Circuit’s opinion they say two arguments are made.

One is appointing an agent, and the other is giving notice to the Secretary of State.

Then they say they could have appointed an agent, so that is something we have to deal with.

They say as to the suggestion giving notice to the Secretary of State it is highly speculating and devoid of any statutory support.

Now, that suggests to me by implication that they thought probably the first thing, appointing an agent for the contract, did have some statutory support.

Ira J. Bornstein:

Well, I don’t believe so.

I believe all that they were stating was that the provision could have been in there, and I believe that because of the fact the provision was not in there and therefore it was moot, they were not going to issue a decision as to whether or not it was valid, but we did raise the argument in the Sixth Circuit before the court that under the Ohio statutory scheme it would not be valid and it would allow one to circumvent it.

William H. Rehnquist:

Well, they certainly didn’t use your argument in dealing with the question at all, did they?

Ira J. Bornstein:

They did not make any statement in there one way or the other.

As part of the statutory scheme under Section 1703.041 of the Ohio Code one is required to appoint a statutory agent in order to transact business within the state, and the effect of that provision, as Ohio recognizes, is that a foreign corporation would become subject to the general jurisdiction of Ohio courts for any and all transitory causes of action, and the courts in the cases we have cited have pointed out that the only thing that they would look to then is whether or not the corporate defendant could be served within the confines of the state.

That is it.

It does not matter whether the plaintiff resides in the state or not.

It is a question of whether or not the defendant could be served.

Antonin Scalia:

You think that’s the only way that the Ohio statute can be complied with?

Suppose you have a state that isn’t doing business in the state but it does… it does no business but it does rent an office there.

You think that that would not comply with the statute unless they actually registered with the Secretary of State?

Ira J. Bornstein:

If they have an office within the state then they are able to be physically served within the state.

It is not the same thing.

Antonin Scalia:

Sure, so that would comply.

Ira J. Bornstein:

Then that would comply.

Ira J. Bornstein:

They could be served in the state.

We could not be served within the state.

Antonin Scalia:

Well, the next step is, they don’t have an office there but they have an agent there who is in somebody else’s office.

Ira J. Bornstein:

But they can’t be–

–Well, the thing is that in this instance there wasn’t one, and the question is whether or not they can be compelled to come in and appoint an agent within the state.

Now, what is the matter with that?

But you seem to acknowledge that they can appoint an agent within the state without complying with the whole licensing scheme of the Secretary of State.

Ira J. Bornstein:

No, I don’t mean… when I said that–

I think you gave it away when you said you could have an office there without doing business in the state and they could serve you with that office.

I think you gave it away then, didn’t you?

Ira J. Bornstein:

–No, because there is still physical presence within the state.

If there is physical presence within the state under the tolling statute then you can obtain the benefits of the tolling statute.

But if you can have physical presence by an office, why can’t you have physical presence by somebody that you name as an agent?

Ira J. Bornstein:

Because under… the only way you can appoint an agent though is under the statutory scheme.

You can have it under an agent but the agents have to be appointed under the Ohio Foreign Corporation Act.

How do you know that?

Ira J. Bornstein:

Because looking at the Ohio statutory scheme, that is the only way, that is the only provision anywhere that it is stated how a foreign corporation engaged in interstate commerce can appoint an agent.

You can’t have any agents, foreign corporations can’t have any agents in that state unless they are appointed under that provision?

I can’t imagine that.

There are a lot of–

Ira J. Bornstein:

If they are going to transact business within the State of Ohio.

If they are going to transact business.

–But this was not a company that was transacting business.

Precisely.

I mean, this is a company that doesn’t want to transact business.

It just wants to have an agent there.

I can’t believe that the only way to get an agent in the State of Ohio is to use that provision.

Ira J. Bornstein:

If you are a foreign corporation I believe that that is the only way.

I have not seen any other means or mode, and there hasn’t been any other which has been suggested by Bendix in this case.

Mr. Bornstein, it is essential for you to prevail here, isn’t it, to show that Midwesco was engaged exclusively in interstate commerce in its dealings in Ohio.

Ira J. Bornstein:

That’s correct.

And what, it sold and installed a boiler to Bendix, where, in Fostoria, was it?

Ira J. Bornstein:

Fostoria, Ohio.

And what did that… what did the installation efforts consist of?

Ira J. Bornstein:

It consisted of Installing a boiler, having people there and literally constructing a boiler.

Shipping it in or–

Ira J. Bornstein:

Shipping it in from Illniois to Ohio, and, Your Honor, there is a statute, Section 1703.02 of the Ohio Code which says that a foreign corporation engaged in interstate commerce which comes into the state to construct any type of machinery or equipment is still considered to be engaged in interstate commerce and is not subject to the qualification provisions of the statutory scheme, and there is no doubt under the statutory scheme that Midwesco was still engaged exclusively in interstate commerce.

–And wasn’t subject to qualification.

Ira J. Bornstein:

And would not otherwise have been subject to qualification.

By becoming registered… if, as our position is that you must become registered and you must have an agent, a statutory agent, and by doing that under the Ohio law in essence a party such as Midwesco is being forced to give up its due process and its defenses based on personal jurisdiction, because once there is someone there then they have submitted themselves to the Ohio courts, and not just… I mean, the effects on interstate commerce are just tremendous if one thinks about that, because if various states forced these types of requirements upon a corporation, then they could become subject to lawsuits throughout the United States despite the fact that the interstate corporation has no contact with the forum state.

Merely because of the fact that they have appointed an agent in order to comply, they could be defending lawsuit throughout the whole 50 United States, and not just states like Ohio.

Midwesco has done jobs in Alaska.

They could be sued in Alaska for auto accidents.

They could be sued in Puerto Rico.

They could be… throughout the country, and they would be forced to incur the cost of defending cases throughout this country all because of this.

Would you say that… would this case come out differently from your point of view if Ohio had a provision that allowed a foreign corporation to appoint an agent for service of process without requiring them to qualify?

Ira J. Bornstein:

No, I believe it would still end up being the same thing.

Anybody… any foreign corporation that wants the benefit of the statute of limitations in our state may file a piece of paper appointing an agent for service of process, and he can appoint the Secretary of State.

Ira J. Bornstein:

But the problem is that under the Ohio statutory scheme Ohio case law said that by appointing an agent within the state, an agent gives you presence, and therefore you are submitting to general jurisdiction.

Therefore even if they did this Midwesco would in essence be submitting to the general jurisdiction to the courts of Ohio.

It is not just because of the qualification.

It is because of the fact that if they were still required to appoint an agent, that agent would subject them to jurisdiction for any and all actions.

It wouldn’t just be for this particular action, and therefore the effect, the burden on interstate commerce would still be the same.

Well, what about the office that Justice Scalia asked you about?

Ira J. Bornstein:

That is because in fact the corporation has agreed, has gone in and established a physical–

But that wouldn’t be a valid service, I take it.

Just having an office there doesn’t mean that the service would be valid.

It would just mean there would be presence and you could get the benefit of the statute.

Ira J. Bornstein:

–That’s correct.

That’s correct.

Ira J. Bornstein:

Now, as far as these forced licensure provisions, this Court has long held these provisions to be unconstitutional, and unlike what counsel for Bendix has said, this Court has not focused on the sanctions.

This Court has focused on the conditions.

In fact, recently in Eli Lilly versus Savon Drugs this Court pointed out that it was the conditions, the regulatory conditions that were being looked at, and it was not the sanctions at the end, and in fact in that case the Court stated that it is well established that New Jersey cannot require Lilly to get a certificate of authority to do business in the state if its participation in this trade is limited to its wholly interstate sales to New Jersey.

There is no limitation or qualification on the sanction.

This Court has long held, going back to 1914, quite some time ago, long before the interstate trade developed it the way it is right now, in Sioux Remedy versus Cope, that a provision such as this was unconstitutional.

Sioux Remedy, the Court focused on the condition, and interestingly enough, 70 years ago, in excess of 70 years ago the conditions were exactly the same.

The condition was that the corporation has to become qualified to transact business, had to appoint a statutory agent and became subject to the general jurisdiction of the Court, and this Court looked at that and said that the conditions being imposed were much too great, and Justice Vander Vanter, with a tremendous amount of prescience, kind of foretold the future in that case.

He stated that 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, and that was in 1914.

Here we are in 1988.

Trade is not only interstate it is international, and those burdens, those hazards, that embarrassment has only disproportionately increased over the years.

It is also necessary to keep in mind the entire purpose and idea behind the commerce clause, this idea of preventing economic Balkanization, that the states are not separate economic units, and that you cannot keep corporations out of states and prevent them from transacting business.

As the Court stated in International Textbook versus Pigg, the Court said that one cannot impose a condition upon a corporation of another state seeking to do business in the State of Kansas, which is a case of interstate business, and which is a regulation of interstate commerce, and directly burdens on such commerce.

Again, it is the conditions that are being focused on.

It is not the sanctions.

It is not the fact that one is being barred from the courthouse door.

It is the fact that one is being conditioned to become registered, become licensed within the state in order to transact that interstate business.

And even though the courts found, and we believe rightfully found, that there is a per se violation here, even if one were to apply the test, the balancing test of Pike versus Bruce Church, it is our belief, as we have already set out, that that test clearly indicates that there has been a burden upon interstate commerce, because of the fact that one must weigh the consequences, and the only effect as far as the state goes, the state interest that has been established here, is that which this Court found in Searle, which is the fact that there is a certain interest in having one served or be able to be served within the state.

However, some of which I have already touched upon, the effect upon interstate commerce here is great, because of the fact it will subject a corporation to the jurisdiction of potentially lawsuits within all 50 states if all 50 states should choose to enact similar statutes such as the State of Ohio has done.

And the effects on interstate commerce that we noted in our brief, this case is a construction of–

Well, it doesn’t subject you to suit.

It just means that you can be served in a state.

You haven’t got the–

Ira J. Bornstein:

–It could submit you to jurisdiction within the state if someone should choose to sue you there.

–Yes, well, if they can find you there.

Ira J. Bornstein:

But if you have been forced to become registered and have an agent there then obviously–

Well, yes, but you haven’t been forced to do that.

The only thing that requires you to register here is, you want the benefit of the statute of limitations.

Ira J. Bornstein:

–That is correct, but what they’ve done is, they’ve taken–

Well, suppose you don’t register.

Ira J. Bornstein:

–If you don’t register–

If nobody can sue, if nobody can get service on you, why, you are not really at much risk.

Ira J. Bornstein:

–Well, except the problem is, the statute as drafted allows you to remain liable in perpetuity, and if you are a corporation engaged in interstate commerce, the odds are that they eventually will find you, and they could find you in 50 years or just choose to wait 50 years to find you, or to serve you, and then you would become subject to the jurisdiction of that court because there is no type of time limitation set forth in this at all.

This statute is as broad as could be.

And I suppose if they find out they could use the longarm statute against you you couldn’t get the statute of limitations either.

Ira J. Bornstein:

Unfortunately, you don’t have the benefit of that, and therefore even though they could serve you under longarm they could choose to wait 10, 20, 30, or 40 years, and the effects, as we point out, this is a construction case.

I mean there are bonding companies, surety bonding companies, insurance companies that are involved in cases such as this, and what would the effect be if this statute were to be upheld and the principles were to be liable in perpetuity?

You wouldn’t find surety companies or bonding companies that are willing to undertake that kind of liability if their principal could be sued in 50 years.

Who is going to even be around to know that the case was about?

What kind of witnesses will they have?

And how could these companies go ahead and undertake this kind of liability when–

The plaintiff might be pretty old, too.

Ira J. Bornstein:

–Definitely.

If they… if the insurance companies or bonding companies themselves would be forced to be defending these cases potentially in myriad states throughout the country, they wouldn’t be willing to bond these and these interstate corporations would be unable to come within states such as Ohio and engage in their interstate business.

And the other, the last part of the Pike versus Bruce Church test is the fact that the statute has to be narrow, it has to be as narrow as could be, and in fact this statute is the exact opposite.

It is as broad as possible.

It states that it is tolled forever.

There is no time limitation.

There is no rational relationship at all between the tolling and how long it takes to find a defendant.

So that if it only takes a year they can wait 50 years, as we said, and in fact even if they know where the defendant is because of this anachronistic interpretation in Ohio, as Justice White pointed out, knowing that longarm jurisdiction will not give a company the protection of the statute of limitations, they can choose to wait.

Even though they have the address and they know where they are, they can just choose to wait.

Is there any practical motive that might impel them to wait, as you point out?

Ira J. Bornstein:

Well, it could very possibly be, if there is a younger plaintiff possibly, but it is often times more difficult for a defendant to defend if there is not someone there directly on point that can testify to what happened, and because of the fact that the burden is more on the defendant in that kind of suit than it is on the plaintiff from the standpoint of trying to have someone there who is physically, you know, in existence at that time, and it might be the type of thing almost like a choice of forum, where depending on the situation there might be in particular instances particular reasons.

It might be that the foreman on the job is an older person, and there might be a personal injury type case or something, and they are hoping that the person might not be around if they wait a long period of time.

But what usually happens is just the opposite.

It is usually the defendant who is hiding, not the plaintiff who is waiting 50 years.

It is usually just the opposite.

And this is a statute to meet that problem.

Now, it applies evenhandedly, and we can’t under the constitution grant an exemption to the citizens of Ohio, for example, if a citizen of Ohio, even if he is reachable by longarm, but he takes off, and he is not there, and can’t be served, the statute will be tolled.

You are asking us to give special benefits to interstate companies, even though citizens in Ohio can be subjected to this dog in the manger process of somebody waiting 50 years, we have to give interstate companies an exemption from it.

Why should we do that?

Ira J. Bornstein:

I disagree that it’s evenhanded.

I think that it’s grossly discriminatory, because of the fact that it’s only interstate corporations, which under the statute are compelled in order to obtain this benefit to appoint a statutory agent and become subject to the general jurisdiction of the courts of the State of Ohio,–

Don’t you want to just reverse the discrimination?

You would not be striking down this statute for Ohio residents.

It would continue to apply to them, wouldn’t it?

Ira J. Bornstein:

–But it would not require them to become subject to the general jurisdiction of the courts of Ohio to appoint an agent in order to do that.

A person… this is part of the distinction between the fact a person has physical presence.

A corporation is a legal fiction.

It doesn’t have physical presence.

It does business.

That’s why most states except for Ohio state that if you are subject to longarm jurisdiction you get the benefit of a statute such as this.

Interstate corporations are unique in this aspect, because of the fact the only way they can do it is to appoint a statutory agent and therefore become subject to the general jurisdiction, and a person, an Ohio resident does not have that problem, is not forced into that dilemma or that Hobson’s choice.

As far as the letters from the Ohio Secretary of State which were referenced by Mr. Crowley, quite to the contrary, as far as the issue of whether or not there could have just been some type of designation with the Secretary of State, the letters are not different.

The bottom line of both letters is exactly the same, and that’s because of the fact the second letter, the December letter, Patricia Mell stated that in the general course of business the Ohio Secretary of State would not, would not recognize nor accept a designation of agents from an unlicensed foreign corporation, which also indicates as far as the previous questions, is there any indication that a corporation can somehow otherwise appoint an agent, this indicates, no, it can’t, because the Ohio Secretary of State themselves has come out and said that you can’t, we won’t recognize it, we won’t even allow it to be filed.

The only way for a company to file this with us is to first become licensed, and the previous letter, from September of 1983 came right out and stated that they will not accept for filing a designation of statutory agent for an unlicensed foreign corporation, and therefore there really is not any distinction between the letters except for some speculative language that then followed in that letter about what happened if there might be, might be some investigation.

There’s no guidelines for the investigation, no type of format to do it, what the parameters of it were, and in fact, looking at the bottom line, there was not even a statement that if somehow they would comply with the investigation that the Secretary of State would even ever allow or recognize that registration or that designation.

And in fact the Court of Appeals looking at it came out and correctly stated that the argument was highly speculative and devoid of any statutory support.

There was no statutory support at all.

Even that of the letters which they relied upon which were not even filed in this case but instead in the companion case of Copley versus Heil-Quaker.

As far as the question of retroactivity, I haven’t heard any real valid excuses here today nor have I at any point in time as to why this wasn’t raised.

They claim that they know that they could have raised it at any point in time.

As we have stated all along, retroactivity is not a new or unique issue.

It is something that the issue has been around for years and years and years.

made a choice.

They looked at it, and they decided, they claimed, based upon the initial Coons case, that they couldn’t win, and therefore they chose not to raise it.

They didn’t raise it in the District Court.

They didn’t raise it in the Sixth Circuit Court of Appeals.

They only raised it after the Coons court in a rehearing before the Supreme Court found that it would only be applied prospectively.

The Sixth Circuit Court of Appeals found that… they waived it.

It was not even raised, in fact, in their opening brief in the Sixth Circuit.

Ira J. Bornstein:

It was only in their reply brief, and the same excuse they gave then is the same one they gave now, which is simply the fact, we made a choice, but Coons II came along and we realized now that we might have another argument.

Coons II, as we set forth in our brief, I believe, is a poorly rationalized decision.

I believe that under the cases that we’ve cited that it would be patently unfair, besides the fact that they’ve waived it, to deny Midwesco the fruit of its labor.

I believe that it would have a tremendous impact upon the legal profession if one could not obtain the benefits of their own work, and if the clients could not do that, and in fact I haven’t seen any cases cited by Bendix indicating, except the Coons II case, that one is not entitled to the application in their own case of a decision of unconstitutionality.

First of all, it would render the decision basically moot, which this Court has held it can’t do on a constitutional issue, and more importantly is the fact that in all the cases, including Chevron, which they are so fond of citing, Chevron involved the application of the holding in another case, in the Rodrigue versus Aetna Casualty, and interestingly enough, in that case, in Rodrigue, the Court held that the plaintiffs in that case would get the benefit of the holding.

The case was remanded back down, and there are no cases cited where a party is not entitled to the fruits of its work, and I believe it would be inequitable, to say the least, to deny Midwesco the benefits, and the benefits which I believe it has conferred upon the people of the State of Ohio as well as interstate corporations, who are always the beneficiaries of constitutional holdings.

I believe that we have established that this is a forced licensure provision, and that it is the conditions which this Court has to look at.

It has to look at that because of the whole theory behind the commerce clause, the theory behind the fact that the states are not separate economic unit, the fact that you cannot stop interstate corporations from going into and engaging in business in the various states and I believe for that reason that this Court must affirm the holding of the Court of Appeals.

Thank you.

William H. Rehnquist:

Thank you, Mr. Bornstein.

Mr. Crowely, you have two minutes remaining.

Noel C. Crowley:

Thank you.

In describing the unthinkability of open-ended liabilities that last in perpetuity, let’s not forget the defense of laches, and in that regard we acknowledge that Midwesco cites certain cases to the effect that the doctrine doesn’t apply or doesn’t apply in its normal way in the State of Ohio.

He cites cases, and we will concede that the cases are supportive of what he says.

He is just as clear that the cases are demonstrably wrong.

The true state of law in the State of Ohio is in the cases we site on Page 20 of our brief, and they are more recent cases.

They are more authoritative because they come from the Supreme Court of Ohio, and they make it clear that the doctrine of laches does obtain.

Even if it were open ended and permanent, if the company is engaged entirely in interstate commerce, has no minimal contacts with the state, why should that be unsatisfactory to them?

They are never going to be vulnerable to suit anywhere in the State of Ohio.

There is nothing parochial about this state.

There is nothing protectionist about it.

It provides for evenhanded treatment.

What if it be the fact that there is no statute in Ohio that provides for an alternative method of service?

Shouldn’t it be just as relevant that if under the practice, as the Secretary of State in Ohio says is the case, there are circumstances under which they would take, and the whole message is on Page 28 of our brief, the relevant message from that office, what does it matter that there may not be a statute if it is the practice of the State of Ohio to accept designations of agency apart from the licensure process?

That letter does not–

Byron R. White:

xxx suit at any time.

Noel C. Crowley:

–Not necessarily.

The letter doesn’t… there are lots of questions one could think of that we wish were answered by the letter.

Our only–

Byron R. White:

Well, an agent… he is saying you can appoint an agent for service of process.

Noel C. Crowley:

–Nothing in the letter to suggest that it couldn’t be a limited designation, couldn’t identify the class or category of claims and of people in whose favor it might operate.

Antonin Scalia:

Among the questions you wish he had answered is whether he would accept it.

All he said is that he could.

Noel C. Crowley:

No, he said… I understand–

Antonin Scalia:

I think that’s the bottom line, that he could.

Noel C. Crowley:

–I understand that they said on Page 28, on our Page 28 that there is a situation in which they would do it.

This office… well, this office could accept without requiring the corporation to obtain a license.

That implies to me that there are circumstances in which they would do it.

We wish we knew more about the circumstances.

It should have been enough to withstand summary judgment and it wasn’t.

Thank you, Mr. Crowley.

The case is submitted.