Opinion ID: 557367
Heading Depth: 2
Heading Rank: 2

Heading: Commerce Clause Objection

Text: 24 NCR contends that application of section 1315 to require it to comply with demands for stockholder records that NCR is not required to honor under the law of the state of incorporation violates the Commerce Clause. The argument seeks to enlist the dormant Commerce Clause power, see CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 87, 107 S.Ct. 1637, 1648, 95 L.Ed.2d 67 (1987), the implied prohibition upon certain types of state regulation arising from the available but unexercised power of Congress over interstate commerce. The prohibition has as its principal objects state regulations that discriminate against interstate commerce, id. at 87, 107 S.Ct. at 1648, and also extends to those that adversely affect interstate commerce by subjecting activities to inconsistent regulations, id. at 88, 107 S.Ct. at 1649, or that impose burdens on interstate commerce that outweigh local benefits, see Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). NCR relies primarily on the inconsistent regulation branch of the dormant Commerce Clause doctrine. 25 Maryland law requires Maryland corporations to disclose stockholder lists to one or more shareholders who have held for at least six months at least five percent of the outstanding stock of any class. Md. Corps. & Ass'ns Code Ann. Sec. 2-513(a) (1985). Neither AT & T nor the Sadlers meet the Maryland criteria. NCR contends that production of stockholder records pursuant to New York law subjects NCR to inconsistent regulation. We disagree. 26 Plainly there is no inconsistency in the sense of a direct conflict. Maryland law does not forbid NCR from disclosing its stockholder records to those who qualify under New York law. But, argues NCR, there is at least an indirect conflict in the sense that Maryland law permits NCR to refuse the Sadlers' request and New York law, as we construe it, forbids such refusal. That argument presses the inconsistent regulation branch of the dormant Commerce Clause theory too far. States are not prohibited from enacting regulations simply because they require more of an entity that is already subject to some less demanding regulation elsewhere. 27 However, NCR has a more plausible argument in pointing out that the Maryland disclosure obligations are not merely less generous than New York's, they are part of a balanced plan to regulate relations between a corporation and its shareholders. Maryland limits the shareholders who may demand inspection of stockholder records but at the same time extends shareholders a right to call a special meeting upon the request of those owning 25 percent of the shares. Md.Corps. & Ass'ns Code Ann. Sec. 2-502 (1985 & Supp.1990). New York does not provide shareholders with any statutory right to call a special meeting. Thus, NCR's conflict argument is that New York law accords the Sadlers rights not only greater than those accorded by Maryland law, but rights that it is reasonable to assume the Maryland legislature implicitly wished to deny them in the course of adjusting the competing claims of management and shareholders. 28 This implied conflict argument requires consideration of the issue of whether regulation of the right of shareholders to inspect stockholder lists is confided to the exclusive authority of the state of regulation, or, more precisely, whether the dormant Commerce Clause power itself creates such an exclusive sphere of regulation. On these issues, the parties both seek to enlist the Supreme Court's decision in CTS, supra. As NCR reminds us, the Court there observed, 29 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 Sec. 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). 30 CTS, 481 U.S. at 89, 107 S.Ct. at 1649. AT & T counters that the very section of the Restatement cited by the Court in support of the so-called internal affairs doctrine expressly excludes access to stockholder lists from the doctrine. As AT & T points out, Comment d to section 304 states: 31 The right of a shareholder to inspect the books of a corporation poses special problems. This is an issue which can practicably be determined differently in different states. This is also an issue which, if decided differently in different states, will not seriously undermine the policy favoring uniform treatment for all shareholders of a corporation. For these reasons, a court will apply to a foreign corporation doing substantial business in the state a local statute providing for the inspection of books by a shareholder if in the court's opinion the statute embodies an important policy. 32 Restatement (Second) of Conflict of Laws Sec. 304, comment d (1971) (hereafter Restatement). See, e.g., Jefferson Industrial Bank v. First Golden Bancorporation, 762 P.2d 768 (Colo.App.1988); Valtz v. Penta Investment Corp., 139 Cal.App.3d 803, 188 Cal.Rptr. 922 (4th Dist.1983); McCormick v. Statler Hotels Delaware Corp., 55 Ill.App.2d 21, 203 N.E.2d 697 (1st Dist.1964). NCR's rebuttal claims, somewhat lamely, that the force of Comment d, promulgated in 1971, has been eroded by the increasing occurrence of proxy contests and by what it contends is the more significant role of stockholder lists today than in 1971. In surrebuttal, AT & T points out that in 1984 the Council of the American Law Institute undertook a revision, on a selective basis, of those portions of the Restatement especially in need of updating in light of subsequent legal developments, see Foreword, Restatement (Supp.1988), and that the revisions approved in 1988 made no change in Comment d to Sec. 304. 33 Though Comment d is relevant to the issue we confront, we do not think that this commentary, much less any aspect of the parties' conflicting exegeses on it, can be attributed to the Supreme Court by virtue of the citation to Section 304 in CTS. The Court was considering a Commerce Clause challenge to the power of a state to enact laws regulating tender offers for the shares of a domestic corporation. In upholding state power, the Court pertinently cited section 304 as an authoritative enunciation of the internal affairs doctrine. The Court had no occasion to consider under what circumstances a state could regulate any aspects of the internal affairs of a foreign corporation, and its citation of section 304 does not necessarily imply an endorsement of Comment d, even as a doctrine of conflicts of law, much less as a principle of constitutional law. 34 Though not necessarily endorsed by the Supreme Court in CTS, Comment d nevertheless substantially undermines NCR's claim that section 1315 subjects it to inconsistent regulation of a sort that the dormant Commerce Clause power prohibits. As the ALI and the case law have recognized, see Annot., 19 A.L.R.3d 869, 889-91 (1968), states have traditionally exercised authority to require disclosure of stockholder lists of foreign corporations doing business within their borders. Moreover, such authority will not normally create, and does not create in this case, the sort of irreconcilable conflict that would arise if a state purported to regulate voting rights or other aspects of the internal affairs of a foreign corporation that admit only of one uniform system, or plan of regulation, Cooley v. Board of Wardens, 53 U.S. (12 How.) 143, 152, 13 L.Ed. 996 (1851). Access to stockholder lists is a recognized exception to the internal affairs doctrine as a matter of corporate law and conflicts of law, and it should take a substantial threat of conflict adversely affecting interstate commerce before a court invalidates a state's assertion of this traditional authority. Though Maryland may well have balanced limited shareholder access to stockholder lists with generous authority for calling special meetings, it did so against the background of traditional foreign state regulation of such access, and it cannot expect courts to provide constitutional insulation for the particular arrangements it adopted. If the traditional role of states concerning access to stockholder lists of foreign corporations is to be circumscribed, that alteration will have to be undertaken by Congress. 35 NCR's remaining Commerce Clause contentions require little discussion. Section 1315 creates no discrimination against interstate commerce. As Judge Stanton emphasized, it applies (for all practical purposes) equally to foreign and domestic corporations. NCR sees a discrimination in the statute's application only to New York resident shareholders. But New York is not giving its residents a preference as to anything that New York is purporting to regulate. New York leaves access by out-of-state shareholders within the regulatory authority of other states. There is here no preference of local residents concerning a local resource, see New England Power Co. v. New Hampshire, 455 U.S. 331, 336-37 & n. 3, 102 S.Ct. 1096, 1099-1100 & n. 3, 71 L.Ed.2d 188 (1982), or a preference for local industry, see Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 268, 104 S.Ct. 3049, 3053, 82 L.Ed.2d 200 (1984). 36 Equally unavailing is the claim that section 1315 imposes unjustified burdens on interstate commerce. It is difficult to discern any burden imposed on interstate commerce by section 1315, and, even if some slight burden could be identified, it is adequately justified by the legitimate local interest in protecting local shareholders, see CTS, 481 U.S. at 93, 107 S.Ct. at 1651. 37 The order of the District Court is affirmed.