Court Opinion

ID: 9746381
Source: CourtListenerOpinion
Date Created: 2023-08-27 14:14:03.884366+00
Date Added: 2024-06-11T07:25:12.333800
License: Public Domain

HANDLER, J.,
dissenting.
First Family Mortgage Corporation of Florida (First Family) is a Florida corporation whose principal place of business is in Illinois. First Family has no offices, employees, salespersons, or representatives in New Jersey. It has neither received a certificate of authority to transact business in the State, N.J. S.A. 14A:13-3, nor filed a notice of business activities within the State, N.J.S.A. 14A:13-15.
First Family invests in and services FHA and VA guaranteed mortgages and acts as a servicing custodian for the Government National Mortgage Association (GNMA) loans, 24 C.F.R. § 390. It does not originate loans in the state, but it does acquire in the secondary mortgage market1 loans secured by New Jersey real estate. The mortgage loan in this case was made by Provident Mortgage Corporation to Linda Durham for a house in Camden County. The loan was VA guaranteed and part of a GNMA grouping2 of 68 loans that were sold through Mid States Mortgage and Service Company, an Illinois corporation, to First Family.
In January 1983, Durham defaulted on her mortgage. In July 1983, First Family moved in the Camden County Superior Court, Chancery Division, to foreclose. In May 1985, the trial court dismissed First Family’s complaint because of First Family’s failure to file a notice of business activities within the state.
*309The Corporate Business Activities Reporting Act (Act or Reporting Act), N.J.S.A. 14A:13-14 to -23, requires foreign corporations not authorized to do business in the state, but which have any of seven listed connections with the state, to file a notice of business activities report. The Act applied to First Family because it received payments totaling over $25,000 from persons residing in the state. N.J.S.A. 14A:13-15(e). These payments came in the form of payments on federally guaranteed home mortgages First Family acquired in the secondary mortgage market. Failure to comply with the Reporting Act disables the violating corporation from using state courts to enforce its contracts. N.J.S.A. 14A:13-20(b).
The Corporation Business Activities Reporting Act is essentially an information gathering measure. Its clear purpose is to enable the Division of Taxation to obtain pertinent data from any foreign corporation which carries on an activity in the State but which has not obtained a certificate of authority to do business in New Jersey, to the end that a proper determination may be made as to whether such corporation is subject to any State tax. [Associates Consumer Discount Co. v. Bozzarello, 149 N.J.Super. 358, 362 (App.Div.1977).]
“This Notice requirement, coupled with appropriate sanctions, is designed to strengthen the enforcement of the State’s corporation tax laws.” 5 Report of the New Jersey Tax Policy Committee 34 (1972).
First Family admits the applicability to it of the Reporting Act but challenges the Act’s constitutionality under the negative implications of the commerce clause of the federal constitution (the “dormant commerce clause”), U.S. Const, art. I, § 8.3 The trial court expressed doubts as the constitutionality of the Act, but felt compelled by an earlier Appellate Division decision, Associates Consumer Discount Co. v. Bozzarello, supra, 149 N.J.Super. 358, to uphold the validity of the Act. The *310Appellate Division upheld the dismissal. First Family Mortg. Corp. of Florida v. Durham, 205 N.J.Super. 251 (App.Div.1985). It rejected the commerce clause challenge, noting that the reporting requirement, unlike a licensing requirement, does “not require a foreign corporation engaged solely in interstate commerce to consent to being sued in that state as the price of doing business there.” Id. at 255.
The plurality agrees with the Appellate Division that the Reporting Act, at least as modified, does not violate the commerce clause. The plurality reasons that since the reporting requirement is a minimal and reasonable requirement, it cannot be characterized as an unconstitutional burden on interstate commerce. The plurality’s mistake is that it emphasizes the nature and severity of the Act’s requirement rather than the nature and severity of the Act’s sanctions. Its approach is contrary to the approach mandated by the United States Supreme Court in similar cases. In its elaboration of the dormant commerce clause, the Supreme Court has developed the following doctrines: that 1) the ability to use state courts to enforce interstate transactions is an integral part of interstate commerce and, therefore, 2) states cannot close access to their courts to corporations acting solely within interstate commerce.
In Sioux Remedy Co. v. Cope, 235 U.S. 197, 35 S.Ct. 57, 59 L.Ed. 193 (1914), the Supreme Court invalidated under the commerce clause a South Dakota statute that closed its state courts to foreign corporations that did not file a copy of their charter, appoint an agent for service of process, and pay a filing fee. The Court first noted “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.” Id. at 202-03, 35 S.Ct. at 59, 59 L.Ed. at 197. The Court found the conditions to be unreasonable because they had no relation to *311the costs or procedures of a court trial.4 Id. at 204-05, 35 S.Ct. at 60, 59 L.Ed. at 198.
In Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S.Ct. 106, 66 L.Ed. 239 (1921), the Supreme Court invalidated under the commerce clause an application of a Kentucky statute to a contract-enforcement suit brought by a foreign corporation. The corporation had sought to enforce a transaction that was completely within interstate commerce.5 Kentucky’s statute prescribed the conditions on which foreign corporations could do business in the state. Because the corporation had not complied with the statute, verdict was directed against it on its suit.
The Court concluded: “A corporation of one state may go into another, without obtaining the leave or license of the latter, for all the legitimate purposes of such commerce; and any statute of the latter state which obstructs or lays a burden on the exercise of this privilege is void under the commerce clause.” Id. at 291, 42 S.Ct. at 109, 66 L.Ed. at 244.
In Allenberg Cotton Co., Inc. v. Pittman, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195 (1974), the Supreme Court invalidated an application of a Mississippi statute that required foreign *312corporations to obtain a certificate of authority to qualify to do business in the state. Because of a corporation’s failure to comply with the statute, the trial court entered judgment for the defendant in the corporation’s suit to enforce a transaction that was part of interstate commerce. The Court held “only that Mississippi’s refusal to honor and enforce contracts made for interstate or foreign commerce is repugnant to the Commerce Clause.” Id. at 34, 95 S.Ct. at 267, 42 L.Ed.2d at 206. The Court’s opinion made no reference to the cost of the certification requirement or to whether the requirement would subject the foreign corporation to suit within the state.
The plurality’s position in today’s case was explicitly rejected by the Supreme Court in AUenberg Cotton. The position that “the burden imposed on interstate commerce by such statutes is to be judged with reference to the measures required to comply with such legislation, and not the sanctions imposed for violation of it”, gained the support of only the one dissenting Justice. Allenberg Cotton, 419 U.S. at 42, 95 S.Ct. at 272, 42 L.Ed.2d at 211 (Rehnquist, J., dissenting).
Allenberg Cotton and Sioux Remedy have been characterized as cases whose decisions were based on the states involved having barred foreign corporations from their state courts. Coons v. Honda Motor Co., 469 U.S. 1123, 1124, 105 S.Ct. 808, 808, 83 L.Ed.2d 800, 801 (1985) (Rehnquist, J., dissenting from the denial of certiorari). Justice Rehnquist noted that when states bar access to state courts, “out-of-state corporations which entered into contracts in-state [have] no forum in which to enforce these contracts, and out-of-state competition [is] effectively precluded.” 469 U.S. at 1125, 105 S.Ct. at 809, 83 L.Ed.2d at 802.
The plurality in this case argues that the Reporting Act should be upheld because it merely facilitates the assessment and collection of taxes. However, this characterization could also be applied to the foreign corporation statutes struck down in the Supreme Court cases discussed earlier. See Allenberg *313Cotton, supra, 419 U.S. at 40 n. 6, 95 S.Ct. at 271 n. 6, 42 L.Ed.2d at 210 n. 6 (Rehnquist, J., dissenting).
The plurality ignores the doctrine of unconstitutional conditions in asserting that because the reporting requirement is reasonable, it can be enforced even with the most severe of sanctions. “[I]t may be conceded that a state may restrict the right of [foreign] corporations to engage in business within its limits. 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 actions.” Sioux Remedy, 235 U.S. at 203, 35 S.Ct. at 59-60, 59 L.Ed. at 197 (citations omitted). The states are simply without power to put an undue burden on interstate commerce even to support an otherwise valid state objective. Cf. Philadelphia v. New Jersey, 437 U.S. 617, 626, 98 S.Ct. 2531, 2536, 57 L.Ed.2d 475, 483 (1978) (“the evil of protectionism can reside in legislative means as well as legislative ends”).6 Barring access to state courts is such an “undue burden.”
The plurality’s “judicial surgery” alters the Act to allow corporations who have not complied with the reporting requirement to sue in the state courts if it first files the delinquent required reports. Ante at 288-293. Admittedly this alteration makes the Act a less onerous burden on interstate commerce. However, this alteration does not make the Act constitutional. As altered, the Act still allows the State to bar access to its courts if the corporation does not file a report. This allowance cannot be given under the commerce clause. I believe the relevant Supreme Court decisions must be read to preclude states from either absolutely or conditionally closing their courts to corporations that are doing business only in interstate commerce.
*314The application of the Corporate Business Activities Reporting Act to bar access to foreign corporations to state courts, when this refusal of access prevents enforcement of transactions within interstate commerce, is unconstitutional under the commerce clause of the federal constitution. For that reason, I would reverse the decision of the Appellate Division in this case.
For modification and affirmance — Justices POLLOCK, GARIBALDI and STEIN — 3.
Opposed — Justices CLIFFORD and HANDLER — 2.

The secondary market involves transfers of loans to permanent investors, which may then be combined into GNMA mortgagee-backed securities to be sold in shares to customers.

 See note 1.

First Family also challenged the Act under the supremacy clause of the federal constitution, arguing that the Act is in conflict with the National Housing Act. The claim was rejected by the trial court and by the Appellate Division. First Family Mortg. Corp. of Florida v. Durham, 205 N.J.Super. 251, 255 (App.Div.1985). Because of how I would decide the commerce clause claim, I would not reach First Family’s supremacy clause claim.

The Court found the conditions to be unreasonable also because they would subject the foreign corporations to suit in the enforcing state. Sioux Remedy, supra, 235 U.S. at 205, 35 S.Ct. at 60, 59 L.Ed. at 198. The Appellate Division put great emphasis on the fact that the Reporting Act does not subject foreign corporations to suit within the state. First Family Mortg., supra, 205 N.J.Super. at 255. However, the more recent United States Supreme Court rulings invalidating court-closing statutes, discussed below, did not rely on whether the statutes did or did not subject the foreign corporations to suit within the enforcing state.

Because this case involves an appeal from a summary judgment, we must accept First Family's assertion that it is not engaged in intrastate business activities within the state.
A state has substantially greater discretion in its treatment of foreign corporations if the corporations’ activities are localized or intrastate. See Eli Lilly & Co. v. Sav-On-Drugs, Inc., 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288 (1961); Union Brokerage Co. v. Jensen, 322 U.S. 202, 64 S.Ct. 967, 88 L.Ed. 1227 (1944).

Nor can it be argued that barring access to the state courts is the only means of enforcing the reporting requirement. See Note, “Sanctions For Failure To Comply With Corporate Qualification Statutes: An Evaluation", 63 Columl.L.Rev. 117 (1963).