Porter v. Investors Syndicate

Background

A Minnesota company sold installment investment certificates in Montana under a 1930 state license. The Montana investment commissioner adopted a rule changing withdrawal rights and requiring printed withdrawal and loan values. The commissioner warned he would revoke permits of firms that did not comply. The company sued in federal court to block the commissioner from revoking its license and obtained an injunction stopping enforcement of the new rule.

Reasoning

The Court asked whether the company had to use Montana’s statutory review process before going to federal court. Montana law (quoted in the opinion) lets an interested person sue the commissioner in state district court within thirty days to set aside, modify, or confirm his findings, and the trial judge may examine evidence and act. The Court interpreted the statute’s phrase “pending any such action” to mean the time for bringing suit, not to bar state judges from issuing temporary relief. Because the statute provides a corrective process and the state court can address the dispute, the company should have pursued that remedy first; the Supreme Court therefore held the federal injunction was improper and reversed.

Real world impact

Regulated businesses challenging state regulators generally must use the state administrative and court process before seeking emergency relief in federal court. Investment companies facing Montana permit revocation may obtain temporary protection in state court and cannot immediately rely on federal equity when a state corrective procedure exists. The Supreme Court reversed the federal injunction and remanded for further proceedings under state law.