Woods v. Interstate Realty Co.

Background

A Tennessee company sued a Mississippi resident for a broker’s commission from the sale of Mississippi real estate. The federal trial court in Mississippi dismissed the suit after finding the company had not complied with a Mississippi statute requiring foreign corporations to qualify before doing business. The Court of Appeals reversed, relying on an older decision that had allowed such suits in federal court. The Supreme Court agreed to review the conflict.

Reasoning

The central question was whether a federal court sitting in a State may hear a suit when that State’s courts are closed to an unregistered foreign corporation. The majority held that earlier authority allowing federal enforcement was outdated after Erie and related cases, and that federal courts in diversity cases must follow the State’s law when the State bars the suit. The Supreme Court reversed the Court of Appeals and denied the company access to the federal forum under those circumstances.

Real world impact

The decision limits where out-of-state companies that fail to register can sue to enforce contracts; if a State’s courts are closed to them, federal courts sitting in that State must also refuse the case. The ruling ties federal-court access for such companies to how the State treats their right to sue.

Dissents or concurrances

A dissent argued the Court misread the State law and imposed a harsher result than state courts intended; that dissent, joined by two Justices, would have let the company proceed.