Blake v. McClung

Background

A Tennessee court was asked to oversee the assets of the Embreeville Freehold, Land, Iron and Railway Company, Limited, an insolvent British mining and manufacturing company doing business in Tennessee. Several creditors intervened, including C. G. Blake and Rogers, Brown & Company (citizens of Ohio) and the Hull Coal & Coke Company (a Virginia corporation). Tennessee’s 1877 statute (c. 31, §5) had directed that creditors residing in Tennessee be paid before out-of-state creditors. Blake and Rogers challenged that priority under the Constitution, arguing it denied privileges and equal protection to citizens of other States.

Reasoning

The Court framed the central question as whether a State may exclude citizens of other States from equal participation in the distribution of an insolvent company’s assets simply because the creditors live elsewhere. The Court held the Tennessee law that gave in-state creditors a preferred share was inconsistent with the Constitution’s guarantee that citizens of each State be entitled to the same privileges and immunities in other States. The opinion explained that while a State may regulate foreign corporations doing business within its borders, it cannot, by statute, defeat rights secured by the Constitution or grant exclusive business privileges to its own citizens. The Court therefore reversed the state judgment as to the Ohio creditors. It affirmed as to the Hull Coal & Coke Company because that corporation was not a “citizen” for the relevant constitutional clause and could not invoke equal protection within Tennessee’s jurisdiction.

Real world impact

The decision requires that general creditors from other States who contracted with a company doing business in Tennessee be treated on equal terms with Tennessee creditors when assets are distributed. State statutes that give automatic priority to in-state creditors over out-of-state general creditors are invalid, and the case was sent back for distribution consistent with equal treatment.