Terral v. Burke Construction Co.

Background

The Burke Construction Company, a Missouri corporation licensed to do business in Arkansas, sued in federal court and removed another case to federal court. Arkansas law of May 13, 1907, authorized the Secretary of State to revoke any foreign corporation’s license and impose daily penalties if the company sued a state citizen or removed a suit to federal court without the other party’s consent. The company argued the law violated the Constitution’s Article III power to create federal courts and the Fourteenth Amendment’s protections. The Secretary of State answered but did not deny the core factual allegations, so the District Court considered those facts and enjoined the state official from revoking the license.

Reasoning

The central question was whether a State may cut off a foreign company’s license for exercising the right to go to federal court. The Court reviewed earlier conflicting cases and held that a State may not force a company to waive or lose its federal-court right as a condition of doing business. This rule applies regardless of the company’s type of business. The Court therefore found the Arkansas law unconstitutional as applied and affirmed the injunction preventing the Secretary of State from revoking the license.

Real world impact

The decision means out-of-state companies doing business in a State can use federal courts without automatic loss of their state business authorization. State officials may not retaliate by canceling licenses or levying the stated penalties just because a company sued or removed a case to federal court. The Court also overruled earlier cases that had supported the opposite view, clarifying nationwide protection for corporate access to federal courts.