Bendix Autolite Corp. v. Midwesco Enterprises, Inc.

486 U.S. 888, 108 S. Ct. 2218, 100 L. Ed. 2d 896, 1988 U.S. LEXIS 2734, 56 U.S.L.W. 4648

• Court: Supreme Court of the United States
• Decided: June 17, 1988
• Docket: 87-367
• Status: Published

Opinions

Justice Kennedy

delivered the opinion of the Court.

Ohio recognizes a 4-year statute of limitations in actions for breach of contract or fraud. The statute is tolled, however, for any period that a person or corporation is not “present” in the State. To be present in Ohio, a foreign corporation must appoint an agent for service of process, which operates as consent to the general jurisdiction of the Ohio courts. Applying well-settled constitutional principles, we find the Ohio statute that suspends limitations protection for out-of-state entities is a violation of the Commerce Clause.

I — I

Underlying the constitutional question presented by the Ohio statute of limitations rules is a rather ordinary contract dispute. In 1974, Midwesco Enterprises, Inc., agreed with Bendix Autolite Corporation to deliver and install a boiler system at a Bendix facility in Fostoria, Ohio. Dissatisfied with the work, Bendix claimed that the boiler system had been installed improperly and that it was insufficient to produce the quantity of steam specified in the contract. This diversity action was filed against Midwesco in the United States District Court for the Northern District of Ohio in 1980. Bendix is a Delaware corporation with its principal place of business in Ohio; Midwesco is an Illinois corporation with its principal place of business in Illinois.

When Midwesco asserted the Ohio statute of limitations as a'defense, Bendix responded that the statutory period had not elapsed because under Ohio law running of the time is suspended, or tolled, for claims against entities that are not within the State and have not designated an agent for service of process.¹ Midwesco replied that this tolling provision violated both the Commerce Clause and the Due Process Clause of the Fourteenth Amendment.

The District Court dismissed the action, finding that the Ohio tolling statute constituted an impermissible burden on interstate commerce. The Court of Appeals for the Sixth Circuit affirmed, finding that the Ohio statute constituted discrimination in violation of the Commerce Clause because it required a foreign corporation to choose between “ ‘exposing itself to personal jurisdiction in [state] courts by complying with the tolling statute, or, by refusing to comply, to remain liable in perpetuity for all lawsuits containing state causes of action filed against it in [the State].”’ 820 F. 2d 186, 188 (1987) (quoting McKinley v. Combustion Engineering, Inc., 575 F. Supp. 942, 945 (Idaho 1983)). The Court of Appeals rejected the argument that an agent for service of process could have been appointed by Midwesco either in the contract or by giving notice to the Ohio Secretary of State. Bendix appealed, and we noted probable jurisdiction to review the constitutionality of the Ohio tolling statute. 484 U. S. 923 (1987). We now affirm.

I — I hH

Where the burden of a state regulation falls on interstate commerce, restricting its flow in a manner not applicable to local business and trade, there may be either a discrimination that renders the regulation invalid without more, or cause to weigh and assess the State’s putative interests against the interstate restraints to determine if the burden imposed is an unreasonable one. See Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U. S. 573, 578-579 (1986). The Ohio statute before us might have been held to be a discrimination that invalidates without extended inquiry. We choose, however, to assess the interests of the State, to demonstrate that its legitimate sphere of regulation is not much advanced by the statute while interstate commerce is subject to substantial restraints. We find that the burden imposed on interstate commerce by the tolling statute exceeds any local interest that the State might advance.

The burden the tolling statute places on interstate commerce is significant. Midwesco has no corporate office in Ohio, is not registered to do business there, and has not appointed an agent for service of process in the State. To gain the protection of the limitations period, Midwesco would have had to appoint a resident agent for service of process in Ohio and subject itself to the general jurisdiction of the Ohio courts.² This jurisdiction would extend to any suit against Midwesco, whether or not the transaction in question had any connection with Ohio. The designation of an agent subjects the foreign corporation to the general jurisdiction of the Ohio courts in matters to which Ohio’s tenuous relation would not otherwise extend. Cf. World-Wide Volkswagen Corp. v. Woodson, 444 U. S. 286 (1980). The Ohio statutory scheme thus forces a foreign corporation to choose between exposure to the general jurisdiction of Ohio courts or forfeiture of the limitations defense, remaining subject to suit in Ohio in perpetuity. Requiring a foreign corporation to appoint an agent for service in all cases and to defend itself with reference to all transactions, including those in which it did not have the minimum contacts necessary for supporting personal jurisdiction, is a significant burden. See Asahi Metal Industry Co. v. Superior Court, 480 U. S. 102, 114 (1987).

Although statute of limitations defenses are not a fundamental right, Chase Securities Corp. v. Donaldson, 325 U. S. 304, 314 (1945), it is obvious that they are an integral part of the legal system and are relied upon to project the liabilities of persons and corporations active in the commercial sphere. The State may not withdraw such defenses on conditions repugnant to the Commerce Clause. Where a State denies ordinary legal defenses or like privileges to out-of-state persons or corporations engaged in commerce, the state law will be reviewed under the Commerce Clause to determine whether the denial is discriminatory on its face or an impermissible burden on commerce. The State may not condition the exercise of the defense on the waiver or relinquishment of rights that the foreign corporation would otherwise retain. Cf. Dahnke-Walker Milling Co. v. Bondurant, 257 U. S. 282 (1921); Allenberg Cotton Co. v. Pittman, 419 U. S. 20 (1974).

The ability to execute service of process on foreign corporations and entities is an important factor to consider in assessing the local interest in subjecting out-of-state entities to requirements more onerous than those imposed on domestic parties. It is true that serving foreign corporate defendants may be more arduous than serving domestic corporations or foreign corporations with a designated agent for service, and we have held for equal protection purposes that a State rationally may make adjustments for this difference by curtailing limitations protection for absent foreign corporations. G. D. Searle & Co. v. Cohn, 455 U. S. 404 (1982). Nevertheless, state interests that are legitimate for equal protection or due process purposes may be insufficient to withstand Commerce Clause scrutiny.³

In the particular case before us, the Ohio tolling statute must fall under the Commerce Clause. Ohio cannot justify its statute as a means of protecting its residents from corporations who become liable for acts done within the State but later withdraw from the jurisdiction, for it is conceded by all parties that the Ohio long-arm statute would have permitted service on Midwesco throughout the period of limitations. The Ohio statute of limitations is tolled only for those foreign corporations that do not subject themselves to the general jurisdiction of Ohio courts. In this manner the Ohio statute imposes a greater burden on out-of-state companies than it does on Ohio companies, subjecting the activities of foreign and domestic corporations to inconsistent regulations. CTS Corp. v. Dynamics Corp. of America, 481 U. S. 69, 87-89 (1987).

The suggestion that Midwesco had the simple alternatives of designating an agent for service of process in its contract with Bendix or tendering an agency appointment to the Ohio Secretary of State is not persuasive. Initially, there is no statutory support for either option, and it is speculative that either device would have satisfied the Ohio requirements for the continued running of the limitations period. In any event, a designation with the Ohio Secretary of State of an agent for the service of process likely would have subjected Midwesco to the general jurisdiction of Ohio courts over transactions in which Ohio had no interest. As we have already concluded, this exaction is an unreasonable burden on commerce.

Finally, Bendix argues that if we find the Ohio statute is unconstitutional, our ruling should be applied prospectively only, and not to the parties in this case. See Chevron Oil Co. v. Huson, 404 U. S. 97, 106 (1971); Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U. S. 50, 88 (1982). The Sixth Circuit refiised to consider the argument because it was raised for the first time in Bendix’s reply brief. 820 F. 2d, at 189. As the argument was not presented to the courts below, it will not be considered here. Brown v. Socialist Workers ’74 Campaign Committee, 459 U. S. 87, 104-105 (1982) (Blackmun, J., concurring in part).

Affirmed.

1 Ohio Rev. Code Ann. §2305.09 (1981) provides in pertinent part:

“An action for any of the following causes shall be brought within four years after the cause thereof accrued:

“(C) For relief on the ground of fraud.”

Ohio Rev. Code Ann. § 1302.98 (1979) proyides in pertinent part:

“(A) An action for breach of any contract for sale must be commenced within four years after the cause of action has accrued. By the original agreement the parties may reduce the period of limitation to not less than one year but may not extend it.

“(B) A cause of action accrues when the breach occurs, regardless of the aggrieved party’s lack of knowledge of the breach.”

Ohio Rev. Code Ann. §2305.15 (Supp. 1987) provides:

“When a cause of action accrues against a person, if he is out of the state, has absconded, or conceals himself, the period of limitation for the commencement of the action as provided in sections 2305.04 to 2305.14, 1302.98, and 1304.29 of the Revised Code, does not begin to run until he comes into the state or while he is so absconded or concealed. After the cause of action accrues if he departs from the state, absconds, or conceals himself, the time of his absence or concealment shall not be computed as any part of a period within which the action must be brought.”

2 Ohio Rev. Code Ann. §2307.38.2 (1981) provides in pertinent part:

“(A) A court may exercise personal jurisdiction over a person who acts directly or by an agent, as to cause an action arising from the person’s:

“(1) Transacting any business in this state;

“(2) Contracting to supply services or goods in this state;

“(3) Causing tortious injury by act or omission in this state;

“(B) When jurisdiction over a person is based solely upon this section, only a cause of action arising from acts enumerated in this section may be asserted against him.”

Ohio Rev. Code Ann. § 1703.04.1 (1985), provides in pertinent part:

“(A) Every foreign corporation for profit that is licensed to transact business in this state, and every foreign nonprofit corporation that is licensed to exercise its corporate privileges in this state, shall have and maintain an agent, sometimes referred to as the ‘designated agent,’ upon whom process against such corporation may be served within this state. . . .

“(H) Process may be served upon a foreign corporation by delivering a copy of it to its designated agent, if a natural person, or by delivering a copy of it at the address of its agent in this state, as such address appears upon the record in the office of the secretary of state.

“(I) This section does not limit or affect the right to serve process upon a foreign corporation in any other manner permitted by law.”

In part to comply with Commerce Clause concerns, Ohio Rev. Code Ann. § 1703.02 (1985), exempts corporations engaged solely in interstate commerce from the registration requirement:

“Sections 1703.01 to 1703.31, inclusive, of the Revised Code do not apply to corporations engaged in this state solely in interstate commerce, including the installation, demonstration, or repair of machinery or equipment sold by them in interstate commerce . . . .”

Section 1703.02 does not, however, remove foreign corporations from the reach of the tolling provision.

3 In Searle, we declined to reach the issue whether the New Jersey tolling statute impermissibly burdened interstate commerce, finding that the issue was “clouded by an ambiguity in state law,” and remanded the case to the Court of Appeals. 455 U. S., at 413-414. The Court of Appeals then remanded to the District Court “for further consideration of the Commerce Clause issue.” Hopkins v. Kelsey-Hayes, Inc., 677 F. 2d 301, 302 (CA3 1982). Before the District Court ruled, however, the New Jersey Supreme Court declared its tolling statute unconstitutional under a Commerce Clause analysis as a forced licensure provision, a decision we declined to review. Coons v. American Honda Motor Co., 94 N. J. 307, 463 A. 2d 921 (1983), cert. denied, 469 U. S. 1123 (1985).