Out of Woods and into the Rules: The Relationship between State Foreign Corporation Door-Closing Statutes and Federal Rule of Civil Procedure 17(b)

Abstract

In Woods v. Interstate Realty Co., the Supreme Court held that a federal court exercising diversity jurisdiction had to apply states' foreign corporation statutes, turning away unregistered foreign corporations if courts of the forum state would do so. The Court decided Woods by analyzing the statute in question under the Rules of Decision Act, which the Court had interpreted eleven years before in Erie Railroad Co. v. Tompkins. However, the Court made no mention of Federal Rule of Civil Procedure 17(b), which provides that [t]he capacity of a corporation to sue or to be sued shall be determined by the law under which it was organized, conflicting with the decision in Woods, which looks only to the law of the forum state. In this article, Professor Laura Little argues that the Woods decision is irreconcilable with more recent Supreme Court interpretations of Erie, which conclude that if a Federal Rule of Civil Procedure directly conflicts with a state rule, the court must apply the Federal Rule if it is within the scope of the Rules Enabling Act and within the constitutional grant of power to Congress. After briefly discussing state foreign corporation laws and the various refinements that the Erie doctrine has undergone, Professor Little analyzes lower court decisions dealing with state foreign corporation door-closing statutes, noting that the majority of lower courts follow the Supreme Court's analysis under the Rules of Decision Act, while other courts have acknowledged the relevance of FRCP 17(b) and come up with various approaches of dealing with the conflict between the Federal Rule and state door-closing statutes. Professor Little describes how the decisions and analyses in these lower court cases are generally flawed because of the lingering effect of the Woods decision, which is not in accord with more recent Supreme Court cases indicating the need to distinguish between cases governed by the Rules Enabling Act and those governed by the Rules of Decision Act. Professor Little proposes a new approach to analyzing state foreign corporation door-closing statutes. She argues that the appropriate approach recognizes the relevance of FRCP 17(b), but acknowledges that the outcome of such an analysis would likely contradict the Woods precedent. As a result, Professor Little concludes that the best long-term solution would be an explicit rejection of Woods, either through amendment of Rule 17(b), or by Supreme Court opinion.