Respondent, a Tennessee corporation, sued petitioner, a Mississippi resident, in federal district court in Mississippi for a broker's commission allegedly due from the sale of Mississippi real estate. The district court, on summary judgment, found that respondent was doing business in Mississippi without qualifying under a Mississippi statute requiring foreign corporations to qualify before suing in the state's courts. The district court dismissed the complaint with prejudice. The court of appeals read Mississippi law to mean only that respondent could not sue in Mississippi state courts, and held that this disability did not bar suit in federal court.
Issue
When a state statute closes the state's courts to a foreign corporation that has failed to qualify to do business there, may that corporation nevertheless maintain the same action in a federal court sitting in that state solely on the basis of diversity jurisdiction?
Rule
Under the Erie line of cases, a federal court sitting in diversity is, for these purposes, in effect another court of the state, and it may not provide a remedy when the state has closed its courts to the action. A right that local law does not supply with a remedy is no right at all for enforcement in federal diversity court, because allowing suit there would create the discrimination Erie was designed to eliminate.
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Blue Mesa Equipment, Inc., a Nevada corporation, regularly sold industrial compressors in Alabama but never completed Alabama's foreign-corporation registration process. An Alabama statute provides that a noncomplying foreign corporation may not "bring or maintain any action in the courts of this state." After an Alabama customer allegedly breached a sales contract, Blue Mesa sued the customer in federal district court in Birmingham based only on diversity jurisdiction.
Should the federal court allow the contract action to proceed?
Explanation. The majority rule is that a federal court sitting in diversity is, for these purposes, another court of the state. If state law closes the state's courts to the plaintiff's action, the federal court may not entertain the same suit merely because diversity exists. The key is not that the contract must be substantively void; it is enough that the state denies a judicial remedy. Allowing the suit in federal court would create the discrimination Erie was meant to prevent. (Derived from Wood v. Interstate Realty Co. (n.d.).)