Judgment Without Notice
45 Pages Posted: 26 Jun 2016 Last revised: 10 Jul 2017
Date Written: June 23, 2016
Citizens United v. Federal Election Commission positions a corporation as an entity entitled to constitutional rights equal to the rights of natural persons. In many situations, this holding may be the impetus for reform and reconsideration of state restrictions on corporate rights that were problematic before the decision. The operation of corporate statutes on corporations chartered in one state but doing business in another state as a foreign corporation is an area in need of this Citizens United-inspired review. Although most corporations operate as foreign corporations outside of their state of incorporation, neither the constitutional validity of corporate withdrawal statutes nor the impact of Citizens United on procedural due process have been determined. This Article is the first to examine the procedural due process implications of Citizens United on corporations.
The issue presented by Citizens United is whether the Model Business Corporation Act (“MBCA”) and other corporate statutes accurately reflect the new level of equality between natural persons and corporations. Citizens United requires states to develop a method of service that treats natural persons, domestic corporations, and foreign corporations equally. Due process requires notice of service on all parties — both natural persons and corporations — reasonably calculated to result in actual notice of suit in all circumstances. States have, however, been permitted to impose conditions on foreign corporations that may not result in actual notice based on the operation of two assumptions: (1) foreign corporations do not exist within a state’s borders until they are admitted to do business, and (2) because foreign corporations are a creation of the state, a state may condition foreign corporations’ admission within the state’s borders upon requirements not imposed on natural persons or domestic corporations. State statutes based on the MBCA require a corporation to indefinitely provide the Secretary of State with an address where notice of service of process may be forwarded. Currently, when a corporation fails to comply with the statute, courts will attribute failure to receive notice to the corporation, subjecting it to a taking of property that violates the corporation’s Fourteenth Amendment rights. This Article questions why states have been allowed to continue the practice of limiting the due process rights of foreign corporations when determining whether constructive notice is effective, and whether the continued delineation for service of process purposes between domestic and foreign corporations is constitutionally appropriate following Citizens United. This Article concludes that such disparate treatment is unconstitutional following the holding in Citizens United.
A complete elimination of constructive notice on the Secretary of State is the natural outcome of the application of recent precedents to the corporate statutes, but it is not the best result. Treating a corporation as anything more than an artificial legal construct results in legal inequalities that favor the corporation over the natural person. Eliminating all distinctions may protect the corporate right to due process, but it also allows corporations to use withdrawal statutes to evade legal responsibility. States have better, constitutionally valid means for service of process available elsewhere in the MBCA that properly balance the compelling state need to provide natural citizens with a means to serve a withdrawn corporation against the corporation’s constitutional rights. This Article proposes that utilizing an alternative means of service on a withdrawn corporation is a reasonable reform that complies with the new regulatory regime created by Citizens United.
Keywords: Citizens United, Corporations, Service of Process, Due Process, Fourteenth Amendment, Hobby Lobby, Flowers, Supreme Court, MBCA, Model Business Corporation Act, corporate personhood
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