Western Union Telegraph Co. v. Kansas, 216 U.S. 1 (1910)

Western Union Telegraph Company v. Kansas

No. 4

Argued March, 17, 18, 1909
Decided January 17, 1910
216 U.S. 1

ERROR TO THE SUPREME COURT

OF THE STATE OF KANSAS

Syllabus

A statute of Kansas provided among other things, that, before a corporation of another state, even one engaged in interstate business, should have authority to do local business in Kansas, it should pay

to the state Treasurer, for the benefit of the permanent school fund, a charter fee of one-tenth of one percent of its authorized capital, upon the first $100,000 of its capital stock, or any part thereof, and upon the next four hundred thousand dollars or any part thereof, one-twentieth of one percent, and for each million or major part thereof over and above the sum of five hundred thousand dollars, $200.

The Western Union Telegraph Company, a New York corporation, engaged in commerce among the states and with foreign countries, and seeking to do local business in Kansas, had a capital stock of $100,000,000. The fee demanded of it as a condition of its right to do local business in Kansas, was $20,100. It refused to pay the required fee, and continued, as it had done for many years before to do local or intrastate business in Kansas. Thereupon, the state brought a suit in one of its own courts against the Telegraph Company and sought a decree ousting and restraining the company from doing any local business in Kansas. The state court gave the relief asked. Held that:

The right to carry on interstate commerce is not a privilege granted by the states, but a constitutional right of every citizen of the United States, and Congress alone can limit the right of corporations to engage therein. Crutcher v. Kentucky, 141 U.S. 47.

The power of Congress over interstate commerce is as absolute as it is over foreign commerce.

The rule that a state may exclude foreign corporations from its limits or impose such terms and conditions on their doing business therein as it deems consistent with its public policy does not apply to foreign corporations engaged in interstate commerce, and the requirement that the Telegraph Company pay a given percent of all its capital, representing all its business, interests and property everywhere, within and outside of the state, operated as a burden and tax on the interstate business of the company in violation of the commerce clause of the Constitution, as well as a tax on its property beyond the limits of the state, which it could not tax consistently with the due process of law enjoined by the Fourteenth Amendment.

Such a requirement imposed a condition on the Telegraph Company forbidden by the Constitution of the United States and violative of the constitutional rights of the company.

The Telegraph Company was no more bound to assent to the condition required of it in order that it might do local business in Kansas than to a condition requiring it to waive its right to invoke the benefit of the constitutional provision forbidding the denial of the equal protection of the laws or of the provision forbidding the deprivation of property without due process of law.

The disavowal by a state enacting a regulation of intent to burden or regulate interstate commerce cannot conclude the question of fact of whether a burden is actually imposed thereby, and whatever the purpose of a statute, it is unconstitutional if, when reasonably interpreted, it does, directly or by necessary operation, burden interstate commerce.

In determining whether a statute does or does not burden interstate commerce, the Court will look beyond mere form and consider the substance of things.

Consistently with the due process clause of the Fourteenth Amendment, a state cannot tax property located or existing permanently beyond its limits.

A court could not give the relief asked by the state without recognizing or giving effect to a condition that was in violation of the federal Constitution.

75 Kan. 609 reversed.

This action was brought by the State of Kansas in one of its courts against the Western Union Telegraph Company, a New York corporation, to obtain a decree ousting and restraining that corporation from doing, in Kansas, any telegraphic business that was wholly internal to that state, and not pursuant to some arrangement, or to meet its contracts with, or obligations to, the government of the United States. Upon the petition of the telegraph company, the case was removed to the Circuit Court of the United States for the District of Kansas. But it was thereafter remanded to the state court, where, upon a demurrer to the answer, a final decree was rendered, prohibiting and enjoining the telegraph company from transacting intrastate business in Kansas as a corporation, the decree, however, not to affect the company’s duties to or contracts with the United States. From that decree the present writ of error was prosecuted.

The state contends that the decree is in exact conformity with certain provisions of the Kansas statutes to be found in the General Statutes of that State of 1901, Title, "Corporations," p. 280, and the General Statutes of 1905, p. 284. Those provisions, or the ones directly involved here, originated in an act known as the Bush Act, passed at a special session of the legislature in 1898. Laws of Kansas, Special Session, p. 27.

The issues raised by the pleadings arise out of the above statutes. Under those statutes, a state Charter Board was organized and its powers defined. That Board was authorized to receive applications from corporations of other states, territories, or countries seeking permission to engage in business as foreign corporations in Kansas. Any such corporation was required in its application to set forth a certified copy of its charter or articles of incorporation, the place where its principal office or place of business was to be located, the full nature and character of the business in which it proposed to engage, the names and addresses of its officers, trustees, or directors and stockholders, with a detailed statement of its assets and liabilities, and such other information as the Board might require in order to determine the solvency of the corporation. The statute further provided that the application should be accompanied by a fee of twenty-five dollars, to be known as an application fee, and that it should be a condition precedent to obtaining authority to transact business in the state that the corporation should file in the office of the Secretary of State its written consent, irrevocable, that actions might be brought against it in the proper court of any county in the state (in which the cause of action arose, or in which the plaintiff resided) by service of process on the Secretary of State, and stipulating that such service should be valid and binding as if due service had been made upon the president or chief officer of the corporation. Every foreign corporation then doing business in the state was required, within thirty days from the taking effect of the act, to file with the Secretary of State the specified written consent. Kan.Gen.Stat. 1901, § 1261. If the Charter Board determined that the foreign company seeking to do business in the state was organized in accordance with the laws under which it was created, that its capital was unimpaired, and that it was organized for a purpose for which a domestic corporation might be organized in Kansas, then the Board was directed to grant the application, and by its secretary issue a certificate, setting forth the granting of the application to engage in business in the state, as provided in the statute. Id., § 1263.

Then come these important sections:

Each corporation which has received authority from the Charter Board to organize shall, before filing its charter with the Secretary of State, as provided by law, pay to the State Treasurer of Kansas, for the benefit of the permanent school fund, a charter fee of one-tenth of one percent of its authorized capital, upon the first one hundred thousand dollars of its capital stock, or any part thereof, and upon the next four hundred thousand dollars, or any part thereof, one-twentieth of one percent, and for each million or major part thereof over and above the sum of five hundred thousand dollars, two hundred dollars. . . . In addition to the charter fee herein provided, the Secretary of State shall collect a fee of two dollars and fifty cents for filing and recording each charter containing not to exceed ten folios, and an additional fee of twenty-five cents for each folio in excess of ten contained in any charter. The fee for filing and recording a charter shall also entitle the corporation to a certified copy of its charter. All the provisions of this act, including the payment of the fees herein provided, shall apply to foreign corporations seeking to do business in this state, except that, in lieu of their charter, they shall file with the Secretary of State a certified copy of their charter, executed by the proper officer of the state, territory, or foreign country under whose laws they are incorporated, and any corporation applying for a renewal of its charter shall comply with all the provisions of this act in like manner, and to the same extent, as is herein provided for the chartering and organizing of new corporations. . . . Any corporation organized under the laws of another state, territory, or foreign country, and authorized to do business in this state, shall be subject to the same provisions, judicial control, restrictions, and penalties, except as herein provided, as corporations organized under the laws of this state.

Id., §§ 1264, 1267.

By another section, it is made the duty of each corporation doing business for profit in Kansas, except banking, insurance, and railroad corporations, annually, on or before August 1st,

to prepare and deliver to the Secretary of State a complete detailed statement of the condition of such corporation on the 30th day of June next preceding. Such statement shall set forth and exhibit the following, namely: 1st., the authorized capital stock; 2d., the paid-up capital stock; 3d., the par value and the market value per share of said stock; 4th, a complete and detailed statement of the assets and liabilities of the corporation; 5th, a full and complete list of the stockholders, with the post office address of each, and the number of shares held and paid for by each; 6th, the names and post office addresses of the officers, trustees, or directors and manager elected for the ensuing year, together with a certificate of the time and manner in which such election was held. . . . And such failure to file such statement by any corporation doing business in this state, and not organized under the laws of this state, shall work a forfeiture of its right or authority to do business in this state, and the Charter Board may at any time, declare such forfeiture, and shall forthwith publish such declaration in the official state paper. . . . No action shall be maintained or recovery had in any of the courts of this state by any corporation doing business in this state without first obtaining the certificate of the Secretary of State that statements provided for in this section have been properly made.

Section 1283 (L. 1898, c. 10, § 12, as amended by L. 1901, c. 125, § 3).

Under this statute, the Western Union Telegraph Company made application to the Charter Board for permission to engage in business in Kansas as a foreign corporation, stating that the amount of its capital stock, fully paid up in cash, was $100,000,000. With that application, the company deposited with the Secretary of State the specified fee of $25, and also its written consent, irrevocable, in the prescribed form, as to suits brought against it, in the courts of the state, by service of process on that officer. In reference to that consent, the company, in its answer, said:

It made such written submission to service and paid such application fee voluntarily, and ex gratia, and out of a desire to avoid the appearance of not complying with the reasonable regulations of the State of Kansas, made with reference to its own corporations, but denies that said payment and that said written submission were obligatory upon it, or were necessary or essential as a condition precedent to its continuing to transact business within the State of Kansas, both state and interstate.

The Charter Board granted the application of the telegraph company, but its order to that effect, made April 5th, 1905, recited that the application be granted and the applicant authorized and empowered to transact the business of receiving and transmitting messages by telegraph within the State of Kansas, and transacting within the said state its business of a telegraph company, provided that the order should not take effect and no certificate of authority should issue or be delivered to the company

until such applicant shall have paid to the State Treasurer of Kansas, for the benefit of the permanent school fund, the sum of twenty thousand one hundred dollars ($20,100), being the charter fee provided by law necessary to be paid by a foreign corporation having a capital of $100,000,000. It is further understood, ordered, and provided that nothing herein contained shall apply to nor be construed as restricting in any wise the transaction by the said applicant of its interstate business nor its business for the federal government, but that this grant of authority and requirement as to payment relate only to the business transacted wholly within the State of Kansas.

The above fee of $20, 100 was the specified percent of the authorized capital of the company which the statute required it to pay before doing or continuing to do any local business in Kansas.

The company refused to pay the fee thus required, and continued, as before, to do telegraph business of all kinds in Kansas. Thereupon the present action was brought, the sole ground of complaint being that, in consequence of the failure of the telegraph company to pay the charter fee of $20,100, it was without authority to continue doing any intrastate or local business in Kansas. The relief sought by the state, as shown by the prayer of its petition, was that the defendant be required to show by what authority it exercised within Kansas the corporate right and power of receiving, transmitting, and delivering telegraphic messages within its limits and receiving compensation therefor; that it be adjudged by the court that the defendant had no authority of law for the performance of such corporate acts, and the exercise of such corporate powers and franchises, and the carrying on of said corporate business within the state, and that it be decreed and adjudged that the defendant

be ousted of and from the exercise within the State of Kansas of the said corporate rights and franchises of receiving, transmitting, and delivering within the State of Kansas of telegraphic messages and communications and of receiving compensation therefor.

The reasons given by the telegraph company for its refusal to pay the required fee are set forth in its answer, to which a demurrer was sustained, and may be summarized as follows: 1. that the company had the right to transact both interstate and local business in Kansas without paying the fee of $20,100; 2. that, by the laws of Kansas, enacted while it was a territory and after it became a state, telegraph companies were invited to come into it and do both domestic and interstate business there, and in consequence of such invitation, the company had established between eight hundred and nine hundred offices in Kansas at great expense, all of which was done in the full faith that it would receive the equal protection of the laws under the Constitution of the United States; 3. that it had been doing a general telegraph business in Kansas ever since its organization as a territory; 4. that on the seventh day of June, 1867, it duly accepted the conditions of the Act of Congress of July 24th, 1866, 14 Stat. 221, c. 230, entitled, "An Act to Aid in the Construction of Telegraph Lines, and to Secure to the Government the Use of the Same for Postal, Military, and Other Purposes" (Rev.Stat. §§ 5263 et seq.), whereby it became and is now an instrument of interstate commerce and an agency of the United States for the transaction of public business, and subject to all the duties imposed, and entitled to all the rights, benefits, and privileges conferred, by said act of Congress; 5. that its lines were originally constructed in the Territory of Kansas by the authority of an arrangement made with the Secretary of the Treasury in conformity with certain acts of Congress, one of which was enacted June 16th, 1860, and was entitled "An Act to Facilitate Communication Between the Atlantic and Pacific States by Electric Telegraph," the other, enacted July 2d 1864, entitled, "An Act for Increased Facilities of Telegraph Communication Between the Atlantic and Pacific States and the Territory of Idaho," and the Telegraph Company therefore "has always been in the State of Kansas rightfully for the purpose of the transaction of governmental business and for the public generally, and that it cannot be now excluded therefrom;" 6. that the company’s lines of telegraph within Kansas are upon the public domain and upon military and post roads of the United States, and are part of the postal system of the United States, and that the defendant has therefore, under the Constitution and laws of the United States, the power, and is under the duty and obligation, to transmit all messages for the government and for the public generally just as much and as fully with respect to messages between points within Kansas as to interstate messages; 7. that the enforcement of the statute of Kansas would seriously affect and cripple the company’s efficiency as an instrument of interstate commerce and as an agency of the government for transacting both interstate and domestic business in that state, because the receipts derived from interstate and governmental business alone would, in many offices in Kansas, not be equal to the expense of keeping such offices open, and that the closing of them on that account would be detrimental to the governmental service, as well as to interstate commerce; 8. that, by the statutes in question, "any corporation, including telegraph companies, organized in the state, is authorized to do business in Kansas upon paying a charter fee based on the actual capital of such corporation employed in the State of Kansas, whereas, in respect to the defendant company, the Charter Board requires and is attempting to exact from the defendant company, by this proceeding, a charter fee based upon the defendant’s entire capitalization, to-wit, $100,000,000 which $100,000,000 represents the property and lines of telegraph of the defendant company in the forty-five states of the American Union, in the Dominion of Canada, and lines under the Atlantic and Pacific oceans and in foreign countries;" 9. that such tax is upon property and rights outside of Kansas, and therefore beyond its jurisdiction for purposes of taxation; 10. that, "by laws passed relating to private corporations, and especially by laws having reference to telegraph companies, some enacted by the legislature of the Territory of Kansas and many since the creation and organization of the State of Kansas, telegraph companies, including the Western Union, were invited to come into the State of Kansas, and build and construct their lines therein, and to connect said lines with other telegraph liens then or thereafter constructed, and to do a general telegraph business, both domestic and interstate, throughout the State of Kansas, and to thereby place the citizens of the State of Kansas, wherever the lines reached, in direct telegraphic communication with all parts of the United States; that said telegraph companies, including the Western Union Telegraph Company, were, by the laws of the State of Kansas, authorized to go upon the public highways of the state, and thereon place their poles and wires; that, in pursuance of such invitation, and before the admission of the State of Kansas to the Union, the Western Union Telegraph Company entered the State of Kansas and extended its lines to all points where the same might be needed, and subsequent to the admission of the state, by construction and purchase, lines of the Western Union Telegraph Company were extended to all parts of the State of Kansas, and between eight hundred and nine hundred offices established for the use and convenience of the public; that there had been expended by the defendant at the time of the enactment of the so-called Bush Corporation Act, under which the present proceeding is brought, many thousands of dollars in the construction of lines and wires and in the other appurtenances of the telegraphic business and in the establishment of offices; that all of this money was expended in full faith and confidence in the laws already enacted by the State of Kansas for the furtherance and encouragement of telegraphic business, and also in the full faith that said company would have the equal protection of the laws of the State of Kansas, and the fair, equitable, and equal treatment required by the Constitution of the State of Kansas in the matter of taxes and other public charges imposed upon it;" 11. that the statute in question, so far as it prevents the company from using its property in the state for all purposes of its business, would operate as a taking of such property without due process of law; 12. that the statute is in contravention of the power of Congress to regulate commerce among the several states and with foreign countries, with its power to establish post offices and post roads, and with its authority to pass all laws necessary and proper to carry into execution the powers vested in the government of the United States.