Foreign Savings and Loan Associations Not Doing Business in Colorado

JurisdictionColorado,United States
CitationVol. 16 No. 1 Pg. 43
Pages43
Publication year1987
16 Colo.Law. 43
Colorado Lawyer
1987.

1987, January, Pg. 43. Foreign Savings and Loan Associations Not Doing Business in Colorado




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Vol. 16, No. 1, Pg. 43

Foreign Savings and Loan Associations Not Doing Business in Colorado

by Madeleine Austin

Beware the foreign savings and loan association whose interstate activities pass through Colorado. CRS § 11-43-101 provides that unqualified state-chartered foreign savings and loan associations commit a misdemeanor if they "make new loans" in the state.(fn1) This is an ambiguous proscription increasingly invoked by borrowers in default as a defense to repayment. Such borrowers assert that (1) making loans to Colorado domiciliaries or loans secured by collateral in Colorado constitutes making loans in Colorado, and (2) despite the permissibility under federal regulation of nationwide lending by federally insured state savings and loan associations, promissory notes based on loans made in contravention of CRS § 11-43-101 are void.


Constitutionality of CRS § 11-43-101

An argument can be made that CRS § 11-43-101 is unconstitutionally vague and overbroad because it provides inadequate notice of what type of conduct is prohibited.(fn2) It also can be argued that the statute places an undue burden on interstate commerce because it purports to regulate foreign corporations' interstate activity even when such activity lacks a separable intrastate component which constitutes "transacting business" in Colorado. Moreover, in operation with CRS § 11-41-103, 11-41-127 and 7-9-101, the statute subjects foreign savings and loan associations to greater liabilities and restrictions than domestic savings and loan associations.(fn3)

Under CRS § 11-43-101, unqualified foreign savings and loan associations commit a misdemeanor if they even make new loans. However, under §§ 11-41-103 and 11-41-127, unqualified domestic savings and loan associations commit a misdemeanor only if their unregulated activity rises to the level of doing business.

It is well established that a foreign corporation may not be subjected to any greater liabilities and restrictions than domestic corporations. In the 1907 case of American Smelting & Refining Co. v. Colorado,(fn4) the U.S. Supreme Court invalidated a Colorado statute which purported to impose greater liability on foreign corporations than domestic ones. There is a rule of virtual per se invalidity where a statute discriminates on its face against interstate commerce by expressly imposing burdens on interstate businesses that are not imposed on local firms.(fn5) The Colorado statutes, CRS §§ 11-43-101, 11-41-103 and 11-41-127, could be characterized as the kind of statutory scheme which the U.S. Supreme Court in Lewis v. BT Investment Managers, Inc. termed "'parochial' in the sense that it overtly prevents foreign enterprise from competing in local markets."(fn6)

Colorado cannot prohibit its citizens from going to California to obtain a loan secured by Colorado real property, nor can Colorado prohibit California savings and loan associations from making loans in interstate commerce to Colorado domiciliaries or secured by Colorado real property. The practical effect of CRS § 11-43-101 is Colorado interference with California and interstate capital markets. This is the kind of "sweeping extraterritorial effect" that was held unconstitutional in Edgar v. Mite Corp.,(fn7) and the kind of refusal of one state to enforce the lawful contract of another state that was held unconstitutional in Allenberg Cotton Co. v. Pittman.(fn8) A license or qualification to do business in a state may not be constitutionally required of a corporation that seeks to enter a state solely to engage in interstate commerce.(fn9)

In Philadelphia v. New Jersey,(fn10) the U.S. Supreme Court invalidated a New Jersey statute which, by prohibiting the importation of out-of-state waste, erected




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a barrier against the movement of interstate trade. Colorado's grant to its residents of a sole right of access to its interstate capital markets arguably is tantamount to (or perhaps worse than) New Jersey's grant to its residents of a sole right of access to its waste sites. Like the New Jersey statute, CRS § 11-43-101 gives not only the constitutionally forbidden "competitive advantage" to in-state businesses, but also a monopoly market.

CRS § 11-43-101 purports to prohibit activities which, in some instances, may be Colorado components of interstate transactions and, in those instances, operates as an unconstitutional direct restraint on interstate commerce.(fn11) Only if there is an intrastate contract separable from a particular interstate transaction can a state make a prerequisite to the contract's enforcement in its courts that the foreign corporation be qualified to do business there.(fn12)

In Cooper Manufacturing Co. v. Ferguson,(fn13) the U.S. Supreme Court held...

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