Statute Discriminating Against Foreign Corporations and LLCs Struck Down

Statute Discriminating Against Foreign Corporations and LLCs Struck Down

      In a decision rendered last September, the Federal District Court in North Dakota considered the validity of a statute that allowed corporations and LLCs, organized in North Dakota, subject to some additional requirements, to engage in farming, while at the same time precluding corporations and LLCs organized in states other than North Dakota from likewise engaging in farming activities. This statue was struck down for violation of the Commerce Clause of the U.S. Constitution. North Dakota Farm Bureau, Inc. v. Stenehjem, __ F. Supp. 3d __, 2018 WL 4550391 (D. N.D. Sept. 21, 2018).

      North Dakota has a statute that generally precludes farming activity through a corporation or LLC. There exists, however, a “family farm exception” to this exclusion. As part of its requirements, the corporation or LLC must be organized in North Dakota. This limitation was challenged on the basis of the dormant Commerce Clause, which limits the ability of the states to raise barriers to interstate commerce, thereby precluding the “economic Balkanization” of the various states. In this instance, it was found that the requirement that the corporation or LLC be organized in North Dakota violates the dormant commerce clause as it “would clearly discriminate against out-of-state interest in violation of the dormant Commerce Clause under current Eighth Circuit case law.”