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CALIFORNIA CORPORATE & SECURITIES LAW

Interstate Versus Intrastate Business – What’s The Difference?

Some words are easily confused such as hyperthermia and hypothermia.  In the case of the former, one is overheated and in the case of the latter, one is not warm enough.  The difference becomes more understandable when one knows the roots of these two words.  Both use “thermia” which is derived from the Greek word for heat – θέρμη (therme) but the problem is with the prefixes.  “Hyper” is derived from the Greek word ὑπέρ which means over while “hypo” is derived from the Greek word ὑπό meaning under.

A similar confusion often arises with two common Latin prefixes – inter and intra.  The former means between while the latter means within.  The distinction was important in a ruling issued this week by Judge Beth Labson Freeman.  The case involved a plaintiff’s efforts to reverse the removal of his case from state to federal court.  Among other things, the plaintiff argued that the defendant could not remove the case because it was no longer registered with the California Secretary of State to transact intrastate business.  In support, the plaintiff cited Section 2203 of the California Corporations Code which provides that a foreign corporation may not “maintain any action or proceeding upon any intrastate business so transacted in any court of this state” (emphasis added).  The defendant countered that even if it were considered a foreign corporation, it need not register with the California Secretary of State because its business consists exclusively of interstate commerce.

Judge Freeman concluded:

To succeed on his claim under Cal. Corp. Code § 2203, Plaintiff bears the burden of proving that “the action arises out of the transaction of intrastate business by a foreign corporation.” United Sys. of Ark. v. Stamison, 63 Cal. App. 4th 1001, 1007, 74 Cal. Rptr. 2d 407 (1998).  Plaintiff has not satisfied his burden—PHEAA [the Defendant] claims that it conducts its student loan business out of Pennsylvania, and thus, any contact with California borrowers falls exclusively in interstate commerce. Opp’n 6-7. Captain Wellisch [the Plaintiff] does not contest this assertion, but does emphasize that PHEAA was previously registered in this state, and thus it is barred from taking any litigation action. Mot. 7. At the hearing, however, PHEAA explained that it used to conduct business from California and have employees in California, and thus registered with the Secretary of State. Because it no longer conducts business from California and no longer has any employees in the state, PHEAA allowed its registration to lapse. The Court finds this argument compelling. Thus, for the aforementioned reasons, the Court concludes that PHEAA is not barred from litigating this case.

Wellisch v. Pa. Higher Educ. Assistance Agency, 2017 U.S. Dist. LEXIS 40831 (N.D. Cal. Mar. 21, 2017).  The inter/intra distinction arises in other contexts.  Many firms, for example, use both an internet and an intranet.

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