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8/23. The U.S. Court of Appeals
(10thCir) issued its
opinion
in Powers v. Harris, upholding the constitutionality of a
protectionist state statute that has the effect of preventing certain sales of caskets over the
internet. Two individuals who own a business named
Memorial Concepts Online
challenged, on 14th Amendment grounds, an Oklahoma statute that requires that in
most circumstances one must be a licensed funeral director operating out of a
funeral establishment to sell caskets. The Appeals Court upheld the statute.
This is a 14th Amendment (due process, equal protection and privileges and
immunities) case, rather than a commerce clause case. The Appeals Court held
that the statute is an economic regulation, and that therefore, the rational
basis test applies. It held that the state has a legitimate state interest --
intrastate protectionism -- and that protecting state funeral directors from
competition is rationally related to this interest.
This opinion is inconsistent with the
opinion of the U.S. Court of Appeals
(6thCir) in Craigmiles v. Giles, which struck down a very similar Tennessee
statute on due process and equal protection grounds. It too applied the rational basis
test, but found that statute lacking. It held that economic protectionism is not a
legitimate state interest. See,
story titled "6th Circuit Buries Protectionist Statute in Tennessee Casket
Case" in TLJ Daily
E-Mail Alert No. 563, December 9, 2003.
These cases both deal with the regulation of funerals, funeral directors, and
funerary sales. However, the analyses contained in these opinions are applicable
to other protectionist state statutes that impede electronic commerce.
Parties. The plaintiffs in this case are
Kim Powers,
Dennis Bridges, and Memorial
Concepts Online, Inc. (MCAI). MCAI is an Oklahoma corporation owned by Power and
Bridges.
They sell burial caskets over the internet. They do not provide any
embalming, funeral or burial services. They only sell products. None of the plaintiffs
holds an Oklahoma funeral director's license. However, Bridges holds a Tennessee funeral
director's license. Tennessee has a very similar licensing statute.
The defendants are Joe Harris, and other individuals, who are sued in their
capacity as members of the Oklahoma State Board of
Embalmers and Funeral Directors.
There is also interest group involvement in this case. The plaintiffs were
represented by the Institute for Justice (IJ), which is
making a practice of representing plaintiffs who challenge the constitutionality
of protectionist state laws that discriminate against electronic commerce. The
IJ also represented the plaintiffs in Craigmiles v. Giles. The IJ is also
representing the plaintiffs in Swedenburg v. Kelly, a dormant commerce
clause challenge to a New York state law that regulates internet sales, and
other direct sales, of alcoholic beverages under the 21st Amendment. Juanita
Swedenburg, is a Virginia wine seller who is prohibited from making direct sales over the
internet to New York residents. She prevailed in the District Court; the U.S. Court
of Appeals (2ndCir) reversed; the Supreme Court has granted certiorari. See,
story titled "Supreme Court Grants Certiorari in Internet Wine Sales Cases" in
TLJ Daily E-Mail
Alert No. 905, May 26, 2004.
The Pacific Legal Foundation and
the Claremont Institute's
Center for
Constitutional Jurisprudence both filed amicus curiae briefs in support of
Powers, Bridges and MCAI.
Oklahoma Statute. The Oklahoma Funeral Services Licensing Act (FSLA),
which is codified at Okla. Stat. tit. 59, § 395.1 et seq., and the rules
promulgated thereunder, require that any person engaged in the sale of
funeral service merchandise, including caskets, must be a licensed funeral
director operating out of a funeral establishment.
The requirements for obtaining a license include having a fixed physical
location, that must include a preparation room that meets the
requirements for embalming bodies, and an on site inventory of caskets.
Also, the FSLA limits its enforcement to intrastate casket sales only. For
example, an unlicensed Oklahoma casket seller may sell casket to customers
outside of the state of Oklahoma.
The Court of Appeals also noted that the Oklahoma Board does not apply this
licensing requirement to those who sell pre-paid sales (as opposed to time of
need sales), provided that the person is acting as an agent of a licensed
funeral director.
U.S. Constitution. The 14th Amendment provides, in part, that "No
State shall make or enforce any law which shall abridge the privileges or
immunities of citizens of the United States; nor shall any State deprive any
person of life, liberty, or property, without due process of law; nor deny to
any person within its jurisdiction the equal protection of the laws."
District Court. Powers, Bridges and Memorial Concepts Online filed a
complaint in U.S. District Court
(WDOkla) against Harris and the other members of the Oklahoma State Board of
Embalmers and Funeral Directors seeking a declaration that the Oklahoma statute
violates the equal protection, due process and privileges and immunities clauses
of the 14th Amendment of the U.S. Constitution, as well as the dormant commerce
clause.
The District Court held that Oklahoma's FSLA licensing regime does not
violate either the equal protection, due process and privileges and immunities
clauses of the 14th Amendment, or the dormant commerce clause.
Powers, Bridges and MCAI appealed the 14th
Amendment claims, but not the dormant commerce clause claim.
Court of Appeals Holding. The Appeals Court affirmed.
The Court first addressed the privileges and immunities clause claim in a single
paragraph. It wrote that if the clause is to be revived from its post
Slaughter-House Cases, 83 U.S. (16 Wall.) 36 (1872), status, that will be
the responsibility of the Supreme Court, not the 10th Circuit.
The Court then addressed the difference between due process and equal
protection. It wrote that the substantive component of the due process clause
provides heightened protection against governmental interference with certain
fundamental rights and liberty interests, even when the challenged statute
affects all persons equally, while the equal protection clause requires that
states treat similarly situated persons similarly. The Court further stated that
this appeal "is most properly presented as an equal protection claim", and "In
any event, because a substantive due process analysis proceeds along the same
lines as an equal protection analysis, our equal protection discussion
sufficiently addresses both claims".
Thus, the bulk of the opinion then addresses the equal protection claim.
The Court followed the New Deal era method of analysis that distinguishes
between individual and economic rights, and applies a lower standard, the
rational basis test, to its review of statutes that affect economic rights.
The state of Oklahoma argued that its statute serves the purpose of
protecting consumers. However, the Appeals Court did not indulge in any
hypocrisy about the statute serving any public health, safety or welfare
purpose. It wrote that it did not doubt that the FSLA exacts "needless" and
"wasteful" requirements. It concluded that it is a statute that protects funeral
directors from intrastate competition in the sale of caskets.
The plaintiffs argued that the FSLA is "a classic piece of special interest
legislation designed to extract monopoly rents from consumers' pockets and
funnel them into the coffers of a small but politically influential group of
business people -- namely, Oklahoma funeral directors". The Court of Appeals did
not refute this characterization. Rather, it concluded that intrastate economic
protectionism is itself a legitimate state interest.
The Court wrote that very few court opinions have found intrastate
protectionism not to be a legitimate state interest. One of these few cases is
Craigmiles, which this Court concluded was wrongly decided.
This Court also
distinguished
H.P.
Hood & Sons, Inc., v. DuMond, 336 U.S. 525 (1949) on the basis that it
involved interstate economic protectionism, not intrastate economic
protectionism. It also distinguished other cases that struck down economic
regulations as interstate regulation cases involving the dormant commerce
clause, which was not raised on appeal in this case.
The Court wrapped itself in the Supreme Court's antique cases that applied New Deal era
regulatory logic to constitutional analysis. The Court relied upon
U.S. v. Carolene Products, 304 U.S.
144 (1938),
Williamson v. Lee Optical, 348 U.S. 483 (1955) and
Ferguson v. Skrupa, 372
U.S. 726 (1963). Indeed, the Court cited Skrupa in its first paragraph.
The Court concluded that "intrastate economic protectionism, absent a
violation of a specific federal statutory or constitutional provision, is a legitimate
state interest and that the FSLA is rationally related to this legitimate end".
The Court added that "Our country's constitutionally enshrined policy
favoring a national marketplace is simply irrelevant as to whether a state may
legitimately protect one intrastate industry as against another when the challenge to
the statute is purely one of equal protection."
Concurring Opinion. Judge Tymkovich wrote a concurring opinion. It
concurs in the result, but it disputes the key parts of Judge Tacha's analysis.
It reads more like a dissent.
He wrote that "Where I part company with the majority is its unconstrained
view of economic protectionism as a ``legitimate state interest.´´ The majority
is correct that courts have upheld regulatory schemes that favor some economic
interests over others. Many state classifications subsidize or promote
particular industries or discrete economic actors. And it is significant here
that Oklahoma's licensing scheme only covered intrastate sales of caskets. But
all of the cases rest on a fundamental foundation: the discriminatory
legislation arguably advances either the general welfare or a public interest."
He reviewed Supreme Court precedent in this area, and concluded that
"Contrary to the majority, however, whenever courts have upheld legislation that
might otherwise appear protectionist, as shown above, courts have always found
that they could also rationally advance a non-protectionist public good." He
would have upheld the statute on the grounds that "the funeral licensing scheme
here furthers, however imperfectly, an element of consumer protection".
He wrote that "Consumer interests appear to be harmed rather than protected
by the limitation of choice and price encouraged by the licensing restrictions
on intrastate casket sales", but still, this is a matter to be decided by the
state legislature, not the courts.
He opposed Judge Tacha's "almost per se rule upholding intrastate protectionist
legislation".
Conflict Between Circuits. The Court of Appeals wrote that "we part
company with the Sixth Circuit's Craigmiles decision, which struck a nearly
identical Tennessee statute as violating the Equal Protection Clause and
substantive due process."
There now exists a conflict between different circuits. The two statutes
are very similar. Both cases raised 14th Amendment issues. In both cases the plaintiffs
sold caskets. In both cases the plaintiffs are represented by the same attorneys, and
supported by the same amici. Yet, the two Courts reached different results.
Both began with the traditional, economic regulation, rational basis test, method
of analysis. But, arguably, both departed from precedent, albeit in opposite directions.
The Court in Craigmiles added new meaning to the rationale basis test.
It made it a more rigorous standard. It interpreted it as a ban on economic
protectionism that harms consumers.
In contrast, the Court in Powers revised the rationale basis test to
make it an even less exacting standard. It interpreted it to allow economic
protectionism in the absence of the independent advancement of any public good.
It also read into the equal protection clause an interstate versus intrastate
distinction.
Consequences for E-Commerce. This is not merely arcane constitutional
analysis. Nor will the impact of these cases be limited to casket sellers.
Traditional brick and mortar businesses that have been threatened by
competition from internet based businesses have often obtained protection from
state legislatures. See, for example, the
Progressive Policy Institute (PPI) study titled "Revenge
of the Disintermediated: How the Middleman is Fighting E-Commerce and Hurting
American Consumers", authored by Robert Atkinson, and dated January 26,
2001.
Atkinson testified before a House Commerce Subcommittee hearing on
September 26, 2002 regarding this report. He wrote in his
prepared statement that "incumbent producers in a wide range of industries,
including wine and beer wholesalers, auto dealers, travel agents, pharmacies, mortgage
brokers, and others, are fighting against robust e-commerce competitors. The growth of
laws and regulations many at the state level, that protect incumbent ``bricks and mortar´´
companies from e-commerce competitors is a major threat to the growth of e-commerce."
See also, story
titled "House Subcommittee Holds Hearing on State Impediments to E-Commerce" in
TLJ Daily E-Mail
Alert No. 518, September 27, 2002.
Similarly, Tod Cohen of eBay also
testified at this hearing. He wrote in his
prepared statement "price competition is great for consumers, but troubling
to the entrenched monopolists and oligopolists that have been able to set prices
unfairly for years without repercussion. E-commerce forces them to face an
unpleasant prospect: competition. In order to prevent or ``manage´´ competition,
these ``middlemen´´ have used their allies in state and local government to
apply existing laws and regulations to Internet companies in a discriminatory
manner and to enact laws and regulations that treat interstate e-commerce
companies differently from offline intrastate companies. They justify these new,
discriminatory barriers with spurious claims that e-commerce may harm consumers.
Far too often, though, these claims simply seek to mask the fact that the
middlemen are just trying to protect their ``turf.´´"
E-commerce proponents are often unsuccessful in persuading state legislatures
not to impose discriminatory barriers upon e-commerce. Moreover, the Congress
has only rarely passed statutes that effectively preempt state discriminatory
barriers. Hence, e-commerce proponents have turned to the courts in numerous
instances, and attempted to have various discriminatory burdens struck down for
violating the U.S. Constitution. The commerce clause, and the doctrine of the
dormant commerce clause, is the most common type of challenge. The Craigmiles
and Powers cases are unusual in the sense that the plaintiffs have relied
upon the 14th Amendment. Nevertheless, these cases are part of a larger collection of
Constitutional challenges to protectionist state statutes.
The 6th Circuit's approach in Craigmiles, if it were to become the
national standard, would advance the cause of e-commerce interests seeking to
block discriminatory barriers from being imposed by protectionist state
legislatures. The 10th Circuit's approach in Powers, if it were to become
the national standard, would be a setback for e-commerce interests.
Judges. Judge Deanell
Tacha wrote the opinion of the Court, in which Judges
Monroe McKay
and Timothy
Tymkovich joined. Judge Tacha, a Kansan, is the Chief Judge of the 10th Circuit. She
was appointed by former President Reagan. Although, her nomination was primarily the result
of efforts of former Sen. Bob Dole (R-KS), who was then a senior member of the Senate. In
1996 there was speculation that she might be nominated for a seat on the Supreme Court.
However, Bob Dole lost the Presidential election to Bill Clinton, and no seats on the
Court opened.
Judge Tacha discussed her judicial philosophy in a
written interview by Howard Basham, that was published in the web site titled "How Appealling" on January 5, 2004.
She wrote that "In my view, if judges are doing their jobs appropriately, they adhere
with careful precision to the law and facts of the case before them. They do not stray into
policy or what should be. They stick with the text of the Constitution, statute, or
regulation that they are interpreting. Judges quite simply cannot fix problems in our
country. Judges can only decide the controversies in front of them. I have found very few
cases in which I thought there was ever the legitimate flexibility in the applicable law to
bring to bear anything other than that law itself."
She also commented in the Powers opinion that "There simply is no
constitutional or Platonic form against which we can (or could) judge the wisdom
of economic regulation".
Senior Judge McKay was appointed by President Carter. Judge Tymkovich, who
wrote the separate opinion, was appointed in 2003 by President Bush.
Judge Danny Boggs, an outspoken, free market,
Federalist Society, conservative, wrote
the opinion in the Craigmiles case.
This case is Kim Powers, et al. v. Joe Harris, et al., U.S. Court of
Appeals for the 10th Circuit, App. No. 03-6014, an appeal from the U.S. District Court
of the Western District of Oklahoma, D.C. No. CIV-01-445-F, Judge Stephen Friot presiding.
The Craigmiles case is Nathaniel Craigmiles, et al. v. Arthur Giles, et
al., U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 00-6281, an
appeal from the U.S. District Court for the Eastern District of Tennessee, at
Chattanooga, D.C. No. 99-00304, Judge Allan Edgar presiding.
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Attorney General
