Silver v. WoolfSilver v. Woolf
- Reporters:
- ,
- Before:
- Blumenfeld
MEMORANDUM OF DECISION
BLUMENFELD, Senior District Judge.In this action for a declaratory judgment the plaintiff, the sole proprietor of a consumer collection agency located in Philadelphia, Pennsylvania, contends that Section 42-127a(a) of the Connecticut General Statutes is unconstitutional on its face and as applied to the plaintiff under the due process and commerce clauses of the United States Constitution.
[a] consumer collection agency is acting within this state if it ... (3) has its place of business located outside this state and regularly collects from consumer debtors who reside within this state for creditors whose place of business is located outside this state.
*883 Id. The plaintiff characterizes his business as a “national collection agency which on behalf of its clients seeks to collect debts from debtors located in all of the 50 states and in a number of U. S. territories and foreign countries.” It has no offices, employees or property in Connecticut and seeks to collect outstanding debts from Connecticut debtors solely through mail and telephone communications.
Beginning in July 1980 the Consumer Credit Division of the Connecticut Banking Department received a number of complaints from Connecticut consumer debtors concerning the collection practices of the plaintiff’s company. Defendant’s Motion for Summary Judgment Exhibits A-l through A-17. The Department began a correspondence with the plaintiff in order to determine if his company was subject to the licensing requirements of
On September 14, 1981 the Banking Department commenced formal proceedings against the plaintiff’s company to enforce the licensing requirement. A hearing was held on November 4,1981, and on March 30, 1982 the Banking Commissioner issued a decision ordering the plaintiff to cease and desist from acting as a consumer collection agency in Connecticut without a license. 2
On November 10, 1981 the plaintiff filed this action under
The two grounds upon which the defendant urges this court to dismiss this suit without reaching the merits are considered in limine.
I. EXHAUSTION OF ADMINISTRATIVE REMEDIES
Although there were state administrative proceedings pending at the time the federal complaint was filed, the fact that the plaintiff did not exhaust his administrative remedies prior to filing this lawsuit does not preclude this court from taking jurisdiction.
While a plaintiff is generally required to exhaust his administrative remedies prior to commencing an action seeking judicial relief,
Myers v. Bethlehem Shipbuilding Corp.,
303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938), the Supreme Court has held on numerous occasions that
*884
state administrative remedies need not be exhausted prior to commencing a federal civil rights action under
The plaintiff contends that the federal Constitution prevents the state from enforcing its licensing requirement against the plaintiff. His claim is solely one of federal constitutional law on which the agency has no expertise. In addition, the hearing examiner had made it clear prior to the institution of this federal suit that she would not make any decision on the constitutional issues. There is no reason, therefore, to apply the doctrine requiring the exhaustion of administrative remedies.
II. ABSTENTION
The doctrine of equitable restraint requires that a federal court abstain from enjoining pending state enforcement proceedings at least in the absence of extraordinary circumstances, such as bad faith or harassment on the part of the state prosecution, or a facial attack on a patently unconstitutional statute. Younger v. Harris, 401 U.S. 37, 53-54, 91 S.Ct. 746, 754-755, 27 L.Ed.2d 669 (1971). It has been applied to a variety of state civil proceedings. E.g., Moore v. Sims, 442 U.S. 415, 99 S.Ct. 2371, 60 L.Ed.2d 994 (1979) (state proceeding to remove custody of children from their parent); Trainor v. Hernandez, 431 U.S. 434, 97 S.Ct. 1911, 52 L.Ed.2d 486 (1977) (enforcement action to attach property pursuant to a state action to recover wrongfully paid welfare benefits); Juidice v. Vail, 430 U.S. 327, 97 S.Ct. 1211, 51 L.Ed.2d 376 (1977) (state’s contempt process); Huffman v. Pursue, 420 U.S. 592, 95 S.Ct. 1200, 43 L.Ed.2d 482 (1975) (state nuisance proceeding). The doctrine is based upon the rationale that principles of equity and federalism preclude a federal court from interfering with an ongoing state proceeding which offers the federal plaintiff a fair forum for the resolution of his federal claims. See, e.g., Younger v. Harris, 401 U.S. at 44, 91 S.Ct. at 750.
The defendant in this case contends that because the plaintiff has a right to appeal the Banking Commissioner’s decision to the state Superior Court under
The fact that the plaintiff has the option of seeking judicial review is not sufficient to require this court to abstain. A federal civil rights plaintiff is not required to exhaust state judicial remedies prior to coming to federal court. E.g., Steffel v. Thompson, 415 U.S. 452, 472-73, 94 S.Ct. 1209, 1222, 39 L.Ed.2d 505 (1974); Gibson v. Berryhill, 411 U.S. 564, 574 n.13, 93 S.Ct. 1689, 1695 n.13, 36 L.Ed.2d 488 (1973). Abstention is not required in this case because there is lacking “the most fundamental requirement for the exercise of equitable restraint^] ... the existence of an ongoing state proceeding where the federal plaintiff’s claims can be heard,” Aristocrat Health Club of Hartford v. Chaucer, 451 F.Supp. 210, 216 (D.Conn.1978) (emphasis added).
I turn next to consider the merits.
III. THE MERITS
A. The Propriety of Summary Judgment
The plaintiff challenges the constitutionality of
The court finds that no genuine dispute exists as to either of these factual issues and that, therefore, the case is appropriate for resolution by summary judgment. On the question of the extent of the plaintiff’s contacts with Connecticut, the plaintiff stipulated at the administrative hearing that “there is a regular course of contact with debtors located in the State of Connecticut conducted] solely by mail and phone calls from the respondent’s [the plaintiff herein] office in Philadelphia.” Transcript of November 4, 1981 hearing at 19. On the basis of this stipulation, the court finds that there is no disputed factual issue concerning the extent of the plaintiff’s contacts with Connecticut. Whether a regular course of contact conducted solely by mail and phone is sufficient to enable the state to subject the plaintiff to its licensing statute is solely a question of law appropriate for resolution by summary judgment.
Despite the plaintiff’s assertion to the contrary, there also does not appear to be a significant dispute as to the magnitude of the burden placed upon the plaintiff by this licensing statute. The defendant has submitted an affidavit which clarifies precisely what the Connecticut Banking Department’s procedures are in enforcing its licensing statute. The plaintiff has not contradicted these sworn statements that (1) the Connecticut Banking Department does not require a consumer collection agency to convert from a cash basis accounting system to an accrual basis accounting system and that (2) the Department’s policy is not to require an inspection of an out-of-state licensee’s books and records unless there has been a complaint which resulted in formal proceedings. The extent of the burdens placed on the plaintiff by this licensing statute has been established, and any question concerning whether these burdens can *886 be imposed consistent with the due process and commerce clauses of the United States Constitution is solely an issue of law appropriate for summary judgment.
B. The Commerce Clause
The primary thrust of the plaintiff’s constitutional challenge is based upon his contention that
1. The Applicable Constitutional Standard
The first issue to be resolved is the appropriate legal standard to apply in judging the constitutionality of
Where the [state] statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. If a legitimate local purpose is found, then the question becomes one of degree.
Id. (citations omitted). This standard requires the court to balance the state’s interest in the regulation against the burden it imposes on interstate commerce.
The plaintiff cites a line of authority which he reads as requiring a different approach when “purely interstate commerce” is involved. These cases involve situations where a company engaged in purely interstate commerce is required by a state to register as a foreign corporation in order to have access to the state’s courts. Allenberg Cotton Co. v. Pittman, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195 (1974); Eli Lilly & Co. v. Sav-On Drugs, 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288 (1961) (dictum); Sioux Remedy Co. v. Cope, 235 U.S. 197, 35 S.Ct. 57, 59 L.Ed. 193 (1914). The plaintiff reads these cases as establishing an absolute rule precluding a state from requiring that a purely interstate business obtain a license from the state in order to have access to state markets. He characterizes his company as such a purely interstate business and, therefore, concludes that he cannot be subjected to Connecticut’s licensing requirement.
The plaintiff’s attempt to reduce the problem to the meaning ascribed to the single phrase, “purely interstate commerce,” is not supported by Allenberg Cotton Co. v. Pittman, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195. Allenberg involved a cotton merchant who purchased cotton from a Mississippi farmer for sale in other states. When the merchant sued the farmer for the contract price in a Mississippi court, his complaint was ultimately dismissed due to his failure to register with the state as a foreign corporation. Id. The Court, stressing that the intricate interstate cotton marketing exchange requires federal protection under the commerce clause, held that, despite incidental intrastate aspects, the transaction was one within the “stream of interstate commerce,” id. at 30, 95 S.Ct. at 266 and that, therefore, the state’s “refusal to honor and enforce contracts made for interstate or foreign commerce is repug *887 nant to the Commerce Clause,” id. at 34, 95 S.Ct. at 267. Professor Laurence Tribe interprets this case as being
strongly influenced by the fact that the state ... seemed to be interfering with the operation of the national futures market in cotton by preventing interstate purchasers who had failed to qualify as “foreign corporations” under local law from effectively protecting themselves against unexpected price increases.
L. Tribe, American Constitutional Law 344 (1978). The Court in Ailenberg was concerned with protecting the interstate commodities market itself. Ailenberg should not be read to establish a per se rule that bars a state from regulating purely interstate businesses solely because of their interstate character. The Seventh Circuit has interpreted the Ailenberg line of cases as representing one application of the Pike balancing test rather than establishing an absolute rule that state regulation of purely interstate commerce is “void ab initio.” Aldens, Inc. v. LaFollette, 552 F.2d 745, 752 (7th Cir.), cert. denied, 434 U.S. 880, 98 S.Ct. 236, 54 L.Ed.2d 161 (1977).
In Eli Lilly & Co. v. Sav-On Drugs, 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288 (1961), the Court held that although a state cannot require a foreign corporation to obtain a certificate of authority to do business within the state if the corporation’s activities are wholly interstate,
it is equally well settled that if [the corporation] is engaged in intrastate as well as interstate aspects [of its business] the state can require it to get a certificate of authority to do business. In such a situation, [the corporation] could not escape state regulation merely because it is also engaged in interstate commerce.
Id. at 279, 81 S.Ct. at 1318. In Eli Lilly a drug manufacturer which sold goods to wholesalers within New Jersey for subsequent sale in interstate commerce also engaged in service and promotional activities aimed at ultimate consumers of its products who lived in New Jersey. Id. The Court held that the company was engaged in intrastate as well as interstate trade and, as a result of this local aspect of its business, it could be subjected to state regulation. Id. at 284, 81 S.Ct. at 1321.
The plaintiff in the case at bar engaged in substantial intrastate activities. His company performs services for its clients within Connecticut by contacting Connecticut debtors by phone and mail and attempting to collect outstanding debts owed to his clients. The fact that this service is performed exclusively by mail and phone does not alter the fact that it is a service performed intrastate.
[So] long as the interstate trader’s conduct has a “connection in fact” with a state producing an effect within a state, the interstate character of his conduct is only an element of the Pike interest-balancing analysis.
Aldens, Inc. v. LaFollette, 552 F.2d 745, 750 (7th Cir.), cert. denied, 434 U.S. 880, 98 S.Ct. 236, 54 L.Ed.2d 161 (1977). The plaintiff’s activities in this case have a substantial impact within Connecticut. The manner in which he conducts his business affects the economic, psychological and social well-being of numerous Connecticut citizens. As the United States Congress has declared,
abusive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy-
2.
The Constitutionality of
Applying the standard of
Pike v. Bruce Church,
397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970),
4
the first question which must be resolved is whether
(a) No person shall act within this state as a consumer collection agency, unless such person holds a license then in force from the commissioner authorizing him to so act. A consumer collection agency is acting within this state if it
(1) has its place of business located within this state;
(2) has its place of business located outside this state and collects from consumer debtors who reside within this state for creditors whose place of business is located within this state; or
(3) has its place of business located outside this state and regularly collects from consumer debtors who reside within this state for creditors whose place of business is located outside this state.
Since this statute does not discriminate against interstate commerce, the plaintiff’s commerce clause challenge must be resolved by balancing the state’s interest against the burden on interstate commerce. Pike v. Bruce Church, 397 U.S. at 142, 90 S.Ct. at 847. This inquiry requires consideration of three factors:
(1) whether the legislation serves a legitimate local public interest; (2) whether the legislation has only an incidental effect on interstate commerce; and (3) whether the local public interest justifies the statute’s impact on interstate commerce.
New England Accessories Trade Ass’n v. Browne, 502 F.Supp. 1245, 1255 (D.Conn. 1980).
In this case the legitimacy of the state’s interest is clear. Congress has itself recognized the importance of the states’ interest by explicitly providing that the federal Fair Debt Collection Practices Act,
The extent of the burden imposed upon interstate commerce by
The plaintiff’s contention that this court must consider the cumulative burden imposed upon a national collection agency, such as the plaintiff’s company, by the combined regulation of the several states and the federal government reveals a misunderstanding of the reach of commerce clause protection. He apparently views the commerce clause as a limitation upon the states’ power to burden interstate businesses. In fact, the purpose of the commerce clause is to protect interstate commerce itself, i.e., the free flow of goods through interstate markets.
See, eg., Allenberg Cotton v. Pittman,
419 U.S. at 29, 95 S.Ct. at 265. As the Supreme Court has recently stated, the commerce clause “protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulation.”
Exxon Corp. v. Governor of Maryland,
437 U.S. 117, 127-28, 98 S.Ct. 2207, 2214-15, 57 L.Ed.2d 91 (1978). A company which seeks to do business in all 50 states must bear the cost of doing business in those states. That cost includes complying with all applicable national and state laws. Congress has recognized that this is a subject matter on which the states may legislate despite the existence of federal regulation.
In any event, the actual burdens imposed upon collection agencies subject to
I conclude, therefore, that whatever minimal burdens, if any,
C. The Due Process Clause
The plaintiff also claims that his company has insufficient contact with the State of Connecticut to allow the state to regulate its activities consistent with the requirements of due process.
Due process limitations upon a state’s power to exercise jurisdiction over non-residents are usually discussed in the context of challenges to a state court’s assumption of jurisdiction over the persons of out-of-state defendants. E.g., International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945); Hanson v. Denckla, 357 U.S. 235, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958). It is true, as the plaintiff states, that the due process clause also limits the power of a state to subject a non-resident to regulation under its substantive laws. The plaintiff, however, contends that a more stringent test applies in the later situation. He cites state authority to the effect that
the question of whether a foreign corporation is transacting business so as to require a certificate of authority must be determined on the complete factual picture presented in each case, and ... the corporation’s activities must be more substantial than those which would suffice to subject it to service of process.
Sawyer Savings Bank v. American Trading Co., 176 Conn. 185, 190, 405 A.2d 635 (1978) (citations omitted). In that case, however, the Connecticut Supreme Court was merely interpreting a statutory test of what constitutes the transaction of business within the state under state law. Id. at 188, 405 A.2d 635. The case does not support the plaintiff’s position that due process requires more contact with a state to sustain a state’s substantive regulatory jurisdiction than to support a state court’s in personam jurisdiction.
As pointed out by Justice Douglas’ concurring opinion in Travelers Health Ass’n v. Virginia, 339 U.S. 643, 70 S.Ct. 927, 94 L.Ed. 1154 (1950), there may be some distinction between the constitutional standard applied in a case of substantive state regulation and that applicable to a question of a court’s in personam jurisdiction:
*891 [A creditor’s] ability to sue [an out-of-state company in Virginia] is not necessarily the measure of Virginia’s power to regulate .... It is the nature of the state’s action that determines the kind or degree of activity in the state necessary for satisfying the requirements of due process. What is necessary to sustain a tax or to maintain a suit by a creditor ... is not in my view determinative when the state seeks to regulate ... within its borders.
Id. at 653, 70 S.Ct. at 932. But whether or not the limitations of due process as applied to a state court’s ability to assert in person-am jurisdiction are equated with those applicable to the power of the state to apply its substantive regulatory jurisdiction over non-residents, as can be implied from the majority opinion in Travelers Health Ass’n v. Virginia, 339 U.S. at 648, 70 S.Ct. at 929, the requirements of due process are certainly met in this case.
In addressing a due process challenge to a state’s assertion of regulatory jurisdiction over out-of-state discount securities brokers Judge Merhige of the Eastern District of Virginia stated that
[t]he determination as to the state’s power, under the due process clause, to regulate the activities of non-residents is made by reference both to the extent of the non-resident’s contact with the state, and to the nature and extent of the state’s interest in exercising its authority.
Underhill Assoc., Inc. v. Coleman, 504 F.Supp. 1147, 1150 (E.D.Va.1981). The plaintiffs in the Underhill case had an even stronger due process argument than the plaintiff at bar because there the securities brokers did not themselves initiate contact with state residents. Here it is the plaintiff who initiates contact. In both cases the sole means of contact between the out-of-state companies and state residents was by phone and mail. I, therefore, find Judge Merhige’s reasoning persuasive and follow his lead in concluding that
[f]or due process purposes, it suffices that plaintiffs’ activities within the state produce effects within [Connecticut] — effects which the state has an interest in regulating.
Id.
The plaintiff in this case contacts an average of approximately 3,000 Connecticut debtors annually. The plaintiff stipulated at the administrative hearing before the state agency that his company contacts Connecticut debtors regularly and with some frequency. Such regular conduct of business within Connecticut produces substantial local effects.
See
IV. CONCLUSION
For the reasons stated above, I hereby grant the defendant’s motion for summary judgment and dismiss the case. It is
SO ORDERED.
Notes
.
No creditor shall retain, hire, or engage the services or continue to retain or engage the services of any person who engages in the business of a consumer collection agency and who is not licensed to act as such by the commissioner, if such creditor has actual knowledge that such person is not licensed by the commissioner to act as a consumer collection agency.
. Enforcement of the Banking Commissioner’s order has been temporarily enjoined by a temporary restraining order entered by this court on April 12, 1982.
“The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”
. The federal Fair Debt Collection Practices Act,
. See page 886 supra.
. Where Congress has specifically endorsed state regulation, it is possible to conclude that a court need not weigh the state’s local interest against the burden on interstate commerce since, in effect, Congress has already done so.
Aldens, Inc. v. Packel,
524 F.2d 38, 50 (3d Cir. 1975), cert.
denied sub nom. Aldens v. Kane,
425 U.S. 943, 96 S.Ct. 1684, 48 L.Ed.2d 187 (1976). The Supreme Court, however, has indicated that a standard non-preemption clause, such as