Aldens, Inc. v. LaFollette
| Decision Date | 25 April 1977 |
| Docket Number | No. 76-1396,76-1396 |
| Citation | 552 F.2d 745 |
| Parties | ALDENS, INC., Plaintiff-Appellant, v. Bronson C. LaFOLLETTE, Individually and as Attorney General for the State of Wisconsin, and Erich Mildenberg, Individually and as Commissioner of Banking, State of Wisconsin, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Donald L. Heaney, Madison, Wis., for plaintiff-appellant.
Bronson C. LaFollette, Atty. Gen., James D. Jeffries, Asst. Atty. Gen., Madison, Wis., for defendants-appellees.
Before CUMMINGS and TONE, Circuit Judges, and CAMPBELL, Senior District Judge. *
Plaintiff is an Illinois corporation engaged in the business of selling merchandise by mail order. In the court below, plaintiff sought a declaratory judgment that Wisconsin could not constitutionally regulate its revolving charge account plan and agreements and transactions thereunder. In particular, plaintiff asserted that the application to Aldens of the Wisconsin Consumer Act (Wis.Stats. Title XL, Chaps. 421-427; W.S.A. 421-427) 1 should be declared unconstitutional under the Commerce Clause of Article I, § 8, and the Due Process Clause of the Fourteenth Amendment. 2
A stipulation of facts and an affidavit of the Administrator of the Division of Consumer Credit of the Office of the Commissioner of Banking of Wisconsin were filed in the district court, and both parties filed motions for summary judgment. In March 1976, the district court handed down an unreported opinion and order granting summary judgment to the defendants.
The Wisconsin Consumer Act was designed to protect its residents from abuses in credit transactions. W.S.A. 421.102(2). One section of the Act provides that 18% per annum should be the maximum permissible finance charge for extension of credit under open-end credit plans such as Aldens offers. 3 This ceiling was established to prevent overreaching and was made applicable to all credit grantors competing in the Wisconsin market. The Act applies to transactions involving Wisconsin consumers and open-end creditors who mail or deliver goods, services or credit to a Wisconsin resident while the customer is within that state. In short, the Consumer Act applies to out-of-state firms that conduct business by mail with Wisconsin residents within Wisconsin. 4 There are no federal laws or regulations for a retailer's maximum finance or penalty charges.
In its opinion granting summary judgment to defendants, the district court set out the salient facts as follows: The two defendants are the Attorney General of Wisconsin and its Commissioner of Banking. They are responsible for the enforcement of the Wisconsin Consumer Act. Plaintiff, an Illinois corporation, has conducted a general retail merchandise mail order business from Chicago, Illinois, since 1902 and sells merchandise to customers in all fifty states. The buyer pays the transportation costs.
Aldens' only physical presence is in Chicago. It has no Wisconsin office or other place of business and has no representative or tangible property there. Aldens does not advertise in the Wisconsin media and has no Wisconsin telephone listing although a toll-free Illinois number is provided to its customers. Indeed, Aldens is not required to collect and remit the Wisconsin use tax.
Aldens mails catalogs to Wisconsin residents four times a year and also mails them supplemental advertisements six to eight times a year. In the spring of 1973, it solicited approximately 350,000 Wisconsin residents by mailing them catalogs and "flyers." Aldens' active Wisconsin customer list contains 65,000 names and its inactive customer list sets forth another 9,000.
The credit application forms for credit accounts and credit agreement forms are mailed by Aldens to Wisconsin residents. These forms and agreements are signed by Wisconsin residents in that state and are mailed from there to Aldens in Illinois. Aldens then determines the credit worthiness of the Wisconsin customer through a procedure that sometimes includes phoning Wisconsin credit bureaus. Aldens rejects about 40% of all its new credit applications and 6% of all orders received from current credit customers. Credit is granted only in Chicago and orders are only accepted there.
Aldens' sales to Wisconsin customers average $4,600,000 per year, with 73% of this amount derived from credit sales. Aldens has approximately 23,000 Wisconsin credit customers with an average credit account balance of $164.81. 2.34% of its annual sales are made to Wisconsin customers. It is probable that sales to, as well as the number of, Wisconsin customers will increase.
Aldens retains a purchase money security interest in merchandise sold pursuant to the credit agreements with its customers. However, it files no financing statement or security agreement and does not enforce this security interest. Merchandise sold by Aldens to Wisconsin customers is sent to them by mail or common carrier from Chicago or by shipment from some other place outside Wisconsin. Aldens mails its monthly statements in Chicago to its Wisconsin credit customers following their purchases of merchandise. These statements set forth the charges to the customer's account and require payment by a stated date to avoid the assessment of finance charges. All monthly payments for merchandise purchased and finance charges assessed are mailed in Wisconsin to Aldens in Chicago by its Wisconsin customers. If a Wisconsin customer becomes delinquent in paying his account, Aldens attempts to collect it through letters and other communications mailed from Chicago to the customer in Wisconsin and sometimes by telephone from Chicago to the Wisconsin customer. If an account has been delinquent for six months, Aldens writes it off as a bad debt. It turns over half of the Wisconsin written-off accounts to Illinois or Minnesota independent collection agencies for collection.
Aldens' National Credit Agreement provides that it is an Illinois contract permitted by Illinois law and specifies a monthly finance charge at the annual percentage rate of 21%, in excess of the 18% permitted by W.S.A. 422.201. 5 The credit agreement is valid under Illinois law and the Federal Truth in Lending Act (15 U.S.C. §§ 1601-1665).
In presently complying with the Wisconsin Consumer Act, Aldens incurs the following annual costs, expenses and revenue losses:
a. Additional cost of preparing catalogs and advertising materials containing Wisconsin credit terms
b. Special computer processing and handling costs for Wisconsin customers in setting up accounts and producing monthly billing statements
c. Loss of revenue on elimination of minimum charges
d. Loss of revenue on account of Wisconsin finance charge rate
TOTAL $163,900
Aldens maintains, in short, that it is the quintessential interstate trader with no objective manifestation of itself extant within Wisconsin. Therefore Aldens argues that the Due Process Clause of the Fourteenth Amendment and the Commerce Clause positively deny Wisconsin the power to regulate its operations. Moreover, even if power to regulate Aldens exists, Aldens argues that federalist considerations prevent its exercise here. We shall consider these constitutional arguments in reverse order.
The federalist argument appeals to a pair of hoary constitutional doctrines. The argument's first branch calls on the Commerce Clause cases which invalidate state regulation of a trader in interstate commerce if his regulation together with that of other traders similarly situated would place an undue burden upon interstate commerce. Its second prong draws on the line of cases which recognize a due process limitation on the extraterritorial exercise of a state's legislative power. If we were presented with these interest-balancing-based arguments as applied to Aldens on first impression, their resolution would not be a trivial matter. 6 However, prior cases involving Aldens make any independent exegesis on our part totally pointless.
Before this case was decided by Judge Doyle, a companion case was filed by Aldens seeking a declaratory judgment that the similar Pennsylvania Goods and Services Installments Sales Act was unconstitutional as applied to Aldens. However, its Commerce Clause and Due Process arguments were rejected. Aldens, Inc. v. Packel, 379 F.Supp. 521 (M.D.Pa.1974). A year later, the Court of Appeals for the Third Circuit affirmed (524 F.2d 38), and certiorari was subsequently denied. 425 U.S. 943, 96 S.Ct. 1684, 48 L.Ed.2d 187. Judge Gibbons' well-considered opinion for the Third Circuit thoroughly discusses the balancing issues raised on appeal before us. We fully agree with his disposition and adopt his opinion as our own. 7
Subsequent to the decision below, the United States District Court for the Western District of Oklahoma filed a memorandum opinion that comparable provisions of the Oklahoma statutes do not violate the Commerce or Due Process Clauses. Aldens, Inc. v. Ryan, No. CIV-75-0458-D, decided June 14, 1976. An appeal is now pending before the Tenth Circuit. We are also in accord with District Judge Daughtery's reasoning.
The relevant post-Packel Supreme Court Commerce Clause opinions which invalidate state legislation as unduly burdensome on interstate commerce are fully consistent with our result on the balancing issue. Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U.S. 366, 370-372, 96 S.Ct. 923, 47 L.Ed.2d 55 and n. 6 reaffirms the Pike v. Bruce Church, Inc. 8 rule that state regulations involving a legitimate local interest are not invalid because they affect interstate commerce unless the burden on such commerce is, on balance, clearly excessive in relation to the local benefits. Dixie Dairy Co. v. City of Chicago, 538 F.2d 1303 (7th Cir. 1976). A balancing inquiry reveals no such burden here. See Aldens, Inc. v....
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