Aldens, Inc. v. Miller

• Decision Date: 05 March 1979
• Docket Number: No. 74-182-2.,74-182-2.
• Citation: 466 F. Supp. 379
• Parties: ALDENS, INC., an Illinois Corporation, Plaintiff, v. Thomas J. MILLER, as Attorney General of the State of Iowa, and as Administrator of the Iowa Consumer Credit Code, Senate File 1405, 65th General Assembly, 1974, Defendant.
• Court: U.S. District Court — Southern District of Iowa

466 F. Supp. 379

ALDENS, INC., an Illinois Corporation, Plaintiff, v. Thomas J. MILLER, as Attorney General of the State of Iowa, and as Administrator of the Iowa Consumer Credit Code, Senate File 1405, 65th General Assembly, 1974, Defendant.

No. 74-182-2.

United States District Court, S. D. Iowa, Central Division.

March 5, 1979.

B. A. Webster and John G. Fletcher of Gamble, Riepe, Burt, Webster & Fletcher, Des Moines, Iowa, for plaintiff.

Julian B. Garrett and Kathryn Graf, Asst. Attys. Gen., State of Iowa, Des Moines, Iowa, for defendant.

MEMORANDUM AND ORDER

HANSON, Senior District Judge.

Plaintiff Aldens, Inc. (herein Aldens) filed a complaint on July 12, 1974, seeking a declaratory judgment that certain provisions of the Iowa Consumer Credit Code (now Chapter 537 of the Code of Iowa) were unconstitutional as violative of the Commerce Clause of the Fourteenth Amendment. The defendant, the Attorney General of the State of Iowa, as Administrator of the Iowa Consumer Credit Code, filed a motion to dismiss on September 30, 1975, urging the Court to invoke the "abstention doctrine" in light of a state action filed September 29, 1975 by the defendant to enjoin the plaintiff from assessing, collecting, or receiving a finance charge in excess of that provided in Chapter 537. The Court denied the defendant's motion in an order dated November 4, 1975, as the issue before the Court involved the constitutionality of Chapter 537 and not its possible state court construction.

Because the amount in controversy exceeds the sum of $10,000 and the action involves the validity of a state statute under the Constitution, the Court finds it has jurisdiction pursuant to 28 U.S.C. § 1331(a).

The complaint seeks a declaration of the rights of parties pursuant to the authority granted under 28 U.S.C. § 2201 and Rule 57, F.R.Civ.P. Accordingly, the Court finds that the complaint may be brought as a declaratory judgment action in that an actual controversy exists between the parties.

This cause of action came on for trial before the Court on March 22, 1978. There were no significant facts in dispute as a stipulation was agreed to by the parties, and the Court now enters its findings and conclusions in accordance with Rule 52, F.R. Civ.P.

FINDINGS OF FACT

Aldens is a general retail merchandise business located in Chicago, Illinois, and sells its goods solely by mail order to purchasers who reside in all fifty states, including, Iowa. Aldens does not have any office, distribution house, sales house, warehouse, or any other place of business in Iowa nor does the company advertise its merchandise for sale in Iowa newspapers, on billboards in Iowa, or by placing advertisements with Iowa radio or television stations. There is no telephone listing for the company in the state. No agent, salesman, canvasser, solicitor, or any other type of representative exists in Iowa to sell or take orders, to deliver or service the merchandise sold by Aldens. The company does not own any real or personal property in Iowa.

Aldens mails catalogs to certain Iowa residents approximately four times per year, supplementing these with "flyers" approximately six to eight times per year. Included in the catalogs are application forms for credit accounts with Aldens, and, upon completion of the forms, Iowa residents mail them to the plaintiff's Chicago headquarters, the only office which can extend credit to purchasers. The credit agreement used by Aldens states that it is an Illinois contract governed by Illinois law, and provides for a monthly finance charge of 1.75 percent on the portion of the average daily balance of the customer's account on amounts of $350 or less for an annual rate of 21 percent, and a monthly finance charge of one percent on that portion of such balance in excess of $350 for an annual rate of 12 percent. These rates are in conformance with Regulation Z promulgated by the Federal Reserve Board under the Federal Truth-in-Lending Act, 12 C.F.R. § 226.7 (1978), and are also in compliance with Illinois law. Albeit, the rates are not similarly in compliance with Chapter 537,¹ which limits the finance charge on consumer credit sales to a maximum of 1.5 percent per month on the first $500 of a customer's account, for an annual rate of 18 percent.²

Merchandise sold to Iowa purchasers is delivered on an f. o. b. point of origin basis to those customers by deposit in the United States mail, delivery to a common carrier in Chicago, or by shipment from some point outside the State of Iowa. On credit sales Aldens pays the shipping, handling, and transportation costs, and then bills the customer for those charges.

Aldens retains only a purchase money security interest in any merchandise sold pursuant to the credit agreement with its purchasers. The purpose of this provision of the credit agreement is to conform to Aldens' accounting practices and to inform purchasers that the company has such a security interest to the extent of the unpaid balance of the merchandise. Aldens does not file any financing statements or other interest documents with the State of Iowa, nor does the company enforce any security interest in such merchandise. Aldens has a security interest in unpaid-for merchandise only to the extent provided by law. In the past, however, Aldens has employed Iowa collection agencies to collect bad debts in the event an Iowa customer failed to make at least a $5 payment on his account in the six-month period. The company has indicated that it may or may not continue this practice after the conclusion of this litigation.

Aldens is not required to collect or remit Iowa sales or use taxes, or to pay any other Iowa taxes.

In 1976, approximately 1.72 percent of Aldens sales were made to Iowa purchasers and approximately 1.42 percent of this amount was derived from credit sales. The number of Aldens active credit accounts in Iowa for 1976 totalled approximately 20,200 and the average credit account balance equalled approximately $178.22.

CONCLUSIONS OF LAW

Similar issues and contentions of the parties before the Court have been examined by the Third Circuit in Aldens, Inc. v. Packel, 524 F.2d 38 (3d Cir. 1975), cert. denied, 425 U.S. 943, 96 S.Ct. 1684, 48 L.Ed.2d 187 (1976); the Seventh Circuit in Aldens, Inc. v. LaFollette, 552 F.2d 745 (7th Cir. 1977), cert. denied, 434 U.S. 880, 98 S.Ct. 236, 54 L.Ed.2d 161 (1977), and the Tenth Circuit in Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir. 1978), cert. denied, ___ U.S. ___, 99 S.Ct. 180, 58 L.Ed.2d 169 (1978). In each case the court resolved the issue adversely to the constitutional claims of Aldens. The Court arrives at the same conclusion as did those three courts and therefore dismisses the plaintiff's cause of action.

A. Commerce Clause

The plaintiff sets forth a two-pronged attack against the provisions in Chapter 537: one, that the State of Iowa lacks the power to regulate Aldens' purely interstate sales; and, two, that Iowa's regulation of Aldens' interstate sales constitutes an undue burden on interstate commerce.

The Packel court articulated a number of categories under which state regulations could be subject to invalidation through the commerce clause³ and then upheld the provisions of the Pennsylvania Goods and Services Installment Sales Act, 69 P.S. §§ 1101-2303 (Supp.1975) as they related to Aldens' transactions with Pennsylvania residents, as Aldens' situation did not fall within the purview of any category. Aldens maintains, however, that Allenberg Cotton Co. v. Pittman, 419 U.S. 20, 95 S.Ct. 260, 42 L.Ed.2d 195 (1974), National Bellas Hess, Inc. v. Department of Revenue, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967) and Eli Lilly & Co. v. Sav-On-Drugs, Inc., 366 U.S. 276, 81 S.Ct. 1316, 6 L.Ed.2d 288 (1961) have carved out another commerce clause basis for invalidating state regulations. The underpinning of plaintiff's premise is that the commerce clause prohibits a state from regulating purely interstate sales to its residents, viz., when the foreign seller engages in no local activity in the regulating state. Since the transactions between the company and Iowa residents are said to have no intrastate aspects whatsoever, Aldens argues the operation of Chapter 537 "can only fall directly and impermissibly on interstate commerce itself." Brief for plaintiff at 5. In this regard the Court "need only make a threshold determination that the regulating state is without the power to impose its will on interstate business activity." Brief for plaintiff at 11. This "per se" approach to limitations on the exercise of state power under the commerce clause, however, is without merit, and has been invariably rejected. As the Tenth Circuit observed:

Physical presence of Aldens in Oklahoma is not required to subject its credit rates to state regulation in transactions with Oklahoma residents . . .. The states can, of course, pass Acts which affect commerce unless the burden so imposed greatly exceeds the extent of local benefits. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326; Great Atlantic & Pacific Tea Co., Inc. v. Cottrel, 424 U.S. 366, 96 S.Ct. 923, 47 L.Ed.2d 55; Head v. New Mexico Board, 374 U.S. 424, 83 S.Ct. 1759, 10 L.Ed.2d 983.

Aldens, Inc. v. Ryan, supra at 1161.

Aldens' reliance on National Bellas Hess as controlling the outcome of the present case is misplaced. It is now well-settled that National Bellas Hess is considered in the same vein as a tax case,⁴ which summons different constitutional considerations for a court than a case which involves the constitutionality of a state's regulatory measures.⁵National Geographic Society v. California Board of Equalization, 430 U.S. 551, 97 S.Ct. 1386, 51 L.Ed.2d 631 (1977); Aldens, Inc. v. LaFollette, supra at 752-753; Aldens, Inc. v. Packel, supra at 49; Confederated Tribes of Colville v. State of Washington, 446 F.Supp. 1339 (E.D.Wash.1978). National Bellas Hess merely...