Alliance of Auto. Mfrs. v. Hull

• Citation: 137 F.Supp.2d 1165
• Decision Date: 30 March 2001
• Docket Number: No. CIV 00-1324-PHX-PGR.,CIV 00-1324-PHX-PGR.
• Parties: ALLIANCE OF AUTOMOBILE MANUFACTURERS, et al., Plaintiffs, v. Jane HULL, et al., Defendants.
• Court: U.S. District Court — District of Arizona

137 F.Supp.2d 1165

ALLIANCE OF AUTOMOBILE MANUFACTURERS, et al., Plaintiffs, v. Jane HULL, et al., Defendants.

No. CIV 00-1324-PHX-PGR.

United States District Court, D. Arizona.

March 30, 2001.

COPYRIGHT MATERIAL OMITTED

Daniel Joseph McAuliffe, Matthew Paul Fischer, III, Snell & Wilmer LLP, Phoenix, AZ, Theodore B. Olson, Marjorie E. Lewis, Theodore J. Boutrous, Jr., Douglas R. Cox, Gibson Dunn & Crutcher LLP, Los Angeles, CA, Thomas H. Dupree, Jr., Gibson Dunn & Crutcher LLP, Washington, DC, for Plaintiffs.

Richard R. Hubbard, Lisa Daniel Flores, Office of Governor, Paul Arthur Bullis, Nancy M. Bonnell, Office of the Attorney General, Timothy Andrew Nelson, Paul Arthur Bullis, Nancy M. Bonnell, Office of the Attorney General, Scot C. Stirling, George Ian Brandon, Sr., Peter Shawn Kozinets, Steptoe & Johnson LLP Phoenix, AZ, Charles G. Cole, Shannen W. Coffin, Steptoe & Johnson LLP, Washington, DC, for Defendants.

ORDER

ROSENBLATT, District Judge.

This case involves a challenge to the constitutionality of Arizona House Bill 2101, codified as ARIZ.REV.STAT. § 28-4460. Plaintiffs are the Alliance of Automobile Manufacturers and the Association of International Automobile Manufacturers (hereinafter collectively referred to as "the manufacturers" or "plaintiffs"), two nonprofit trade associations whose members manufacture and distribute motor vehicles. Members of these organizations include several of the world's largest automobile manufacturers, some of whom have filed declarations in support of plaintiffs' motion¹.

Defendants are Jane Dee Hull, Governor of Arizona; Janet Napolitano, Attorney General of Arizona; and Mary Peters, Director of the Arizona Department of Transportation. The Court permitted the Arizona Automobile Dealers' Association ("AADA") to intervene as a party-defendant on August 7, 2000. Additionally, the National Automobile Dealers Association ("NADA") filed an amicus curiae brief with the permission of the Court in support of the statute's constitutionality.

Plaintiffs filed their complaint on July 12, 2000 seeking declaratory and permanent injunctive relief and simultaneously filed a Motion for Preliminary Injunction ("Motion"). On August 23, 2000, NADA, as amicus curiae, and defendants, including the AADA as intervenor, filed a total of four briefs including exhibits, affidavits and declarations in opposition to plaintiffs' Motion. On September 26, 2000, plaintiffs filed their Reply in support of the Motion. Oral argument was held on March 5, 2001 and the Court took the matter under advisement.

The present statute is not an entirely new proposition. Arizona has regulated the automobile industry and the relationship between manufacturers and dealers for several years. Title 28 regulates the automobile manufacturers' business transactions in this State, preventing the manufacturers from competing with their dealer franchisees. See A.R.S. § 28-4333(A) and § 28-4334(A). Such franchise laws keep the disparity of power between manufacturers and dealers in check. Similar regulations exist in nearly every State. See generally, New Motor Vehicle Board of California v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978) (recognizing State interest in regulating dealer-manufacturer relationship); Tober Foreign Motors, Inc. v. Reiter Oldsmobile, Inc., 376 Mass. 313, 381 N.E.2d 908 (1978) (explaining rationale behind State regulation of dealer-manufacturer relationship).

The statute at issue, A.R.S. § 28-4460, is an addition to the existing regulatory scheme of the manufacturer-dealer relationship. It is designed to further protect independent dealerships from manufacturers who have a significant position of power as the provider of all dealer product and the overseer of all financial information. The Arizona Legislature has determined that consumers are best served by independent licensed automobile dealers.

Historically, aside from the direct sale of vehicles, manufacturers have been permitted to conduct other lines of business in the automobile industry, such as providing financing, aftermarket accessories, extended warranties and emergency road service. Here, the contested statute curtails those ancillary activities. Generally, the instant statute forbids manufacturers from owning or operating a dealership in this State, or from directly selling vehicles, parts, services, financing, or accessories directly to customers in this State. It also precludes manufacturers from dictating prices or otherwise discriminating against the dealerships.

Plaintiffs allege various provisions of A.R.S. § 28-4460 violate the United States Constitution and the Arizona constitution; specifically, the Commerce, Due Process, First Amendment Free Speech, Equal Protection, Fifth Amendment Takings and Supremacy clauses. Plaintiffs contend that the statute "as a whole" as well as each section standing alone violates the aforementioned constitutional provisions.

Because the constitutional claims allegedly impact the parties in a variety of different ways and have varying degrees of strength on the merits, the Court will address each provision of the statute separately with regard to the applicable standard for injunctive relief. Those claims raising the most significant constitutional questions will be dealt with first. All other constitutional claims not discussed at length in this order need not be reviewed.

DISCUSSION

I. Preliminary Issues

A. Article III

Defendants Napolitano and Peters, in their Opposition to Motion for Preliminary Injunction, briefly raise an Article III "case or controversy" challenge to the manufacturers' complaint. Under Article III of the Constitution, a federal court lacks jurisdiction unless the plaintiffs present an actual "case or controversy." Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 82 L.Ed.2d 556 (1984). To satisfy this requirement, plaintiffs must have, inter alia, standing. See American-Arab Anti-Discrimination Comm. v. Thornburgh, 970 F.2d 501, 506 (9th Cir.1991).

A violation of § 28-4460 by a manufacturer carries with it the threat of criminal sanctions. See A.R.S. § 28-4591. In order to challenge the constitutionality of § 28-4460, it is not necessary that the manufacturers first expose themselves to "actual arrest or prosecution" in order to establish standing. Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 298, 99 S.Ct. 2301, 60 L.Ed.2d 895 (1979), quoting Steffel v. Thompson, 415 U.S. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974). Rather, to establish "a dispute susceptible to resolution by a federal court," plaintiffs must allege that they have been "threatened with prosecution, that a prosecution is likely, or even that a prosecution is remotely possible." Babbitt, 442 U.S. at 299, 99 S.Ct. at 2309, quoting Younger v. Harris, 401 U.S. 37, 42, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971); see also Ecological Rights Found. v. Pacific Lumber Co., 230 F.3d 1141 (9th Cir.2000) (explaining standing requirements for organizations on behalf of their members).

In the instant matter, plaintiffs have sufficiently alleged the manufacturers are engaging in conduct which may be prohibited under § 28-4460 to satisfy the Article III "case or controversy" requirement.

B. Presumption that Statute is Constitutional

The Court must interpret a state statute in a way that renders it constitutional with any uncertainties being resolved in favor of constitutionality. In re Aircrash in Bali, 684 F.2d 1301 (9th Cir.1982), Anderson v. Mullaney, 191 F.2d 123, 135 (9th Cir.1951), KZPZ Broadcasting, Inc. v. Black Canyon City Concerned Citizens, 13 P.3d 772 (Ariz.App.2000); State v. Gilfillan, 196 Ariz. 396, 998 P.2d 1069 (2000). The issue of the statute's constitutionality is before the Court for the purpose of determining whether injunctive relief is warranted. The party alleging a statute's unconstitutionality bears the burden of persuasion. Jackson v. Tangreen, 18 P.3d 100 (2000).

C. Severability

To avoid future confusion over interpretation of this law, the Court finds a severability clause present in this statute. What is currently codified in the Arizona Revised Statutes as § 28-4460 is in fact "Section 5" of H.B. 2101 as signed by the Governor. H.B. 2101 contained several pieces of legislation in addition to "Section 5" or § 28-4460. One of those components was "Section 6," which is a severability clause applicable to every other section of H.B. 2101, including "Section 5" or § 28-4460.

Because H.B. 2101 contains no provision for specifically codifying Section 6 in the Arizona Revised Statutes, however, the severability clause does not appear anywhere in the statute and can only be found by examining the original session law. For the Court's purposes, it suffices that it was signed by the Governor.

Due to the existence of a severability clause, plaintiffs must meet their burden for injunctive relief on each provision and the Court must analyze each provision of this statute separately. Plaintiffs are not entitled to an order enjoining the State from enforcing the statute in its entirety merely by demonstrating a need for such relief based on a single application of one subsection.

II. Motion for Preliminary Injunction

To obtain a preliminary injunction in the Ninth Circuit, the moving parties must show:

"...either (1) a combination of probable success on the merits and the possibility of irreparable injury, or (2) that serious questions are raised and the balance of hardships tips sharply in its favor. These formulations are not different tests but represent two points on a sliding scale in which the degree of irreparable harm increases as the probability of success on the merits decreases."

Big Country Foods, Inc. v. Board of Educ., 868 F.2d 1085, 1088 (9th Cir.1989).

A. § 28-4460(B)(3): Influencing and Controlling Provision and the First Amendment

The essence of plaintiffs' First Amendment challenge is that the operative effect of subsections (...