NAT. ASS'N OF FUNDRAISING TICKET MFRS. v. Humphrey

• Decision Date: 27 December 1990
• Docket Number: No. Civ. 4-90-770.,Civ. 4-90-770.
• Citation: 753 F. Supp. 1465
• Parties: NATIONAL ASSOCIATION OF FUNDRAISING TICKET MANUFACTURERS; American Games, Inc.; Bonanza Press, Inc.; Bingo King Company, Inc.; Ace Novelty Co., Inc.; Arrow International, Inc.; Douglas Press, Inc.; International Gamco, Inc.; Trade Products, Inc.; Universal Manufacturing Co., Inc.; World Wide Press, Inc., Plaintiffs, v. Hubert H. HUMPHREY, III, in his official capacity as Attorney General of Minnesota; Anthony Bouza, in his official capacity as Commissioner of Gaming of the State of Minnesota; Sally Howard, Robert Fragnito, Barbara Grove, Raymond Joachim, Anthony Thomas, Sr., and Nicholas Zuber, in their official capacities as members of the Gambling Control Board; and Thomas Anzelc, in his official capacity as Director of the Division of Gambling Control, Defendants.
• Court: U.S. District Court — District of Minnesota

753 F. Supp. 1465

NATIONAL ASSOCIATION OF FUNDRAISING TICKET MANUFACTURERS; American Games, Inc.; Bonanza Press, Inc.; Bingo King Company, Inc.; Ace Novelty Co., Inc.; Arrow International, Inc.; Douglas Press, Inc.; International Gamco, Inc.; Trade Products, Inc.; Universal Manufacturing Co., Inc.; World Wide Press, Inc., Plaintiffs, v. Hubert H. HUMPHREY, III, in his official capacity as Attorney General of Minnesota; Anthony Bouza, in his official capacity as Commissioner of Gaming of the State of Minnesota; Sally Howard, Robert Fragnito, Barbara Grove, Raymond Joachim, Anthony Thomas, Sr., and Nicholas Zuber, in their official capacities as members of the Gambling Control Board; and Thomas Anzelc, in his official capacity as Director of the Division of Gambling Control, Defendants.

No. Civ. 4-90-770.

United States District Court, D. Minnesota, Fourth Division.

December 27, 1990.

Richard A. Kaplan, John M. Baker, Popham, Haik, Schnobrich, & Kaufman, Ltd., Fred L. Morrison, Minneapolis, Minn., for plaintiffs.

Hubert H. Humphrey, Atty. Gen., and Jocelyn F. Olson, Asst. Atty. Gen., St. Paul, Minn., for defendants.

MEMORANDUM AND ORDER

MacLAUGHLIN, District Judge.

This matter is before the Court on cross motions for summary judgment. Each of the motions will be granted in part and denied in part.

FACTS

This is an action to declare unconstitutional certain 1990 amendments to Minnesota law governing "pull-tab" gambling in the state of Minnesota. Effective July 1, 1992, all pull-tab tickets sold in Minnesota must be manufactured in Minnesota. Minn.Stat. § 349.163, subd. 3(b). Also, pursuant to these amendments, effective January 1, 1991 through June 30, 1992 all pull-tabs used in Minnesota must bear a distinguishing mark, "For Sale in Minnesota Only." Minn.Stat. § 349.163, subd. 3(a)(3); Minn.Stat. § 349.162, subd. 1(b). Further, effective July 1, 1992, the pull-tab must read "Manufactured in Minnesota For Sale in Minnesota Only." Minn.Stat. §§ 349.163, subd. 3(a)(4); 349.162, subd. 1(c). A separate amendment provides that a distributor or organization may return to a manufacturer any gambling equipment determined to have been manufactured or labeled in violation of any law or rule. Minn.Stat. § 349.162, subd. 6.¹

Plaintiffs contend that the manufacturing and labeling requirements erect unconstitutional trade barriers against interstate commerce and that the return requirement constitutes an unconstitutional impairment of manufacturers' contractual obligations. These issues will be discussed below.

DISCUSSION

I. Whether the Manufacturing and Labeling Amendments Violate the Commerce Clause of the United States Constitution

Article I, Section 8, Clause 3 of the Constitution grants Congress the power "to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes." The Supreme Court has long recognized that the clause not only bestows powers upon Congress to regulate interstate commerce, but also limits the powers of the states to "erect barriers against interstate trade." Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 35, 100 S.Ct. 2009, 2015, 64 L.Ed.2d 702 (1980). The Commerce Clause limitation on state regulatory power, however, is not "absolute." Id. at 36, 100 S.Ct. at 2015. Notwithstanding the limitations of the clause, the states "retain authority under their general police powers to regulate matters of `legitimate local concern,' even though interstate commerce may be affected." Id.

In scrutinizing state regulations under the Commerce Clause, courts inquire whether the regulations have only an "incidental" effect on interstate transactions, or whether they "affirmatively discriminate" against such transactions. Maine v. Taylor, 477 U.S. 131, 106 S.Ct. 2440, 2447-48, 91 L.Ed.2d 110 (1986). Statutes which regulate "even-handedly" and which have only incidental effect on interstate commerce violate the clause only if the burdens they impose on interstate trade are "clearly excessive in relation to the putative local benefits." Id., 106 S.Ct. at 2448, citing Pike v. Bruce Church, Inc., 397 U.S. 137, 141, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970). In such cases the extent of the burden which the Commerce Clause will accept depends on the nature of the local interest, and whether that interest can "be promoted as well with a lesser impact on interstate activities." Pike, 397 U.S. at 142, 90 S.Ct. at 847. This relatively deferential review has been labeled the "Pike analysis."

Statutes which affirmatively discriminate against interstate transactions, however, are subject to stricter scrutiny. Id. Such laws are invalid unless the state demonstrates both that the statute (1) serves a legitimate local purpose, and (2) that this purpose could not be served adequately by available non-discriminatory means. Maine v. Taylor, 106 S.Ct. at 2455.² This test was set forth by the Supreme Court in Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct. 1727, 1736, 60 L.Ed.2d 250 (1979), and has been referred to as the "Hughes test." The Court has explained the difference between the two levels of review as follows:

The opinions of the Supreme Court through the years have reflected an alertness to the evils of "economic isolation" and protectionism, while at the same time recognizing that incidental burdens on interstate commerce may be unavoidable when a state legislates to safeguard the health and safety of its people. Thus, where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected.... The clearest example of such legislation is a law that overtly blocks the flow of interstate commerce at a state's borders .... But where other legislative objectives are credibly advanced and there is no patent discrimination against interstate trade, the Court has adopted a much more flexible approach, the general contours of which were outlined in Pike v. Bruce Church, Inc.....

Philadelphia v. New Jersey, 437 U.S. 617, 623-24, 98 S.Ct. 2531, 2535-36, 57 L.Ed.2d 475 (1978) (citations omitted). The Supreme Court has observed that statutes which directly regulate or discriminate against interstate commerce, or whose effect is to favor in-state economic interests over out-of-state interests, have been generally struck down "without further inquiry." Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573, 106 S.Ct. 2080, 2084, 90 L.Ed.2d 552 (1986). See Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978) (New Jersey statute prohibiting importation of waste originating or collected outside the state struck down under Commerce Clause); Shafer v. Farmers Grain Co., 268 U.S. 189, 45 S.Ct. 481, 69 L.Ed. 909 (1925) (state regulatory scheme which had the effect of regulating interstate commerce in grain purchasing barred by Commerce Clause); Edgar v. MITE Corp., 457 U.S. 624, 102 S.Ct. 2629, 2641, 73 L.Ed.2d 269 (1982) (Illinois anti-takeover act violated Commerce Clause where it sought to regulate securities transactions having no connection with state, finding that "the Commerce Clause ... precludes the application of a state statute to commerce that takes place wholly outside of the state's borders, whether or not the commerce has effects within the state"); Southern Pac. Co. v. Arizona, 325 U.S. 761, 775, 65 S.Ct. 1515, 1523, 89 L.Ed. 1915 (1945) (state law struck down where the "practical effect of such regulation is to control conduct beyond the boundaries of the state ..."); Healy v. Beer Institute, Inc., 491 U.S. 324, 109 S.Ct. 2491, 2501, 105 L.Ed.2d 275 (1989) (holding Connecticut's beer price affirmation statute violative of Commerce Clause, noting that the Supreme Court has "followed a consistent practice of striking down state statutes that clearly discriminate against interstate commerce ... unless that discrimination is demonstrably justified by a valid factor unrelated to economic protectionism" (citations omitted)); Lewis v. BT Inv. Managers, Inc., 447 U.S. 27, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980) (Florida statute prohibiting out-of-state banks and others from owning or controlling Florida investment advisory businesses, and another statute prohibiting certain out-of-state corporations from performing certain trust and fiduciary functions, violative of Commerce Clause); New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 108 S.Ct. 1803, 1811, 100 L.Ed.2d 302 (1988) (Ohio statute awarding tax credit only to ethanol producers from Ohio, or from states with reciprocal credit violative of Clause — health and commerce justifications found "no more than implausible speculation, which does not suffice to validate this plain discrimination against products of out-of-state manufacture"); Sporhase v. Nebraska, 458 U.S. 941, 102 S.Ct. 3456, 73 L.Ed.2d 1254 (1982) (state ban on transportation of Nebraska ground water to Colorado which forbids exportation of its ground water violative of Commerce Clause because restriction not "narrowly tailored" to legitimate goal of conservation or preservation of resources where state demonstrated no evidence of water shortage).³

A. Whether the Requirement That Pull-Tabs Be Manufactured in Minnesota Violates the Commerce Clause

Defendants concede that because the requirement that the pull-tabs be made in Minnesota (hereafter "the manufacturing requirement") affirmatively discriminates against interstate commerce, it is subject to the strict scrutiny set out in the Hughes test. Defendants argue, however, that the manufacturing requirement is justifiable because it serves the state's legitimate interest in ensuring the security and integrity of pull-tab gambling by allowing Minnesota regulators to closely monitor manufacturing processes and industry practices, an interest which defendants contend could not be as well served if pull-tabs were allowed to be manufactured in other states. According to defendants, there are currently twenty Minnesota...