Petition — Aldens, Inc. v. LaFollette

fs, Supreme Oourt, u. §

FILED al

JUL 25 1977

Supreme Court of the United States

October Term, 1977.

No. 77-1366

ALDENS, INC.,

Petitioner,

v.

BRONSON C. LaFOLLETTE, Individually and as Attorney Gen-

eral for the State of Wisconsin, and ERICH MILDENBERG,

Individually, and as Commissioner of Banking for the State

of Wisconsin,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT.

BERNARD G. SEGAL,

RALPH S. SNYDER,

James D. CrawForp,

Attorneys for Petitioner.

SCHNADER, HARRISON, SEGAL

& LEwis,

1719 Packard Building,

Philadelphia, Pennsylvania. 19102

Dona.p L. HEANEYy,

IsAKSEN, WERNER, LATHROP

& HEANEY,

122 West Washington Avenue,

Madison, Wisconsin. 53703

RAYMOND N. FRIEDLANDER,

5000 W. Roosevelt Road,

Chicago, Illinois. 60607

Of Counsel.

International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711

Page

SE SED -cediccnetvunshecavéscdnkactdscasuponbias 2

EE So cb icdbec sede va sdesinsadedadoonbescacenece 2

Se IED aks 6k cbeccseccacecqeyesbsadesesocnes 2

CONSTITUTIONAL PROVISIONS AND STATUTE INVOLVED ........ 3

a odd sb ub AEs Shc Aco uwncdes 4560006 dddecsned 5

eerie is eb stepatenieccsue 7

The Decision of the District Court ................+5. 10

The Decision of the Court of Appeals ................ 10

REASONS FOR GRANTING THE WRIT ..........00000eeeceeeee 13

In Upholding the Wisconsin Statute in This Case, the

Court Below Sought to Limit or Avoid This Court's

Clear Holdings That a State Lacks the Power to

Regulate an Interstate Trader Which Has No Pres-

ence in the Regulating State, Even Though That

State May Have a Substantial Interest in Controlling

the Conduct It Seeks to Regulate ................ 13

A. This Court’s Controlling Decisions............. 16

B. The Court of Appeals’ Attempt to Distinguish

This Court’s Decisions ................eec00. 19

C. The Policy Behind This Court's Decisions ...... 23

CNG is BS crbeda ed baveninedsusecdvsredeccheceses’s 26

APPENDIX:

Opinion of the District Court .............6:2eeeeeeee Al

Opinion of the Court of Appeals ...............+0005 Al6

RESETS, SSS EARS EE a A34

TABLE OF CITATIONS.

Cases: Page

Aldens, Inc. v. Packel, 524 F. 2d 38 (3d Cir. 1975), cert.

denied, 425 U. S. 943 (1976) .............00ees 5, 7, 9, 13, 19

Aldens, Inc. v. Ryan, No. CIV-75-0458-O (W. D. Okla., June

34, BOTS) (ompeed OMA: is 6 oi dea ie Cee ck ceccsicdsl g

Allenberg Cotton Co. v. Pittman, 419 U. S. 20 (1974) ..5, 6, 10, 12,

16, 18, 20, 21, 22, 23

Baldwin v. G. A. F. Seelig, Inc., 294 U. S. 511 (1935) ....... 17

Comolete Auto Transit, Inc. v. Brady, — U. S. —, 45 U. S.

=p Whe Ge CR Oe ENED haa kucckéuscgdn oo pictecss 20

Dahnke-Walker Milling Co. v. Bondurant, 257 U. S. 282

CODED: id ive dvvins COUR Giienkds sha ssSeeese 21

Eli Lilly & Co. v. Sav-On-Drugs, Inc., 366 U. S. 276 (1961)

5, 16, 21

Great Atlantic & Pacific Tea Co. v. Cottrell, 424 U. S. 366

CUE c%sc Vibe basins Kap Cian chad eee ABV dens o se 6,18

Henneford v. Silas Mason Co., 300 U. S. 577 (1937) ........ 16

Hoopeston Canning Co. v. Cullen, 318 U. S. 313 (1943) ....11,15

Huron Portland Cement Co. v. City of Detroit, 362 U. S. 440

CET: cunndh oc seen usccabebasiecaeescitanehakeed paces 10

Memphis Steam Laundry v. Stone, 342 U. S. 389 (1952) .... 17

Milk Control Board v. Eisenberg Farm Products, 306 U. S. 346

SE kouteeend os camanemnnveaih txpmeneuiecckens 17

National Bellas Hess v. Department of Revenue, 386 U. S. 753

CREE cucu Vncuoactaes 5, 6, 7, 9, 10, 12, 15, 16, 18, 19, 20, 21, 23

National Geographic Society v. California Board of Equaliza-

tion, — U. S. —, 45 U. S. L. W. 4343 (April 4, 1977) ...5, 6,7,

16, 19, 20

Robbins v. Shelby County Taxing District, 120 U. S. 489

CI Db. . 0 soh-v0004dnd te Nedeashns <apivededacethebatens 17

South Carolina State Highway Department v. Barnwell Bros.,

BD UG Bre Ce a deta piactnsdesucdvenasdascuss 10

Travelers Health Assn. v. Virginia, 339 U. S. 643 (1950) ....11,14

United States v. Aluminum Co. of America, 148 F. 2d 416 (2d 4

eee AP NER it aiges”. Looe TGS Soiosisncss 11, 14

TABLE OF CITATIONS (Continued).

Miscellaneous: Page

1 Cons. Cred. Guide (CCH) 1401-50 (1977) ................ 24

Constitution of the United States:

Asticle I, Section 8, Clause 3 ..... 0... cc ccc ccc cccees 3

Fourteenth Amendment, Section 1 ................... 3

16 C. J. S. Constitutional Law § 174, p. 889 ................ 22

Federal Truth in Lending Act, 15 U. S. C. §§ 1601-65 ........ )

Municipal Code of Chicago, § 100-29.6 ...............0005. 2A

N. Y. Gen. Bus. Law (McKinney) § 396-M(d)(i) (1975) ....... 25

U. S. Bureau of the Census, Statistical Abstract of the United

I ae ie cea ed ko, i, iulesiens dives 5

Wisconsin Consumer Act, Wis. Stats., Title XL, Chaps. 421-

427, W. S. A. 421-427, Section 421.201 ................ 3

sce Tats h ehh eelve oe Tsesee scenes ease 2

Ge oe oss sup ag cen gawecbies 9

IN THE

Supreme Court of the United States

Ocroser TERM, 1977.

No.

ALDENS, INC.,

Petitioner,

v.

BRONSON C. LaFOLLETTE, individually and as

Attorney General for the State of Wisconsin, and

ERICH MILDENBERG, individually, and as Com-

missioner of Banking for the State of Wisconsin,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT.

Aldens, Inc. petitions for a writ of certiorari to review

the judgment of the United States Court of Appeals for

the Seventh Circuit entered in this case on March 25,

1977.

2 Petition for a Writ of Certiorari

OPINIONS BELOW.

The opinion of the United States Court of Appeals

for the Seventh Circuit (A16-A31),’ as amended, is re-

ported at 552 F. 2d 745; the opinion of the United States

District Court for the Western District of Wisconsin (A1-

Al5) has not yet been officially reported.

JURISDICTION.

The judgment of the Court of Appeals was entered

on March 25, 1977. Aldens filed a timely petition for

rehearing en banc which was denied on April 25, 1977,

although the Court ordered, at the same time, a modifica-

tion of its opinion of March 25 (A32-A33).

The jurisdiction of this Court is invoked pursuant to

28 U.S.C. § 1254(1).

QUESTION PRESENTED.

Is not a state statute regulating the terms and condi-

tions of retail sales contracts unconstitutional under the

Commerce and Due Process Clauses as applied to a mail

order seller which engages in no local activities and has

no property in the regulating state and whose only con-

tact with the residents of that state is by interstate mail

or common carrier?

1. References herein to “A” pages are to pages in the appendix

to this petition. References in form “R. —a” and “R. —b” are

to pages in the appendix and the supplemental appendix in the

Court of Appeals, respeetively.

Petition for a Writ of Certiorari 3

CONSTITUTIONAL PROVISIONS AND

STATUTE INVOLVED.

Article L, Section 8, Clause 3 of the Constitution of

the United States provides:

“The Congress shall have Power . . . To regulate

Commerce with foreign Nations, and among the sev-

eral States, and with the Indian Tribes; ... .”

The Fourteenth Amendment of the Constitution of

the United States provides at Section 1:

“Section 1. .... nor shall any State deprive

any person of life, liberty, or property, without due

process of law. ...

Section 421.201 of the Wisconsin Consumer Act, Wis.

Stats, Title XL, Chaps. 421-427; W. S. A. 421-427, which

purports to make its maximum finance charges binding

upon interstate credit transactions such as those conducted

by Aldens, provides in pertinent part:

“(2) For the purpose of this act, a consumer

transaction or modification of a consumer transaction

is made in this state if:

“(b) The merchant induces the customer

who is a resident of this state to enter into the

transaction by face-to-face solicitation or by mail

or telephone solicitation directed to the particu-

lar customer in this state.

“(3) With respect to a transaction pursuant to

an open-ended credit plan, this act applies if the

4 Petition for a Writ of Certiorari

customer is a resident of this state and the open-

ended creditor or a merchant honoring a credit card

issued by the open-end creditor, is a resident of the

state or furnishes, mails or delivers the goods, services

or credit to a resident of this state while the customer

is within this state or receives a writing signed by the

customer and evidencing the transaction in this state.”

Further portions of the statute are reprinted in the Ap-

pendix to this petition (A34-A41).

Petition for a Writ of Certiorari 5

STATEMENT.

This petition seeks to have the Court to make clear

that, whatever power a state may have to regulate a busi-

ness which engages in even the slightest local intrastate

activities, both the Due Process and the Commerce Clause

deny a state the power to impose its regulations upon a

business whose conduct, in the words of the court below,

“if not fully equivalent, . . . asymptotically approaches that

of the paradigm interstate trader.” (552 F. 2d at 750,

A24). -

Thus, this petition presents a conflict between this

Court’s decisions in National Geographic Society v. Cali-

fornia Board of Equalization, — U. S. —, 45 U. S. L. W.

4343 (April 4, 1977), Allenberg Cotton Co. v. Pittman, 41°

U. S. 20 (1974), National Bellas Hess v. Department of

Revenue, 386 U. S. 753 (1967), and Eli Lilly & Co. v.

Sav-On-Drugs, Inc., 366 U.S. 276 (1961), on the one hand,

and the decision below and that in Aldens, Inc. v. Packel,

524 F. 2d 38 (3d Cir. 1975), cert. denied, 425 U. S. 943

(1976), on the other.

In so doing, this petition pleads the cause of some

eight thousand mail order houses,’ large and small, to be

free from the conflicting regulations of up to fifty state and

territorial governments and countless local governmental

units in whose territories any one of these businesses has no

presence—property, employees or activities—and with

whose residents its only contact is by interstate mail, tele-

phone and common carrier. For the decision of the court

below is as applicable to the regulation of advertising,

warranties, repair service and delivery schedules as it is to

the regulation of consumer credit sales. And its reach

extends to the Ohio nursery, the Oregon, Texas or Florida

fruit shipper, the Wisconsin cheese dealer and the Massa-

2. U. S. Bureau of the Census, Statistical Abstract of the

United States, 1976.

6 Petition for a Writ of Certiorari

chusetts or California specialty and gift shops as much as

to the Chicago general merchandise dealer.

The two courts of appeal have adopted the view

that, wherever there is a “connection in fact” between the

regulating state and the interstate trader, the constitu-

tional question can be resolved by way of balancing the

state’s interest in its regulation against the national inter-

est in the free flow of interstate commerce. Because con-

nection in fact can always be found—if an interstate trader

trades with residents of a state at all, its products come to

rest there—the lower courts have made all questions of

state regulation of interstate commerce solvable by way

of an interest balancing approach.

This Court, on the other hand, has recognized that

there is a substantial body of cases raising the underlying

question of state power to regulate that which is

“in fact ‘a part of interstate commerce,” Allenberg,

supra, 419 U. S. at 30. In the view of this Court, before

a court may initiate the process of balancing the state in-

terest against burdens on interstate commerce, it must

first determine that the interstate trader's activities in the

state which seeks to regulate its trade “adequately estab-

lish a relationship or ‘nexus’ between the . . . [interstate

trader] and the State that renders constitutional the obli-

gations imposed upon [the trader] . . .” National Geo-

graphic, supra, 45 U. S. L. W. at 4344. This Court has

thus drawn a line between that sort of interstate commerce

which, by virtue of its local aspects, can constitutionally

be subject to state regulation and that purely interstate

commerce—that “area of trade free from interference by

the States”, Great Atlantic & Pacific Tea Co. v. Cottrell,

424 U. S. 366, 370 (1976),—which states lack power to

regulate.

Indeed that line was defined in terms directly appli-

cable to the present case by this Court in National Bellas

Petition for a Writ of Certiorari 7

Hess and reaffirmed in National Geographic as separating

the class of “mail order sellers with retail outlets, solicitors

or property within a State,” over whom the state has

power, from those “who do no more than communicate

with customers in the State by mail or common carrier as

a part of a general interstate business,” over whom the

state lacks power. 386 U. S. at 758, quoted at 45 U. S.

L. W. 4345.

While the court below concedes that Aldens is a

member of the latter class, it still finds state power to

regulate. Thus, what the Court of Appeals has done is

to ignore this Court's definition of a constitutionally

bounded area of trade free from state interference, and

to substitute a boundless balancing approach. Moreover,

to the extent that Aldens v. Packel, supra, supports the

view taken by the court below, it and one other court of

appeals have erroneously vitiated this Court's statements

of constitutional law. It is so that the Court may remedy

this error that we urge it to grant the present petition.

The Facts of the Case.

Aldens is an Illinois Corporation which, since its

establishment in 1902, has conducted its business solely

as a general retail merchandise mail order business oper-

ated from a single physical location which is in Chicago,

Illinois.*

Aldens has no physical presence in the state of Wis-

consin. The Court of Appeals summarized as follows:

“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.

3. This case was decided upon stipulated facts submitted by

the parties as a basis for cross motions for summary judgment. The

Court of Appeals ted the “salient facts” as set out by the

District Court (552 F. 2d at 747, Al8).

8 Petition for a Writ of Certiorari

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. In-

deed, Aldens is not required to collect and remit the

Wisconsin use tax.” (552 F. 2d at 747, Al8-Al9).

As it does in the other forty-nine states, Aldens con-

ducts its business in Wisconsin solely by means of the

United States mails and common carriers. Aldens solicits

sales in Wisconsin through catalogs and advertising flyers

mailed periodically from Chicago. Orders can be ac-

cepted in Chicago only, and all payments must be re-

ceived there. All merchandise is sent by Aldens from

Chicago or other points outside Wisconsin, with the cus-

— paying transportation costs (552 F. 2d at 748, Al9-

A20).

Sales pursuant to credit accounts, which comprise

seventy-three percent of Aldens’ sales in Wisconsin, are also

centralized in Chicago. Credit applications are received

by mail and accepted or rejected there after receipt of

completed application forms and credit agreements.

Monthly statements are mailed from Chicago, finance

charges for late payments are assessed there, and pay-

ments of both merchandise and finance charges must be

received there. If a customer account becomes delin-

quent, Aldens attempts collection either through mailed

communications or, occasionally, by telephone calls from

Chicago to the Wisconsin customer. After six months, de-

linquent accounts are written off as bad debts, less than

half of which are then normally turned over to independ-

ent Illinois or Minnesota collection agencies for collec-

tion. While Aldens retains a purchase money security

interest in merchandise sold on credit, it files no financing

statement or security agreement to perfect that interest and

Petition for a Writ of Certiorari 9

does not otherwise act to enforce its security interest (552

F. 2d at 748, A19-A20).

Aldens’ National Credit Agreement, which provides

that it is an Illinois contract governed by Illinois law,

specifies a monthly finance charge at an annual percent-

age rate varying from 12% on balances over $350 to 21%

for those below that figure. The agreement is valid under

Illinois law and the Federal Truth in Lending Act, 15

U. S. C. §§ 1601-65. However, it does not comport with

the 18% maximum rate on the first $500 and 12% on the

excess specified by Wisconsin's Consumer Act.

In adopting a special credit agreement for Wisconsin

credit sales pending the outcome of this litigation, Aldens

incurs, in addition to an annual cost for direct loss of

revenues on account of Wisconsin’s finance charge rates,

further losses of $51,000 for preparing special catalogs and

advertising materials showing Wisconsin credit terms and

$13,700 for special computer processing and handling

costs associated with Wisconsin accounts.*

On the basis of these facts, petitioner sought declara-

tory judgment under 28 U. S .C. § 2201 that the finance

charge provisions of the Wisconsin Consumer Act could

not constitutionally be applied to it.

4. Nor is Wisconsin the only state seeking to subject Aldens’

purely interstate credit sales to the special requirements of its con-

sumer legislation. As we noted above, the Court of Appeals for the

Third Circuit has already approved imposition upon Aldens of the

provisions of the Pennsylvania Goods and Services Installment Sales

Act, which results in substantial losses to Aldens in finance and

service charge revenues from its Pennsylvania sales, as well as

annual costs of $53,000 to meet the ial printing and handling

requirements. Aldens, Inc. v. Packel, supra. Depending on the

outcome of this and similar litigation, see Aldens, Inc. v. Ryan, No.

CIV-75-0458-O (W. D. Okla., June 14, 1976) (appeal pending), there

is every reason to believe that Aldens an er purely interstate

mail order sellers will become subjected to the enormous costs of

the welter of state and local regulations which caused this Court to

strike down the statue involved in National Bellas Hess, supra.

10 Petition for a Writ of Certiorari

The Decision of the District Court.

The trial court agreed that the Due Process and Com-

merce Clauses pose substantial barriers to any attempt by

Wisconsin to regulate an interstate trader with no local

activities within the state. However, the court held that

Aldens’ “concerted, systematic exploitation of the Wis-

consin market” took its transactions out of the realm of

pure interstate commerce (A10). Distinguishing National

Bellas Hess as a case involving taxation, and therefore,

one allegedly requiring a far higher level of local activity

than would be required to justify application of state stat-

utes seeking to protect the public health and welfare, the

court relied instead on South Carolina State Highway De-

partment v. Barnwell Bros., 303 U. S. 177 (1938), and

Huron Portland Cement Co. v. City of Detroit, 362 U. S.

440 (1960). It reasoned that “while these cases involve

physical presence within the state, I have no doubt that a

state can act to protect the public welfare from activities

affecting the state on the scale of plaintiffs, even though

these activities involve no physical presence.” (A12-A13).

The court rejected a further argument based on the

independent effect of the Commerce Clause, holding that

the Allenberg decision involved “an unarticulated, but im-

plicit balancing of interests,” (A13), and that, in applying

the same “balancing test” to the comparable Pennsylvania

statute, the Court of Appeals for the Third Circuit (whose

reasoning the trial court adopted, A9), had properly found

a similar law to be constitutional since it neither discrimi-

nated against persons engaged in interstate -ommerce nor

unduly burdened interstate commerce.

The Decision of the Court of Appeals.

While the Court of Appeals conceded that “. . . if not

fully equivalent, Aldens’ conduct asymptotically ap-

Petition for a Writ of Certiorari 11

proaches that of the paradigm interest trader.” (552 F.

2d at 750, A24), it held that as long as such a trader's

conduct has a “ ‘connection in fact’ with a state producing

an effect within a state,” the interstate character of its

conduct is only one element of an “interest-balancing

analysis.” (Id.). This analysis it held to have been fully

and properly resolved by the Court of Appeals for the

Third Circuit, whose opinion it adopted as its own in this

respect (552 F. 2d at 749, A22)°

The court rejected the contention that either or both

the Due Process and the Commerce Clause had the effect

of totally depriving a state of power to regulate even a

pure interstate trader.

The court allowed that the Due Process Clause must

require some minimum nexus between a state and the

person against whom it seeks to legislate (552 F. 2d at

750-51, A25-A26), but held that “by now ‘objective terri-

toriality,’ at least in domestic cases, is beyond argument,

viz.: ‘any state may impose liabilities, even upon persons

not within its allegiance, for conduct outside its borders

that has consequences within its borders which the state

reprehends ° ° °,’” citing United States v. Aluminum Co.

of America, 148 F. 2d 416, 443 (2d Cir. 1945), Travelers

Health Assn. v. Virginia, 339 U. S. 643, 648 (1950), and

Hoopeston Canning Co. v. Cullen, 318 U. S. 313, 316-17

(1943). (552 F. 2d at 751, A26).

As to the effect of the Commerce Clause, the court

refused to find that it carved out a protected area within

which no state may regulate, but instead “conceptualized”

cases barring state regulation of purely interstate traders

5. On the other hand, the Cours of Ap oa ~ cag

inl

rar Raaty mag Sy, tates. Souk of Appeals fa the Third

Circuit “since that petition was denied... . (552 F. 2d at 749

n. 7, A22 n. 7).

12 Petition for a Writ of Certiorari

merely as “declaring that regulations of a certain character

are per se undue.” (552 F. 2d at 752, A28). Having dis-

tinguished both National Bellas Hess and Allenberg as in-

volving such per se undue burdens, the court held that

treatment of the instant case on a per se basis was inappro-

priate because it involves “an exercise of the police power.”

(552 F. 2d at 753, A30).

In its original decision, the Court of Appeals had

expressed its view of National Bellas Hess and Allenberg

as follows:

“Contrary to Bellas Hess and Allenberg, the case now

before us is an exercise of the police power. As such

it is inappropriate to treat it on a per se basis. . . .”

(A30).

In response to Aldens’ petition for rehearing which noted

that Allenberg clearly did involve an exercise of the police

power, however, the court, by order dated April 25, 1977,

struck the words “and Allenberg” from the sentence (A33).

It did not further modify its original decision and refused

Aldens’ request for rehearing. (Id.).

Petition for a Writ of Certiorari 13

REASONS FOR GRANTING THE WRIT.

In Upholding the Wisconsin Statute in This Case, the

Court Below Sought to Limit or Avoid This Court's

Clear Holdings That a State Lacks the Power to

Regulate an Interstate Trader Which Has No Presence

in the Regulating State, Even Though That State May

Have a Substantial Interest in Controlling the Con-

duct It Seeks to Regulate.

The Court of Appeals begins its discussion of the law

with a completely accurate statement of petitioner's

position:

“Aldens maintains, in short, that it is the quin-

tessential interstate trader with no objective mani-

festation 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.” (552 F. 2d at 748, A21).

Yet, despite the existence of clear precedent from this

Court to support petitioner's argument and the lack of any

precedent apart from recent litigation involving peti-

tioner,® the Court of Appeals, like the trial court before it,

upheld the right of Wisconsin to regulate petitioner's

purely interstate sales to Wisconsin residents despite the

fact that petitioner had no presence in Wisconsin whatever

apart from its interstate mailings, telephone calls and

deliveries.

6. As stated by the district court in Aldens v. Packel, supra,

379 F. Supp. 521, 527 (M. D. Pa. 1974), “there appears to be no

ed case upholding state regulation of interstate commerce

the local activities of the business concerned are as scanty

as they are here.”

14 Petition for a Writ of Certiorari

Conceding that the cases on which it relied to uphold

regulation of Aldens here did involve physical presence

within the state, the trial court fell back on its intuitions:

“I have no doubt that a state can act to protect the public

welfare from activities affecting the state on the scale of

plaintiffs even though their activities involve no physical

presence.” (A12-A13). The Court of Appeals, on the other

hand, relied on what it deemed to be the unquestioned

rule of “objective territoriality.” It found this rule in a

statement of federal antitrust jurisdiction over foreign

nationals in United States v. Aluminum Co. of America,

148 F. 2d 416, 443 (2d Cir. 1945) (not, as the court below

implies, a “domestic case”: “But by now ‘objective terri-

toriality, at least in domestic cases, is beyond argument.

.. . 552 F. 2d at 751, A26), and in two decisions of this

Court, each of which turned on the fact that the case

involved a business which did have local activities in the

regulating state.’ (Id.). Having this summarily dealt with

7. It is hard to imagine three cases less able to support a con-

clusion drawn from them than these. Thus, in Alcoa, the complaint

charged the unlawful monopolization of interstate and foreign com-

merce under section 4 of the Sherman Act, 29 U. S. C. § 4, an area

within the sovereign control of the Congress of the United States.

Not only did the foreign sellers in Alcoa, unlike petitioner, seek to

control a portion of the domestic aluminum market, but their ac-

tivities in international trade, unlike petitioner's activities in inter-

state commerce, were not protected by the principles of federalism

set forth in the Constitution of the United States. In Travelers

Health Association vy. Virginia, 339 U. S. 643 (1950), the only issue

before the Court involved the adequacy of service upon the foreign

corporation, which the Court of Appeals conceded involved a con-

nection between the state and the served of a less substan-

tial character than that required when regulation is involved (522

F. 2d at 751, A25-A26). However, Justice Douglas, who,

among the members of the Court, would have gone beyond the

service of process issue to sustain the state’s tory jurisdiction,

would have done so only on the grounds that the insurer had physi-

cally entered the state through its use of existing plan members as

solicitors for new business. U. S. at 654 (concurring opinion).

Justice Douglas explicitly distinguished the case in “Vike the

Petition for a Writ of Certiorari 15

petitioner's Due Process arguments, the Court of Appeals

next disposed of the argument that this Court had re-

peatedly held that the Commerce clause prohibited a state

from regulating an out-of-state interstate trader which had

no presence in the would-be regulating state by dismissing

each of this Court’s cases as an example of a limited per se

rule that a specific regulation or form of conduct was an

undue burden on interstate commerce.

Yet the distance between those cases and this one is

not to be spanned by a simile. It is the very distinction

which this Court declined to obliterate in National Bellas

Hess v. Department of Revenue, 386 U. S. 753 (1967), be-

tween “mail order sellers with retail outlets, solicitors or

property within a State, and those who do no more than

_ ¢ommunicate with customers in the State by mail or com-

mon carrier as part of a general interstate business.” 386

U. S. at 758. The Court upheld this distinction in National

Bellas Hess, although the dissenters there argued, exactly

as the District Court did here, that Bellas Hess “large-

scale, systematic, continuous solicitation and exploitation

of the [state] consumer market,” constituted a sufficient

basis for state regulation even in the absence of physical

presence, 386 U. S. at 761 (dissenting opinion). Moreover,

the Court reaffirmed the distinction despite the fact that it

had long recognized the states’ interest in protecting local

competitive markets by enforcing collection of a use tax

7. (Cont'd. )

present case--the foreign corporation has no local presence: “{a]

state is helpless when the out-of-state company operates beyond

the borders, establishes no office in the state, and has no agents,

salesmen or solicitors to obtain business for it within the state.” id.

at 653-54. ain, in Hoopeston Co. v. Cullen, 318 U. S. 313 (1943),

the Court relied upon the extensive local activities of the Illinois

reciprocal insurer in holding that it could be subjected to New York

law even though its contracts with New York residents were signed

in Illinois. id. at 317-19.

16 Petition for a Writ of Certiorari

on out-of-state merchandise exempt from sales taxes, see,

e.g., Henneford vy. Silas Mason Co., 300 U. S. 577 (1937).

The point is that the issue concerns not the interest

of the state in regulating purely interstate commerce, but

rather the power of that state to do so. And what the

courts below would treat as a purely formalistic distinction

based on physical presence is the only line which protects

a purely interstate national business from being subject to

regulation by fifty different states plus innumerable local

governments. Thus, the Court noted in National Bellas

Hess that it was the very purpose of the Commerce Clause

to prevent the “virtual welter of complicated obligations

to local jurisdictions” which would resu!t if purely inter-

state business were made subject to regulation by the

several states. 386 U. S. at 760. Accordingly, it is an

essential part of our federal system that there is a domain

where “Congress alone has the power of regulation and

control.” id. at 760.

A. This Court’s Controlling Decisions.

For purposes of the present petition, the area in which

the states are forbidden to legislate is defined by four

recent decisions of this Court. In two, National Bellas

Hess, supra, and National Geographic Society, supra, this

Court held that a state may impose the administrative

burden of collecting and forwarding its customers’ use tax

payments upon a mail order house which maintains local

offices in the regulating state but not upon a mail order

house which has no such local presence. Similarly, in Eli

Lilly & Co. v. Sav-On-Drugs, Inc., supra, and Allenberg

Cotton Co. v. Pittman, supra, this Court held that a state

may require a foreign corporation to register to do business

in that state when it engages in local activities in support

of intrastate sales of its products but not when its intrastate

Petition for a Writ of Certioruri 17

activities are solely in support of interstate commerce * or,

a fortiori, when it engages in no local activities whatever.’

Since Aldens engages in no local activities within

Wisconsin, the balance-of-interest approach taken by the

courts below is inappropriate in this case. To the extent

that a state seeks to regulate an interstate trader which

has neither property nor presence within its borders, there

is no enforceable exercise of local power at all; whether or

8. See, e.g., Memphis Steam Laundry v. Stone, 342 U. S. 389

(1952); Robbins v. Shelby County Taxing District, 120 U. S. 489

(1887) (the “drummer” cases).

9. Also relevant to the instant case are two earlier decisions of

this Court in the area of rate and price regulation. These cases

further emphasize the requirement for local business activity as a

condition precedent to regulation. Compare Milk Control Board v.

Eisenberg Farm Products, 306 U. S. 346 (1939), with Baldwin v.

G. A. F. Seelig, Inc., 294 U. S. 511 (1935).

In the Eisenberg case, the Court upheld the power of the

Pennsylvania Milk Control Board to control the minimum prices

with respect to the business conducted by the respondent. How-

ever, this ——— of Eisenberg’s business was permissible despite

its incidental effect on interstate commerce because the price con-

trols applied solely to its intrastate transactions—purchases made by

Eisenberg from Pennsylvania producers at Eisenberg’s Pennsylvania

receiving station. The price at which respondent sold the product

in interstate commerce to out-of-state buyers was not subject to

state control. Thus, the Court noted:

“The respondent maintains a receiving station in Penn-

sylvania where it conducts the local business of buying milk.

At that station the neighboring farmers deliver their milk. The

activity affected by the regulation is essentially local in Penn-

sylvania. . . . The Commonwealth does not essay to regu-

late or to restrain the shipment of the respondent's milk into

New York or to regulate its sale or the price at which respond-

ent may sell it in New York.” 360 U. S. at 352 (emphasis

added).

In the present case Wisconsin does clearly “essay” to regulate a rate

ch in another state on an interstate sale. Such regulation was

condemned in Baldwin v. G. A. F. a Inc., 294 U. S. 511 (1935).

There the Court stated that “New York has no power to project its

legislation into Vermont by — the price to be paid in that

state for milk acquired there” by a New York purchaser for resale

in New York (294 U. S. at 521).

18 Petition for a Writ of Certiorari

not the interest sought to be furthered thereby is otherwise

legitimate, the attempted regulation is a nullity. It is only

where the “exercise of local power serves to further a

legitimate local interest but simultaneously burdens inter-

state commerce [that the court] is confronted with a prob-

lem of balance.” Great A & P:Tea Co. v. Cottrell, supra,

424 U. S. at 371.

Before there can be any consideration of a state’s in-

terest in regulating an interstate trader, there must be a

determination of that state’s power to regulate. In

National Bellas Hess, the Commerce and the Due Process

analyses were closely related, 386 U. S. at 756, both lead-

ing to the conclusion that, in the absence of any physical

presence or local activities, Illinois lacked power to impose

use tax collection duties upon National Bellas Hess. Like-

wise, in the instant case, the courts below were required to

find upon virtually identical facts that, without reference

to any interest which the state of Wisconsin might have in

regulating Aldens’ interstate sales to its residents, Wis-

consin lacks the power to do so as long as Aldens is not

physically present within the state.

Similarly, in Allenberg Cotton Co. v. Pittman, supra,

this Court most recently reiterated the rule that state regu-

lation of interstate trade requires not merely that the

trader have physically entered the state as part of its

interstate business, but that its local activities there be

sufficiently separable from the conduct of its interstate

business that it may be subjected to regulation by the

state on the basis of these local activities."° A fortiori, if an

10. In this respect, the constitutional requirements for state

regulation of the local activities of an interstate trader under the

aes power may actually be more stringent than for regulation

pursuant to the state’s taxin er. us, in Allenberg, the

Court conceded that there might be local tax incidents of the same

local activities as it held to be inseparable from the company’s inter-

state business for purposes of state police power tion. 419

U. S. at 33-34.

Petition for a Writ of Certiorari 19

interstate trader has no physical presence whatever in a

state, there can be no local activities sufficiently distinct

from its interstate business to support state regulation.

B. The Court of Appeals’ Attempt to Distinguish This

Court’s Decisions.

The Court of Appeals sought to avoid the holding of

National Bellas Hess, by labeling that decision as a tax

case, despite the fact, clearly asserted before it by peti-

tioner, that Illinois sought to impose no tax on National

but, rather, the duty to collect and transmit taxes from its

customers and to maintain extensive records for the bene-

fit of Illinois.”

Any doubt about the meaning of National Bellas Hess

was laid to rest, however, by this Court's decision in

National Geographic Society v. California Board of Equali-

zation, — U. S. —, 45 U. S. L. W. 4343 (April 4, 1977),

which, although handed down after the Court of Appeals’

decision in this case, was brought to that court's attention

by Aldens in its petition for rehearing en banc.

In National Geographic the Court not only reaffirmed

the holding in National Bellas Hess that a state lacks the

power to impose duties upon a mail order house which

has no presence within that state, but did so in an opinion

that made clear that both cases were regulatory, rather

11. Curiously, although the Court of Appeals for the Third

Circuit also distinguished Bellas Hess as a tax case, both for “due

process purposes,” Aldens, Inc. y. Packel, 524 F. 2d at 43, and “under

the commerce clause for the same reasons . . . ,” id. at 49, it de-

clined to consider “whether the more conventional separate [com-

merce clause] classification of [tax] cases is appropriate.” id. at 49,

n. 16, and, in fact, suggested elsewhere in its opinion, that the dis-

tinction between a tax case and one involving regulation “is not, or

should not be, significant” at least in terms of the Commerce Clause,

id. at 46.

20 Petition for a Writ of Certiorari

than tax, cases. The Court in National Geographic ex-

plicitly distinguished the case before it from tax cases in

that the out-of-state seller ran no risk of double taxation,

but on the contrary, would become liable for the tax only

by failing or refusing to collect it from the resident cus-

tomer. Accordingly, “the sole burden imposed upon the

out-of-state seller by [use tax] statutes . . . is the admin-

istrative one of collecting it.” 45 U. S. L. W. at 4344.

Moreover, in rejecting National Geographic’s argu-

ment that it should come within the National Bellas Hess

rule because its local offices played no part in facilitating

the sales on which it was being required to collect a use

tax, the Court noted that such a showing might be “fatal

to a direct tax,” 45 U. S. L. W. at 4345, but held that test

immaterial to “the imposition of the use tax collection

duty.” For that purpose, presence of local offices in the

state was sufficient.

The court below likewise rejected the authority of

Allenberg on the ground that it “concerns state regulation

which may be generically deemed as an undue burden on

interstate commerce.” (552 F. 2d at 753, A30). Neither

the language nor the sense of the Allenberg opinion, how-

ever, by any stretch of the imagination, supports such a

view. There is absolutely no ‘balancing’ language in the

Court's opinion. Neither is there any indication that the

Court was applying a “per se” approach. Indeed, given

its recent eschewing of “per se” approaches in Commerce

Clause cases in Complete Auto Transit, Inc. v. Brady, —

U.S. —, 45 U. S. L. W. 4359 (March 7, 1977), it would have

been most unlikely for the Court to have so ruled. More-

over, this Court in no way limited its discussion in Allen-

berg to the particular kind of regulation involved there.’

12. In fact, as pointed out in the dissenting opinion of Mr.

gee Rehnquist, who alone considered a balancing approach to

relevant, “. . . the burden imposed on interstate commerce by

Petition for a Writ of Certiorari 21

Rather, the Court declared impermissible any state regu-

lation of a transaction which “though having intrastate

aspects, was in fact ‘a part of interstate commerce, ” 419

U. S. at 30, quoting Dahnke-Walker Milling Co v.

Bondurant, 257 U. S. 282, 292 (1921).

Even though there was not in Allenberg the complete

dearth of local activities which characterizes the instant

case, see 419 U. S. at 34-35 (dissenting opinion ), the Court

held Allenberg’s intrastate activities to be “fleeting events

[which] are an integral first step in a vast system of dis-

tribution of cotton in interstate commerce,” id. at 26, and

which do not exhibit “the sort of localization or intrastate

character” which is required to support state regulation.

419 U. S. at 33. The Court contrasted the situation in

Eli Lilly & Co. v. Sav-On-Drugs, Inc., supra, which did

involve this “element of localization.” 419 U. S. at 32.

Accordingly, the Court held its decision in the earlier case

“not in point.” As the Court explained, “[s]ince [Lilly]

was engaged in intrastate business it could be required to

obtain a license even though it also did an interstate busi-

ness.” Id.

Initially, the court below sought to avoid Allenberg

by holding that that case, unlike the present case, did not

involve the police power:

“Contrary to Bellas Hess and Allenberg, the case

now before us is an exercise of the police power. As

such it is inappropriate to treat it on a per se basis.

ae

12. (Cont’d.)

such [qualification] statutes is to be judged with reference to the

measures required to comply with such legislation, and not to the

sanctions imposed for violation of it.” 419 U. S. at 42 (dissenting

opinion). Viewed in this light, the burden of the Mississippi statute

could hardly be deemed very great, amounting to payment of a

maximum fee of $500 and the filing of certain operating information

with the state Secretary of State. id. at 42, n. 10.

22 Petition for a Writ of Certiorari

Yet, it is inescapable that the exercise of power by

Mississippi in Allenberg was in fact an exercise of the

police power. The police power is defined in the follow-

ing terms in 16 C. J. S. Constitutional Law § 174, p. 889:

“Police power is the exercise of the sovereign

right of a government to promote order, safety, health,

morals, and the general welfare of society, within

constitutional limits.”

Surely, Mississippi's enactment of legislation denying ac-

cess to its courts to any corporation which failed to qualify

to do business in Mississippi was an enactment pursuant

to the police power of that state.

Mr. Justice Rehnquist in his dissent in Allenberg sup-

plies some insights:

“. . . Union Brokerage recognized that qualifi-

cation statutes were important in the collection of

state taxes by identifying foreign corporations operat-

ing within the State and in the protection of citizens

within the State through insuring ready susceptibility

of the corporation to service of process. The qualifi-

cation statute also serves an important informational

function making available to citizens of the State who

may deal with the foreign corporation details of its

financing and control. . ” 419 U. S. at 40-41

(Rehnquist, J., dissenting).

In footnotes 7 and 8, 419 U. S. at 41, Justice Rehnquist

points out that such a statute operates as security for

performance of the foreign corporation’s obligations owed

to citizens of the state and provides information concern-

ing the financial structure and control of the corporation

to any citizen who is considering doing business with the

corporation. This is obviously an exercise of the police

power designed to protect the citizens of the state.

Petition for a Writ of Certioius. 23

Indeed, the court below, faced with this same reason-

ing in the petition for rehearing, plainly recognized that

Allenberg was a police power case and modified its opinion

to remove the statement to the contrary. See A33. Never-

theless, the court, having removed the reason for its hold-

ing that Allenberg does not control the present case, made

no move to modify its conclusion. The result is simply an

unreasoned rejection of a controlling decision of this Court.

There is no dispute that the only transactions involved

in the instant case are Aldens’ purely interstate sales from

its offices in Illinois to its customers in Wisconsin. Nor has

Aldens any physical presence in the state of Wisconsin

which could possibly provide the “element of localization”

upon which state regulation of interstate business must be

predicated. Accordingly, under both National Bellas

Hess and Allenberg, Wisconsin lacks the power to regu-

late petitioner, a company whose conduct “. . . asymptoti-

cally approaches that of the paradigm interstate trader,”

which cannot be subjected to state regulation.

C. The Policy Behind This Court’s Decisions.

There is ample policy reason for this Court's protec-

tion of the pure interstate trader from local regulation.

The company that remains an exclusively interstate mail

order house pays a price for its decision. It foregoes the

benefits of local advertising, a local telephone number to

aid its customers in placing orders quickly and inexpen-

sively, local retail stores and local catalog order desks

or catalog stores at which potential mail order cus-

tomers can view the actual merchandise they intend to

buy, local servicemen to give customers assurance that

damaged goods can be quickly and easily repaired locally

by the supplier itself, prompt local delivery, and many

24 Petition for a Writ of Certiorari

other benefits which local presence snore to the com-

petitors of purely interstate traders and which the purely

interstate trader foregoes in return for freedom from multi-

state regulation of its interstate activities.

Nor are the burdens of multi-state regulation insignifi-

cant. Thus, for example, the vast majority of states regu-

late retail credit accounts, setting not only a variety of

different limitations on finance charges, but providing an

equally diverse set of regulations as to the language which

must be included in retail credit agreements and even the

size type which must be used for various parts of that

language.” Different states require different and often

conflicting methods of calculating the balance upon which

finance charges may be calculated. Advertising regula-

tions are equally diverse. Many are the result of “little

FTC” acts which create regulatory bodies whose actions

lack even the widespread availability of state statutes;’®

the City of Chicago is so explicit in its regulations that

it even requires that advertisements of sale prices contain

an expiration date."* Many states prohibit the advertising

of prescription drug prices,’’ whereas other states and the

City of Boston require the posting of such prices.’* Al-

most two-thirds of the states have statutes setting up a

wide variety of rules governing collection practices,’

13. See 1 Cons. Cred. Guide (CCH) 1401-50 (1977).

14. See Office of Consumer Affairs, State Consumer Action 71,

pp. 48-49 (1972).

15. See id. at p. 103.

16. Municipal Code of Chicago, § 100-29.6.

17. See Office of Consumer Affairs, State Consumer Action 74,

p. 108 (1975).

18. See id.; Office of Consumer Affairs, State Consumer Action

71, p. 3 (1972).

19. See Office of Consumer Affairs, State Consumer Action 74,

Ch. IX-X (1975).

Petition for a Writ of Certiorari 25

many «s detailed as New York City’s prohibition against a

creditor communicating with the employers of a debtor

at any time before a judgment has been obtained.” New

York State has a statute governing undelivered mail order

merchandise.” The range is legion.

If every mail order seller who wishes to undertake sys-

tematic solicitation of the national market in accordance

with the constitutional guarantees of the Commerce

Clause and our federal system must comply with such a

welter of divergent, unsystematic and occasionally con-

flicting regulations imposed by increasing numbers of

states and municipalities, the police power of the states

will have become a bar to free entry into the interstate

mail order business by the small retailer and an intolerable

burden to those retailers, large and small, who are already

in the field.

20. See Office of Consumer Affairs, State Consumer Action 71,

pp. 48-49 (1972).

21. N. Y. Gen. Bus. Law (McKinney) § 396-M(d)(i) (1975).

26 Petition for a Writ of Certiorari

CONCLUSION.

For the reasons set forth above, we respectfully urge

that this petition for a writ of certiorari to the United

States Court of Appeals for the Seventh Circuit be granted.

Respectfully submitted,

BERNARD G. SEGAL,

RA.pu S. SNYDER,

James D. Crawrorp,

Attorneys for Petitioner.

SCHNADER, HARRISON, SEGAL & LEwis,

1719 Packard Building,

Philadelphia, Pennsylvania, 19102

Donan L. HEANEY,

ISAKSEN, WERNER, LATHROP & HEANEY,

122 West Washington Avenue,

Madison, Wisconsin, 53703

RAYMOND N. FRIEDLANDER,

5000 W. Roosevelt Road,

Chicago, Illinois, 60607

Of Counsel.

Dated: July 25, 1977

ee eee ee oe

Appendix.

OPINION OF THE DISTRICT COURT

IN THE

UNITED STATES DISTRICT COURT

For THE WESTERN DistrRiICT OF WISCONSIN

72-C-405

ALDENS, INC., an Illinois Corporation,

v. Plaintiff,

ROBERT W. WARREN, individually and as Attorney

General for the State of Wisconsin, and ERICH

MILDENBERG, individually and as Commissioner

of Banking, State of Wisconsin,

Defendants.

OPINION AND ORDER

This is an action for declaratory judgment. Plaintiff,

an Illinois corporation engaged in the business of selling

merchandise by mail-order, seeks an order of the court

declaring that any attempt by the State of Wisconsin to

regulate plaintiff's revolving charge account plan and the

agreements and transactions there: ader, is a violation of

the United States Constitution. Plaintiff asserts that, as

applied to its revolving charge account plan, the Wiscon-

sin laws violate the Commerce and Postal Clauses of

Article I, Section 8, the Supremacy Clause of Article VI,

and the First and Fourteenth Amendments to the United

States Constitution. Defendants seek a declaratory judg-

ment holding that plaintiffs revolving charge account and

(Al)

A2 Opinion of the District Court

the agreements and transactions thereunder between

plaintiff and its Wisconsin mail order customers constitu-

tionally can be regulated by the State of Wisconsin.

The action is presently before the court on cross mo-

tions for summary judgment. Counsel have submitted a

stipulation of facts and the affidavit of the Administrator

of the Division of Consumer Credit, office of the commis-

sioner of Banking, State of Wisconsin. From the plead-

ings, the stipulation of fact and the affidavits, I find that

there is no genuine issue as to the following facts:

Facts

1. Defendant Warren is the Attorney General of

Wisconsin and Defendant Mildenberg is the Wisconsin

Commissioner of Banking. Defendants are responsible for

the enforcement of the Wisconsin Consumer Act which

became effective March 1, 1973.

2. Aldens, Inc. is an Illinois corporation with its only

physical location in Chicago, Illinois. The business was

established in Chicago in 1902 and has been conducted as

a general retail merchandise mail order business in Chi-

cago ever since.

3. Aldens sells merchandise to customers who reside

in all fifty states. The customers pay the transportation

costs.

4. The credit agreement in use nationally by Aldens

provides that it is an Illinois contract governed by IIli-

nois law. The credit agreement provides for a monthly

finance charge of 1.75% (Annual Percentage Rate of 21%),

which exceeds the rate permitted by Sec. 422.201 Wis.

Stats. The credit agreement is valid under Illinois law

and complies with Federal Truth-in-Lending.

5. Aldens retains a purchase money security interest

in merchandising sold pursuant to the credit agreement

Opinion of the District Court A3

°?

with its customers. The retention of title provision is con-

tained in said agreement to conform to Aldens’ accounting

practices and to inform customers of Aldens’ security in-

terest in unpaid for merchandise. Aldens files no financing

statement or security agreement and does not enforce said

security interest.

6. Credit is granted only in Chicago and orders are

accepted only in Chicago.

7. All payments are made to Aldens in Chicago.

8. With the adoption of the Wisconsin Consumer Act

(Chapters 421 to 427 Wis. Stats. 1971) effective March 1,

1973, in view of the civil and criminal penalties provided

therein for violation thereof, Aldens has determined that

it must comply with said Act pending the outcome of this

litigation.

9. Approximately 2.34% of Aldens’ annual sales are

made to Wisconsin customers. Aldens makes sales of ap-

proximately $4,600,000 per year to Wisconsin customers.

Approximately 27% of this amount is derived from cash

sales and 73% from credit sales. Aldens has approximately

23,000 Wisconsin credit customers; the average credit ac-

count balance is $164.81. It is probable that the sales to

and the number of Wisconsin customers will increase.

10. In complying with the Wisconsin Consumer Act

Aldens is incurring annual costs, expenses and revenue

losses in excess of the following:

a. Additional cost of preparing catologs and

advertising materials containing Wisconsin

credit terms $ 51,000

b. Special computer processing and han-

dling costs for Wisconsin customers in

setting up accounts and producing monthly

billing statements $ 13,700

A4 Opinion of the District Court

c. Loss of revenue on elimination of mini-

mum charges $ 7,200

d. of revenue on account of Wisconsin

financ® charge rate $ 92,000

TOTAL $163,900

11. Other general retail merchandise credit grantors

have incurred and will incur costs and expenses connected

with Wisconsin Consumer Act compliance. The Act allows

many credit grantors to increase the rate of finance charge

and requires some to reduce rates. The increased rates for

some credit grantors will more than off-set the cost of

compliance. For others, and particularly those which

must lower rates, compliance will involve costs, expenses

and loss of revenue to a greater or lesser degree, depend-

ing upon the credit grantor.

12. Aldens does not have in Wisconsin any office, dis-

tribution house, sales house, warehouse or any other place

of business.

13. Aldens does not have in Wisconsin any agent,

salesman, canvasser, soliciter or other type of represent-

ative to sell or take orders, to deliver merchandise, to

accept payments or to service merchandise it sells.

14. Aldens does not own any tangible property, real

or personal, in Wisconsin.

15. Aldens supplies to the purchasers of lawn and

garden equipment, storage buildings, air conditioners,

major appliances, and mini- and trail-bikes by contract

with Illinois Bell Company, a telephone service to Chicago

which the customers may use toll-free for inquiries con-

cerning the operation and servicing of these purchases.

Opinion of the District Court A5

16. Aldens does not solicit Wisconsin customers by

telephone and has no telephone listing in Wiscunsin. It

does not advertise its merchandise by placing ads in Wis-

consin newspapers, on billboards in Wisconsin or by plac-

ing advertisements with Wisconsin radio or television

stations.

17. Aldens does not collect and remit the Wisconsin

Use Tax.

18. Aldens mails catalogs to Wisconsin residents

about 4 times per year and, in addition, mails them

“flyers,” which are supplemental advertisements of mer-

chandise, 6 to 8 times per year. Aldens includes advertis-

ing material with the customer's monthly billing statement.

The catalogs and “flyers” are mailed to Aldens’ active

Wisconsin customer list of about 65,000 names and inac-

tive customer list of about 9,000 names. In addition,

Aldens rents mailing lists from mailing list brokers (not

Wisconsin firms). In the spring of 1973, catalogs and

“flyers” were to be mailed to about 350,000 Wisconsin

residents on those lists. There may be some duplication

between the mailings to names on the rented lists and the

mailings to Aldens customer lists. All Aldens mailings are

to named individuals and none are to “resident” or “occu-

pant.”

19. Aldens rejects about 40% of the new credit appli-

cations it receives and about 6% of the orders received

from current credit customers. Aldens’ procedures used in

determining credit worthiness involve the weighing of the

answers to the items of information called for in the

Charge Application. About 24% of the applications are

approved on the basis of these answers and about 32% are

rejected. About 23% of the applications are checked

against a national credit index service located in New

A6 Opinion of the District Court

Jersey and about 21%, by arrangement with a Chicago,

Illinois credit reporting agency, are checked by phoning

credit bureaus in Wisconsin for in-file checks of their rec-

ords. On the basis of these checks, about 36% more appli-

cations are accepted and about 8% rejected.

Recapitulation:

Total Acceptances 60%

Total Rejections 40%

The 6% rejection rate on orders received from current

credit customers is based substantially on the determina-

tion that the order exceeds the customer’s established

credit limit or that the customer’s account is delinquent

at the time the order is placed.

20. Credit application forms for credit accounts with

Aldens and credit agreement forms are among the mate-

rials mailed by Aldens to persons within the State of

Wisconsin; credit application forms are completed and

credit agreements are signed by Wisconsin residents in

Wisconsin and are mailed in Wisconsin to Aldens at its

office in Chicago, Illinois.

21. Merchandise sold to Wisconsin customers is sent

to them by deposit in the United States Mail or delivery

to a common carrier in Chicago, or by shipment from

some other point outside the State of Wisconsin.

22. Monthly statements are mailed in Chicago by

Aldens to Wisconsin credit customers following the pur-

chase of merchandise. These statements set forth the

charges to the customer’s account and require payment

thereof by a stated date to avoid the assessment of finance

charges.

Opinion of the District Court A7

23. Monthly payments for merchandise purchased

and finance charges assessed under Aldens’ credit plan are

mailed in Wisconsin to Aldens in Chicago by Wisconsin

customers.

24. In the event the customer becomes delinquent

in the payment of his account Aldens attempts to collect

the account using letters and other communications mailed

from Chicago addressed to the customer in Wisconsin,

and when appropriate, telephones the Wisconsin cus-

tomer, from Chicago, to discuss the account and request

payment.

25. All Aldens’ efforts to collect Wisconsin accounts

are conducted in Chicago, Illinois or as stated in the fol-

lowing paragraph.

26. After an account has been delinquent for 6

months, Aldens writes it off as a bad debt. Aldens turns

over less than half of the Wisconsin written off accounts

(about 2% of its Wisconsin receivables) to Illinois or

Minnesota independent collection agencies for collection.

27. The fee provisions of the Wisconsin Consumer

Act are necessary for its administration.

OPINION

Plaintiff's counsel has advised the court that plaintif

has challenged state regulatory laws similar to those of

Wisconsin in an action commenced in the United States

District Court for the Middle District of Pennsylvania.

The Pennsylvania district court denied plaintiff's request

for judgment in that proceeding, holding that the Penn-

sylvania Act was constitutional as applied to plaintiff's

mail order credit transactions with Pennsylvania residents.

Aldens v. Packel, 379 F. Supp. 521 (M. D. Pa. 1974).

Plaintiff appealed the district court decsion to the United

A8 Opinion of the District Court

States Court of Appeals for the Third Circuit, which af-

firmed the lower court's ruling that the Pennsylvania law

was constitutional. Aldens v. Packel, — F. 2d —, 3d Cir.,

decided August 27, 1975. A petition for a writ of cer-

tiorari to the United States Supreme Court is pending.

Plaintiffs counsel has advised this court that there

are no significant differences in the facts which were the

subject of stipulations in this proceeding and in the action

in Pennsylvania. Plaintiff's counsel concede also that the

differences between the Wisconsin and Pennsylvania

statutory schemes are not material to the litigation.’

1. Pennsylvania’s Goods and Services Installment Sales Act

(69 P. S. § 1103) contains the following provisions:

“For the purposes of this act a retail installment contract, con-

tract, retail installment account, installment account, or re-

volving account is made in tr =~ and, therefore, subject

to the provisions of this act if either the seller offers or agrees

in Pennsylvania to sell to a resident buyer of Pennsylvania or

if such resident Pennsylvania buyer accepts or makes the offer

in P. lvania to buy, regardless of the situs of the contract

as ified therein.

Any solicitation or communication to sell, verbal or writ-

ten, originating outside the Commonwealth of Pennsylvania

but forwarded to and received in P: Ivania ra a resident

buyer of Pennsylvania shall be construed as an offer or agree-

ment to sell in Pennsylvania.

Any solicitation or communication to buy, verbal or writ-

ten, originating within the Commonwealth of Pennsylvania,

from a resident buyer of Pennsylvania, but forwarded to and

received by a retail seller outside the Commonwealth of

Pennsylvania shall be construed as an acceptance or offer to

buy in Pennsylvania.”

The Wisconsin statute reads in pertinent part as follows:

“(2) For the pre of this act, a consumer transaction or

modification of a consumer transaction is made in this state if:

° co °

(b) The merchant induces the customer who is a resident

of this state to enter into the transaction by face-to-face

solicitation or by mail or telephone solicitation directed

to the particular customer in this state.”

Opinion of the District Court AQ

I have reviewed the decisions of both the district

court and the court of appeals. The opinions are lucid

and persuasive expositions of the law. I agree with the

conclusion reached by both courts that a state may enact

and enforce a statutory scheme for the purpose of protect-

ing its own residents from what it considers to be the un-

fair credit practices of merchants and sellers and that the

application of such statutory schemes to large mail order

merchandisers which solicit millions of dollars of business

from the state’s own residents is not a violation of any

provision of the United States Constitution.

I see no need to discuss in detail the legal arguments

made by counsel in this proceeding, as the Pennsylvania

federal courts have already done so. However, brief com-

ment may be appropriate as to the issues raised in plain-

tiffs petition for a writ of certiorari to the Third Circuit,

a copy of which has been submitted to this court, and as

to the facts peculiar to the Wisconsin proceeding.

In that petition, plaintiff places great emphasis upon

its contention that the exclusively interstate aspect of

its credit transactions precludé any state regulation of

those transactions. Plaintiff asserts that the opinions of the

Pennsylvania federal courts represent “the farthest ad-

vance of state power to regulate interstate commerce ever

to reach this Court,” because in plaintiff's case, the state

is attempting to regulate the terms and conditions of mail

order sales contracts consummated outside the state by a

1. (Cont’d.)

fase Fae oy gem Say: > gard come mpd Ha gor rs

state and the open-end creditor or a merchant honoring a

credit card issued by the open-end creditor, is a resident of

this state or furnishes, mails or delivers the goods, services or

credit to a resident of this state while the customer is within

this state or receives a writing signed by the customer and

evidencing the transaction in state.”

A10 Opinion of the District Court

firm which has no local activities of any kind in the regu-

lating state. Plaintiff asserts that its business activity falls

into an area of “pure interstate commerce” which is sub-

ject only to regulation by the federal government since

it involves no local activity which would justify state

regulation.

As I understand plaintiffs argument, it is this: both

the Due Process Clause and the Commerce Clause pre-

clude the states from applying their legislation to business

activities carried on exclusively outside their state; the Due

Process Clause requires that regulated interstate businesses

must have at least “minimal contacts” with the regulating

state, but the Commerce Clause imposes more stringent

requirements as to the connections which the regulating

state must have with an interstate business in order to

justify state regulation. Plaintiff contends that in the ab-

sence of sufficient local activity, any regulation of inter-

state commerce is prohibited by the per se effect of the

Commerce Clause.

If one accepts plaintiffs basic premise that its busi-

ness activities are “pure interstate commerce” and that it

has no local activity within this state, then plaintiffs chal-

lenge to the Wisconsin Consumer Act would have con-

siderable weight. I cannot accept the basic premise on

which plaintiff's challenge rests. Plaintiffs activity in

Wisconsin constitutes a concerted, systematic exploitation

of the Wisconsin market. Plaintiff solicits business from

the residents of this state through mailings directed to

approximately 65,000 state residents who are listed on

plaintiffs active customer lists. Additional mailings are

made to as many as 350,000 state residents. Plaintiff deals

on a regular basis with about 23,000 state residents to

whom it makes sales of about $4,600,000 of which ap-

proximately 73% are credit sales. Plaintiff mails credit

Opinion of the District Court All

application forms and credit sales agreement forms to

Wisconsin residents. The forms and agreements are com-

pleted in this state by the Wisconsin resident before they

are mailed to plaintff in Chicago. Plaintiff's determination

of the credit standing of Wisconsin customers sometimes

involves telephoning credit bureaus located in this state

to make file checks of those customers.

The Wisconsin statute at issue herein is part of a

comprehensive revision of the state’s consumer credit laws

entitled the Wisconsin Consumer Act and enacted as

Chapter 421-427 of the Wisconsin Statutes. The Act’s

purposes and policies are set forth in § 421.102(2) which

provides:

“(2) The underlying purposes and policies of

this act are:

(a) To simplify, clarify and modernize the

law governing consumer transactions;

(b) To protect customers against unfair,

deceptive, false, misleading and unconscionable

practices by merchants;

(c) To permit and encourage the develop-

ment of fair and economically sound consumer

practices in consumer transactions; and

(d) To coordinate the regulation of con-

sumer credit transactions with the policies of the

federal consumer credit protection act.”

Plaintiff does not dispute the proposition that its con-

tacts with Wisconsin residents are sufficient to give the

courts of this state personal jurisdiction over the corpora-

tion without violating plaintiff's due process rights. Inter-

national Shoe v. State of Washington, 326 U. S. 310

(1945); Zerbel v. H. L. Federman & Co., 48 Wis. 2d 54

Al2 Opinion of the District Court

(1970). Plaintiff asserts, however, that judicial jurisdic-

tion is something quite distinct from jurisdiction for regu-

latory purposes and that the opinion of the United States

Supreme Court in National Bellas Hess v. Department of

Revenue, 386 U. S. 753 (1967) prohibits the states from

applying their substantive law to transactions which take

place out-of-state.

In my opinion, National Bellas Hess is clearly distin-

guishable from the present case. In National Bellas Hess

the State of Illinois would have required a Missouri mail

order merchandiser to collect and remit the Illinois use tax

on sales made to Illinois residents. Taxation and the col-

lection of taxation have long been regarded as obligations

which may be imposed only on those who enjoy the bene-

fits of living or operating a business within the taxing unit.

The Supreme Court found that National Bellas Hess did

not receive benefits from the State of Illinois which would

justify requiring the company to act as a tax collector for

the state of Illinois and for the myriad of independent

taxing units within the state.

The level of state activity which would justify taxa-

tion is of a far greater magnitude than the level of ac-

tivity which justifies the application of state statutes seek-

ing to protect the public health or welfare. As the district

court in Pennsylvania noted, the states constitutionally

can regulate highway speed of trucks engaged solely in

interstate commerce or control the emission of smoke from

ships in their ports. South Carolina State Highway De-

partment v. Barnwell Bros., 303 U. S. 177 (1938); Huron

Portland Cement Co. v. City of Detroit, 362 U. S. 440

(1960). While these cases involve physical presence

within the state, I have no doubt that a state can act to

protect the public welfare from activities affecting the

state on the scale of plaintiff's, even though those ac-

Opinion of the District Court A13

tivities involve no physical presence. Although plaintiff's

contacts with the state of Wisconsin are not such as would

justify taxation, they are considerably greater than the

minimal contacts which would provide a basis for judicial

jurisdiction. There is no violation of due process in sub-

jecting plaintiff to the provisions of the Wisconsin Con-

sumer Act.

Nor am I persuaded that, independently of the Due

Process Clause, the Commerce Clause prohibits the state

of Wisconsin from regulating plaintiff's credit transactions

with Wisconsin residents. As I noted earlier, plaintiff's

activity cannot be characterized as exclusively of an inter-

state nature. It is activity which is deliberately and care-

fully directed into this state.

Plaintiff argues that the Commerce Clause prohibits

the states from regulating transactions which are part of

interstate commerce, even though there may be intrastate

aspects of the transaction. Plaintiff contends that in Al-

lenberg Cotton Co. v. Pittman, 419 U. S. 20 (1974) the

Court rejected the “balancing test” which it had used

earlier to weigh the state’s interesi in regulating intrastate

aspects of interstate transactions against the national in-

terest in maintaning the fee flow of commerce. A careful

reading of Allenberg, however, reveals an unarticulated,

but implicit, balancing of interests. The interest of the

state of Mississippi in denying court access to non-qualify-

ing corporations was clearly out-weighed by the national

interest in maintaining the integrity of the cotton market.

Plaintiffs argument harkens back to an era char-

acterized by Justice Rehnquist as one “when the approved

judicial technique was to decide whether a subject was

or was not interstate commerce; if it was, Congress alone

could regulate it, and if not, only the states could.’” Al-

lenberg Cotton Co. v. Pittman, supra, at 38-39, Rehnquist,

Al4 Opinion of the District Court

J., dissenting, quoting Stern, The Commerce Clause and

the National Economy, 1933-1946, 59 Harv. L. Rev. 645,

648 (1946). Justice Rehnquist points out that the “doc-

trine of mutual exclusively” has been dispelled by such

cases as South Carolina Highway Dept. v. Barnwell Bros.,

supra. The fact that a transaction is a part of interstate

commerce no longer prohibits the states from regulating

the intrastate aspects of the transaction.

In a more recently decided case, The Great Atlantic

& Pacific Tea Company, Inc. v. Cottrell, — U. S. — (1976)

44 L. W. 4240, the Supreme Court reiterated its holding

in H. P. Hood & Sons, Inc. v. Du Mond, 336 U. S. 525

(1949), that the states retain “broad power” to legislate

protection for their citizens in matters of local concern,

“and that not every exercise of local power is invalid be-

cause it affects in some way the flow of commerce be-

tween the states.” Id. at 4241.

The Third Circuit correctly applied the “balancing

test” to the Pennsylvania law, concluding that the law

neither discriminated against persons engaged in inter-

state commerce nor unduly burdened interstate commerce.

There is nothing in the Wisconsin law nor in the facts

concerning plaintiff's operations in Wisconsin which would

compel a different result from that reached by the Third

Circuit.

From my review of the facts and law in this case, I

am persuaded that the federal courts in Pennsylvania made

the correct disposition of plaintiff's claims. I adopt as my

own the reasoning of the Court of Appeals for the Third

Circuit.

On the basis of the foregoing discussion, Ir Is Or-

DERED that plaintiffs motion for summary judgment is

Deniep; defendants’ motion for summary judgment is

GRANTED. It is the judgment of this court that the re-

Opinion of the District Court Al5

volving charge account plan, agreements and transactions

thereunder between plaintiff and its Wisconsin mail order

customers can constitutionally be regulated or governed

by the laws of the State of Wisconsin and that the laws

of the State of Wisconsin, as applied to the revolving

charge account plan, agreements and transactions there-

under between plaintiff and its Wisconsin mail order cus-

tomers, do not violate the Commerce Clause or Postal

Clause of Article I, Sec. 8, Supremacy Clause of Article

VI, the First Amendment or Section 1 of the Fourteenth

Amendment of the United States Constitution.

Entered this 16th day of March, 1976.

By THE COURT:

James E. DoyLe

District Judge

Al6 Opinion of the Court of Appeals

OPINION OF THE COURT OF APPEALS.

IN THE

United States Court of Appeals

FOR THE SEVENTH CrrcultT

No. 76-1396

ALDENS, INC.,

Plaintiff-Appellant,

vo.

Bronson C. LaFou.etre, individually and as Attorney

General for the State of Wisconsin, and Erica Mi-

DENBERG, individually and as Commissioner of Bank-

ing State of Wisconsin,

Defendants-Appellees.

APPEAL FROM THE UNITED States Districr Court

FOR THE WESTERN District OF WISCONSIN.

No. 72-C-402—James E. Doy e, Judge.

ARGUED NovEeMBER 4, 1976—DecmEp Marcu 25, 1977

Before Cummincs and Tone, Circuit Judges, and

CAMPBELL, Senior District Judge.°

Cummines, Circuit Judge. Plaintiff is an Illinois cor-

poration engaged in the business of selling merchandise

by mail order. In the court below, plaintiff sought a de-

* Senior District Judge William J]. Campbell orthern

District of inots is sittitg by decigrstion = tis

Opinion of the Court of Appeals Al7

claratory judgment that Wjsconsin could not constitution-

ally regulate its revolving charge account plan and agree-

ments 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)' should be declared unconstitutional

under the Commerce Clause of Article I, § 8, and the Due

Process Clause of the Fourteenth Amendment.’

A stipulation of facts and an affidavit of the Admin-

istrator 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 pro-

tect 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.’ This ceiling was es-

tablished to prevent overreaching and was made applica-

ble to all credit grantors competing in the Wisconsin

1. Section 428, concerning first lien real estate loans, was

added to the Act in 1973 after the filing of the complaint and is

not material to the issues in this case. L. 1973, c. 18, § 4, effective

April 22, 1973. 1973 Wis. Leg. Serv. 32-34.

2. In its complaint, the plaintiff also attacked the Wisconsin

statute on the ground that it violated the } oy clause of Article I,

Section 8, Supremacy Clause of Article VI, and the First Amend-

ment. On appeal, the attack is limited to the Commerce and Due

Process Clauses.

3. An open-end credit plan is defined in W. S. A. 421.301( 27)

as that situation where a creditor allows a customer “to make

purchases * * * from time to time, directly from the creditor” and

the customer “has the privilege of paying the balance ig full or in

installments” and the creditor may compute a finance charge “fr: -n

time to time on an outstanding unpaid balance.”

A18 Opinion of the Court of Appeals

market. The Act applies to transactions involving Wis-

consin consumers and open-end creditors who mail or de-

liver 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.‘ There

are no federal laws or regulations for a retailer’s maximum

finance or penalty charges.

In its opinion granting summary judgment to defend-

ants, the district court court set out the salient facts as

follows: The two defendants are the Attorney General of

Wisconsin and its Commissioner of Banking. They are re-

sponsible 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 transpor-

tation 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

4. The section on territorial application provides in pertinent

part:

“(2) For the purpose of this act, a consumer transaction

or modificat’ « of a consumer transaction is made in this state

if:

“(b) The merchant induces the customer who is a resi-

dent of this state to enter into the transaction by face-to-face

solicitation or by mail or telephone solicitation directed to the

particular customer in this state.

“(3) With respect to a transaction pursuant to an -

end ai plan, this act applies if the customer is a resident

of this state and the open-end creditor or a merchant honorin

a credit card issued by the open-end creditor, is a resident

this state or furnishes, mails or delivers the goods, services or

credit to a resident of this state while the customer is within

this state or receives a writing signed the customer and

evidencing the transaction in state.” W. S. A. 421.201.

Opinion of the Court of Appeals Al9

not advertise in the Wisconsin media and has no Wiscon-

sin telephone listing although a toll-free Illinois number

is provided to its customers. Indeed, Aldens is not re-

quired to collect and remit the Wisconsin use tax.

Aldens mails catalogs to Wisconsin residents four

times a year and also mails them supplemental advertise-

ments 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 Wis-

consin 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 bu-

reaus. Aldens rejects about 40% of all its new credit ap-

plications 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 num-

ber 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 in-

terest. Merchandise sold by Aldens to Wisconsin cus-

A20 Opinion of the Court of Appeals

tomers 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 Chi-

cago to its Wisconsin credit customers following their pur-

chases 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 de-

linquent 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. 422.221.5

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 ad-

vertising materials containing Wisconsin credit

terms

$51,000

5. Pending the outcome of this litigation, Aldens has adopted

a credit agreement for use of its Wisconsin customers that com-

plies with the Wisconsin Consumer Act.

Opinion of the Court of Appeals A21

b. Special computer processing and handling costs

for Wisconsin customers in setting up accounts

and producing monthly billing statements

13,700

c. Loss of revenue on elimination of minimum

charges

7,200

d. Loss of revenue on account of Wisconsin finance

charge rate

92,000

TOTAL $163,900

I

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 con-

sider these constitutional arguments in reverse order.

II

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 regula-

tion 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 recog-

nize a due process limitation on the extraterritorial exer-

0 Te ae pare ne

A22 Opinion of the Court of Appeals

cise 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. However, prior cases involving Aldens

= any independent exegesis on our part totally point-

ess.

Before this case was decided by Judge Doyle, a com-

panion case was filed by Aldens seeking a declaratory

judgment that the similar Pennsylvania Goods and Ser-

vices Installments Sales Act was unconstitutional as ap-

plied 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 (424 F.

2d 38), and certiorari was subsequently denied. 425 U. S.

943. Judge Gibbons’ well-considered opinion for the

Third Circuit thoroughly discusses the balancing issues

raised on appeal before us. We fully agree with his dis-

position and adopt his opinion as our own.”

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

6. This is a case where the basic premise of the Commerce

Clause interest-balancing line of reasoning would be present, viz.:

“[a] State interfer[ing] with the natural functioni

interstate market either through prohibition or a hPa

—— bg al Hughes v. Alexandria Scrap Corp., 426

7. In the court below, Judge Doyle also adopted the i

of the Court of Appeals for the Third Circuit in ph hogs sap

Packel. Because a petition for certiorari was then pending his

opinion, with which we are fully in accord, commented on the

issues raised in Aldens’ petition for writ of certiorari to the Third

Circuit. Since that petition was denied, we need not consider it.

Opinion of the Court of Appeals A23

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 un-

duly burdensome on interstate commerce are fully con-

sistent with our result on the balancing issue. Great

Atlantic & Pacific Tea Co. v. Cottrell, 424 U. S. 366, 370-

372 and n. 6 reaffirms the Pike v. Bruce Church, Inc.* 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. Packel, supra, 524 F. 2d at 47-50.

Boston Stock Exchange v. State Tax Commission, —

U. S. —, 45 LW 4093, recently invalidated a tax discrimi-

nating against interstate commerce but did not involve

the exercise of state police power for the protection of state

citizens. The police power of a state and its power to tax

are of course treated differently for constitutional pur-

poses. See Freeman v. Hewitt, 329 U. S. 249, 253. Un-

like the exercise of a state’s police power which is sus-

tainable absent an undue burden on interstate commerce

which is clearly excessive in relation to local benefits,

Great Atlantic & Pacific Tea Co. v. Cottrell, supra, “extra-

territorial. impositions of tax collection obligations have

been upheld only when it can be said that a benefit has

been conferred on the tax collector by virtue of the state’s

sovereignty, and the tax is related to that benefit.” Aldens,

Inc. v. Packel, supra, 524 F. 2d at 43-44; Colonial Pipeline

Co. v. Traigle, 421 U. S. 100, 108. But it is Wisconsin's

police power, exercised to protect its citizen-consumers

from oppressive credit terms, which is implicated here.

8. 397 U. S. 137, 142.

A24 Opinion of the Court of Appeals

The question of taxation of business in interstate trans-

actions is not involved. The Wisconsin Consumer Act

merely regulates plaintiffs dealings with Wisconsin resi-

dents and the only fee imposed is to cover the costs of

administering the Act. W. S. A. 426.202. Judge Doyle

found that the fee provisions of the Act in fact were nec-

essary for its administration. Therefore, the Boston Stock

Exchange case is of no help to Aldens. Thus federalist

considerations do not permit this regulation.

Il

Aldens’ most vigorous constitutional attack questions

the very existence of Wisconsin’s power to regulate a

purely interstate trader. To be sure, if not fully equiva-

lent, Aldens’ conduct asymptotically approaches that of

the paradigm interstate trader. But so long as the inter-

state trader’s conduct has a “connection in fact” with a

state producing an effect within a state, the interstate char-

acter of his conduct is only an element of the interest-

balancing analysis of the “federalist” arguments just

addressed. Nippert v. Richmond, 327 U. S. 416, 423-424.

Most especially in the exercise of the police power, state

sovereignty is, in many areas of interstate commerce, par-

allel to and concurrent with that of the federal govern-

ment. Huron Portland Cement Co. v. City of Detroit,

362 U. S. 440, 442; California v. Thompson, 313 U. S. 109,

112-113; see National League of Cities v. Usery, 426 U. S.

833, 840-845. As we demonstrate below, nothing in the

Due Process Clause or the Commerce Clause casts doubt

on this tenet of federalism.

A. Due Process Clause

State sovereignty is not absolute. State power can

only be exercised against a person within the confines of

Opinion of the Court of Appeals A25

due process of law drawn by its procedural and sub-

stantive aspects. However, since substantive due process

is now limited to a commitment to fundamental fairness

(Whalen v. Roe, — U. S. —, —, 45 LW 4166, 4167-4168),

substantive due process analysis is generally academic

because the application of any regulation which is funda-

mentally unfair also would not withstand a procedural

analysis. Here Aldens argues that substantive due process

independently denies Wisconsin the jurisdiction to pre-

scribe those portions of the Wisconsin Consumer Act

which apply to interstate mail order houses.* Cf. Rivard

v. United States, 375 F. 2d 882, 885 (5th Cir. 1967),

certiorari denied, 389 U. S. 884.

Undoubtedly, substantive due process imposes a floor

on the nexus between a person and his practices relative

to a state which will be sufficient to support legislation

running against him.’® Cf. Pacific Seafarers, Inc. v. Pacific

Far East Line, Inc., 404 F. 2d 804, 815 (D. C. Cir. 1968),

certiorari denied, 393 U. S. 1093. And the connection

between a state and the regulated person must be of a

more substantial character than the “minimum contacts”

needed to support judicial process running against a per-

9. Aldens makes the following distinction: “Judicial jurisdic-

tion to enforce the terms of a contract entered into in another state

is vastly different from the legislative power which is required to

dictate the substantive terms of the contract at its inception. It is

the fundamental difference of enforcing the contract in Wisconsin

as it was entered into in Illinois on the one hand and establishing

the substantive terms of that contract as it was made in Illinois on

the other hand that is the very essence of the difference between

service of process cases and cases with sufficient contacts to sustain

regulatory jurisdiction which can change or dictate the terms of

the contract.” (Reply Br. at 8.)

10. Suppose that many Wisconsin citizens have summer homes

in Minnesota. Wisconsin could not regulate Aldens’ credit terms

in mailings to Wisconsin citizens at their Minnesota summer

addresses. New York Life Ins. Co. v. Dodge, 246 U. S. 357, 376-

377; a & Indemnity Co. v. Delta & Pine Land Co.,

292 U. S. 143.

A26 Opinion of the Court of Appeals

son. Travelers Health Assn. v. Virginia, 339 U. S. 643,

652-653 (Douglas, J., concurring); cf. Comment, Cor-

porate Registration: A Functional Analysis of “Doing

Business,” 71 Yale L. J. 575, 585-586 nn. 54 and 56 (1962).

But by now “objective territoriality,” at least in domestic

cases, is beyond argument, viz.:

“any state may impose liabilities, even upon persons

not within its allegiance, for conduct outside its

borders that has consequences within its borders

which the state reprehends * * *.” United States v.

Aluminum Co. of America, 148 F. 2d 416, 443 (2d

Cir. 1945).

Travelers Health Assn. v. Virginia, 339 U. S. 643, 648; see

Hoopeston Canning Co. v. Cullen, 318 U. S. 313, 316-317.

As for the Wisconsin Consumer Act, it has not been

“shown to be other than what on its face it appears

to be a measure to safeguard the members of the

public desiring to secure [goods] by [credit]. who are

peculiarly unable to protect themselves from fraud

and overreaching of those engaged in a business no-

toriously subject to those abuses.”" California v.

Thompson, 313 U. S. 109, 112-113.

11. Aldens points out that at no time has there ever been an

allegation that its credit practices are unfair, deceptive, false, mis-

leading or unconscionable. Thus Aldens maintains that applyin

the Act to the company is not rationally related to the Pe tm

purposes of the Act, ially where Wisconsin is operating near

the outer boundary of its legislative power. Aldens apparently

(nor : we as containing an equal protection violation.

r. 1-7.

The Wisconsin Consumer Act is Pare ie the product of

an orderly and rational legislative decision.” Whalen v. Roe, —

U. S. —, —, 45 LW 4166, 4168. The fact that no rp pa have

late equal ; AT be 3 Court eq rar Spine

te protection. upreme “frequ -

nized that individual States have broad latitude in experimentin

with possible solution to problems of vital local concern.” Id

Opinion of the Court of Appeals A27

Protecting Wisconsin citizens from usurious credit terms

imposed when they are residents of the state certainly

meets due process minimums.” L

B. Commerce Clause

“(T]he Commerce Clause even without implementing

legislation by Congress is a limitation upon the power of

the States.” Freeman v. Hewitt, 329 U. S. 249, 252. But

the scope of the linutation has evolved through a balancing

analysis. “The Commerce Clause does not, however,

eclipse the reserved ‘power of the States ° °°.” Boston

Stock Exchange v. State Tax Commission, — U. S. —, —,

45 LW 4093, 4096; California v. Thompson, 313 U. S. 109.

The mere fact that the person regulated is an interstate

trader does not ipso facto override the independent sover-

eignty of the states. Complete Auto Transit, Inc. o.,

Brady, — U. S. —, 45 LW 4259; National League of Cities

v. Usery, 426 U. S. 833; Robertson v. California, 328 U. S.

440, 458-459. As we noted above, that fact is only rele-

vant to the process of balancing those interests which ani-

mate the Commerce Clause with the state’s legitimate local

interests. See Beaird & Ellington, A Commerce Power

Seesaw: Balancing National League of Cities, 11 Ga. L.

11. (Cont’d.) a -

is economic legislation,¢learly justified by Wisconsin's

ee pra o its po from sharp credit practices, it =

not offend the equal protection clause. McGowan v. Maryland,

366 U. S. 420, 425-496. Williamson v. Lee Optical Co., 348 U. S.

a that determines the

i nature of the state’s action tha ermines

kind or Fstop activity in the state ge for satisfying the

ements of due process.” Travelers Health Assn. v. Virginia,

U. S. 643, 653 (Dou , J., concurring)® The police power

requires less of a nexus a state's power to tax or to regulate

intrastate commerce. Protection of its citizens is the primary

function of state government. Freeman v. Hewitt, 329 U. S. 249,

253.

oD Pew AP RENE Ree epee eens ae oS

A28 Opinion of the Court of Appeals

Rev. 35 (1976). When Congress has chosen not to legis-

late in the field, the Commerce Clause cannot ex proprio

vigore vitiate state sovereignty unless state regulation

creates an undue burden on interstate commerce. Com-

plete Auto Transit, Inc. v. Brady, supra.

Those cases which find state regulation against a

purely interstate trader unconstitutional are best concep-

tualized as declaring that regulations of a certain character

are per se undue rather than void ab initio as forbidden

restraints on a purely interstate trader. Such per se regu-

lations may be generically deemed as undue because of a

pernicious effect on interstate trade without a correspond-

ingly high state justification. See International Harvester

Co. v. Dept. of Treasury, 322 U. S. 340, 353 (Rutledge,

J., concurring); cf. Northern Pacific Ry. Co. v. United

States, 356 U. S. 4, 5. The propriety of such a generic

judgment was eloquently demonstrated thirty years ago

by Justice Frankfurter:

“These principles of limitation on State power

apply to all State policy not matter what State inter-

est gives rise to its legislation. A burden on interstate

commerce is none the lighter and no less objectionable

because it is imposed by a State under the taxing

power rather than under manifestations of police

power in the conventional sense. But, in the neces-

sary accommodation between local needs and the

overriding requirement of freedom for the national

commerce, the incidence of a particular type of State

action may throw the balance in support of the local

need because interference with the national interest is

remote or unsubstantial. A police regulation of local

aspects of interstate commerce is a power often es-

sential to a State in safeguarding vital local interests.

At least until Congress chooses to enact a nationwide

Opinion of the Court of Appeals A29

rule, the power will not be denied to the State. State

taxation falling on interstate commerce, on the other

hand, can only be justified as designed to make such

commerce bear a fair share of the cost of the local

government whose protection it enjoys. But revenue

serves as well no matter what its source. To deny to

a State a particular source of income because it taxes

the very process of interstate commerce does not im-

pose a crippling limitation on a State’s ability to

carry on its local function. Moreover, the burden on

interstate commerce involved in a direct tax upon it

is inherently greater, certainly less uncertain in its

consequences, than results from the usual police regu-

lations. The power to tax is a dominant power over

commerce. Because the greater or more threatening

burden of a direct tax on commerce is coupled with

the lesser need to a State of a particular source of

revenue, attempts at such taxation have always been

more carefully scrutinized and more consistently re-

sisted than police power regulations of aspects of such

commerce.” Freeman v. Hewitt, 329 U. S. 249, 253.

(Omitting citations. )

Under this analysis, it can be seen that Aldens’ prin-

cipal case, viz., National Bellas Hess v. Dept. of Revenue,

386 U. S. 753, does not aid plaintiff. Aldens’ protestations

that Bellas Hess is not a tax case are contradicted by the

opinion itself. The initial construction of its constitu-

tional argument made clear that Bellas Hess was being

analyzed as a tax case:

“For the test whether a particular state exaction is

such as to invade the exclusive authority of Congress

to regulate trade between the States, and the test for

a State’s compliance with the requirements of due

A30 Opinion of the Court of Appeals

process in this area are similiar.” (Emphasis sup-

plied.) 386 U. S. at 756.

Every case cited by the Court deals not with the power to

regulate but rather with the power to tax. Any doubt that

Bellas Hess was being analyzed as a tax case, even though

strictly speaking the duty imposed on Bellas Hess was to

collect a tax falling on someone else, was conclusively dis-

spelled by footnote 9. 386 U. S. at 757 n. 9. Thus asa

de facto tax on a purely interstate trader, the legislation

in Bellas Hess was a per se undue burden.

Likewise, Allenberg Cotton Co. v. Pittman, 419 U. S.

20, concerns state regulation which may be generically

deemed as an undue burden on interstate commerce.

There the Court held unconstitutional a state’s refusal to

honor and enforce contracts made for interstate or foreign

commerce because of the enforcing corporation’s failure

to qualify to do business in the state."* Such a refusal to

honor was generically repugnant to the central purposes

of the Commerce Clause. Indeed, the opinion implicity

declares the refusal to honor to be a heavier burden on

interstate commerce than local tax incidents. 419 U. S.

at 33-34.

Contrary to Bellas Hess and Allenberg, the case now

before us is an exercise of the police power. As such it is

inappropriate to treat it on a per se basis. See Eli Lilly &

Co. v. Sav-On-Drugs, 366 U. S. 276, 284 n. 1 (Harlan, J.,

concurring). Rather, a balancing test is in order. South

Carolina Hwy. Dept. v. Barnwell Bros., 303 U. S. 177.

Since the Wisconsin Consumer Act has already been

shown not to be an undue burden on interstate commerce

13. Although the transaction had intrastate aspects, they were

of the sort which are “in fact ‘a part of interstate commerce.”

419 U. S. at 30. Thus Allenberg was in all material respects purely

an interstate trader.

Opinion of the Court of Appeals A31

under a balancing analysis, see part II supra, the Act is,

therefore, constitutional.

IV

For the foregoing reasons, we find that the application

of the Wisconsin Consumer Act to Aldens is constitutional

and therefore affirm the judgment of the district court.

AFFIRMED.

ae ee ee ee ee

A32 Court of Appeals Order on Pet. for Rehearing

ORDER OF THE COURT OF APPEALS

ON PETITION FOR REHEARING.

United States Court of Appeals

FOR THE SEVENTH tincurr

Cuicaco, ILurnors 60604

No. 76-1396

April 25, 1977

BEFORE

Hon. Water J. Cummincs, Circuit Judge

Hon. Pup W. Tong, Circuit Judge

Hon. Wi.u1aM J. CAMPBELL, Senior District Judge*®

ADLENS, INC.,

Plaintiff-Appellant,

Dv.

BRONSON C. LaFOLLETTE, etc., et al.,

Defendants-Appellees.

APPEAL FROM THE UNITED STATEs Districr Court

FOR THE WESTERN DisTRICT OF WISCONSIN.

No. 72-C-402

James E. Doyte, Judge.

* Senior District Judge William J. Campbell of the Northern

District of Illinois is sitting by designation.

Court of Appeals Order on Pet. for Rehearing A33

ORDER

On consideration of the petition for rehearing en banc

filed in the above-entitled cause by plaintiff-appellant,

Aldens, Inc., no judge in active service has requested a

vote thereon, and all the judges on the original panel have

voted to deny a rehearing en banc. Accordingly,

Ir Is Orvenep that the aforesaid petition for rehear-

ing be, and the same is hereby, DENIED.

It Is FurtHer Orperep that “and Allenberg” be

stricken from line 7 of page 14 of the slip opinion.

A34 Statutes Involved

STATUTES INVOLVED.

Wisconsin Consumer Act

421.201 Territorial application

(1) Except as otherwise provided in this section, this

act applies to consumer transactions made in this state and

to modifications including refinancings, consolidations and

deferrals, made in this state, of consumer credit transac-

tions wherever made.

(2) For the purposes of this act, a consumer trans-

action or modification of a consumer transaction is made

in this state if:

(a) A writing signed by the customer and evi-

dencing the obligation or an offer of the customer is

received by the merchant in this state; or

(b) The merchant induces the customer who is a

resident of this state to enter into the transaction by

face-to-face solicitation or by mail or telephone solic-

itation directed to the particular customer in this

state.

(3) With respect to a transaction pursuant to an

open-end credit plan, this act applies if the customer is a

resident of this state and the open-end creditor or a mer-

chant honoring a credit card issued by the open-end credi-

tor, is a resident of this state or furnishes, mails or delivers

the goods, services or credit to a resident of this state while

the customer is within this state or receives a writing

signed by the customer and evidencing the transaction in

this state.

(4) Chapter 427 applies to any debt collection activ-

ity in this state, including debt collection by means of

Siatutes Involved A35

mail or telephone communiciations directed to customers

in this state.

(5) Subchapters I and II of ch. 425, relating to credi-

tors’ remedies, including applicable penalties, apply to

actions or other proceedings brought in this state to en-

force rights arising from consumer transactions or extor-

tionate extensions of credit, wherever made, but conduct,

action or proceedings to recover collateral shall be gov-

erned by the law of the state where the collateral is lo-

cated at the time of its recovery unless the collateral is

owned by a Wisconsin resident who has removed it from

this state only for purposes of transportation to or use in

the resident’s employment or for temporary periods which

do not exceed 15 days.

(6) If a consumer transaction, or modification there-

of, is made in another state with a customer who is a resi-

dent of this state when the transaction or modification is

made, the following provisions apply as though the trans-

action occurred in this state:

(a) A creditor, or assignee of his rights, may

collect through actions or other proceedings charges

only to the extent permitted by ch. 422; and

(b) A merchant may not enforce rights against

the customer to the extent that the provisions of the

agreement violate subch. IV of ch. 422 or 423.

(7) Except as provided in sub. (4) or (5), a con-

sumer transaction or modification thereof, made in another

state with a customer who was not a resident of this state

when the consumer transaction or modification was made,

is valid and enforceable in this state according to its terms

to the extent that it is valid and enforceable under the

laws of the state applicable to the transaction.

A36 Statutes Involved

(8) For the purposes of this act, the residence of a

customer is the address given by him as his residence in

any writing signed by him in connection with a consumer

transaction. The given address is presumed to be un-

changed until the merchant knows or has reason to know

of a new or different address.

(9) Notwithstanding other provisions of this section:

(a) Except as provided in sub. (4) or (5), this

act does not apply if the customer is not a resident of

this state at the time of a consumer transaction and

the parties then agree that the law of his residence

applies; and

(b) This act applies if the customer is a resident

of this state at the time of a consumer transaction and

4 parties then agree that the law of this state ap-

plies.

(10) Except as provided in sub. (9), the following

terms of a writing executed by a customer are invalid with

respect to consumer transactions, or modifications thereof

to which this act applies:

(a) That the law of another state shall apply;

(b) That the customer consents to the jurisdic-

tion of another state; and

(c) That fixes venue.

422.201 Finance charge for consumer credit transactions

(1) With respect to a consumer credit transaction

other than one pursuant to an open-end credit plan, the

parties may agree to the payment by the customer of a

ae charge not in excess of that permitted by subs. ( 2)

to ,

Statutes Involved A37

(2) The finance charge, calculated according to the

actuarial/method, may not exceed the equivalent of the

total of the following:

(a) Eighteen per cent per year on that part of

the unpaid balance of the amount financed which is

$500 or less; and

(b) Twelve per cent per year on that part of

the unpaid balance of the amount financed which is

more than $500.

(3) For licensees under s. 138.09 and under s. 218.01,

the finance charge, calculated according to those sections,

may not exceed the maximums permitted in ss. 138.09 and

218.01, respectively.

(4) For sellers of farm equipment, farm implements

and farm tractors, other than licensees under s. 218.01, the

finance charge on the sale of equipment may not exceed

the Class 2 rate for motor vehicles, as specified in s. 218.01

(6), and calculated in accordance with that section.

(5) For the purposes of this section:

(a) The finance charge may be calculated on

the assmption that all scheduled payments will be

made when due;

(b) The dollar amount of finance charge shall

include the prepaid finance charge excluded from the

amount financed; and

(c) The effect of prepayment is governed by

the provisions on rebate upon prepayment under s.

422.209.

(6) For the purposes of this section, the term of a

consumer credit transaction other than one pursuant to an

open-end credit plan commences with the date the credit

A38 Statutes Involved

is granted or, if goods are delivered, services performed

or proceeds of a loan paid 10 days or more after that

date, with the date of commencement of delivery or per-

formance. Differences in lengths of months are disre-

garded and a day may be counted as one-thirtieth of a

month.

(7) Subject to classifications and differentiations the

merchant may reasonably establish, he may make the same

finance charge on all amounts financed within a specified

range. A finance charge so made does not violate sub.

(2), (3) or (4) as the case may be if:

(a) When applied to the median amount within

each range, it does not exceed the maximum per-

5 a by sub. (2), (3) or (4) as the case may be;

(b) When applied to the lowest amount within

each range, it does not produce a rate of finance

charge exceeding the rate calculated according to par.

(a) by more than 8% of the rate calculated accord-

ing to par. (a).

(8) Notwithstanding sub. (2), (3 or (4), a merchant

may contact for and receive a minimum finance charge

with respect to a transaction other than one pursuant to

an open-end credit plan, of not more than $5 when the

amount financed does not exceed $75, or $7.50 when the

amount financed exceeds $75.

(9) With respect to consumer credit transactions

pursuant to an open-end credit plan the parties may agree

to the payment by the customer of a finance charge not in

excess of those permitted by sub. (2) or (3), whichever

is applicable. ‘

xs

Statutes Involved A39

(a) A finance charge shall be deemed not to

exceed such rates, if it is determined by applying a

periodic rate not in excess of those specified in par.

(b) or (c) to:

1. The average daily balance of the account;

2. The unpaid balance of the account on

the last day of the billing cycle calculated after

first deducting all payments, credits and refunds

during the billing cycle; or

3. The median amount within a specified

range within which the unpaid balance as calcu-

lated according to subd. 1 or 2 is included. A

charge may be made pursuant to this paragraph

only if the creditor, subject to classifications and

differentiations he may reasonably establish,

makes the same charge on all balances within

the specified range and if the percentage when

applied to the median amount within the range

does not exceed the charge resulting from apply-

ing that percentage to the lowest amount within

the range by more than 8% of the charge on the

median amount.

(b) If the billing cycle is monthly, the maximum

periodic rate is 1.5% of that part of the amount spec-

ified in par. (a) which is $500 or less, and one per

cent of that part of such amount which is more than

$500; except that for licensees under s. 138.09 the

maximum periodic rate shal] not exceed a periodic

rate equivalent to the rate permitted under s. 138.09,

as determined by the administrator.

(c) If — cycle is not monthly, the maxi-

mum tes are those percentages which bear

the same relation to the percentages specified in par.

A40 Statutes Involved

(b) as the number of days in the billing cycle bears

to 30.

(d) Irrespective of variations from cycle to

cycle, a billing cycle is “monthly” for purposes of this

section if the average length of 12 successive cycles

is not less than 30 or more than 32 days.

(10) Anything to the contrary in this chapter not-

withstanding, with respect to consumer credit sales and

consumer loans secured by real property and insured or

guaranteed by the federal government, or any agency or

instrumentality thereof, this chapter shall not prohibit

or limit any charges which are required by statutes, rules

or regulations of such government, agency or instrumen-

tality.

(11) A violation of this section is subject to s. 425.305.

425.305 Transactions which are void

(1) Ina transaction to which this section applies, the

customer shall be entitled to retain the goods, services or

money received pursuant to the transaction without obli-

gation to pay any amount.

(2) In addition, the customer shall be entitled to re-

' cover any sums paid to the merchant pursuant to the

transaction.

425.306 Unenforceable obligations

(1) Any charge, practice, term, clause, provision, se-

curity interest or other action or conduct in violation of

this act, to the extent that the same is in violation of this

act, shall confer no rights or obligations enforceable by

action.

(2) This section shall not affect the enforcement of

any provision that is not prohibited by this act.

Statutes Involved A4l

425.401 Wilful violations: misdemeanor

A person who wilfully and knowingly engages in any

conduct or practice in violation of this act may be fined

not more than $2,000.

426.301 Violations and enforcement

(1) The administrator may recover in a civil action

from a person who violates this act or any rule made pur-

suant to any authority granted in this act, a civil penalty

of not less than $100 and not more than $1,000 for each

violation.

(2) In addition to the amount to which he shall be

entitled under sub. (1), the administrator may recover in

a civil action from a person who knowingly or wilfully

violates this act or any rule made pursuant to any author-

ity granted in this act, a civil penalty of not less than

$1,000 and not more than $10,000 for each violation.