Petition — Aldens, Inc. v. Ryan

Tax

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IN THE

Supreme Court of the United

October Term, 1978.

No. €8-3 3

ALDENS, INC.,

Petitioner,

0.

PATRICK C. RYAN, Administrator of Consumer Affairs

for the State of Oklahoma,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT.

BERNARD G. SEGAL,

RALPH S. SNYDER,

James D. CRAWFORD,

Attorneys for Petitioner.

SCHNADER, HARRISON, SEGAL & LEWIS,

1719 Packard Building,

Philadelphia, Pennsylvania. 19102

JaMeEs D. FELLERS,

Jap W. BLANKENSHIP,

FELLERS, SNIDER, BLANKENSHIP & BalLey, P. C.,

2700 First National Center,

Oklahoma City, Oklahoma. 73102

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

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QuEsTIONS PRESENTED ...

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REASONS FOR GRANTING THE WRIT ...........-.-0eeeeeeee:

The Fundamental Purpose of the Commerce Clause, To

Create and Protect National Markets for the Sale of

Goods and Services, Precludes the Application of

Oklahoma's Interest Ceiling to Petitioner, a Trader

Which Deals With Customers in Oklahoma Only

Through Interstate Commerce in Such a Market ...

The Due Process Clause, as Well as the Commerce

Clause, Prohibits Oklahoma's Regulation of Aldens’

Finance Charges

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TABLE OF CITATIONS.

Cases: Page

Alaska v. Arctic Maid, 366 U.S. 199 (1961) ...........005, 13

Aldens, Inc. v. LaFollette, 552 F. 2d 745 (7th Cir. 1977) .... 14

Allenberg Cotton Co. v. Pittman, 419 U. S. 20 (1974) ...... 9, 13

Bibb v. Navajo Freight Lines, 359 U. S. 520 (1959) ........ 8

Freeman v. Hewit, 329 U. S. 249 (1946) ..........cceeeees 8,13

Gibbons v. Ogden, 22 U. S. (9 Wheat.) 1 (1824) .......... 8,13

H. P. Hood & Sons v. Du Mond, 336 U. S, 525 (1949) ....8, 11, 12

Hughes v. Alexandria Scrap Corp., 426 U. S. 794 (1976) . .10, 11, 12

Hunt v. Washington Apple Advertising Commission, 432 U. S.

EY Fe Liteon one alee wasuiang hee wiebn bbe eae es 8

National Bellas Hess v. Illinois Department of Revenue, 386

ee RE Foye Os Ws kbs ces i Seondegaesuer 4, 12, 14,15

National Geographic Society v. California Board of Equaliza-

UAE UE UU ED 0 ccs Vos cdidtwesvedcaaeeess 5, 9, 12

Nippert v. Richmond, 327 U. S. 416 (1946) ............... 13

Pennsylvania v, West Virginia, 262 U. S. 553 (1923) ........ 12

Raymond Motor Transportation, Inc. v. Rice, — U. S. —, 46

U. S. L. W. 4109 (February 21, 1978) ................ 14

Southern Pacific Co. v. Arizona, 325 U. S. 761 (1945) . .5, 10, 13,14

Statutes:

Oklahoma Consumer Credit Code, Okla. Stat. tit. 14A:

TRADE ire cecahahia bob hi-0¥ 404 cga.0epA0ahanea 2, 3,5

Lon nweneGeutee aladehbechecens 2, 4,5, 6

ee uae rea cauhedh oaeneu sos )

OES SE ee 14

Constitution of the United States:

Article I, Section 8, Clause 3 ..... ey ee tee Pe 2

ET IED a cnc ncccccecasescacevvvessece 2

Es occu sd desdecneuedsbadvvectseeese se 2

IN THE

Supreme Court of the United States

Ocroser Term, 1978.

No.

ALDENS, INC.,

Petitioner,

v.

PATRICK C. RYAN, Administrator of Consumer Affairs

for the State of Oklahoma

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT.

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

the judgment of the United States Court of Appeals, for

the Tenth Circuit entered in this case on February 27,

1978.

OPINIONS BELOW.

The opinion of the United States Court of Appeals

for the Tenth Circuit (A23-A27)’ is reported at 571 F. 2d

1159; the opinion of the United States District Court for

the Western District of Oklahoma (A1-A20) has not yet

been officially reported.

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

to this petition.

2 Petition for Writ of Certiorari

JURISDICTION.

The judgment of the Court of Appeals (A28) was

entered on February 27, 1978. Aldens filed a timely peti-

tion for rehearing en banc which was denied on April 4,

1978 (A29-A30).

The jurisdiction of this Court is invoked pursuant to

28 U.S. C. § 1254(1).

QUESTIONS 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 contact

with the residents of that state is by interstate mail or

common carrier?

CONSTITUTIONAL PROVISIONS AND

STATUTE INVOLVED.

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

the United States provides: ,

“The Congress shall have Power . . . To regu-

late Commerce with foreign Nations, and among the

several 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. .. .”

Sections 1-201 and 1-201A of the Oklahoma Consumer

Credit Code, Oxta. Srar. tit. 14A, §§ 1-201, 1-201A, pro-

vide in pertinent part:

LS

Petition for Writ of Certiorari 3

§ 1-201. Territorial application —(1) Except as

otherwise provided in this section, this Act applies to

sales, leases, and loans made in this State and to modi-

fications, including refinancings, consolidations, and

deferrals, made in this State, of sales, leases, and loans,

wherever made. For purposes of this Act.

(a) a sale or modification of a sale agree-

ment is made in this State if the buyer's agree-

ment or offer to purchase or to modify is rece*ved

by the seller in this State;

(2) With respect to sales made pursuant to a

revolving charge account (Section 2-108), this Act

applies if the buyer’s communication or indication of

his intention to establish the account is received by

the seller in this State. If no communication or indi-

cation of intention is given by the buyer before the

first sale, this Act applies if the seller's communication

notifying the buyer of the privilege of using the ac-

count is mailed or personally delivered in this State.

(5) If a consumer credit sale, consumer lease,

or consumer loan, or modification thereof, is made in

another state to a person who is a resident of this

State when the sale, lease, loan or modification is

made, the following provisions apply as though the

transaction occurred in this State:

(a) a seller, lessor, lender, or assignee of his

rights, may not collect charges through actions or

other proceedings in excess of those permitted by

the Article on Credit Sales (Article 2) or by the

Article on Loans (Article 3);

4 Petition for Writ of Certiorari

§ 1-201A. Extraterritorial application.—With re-

spect to a consumer credit sale or consumer loan to

which this Code does not otherwise apply by reason

of Section 1-201, if, pursuant to a solicitation relating

to a consumer credit sale or loan received in this state,

a person who is a resident of this state sends a signed

writing evidencing the obligation or offer of the person

to a creditor in another state, and the person receives

the goods or services purchased or the cash proceeds

of the loan in this state:

1. The creditor may not contract for or re-

ceive charges exceeding those permitted by this

Code, and such charges as do exceed those per-

mitted are excess charges for purposes of Sections

5-202(3) and (4) and 6-113 of the Code and

such sections shall apply as though the consumer

credit sale or consumer loan were made in this

state; and

2. The provisions on Powers and Functions

of Administrator (Part 1 of Article 6 of this Code)

shall apply as though the consumer credit sale or

consumer loan were made in this state.

STATEMENT.

This petition pleads the cause of an interstate trader

who seeks to service a national, interstate market for con-

sumer credit purchases within the historic protections of

the Commerce Clause against “a virtual welter of compli- .

cated obligations to local jurisdictions,” National Bellas

Hess v. Illinois Department of Revenue, 386 U. S. 753, 760

(1967),—“obligations” which have substantially diminished

and, if not remedied by this Court, will eventually destroy

an interstate market—in direct contravention of constitu-

tional law, precedent and policy.

Petition for Writ of Certiorari 5

Petitioner, like many other mail order houses in this

country, has decided to limit its business activities strictly

to those of an interstate nature, foregoing the obvious

economic benefits of local business activity in order to’

cultivate a broader national interstate market specifically

aimed at a market which includes many of those federal

citizens who cannot obtain credit at the rates available in

their own states—a market others have elected not to

serve. In return for having rendered itself less able to

take economic advantage of local business and unable

to participate effectively in the local political processes

which would contribute to change in the state’s regulatory

laws, see Southern Pacific Co. v. Arizona, 325 U. S. 761,

776-78 n. 2 (1945), petitioner invokes the constitutional

right of a mail order seller “who doles] no more than

communicate with customers in the State by mail or

common carrier as part of a general interstate business,”

National Geographic Society v. California Board of Equali-

zation, 430 U. S. 551, 559 (1977), to engage in that business

free from such state regulation.

In invoking this right, petitioner also asserts the rights

of those Oklahoma consumers—and those consumers

nationwide—who cannot obtain credit to purchase con-

sumer items under the credit terms which Oklahoma and

some other states impose, to use the United States mails

to release themselves from local regulation, in order to

take advantage of one of those national markets which

the Commerce Clause was designed to create and

preserve.

This litigation arose because of the adoption of the

Act of May 13, 1975 amending Section 1-201 of the Okla-

homa Consumer Credit Code, Oxia. Start. Tit. 14A,

§ 1-201, by adding a new section 1-201A. This section

provides for extraterritorial application of the Code to

transactions not covered under § 201:

6 Petition for Writ of Certiorari

“ . . if, pursuant to a solicitation relating to a

consumer credit sale or loan received in this state, a

person who is a resident of this state sends a signed

writing evidencing the obligation or offer of the

person to a creditor in another state, and the person

receives the goods or services purchased or the cash

proceeds of the loan in this state . . . [t]he creditor

may not contract for or receive charges exceeding

those permitted by this Code. . . .”

Less than a month after the effective date of the

amending act, Aldens filed the present complaint on June

3, 1975. The complaint sought judgment declaring

§ 1-201A and § 1-201(5)(a) of the original Code (pro-

hibiting proceedings in Oklahoma to collect charges in

excess of those permitted by Oklahoma on consumer credit

sales made in another state to an Oklahoma resident) un-

constitutional. Stipulations of fact were prepared and, on

June 14, 1976, the Honorable Frederick A. Daugherty

denied Aldens’ request for declaratory judgment and dis-

missed the action. Chief Judge Daugherty’s opinion is

contained in the appendix at pages Al-A20, Aldens there-

upon appealed to the United States Court of Appeals for

the Tenth Circuit which affirmed in an opinion printed at

pages A23-A27.

The essential factual information concerning the

purely interstate character of Aldens’ transactions with

Oklahoma citizens is laid out in the opinion of the court

of appeals:

“Aldens solicits by mailing its catalogues and flyers

to Oklahoma residents. Its place of business is in

Illinois, and it has no agents in Oklahoma, no tele-

phone listings there. Its advertising is done only by

mail. Aldens is not required to collect and remit the

Petition for Writ of Certiorari 7

Oklahoma use tax, and is not required to qualify to do

business in Oklahoma. The material for credit pur-

chases and applications for credit are also sent by mail

only. The credit agreement recites that it is an Illinois

contract, and all orders are accepted in Illinois. Ap-

plications for credit from Oklahoma residents for the

most part are checked with national credit agencies

and a few are checked directly with Oklahoma sources

by Aldens.” (571 F. 2d at 1161, A24)

Nevertheless, the court noted that the number and dollar

volume of credit transactions between Aldens and Okla-

homa residents which would fall within the amended Code

were substantial. It also noted that while Aldens’ finance

charges comply with Illinois law and the transactions are

in conformity with federal Regulation Z, “the interest rates

as computed as Aldens exceed the maximum provided in

the Oklahoma Code” (id., A24-A25).

Without discussing the decisions of this Court relied

upon by Aldens in its brief and argument, the court of

appeals affirmed. the order of the district court. This peti-

tion followed.

8 Petition for Writ of Certiorari

REASONS FOR GRANTING THE WRIT.

The Fundamental Purpose of the Commerce Clause, To

Create and Protect National Markets for the Sale of

Goods and Services, Precludes the Application of

Oklahoma’s Interest Ceiling to Petitioner, a Trader

Which Deals With Customers in Oklahoma Only

Through Interstate Commerce in Such a Market.

In the face of a constitutional argument which most

forcefully implicates the “policy of free trade reflected in

the Commerce Clause,” Bibb v. Navajo Freight Lines, 359

U. S. 520, 529 (1959), a policy which has served to solidify

the union since its inception, see Gibbons v. Ogden, 22

U. S. (9 Wheat.) 1 (1824), the court of appeals begins its

opinion on the merits with the comfortable assertion that

“an extended discussion on this opinion is not called for.”

571 F. 2d at 1161 (A25). Yet the case at hand presents

in its baldest form the question of the extent to which the

courts will give meaning to the “Commerce Clause’s over-

riding requirement of a national ‘common market,” Hunt

v. Washington Apple Advertising Commission, 432 U. S.

333, 350 (1977), in defining that “area of trade free from

interference by the States” which the Commerce Clause

creates “by its own force” Freeman v. Hewit, 329 U. S.

249, 252 (1946). For what this petition seeks to have this

Court make clear is that the protections embodied in the

Commerce Clause are sufficiently broad to enable the

residents of a state and an interstate trader to enter into

commercial transactions on terms other than those pre-

scribed by single state, a unit of government in a federal

system from which the right to engage in interstate com-

merce does not flow. H. P. Hood & Sons v. Du Mond,

336 U. S. 525, 535 (1949).

While the question thus raised is of far-reaching im-

portance, the context within which it arises is a simple one.

Petition for Writ of Certiorari 9

By offering consumer goods for sale at rates higher

than those which Oklahoma would permit, petitioner is, in

effect, selling credit to Oklahoma residents, (and con-—

sumers nationwide) who, in many cases, for whatever

reasons, cannot purchase credit locally at lower rates.

These individuals may be relatively poor payment risks

because they have failed to pay previous debts or leck

secure incomes, or they may merely lack an established

credit rating. But, given the information supplied to bor-

rowers by all lenders, including Aldens, under the Federal

Truth in Lending Act, one must assume that many cus-

tomers are ready to pay Aldens’ higher rates because

others in the business of selling credit in consumer trans-

actions are not willing to offer contracts on terms better

than those offered by Aldens.

In return for its ability to engage in such interstate

trade unhampered by varied and conflicting state regula-

tion, petitioner must avoid “the sort of localization or intra-

state character,” Allenberg Cotton Co. v. Pittman, 419

U. S. 20, 33 (1974) that would “render constitutional the

obligations [sought to be imposed upon it]” National

Geographic Society v. California Board of Equalization,

430 U. S. 551, 556 (1977). Petitioner has given up the

benefits of local retail stores, local service and repair

centers, a local telephone number, and local catalog order

desks—all to the detriment of otherwise enhanced pros-

pects for local business—in return for the right to cultivate

freely the more general national market.

Not only does an interstate trader of petitioner’s char-

acter lose the more immediate economic benefits of local

business activities in order to operate within the protec-

tions of the Commerce Clause; but because of its lack of

sufficient contacts with the state which seeks to regulate

its conduct, it cannot effectively attempt to change the

10 Petition for Writ of Certiorari

state’s substantive regulations through the normal channels

of local political processes. This “Court has often recog-

nized that to the extent that the burden of state regulation

falls on interests outside the state, it is unlikely to be al-

leviated by the operation of those political restraints nor-

mally exerted when interests within the state are affected.”

Southern Pacific Co. v. Arizona, 325 U. S. 761, 767-68 n. 2

(1945) (citations omitted).

Thus petitioner is willing to forego the benefits of

significant local business activities outside of its home state,

Illinois, in order to cultivate the interstate market in higher

risk consumer transactions.

While the court of appeals recognized that Aldens

operates only in a national interstate market for consumer

credit transactions, it failed to recognize that, by applying

its credit ceiling to petitioner “the State interfere[s] with

the natural functioning of the interstate market,” Hughes

v. Alexandria Scrap Corp., 426 U. S. 794, 806 (1976), in

contravention of the protection afforded to the interstate

trader by the Commerce Clause. “But ever since Gibbons

v. Ogden . . . the states have not been deemed to have

authority to impede substantially the free flow of com-

merce from state to state... . .” Southern Pacific Co.,

supra, 325 U. S. at 767. In so limiting the ability of peti-

tioner to cultivate the national market in consumer credit

sales, the State of Oklahoma defies the “history of the

Commerce Clause, that this Nation is a common market in

which state lines cannot be made barriers to the free flow

of . . . goods in response to the economic laws of supply °

and demand.” Hughes, supra, 426 U. S. at 803.

It is not, however, merely the interstate trader who

suffers when the Commerce Clause is not afforded its in-

tended scope. Perhaps more importantly, what the opera-

tion of this state law accomplishes is to lock those residents

Petition for Writ of Certiorari ul

of Oklahoma who are not able or willing to travel outside

of its territory inside the borders of the state, at least inso-

far as they may wish to purchase consumer goods on terms

other than those which the state will permit. Although

it is within the competence of the Oklahoma legislature to

so limit the purchasing power of its residents when intra-

state sellers are involved, it is not within the constitutional

power of the state to deny its residents access to com-

mercial transactions with an interstate trader; for “[i]n

realizing the Founders’ vision this Court has adhered

strictly to the principle ‘that the right to engage in inter-

state commerce is not the gift of a state, and. . . a state

cannot regulate or restrain it.’” Hughes, supra, 426 U. S.

at 808, quoting H. P. Hood & Sons v. Du Mond, 336 U. S.

at 535.

Suppose, for example, that residents of Oklahoma

were to venture by interstate highway into Illinois, and

were to make credit purchases on the same terms offered

by Aldens on purchases made through the mails. Would

Oklahoma seriously argue that it has power to stamp its

citizens with Oklahoma law, such that that state’s credit

ceiling would follow them wherever they would go, affect-

ing all those with whom they would deal? To so argue

would render meaningless the constitutional allocation of

power to Congress to regulate commerce “among the sev-

eral states.” The conclusion can be no different in the

case of an Oklahoma resident who utilizes the mails to

reach a purely interstate trader—that is unless the differ-

ence between an envelope and an automobile is one of

constitutional significance. Indeed in emphasizing that the

right to engage in interstate commerce is not a state gra-

tuity, this Court commented that

“this principle makes suspect any attempt by a State

to restrict or regulate the flow of commerce out of

™

12 Petition for Writ of Certiorari

the State. The same principle, of course, makes

equally suspect a State’s similar effort to block or to

regulate the flow of commerce into the State.”

Hughes, supra, 426 U. S. at 808 n. 17.

Thus not only does petitioner assert its federally pro-

tected right to engage in national marketing, but of neces-

sity advances the right of every consumer in “[o]ur system,

fostered by the Commerce Clause, . . . [to] look to the free

competition from every producing area in the Nation to

protect him from exploitation by any.” H. P. Hood &

Sons, supra, 336 U. S. at 539.

This Court, no less than the founders, who provided

that “in the matter of interstate commerce we are a single

nation,” Pennsylvania v. West Virginia, 262 U. S. 553, 596

(1923), has given firm constitutional protection from state

regulation to those traders who would forego the bene-

fits of local business activity in order to offer consumers an

alternative to local commerce through the cultivation of a

national interstate market. Thus a state is constitutionally

prohibited from asserting its regulatory jurisdiction over

“those who do no more than communicate with customers

in the State by mail or common carrier as part of a general

interstate business,” National Bellas Hess v. Illinois De-

partment of Revenue, 386 U. S. 753, 757 n. 9 (1967), in

“sharp distinction” to “mail order sellers with retail outlets,

solicitors or property within a State,” National Geographic,

supra, 430 U. S. at 559.

Nor can the constitutional ban on state regulation of

the interstate trader be vitiated by the argument that the °

coming to rest of products in a state may, in and of itself,

support state regulation of a national market. The pres-

ence of the goods, rather than the seller, is not a basis for

regulation; such a “slightest presence,” National Geo-

graphic supra, 430 U. S. at 556, cannot suffice to enable a

Petition for Writ of Certiorari 13

state to regulate that which is in fact “a part of interstate

commerce,” Allenberg Cotton Co. v. Pittman, 419 U. S. 20,

33 (1974), for

“All interstate commerce takes place within the con-

fines of the States and necessarily involves ‘incidents’

occurring within each State through which it passes or

with which it is connected in fact. And there is no

known limit to the human mind's capacity to carve

out from what is an entire or integral economic

process particular phases or incidents, label them as

‘separate and distinct’ or ‘local, and thus achieve its

desired result,”

Nippert v. Richmond, 327 U. S. 416, 423 (1946). So it has

been recognized, since Gibbons v. Ogden, that “[c]om-

merce among the states, cannot stop at the external

boundary line of each state, but may be introduced into

the interior....” 22 U.S. (9 Wheat.) at 194. The inter-

state trader may flourish in a national market “free from

interference by the States” Freeman v. Hewit, supra, 329

U. S. at 252, until and unless its actions are such as to

constitute a “local business being conducted—an occupa-

tion made up of a series of local activities which the State

can constitutionally reach,” Alaska v. Arctic Maid, 366

U. S. 199, 204 (1961), an endeavor which, as the court of

appeals recognizes, petitioner has not undertaken.

In the face of the strong protection afforded the inter-

state trader and its market by this Court on the basis of

the extent to which the trader engages solely in national,

interstate commerce, the court of appeals “balances” away

the constitutional protection so afforded, notwithstanding

this Court’s efforts to recognize a class of cases in which

“some [state] enactments may be found to be plainly . . .

without state power.” Southern Pacific Co., supra, 325

14 Petition for Writ of Certiorari

U, S, at 768. For while the Court has applied a balancing

test in cases in which it is appropriate, it has only recently

reiterated that “the Court has employed various tests” and

that “experience teaches that no single conceptual ap-

proach identifies all of the factors that may bear on a par-

ticular case.” Raymond Motor Transportation, Inc. v.

Rice, — U. S. —, —, 46 U. S. L. W. 4109, 4112 (February

21, 1978). The single most important factor on the facts

of the instant case is, however, clear—petitioner, who

“asymptotically approaches . . . the paradigm interstate

trader,” Aldens, Inc. v. LaFollette, 552 F, 2d 745, 750 (7th

Cir. 1977), has been prohibited from offering alternative

terms of purchase to consumers in interstate commerce in

contravention of the “very purpose of the Commerce

Clause . . . to insure a national economy free from. . .

unjustifiable local entanglements,” National Bellas Hess,

supra, 386 U. S. at 760.

Aldens’ argument, thus, is not that the State of Okla-

homa acted unwisely when it set interest rates on retail

purchases at a level which makes credit unavailable to a

portion of its population. Although the regulations pro-

mulgated under the Federal Truth in Lending Act should

serve to create a free competitive market in which informed

consumers purchase credit at the best rates for them,

given their credit-worthiness,’ each state has a right to

set maximum interest rates on various classes of credit

transactions * in accordance with the best judgment of its

legislature, provided only that the transaction is one which

2. Aldens’ own rates indicate the effect of competition. Al-

though Illinois law would permit charges of 21% on all outstanding

balances, Aldens charges only 12% on balances in excess of $350.

3. When Oklahoma set its rates on precomputed consumer

credit sales, it established a rate substantially higher than either its

revolving credit rate or the rate charged by Aldens. See Oxxa.

Strat. Tit. 14A § 2-201.

Petition for Writ of Certiorari 15

the state may regulate. But there is a purely interstate

market which operates as a counterbalance to the myriad

local markets, and the states may not regulate this market,

however much they may wish to do so. So long as Aldens

deals with Oklahoma and its Oklahoma customers purely

through interstate commerce, only Congress and the com-

petitive market can regulate its credit charges.

Over the years, many national companies have sought

the benefits of local operations and, in so doing, have made

their activities subject to local regulations. But this ac-

quiescence on the part of many companies to trade their

freedom for local advantages should not be taken as an

excuse to regulate those companies which have passed up

the advantage of local presence to trade purely in inter-

state commerce. To do so would end one of the great

benefits of competition as envisioned by the framers of the

Constitution.

The Due Process Clause, as Well as the Commerce Clause,

Prohibits Oklahoma’s Regulation of Aldens’ Finance

Charges.

The same principles which led the framers of the Con-

stitution to protect a national market against state inter-

ference through the adoption of the Commerce Clause

were reaffirmed with the adoption of the Due Process

Clause of the Fourteenth Amendment, as this Court

held in National Bellas Hess v. Illinois Department of

Revenue, 386 U. S, 753, 756-58 (1967). If a state has the

power to enact a law which regulates a transaction which

takes place wholly outside its borders simply because that

transaction affects its citizens, that state will have exercised

a power allocated solely to Congress and prohibited to the

state by the Due Process Clause.

16 Petition for 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 Tenth Circuit be granted.

Respectfully submitted,

BERNARD G. SEGAL,

RAuLpu S. SNYDER,

James D. Crawroro,

Attorneys for Petitioner,

SCHNADER, HARRISON, SEGAL & Lewis,

1719 Packard Building,

Philadelphia, Pennsylvania, 19102

James D. FELLERs,

Jap W. BLANKENSHIP,

FELLERS, SNIDER, BLANKENSHIP & BAILEY, P.C.,

2700 First National Center,

Oklahoma City, Oklahoma. 73102

RAYMOND N, FRIEDLANDER,

5000 W. Roosevelt Road,

Chicago, Illinois. 60607

Of Counsel.

Dated: July 3, 1978.

Appendix.

IN THE

UNITED STATES DISTRICT COURT

For THE WESTERN District OF OKLAHOMA

No. CIV-75-0458-D >

ALDENS, INC.,

Plaintiff,

v.

PATRICK C, RYAN,

Administrator of Consumer Affairs

for the State of Oklahoma,

Defendant.

MEMORANDUM OPINION.

Plaintiff, Aldens, Inc. (Aldens) brings this action for

a Judgment declaring two provisions of the Oklahoma Uni-

form Consumer Credit Code (UCCC), 14A Oklahoma

Statutes, § 1-101 et seq., to be Constitutionally invalid.

The two challenged provisions, 14A Oklahoma Statutes,

§ 1-201(5)(a) and § 1-201A deal with the extraterritorial

application of the maximum interest rate permitted in

consumer credit sales by the Oklahoma UCCC and the

denial of an Oklahoma forum to persons charging interest

rates in excess of those permitted by the Oklahoma UCCC.

Plaintiff asserts these provisions to be unconstitutional as

violative of the Commerce Clause, Article I, Section 8, and

the Due Process Clause of the Fourteenth Amendment of

the Constitution of the United States.’ This case has been

1. Plaintiff asserted other grounds for the unconstitutionality

of these two sections in its Complaint; however, Plaintiff's argu-

(Al)

A2 District Court Opinion

submitted to the Court on a stipulation of fact, the Briefs

of the Parties and the Amicus Curiae Brief of Irvin D.

Parker, Administrator of the South Carolina Department of

Consumer Affairs. A three-judge District Court need not

be convened pursuant to 28 U. S. C. § 2281 as only declara-

tory relief is sought. Seergy v. Kings County Republican

County Committee, 459 F. 2d 308 (Second Cir. 1972);

Communist Party v. State Bd. of Elec., State of Ill., 518

F. 2d 517 (Seventh Cir. 1975).

Aldens is a Chicago, Illinois “mail order” house which,

by means of the mail and other instrumentalities of inter-

state commerce, solicits and fills retail merchandise orders

from Oklahoma residents. Some of Aldens’ sales to Okla-

homa residents would constitute consumer credit sales

within the meaning of the Oklahoma UCCC if that Code

were held to be applicable to it. Patrick C. Ryan is the

Administrator of Consumer Affairs for the State of Okla-

homa, and is charged by Statute with the administration

of the Oklahoma UCCC. Ryan has threatened to enforce

the maximum interest provisions of the UCCC against

Aldens by virtue of the two Code provisions to which

Aldens objects herein.’

Ryan has counterclaimed against Aldens for damages

and an injunction. Ryan seeks the recovery of damages

allegedly sustained by Oklahoma residents as a result of

Aldens’ alleged collection of excessive finance charges, and

an injunction restraining the collection by Aldens, in the

future, of such allegedly excessive finance charges.

1. (Cont'd. )

ment has been directed only to the Commerce Clause and the

Due Process Clause of the Fourteenth Amendment.

2. 28 U. S. C. § 2201 requires an “actual controversy” between

parties before declaratory judgment will lie. This requirement is

satisfied by the threatened enforcement of an unconstitutional

statute. Universal Film Exchanges, Inc. v. City of Chicago, 288

F. Supp. 286 (N. D. Ill. 1968).

District Court Opinion AS

ELEVENTH AMENDMENT

Before reaching the merits of this case, the Court must

consider a threshold jurisdictional matter which has not.

been raised by the parties. The Eleventh Amendment to

the United States Constitution provides that:

“The Judicial power of the United States shall

not be construed to extend to any suit in law or equity,

commenced or prosecuted against one of the United

States by a Citizen of another State . . .”

A State’s Eleventh Amendment immunity from suit in Fed-

eral Court extends to an action against a State official in

which the State is the real party in interest. Standing Rock

Sioux Indian Tribe v. Dorgan, 505 F. 2d 1135 (Eighth Cir.

1974). A State is the real party in interest in an action

against one of its officials if the official, while acting in the

capacity in which he is sued, is nothing more than an arm

of the State performing a governmental function. DeLong

Corporation v. Oregon State Highway Com’n., 233 F. Supp.

7 (D. Or. 1964), Affd. 343 F. 2d 911. It is clear that the

Defendant herein, who is sued in his official capacity, is,

in his official capacity, an arm of the State of Oklahoma

performing a governmental function. Therefore, this suit

is against one of the United States by a citizen of another

State and, as such, Oklahoma enjoys Eleventh Amendment

immunity from suit in a Federal Court.

However, notwithstanding the language of the

Eleventh Amendment which would appear to create a

complete jurisdictional bar, a State may waive its Eleventh

Amendment immunity and consent to be sued in a Federal

Court. Gallagher v. Continental Insurance Company, 502

F. 2d 827 (Tenth Cir. 1974). In this action, Defendant

has answered the Complaint without objection to jurisdic-

tion, asserted a Counterclaim, entered into a stipulation of

fact and submitted the case for decision on its stipulation.

A4 District Court Opinion

On the basis of these facts, the Court finds and concludes

that Oklahoma has waived its Eleventh Amendment im-

munity for purposes of this action only. Compare Gal-

lagher v. Continental Insurance Company, supra."

A second basis for the Court’s exercise of jurisdiction

herein is through the application of the doctrine of Ex

Parte Young, 209 U. S. 123, 52 L. Ed. 714, 28 S. Ct. 441

(1908). That doctrine is that a State official acting pur-

suant to an unconstitutional statute is stripped of his

representative capacity because a State cannot authorize

its officers to act in an unconstitutional manner. See also

Mobil Oil Corporation v. Kelley, 493 F. 2d 784 (Fifth

Cir. 1974). Thus, it appears that if the challenged pro-

visions of the Oklahoma UCCC are in fact unconstitu-

tional, Ryan would not be acting as an arm of the State

in the enforcement of its UCCC against Aldens and Okla-

homa’s Eleventh Amendment immunity would be inap-

plicable in this action.

FACTS

The operative facts of this case, as derived from the

parties’ stipulation of fact, are as follows: Aldens is an

Illinois corporation whose only physical assets are in

Chicago, Illinois. Aldens sells merchandise to customers

who reside in all 50 States. Approximately 1.03% of

Aldens’ total sales for the twelve months ending September

26, 1975 were to Oklahoma residents. These sales

amounted to about $2,051,000.00. Approximately 19% of

that sum was derived from cash sales, the balance having

3. This case is to be distinguished from Richins v. Industrial

Construction, Inc., 502 F. 2d 1051 (Tenth Cir. 1974) wherein the

Court found that Utah had not waived its Eleventh Amendment

immunity by a statutory waiver of immunity which provided that

actions brought pursuant thereto would be maintained only in

Utah courts. Jurisdiction herein is not based on a statutory waiver

of immunity, rather it is based upon a general appearance and

conduct inconsistent with the assertion of Eleventh Amendment

immunity.

District Court Opinion A5

derived from credit sales. Most of Aldens’ credit sales con-

stitutes consumer credit transactions within the meaning

of the Oklahoma UCCC.

Aldens mails catalogs to its regular Oklahoma cus-

tomers four times a year. Supplemental “flyers” are mailed

to these same persons six to eight times a year. Advertising

is included in credit customers’ monthly billing statements.

There are 31,600 names on Aldens’ Oklahoma catalog

circulation list. In addition, Aldens will mail catalogs and

flyers to some 220,000 Oklahoma residents in the year

1975. These additional mailings will be to names taken

from rented mailing lists. There may be some duplica-

tion in names between Aldens’ regular catalog list and the

rented mailing lists. Aldens has no agent in Oklahoma,

it has no physical presence in Oklahoma, and it maintains

no telephone listing in Oklahoma. Aldens’ only adver-

tising in Oklahoma is by mail. Aldens is not required to

collect and remit the Oklahoma Use Tax. Aldens is not

required to qualify or register to do business in Oklahoma.

Applications for credit accounts and credit agreement

forms are included with the advertisements Aldens mail

to Oklahoma residents. An Oklahoma resident who wishes

to make a credit purchase from Aldens completes the

credit application and agreement and returns them to

Aldens along with his order. Aldens’ standard credit

agreement provides that it is an Illinois contract to be

governed by Illinois law. Aldens grants credit only in

Chicago. Aldens accepts orders only in Chicago. Twenty-

two percent of all credit applications received from Okla-

homa residents are checked against a national credit index.

Twenty-three percent of such applications are checked

through a Chicago credit agency which obtains its infor-

mation from Oklahoma credit bureaus. Aldens makes

some direct calls to Oklahoma in checking Oklahoma credit

applications.

A6 District Court Opinion

Aldens’ standard credit agreement provides for a

monthly credit charge of 1.75% on balances of $350.00 or

less. This amounts to a finance charge of 21% per year

which exceeds the maximum finance charge permitted by

the Oklahoma UCCC. On balances in excess of $350.00,

Aldens’ standard credit agreement provides for a monthly

finance charge of 1% for that portion of the balance which

is in excess of $350.00. This is less than the maximum

finance charge permitted by the Oklahoma UCCC. Aldens’

standard credit agreement complies with Regulation Z as

promulgated by the Federal Reserve Board pursuant to

the Federal Truth in Lending Act.

Merchandise sold to Oklahoma residents by Aldens

is delivered through the mails or by common carrier. The

means of delivery is selected by Aldens and the customer

plays no part in this decision. Except for ten items which

are sent free, the customer pays all shipping and handling

costs. There are approximately 40,000 items in Aldens’

catalog. Items are sent “F.O.B. Origin”.

When an Oklahoma credit account becomes delin-

quent, Aldens attempts to collect by mail. Telephonic

communication is used where appropriate. After an ac-

count has been delinquent for six months, Aldens turns it

over to an independent collection agency. Aldens cur-

rently uses no Oklahoma credit agencies, although it has

used Oklahoma credit agencies in the past. Neither Aldens

nor any of its assignees has brought an action on account

in Oklahoma since January, 1972.

Were Aldens to comply with the Oklahoma UCCC,

it would suffer losses both from loss of finance charges and

from special advertising and processing costs. These losses

would amount to approximately $160,500.00 per year.

Aldens’ Constitutional objections are directed to 14A

Oklahoma Statutes § 1-201A which reads:

District Court Opinion A7

“With respect to a consumer credit sale or con-

sumer loan to which this Code does not otherwise

apply by reason of Section 1-201, if, pursuant to a

solicitation relating to a consumer credit sale or loan —

received in this state, a person who is a resident of

this state sends a signed writing evidencing the obli-

gation or offer of the person to a creditor in another

state, and the person receives the goods or services

purchased or the cash proceeds of the loan in this

state:

“1. The creditor may not contract for or receive

charges exceeding those permitted by this Code, and

such charges as do exceed those permitted are excess

charges for purposes of Sections 5-202(3) and (4)

and 6-113 of the Code and such sections shall apply

as though the cons::mer credit sale or consumer loan

were made in this state; and

“2. The provisions on Powers and Functions of

Administrator (Part 1 of Article 6 of this Code) '

shall apply as though the consumer credit sale or con-

sumer loan were made in this state.”

“1. Sections 6-101 to 6-116 of this title.”

and 14A Oklahoma Statutes, § 1-201(5)(a) which reads:

“(5) If a consumer credit sule, consumer lease,

or consumer loan, or modification thereof, is made in

another state to a person who is a resident of this

State when the sale, lease, loan, or modification is

made, the following provisions apply as though the

transaction occurred in this State:

“(a) a seller, lessor, lender, or assignee of his

rights, may not collect charges through ac-

tions or other proceedings in excess of those

permitted by the Article on Credit Sales

A8 District Court Opinion

(Article 2) or by the Article on Loans (Ar-

ticle 3); ...°

APPLICABILITY

Aldens’ threshold contention is that 14A Oklahoma

Statutes § 1-201A is not applicable to it in its credit sales

to Oklahoma residents because its goods are not “received”

by its Oklahoma customers in Oklahoma as is required

by that section. Section 1-201A makes the Code applicable

to an out-of-state seller, where (1) pursuant to solicitation

relating to a consumer credit sale received in Oklahoma,

(2) an Oklahoma resident sends a signed writing evi-

dencing an obligation or offer to a creditor in another state,

and (3) the Oklahoma resident receives the goods or

services purchased in Oklahoma.

Aldens does not contend that elements (1) and (2)

are not present herein. It does contend that because it

sends its goods “F.O.B. Origin” and because risk of loss

and title to such goods passes when the goods are placed

into the hands of the carrier in Chicago, its goods are “re-

ceived” by its Oklahoma customers when they are placed

in the hands of the carrier in Chicago. Thus, it is Aldens’

position that its goods are received by its Oklahoma cus-

tomers in Chicago when the goods are placed in the hands

of the carrier in Chicago.

While Aldens may be correct in its contention that

risk of loss and title to goods ordered by Oklahoma resi-

dents passes when such goods are placed into the hands

of a carrier in Chicago, this does not mean that the goods ,

are not “received” in Oklahoma within the meaning of

§ 1-201A. The fundamental principle of statutory con-

struction is to give effect to the intention or purpose of the

Legislature as expressed in the statute under scrutiny.

Trask v. Johnson, 452 P. 2d 575 (Ok. 1969). In reading

District Court Opinion A9

14A Oklahoma Statutes § 1-201A, it becomes immediately

clear that the intention of the Oklahoma Legislature in en-

acting this Section was to make provisions of its UCCC

applicable to “mail order” type sales wherein a solicita-

tion is received in Oklahoma and the goods sold pursuant

to such a solicitation ultimately come to rest in the hands

of purchasers in Oklahoma. To hold that goods are re-

ceived only at the time and place where title and risk of

loss pass would be to defeat the obvious intention of the

Oklahoma Legislature. Thus, 14A Oklahoma Statutes,

§ 1-201A is applicable to any situation wherein, if the other

conditions are met, goods are delivered to an Oklahoma

resident in Oklahoma. Passage of title and risk of loss

are not important to the application of this Section. 14A

Oklahoma Statutes, § 1-201A is therefore applicable in its

terms to Aldens’ transactions with its Oklahoma customers.

DUE PROCESS AND EXTRATERRITORIAL

REGULATION

The first of Aldens’ Constitutional contentions which

should be considered is its assertion that the Due Process

Clause of the Fourteenth Amendment prohibits Oklahoma's

regulation of the finance charge assessed by Aldens in its

consumer credit sales to’Oklahoma residents. Unques-

tionably, the Due Process Clause of the Fourteenth Amend-

ment limits the power of a State to extend the effects of its

laws beyond its borders. Hartford A. & I. Co. v. Delta &

Pine Land Co., 292 U. S. 143, 78 L. Ed. 1178, 54 S. Ct.

634 (1934). However, more States than one may seize

hold of local activities which are part of multi-State trans-

actions and regulate to protect its own people. Watson v.

Employers Liability Assur. Corp., 348 U. S. 66, 99 L. Ed.

74, 75 S. Ct. 166 (1954). Where a contract affects the

people of several States, each may have an interest which

———————————eeoreOw

Al0 District Court Opinion

leaves it free to enforce its own contract policies. Watson

v. Employers Liability Assur. Corp., supra; Alaska Packers

Asso. v. Industrial Acci. Com., 294 U. S. 532, 79 L. Ed.

1044, 55 S. Ct. 518 (1935). In determining whether a

State may extend the effects of its laws beyond its borders,

the Supreme Court has examined the degree of contacts

which the State seeking to regulate has with the person

and/or transaction sought to be regulated. See Watson v.

Employers Liability Assur. Corp., supra. and Clay v. Sun

Insurance Office, 377 U. S. 179, 12 L. Ed. 2d 229, 84 S. Ct.

1197 (1964).

In Watson v. Employers Liability Assur. Corp., supra,

the Court overruled a Fourteenth Amendment due process

challenge to a Louisiana Statute which permitted direct

actions against insurers even though the insurance policy

sued on might have a no action clause. The facts of the case

were that a British corporation issued a policy of liability

insurance to an Illinois manufacturer. The policy, which

was negotiated in Massachusetts and delivered both in

Massachusetts and Illinois, contained a no action clause

which was valid both in Massachusetts and Illinois. A

Louisiana resident was allegedly injured through the use

of the Illinois manufacturer's product and brought an ac-

tion against the British insurer in a Louisiana State Court.

The case was removed to a United States District Court

where it was dismissed on the basis that the insurance

policy sued on prohibited such direct actions, and that the

Louisiana Statute permitting direct actions under which

the Plaintiff proceeded controverted the Due Process ,

Clause of the Fourteenth Amendment. The District Court

was initially sustained on appeal but reversed by the Su-

preme Court. The Supreme Court held that Louisiana

had sufficient contacts with the British insurer to allow the -

application of the Louisiana direct action statute in the

District Court Opinion All

case. The factors that were considered by the Supreme

Court in reaching its decision were that persons injured

in Louisiana were likely to be Louisiana residents, injured

persons were likely to be treated in Louisiana hospitals,

injured persons were likely to become wards of the State

if they did not achieve recovery for their injuries, and

actions against the manufacturer on the basis of any such

injuries were likely to be brought in Louisiana State

Courts.

In this case the contacts between Aldens and Okla-

homa are much more direct and substantial than were the

contacts between Louisiana and the British insurer in

Watson, supra. Aldens solicits orders from Oklahoma res-

idents. Goods are shipped by Aldens from Chicago to its

Oklahoma customers in Oklahoma, and credit payments

are sent from Oklahoma to Chicago by Aldens’ Oklahoma

credit customers. Thus, there are direct and continuing

contacts between Oklahoma and Aldens with respect to

the transaction Oklahoma seeks to regulate. The collec-

tion of excessive interest rates from Oklahoma residents

would have a direct effect on the State of Oklahoma. Thus,

there are sufficient contacts between Oklahoma and Aldens

to overcome Aldens’ due process objections to the applica-

tion of 14A Oklahoma Statutes, § 1-201A to it with respect

to its credit sales to Oklahoma residents.

COMMERCE CLAUSE

Aldens advances a two-prong attack on 14A Oklahoma

Statutes, § 1-201A under the Commerce Clause. Aldens

contends (1) Oklahoma may not regulate its interest

charges because its mail order sales to Oklahoma residents

are transactions purely in interstate commerce, and (2)

Oklahoma’s regulation of its interest rates constitutes a

multiple burden on interstate commerce.

Al2 District Court Opinion

The Commerce Clause, in conferring on Congress the

power to regulate commerce, did not wholly withdraw

from the State the power to regulate matters of local con-

cern with respect to which Congress has not exercised its

power, even though such State regulation might affect

interstate commerce. California v. Thompson, 313 U. S.

109, 85 L. Ed. 1219, 61 S. Ct. 930 (1941). Ever since

Wilson v. Black Bird Creek Marsh Co., 2 Pet. 245, 7 L. Ed.

412 (1829) and Cooley v. Port Wardens, 12 How. 299, 13

L. Ed. 996 (1851), it has been recognized that there are

matters of local concern, the regulation of which unavoid-

ably involves some regulation of interstate commerce, but

which, because of their local character, their number and

their diversity, may never be fully dealt with by Congress.

In the absence of Congressional action, the regulation of

such matters has, subject to other applicable Constitutional

restraints, been left to the States. South Carolina State H.

Dept. v. Barnwell Bros., 303 U. S. 177, 82 L. Ed. 734, 58

S. Ct. 510 (1938). However, ever since Gibbons v. Ogden,

9 Wheat 1, 6 L. Ed. 23 (1824), the States have not been

deemed to have authority to impede the free flow of com-

merce from State to State, or to regulate those phases of

the national commerce which, because of the need for

national uniformity, demand that their regulation, if any,

be prescribed by a single authority. Southern Pacific Co.

v. Arizona, 325 U. S. 761, 89 L. Ed. 1915, 65 S. Ct. 1515

(1945).

The test for determining the validity under the Com-

merce Clause of a State Statute affecting interstate com-

merce in an area in which Congress has not acted and

which does not require a uniform national policy has been

stated as follows:

“Where the Statute regulates evenhandedly to

effectuate a legitimate local public interest and its

District Court Opinion Al3

effects on interstate commerce are only incidental, it

will be upheld unless the burden imposed on such

commerce is clearly excessive in relation to the puta-

tive local benefits.” Pike v. Bruce Church, 397 U. S.

137, 25 L. Ed. 2d 174, 90 S. Ct. 844 (1970).

Thus, there are four factors which should be con-

sidered in determining whether a State Statute which

affects interstate commerce is valid under the Commerce

Clause: (1) Has Congressional action pre-empted the

field; (2) does the State regulation affect an area which

requires a uniform national policy; (3) does the State

regulation evenhandedly effectuate a legitimate local

public interest; (4) is the burden imposed upon inter-

state commerce clearly excessive in relation to the putative

local benefit. See also Aldens, Inc. v. Packel, 524 F. 2d 38

(Third Cir. 1975), cert. den. — U. S. —.

With regard to the first of the above stated factors,

Congress has clearly not pre-empted the field of regulation

of maximum interest rates allowable in consumer credit

transactions. Congress has acted comprehensively in the

field of consumer credit through the Federal Truth In

Lending Act, 15 U.S. C. § 1601-1665, but it has not chosen

to regulate interest rates to be charged in such transactions.

Moreover, Congress has expressly deferred to State regula-

tion of consumer credit interest rates. 15 U.S. C. 1610(b)

reads:

“(b) This subchapter does not otherwise annul,

alter or affect in any manner the meaning, scope or

applicability of the laws of any State, including, but

not limited to, laws relating to the types, amounts or

rates of charges, or any element or elements of charges,

permissible under such laws in connection with the

extension or use of credit, nor does this subchapter

Al4 District Court Opinion

extend the applicability of those laws to any class of

persons or transactions to which they “ould not other-

wise apply.”

See also Aldens, Inc. v. Packel, supra. Thus, there is no

pre-emption in this area.

With regard to the second of the above-stated criteria,

whether this is an avea which requires a uniform national

policy, the Court need not consider whether this is a situa-

tion which requires a uniform national policy. Congress

has the undoubted power to redefine the distribution of

power over interstate commerce. It may either permit

the States to regulate commerce in a manner which other-

wise would not be permissible, or exclude State regula-

tion of matters of local concern which nevertheless affect

interstate commerce. Southern Pacific Co. v. Arizona,

supra. Congress in enacting the l’ederal Truth in Lending

Act, has deferred to State regulation of consumer credit

rates. Thus, even if this was an area requiring a uniform

national policy, Congress has redefined the power over in-

terstate commerce in this area and allowed States to regu-

late consumer interest rates. The Court would not be en-

titled to substitute its judgment for that of Congress. See

also Aldens, Inc. v. Packel, supra.

The third Commerce Clause criteria which must be

considered is whether the challenged State Statute regu-

lates in an evenhanded manner to effectuate a legitimate

local concern. The evenhandedness of the Oklahoma

UCCC is unquestionable. It imposes exactly the same

burdens on in-State sellers as upon out-of-State sellers. It’

cannot be seriously contended that the Oklahoma UCCC

discriminates against interstate commerce. That the regu-

lation of consumer interest rates is a legitimate local con-

cern is also undoubted. Congress, in the exercise of its

paramount authority under the Commerce Clause, has left

District Court Opinion Al5

the regulation of consumer credit rates to the State. Thus,

in Congress’ judgment, consumer credit rates are matters

of local concern and it would be overreaching for this

Court to reject that judgment.

The final Commerce Clause element which must be

considered herein is whether the burden imposed on in-

terstate commerce by compliance with the maximum in-

terest rates provided by the Oklahoma ,UCCC clearly

outweigh the local benefits which can be supposed to be

derived therefrom. This standard is clearly the heart of

the Commerce Clause and the gist of this case. It is only

through the application of this standard that such diverse

cases as South Carolina State H. Dept. v. Barnwell Bros.,

supra, and Bibb v. Navajo Freight Lines, 359 U. S, 520, 3

L. Ed. 2d 1003, 79 S. Ct. 962 (1959) can be reconciled.

In South Carolina State H. Dept. v. Barnwell Bros., supra,

the Court upheld a South Carolina Statute which restricted

the size and weight of trucks which would be permitted

to use South Carolina’s highways. These size and weight

restrictions were clearly out of step with the size and

weight restrictions imposed by other states, and the en-

forcement of these restrictions would have the effect of

impeding the free flow of interstate commerce through the

State of South Carolina. However, the Supreme Court

upheld the right of South Carolina to impose these regula-

tions. In Bibb v. Navajo Freight Lines, supra, the Court

overturned, as an impermissible burden on interstate com-

merce, an Illinois Statute which required a certain type of

mud flap on trucks using Illinois highways. The type of

mud flap required by Illinois was not the type of mud flap

in general usage at that time. An Arkansas regulation

required the use of a different type of mud flap. Thus, in

order to travel through both Arkansas and Illinois, a truck

would have to stop and change mud flaps. Bibb and

Al6 District Court Opinion

Barnwell can only be reconciled through an examination

of the relative benefits to be derived locally through the

application of the challenged regulation. In Bibb, the

Court found that the type of mud flap required by Illinois

had no direct relation to safety. However, in Barnwell

Bros., the Court found that the size and weight restrictions

imposed by South Carolina had a definite and immediate

relation to safe usage of South Carolina highways. Thus,

a State regulation may burden to some extent interstate

commerce if that regulation has a sufficiently great puta-

tive local benefit.

The determination of whether the putative local bene-

fit clearly outweighs the burden on interstate commerce is

clearly a balancing test. In Bibb the Court stated:

“A State which insists on a design out of line with the

requirements of almost all other States may sometimes

place a great burden of delay and inconvenience on

those interstate motor carriers entering or crossing its

territory. Such a new safety device—out of line with

the requirements of the other States—may be so com-

pelling that the innovating State need not be the one

to give way. But the present showing—balanced

against the clear burden on interstate commerce—is

far too inconclusive to make this mudguard meet that

test.”

In this case, the burden imposed on interstate com-

merce by the application of Oklahoma’s UCCC to Aldens

is clear. The parties have stipulated that it would cost .

Aldens $160,500.00 per year to comply with the Oklahoma

UCCC. The putative local benefit is far less clear. For

the past six years, Aldens’ annual sales to Oklahoma resi-

dents have averaged $2,252,000.00. Aldens has approxi-

mately 13,800 Oklahoma credit customers. Their average

credit balance is $176.00. During the last six years, Aldens

District Court Opinion Al7

has assessed approximately $455,000.00 per year in finance

charges on the accounts of its Oklahoma customers.

Aldens’ monthly finance charge on accounts less than

$350.00 is 1.75%. Oklahoma law permits a 1.50% charge.

Thus, assuming that all of Aldens’ accounts were less than

$350.00, and assuming further that a strict percentage

reduction would accurately reflect the difference in

amounts collected, if Aldens complied with the Oklahoma

maximum of 1.50% on its charge accounts, Aldens’ Okla-

homa credit customers would save only $69,000.00 per

year. Thus, the cost to Aldens would greatly outweigh the

savings to Oklahoma residents.

However, notwithstanding that under the facts of this

case the cost to Aldens to comply with the Oklahoma Code

would far outweigh the savings resulting therefrom to its

Oklahoma customers, the burden imposed on interstate

commerce by Oklahoma’s imposition of maximum interest

rates does not so outweigh the putative local benefits as to

constitute an impermissible burden on interstate com-

merce. Clearly the states have a great interest in prevent-

ing their residents from being victimized by what they

consider to be excessive interest rates. See Aldens, Inc. v.

Packel, supra. It is the task of the State Legislature to

determine what constitutes excessive interest. The Court

cannot determine on a case-by-case basis whether the ap-

plication of State interest laws constitute an impermissible

burden on interstate commerce. Thus, if Oklahoma can-

not impose its maximum interest rates on Aldens in this

situation because Aldens is charging only slightly above

what it considers to be an acceptable interest rate, then

Oklahoma could not impose its maximum interest rates in

a situation where its resident was being charged an inter-

est rate which was so in excess of the permitted interest

rate that the cost of compliance would be far less than the

savings to the Oklahoma resident. A State’s interest in

Al8 District Court Opinion

protecting its citizens from what it considers to be excessive

interest rates is far too great to allow such a result.

Moreover, Congressional deference to State interest

regulation as expressed by 15 U. S. C. § 1610(b) must

again be considered. Congress has paramount authority

to regulate commerce between the States. It has deferred

to State regulation of interest rates. Even though such

regulations might otherwise constitute an impermissible

multiple burden on interstate commerce, Congress has

the power to allow such a burden. It has done so here.

Thus, the burden on interstate commerce occasioned by

the application of the Oklahoma UCCC to Aldens under

the facts of this case does not outweigh the putative local

benefits of the Oklahoma UCCC. Therefore, the Court

concludes that the application of the Oklahoma UCCC in

this case to Aldens does not violate the Commerce Clause.

ILLINOIS CONTRACT

Aldens’ final Constitutional argument is that the Due

Process Clause and Commerce Clause prohibit Oklahoma’s

refusal to honor and enforce in its Courts valid Illinois con-

tracts as is attempted by 14A Oklahoma Statutes, § 1-201

(5)(a). Aldens’ due process argument in this respect is

not well taken and the very cases cited by Aldens tell the

Court to rule against it. It is true that a State may not,

on the grounds of policy, ignore a right which has lawfully

vested elsewhere if the interest of the forum has but slight

connection with the substantive contractual obligation.

However, a State may prohibit enjoyment in its borders of

rights acquired elsewhere which violate its laws or public

policy and, under some circumstances may refuse to aid

in the enforcement of such rights. Hartford A. N. I. Co. v.

Delta and Pine Land Co., supra; Home Ins, Co. v. Dick,

281 U. S. 397, 74 L. Ed. 926, 50 S. Ct. 338 (1930). In this

District Court Opinion Al9g

case, Oklahoma has prohibited the enjoyment within its

borders of rights technically acquired in Illinois under

Illinois law. In view of the degree of Oklahoma's con-

tacts with the subject transactions, Oklahoma may validly

take this action without running afoul of the Due Process

Clause of the Fourteenth Amendment.

With regard to Aldens’ contention that the Commerce

Clause prohibits Oklahoma’s refusal to enforce its contracts

with Oklahoma residents, all relevant factors have previ-

ously been considered. This is a case in which a State has

a strong local interest in the amount of finance charges to

be paid by its citizens in consumer credit sales. It is to be

distinguished from Allenberg Cotton Co., Inc. v. Pittman,

419 U. S. 20, 42 L. Ed. 2d 195, 95 S. Ct. 260 (1974), which

is relied on by Aldens. A State does not have a strong

interest in denying a foreign corporation the use of its

forum. However, Oklahoma does, as has previously been

developed, have a strong interest in preventing its citizens

from paying excessive interest. Local interest is strong

enough to overcome Aldens’ Commerce Clause objections.

Therefore, 14A Oklahoma Statutes, § 1-201(5)(a) does

not run afoul of the Commerce Clause or the Due Process

Clause of the Fourteenth Amendment.

DE MINIMUS

Aldens’ final contention is that Ryan is not entitled to

recover on his Counterclaim (1) because the amount in-

volved is de minimus, and (2) because the UCCC discrim-

inates against interstate commerce in that it does not allow

sufficient time for compliance. The doctrine of de minimus

non curat lex is inapplicable herein because by Aldens’

own admission the Counterclaims involve amounts in ex-

cess of $8,000.00. The fact that the cost to Aldens to

compute and return these sums would exceed the amount

A20 District Court Opinion

of the individual refunds does not render the amounts

involved de minimus. With regard to the second conten-

tion, it has already been determined that § 1-201A does not

discriminate against interstate commerce.

Accordingly, Judgment should be entered denying

Plaintiff's request for declaratory judgment and dismissing

Plaintiff's action. Judgment should be entered on Defend-

ant’s Counterclaim for damages and injunctive relief. If

a hearing or other action is necessary before the amount of

damages can be ascertained Defendant will initiate appro-

priate action without delay. Judgment will be withheld

as to Plaintiff's action until Judgment is ready for entry

on Defendant’s Counterclaim.

Dated this 14th day of June, 1976.

FRED DAUGHERTY

Fred Daugherty

United States District Judge

District Court Judgment A2l

IN THE

UNITED STATES DISTRICT COURT

For THE WESTERN DistTRICT OF OKLAHOMA

No. CIV-75-0458-D

ALDENS, INC.,

Plaintiff,

v~.

PATRICK C, RYAN,

Administrator of Consumer Affairs

for the State of Oklahoma,

Defendant.

JUDGMENT.

Pursuant to the Memorandum Opinion issued herein

on the 14th day of June, 1976, it is the Judgment of this

Court that Plaintiff's request for declaratory judgment be

denied and Plaintiff's action be and is hereby dismissed.

With respect to Defendant's Counterclaim, pursuant

to the Memorandum Opinion issued herein and the Stipula-

tion of the parties filed herein on this 8th day of July, 1976,

it is hereby ordered, adjudged and decreed that:

Within 60 days from the entry of this Judgment, Plain-

tiff shall refund or credit to its Oklahoma consumer credit

sale customers amounts equaling the difference between

the amount of finance charges assessed or collected by

Plaintiff on that portion of revolving charge account bal-

ances of such customers representing sales made during

the period May 14, 1975, through December 31, 1975, and

the amount of finance charges that would have been col-

lected or assessed by Plaintiff on such portion of account

balances for said period had the charges been limited to

4

A22 District Court Judgment

the maximum finance charges permitted by Section 2-207

of the Oklahoma Consumer Credit Code, Title 14A, Okla-

homa Statutes.

It is further Ordered that refunds or credits as deter-

mined above shall be effected by Plaintiff as follows:

1. Customers without current accounts will be issued

refund drafts automatically.

2. Customers with delinquent accounts will auto-

matically have credited to their accounts the amount of

any refunds; and

3. Customers with current accounts will, at the option

of Plaintiff, either be issued refund drafts or have credited

to their accounts the amount of any refunds.

4, Plaintiff's communications with customers shall be

made by mail to the last known addresses of such cus-

tomers.

Dated this 8 day of July, 1976.

FRED DAUGHERTY

Fred Daugherty

United States District Judge

ENTERED IN JUDGMENT DOCKET ON JuLy 8, 1976

The foregoing proposed judgment is approved as to form.

Larry C. BRAWNER

Larry C. Brawner

Attorney for Defendant,

Patrick C. Ryan

Jap W. BLANKENSHIP / BB

Jap W. Blankenship

Attorney for Plaintiff,

Aldens, Inc.

Court of Appeals Opinion A23

ALDENS, INC.,

Appellant,

v.

PATRICK C. RYAN,

Administrator of Consumer Affairs for the

State of Oklahoma,

Appellee.

No. 76-1731

UnitTrep STATES CourRT OF APPEALS,

TENTH CIRCUIT.

Argued Nov. 14, 1977.

Decided Feb. 27, 1978.

Jap W. Blankenship of Fellers, Snider, Blankenship

& Bailey, Oklahoma City, Oki. (James D. Fellers, Okla-

homa City, Okl., and Raymond N. Friedlander, Chicago,

Ill., of counsel with him on the brief) for appellant.

Larry C. Brawner, Gen. Counsel, Oklahoma Dept. of

Consumer Affairs, Oklahoma City, Okl., for appellee.

Randolph R. Mahan, Asst. Atty. Gen., and Kathleen

G. Smith, Staff Atty., Columbia, S. C., on the brief for

amicus curiae, Irvin D. Parker, Administrator for the S. C.

Dept. of Consumer Affairs, Columbia, S. C.

Before Sern, Chief Judge, and Houttoway and Bar-

RETT, Circuit Judges.

Setu, Chief Judge.

This is a challenge to the Oklahoma Consumer Credit

Code, 14A Okl. Stats. §§ 1-201(5)(a) and 1-201A, as it

A24 Court of Appeals Opinion

applies the maximum interest rates to credit sales, and

which does not permit actions in Oklahoma to collect bal-

ances where the interest rates exceed the Code maximum.

It is brought by a mail-order house doing business in

Illinois.

The plaintiff sought a declaratory judgment that the

application of the Code provisions to its mail-order busi-

ness was contrary to the Commerce Clause and Due Process

Clause. The defendant Ryan as Administrator of Con-

sumer Affairs for Oklahoma counterclaimed for damages on

behalf of Oklahoma residents asserted to have been

charged interest rates above the Code maximum, and also

sought an injunction to prevent the collection in the future

of excess charges.

The trial court found the Act to be constitutional, and

entered judgment for the defendant for damages and for

injunctive relief. The case was heard on stipulated facts.

The credit transactions between Aldens and Oklahoma

residents are within the Oklahoma UCCC definition of con-

sumer credit transactions. The number of such transac-

tions and the dollar totals are substantial. Aldens solicits

by mailing its catalogues and flyers to Oklahoma residents.

Its place of business is in Illinois, and it has no agents in

Oklahoma, no telephone listings there. Its advertising is

done only by mail. Aldens is not required to collect and

remit the Oklahoma use tax, and is not required to qualify

to do business in Oklahoma. The material for credit pur-

chases and applications for credit are also sent by mail

only. The credit agreement recites that it is an Illinois ,

contract, and all orders are accepted in Illinois. Applica-

tions for credit from Oklahoma residents for the most part

are checked with national credit agencies and a few are

checked directly with Oklahoma sources by Aldens.

The finance or credit charges made by Aldens con-

form with the Illinois statutes and the transactions are

Court of Appeals Opinion A25

also in conformance with Regulation Z. However, the in-

terest rates as computed by Aldens exceed the maximum

provided in the Oklahoma Code.

As to past due accounts Aldens attempts to make col-

lection by mail, by phone, and ultimately turns them to a

collection agency. The stipulation of facts shows that if

Aldens were required to comply with the Oklahoma Code,

its reduction in finance charges, and the special processing

costs directed to Oklahoma separately would amount to

some $160,500.00 per year. Gross sales in Oklahoma

amount to some $2,250,000.00, of which eighty-one percent

is on credit. There are about 13,800 credit customers in

Oklahoma.

The mail-order transactions here concerned come

within the provisions of the Oklahoma Code, as above

mentioned. The Code is worded expressly to include mail-

order solicitations, sales, and the extension of credit.

The same issues and contentions of the parties have

been considered by the Third Circuit in Aldens, Inc. v.

Packel, 524 F. 2d 38 (3d Cir.), and by the Seventh. Circuit

in Aldens, Inc. v. LaFollette, 552 F. 2d 745 (7th Cir.), and

we reach the same conclusion as did those two courts.

An extended discussion in this opinion is not called for.

It is sufficient to point out that the subject matter and pur-

pose of the state regulation is the present day starting place

for a consideration of the issues before us; thus the degree

of interest of the state in the subject matter regulated, and

how fundamental is this local interest. Against this is set

the determination as to whether or not the consequential

burden on commerce is clearly excessive. This is basically

the teaching of Travelers Health Ass'n v. Virginia, 339 U. S.

643, 70 S. Ct. 927, 94 L. Ed. 1154, which, of course, con-

cerned the regulation by a state of a mail-order insurance

business. The Court there “rejected the contention” that

the doctrines of place of contracting and place of perform-

A26 Court of Appeals Opinion

ance should govern, and held that they must give way to

the “degree of interest” the state had in the transaction of

subject, and give way to the consequences of the contracts

in the regulating states. See also Hoopeston Canning Co.

v. Cullen, 318 U. S. 313, 63 S$. Ct. 602, 87 L. Ed. 777. It

is clear from times prior to International Shoe that the state

can regulate the consequences of commercial transactions

on its citizens which arise or are directed from outside

its borders. The recent decisions on the point have dis-

carded, for these purposes, the established doctrines of

reliance on place of sale, place of delivery, the “presence”

concept, place of contract, and place of performance which

may be well recognized for other purposes.

It is apparent here, as the court said in Aldens, Inc. v.

Packel, 524 F. 2d 38 (3d Cir.), that the state’s interest in

the cost of credit extended for goods sold to its residents

is sufficient to overcome due process objections. The de-

gree of interest by the State of Oklahoma in this subject

is clearly sufficient to support the Oklahoma Code against

the due process attack. Physical presence of Aldeus in

Oklahoma is not required to subject its credit rates to state

regulation in transactions with Oklahoma residents.

The “per se” approach of Aldens to the Commerce

Clause must be rejected for the grounds above referred to.

The states can, of course, pass Acts which affect commerce

unless the burden so imposed greatly exceeds the extent of

the local benefits. Complete Auto Transit, Inc. v. Brady,

430 U. S. 274, 97 S. Ct. 1076, 51 L. Ed. 2d 326; Great

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

96 S. Ct. 923, 47 L. Ed. 2d 55; Head v. New Mexico Board,

374 U. S. 424, 83 S. Ct. 1759, 10 L. Ed. 2d 983.

Thus is this burden an unreasonable one in interstate

commerce? Again we refer to the Court of Appeals deci-

sions of the Third and Seventh Circuits, and again we reach

the same conclusion. There is a burden on Aldens to sort

a

ee

Court of Appeals Opinion A27

out the Oklahoma credit transactions, and accord them

somewhat different treatment. There are apparently

regular mailings to some 34,000 Oklahoma residents; these

are followed by additional flyers and, if required, credit

applications and charge account agreements. The dollar

figure of total sales in Oklahoma is in the record as is an

estimated cost of special treatment for Oklahoma residents.

We agree with the trial court that on balance, a conform-

ance with the Oklahoma cost of credit rules would not con-

stitute an undue burden on interstate commerce. In the

era of computers, the record shows that a sorting of this

nature, with separate Oklahoma contracts, would not be

such an unreasonable burden as compared to the local

interest in the subject.

AFFIRMED.

A28 Court of Appeals Judgment

January TERM—FeEsBRuARY 27, 1978

Before Honorable Oliver Seth, Honorable William J.

Holloway, and Honorable James F. Barrett, Circuit

Judges

No, 76-1731

(D. C, #CIV-75-0458-D )

ALDENS, INC.,

Plaintiff-Appellant,

v,

PATRICK C. RYAN, Administrator of Consumer Affairs

for the State of Oklahoma,

Defendant-Appellee.

SOUTH CAROLINA DEPARTMENT OF

CONSUMER AFFAIRS,

Amicus Curiae.

JUDGMENT.

This cause came on to be heard on the record on ap-

peal from the United States District Court for the Western

District of Oklahoma and was argued by counsel.

Upon consideration whereof, it is ordered that the

judgment of that Court is affirmed.

/s/ Howarp K. PHiurps

Howard K. Phillips, Clerk

se

Court of Appeals Order Denying Rehearing A29

Marcu TerM—Apnrit 4, 1978

Before Honorable Oliver Seth, Honorable William J.

Holloway, Jr., Honorable Robert H. McWilliams,

Honorable James E. Barrett, Honorable William E.

Doyle, Honorable Monroe G. McKay, and Honorable

James K. Logan, Circuit Judges.

No, 76-1731

ALDENS, INC.,

Plaintiff-Appellant,

v,

PATRICK C. RYAN, Administrator of Consumer Affairs

for the State of Oklahoma,

Defendant-Appellee.

SOUTH CAROLINA DEPARTMENT OF

CONSUMER AFFAIRS,

Amicus Curiae.

This matter comes on for consideration of the petition

for rehearing with suggestion for rehearing en banc filed by

appellant in the captioned cause.

Upon consideration whereof, the petition for rehearing

is denied by Circuit Judges Seth, Holloway and Barrett

to whom the case was argued and submitted.

The petition for rehearing having been denied by the

original panel to whom the case was argued and sub-

mitted and no member of the panel nor judge in regular

active service on the Court having requested that the Court

be polled on rehearing en banc, Rule 35, Federal Rules of

A30 Court of Appeals Order Denying Rehearing

Appellate Procedure, the suggestion for rehearing en banc

is denied.

/s/ Howarp K. PHILLips

Howard K. Phillips, Clerk