Appellants Reply Brief — Quinn-Moore v. Lambert

————

Office Supreme Court, US.

Se ee ees Gee we ee

Pen [SEP a1 1981

Supreme Court Of The United States.”

NO. 81-131

OCTOBER TERM 1981

Quinn-Moore, a Joint Venture d/b/a Texaco

Truck Center, Luke Quinn; Mildred Quinn; Ed

Moore; Carolyn Moore; The First National Bank in

Little Rock; American State Bank; Arkansas Bankers

Association; Arkansas Savings & Loan League;

Arkansas Mortgage Bankers Association; Arkansas

Credit Union League; Arkansas State Chamber of

Commerce; Arkansas Automobile Dealers Association,

Inc.; Commercial National Bank; First Arkansas

Bankstock Corporation; First National Bank in Hot

Springs; Fausett & Company; Rector-Phillips-Morse,

Inc.; The Stephens Security Bank of Stephens,

Arkansas; Union National Bank; Austin Wiggins

Company; Worthen Bank & Trust Company...... Appellants

VS.

Beverly J. Lambert, Bank Commissioner, State of

Arkansas; Steve Clark, Attorney General, State of

Arkansas; Arkansas State AFL-CIO; Acorn;

Arkansas Consumer Research, Inc.; and Elizabeth

A ORO eee Appellees

ON APPEAI FROM

THE SUPREME COURT OF ARKANSAS

BRIEF IN OPPOSITION TO MOTION TO DISMISS

HERSCHEL H. FRIDAY, JR.

FRIDAY, ELDREDGE & CLARK

Twentieth Floor

First National Building

Little Rock, Arkansas 72201

(501) 376-2011

Counsel of Record for Appellants

OTHER COUNSEL FOR APPELLANTS

GEORGE PIKE, JR.

FRIDAY, ELDREDGE & CLARK

Twentieth Floor

First National Building

Little Rock, Arkansas 72201

DARRELL D. DOVER

HOUSE, HOLMES & JEWELL

1550 Tower Building

Little Rock, Arkansas 72201

C. J. GIROIR, JR. and

HILLARY RODHAM

ROSE, NASH, WILLIAMSON,

CARROLL, CLAY & GimvIR, P.A.

720 West Third Street

Little Rock, Arkansas 72201

TERRY MATTHEWS

WRIGHT, LINDSEY & JENNINGS

2200 Worthen Bank Building

Little Rock, Arkansas 72201

JAMES M. McHANEY

OWENS, McHANEY & McHANEY

1902 First National Building

Little Rock, Arkansas 72201

JOHN B. PLEGGE

PLEGGE & WEBER

1004 Pyramid Life Building

Little Rock, Arkansas 72201

GRIFFIN SMITH

1955 Union National Bank

Little Rock, Arkansas 72201

ROBERT D. SMITH, III

SMITH & JERNIGAN

1000 Tower Building

Little Rock, Arkansas 72201

W. J. WALKER

601 Rock Street

Little Rock, Arkansas 72203

L.. SRY C. WALLACE

WALLACE, HILBURN, CLAYTON,

MAY & CALHOUN

Twin City Bank Building

North Little Rock, Arkansas 72114

STEPHEN A. WHITE

Post Office Box 85

Charleston, Arkansas 72933

TABLE OF CONTENTS

TABLE OF AUTHORITIES ............... ... Index

THE QUESTIONS ARE SUBSTANTIAL ....

A. INTRODUCTION........ccsccccsccsccsvees 1

B. THE ARKANSAS USURY LAW DEPRIVES

APPELLANTS OF THEIR LIBERTY AND

PROPERTY WITHOUT DUE PROCESS OF

LAW IN VIOLATION OF THE DUE

PROCESS CLAUSE OF THE FOURTEENTH

AMENDMENT TO THE CONSTITUTION OF

THE UNITED STATES...........:ceeeeeees 2

C. THE ARKANSAS USURY LAW IS AN

UNDUE BURDEN ON INTERSTATE

COMMERCE IN VIOLATION OF THE

COMMERCE CLAUSE OF _ THE

CONSTITUTION OF THE UNITED

STATES. ...cccccccccccccccccscccvevccccens 6

D. THE ARKANSAS USURY LAW DENIES AP-

PELLANTS EQUAL PROTECTION OF THE

LAW UNDER THE EQUAL PROTECTION

CLAUSE OF THE FOURTEENTH AMEND-

MENT TO THE UNITED STATES CONSTI-

DEMO csvecveseceseubonccverienydieeves 8

TABLE OF AUTHORITIES

CASES page

A. B. Small Company v. American Sugar Refining

Company, 267 U.S. 233 (1925) ....... 0... eee ee 3

Aldens, Inc. v. Packel, 524 F.2d 38 (3rd “ir 1975) ......... 8

Alsup v. State, 178 Ark. 170, 10 S.W.2d 9 (1928) ..........3

Berger v. State Board of Hairdressing, 118 R.1. 55,

Re enn rrr 3

Brotherhood of Locomotive Firemen and

Enginemen v. Chicago R.I. & P.R. Co., 393 U.S.

NT a a 4

Cesary v. Second National Bank of North Miami,

369 So.2d 917 (Fla. 1979)... 0... eee 5

Culberson v. Ashford, 118 Tex. 491, 18 S.W.2d

eects datas os eWe kee a cecnecseesenaes 3

Ferguson v. Skrupa, 372 U.S. 722 (1966)... 06. 5

Gold v. Lorenzo, 425 F.2d 949 (2nd Cir. 1979) ............, 3

Griffith v. Connecticut, 218 U.S. 563 (1910) ............... 5

Karrick v. Cantrill, 277 F. 578 (Ct. App. D.C. 1922) ........ 3

Kassel v. Consolidated Freightways Corporation of

Delaware, US. , 101 S.Ct. ___, 67 L.Ed.

580 (Decided March 24, 1981) ............0..000000000.. 5

Lewis v. BT Investment Managers, Inc., 447 U.S.

te CAs Ran ae 6A pM 46 Cb Od eee Katee 7

Minnesota v. Clover Leaf Creamery Co., US. ,

NOE GUE. TAS (IOSD) ccc ccc cece cc cncccccccecs 3

Mora v. Majas, 223 F.2d 814 (1st Cir. 1955) .......0......, 6

Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970) ....... 6

Southern Pacific Company v. Arizona, 325 U.S.

are aCe aWeNAs oboe 4 Aan oa see vevacees 7

Sproles v. Binford, 286 U.S. 374 (1982)... 0.00.66 5

State v. Spiegel, 623 P.2d 1147 (Wash. 1981) ............... 5

United States v. L. Cohen Grocery Company, 255

if Ro. eran

Whitaker v. Spiegel, 623 P.2d 1147 (Ww ash. 1981) .

Williams v. Illinois, 399 U.S. 235 (1970)

CONSTITUTIONAL PROVISIONS

1874 Constitution of Arkansas, Article 19,

RE SSE SS ee

The Due Process and Equal Protection Clauses of

the Fourteenth Amendment to the United States

ee ee a UN kak eke eae a

Commerce Clause of the United States Constitution,

Article I, Section 8 (3) ..............

eo ul cw

IN THE

Supreme Court Of The United States

NO. 81-131

OCTOBER TERM 1981

Quinn-Moore, a Joint Venture d/b/a Texaco

Truck Center, Luke Quinn; Mildred Quinn; Ed

Moore; Carolyn Moore; The First National Bank in

Little Rock; American State Bank; Arkansas Bankers

Association; Arkansas Savings & Loan League;

Arkansas Mortgage Bankers Association; Arkansas

Credit Union League; Arkansas State Chamber of

Commerce; Arkansas Automobile Dealers Association,

Inc.; Commercial National Bank; First Arkansas

Bankstock Corporation; First National Bank in Hot

Springs; Fausett & Company; Rector-Phillips-Morse,

Inc.; The Stephens Security Bank of Stephens,

Arkansas; Union National Bank; Austin Wiggins

Company; Worthen Bank & Trust Company...... Appellants

vs.

Beverly J. Lambert, Bank Commissioner, State of

Arkansas; Steve Clark, Attorney General, State of

Arkansas; Arkansas State AFL-CIO; Acorn;

Arkansas Consumer Research, Inc.; and Elizabeth

SUN bio .c ce aclu wort cerineeeee liane: Appellees

ON APPEAL FROM

THE SUPREME COURT OF ARKANSAS

BRIEF IN OPPOSITION TO MOTION TO DISMISS

THE QUESTIONS ARE SUBSTANTIAL

A.

INTRODUCTION

The motion to dismiss filed by the Attorney General

draws into sharp focus the issue before this Court. Basically,

2

the Attorney General is taking the rather startling position

that because a state may enact usury laws under its police

power, that the manner and level of that price regulation is

not subject to judicial review and may be totally arbitrary

and capricious! Appellants continue to maintain, on the other

hand, that even though a state may determine as a matter of

public policy, not subject to judicial review, to have usury

laws, when it does so, however, it must establish rates in a

rational manner at rational levels, or the usury laws may be

successfully challenged as being in violation of the United

States Constitution.

B. THE ARKANSAS USURY LAW DEPRIVES

APPELLANTS OF THEIR LIBERTY AND

PROPERTY WITHOUT DUE PROCESS OF

LAW IN VIOLATION OF THE DUE

PROCESS CLAUSE OF THE FOURTEENTH

AMENDMENT TO THE CONSTITUTION OF

THE UNITED STATES.

There is no question but that Arkansas and other

states may regulate their economy, including charges for

the use of money, under their police power. The basic thrust

of the Attorney General's motion to dismiss is to justify that

a state may so regulate its economy. This argument misses

the point. The question is whether a state may irrationally,

arbitrarily regulate its economy by fixing prices for the use

of money at a destructive, prohibitive level which has no

rational connection with the purpose of the law, namely to

present excessive charges for the use of money. The

Arkansas law forbids borrowing and lending when the

national market price for the use of money exceeds 10%.

The Attorney General makes the very erreneous

statement that the cases relied upon by appellants

concerned only the setting of public utility rates and the

3

establishment of minimum price schedules, rather than

cases involving the seiting of maximum prices in non-utility

cases. (motion to dismiss, pages 6-8)

Contrary to this analysis of appellants’ cases, in their

jurisdictional statement appellants cited the following cases

not involving railroad or public utilities in which courts

struck the particular setting of a maximum rate or price as

being arbitrary and unconstitutionally low: United States +.

L. Cohen Grocery Company, 255 U.S. 581 (1922) ‘maximum

price for sugar); A.B. Small Company v. American Sugar

Refining Company, 267 U S. 233 (1925) (maximum price for

sugar); Gold v. Lorenzo, 425 F.2d 949 (2nd Cir. 1979)

(maximum rate for real estate brokers’ fees); Mora +. Majas,

223 F.2d 814 (1st. Cir. 1955) (maximum price for rice);

Karrick v. Cantrill, 277 F. 578 (Ct. App. D.C. 1922)

(maximum residential rent rates); Culberson v. Ashford, 118

Tex. 491, 18 S.W.2d 585 (1929) (maximum agricultural rent

rates); Berger v. State Board of Hairdressing, 118 R.I. 55,

371 A.2d 1053 (1977) (maximum fees for hairdressing school);

Alsup v. State, 178 Ark. 170, 10 S.W.2d 9 (1928) (maximum

rate for employment agency).

Moreover, the cases cited by appellants in their

jurisdictional statement which did involve railroad and

utility rates are precisely in point. As the Court stated Gold

v. Lorenzo, 425 F.2d 949 (2nd Cir. 1979):

Gold's attack on the level of the commission seems

indistinguishable from claims by railroads and other

public utilities that state administrative orders are

depriving them of their property without due

process of law (425 F.2d 949 at 961)

If there were any different considerations in such

cases, those considerations would cause an even stricter

4

review of interest rate limitations, because a public utility is

guaranteed a rate of return. A lender is not guaranteed a

rate of return, and therefore should not be arbitrarily

hampered in his effort to make a profit.

Moreover, unlike a public utility or railroad which must

provide gas, electricity, water, and service to its customers,

if a rate is set arbitrarily low against a lender, the borrower

will not receive the use of the money at all. A lender cannot

be forced to lend in a state with confiscatory usury laws.

The adverse impact upon the customers is even the more

reason why any price regulation for the use of money must

be rational.

The cases cited by the Attorney General also fully

support the position of appellants.

The only issue before the Court at the present time is

whether the questions presented are substantial enough to

warrant plenary consideration. The Attorney General cited

case after case in which this Court considered questions

only after plenary consideration, with opinions that

detailed the many factors that must be considered.

Further, in each of the cases the Court did judicially

review the reasonableness of the challenged regulation,

where the reasonableness of that regulation was at issue.

For example, in Brotherhood of Locomotive Firemen and

Enginemen v. Chicago R.I. & P.R. Co., 393 U.S. 129 (1958)

(motion, p. 8) it was only after a very detailed judicial

review by this Court of the reasons given by the state to

justify the Arkansas full crew law tha‘, the law was upheld.

Like the present case, the Court pointed out that whether

to have a full creW law or not is a matter of public policy, but

once such a law is enacted, it will be judicially reviewed for

reasonableness.

5

In none of the cases cited by the Attorney General was

any issue raised, as in the present case, regarding the

reasonableness of the rates set. In Ferguson v. Skrupa, 372

U.S. 722 (1966); State v. Spiegel, 277 N.W.2d 298 (S.D. 1979);

and Whitaker v. Spiegel, 623 P.2d 1147 (Wash. 191)

(motion, pgs 8, 9) there was a challenge to the state's right to

forbid debt adjusting except by lawyers and the state's

right to have usury laws where interstate commerce is

involved. The rates set by the debt adjusters and the rate

set by the states for interest was not even questioned.

Likewise, in Griffith v. Connecticut, 218 U.S. 563 (1910)

and Cesary v. Second National Bank of North Miami, 369

So.2d 917 (Fla. 1979) there was no challenge to the level of

interest rates set by the state. Rather, in each case, the

challenge was to the classification scheme adopted by the

legislature. By contrast with the Arkansas law which

contains no classification and attempts to set a flat rate for

all times, for all lenders, for all borrowers, for all types of

loans, both of these cases support the position of appellants.

Both cases demonstrate how legislatures can properly

classify in an effort to rationally, rather than arbitrarily

regulate interest rates.

Finally, the case of Sproles v. Binford, 286 U.S. 374

(1932), (motion, p. 9) upholding the validity of a state statute

forbidding truck lengths over fifty-five feet has apparently

been overruled by the decision of this Court in Kassel v.

Consolidated Freightways Corporation of Delaware,

U.S. ___, 101 S.Ct. ___., 67 L.Ed. 850 (Decided March 24,

1981).

The Attorney General, then, has totally failed to

overcome the showing made in apellants’ jurisdictional

statement that the due process question indeed is

substantial and requires plenary consideration.

6

C. THE ARKANSAS USURY LAW IS AN

UNDUE BURDEN ON INTERSTATE COM.

MERCE IN VIOLATION OF THE COM.

MERCE CLAUSE OF THE CONSTITUTION

OF THE UNITED STATES

The Attorney General's arguments and cases cited

under this heading of his brief likewise totally fail to

overcome appellants’ position that the question is so

substantial as to require plenary consideration.

The first case cited by the Attorney General under this

heading, Minnesota v. Clover Leaf Creamery Co., U.S.

—__., 101 S.Ct. 715 (1981), (motion, p. 10) is seriously

misinterpreted by the Attorney General. He states in his

brief that the case stands for the proposition that if a state

law “visits its effects equally upon both interstate and local

business it cannot be challenged as being violative of

Commerce Clause.” This Court made no such statement.

Rather, in fact, it stated just the opposite. Following is the

pertinent portion of this Court's opinion:

Even if a statute regulates ‘even-handedly, and

imposes only ‘incidental’ burdens on interstate

commerce, the courts must nevertheless strike it

down if ‘the burden imposed on such commerce is

clearly excessive in relation to the putative local

benefits.’ Pike v. Bruce Church, Inc., 397 U.S. 137,

142 (1970). Moreover, ‘the extent of the burden that

will be tolerated will of course depend on the nature

of the local interest involved, and on whether it could

be promoted as well with a lesser impact on

interstate activities.’

Other cases cited by the Attorney General regarding

the Commerce Clause issue fully support the position of

appellants because this Court, after carefully weighing the

7

local interests against the impact on interstate commerce

found that the state law was an undue burden on interstate

commerce, Lewis v. BT Investment Managers, Ine., AAT

U.S. 27 (1980); Southern Pacifie Company v. Arizona, 325

U.S. 761 (1945); Pike ». Bruce Church, Inc. 397 U.S, 137

(1970), (motion, pgs 10, 11, 13).

The Attorney General further contends that because

Congress has not yet entirely preempted all state usury

laws, that Congress has blessed the state laws that remain,

Appellants do not believe this Court will seriously consider

the suggestion that Congress intended by not preempting

all state usury laws to have made a determination that any

particular state usury law remaining was or was not a

rational regulation of interest rates. As pointed out in

appellants’ jurisdictional statement, pages 22 - 26, there are

broad areas where Congress has always left to the states

the power to enact reasonable laws even though those laws

affect interstate commerce. However, where a law is

challenged as being an unreasonable regulation affecting

interstate commerce, Congress has properly deferred to the

courts as the proper branch of government to review on a

case by case basis the rationality of the law. As Chief

Justice Stone made clear in Southern Pacific Co. v. Arizona,

325 U.S. 761 (1945):

But in general Congress has left it to the courts to

formulate the rules thus interpreting the commerce

clause in its application, doubtless because it has

appreciated the destructive consequences to the

commerce of the nation if their protection were with-

drawn. ... (Emphasis added) (325 U.S. 761 at 770)

The Attorney General's citation of the case of Aluens,

Inc, v. Packel, 524 F.2d 38 (3rd Cir. 1975) (motion, page 12) is

inapplicable for the same reasons given previously for the

8

reliance on the Spiegel cases, Alden, like Spiegel,

challenged broadside the right of a state to enact any usury

law. The rate was not in question,

Therefore, there is a substantial question that the

Arkansas usury law not only is a burden on interstate

commerce but completely prohibits the flow of money in

interstate commerce in times such as have existed during

the past few years. Since there are innumerable rational

alternatives for regulating interest rates, the Arkansas

usury law cannot pass the required test under the

Commerce Clause.

D. THE ARKANSAS USURY LAW DENIES AP.

PELLANTS EQUAL PROTECTION OF THE

LAW UNDER THE EQUAL PROTECTION

CLAUSE OF THE FOURTEENTH

AMENDMENT TO THE UNITED STATES

CONSTITUTION.

In his motion to dismiss, the Attorney General totally

ignores the principal case relied upon by appellants in their

jurisdictional statement which established beyond any

doubt that a law, although applying equally to all on its face,

is an unconstitutional denial of equal protection if it

operates unequally. This principle was reaffirmed by this

Court in Williams v. Illinois, 399 U.S. 235 (1970) cited at

page 27 of appellants’ jurisdictional statement. No further

citation is needed to establish this point.

The fact that the law does operate unequally on citizens

of Arkansas and citizens of other states desiring to borrow

or lend in Arkansas is not denied by the Attorney General.

Thus the position of appellants that the Arkansas usury law

denies them equal protection of the law is also not overcome

by the Attorney General's motion.

9

bE.

CONCLUSION

In their jurisdictional statement, appellants

demonstrated beyond any doubt the severe economic

impact of the irrational Arkansas usury law upon Arkansas

citizens and those attempting to de business with Arkansas

citizens. The jurisdictional statemen, also demonstrated

beyond any doubt the substantial nature of the questions

presented, The motion to dismiss filed by the Attorney

General actually emphasizes the accuracy of appellants

original position, This case should, therefore, be scheduled

for plenary consideration,

Respectfully submitted,

HERSCHEL H. FRIDAY, JR.

FRIDAY, ELDREDGE & CLARK

Twentieth Floor

First National Building

Little Roek, Arkansas 72201

(501) 376-2011

Counsel of Record of Appellants

Darrell D, Dover

HOUSE, HOLMES & JEWELL CARROLL CLAY & GIROIR, P.A.

720 West Third Street

1850 Tower Building Little Rock, Arkansas 72201

Little Rock, Arkansas Att for Fi

Attorneys for Commercial orneye Tor First Arkansas

National Bank Bankstock Corporation, Worthen

Bank & Trust Company, First

National Bank in Hot Springs,

C, J. Giroir, Jr. and

Hillary Rodham The Stephens Security Bank of

Stephens, Arkansas, and

ROSE, NASH, WILLIAMSON, Arkansas Mortgage Bankers Assn.

10

Terry Matthews Robert D. Smith, III

WRIGHT, LINDSEY & JENNINGS SMITH & JERNIGAN

Worthen Bank Building 1000 Tower Building

Little Rock, Arkansas 72201 Little Rock, Arkansas 72201

Attorneys for Fausett & Co. Attorneys for Arkansas Savings & Loan

James M. McHaney League and Arkansas Financial Services,

I

OWENS, McHANEY & McHANEY

1902 First National Building

Little Rock, Arkansas 72201 W. J. Walker

Attorneys for Arkansas Bankers 601 Rock Street

A i a Little Rock, Arkansas 72203

ayy Attorney for Arkansas Credit

John B. Plegge Union League

PLEGGE & WEBER

P ram d Life Bu d ng ° N, CLAY TON,

Attorneys for Arkansas Automobile Twin City Bank Building

Dealers Association North Little Rock, Arkansas

Attorneys for Arkansas Financial

Services, Inc.

Larry C. Wallace

Griffin Smith

1955 Union Nationa! Bank

Little Rock, Arkansas 72201 :

n , Stephen A. White

Attorney for Union National Bank Post Office Box 85

of Little Rock Charleston, Arkansas 72933

Attorney for American State Bank