Appendix — Silver v. Woolf

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

+

No. 243—August Term, 1982

(Argued September 1, 1982

Decided November 15, 1982)

Docket No. 82-7468

~—

HERBERT T. SILVER d/b/a ALLIED

BOND AND COLLECTION AGENCY,

Plaintiff-Appellant,

_—Ve—

BRIAN J. WOOLF, IN His CAPACITY AS ACTING BANKING

COMMISSIONER OF THE STATE OF CONNECTICUT,

Defendant-Appellee.

Before:

LUMBARD, CARDAMONE and WINTER,

Circuit Judges.

--

Appeal from a grant of summary judgment by the

United States District Court for the District of Connecti-

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cut, (M. Joseph Blumenfeld, Judge, holding that Con-

necticut may require an interstate debt collection agency

to obtain a license as a condition of collecting debts from

residents of Connecticut by phone or by mail. Conn.

Gen. Stat. Ann. §§ 42-127-42-133a (West Supp. 1982).

Affirmed.

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RosBert N. WIENNER, Hartford, Connecticut

(Robert B. Shapiro, Cohn and Birn-

baum, P.C., Hartford, Connecticut, of

counsel), for Appellant.

JOHN G. HAINES, Assistant Attorney General,

Hartford, Connecticut (Carl R. Ajello,

Attorney General, Hartford, Connecti-

cut, of counsel), for Appellee.

+

WINTER, Circuit Judge:

Allied Bond and Collection Agency (“Allied”) brought

this action against the Banking Commissioner of Con-

necticut in the District Court for the District of Connecti-

cut, Blumenfeld, Judge, seeking declaratory and in-

junctive relief against the enforcement of Conn. Gen.

Stat. Ann. §§ 42-127-42-133a (West Supp. 1982). Allied

claimed that this legislation, which requires the licensing

of, and otherwise regulates, interstate debt collection

agencies is unconstitutional. Judge Blumenfeld granted

summary judgment for the Commissioner. We affirm.

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2A

BACKGROUND

Allied is a consumer collection agency located in Penn-

sylvania. It claims to collect debts on behalf of its clients

from debtors located in all 50 states and in several United

States territories and foreign countries. Allied has no

offices, employees, or property in Connecticut and seeks

to collect outstanding debts from Connecticut and

debtors solely through mail and teleplione communica-

tions. From 1978 through 1981, Allied had approximately

14,580 accounts in Connecticut on which it collected

some $576,415.

Until 1981, Allied’s clients included several major oil

companies, notably Atlantic Richfield Oil Company

(ARCO), Mobil Oil Corporation and Shell Oil Company.

In recent years, six Connecticut residents have com-

plained to the Banking Commissioner about Allied’s

collection activities. Four of the complaints received con-

cerned Mobil, ARCO, and Shell. The Banking Commis-

sioner contacted these companies and informed them that

Conn. Gen. Stat. Ann. § 42-131a(b) prohibited creditors

from engaging the services of a collection agency which

had not obtained a license in Connecticut. That section

States in part:

No creditor shall retain, hire, or engage the services

. . of any person who engages in the business of a

consumer collection agency and who is not licensed

to act as such by the commissioner, if such creditor

has actual knowledge that such person is not licensed

As a result, the three oil companies ceased to engage

Allied with respect to debtors located in Connecticut,

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thereby reducing Allied’s volume of Connecticut accounts

by more than 50 percent.

On September 14, 1981, the Commissioner issued a

Notice of Hearing ordering Allied to appear and to show

cause why it should not be ordered to cease and desist

from continuing its business without obtaining a license

pursuant to Conn. Gen. Stat. Ann. § 42-127a(a), which

reads:

No person shall act within this state as a consumer

collection agency, unless such person holds a license

. . . from the commissioner. . . A consumer collec-

tion agency is acting within this state if it. . . (2) has

its place of business located outside this state and

collects from consumer debtors who reside within

this state for creditors whose place of business is

located within this state; or (3) has its place of

business located outside this state and regularly col-

lects from consumer debtors who reside within this

state for creditors whose place of business is located

outside this state.

Allied, which does not contest its status as a “consumer

collection agency,” raised a constitutional challenge to the

licensing requirement at the administrative hearing but

the hearing examiner declined to consider it. Thereafter,

Allied filed this action in the district court seeking a

declaration that section 42-127a(a) was unconstitutional

on its face and as applied and an injunction against the

enforcement of section 42-127a(a) and section 42-i31a(b),

to the extent the latter might be enforced against Allied’s

clients. The district court granted the Commissioner’s

motion for summary judgment and dismissed Allied’s

complaint. This appeal followed. We affirm.

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DISCUSSION

The regulatory scheme of the Connecticut consumer

debt collection statute is not complex. Section 42-127a(a)

prohibits any person from acting as a consumer collection

agency within the state without having first obtained a

license from the Banking Commissioner. In order to

obtain a license, the debt collection agency must submit a

written application, accompanied by a sworn financial

statement, aggregate fees of $250, and evidence that the

applicant is “of good moral character and financially

responsible.” Conn. Gen. Stat. Ann. § 42-127a. The

Commissioner is empowered to examine a collection

agency’s books and records in aid of the licensing deter-

mination or the enforcement of other aspects of the

statutory scheme. An applicant must also post a bond of

$5,000 to ensure a true accounting of all funds collected.

Conn. Gen. Stat. Ann. § 42-128a. The Commissioner

may suspend or revoke a license for cause, after notice

and a hearing. Conn. Gen. Stat. Ann. § 42-129a.

Section 42-131 lists certain prohibited practices. For

example, a debt collection agency may not furnish legal

advice, communicate with debtors in the name of an

_ attorney, or retain or terminate an attorney in any legal

action against a debtor on behalf of a creditor without

having first received the creditor’s written authorization

to act as the creditor’s agent. No such agency may solicit

claims under deceptive or ambiguous contracts, advertise

or threaten to advertise to sell claims, or add to any claim

an amount in excess of the debtor’s legal obligation.

Agencies must account to the creditor for all monies

collected. |

Section 42-13la(a) prohibits a consumer collection

agency from violating any portion of the statute’s regula-

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tory scheme. This section empowers the Banking Com-

missioner to “examine the affairs of every consumer

collection agency in [the] state.” Subsection (b) provides

that creditors may not knowingly engage the services of

an unlicensed consumer collection agency.

Allied asserts two grounds on which the Connecticut

legislation is unconstitutional. First, it claims to be an

exclusively interstate business with insufficient contacts in

Connecticut to require it to obtain a license as a condition

of collecting debts from Connecticut residents by phone

or by mail. Second, Allied argues that, while the Connect-

icut licensing requirement and associated regulation of

the conduct of debt collection are not burdensome in and

of themselves, the “prospect of multiple and probably

inconsistent” regulation by a large number of states

would so burden firms such as Allied as to make national

debt collection from a single office all but impossible. We

reject both contentions.

1. The Licensing Requirement

Allied’s per se challenge to the licensing requirement is

based almost exclusively upon Allenberg Cotton Co. v.

Pittman, 419 U.S. 20 (1974). In that case, the Supreme

Court invalidated a Mississippi requirement that a Ten-

nessee cotton merchant obtain a Certificate of Authority

as a foreign corporation doing business in the state before

using state courts to enforce its contracts. The merchant

had neither offices nor employees in Mississippi. The

underlying contracts were with farmers for cotton to be

grown in the future and were an integral part of a

national market in cotton futures which allowed mer-

chants such as Allenberg to stabilize their position with

respect:to future contracts for sale to customers in several

states. Notwithstanding the fact that the contracts Allen-

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berg sought to enforce were executed in Mississippi and

title to the cotton passed upon delivery to a warehouse

within that state, the Court held that Allenberg’s contacts

with Mississippi “do not exhibit the sort of localization or

intrastate character,” id. at 33, necessary to allow a state

to condition access to its courts upon qualifying to do

business there.

The precise impact of Al/lenberg on other factual situa-

tions is not self-evident. While Justice Douglas’ opinion is

at great pains to describe the “intricate interstate market-

ing mechanism” in cotton futures, id. at 29, and the

essentiality to that mechanism of enforceable contracts

with farmers for cotton to be grown in the future, it

offers few limits to its rationale since a similarly high

degree of integration is a ubiquitous feature of modern

economies.

Allied is thus able to construct a plausible argument

based upon Allenberg since it too has no offices or

employees in Connecticut and its business is an integral

part of the marketing of products on a national scale by

national or multinational corporations. The debts it seeks

to collect directly affect commerce since defaults upon

consumer contracts and costs of collection must affect the

price of goods distributed in interstate commerce and,

therefore, the amount of that commerce. Nevertheless,

we would have to blind ourselves to the many important

distinctions between A/llenberg and the present case were

we to reverse solely upon the basis of that decision. These

distinctions fall into two categories, either of which alone

might be sufficient to uphold the Connecticut statute,

both of which together are more than adequate. First, the

contacts between Allied’s business and Connecitcut are

significantly different from those involved in Allenberg.

Second, unlike the situation in Allenberg, Congress has

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affirmatively indicated that it considers the kind of state

regulation at issue here to be desirable.

Unlike Allenberg, the licensing scheme here is an inte-

gral part of a precise regulatory scheme. The function of

the license is to provide an easy means of enforcing the

substantive regulation of debt collection. Thus, a collec-

tion agency which violates the regulatory scheme may lose

its license and the creditor firms which hire it can then be

forced to change agencies. A/llenberg involved a statute

applicable to all foreign corporations without regard to

either the nature of their business or the interest of the

state in regulating it. The licensing was not an integral

part of an otherwise valid regulatory statute and was thus

viewed by the majority as a naked restriction on interstate

firms. The licensing requirement here, on the other hand,

must be viewed as part of an overall regulatory scheme

relating to debt collection.'

Debt collection practices have long been viewed as a

proper matter for regulation by the states. Quite apart

from statutory regulation, see Scott and Strickland, Abu-

sive Debt Collection—A Model Statute for Virginia, 1§

Wm. & Mary L. Rev. 567, 573-578 (1974), such practices

have generated a substantial amount of state litigation

sounding in common law tort. See generally, Annot., 64

A.L.R.2d 100 (1959); Annot. 15 A.L.R.2d 108 (1951).

Indeed, the principal source of resistance to federal regu-

lation of debt collection has been the view that it is a

matter “best left to the states.” S. Rep. No. 382 95th

Cong., Ist Sess. 9, reprinted in 1977 U.S. Code Cong. &

Ad. News 1695, 1703 (separate views of Messrs. Schmitt,

Gam and Tower). The reason for state involvement in

! Allied has explicitly eschewed any particularized challenge to the

Connecticut regulatory scheme other than the licensing requirement.

We thay assume for purposes of this case, therefore, that the regula-

tions and prohibitions of the legislation are constitutional.

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such regulation is self-evident. While the methods of

communication utilized by debt collectors may, as in

Allied’s case, be interstate, the perceived abuses and

consequent harm—abusive language and threats followed

by feelings of insult and humiliation and an urge to pay a

disputed debt solely to avoid further harassment—are

almost entirely localized.

Moreover, agencies such as Allied are not enforcing

their own contracts, as in A/lenberg. Instead, they gener-

ally seek to collect on contracts entered into by companies

which have a multitude of contacts with Connecticut. The

contracts and resultant debts are entirely local and much

of the Connecticut regulation enforced by the licensing

requirement effectuates important local interests, e.g.,

requiring that monies paid to collection agencies be used

to satisfy the underlying debts. Conn. Gen. Stat. Ann.

§§ 42-131(i),(k),(1). Finally, a requirement that companies

doing business in Connecticut not hire unlicensed collec-

tion agencies is a method of preventing firms doing

business in Connecticut from evading concededly valid

regulation of their contract enforcement methods by

hiring out-of-state agencies.

Moreover, debt collection practices are intimately re-

lated to the use of state courts and the regulation of the

practice of law in those courts. Some provisions of the

Connecticut statute are explicitly aimed at preventing the

illegal practice of law and otherwise regulate the relation-

ship of collection agencies to Connecticut attorneys. See

e.g., Conn. Gen. Stat. Ann. §§ 42-131(a),(b),(e). We

think Allenberg no more prohibits a licensing requirement

as a remedy for such regulation of debt collection than it

prevents Mississippi from requiring that the Alleaberg

Cotton Co. hire an attorney licensed or admitted pro haec

vice in that state to initiate contract actions in its courts.

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We believe, therefore, that the local interests served by

the use of a licensing mechanism as a regulatory device in

the case of the Connecticut statute are significantly dif-

ferent from those at issue in Allenberg. Even Justice

Rehnquist’s dissent in Allenberg, for example, mentions

as significant local interests only the facilitation of tax

collection, ease in service of process and dissemination of

financial information. 419 U.S. at 40-41. The majority,

however, left open the question of whether Allenberg’s

contacts were sufficient to allow imposition of local taxes

and service of process in Mississippi. Under these circum-

stances, we decline to read Allenberg as establishing a per

se rule prohibiting the licensing of interstate businesses in

order to facilitate the enforcement of an otherwise valid

scheme of state regulation. Indeed, this appears to be the

substance of the Supreme Court’s decisions on the licens-

ing of interstate businesses. See, e.g., Robertson v. Cali-

fornia, 328 U.S. 440, 452-459 (1946).

Allenberg is distinguishable upon a second ground: in

that case, Congress had not expressed any views as to the

legitimacy of the Mississippi law; in the present case,

there are affirmative indications that Congress believes

state regulation of debt collection agencies to be desir-

able.

That is a crucial distinction for whatever decision a

federal court might render as to the validity of a state law

regulating commerce in the absence of congressional

action, Congressional approval of such laws is decisive in

their favor. The power of federal courts to invalidate state

laws burdening interstate commerce is derived from the

so-called negative implications of the Commerce Clause.

Although a matter of some doubt and much debate in

earlier times, see generally Brown, The Open Economy:

Justice Frankfurter and the Position of the Judiciary, 67

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Yale L.J. 219, 219-223 (1957); Dowling, Jnterstate Com-

merce and State Power, 27 Va. L.Rev. 1, 2-8 (1940), the

power of federal courts to invalidate state laws which

“retard, burden or constrict the flow of . . . commerce,”

H.P. Hood & Sons v. DuMond, 336 U.S. 525, 533 (1949)

is now well established but subject to a critical qualifica-

tion stemming from the Coinmerce Clause. That provi-

sion is not a direct prohibition on state action; instead it

empowers the federal legislature to regulate the subject

matter. As such, it provides, at best, a negative implica-

tion supporting such judicial authority. Indeed, one dis-

tinguished constitutional scholar has pointed out that

“the [negative] textual inference never was a very good

one,” Black, Structure and Relationship in Constitutional

Law 21 (1969) and that the disabilities of the states so far

as interstate commerce are concerned flow as much from

the political structure of a constitution establishing a

single nation as from the text of the Commerce Clause.

That is a point well taken and one which fully explains

judicial invalidation of burdensome or discriminatory

state laws where Congress is silent. Nevertheless, the

constitutional text empowering Congress is directly rele-

vant so far as the relative powers of different branches of

the federal government over such laws are concerned. A

State law which a federal court might invalidate where

Congress is silent will thus be upheld where Congress has

indicated its desire to allow states to act. Prudential

Insurance Co. v. Benjamin, 328 U.S. 408 (1946).

The federal Fair Debt Collection Practices Act, 15

U.S.C. §§ 1692-16920 (Supp. IV 1980) legislates in the

same area regulated by the Connecticut statute in issue. It

contains the following provision:

This subchapter does not annul, alter or affect, or

exempt any person subject to the provisions of this

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subchapter from complying with the laws of any

State with respect to debt collection practices, except

to the extent that those laws are inconsistent with any

provision of this subchapter, and then only to the

extent of the inconsistency. For purposes of this

section, a State law is not inconsistent with this

subchapter if the protection such law affords any

consumer is greater than the protection provided by

this subchapter.

18 U.S.C. § 1692n.

We regard this provision as more than sufficient to

authorize the licensing of interstate debt collection agen-

cies as a method of enforcing otherwise valid regulatory

measures. Congress hoped that the states would address

the problem of abusive debt collection methods and enact

“stronger” laws. S. Rep. No. 382, supra p.8, at 6. Unlike

Statutes such as that at issue in Lewis v. BT Inv. Man-

agers, Inc., 447 U.S. 27 (1980), involving clauses which

preserved only the existing state power in the particular

area, section 1692n affirmatively expresses Congress’ ap-

proval of more stringent state legislation. As we indicate

in the next section, section 1692n may not be a carte

blanche for any and all state legislation, no matter how

burdensome or even prohibitive, but it certainly author-

izes a simple licensing requirement as a remedial measure

in aid of otherwise valid state regulation. Allied has

demonstrated no particularly onerous burden imposed by

such a requirement but instead has relied upon a per se

argument based on a literal reading of Allenberg. Since

Allenberg did not involve a federal statute such as section

1692n, it is wholly distinguishable.

12A

2. The Cumulative Burden of State Regulation

Allied also argues that, while the Connecticut statutory

scheme does not in and of itself impermissibly burden

commerce, “the prospect of 30 or more state licenses,

each with its own regulatory idiosyncracies, would make

the conduct of a national business from a single location

impossible. . . .” Brief for Appellant at 24. This argu-

ment is quite distinct from the challenge to the licensing

requirement. Local interests may be insufficient to justify

state lesgislation which, because it differs from the laws

of other states, significantly burdens commerce. Ray-

mond Motor Transportation, Inc. v. Rice, 434 U.S. 429

(1978) (truck length limits interfering with the “interlin-

ing” of interstate trailers); Bibb v. Navajo Freight Lines,

Inc., 359 U.S. 520 (1959) (idiosyncratic mudguard law

interfering with “interlining”); Southern Pacific Co. v.

Arizona, 325 U.S. 761 (1945) (train limit law forcing

interstate trains to be broken up and reformed at the

Arizona line). Moreover, while section 1692n authorizes

state laws affording “greater. . . protection” to debtors,

we are not prepared to say that it authorizes state legisla-

tion which in the aggregate might effectively prohibit

interstate debt collection agencies from operating.

Appellant’s argument fails, however, because it is to-

tally speculative. Apart from arguing that compliance

with differing state requirements as to recordkeeping

might be prohibitively costly, Allied simply has not desig-

nated statutory regulations here or elsewhere which in the

aggregate might constitute an impermissible burden on

commerce. Unlike Southern Pacific, Bibb, and Raymond,

a specific burden resulting from disparate state regulation

simply has not been shown. No colorable claim is made,

for example, that the cumulative impact of state licensing

fees or bonding requirements is prohibitive, that specific

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regulatory requirements or prohibitions in the different

states are so disparate as to limit interstate operations, or

even that Allied itself has been unduly limited in conduct-

ing its business as a consequence of state regulation. So

far as recordkeeping requirements are concerned, Allied

makes no claim that Connecticut even requires particular

methods of recordkeeping, much less that such a require-

ment in connection with the differing requirements of

other states is unduly burdensome. Instead, Allied asks us

to render the legislation invalid because of “the prospect”

of an impermissible aggregate burden on commerce.

Courts are not in the business of deciding the legality of

such “prospects.” Judge Blumenfeld thus properly

granted summary judgment.

Affirmed.

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EXHIBIT F

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

HERBERT R. SILVER,

d/b/a Allied Bond and

Collection Agency

v. : CIVIL NO. H-81-872

BRIAN J. WOOLF, in his

capacity as Acting Banking

Commissioner of the State

of Connecticut

MEMORANDUM OF DECISION

In this action for a declaratory judgment, the plaintiff,

the sole proprietor of a consumer collection agency located

in Philadelphia, Pennsylvania, contends that Section

42-127a(a) of the Connecticut General Statutes is un-

constitutional on its face and as applied to the plaintiff

under the due process and commerce clauses of the United

States Constitution.

Conn. Gen. Stat. § 42-127a(a) requires that all con-

sumer collection agencies acting within the State of Con-

necticut obtain a license from the State Commissioner of

Banking. It provides that

[a] consumer collection agency is acting within

this state if it ... (3) has its place of business

located outside this state and regularly collects

from consumer debtors who reside within this

state for creditors whose place of business is

located outside this state.

15A

Id. The plaintiff characterizes his business as a “national

collection agency which on behalf of its clients seeks to col-

lect debts from debtors located in all of the 50 states and in

a number of U.S. territories and foreign countries.’ It has

no offices, employees or property in Connecticut and seeks

to collect outstanding debts from Connecticut debtors

solely through mail and telephone communications.

Beginning in July 1980 the Consumer Credit Division

of the Connecticut Banking Department received a number

of complaints from Connecticut consumer debtors concern-

ing the collection practices of the plaintiff's company.

Defendant's Motion for Summary Judgment Exhibits A-1

through A-17. The Department began a correspondence

with the plaintiff in order to determine if his company was

subject to the licensing requirements of Conn. Gen. Stat.

§ 42-127a. The plaintiff responded by refusing to provide

any information concerning the scope of his activities in

Connecticut on the basis of his position that his company

was not subject to Connecticut law because its only con-

tacts with the state are by mail and telephone communica-

tion. After receiving additional complaints about the plain-

tiff’s company, the Department told the plaintiff that it

considered his company subject to the licensing re-

quirements of Conn. Gen. Stat. § 42-127a and began in-

forming the plaintiff's clients that his company was not

licensed as required by Connecticut law and that,

therefore, referral of accounts to his collection agency for

collection from Connecticut debtors is prohibited by Conn.

Gen. Stat. § 42-13la(b).! Three of the plaintiff's clients

have been contacted by the Department so far.

1Conn. Gen. Stat. § 42-131a(b) provides:

No creditor shall retain, hire, or engage the services or con-

tinue to retain or engage the services of any person who

engages in the business of a consumer collection agency and

who is not licensed to act as such by the commissioner, if

such creditor has actual knowledge that such person is not

licensed by the commissioner to act as a consumer collection

agency.

16A

On September 14, 1981 the Banking Department com-

menced formal proceedings against the plaintiff's company

to enforce the licensing requirement. A hearing was held on

November 4, 1981, and on March 30, 1982 the Banking

Commissioner issued a decision ordering the plaintiff to

cease and desist from acting as a consumer collection

agency in Connecticut without a license.”

On November 10, 1981 the plaintiff filed this action

under 42 U.S.C. § 1983 seeking a declaratory judgment

that Conn. Gen. Stat. § 42-127a(a) is unconstitutional on its

face and/or as applied to the plaintiff. He also seeks an in-

junction to restrain the Banking Commissioner from (1) en-

forcing Conn. Gen. Stat. § 42-127a(a) against the plaintiff

and (2) enforcing Conn. Gen. Stat. § 42-131la(b) against the

plaintiff's clients insofar as it relates to plaintiff's status

under Conn. Gen. Stat. § 42-127a(a). The defendant has

moved for summary judgment. A hearing was held before

this court on January 25, 1982 on the plaintiff's motion for

a preliminary and permanent injunction and on the defen-

dant’s motion for summary judgment.

The two grounds upon which the defendant urges this

court to dismiss this suit without reaching the merits are

considered in limine.

I, EXHAUSTION OF ADMINISTRATIVE

REMEDIES

Although there were state administrative proceedings

pending at the time the federal complaint was filed, the

fact that the plaintiff did not exhaust his administrative

remedies prior to filing this lawsuit does not preclude this

court from taking jurisdiction.

2Enforcement of the Banking Commissioner's order has been

tem-

porarily enjoined by a temporary restraining order entered by this

court on April 12, 1982.

17A

While a plaintiff is generally required to exhaust his

administrative remedies prior to commencing an action

seeking judicial relief, Myers v. Bethlehem Shipbuilding

Corp., 303 U.S. 41, 50-51 (1938), the Supreme Court has

held on numerous occasions that state administrative

remedies need not be exhausted prior to commencing a

federal civil rights action under 42 U.S.C. § 1983. E.g., Ellis

v. Dyson, 421 U.S. 426, 432-33 (1975); Gibson v. Berryhill,

411 U.S. 564, 574-75 (1973). In this circuit this line of cases

has been interpreted to “mean not that state ad-

ministrative remedies need never be exhausted prior to

commencement of § 1983 suits, but merely that the ex-

haustion requirement should not be given ‘wooden applica-

tion.’ ’’ Swan v. Stoneman, 635 F.2d 97, 103 (2d Cir. 1980)

(quoting from Eisen v. Eastmen, 421 F.2d 560, 569 (2d Cir.

1969), cert. denied, 400 U.S. 841 (1970)). Exhaustion is not

required where it would be futile because the question of

the adequacy of the administrative remedy is ‘‘for all prac-

tical purposes coextensive with the merits of the plaintiff's

constitutional claims,” Fuentes v. Roher, 519 F.2d 379, 387

(2d Cir. 1975), or where the issue is one where there is no

need for the “exercise of agency discretion or expertise,”’

Touche Ross & Co. v. Securities & Exchange Commission,

609 F.2d 570, 577 (2d Cir. 1979). In addition, an agency can

in some circumstances be found to have waived the exhaus-

tion requirement by stipulation or by adopting a final posi-

tion prior to completion of the entire administrative

process. Greenberg v. Bolger, 497 F. Supp. 756, 772

(E.D.N.Y. 1980).

The plaintiff contends that the federal Constitution

prevents the state from enforcing its licensing requirement

against the plaintiff. His claim is solely one of federal con-

stitutional law on which the agency has no expertise. In ad-

dition, the hearing examiner had made it clear prior to the

institution of this federal suit that she would not make any

decision on the constitutional issues. There is no reason,

therefore, to apply the doctrine requiring the exhaustion of

administrative remedies.

18A

II. ABSTENTION

The doctrine of equitable restraint requires that a

federal court abstain from enjoining pending state enforce-

ment proceedings at least in the absence of extraordinary

circumstances, such as bad faith or harassment on the part

of the state prosecution, or a facial attack on a patently un-

constitutional statute. Younger v. Harris, 401 U.S. 37,

53-54 (1971). It has been applied to a variety of state civil

proceedings. E.g., Moore v. Sims, 442 U.S. 415 (1979) (state

proceeding to remove custody of children from their

parent); Trainor v. Hernandez, 431 U.S. 434 (1977) (enforce-

ment action to attach property pursuant to a state action

to recover wrongfully paid welfare benefits); Juidice v.

Vail, 430 U.S. 327 (1977) (state’s contempt process); Huff-

man v. Pursue, 420 U.S. 592 (1975) (state nuisance pro-

ceeding). The doctrine is based upon the rationale that

principles of equity and federalism preclude a federal court

from interfering with an ongoing state proceeding which

offers the federal plaintiff a fair forum for the resolution of

his federal claims. See, e.g., Younger v. Harris, 401 U.S. at

44.

The defendant in this case contends that because the

plaintiff has a right to appeal the Banking Commissioner's

decision to the state Superior Court under Conn. Gen. Stat.

§ 4-183 the principles of equitable restraint require this

court to abstain in favor of the state's judicial process. The

defendant characterizes the administrative appeal afforded

by Conn. Gen. Stat. § 4-183 as a continuation of the ad-

ministrative enforcement proceeding and, therefore, views

the state proceedings as ongoing at the present time. In

fact, there are no state proceedings pending at the present

time. The administrative proceedings before the Banking

Commission have been completed. All that remains to be

done is the enforcement of the Commissioner's order which

has been temporarily restrained by this court. The plaintiff

has no state forum in which to pursue his constitutional

challenge to this licensing statute unless he chooses to seek

19A

judicial review of the Commissioner’s decision under Conn.

Gen. Stat. § 4-183.

The fact that the plaintiff has the option of seeking

judicial review is not sufficient to require this court to ab-

stain. A federal civil rights plaintiff is not required to ex-

haust state judicial remedies prior to coming to federal

court. E.g., Steffel v. Thompson, 415 U.S. 452, 472-73

(1974); Gibson v. Berryhill, 411 U.S. 564, 574 n.13 (1973).

Abstention is not required in this case because there is

lacking ‘‘the most fundamental requirement for the exer-

cise of equitable restraint(,] . . . the existence of an ongoing

state proceeding where the federal plaintiff's claims can be

heard,” Aristocrat Health Club of Hartford v. Chaucer, 451

F. Supp. 210, 216 (D. Conn. 1978) (emphasis added).

I turn next to consider the merits.

III. THE MERITS

A. The Propriety of Summary Judgment

The plaintiff challenges the constitutionality of Conn.

Gen. Stat. § 42-127a on its face and as applied to the plain-

tiff’s company. The defendant has moved for summary

judgment under Rule 56(c) of the Federal Rules of Civil

Procedure, the relevant portion of which is set forth in the

margin.* Despite his initial concession that this case is ‘‘en-

tirely free of material factual dispute,” Pre-Hearing

Memorandum of the Plaintiff at 26, the plaintiff now at-

tempts to defeat the defendant’s motion for summary

judgment by characterizing two issues as raising material

factual disputes. He contends that (1) a genuine issue of

material fact “‘may exist’’ as to the extent of plaintiff’s con-

tacts with Connecticut and that (2) the magnitude of the

burden placed on the plaintiff by enforcement of Con-

necticut’s licensing statute raises a genuine issue of

* “The judgment sought shall be rendered forthwith if the

pleadings, depositions, answers to interrogatories, and admissions on

file, together with affidavits, if any, show that there is no genuine issue

as to any material fact and that the moving party is entitled to judg-

ment as a matter of law.” Fed. R. Civ. P. 56(c).

20A

material fact. Plaintiff’s Statement Re Material Facts in

Dispute filed January 19, 1982.

The court finds that no genuine dispute exists as to

either of these factual issues and that, therefore, the case is

appropriate for resolution by summary judgment. On the

question of the extent of the plaintiff’s contacts with Con-

necticut, the plaintiff stipulated at the administrative hear-

ing that ‘‘there is a regular course of contact with debtors

located in the State of Connecticut conductied] solely by

mail and phone calls from the respondent’s [the plaintiff

herein] office in Philadelphia.”” Transcript of November 4,

1981 hearing at 19. On the basis of this stipulation, the

court finds that there is no disputed factual issue concern-

ing the extent of the plaintiff's contacts with Connecticut.

Whether a regular course of contact conducted solely by

mail and phone is sufficient to enable the state to subject

the plaintiff to its licensing statute is solely a question of

law appropriate for resolution by summary judgment.

Despite the plaintiff's assertion to the contrary, there

also does not appear to be a significant dispute as to the

magnitude of the burden placed upon the plaintiff by this

licensing statute. The defendant has submitted an af-

fidavit which clarifies precisely what the Connecticut

Banking Department’s procedures are in enforcing its

licensing statute. The plaintiff has not contradicted these

sworn statements that (1) the Connecticut Banking

Department does not require a consumer collection agency

to convert from a cash basis accounting system to an ac-

crual basis accounting system and that (2) the Depart-

ment’s policy is not to require an inspection of an out-of-

state licensee’s books and records unless there has been a

complaint which resulted in formal proceedings. The ex-

tent of the burdens placed on the plaintiff by this licensing

statute has been established, and any question concerning

whether these burdens can be imposed consistent with the

due process and commerce clauses of the United States

Constitution is solely an iasue of law appropriate for sum- .

mary judgment.

21A

B. The Commerce Clause

The primary thrust of the plaintiff’s constitutional

challenge is based upon his contention that Conn. Gen.

Stat. § 42-127a(a) imposes an unconstitutional burden on

interstate commerce in violation of Article I, § 8 of the

United States Constitution. The plaintiff contends that his

business as a debt collector is one conducted solely

through interstate commerce and that under a doctrine

most recently expressed in Allenberg Cotton Co. v. Pitt-

man, 419 U.S. 20 (1974), a state cannot condition an in-

terstate business’s right of access to its markets by requir-

ing such a business to obtain a license. The defendant

argues that such a per se rule is not the law and that at any

rate the plaintiff’s business is not one involving purely in-

terstate commerce. The defendant asserts that the ap-

propriate standard for judging the constitutionality of

Connecticut’s licensing scheme is the balancing test enun-

ciated in Pike v. Bruce Church, Inc., 397 U.S. 137, 142

(1970). The plaintiff disagrees that the Pike standard ap-

plies but argues that, at any rate, Conn. Gen. Stat. §

42-127a(a) cannot be sustained even under such a balancing

test.

1. The Applicable Constitutional Standard

The first issue to be resolved is the appropriaie legal

standard to apply in judging the constitutionality of Conn.

Gen. Stat. § 42-127a(a). In most situations, the rule ex-

pressed in Pike v. Bruce Church, 397 U.S. at 142, applies:

Where the [state] statute regulates even-

handedly to effectuate a legitimate local public in-

terest, and its effects on interstate commerce are

only incidental, it will be upheld unless the

burden imposed on such commerce is clearly ex-

cessive in relation to the putative local benefits.

If a legitimate local purpose is found, then the

question becomes one of degree.

22A

Id. (citations omitted). This standard requires the court to

balance the state’s interest in the regulation against the

burden it imposes on interstate commerce.

The plaintiff cites a line of authority which he reads as

requiring a different approach when “purely interstate

commerce”’ is involved. These cases involve situations

where a company engaged in purely interstate commerce is

required by a state to register as a foreign corporation in

order to have access to the state’s courts. Allenberg Cotton

Co. v. Pittman, 419 U.S. 20 (1974); Eli Lilly & Co. v. Sav-On

Drugs, 366 U.S. 276 (1961) (dictum); Sioux Remedy Co. v.

Cope, 235 U.S. 197 (1914). The plaintiff reads these cases as

establishing an absolute rule precluding a state from re-

quiring that a purely interstate business obtain a license

from the state in order to have access to state markets. He

characterizes his company as such a purely interstate

business and, therefore, concludes that he cannot be sub-

jected to Connecticut’s licensing requirement.

The plaintiff’s attempt to reduce the problem to the

meaning ascribed to the single phrase, ‘‘purely interstate

commerce,” is not supported by Allenberg Cotton Co. v.

Pittman, 419 U.S. 20. Allenberg involved a cotton mer-

chant who purchased cotton from a Mississippi farmer for

sale in other states. When the merchant sued the farmer

for the contract price in a Mississippi court, his complaint

was ultimately dismissed due to his failure to register with

the state as a foreign corporation. Jd. The Court, stressing

that the intricate interstate cotton marketing exchange re-

quires federal protection under the commerce clause, held

that, despite incidental intrastate aspects, the transaction

was one within the “stream of interstate commerce,” id. at

30, and that, therefore, the state’s ‘‘refusal to honor and en-

force contracts made for interstate or foreign commerce is

repugnant to the Commerce Clause,” id. at 34. Professor

Laurence Tribe interprets this case as being

23A

strongly influenced by the fact that the state...

seemed to be interfering with the operation of the

national futures market in cotton by preventing

interstate purchasers who had failed to qualify as

“foreign corporations” under local law from effec-

tively protecting themselves against unexpected

price increases.

L. Tribe, American Constitutional Law 344 (1978). The

Court in Allenberg was concerned with protecting the in-

terstate commodities market itself. Allenberg should not

be read to establish a per se rule that bars a state from

regulating purely interstate businesses solely because of

their interstate character. The Seventh Circuit has inter-

preted the Allenberg line of cases as representing one ap-

plication of the Pike balancing test rather than

establishing an absolute rule that state regulation of

purely interstate commerce is ‘‘void ab initio.’’ Aldens, Inc.

v. LaFollete, 552 F.2d 752 (7th Cir.), cert. denied, 434 U.S.

880 (1977).

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

the Court held that although a state cannot require a

foreign corporation to obtain a certificate of authority to

do business within the state if the corporation's activities

are wholly interstate,

it is equally well settled that if [the corporation] is

engaged in intrastate as well as interstate

aspects [of its business] the state can require it to

get a certificate of authority to do business. In

such a situation, [the corporation] could not

escape state regulation merely because it is also

engaged in interstate commerce.

Id. at 279. In Eli Lilly a drug manufacturer which sold

goods to wholesalers within New Jersey for suysequent

sale in interstate commerce also engaged in service and

promotional activities aimed at ultimate consumers of its

products who lived in New Jersey. Jd. The Court held that

24A

the company was engaged in intrastate as well as in-

terstate trade and, as a result of this local aspect of its

business, it could be subjected to state regulation. Jd. at

284.

The plaintiff in the case at bar engaged in substantial

intrastate activities. His company performs services for its

clients within Connecticut by contacting Connecticut

debtors by phone and mail and attempting to collect

outstanding debts owed to his clients. The fact that this

service is performed exclusively by mail and phone does

not alter the fact that it is a service performed intrastate.

[So] long as the interstate trader’s conduct has a

“connection in fact’’ with a state producing an ef-

fect within a state, the interstate character of his

conduct is only an element of the Pike interest-

balancing analysis.

Aldens, Inc. v. LaFollette, 552 F.2d 745, 750 (7th Cir.), cert.

denied, 434 U.S. 880 (1977). The plaintiff’s activities in this

case have a substantial impact within Connecticut. The

manner in which he conducts his business affects the

economic, psychological and social well-being of numerous

Connecticut citizens. As the United States Congress has

declared,

abusive debt collection practices contribute to

the number of personal bankruptcies, to marital

instability, to the loss of jobs, and to invasions of

individual privacy.

15 U.S.C. § 1692. Congress has recognized that the states

have an interest in regulating consumer debt collection

practices as well as the federal government. 15 U.S.C.

§ 1692n.° Since Congress has recognized the intrastate as

3The federal Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et

seq., although it provides detailed federal regulation of consumer debt

25A

well as interstate nature of the plaintiff’s business this

court is not inclined to come to any other conclusion. At

any event, it is clear that the plaintiff's activities in Con-

necticut have intrastate or local effects as well as in-

terstate aspects.

2. The Constitutionality of Conn. Gen. Stat.

§ 42-127a(a) under Pike v. Bruce Church

Applying the standard of Pike v. Bruce Church, 397

U.S. 137, 142 (1970),4 the first question which must be

resolved is whether Conn. Gen. Stat. § 42-127a(a)

discriminates against out-of-state or interstate commerce.

A straightforward reading of the statute exhibits no

preference or protection of any sort for local as opposed to

non-resident collection agencies:

(a) No person shall act within this state as a con-

sumer collection agency, unless such person

holds a license then in force from the commis-

sioner authorizing him to so act. A consumer col-

lection agency is acting within this state if it

(1) has its place of business located within

this state;

(2) has its place of business located outside

this state and collects from consumer

debtors who reside within this state for

creditors whose place of business is located

within this state; or

3 continued

collection agencies explicitly states that consistent state legislation is

not preempted by the federal statute. 15 U.S.C. § 1692n.

Section 1692:. also resolves the supremacy clause issue which was

raised by plaintiff's complaint but not argued or briefed.

4See page 9 supra.

26A

(3) has its place of business located outside

this state and regularly collects from con-

sumer debtors who reside within this state

for creditors whose place of business is

located outside this state.

Conn. Gen. Stat. § 42-127a. Local agencies and out-of-state

agencies serving local creditors are subject to the licensing

requirement regardless of the extent of their collection ac-

tivities within Connecticut. Out-of-state agencies col-

lecting on behalf of out-of-state creditors, on the other

hand, are subject to the state’s regulation only if they

regularly collect from Connecticut consumer debtors.

Limiting the reach of the statute to such regular contact

with the state ensures that (1) the statute embraces only

those foreign agencies which have sufficient contacts with

Connecticut to sustain the state’s regulation under the due

process clause, see International Shoe Co. v. Washington,

326 U.S. 310 (1945), and (2) that the state has a strong

enough interest in the activity being regulated to justify

the burden being placed upon interstate businesses, see

Pike v. Bruce Church, 397 U.S. at 142.

Conn. Gen. Stat. § 42-127a, thus, makes a distinction

between intrastate and out-of-state agencies only to the ex-

tent required to assure that the statute does not run afoul

of the United States Constitution. It imposes equal or

greater responsibilities upon domestic collection agencies

than it does on out-of-state agencies. I am not confronted,

therefore, with a case of ‘‘local favoritism or

protectionism” imposing disproportionate burdens on out-

of-state businesses. See Lewis v. B.T. Investment

Managers, Inc., 447 U.S. 27, 42-43 (1980).

Since this statute does not discriminate against in-

terstate commerce, the plaintiff's commerce clause

challenge must be resolved by balancing the state’s in-

terest against the burden on interstate commerce. Pike v.

Bruce Church, 397 U.S. at 142. This inquiry requires con-

sideration of three factors:

27A

(1) whether the legislation serves a legitimate

local public interest; (2) whether the legislation

has only on incidental effect on interstate com-

merce; and (3) whether the local public interest

justifies the statute’s impact on interstate com-

merce.

New England Accessories Trade Ass'n v. Browne, 502 F.

Supp. 1245, 1255 (D. Conn. 1980).

In this case the legitimacy of the state’s interest is

clear. Congress has itself recognized the importance of the

states’ interest by explicitly providing that the federal Fair

Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seg.,

does not preempt the field and that the states, therefore,

can regulate consumer collection agencies as long as their

regulation is consistent with the federal legislation. 15

U.S.C. § 1692n.5 In the plaintiff's case, numerous com-

plaints have been made by Connecticut residents to the

Banking Commission concerning the plaintiff's company.

These facts convincingly demonstrate the significant local

public interest which the Commissioner has in restraining

fraudulent or unfair trade practices by consumer collection

agencies. Reasonable and non-discriminatory legislation

5Where Congress has specifically endorsed state regulation, it is possi-

ble to conclude that a court need not weigh the state’s local interest

against the burden on interstate commerce since, in effect, Congress

has already done so. Aldens, Inc. v. Packel, 524 F.2d 38, 50 (3d Cir.

1975), cert. denied sub nom Aldens v. Kane, 425 U.S. 943 (1976). The

Supreme Court, however, has indicated that a standard non-

preemption clause, such as section 1692n, is not to be construed as an

affirmative grant of power to the states to burden interstate commerce

in the absence of an express statement of congressional intent to sus-

tain state legislation from attack under the commerce clause. New

England Power Co. v. New Hampshire, ___. U.S. ___, 50 U.S.L.W.

4223, 4226-27 (Feb. 24, 1982). Although I will not interpret section

-1692n as a resolution of the commerce clause issue in this case, it is

clearly relevant to several aspects of commerce clause analysis since it

represents a precise congressional recognition of the importance of

state regulation in this field.

28A

aimed at preventing such practices clearly serves an impor-

tant and legitimate local public interest.

The extent of the burden imposed upon interstate com-

merce by Conn. Gen. Sat. § 42-127a(a) has been the subject

of a great deal of argument by the parties in this case. The

plaintiff argues that the burden is excessive on primarily

two grounds. First, he contends that since his company is a

national debt collection agency he will be subjected to a

licensing requirement in many of the 50 states if this court

sustains Connecticut’s licensing statute. His second argu-

ment is that, in order to obtain a license from the Con-

necticut Banking Commission he must change significant-

ly the manner in which he maintains his books and records.

The defendant contends that the burdens actually imposed

upon the plaintiff’s company are minimal and justified

by the public interests served by this regulation.

The plaintiff's contention that this court must ccn-

sider the cumulative burden imposed upon a national col-

lection agency, such as the plaintiff's company, by the

combined regulation of the several states and the federal

government reveals a misunderstanding of the reach of

commerce clause protection. He apparently views the com-

merce clause as a limitation upon the states’ power to

burden interstate businesses. In fact, the purpose of the

commerce clause is to protect interstate commerce itself,

i.e., the free flow of goods through interstate markets. See,

e.g., Allenberg Cotton v. Pittman, 419 U.S. at 29. As the

Supreme Court has recently stated, the commerce clause

“protects the interstate market, not particular interstate

firms, from prohibitive or burdensome regulation.’’ Exxon

Corp. v. Governor of Maryland, 437 U.S. 117, 127-28 (1978).

A company which seeks to do business in all 50 states must

bear the cost of doing business in those states. That cost

includes complying with all applicable national and state

laws. Congress has recognized that this is a subject matter

on which the states may legislate despite the existence of

federal regulation. 15 U.S.C. § 1692n. It has implicitly

29A

decided, therefore, that whatever burden on interstate

commerce may result from this combination of state and

national regulation is justified by the states’ interest in

regulating this industry.

In any event, the actual burdens imposed upon collec-

tion agencies subject to Conn. Gen. Stat. § 42-127a are

minimal. The state charges all consumer collection agen-

cies an investigation fee of $50 and a licensing fee of $200.

These fees are reasonably related to the costs of in-

vestigating, licensing and regulating all licensed agencies.

They are “sufficiently small fairly to represent the cost of

governmental supervision. ...’’ Union Brokerage Co. v.

Jensen, 322 U.S. 202, 210 (1944). The requirement that a

$5,000 bond be posted is more than reasonable. A company

which utilizes a cash basis accounting system is not re-

quired to convert to or keep additional records based upon

an accrual basis accounting system. It is the policy of the

Banking Commission to require a collection agency to pro-

duce its records and books only in the event that formal

proceedings are instituted as a result of a complaint filed

by a creditor or debtor. Otherwise, the provision of a finan-

cial statement will satisfy the requirement that the Com-

missioner is entitled to examine a licensee’s books and

records “‘as often as he deems necessary.’’ Conn. Gen. Stat.

§ 42-127a(b). Requiring a company to provide a financial

statement is a very minimal burden. Where formal pro-

ceedings have been brought against a collection agency the

state’s interest clearly rises to the extent necessary to

justify the production of the company’s actual books and

records. In summary, whatever minimal burden is imposed

upon collection agencies by Connecticut's licensing process

is more than justified by the state’s interest in regulating

the practices of these companies. At any rate, the plaintiff

has failed to show how the responsibilities imposed upon

collection agencies by Conn. Gen. Stat. § 42-127a in any

fashion burdens the interstate credit market.

30A

I conclude, therefore, that whatever minimal burdens,

if any, Conn. Gen. Stat. § 42-127a may impose upon in-

terstate commerce when it is applied to a national con-

sumer debt collection agency such as the plaintiff's are

more than justified by the considerable state interests

served by this regulation. Requiring an out-of-state agency

which regularly collects from debtors within the state to

obtain a license from the State Banking Commissioner is a

reasonable component of Connecticut's regulatory scheme.

In view of Congressional recognition of the importance of

the states’ interest in regulating this industry, and the fact

that Conn. Gen. Stat. § 42-127a(a) does not substantially

burden interstate commerce, the plaintiff's commerce

clause challenge must fail.

C. The Due Process Clause

The plaintiff also claims that his company has insuffi-

cient contact with the State of Connecticut to allow the

state to regulate its activities consistent with the re-

quirements of due process.

Due prucess limitations upon a state’s power to exer-

cise jurisdiction over non-residents are usually discussed in

the context of challenges to a state court’s assumption of

jurisdiction over the persons of out-of-state defendants.

E.g., International Shoe Co. v. Washington, 326 U.S. 310

(1945); Hanson v. Denckla, 357 U.S. 235 (1958). It is true,

as the plaintiff states, that the due process clause also

limits the power of a state to subject a non-resident to

regulation under its substantive laws. The plaintiff,

however, contends that a more stringent test applies in the

later situation. He cites state authority to the effect that

the question of whether a foreign corporation is

transacting business so as to require a certificate

of authority must be determined on the complete

factual picture presented in each case, and. . . the

831A

corporation's activities must be more substantial

than those which would suffice to subject it to

service of process.

Sawyer Savings Bank v. American Trading Co., 176 Conn.

185, 190, 405 A.2d 635 (1978) (citations omitted). In that

case, however, the Connecticut Supreme Court was merely

interpreting a statutory test of what constitutes the

transaction of business within the state under state law.

Id. at 188. The case does not support the plaintiff's posi-

tion that due process requires more contact with a state to

sustain a state’s substantive regulatory jurisdiction than

to support a state court's in personam jurisdiction.

As pointed out by Justice Douglas’ concurring opinion

in Travelers’ Health Ass'n v. Virginia, 339 U.S. 643 (1950),

there may be some distinction between the constitutional

standard applied in a case of substantive state regulation

and that applicable to a question of a court's in personam

jurisdiction:

{A creditor's] ability to sue [an out-of-state com-

pany in Virginia] is not necessarily the measure of

Virginia’s power to regulate.... It is the nature

of the state’s action that determines the kind or

degree of activity in the state necessary for satis-

fying the requirements of due process. What is

necessary to sustain a tax or to maintain a suit by

a creditor ... is not in my view determinative

when the state seeks to regulate ... within its

borders.

Id. at 653. But whether or not the limitations of due pro-

cess as applied to a state court’s ability to assert in per

sonam jurisdiction are equated with those applicable to the

power of the state to apply its substantive regulatory

jurisdiction over non-residents, as can be implied from the

majority opinion in Travelers Health Ass'n v. Virginia, 339

U.S. at 648, the requirements of due process are certainly

met in this case.

32A

In addressing a due process challenge to a state's

assertion of regulatory jurisdiction over out-of-state dis-

count securities brokers Judge Merhige of the Eastern

District of Virginia stated that

[t]he determination as to the state’s power, under

the due process clause, to regulate the activities

of non-residents is made by reference both to the

extent of the non-resident’s contact with the

state, and to the nature and extent of the state’s

interest in exercising its authority.

Underhill Assoc., Inc. v. Coleman, 504 F. Supp. 1147, 1150

(E.D. Va. 1981). The plaintiffs in the Underhill case had an

even stronger due process argument than the plaintiff at

bar because there the securities brokers did not themselves

initiate contact with state residents. Here it is the plaintiff

who initiates contact. In both cases the sole means of con-

tact between the out-of-state companies and state

residents was by phone and mail. I, therefore, find Judge

Merhige’s reasoning persuasive and follow his lead in con-

cluding that

[flor due process purposes, it sufficies that plain-

tiffs’ activities within the state produce effects

within [Connecticut] - effects which the state has

an interest in regulating.

Id.

The plaintiff in this case contacts an average of ap-

proximately 3,000 Connecticut debtors annually. The

plaintiff stipulated at the administrative hearing before

the state agency that his company contacts Connecticut

debtors regularly and with some frequency. Such regular

conduct of business within Connecticut produces substan-

tial local effects. See 15 U.S.C. §§ 1692, 1692n. The state’s

interest in subjecting plaintiff's company to its licensing

33A

regulation, therefore, is sufficient to sustain the statute

against both a commerce clause and a due process

challenge.

IV. CONCLUSION

For the reasons stated above, I hereby grant the defen-

dant’s motion for summary judgment and dismiss the

case. It is

SO ORDERED.

Dated at Hartford, Connecticut, this 6th day of May,

1982.

/s/ M. Joseph Blumenfeld

M. Joseph Blumenfeld

Senior United States District Judge

34A

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

HERBERT R. SILVER,

d/b/a Allied Bond and

Collection Agency

Vv.

CIVIL ACTION

BRIAN J.WOOLF,inhis : NO. H-81-872

capacity as Acting Banking :

Commissioner of the State :

of Connecticut

JUDGMENT

This action having come on for consideration of the

Defendant’s Motion for Summary Judgment before the

Honorable M. Joseph Blumenfeld, Senior United States

District Judge; and,

The Court having considered the Motion and all papers

filed in support of and in opposition to the Motion, and the

Court having filed its Memorandum of Decision on May 6,

1982, granting the Defendant’s Motion for Summary Judg-

ment,

It is accordingly ORDERED, ADJUDGED and

DECREED that Judgment be and is hereby entered in

favor of the Defendant, dismissing the Plaintiff's Com-

plaint.

35A

Dated at Hartford, Connecticut, this 7th day of May,

1982.

SYLVESTER A. MARKOWSKI

Clerk, United States District Court

By: /s/ John K. Henderson, Jr.

John K. Henderson, Jr.

Deputy-in-Charge

36A

§ 42-127. Consumer collection agency. Definitions

The following terms, as used in sections 42-127 to

42-133, inclusive, shall have the following meanings, unless

a different meaning is clearly indicated from the context:

(a) ‘‘Person’’ means and includes individuals, partner-

ships, associations and corporations;

(b) “Consumer collection agency”’ means any person

engaged in the business of collecting or receiving for pay-

ment for others of any account, bill or other indebtedness

from a consumer debtor, including any person who, by any

device, subterfuge or pretense, makes a pretended pur-

chase or takes a pretended assignment of accounts from

any other person of such indebtedness for the purpose of

evading the provisions of sections 42-127 to 42-133a, in-

clusive. It includes persons who furnish collection systems

carrying a name which simulates the name of a consumer

collection agency and who supply forms or form letters to

be used by the creditor, even though such forms direct the

consumer debtor to make payments directly to the creditor

rather than to such fictitious agency. It further includes

any person, firm or corporation which, in attempting to col-

lect or in collecting his or its own accounts or claims, from a

consumer debtor, uses a fictitious name or any name other

than his or its own name which would indicate to the con-

sumer debtor that a third person is collecting or at-

tempting to collect such account or claim. It shall not in-

clude individuals regularly employed for a regular wage or

salary upon the staff or as employees of any person not

engaged in the business of consumer collection agency,

banks, lenders licensed by the banking commissioner

under chapter 647, abstract companies doing an escrow

business, real estate brokers or companies conducting a

railway express business subject to the supervision of the

department of public utility control, any public officer or

person acting under order of court, any member of the bar

of this state or any person appointed by or acting for any

37A

public service company, provided any such person so ap-

pointed and so acting is not authorized to initiate or make

any collection efforts;

(c) ‘‘Commissioner’’ means the banking commissioner

of the state;

(d) “Consumer debtor’’ means any natural person, not

an organization, who has incurred indebtedness for per-

sonal, family or household purposes;

(e) ‘An organization” means a corporation, partner-

ship, association, trust or any other legal entity or an in-

dividual operating under a trade name or a name having

appended to it a commercial, occupational or professional

designation;

(f) “‘Creditor’’ is a person who retains, hires, or engages

the services of a consumer collection agency.

(1967, P.A. 882, § 19, eff. Jan. 1, 1968; 1971, P.A. 539, § 1;

1975, P.A. 75-486, § 64, eff. Dec. 1, 1975; 1977 P.A. 77-614,

§ 162, eff. Jan. 1, 1979; 1978, (P.A. 78-226, § 1; 1978, P.A.

78-303, § 54, eff. Jan. 1, 1979; 1980, P.A. 80-482, § 333, eff.

July 1, 1980.)

38A

§ 42-127a. License required. Application, issuance,

renewal. Examination of records

(a) No person shall act within this state as a consumer

collection agency, unless such person holds a license then

in force from the commissioner authorizing him so to act. A

consumer collection agency is acting within this state if it

(1) has its place of business located within this

state;

(2) has its place of business located outside this

state and collects from consumer debtors who reside

within this state for creditors whose place of business

is located within this state; or

(3) has its place of business located outside this

state and regularly collects from consumer debtors

who reside within this state for creditors whose place

of business is located outside this state.

(b) Any person desiring to act within this state as a

consumer collection agency shall make a written applica-

tion to the commissioner for such license in such form as

the commissioner prescribes. Such application shall be ac-

companied by a financial statement prepared by a certified

public accountant or a public accountant, the accuracy of

which is sworn to under oath before a notary public by the

proprietor, a general partner, or a corporate officer duly

authorized to execute such documents, and a license fee of

two hundred dollars and an investigation fee of fifty

dollars, such license fee to be returned if the license is not

granted. The commissioner shall cause to be made such in-

quiry and examination as to the qualifications of each such

applicant as he deems necessary. Each applicant shall fur-

nish satisfactory evidence to the commissioner that he is a

person of good moral character and is financially respon-

sible. Upon satisfying himself that such applicant is in all

respects properly qualified and trustworthy and that the

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granting of such license is not against the public interest,

the commissicner may issue to such applicant a license, in

such form as he may adopt, to act within this state as a

consumer collection agency. Any such license issued by the

commissioner shall be in force only until the first day of

May following the date thereof, but may be reissued by the

commissioner, in his discretion and without formality

other than proper application accompanied by a renewal

fee of two hundred dollars and satisfactory proof that such

applicant at that time possesses the required qualifications

for license. To further the enforcement of this section and

to determine the eligibility of any person holding a license,

the commissioner may, as often as he deems necessary, ex-

amine his books and records, and may, at any time, require

a licensee to submit such a financial statement for the ex-

amination of the commissioner, so that he may determine

whether the licensee is financially responsible to carry on a

consumer collection agency business within the intents

and purposes of sections 42-127 to 42-133a, inclusive. Any

financial statement submitted by a licensee shall be con-

fidential and not public record unless introduced in

evidence at a hearing conducted by the commissioner.

(c) No person, partnership, association or corporation

licensed to act within this state as a consumer collection

agency shall do so under any other name or at any other

place of business than that named in the license. Not more

than one place of business shall be maintained under the

same license but the coramissioner may issue more than

one license to the same licensee upon compliance with the

provisions of this chapter as to each new licensee. Any

licensee holding, applying for, or seeking renewal of more

than one license may, at its option, file the bond required

under section 42-128a separately for each place of business

licensed, or to be licensed, or a single bond, naming each

place of business, in an amount equal to five thousand

dollars for each place of business.

(1971, P.A. 539, §§ 2, 3; 1973, P.A. 73-284; 1973, P.A.

73-328; 1973, P.A. 73-341; 1981, P.A. 81-292, § 12.)

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§ 42-131. Prohibited practices

No consumer collection agency shall: (a) Furnish legal

advice or perform legal services or represent that it is com-

petent to do so, or institute judicial proceedings on behalf

of others; (b) communicate with debtors in the name of an

attorney or upon the stationery of an attorney, or prepare

any forms or instruments which only attorneys are

authorized to prepare; (c) purchase or receive assignments

of claims for the purpose of collection or institute suit

thereon in any court; (d) assume authority on behalf of a

creditor to employ or terminate the services of an attorney

unless such creditor has authorized such agency in writing

to act as his agent in the selection of an attorney to collect

the creditor’s accounts; (e) demand or obtain in any manner

a share of the proper compensation for services performed

by an attorney in collecting a claim, whether or not such

agency has previously attempted collection thereof; (f)

solicit claims for collection under ambiguous or deceptive

contract; (g) refuse to return any claim or claims upon writ-

ten request of the creditor, claimant or forwarder, which

claims are not in the process of collection after the tender

of such amounts, if any, as may be due and owing to the

agency; (h) advertise or threaten to advertise for sale any

claim as a means of forcing payment thereof, unless such

agency is acting as the assignee for the benefit of creditors;

(i) refuse or fail to account to its clients for all money col-

lected within sixty days from the last day of the month in

which said money is collected; (j) refuse or intentionally fail

to return to the creditor all valuable papers deposited with

a claim when such claim is returned; (k) refuse or fail to fur-

nish at intervals of not less than ninety days, upon the

written request of the creditor, claimant or forwarder, a

written report upon claims received from such creditor,

claimant or forwarder; (/) commingle money collected for a

creditor, claimant or forwarder with its own funds or use

any part of a creditor’s, claimant's or forwarder’s money in

the conduct of its business; (m) add any charge or fee to the

amount of any claim which it receives for collection unless

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the consumer debtor is legally liable therefor, in which

case, the charge or collection fee may not be in excess of fif-

teen per cent of the amount actually collected on the debt;

(n) use or attempt to use or make reference to the term

“bonded by the state of Connecticut,” “‘bonded”’ or “‘bond-

ed collection agency”’ or any combination of such terms or

words, except that the word “bonded” may be used on the

stationery of any such agency in type not larger than

twelve-point; or (o) engage in any activities prohibited by

sections 42-127 to 42-133a, inclusive.

(1971, P.A. 539, § 8; 1981, P.A. 81-183.)

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§ 42-13la. Prohibited practices within and without state.

Examination of affairs

(a) No consumer collection agency shall engage in this

state in any practice which is prohibited in section 42-131

or determined pursuant to sections 42-131b and 42-131c to

be an unfair or deceptive act or practice, nor shall any con-

sumer collection agency engage outside of this state in any

act or practice prohibited in said section 42-131. The com-

missioner shall have power to examine the affairs of every

consumer collection agency in this state in order to deter-

mine whether it has been or is engaged in any act or prac-

tice prohibited by sections 42-131 to 42-131c, inclusive.

(b) No creditor shall retain, hire, or engage the services

or continue to retain or engage the services of any person

who engages in the business of a consumer collection

agency and who is not licensed to act as such by the com-

missioner, if such creditor has actual knowledge that such

person is not licensed by the commissioner to act as a con-

sumer collection agency.

(1971, P.A. 539, § 7; 1978, P.A. 78-226, § 2.)

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§ 42-131b. Hearing. Cease and desist order. Subpoenas.

Appeal. Penalty for violation of order

(a) Whenever the commissioner has reason to believe

that any person has been engaged, or is engaging, in viola-

tion of sections 42-131 to 42-131c, inclusive, in any act or

practice prohibited in section 42-131 and that a proceeding

by him in respect thereto would be to the interest of the

pubic, he shall issue and serve upon such person a notice, in

the form required under subsection (b) of section 4-177, of a

hearing thereon to be held at a time and place fixed in the

notice, which shall not be less than thirty days after the

date of the service thereof. At the time and place fixed for

such hearing, such person shall have an opportunity to be

heard and to show cause why an order should not be made

by the commissioner requiring such person to cease and

desist from the acts, methods or practices so complained

of. Upon good cause shown, the commissioner shall permit

any person to intervene, appear and be heard at such hear-

ing by counsel or in person. The commisssioner, upon such

hearing, may administer oaths, examine and cross-examine

witnesses and receive oral and documentary evidence, and

shall have the power to subpoena witnesses, compel their

attendance and require the production of books, papers,

records, correspondence or other documents which he

deems relevant to the inquiry. In case of a refusal of any

person to comply with any subpoena issued hereunder or to

testify with respect to auv matter concerning which he

may be lawfully interrogateu, the superior court for the

judicial district of Hartford-New Britain or for the judicial

district where such person resides, on application of the

commissioner, may issue an order requiring such person to

comply with such subpoena and to testify; and any failure

to obey any such order of the court may be punished by the

court as a contempt thereof. Statements of charges,

notices, orders and other processes of the commissioner

under sections 42-131 to 42-131c, inclusive, may be served

in the manner provided by law for service of process in civil

actions.

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(b) If, after such hearing, the commissioner determines

that the act or practice in question is defined in section

42-131 and that the person complained of has engaged in

such act or practice in violation of sections 42-131 to

42-14l1c, inclusive, he shall reduce his findings to writing

and shall issue and cause to be served upon the person

charged with the violation an order requiring such person

to cease and desist from engaging in such act or practice.

(c) Repealed. (1981, P.A. 74-254, § 11.)

(d) No order of the commissioner under sections 42-131

to 42-131c, inclusive, shall relieve or absolve any person af-

fected by such order from any liability under any other

laws of this state.

(e) Whenever any person violates a cease and desist

order of the commissioner made pursuant to this section,

the commissioner may bring an action, through the at-

torney general, for contempt in the superior court for the

judicial district of Hartford-New Britain. Upon proof of the

violation to the satisfaction of the court, such person shall

be ordered by the court to forfeit and pay to the state a

sum not to exceed fifty dollars for each violation, except

that, for each violation found by the court to be wilful, the

amount of such penalty shall be a sum not to exceed five

hundred dollars.

(1971, P.A. 539, § 9; 1972, P.A. 108, § 9, eff. Sept. 1, 1972;

1974, P.A. 74-254, §§ 9, 11; 1976, P.A. 76-436, § 638, eff.

July 1, 1978; 1978, P.A. 78-226, § 3; 1978, P.A. 78-280, §§ 1,

5, eff. July 1, 1978.)

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§ 42-13lc. Unfair or deceptive practices. Hearing. Injunc-

tion

(a) Whenever the commissioner has reason to believe

that any consumer collection agency is engaging in this

state in any act or practice in the conduct of such business

which is not defined in section 42-131, that such act or

practice is unfair or deceptive and that a proceeding by him

in respect thereto would be to the interest of the public, he

may issue and serve upon such person a notice, in the form

required under subsection (b) of section 4-177, of a hearing

thereon to be held at a time and place fixed in the notice,

which shall not be less than thirty days after the date of

the service thereof. Each such hearing shall be conducted

in the same manner as the hearings provided for in section

42-131b. The commissioner shall, after such hearing, make

a report in writing in which he shall state his findings as to

the facts, and he shall serve a copy thereof upon such per-

son. If such report charges a violation of sections 42-131 to

42-131c, inclusive, and if such act or practice has not been

discontinued, the commissioner may, through the attorney

general, at any time after ten days after the service of such

report, cause a petition to be filed in the superior court for

the judicial district wherein the person resides or has his

principal place of business, to enjoin and restrain such per-

son from engaging in such method, act or practice. The

court shall have jurisdiction of the proceeding and shall

have power to make and enter appropriate orders in con-

nection therewith and to issue such writs as are ancillary to

its jurisdiction or are necessary in its judgment to prevent

injury to the public pendente lite. If the court finds that

the act or practice complained of is unfair or deceptive,

that the proceeding by the commissioner with respect

thereto is to the interest of the public and that the findings

of the commissioner are supported by the weight of the

evidence, it shall issue its order enjoining and restraining

the continuance of such method of competition, act or prac-

tice.

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(b) Whenever any person acts within this state as a

consumer collection agency and does not hold a license

then in force from the commissioner authorizing him so to

act, the commissioner may bring an action, through the at-

torney general, in any court of competent jurisdiction to

enjoin such person from acting within this state as a con-

sumer collection agency. Upon a proper showing, a perma-

nent or temporary injunction or restraining order shall be

granted. The court shall not require the commissioner to

post a bond.

(1971, P.A. 539, § 10; 1974, P.A. 74-254, § 10; 1978, P.A.

78-226, § 4; 1978, P.A. 78-280, § 2, eff. July 1, 1978.)

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§ 42-131d. Commissioner's powers

The powers vested in the commissioner by sections

42-131 to 42-13lc, inclusive, shall be additional to any

other powers to enforce any penalties, fines or forfeitures

authorized by law with respect to the methods, acts and

practices prohibited or declared to be unfair or deceptive,

and the commissioner may issue such regulations as may

be necessary for the conduct of the consumer collection

agency business.

(1971, P.A. 539, § 11; 1973, P.A. 73-428.)

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§ 1692n. Relation to State laws

This title does not annul, alter, or affect, or exempt any per-

son subject to the provisions of this title from complying

with the laws of any State with respect to debt collection

practices, except to the extent that those laws are inconsis-

tent with any provision of this title, and then only to the

extent of the inconsistency. For purposes of this section, a

State law is not inconsistent with this title if the protection

such law affords any consumer is greater than the protec-

tion provided by this title.

(May 29, 1968, P. L. 90-321, Title VIII, § 816, as added

Sept. 20, 1977, P. L. 95-109, 91 Stat. 874.)

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