DocketNumber： 93-1977
Filed Date： 8/3/1994
Status： Precedential
Modified Date： 9/21/2015
August 3, 1994 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 93-1977
FIRESIDE NISSAN, INC.,
Plaintiff-Appellant,
v.
DANIEL P. FANNING, DIRECTOR,
DEPARTMENT OF TRANSPORTATION
FOR STATE OF RHODE ISLAND, ET AL.
Defendants-Appellees.
____________________
ERRATA SHEET
The opinion of this court issued on July 20, 1994 is amended
as follows:
Page 26, line 6 should read ". . . flow are . . ." instead
of ". . . flows is . . ."
UNITED STATES COURT OF APPEALS
FOR THE FIRST CURCUIT
____________________
No. 93-1977
FIRESIDE NISSAN, INC.,
Plaintiff-Appellant,
v.
DANIEL P. FANNING, DIRECTOR,
DEPARTMENT OF TRANSPORTATION
FOR STATE OF RHODE ISLAND, ET AL.
Defendants-Appellees.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Francis J. Boyle, U.S. District Judge]
___________________
____________________
Before
Torruella, Circuit Judge,
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Coffin, Senior Circuit Judge,
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and Boudin, Circuit Judge.
_____________
_____________________
Ronald W. Del Sesto, with whom Peter P. D. Leach and Updike,
___________________ _________________ _______
Kelly, Spellacy & Del Sesto were on brief for appellant.
___________________________
John J. Igliozzi, Office of the Legal Counsel, Rhode Island
________________
Department of Transportation for appellee Department of
Transportation for State of Rhode Island.
Gerald C. DeMaria, with whom Lawrence P. McCarthy III,
___________________ __________________________
Patrick B. Landers and Higgins, Cavanagh & Cooney were on brief
__________________ ___________________________
for appellee Nissan Motor Corporation in U.S.A.
John D. Biafore, with whom Goldman & Biafore was on brief
________________ _________________
for appellee Nissan of Smithfield, Inc.
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July 20, 1994
____________________
TORRUELLA, Circuit Judge. Rhode Island's automobile
_____________
dealership law allows existing dealers within a twenty-mile
radius of a proposed new dealership to protest the establishment
of the new dealership. The issue raised by this appeal concerns
situations in which, by reason of a proposed new dealership in
proximity to the state border, a part of that twenty-mile radius
falls outside of Rhode Island. State officials have taken the
position that within the twenty-mile area surrounding a proposed
new dealership, only the dealers who are located inside Rhode
Island's borders are covered by Rhode Island law and thus are
entitled to protest the establishment of the new dealership. A
Massachusetts car dealer who is located within the twenty-mile
radius of a proposed dealership, but in Massachusetts, claims
that this interpretation of Rhode Island law runs afoul of the
Commerce Clause because it burdens and discriminates against
interstate commerce. Because Rhode Island is merely applying its
law to those subject to its jurisdiction and regulation, rather
than extraterritorially, and because it neither burdens nor
discriminates against interstate commerce in the process, we
agree with Rhode Island and affirm.
I. BACKGROUND
I. BACKGROUND
Plaintiff-appellant Fireside Nissan, Inc. ("Fireside"),
a Massachusetts automobile dealer, brought this action against
the Rhode Island Department of Transportation ("RIDOT") after
RIDOT excluded Fireside from participating in hearings regarding
a proposed Nissan dealership in Rhode Island. Fireside claimed
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that RIDOT's application of Rhode Island's new dealership law to
exclude Fireside merely because it was not located in Rhode
Island was unconstitutional.
Rhode Island General Laws, Section 31-5.1-4.21 sets
out certain procedural requirements for establishing a new
automobile dealership in the state. First, a manufacturer
desiring an additional dealership must notify dealers "in the
relevant market area" of its intentions. R.I. Gen. Laws 31-
5.1-4.2(a). "Relevant market area" is defined as "the area
within a radius of twenty (20) miles around an existing dealer or
the area of responsibility defined in the franchise, whichever is
greater." R.I Gen. Laws 31-5.1-1(J). Existing retail dealers
in the "relevant market area" may then protest the establishment
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1 R.I. Gen. Laws 31-5.1-4.2 provides in relevant part:
(a) In the event that a manufacturer
seeks to enter into a franchise
establishing an additional new motor
vehicle dealership . . . within or into a
relevant market area where the same line
make is then represented, . . . the
manufacturer shall in writing by
certified mail first notify the
department . . . and each new motor
vehicle dealer in such line make in the
relevant market area . . . . [A]ny such
new motor vehicle dealership may file
with the department a protest to the
establishing or relocating of the new
motor vehicle dealership . . . . When
such a protest is filed, . . . the
manufacturer shall not establish or
relocate the proposed new motor vehicle
dealership . . . until the department
has held a hearing, nor thereafter, until
the department has determined [whether]
there is good cause for not permitting
such new motor vehicle dealership.
-3-
of the new dealership in which case RIDOT must hold a hearing to
determine if "there is good cause for not permitting" the
additional franchise. R.I. Gen. Laws 31-5.1-4.2(a). The
statute does not explicitly state whether or not the dealers who
may protest the establishment of a dealership in the "relevant
market area" must be located in Rhode Island or be a licensed
Rhode Island dealership.2
In March of 1991, Nissan Motor Corporation in U.S.A.
("Nissan USA"), gave notice to RIDOT, Fireside, and other Nissan
dealers of its intention to establish a dealership in Smithfield,
Rhode Island. Fireside, which sells and services Nissan
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2 Throughout Title 31 of the Motor Vehicle Code, the term
"dealer" is defined as:
Every person engaged in the business of
buying, selling, or exchanging vehicles
of a type required to be registered
hereunder and who has an established
place of business for such purpose in
__
this state.
__________
R.I. Gen. Laws 31-1-19 (emphasis added).
For purposes of the provision regarding the establishment of new
car dealerships, R.I. Gen. Laws 31-5.1-4.2, however, the right
to protest at a hearing applies to any "new motor vehicle dealer"
which is defined as:
[A]ny person engaged in the business of
selling, offering to sell, soliciting or
advertising the sale of new motor
vehicles and who holds, or held at the
time a cause of action under this chapter
accrued, a valid sales and service
agreement, franchise or contract, granted
by the manufacturer or distributor for
the retail sale of said manufacturer's or
distributor's new motor vehicles.
R.I. Gen. Laws 31-5.1-1(C).
-4-
automobiles, is located in North Attleboro, Massachusetts,
approximately two miles from the Rhode Island border and within
twenty miles of Smithfield. Fireside is therefore squarely
within the "relevant market area" of the Smithfield dealership.
Fireside is not a licensed automobile dealer in Rhode Island but
instead holds a Massachusetts dealership license.
In response to Nissan USA's notice, Fireside filed a
protest with RIDOT on April 12, 1991. Three Rhode Island dealers
of Nissan automobiles, who were also within the "relevant market
area," filed protests with RIDOT as well. On February 13, 1992,
RIDOT issued a notice to Fireside and the other dealers stating
that it was scheduling a hearing regarding the Smithfield
dealership on April 2, 1992.
At the hearing, Nissan USA moved to exclude Fireside
because it was an out-of state dealer. RIDOT, acting through the
Rhode Island Dealer's License and Regulations Office, determined
that Fireside lacked standing to participate in the hearing and
excluded Fireside from presenting witnesses or evidence at the
hearing. The three Rhode Island dealers did participate at the
hearing and presented evidence on their own behalf.
Fireside was prepared to present evidence at the
hearing showing that 48% of Fireside's sales and 45% of its
service business went to Rhode Island residents. In addition,
Fireside would have established that 100% of its cable television
advertising and 75% of its print advertising is done in Rhode
Island.
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After the hearing, RIDOT determined that good cause
existed for the establishment of the Smithfield dealership.
According to R.I. Gen. Laws 31-5.1-4.2(b), RIDOT must base its
determination of "good cause" on the "existing circumstances,
including, but not limited to:"
(1) Permanency of the investment of the
existing new motor vehicle dealer(s) in
the community;
(2) Whether the new motor vehicle
dealers of the same line make in that
relevant market area are providing
adequate consumer care . . . which shall
include the adequacy of motor vehicle
sales and service facilities, equipment,
supply of motor vehicle parts, and
qualified service personnel;
(3) Whether there is reasonable evidence
that after the granting of the new motor
vehicle dealership, that [sic] the market
would support all of the dealerships of
that line make in the relevant market
area;
(4) Consequently, whether it is
injurious to the public welfare for an
additional new motor vehicle dealership
to be established.
R.I. Gen. Laws 31-5.1-4.2(b).
Upon consideration of these factors, RIDOT found cause to issue a
license to the Smithfield dealership, which is now known as
Nissan of Smithfield, Inc. ("Smithfield Nissan").
Fireside commenced this action on April 9, 1992, naming
Daniel Fanning, Director of RIDOT as the defendant. Fireside
sought a declaration that RIDOT's interpretation of Section 31-
5.1-4.2 as excluding Fireside from the new dealership hearing
violated the Commerce Clause, the Privileges and Immunities
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Clause, the Due Process Clause and the Equal Protection Clause of
the United States Constitution. Fireside also sought an
injunction restraining RIDOT from precluding Fireside from
participating in future hearings as well as a temporary
restraining order and a preliminary injunction enjoining RIDOT
from granting a dealership license to Smithfield Nissan. Nissan
USA and Smithfield Nissan intervened in the action.
The district court denied Fireside's requested relief.
The court found that the exclusion of Fireside from the
dealership hearings did not violate the Commerce Clause or
otherwise violate Fireside's constitutional rights. As a result,
Fireside could not show the irreparable harm or the likelihood of
success on the merits necessary for the granting of a preliminary
injunction. The court also denied Fireside's request for a
declaratory judgment and a permanent injunction and entered a
final judgment in favor of RIDOT, Nissan USA, and Smithfield
Nissan.
II. ANALYSIS
II. ANALYSIS
Fireside's right to its requested relief, including the
preliminary and permanent injunctions and the declaratory
judgment, depends primarily on whether the exclusion of Fireside
from RIDOT's new dealership hearings violates the Constitution.
Before the court will grant a preliminary injunction, Fireside
must establish, among other things, that it faces a likelihood of
success on the merits and that it will suffer irreparable harm if
the injunction is not issued. Planned Parenthood League v.
__________________________
-7-
Bellotti, 641 F.2d 1006, 1009 (1st Cir. 1981). Fireside alleges
________
that it will suffer irreparable injury from RIDOT's violation of
Fireside's constitutional rights. See National People's Action
___ _________________________
v. Village of Wilmette, 914 F.2d 1008, 1013 (7th Cir. 1990),
____________________
cert. denied, 499 U.S. 921 (1991) (finding constitutional
____ ______
violation sufficient to establish irreparable injury); Mitchell
________
v. Cuomo, 748 F.2d 804, 806 (2d Cir. 1984) (same). Likewise, the
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merits of the permanent injunction and the declaratory judgment
also turn on the constitutionality of RIDOT's actions. Because
we uphold the district court's finding that RIDOT did not violate
the Commerce Clause or any of Fireside's constitutional rights,
we affirm the final judgment in favor of the defendants.
As a preliminary matter, we find it beneficial to our
constitutional inquiry to clarify the nature and purpose of the
Rhode Island new dealership statute, R.I. Gen. Laws 31-5.1-4.2.
Title 31 of Rhode Island General Laws governs state regulation of
motor and other vehicles. Chapter 5.1 of that title regulates
business practices among motor vehicle manufacturers, dealers and
distributors. The provision covering the establishment of new
automobile dealerships, R.I. Gen. Laws 31-5.1-4.2, is designed
to protect existing dealers and consumers from the detrimental
effects of aggressive franchising practices by the automobile
manufacturers whose efforts to establish excessive competing
franchises are considered to be potentially "injurious to the
public welfare" if not properly regulated. R.I. Gen. Laws 31-
5.1-4.2(b).
-8-
The district court found that the statute targeted only
activities which occur within the state of Rhode Island performed
by businesses seeking or holding Rhode Island dealership
licenses. According to the court, R.I. Gen. Laws 31-5.1-4.2
was designed to safeguard the interests of those dealers and
consumers located in Rhode Island; the Rhode Island legislature
did not intend for the statute to apply to, or for the benefit
of, out-of-state dealers such as Fireside. As a result, the
court concluded that RIDOT properly applied the statute by
excluding Fireside from the new dealership hearings.
We agree with the district court's finding on this
issue. Taking its cue from the Sixth Circuit, which interpreted
a similar Kentucky statute as excluding out-of-state dealers from
new dealership hearings, BMW Stores, Inc. v. Peugeot Motors of
_________________ _________________
Am., Inc., 860 F.2d 212 (6th Cir. 1988), the district court based
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its analysis on the stated purposes and language of the statute,
the interpretation of the statute by state regulators and on
general principles of statutory construction. Because we find
the first two factors to be the relevant considerations, we
discuss them below.
Although R.I. Gen. Laws 31-5.1-4.2 does not
explicitly include or exclude out-of-state dealers, the declared
policy of the statute indicates a concern for protecting only
Rhode Island dealers and residents. As in BMW Stores, the new
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dealership licensing provision is aimed at protecting "the
investment of the existing new motor vehicle dealer[s] in the
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community" and safeguarding the "public welfare." R.I. Gen. Laws
31-5.1-4.2(b). BMW Stores, 860 F.2d at 215 (noting that the
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declared policy of the Kentucky statute was to "preserve the
investments and properties of the citizens of this state").3
The new dealership provision is one part of a set of provisions
concerning the duties, obligations, liabilities and privileges of
licensed dealers in Rhode Island and their supplying
manufacturers. R.I. Gen. Laws. 31-5.1-1 through 31-5.1-20.
None of these duties and obligations apply to Fireside because it
is not licensed in Rhode Island. Accordingly, the privileges
that correspond to such duties and obligations do not apply to
Fireside either. The new dealership provision, with its
procedure for hearings, is simply part and parcel of Rhode
Island's regulation and licensing of local dealerships. It makes
no sense, therefore, to apply Rhode Island's comprehensive
regulatory scheme for the benefit of out-of-state dealers.
Furthermore, as in BMW Stores, state regulatory
____________
officials have interpreted the state's new dealership statute as
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3 We do not attach any significance, as does Fireside, to the
use of the word "community" in Rhode Island's statute instead of
the words "citizens of this state" in the Kentucky statute. Both
terms evidence the legislature's concern with the welfare of the
public which it is charged with protecting. Also, Fireside
incorrectly claims that the Kentucky statute differs from the
Rhode Island statute because Kentucky's does not state as a
purpose the safeguarding of the general public interest. The
Kentucky statute explicitly states that its purpose is the
promotion of "the public interest and public welfare" and
mentions as one of its concerns the provision of "convenient
consumer care," which clearly indicates the same concern for
consumers and the public as the Rhode Island statute. Ky. Rev.
Stat. Ann. 190.015; 190.047(7)(b).
-10-
applying only to in-state dealers, an interpretation that
deserves some measure of deference. BMW Stores, 860 F.2d at 215;
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Gallison v. Bristol School Comm., 493 A.2d 164, 166 (R.I. 1985).
________ ____________________
We disagree with Fireside's claim that RIDOT has not conclusively
determined whether R.I. Gen. Laws 31-5.1-4.2 applies to out-of-
state dealers. Fireside points to the fact that, prior to the
hearing for Smithfield Nissan, RIDOT promulgated proposed rules
and regulations that included a provision, Section XI, that
explicitly excluded out-of-state dealers from protesting new
dealerships and participating in hearings. The final rules and
regulations, however, were issued without adopting Section XI.
Fireside argues that the failure to adopt Section XI indicates an
intent to include out-of-state dealers in the hearings. We
disagree.
First of all, the proposed Section XI, while precluding
out-of-state dealers from cross-examining witnesses or presenting
evidence, did allow for out-of-state dealers to offer verbal or
written statements at the hearings at RIDOT's discretion. The
proposal thus could be interpreted as granting more participation
rights to out-of-state dealers than they would otherwise enjoy.
As a result, we do not know if the proposal was rejected because
it was too permissive or because it was too restrictive, i.e.,
because it removed out-of-state participation rights that RIDOT
thought out-of-state dealers should have or because it granted
new rights that RIDOT thought out-of-state dealers should not
have. RIDOT's failure to promulgate Section XI is thus
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inconclusive. Secondly, RIDOT's current regulations for R.I. 31-
5.1 state that their purpose is:
(a) . . . to protect the interests of the
public when dealing with motor vehicle
dealers in Rhode Island . . . .
_______________
(b) . . . to implement the provisions of
Sections 31-5 and 31-5.1 regarding the
issuance, suspension and/or revocation of
such licenses as well as the regulation
of business practices among the
___________
businesses seeking or holding those
_________________________________________
licenses. (emphasis added)
________
This demonstrates RIDOT's intent to apply R.I. Gen. Laws 31-
5.1-4.2 only to Rhode Island dealerships. In any event, the only
evidence we have of RIDOT actually taking a stand on the specific
issue before us is RIDOT's actions in this case. RIDOT excluded
Fireside from the hearings and thereby affirmatively expressed
its interpretation of R.I. Gen. Laws 31-5.1-4.2 as barring
participation of out-of-state dealers in new dealership hearings.
Fireside maintains that certain language in the statute
expresses an intent to include Fireside in the new dealership
hearings. Fireside notes that it falls within the literal
definition of a "new motor vehicle dealer" inside the "relevant
market area" for purposes of R.I. Gen. Laws 31-5.1-4.2, because
the definition of "new motor vehicle dealer" includes "any
person" selling cars, R.I. Gen. Laws 31-5.1-1(C), and the
"relevant market area" is the area within a twenty mile radius
around an existing dealer, R.I. Gen. Laws 31-5.1-1(J). The
lack of an explicit statement that the "relevant market area"
stops at the state border does not, however, indicate that the
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state affirmatively intended to include out-of-state dealers in
licensing hearings. On the contrary, the definition of "dealer"
for all of Title 31 of Rhode Island's General Laws is limited to
persons who have an established place of business "in this
state." R.I. Gen. Laws 31-1-19(a). Fireside is correct that
the definition of "new motor vehicle dealer" as used in the
licensing section at issue here, R.I. Gen. Laws 31-5.1-4.2,
does not contain this limitation. R.I. Gen. Laws 31-5.1-1(C).
However, the term "relevant market area," the other key term in
R.I. Gen. Laws 31-5.1-4.2, is defined as a twenty mile radius
"around an existing dealer," employing the general term "dealer"
______
from 31-1-19(a) and not "new motor vehicle dealer" from 31-5.1-
1(C). One could thus interpret R.I. Gen. Laws 31-5.1-4.2 as
granting protest rights only to Rhode Island dealerships because
only Rhode Island dealers can be in a "relevant market area."
Fireside also points to R.I. Gen. Laws 31-5.1-2 for
evidence that the licensing provision applies to out-of-state
dealers. R.I. Gen. Laws 31-5.1-2 states:
Any person who engages directly or
indirectly in purposeful contacts within
this state in connection with the
offering or advertising for sale or has
business dealings with respect to a motor
vehicle within the state shall be subject
to the provisions of this chapter and
shall be subject to the jurisdiction of
the courts of this state, upon service of
process in accordance with the provisions
of the general laws.
This provision is not a general grant of extraterritoriality but
rather an affirmation that parties who are covered by the various
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substantive provisions in Chapter 5.1 of Title 31, which
regulates manufacturers, dealers and distributors, cannot escape
enforcement of those provisions by claiming they are
nonresidents. If Fireside's interpretation were adopted, the
substantive regulatory provisions in Chapter 5.1 -- for example,
those regarding fraud and breach of warranty -- would apply to
Fireside and any other dealer in any other state, an absurd
result. Notwithstanding R.I. Gen. Laws 31-5.1-2, one must
still look to the specific substantive provisions of Chapter 5.1
to see who is covered. Doing so reveals that 31-5.2 was mainly
directed toward out-of-state automobile manufacturers, rather
_____________
than dealers. A majority of the provisions in chapter 5.1 impose
explicit duties and obligations on manufacturers, all or most of
whom, presumably, are, like Nissan USA, from outside of the
state. E.g., R.I. Gen. Laws 31-5.1-4 through 31-5.1-11.
____
Unlike the definition of "new motor vehicle dealer" which
includes generally "any person" selling cars, R.I. Gen. Laws
31-5.1-1(C), the definition of "manufacturer" specifically
includes any person, "resident or nonresident," who makes cars.
R.I. Gen. Laws 31-5.1-1(B). Thus, the Rhode Island legislature
has clearly expressed an intent to regulate out-of-state
manufacturers when they do business in Rhode Island. No such
expression exists with regard to out-of-state dealers selling
cars in another state. The absence of any specification that
"new motor vehicle dealers" can include "nonresidents" confirms
RIDOT's interpretation of R.I. Gen. Laws 31-5.1-4.2 as
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excluding Fireside from the new dealership hearings.
Now that we have determined that Rhode Island's new
dealership law applies only to in-state dealers, we can proceed
to the task of determining whether RIDOT's action of excluding
Fireside from the new dealership hearings was a constitutional
exercise of state power.
A. Commerce Clause
A. Commerce Clause
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The Commerce Clause, while literally a grant of power
to Congress, also restricts states from passing laws that
interfere with interstate commerce. Wyoming v. Oklahoma, 112 S.
_______ ________
Ct. 789, 800 (1992); New Energy Co. v. Limbach, 486 U.S. 269, 273
______________ _______
(1988). "This 'negative' aspect of the Commerce Clause prohibits
economic protectionism -- that is, regulatory measures designed
to benefit in-state economic interests by burdening out-of-state
competitors." New Energy, 486 U.S. at 273-74; see also Hyde Park
__________ ________ _________
Partners, L.P. v. Connolly, 839 F.2d 837, 843 (1st Cir. 1988).
______________ ________
Laws that have either the purpose or effect of
_______ ______
discriminating against interstate commerce will be struck down as
unconstitutional unless the state can establish that there is no
reasonable alternative method of safeguarding a legitimate local
interest. Wyoming v. Oklahoma, 112 S. Ct. at 800; New Energy,
____________________ __________
486 U.S. at 274; Maine v. Taylor, 477 U.S. 131, 138 (1986)
_____ ______
(citing Hughes v. Oklahoma, 441 U.S. 322, 336 (1979)). State
______ ________
laws which have as their primary or exclusive purpose the
promotion of local interests by burdening out-of-state commerce,
that is, economic protectionism, are subject to a virtual "per se
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rule of invalidity." Wyoming v. Oklahoma, 112 S. Ct. at 800
___________________
(quoting Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978)).
____________ __________
In the absence of discrimination, state action that
interferes with or burdens interstate commerce will be struck
down if the local interest is not very substantial or if the
burdens imposed on interstate commerce are excessive in relation
to the putative benefits of the state's action. Maine v. Taylor,
_____ ______
477 U.S. at 138; Brown-Forman Distillers Corp. v. New York State
_____________________________ ______________
Liquor Auth., 476 U.S. 573, 579 (1986); Pike v. Bruce Church,
____________ ____ ______________
Inc., 397 U.S. 137, 142 (1970); Hyde Park, 839 F.2d at 844-45.
____ __________
Thus, when a state law regulates in-state and out-of-state
businesses evenhandedly, courts should apply "less strict
scrutiny" or a more lenient balancing test than they would apply
in the case of discrimination against interstate commerce.
Wyoming v. Oklahoma, 112 S. Ct. at 800 n.12; Brown-Forman, 476
_______ ________ ____________
U.S. at 579; Philadelphia v. New Jersey, 437 U.S. at 624.
____________ __________
1. Discrimination Against Interstate Commerce
1. Discrimination Against Interstate Commerce
__________________________________________
R.I. Gen. Laws 31-5.1-4.2 does not have the purpose
of discriminating against interstate commerce. As discussed
above, R.I. Gen. Laws 31-5.1 is designed to regulate automobile
dealerships in the state of Rhode Island, and R.I. Gen. Laws
31-5.1-4.2, in particular, is designed to insure that certain
conditions are met before a new dealership license is granted.
Rhode Island's intent is to protect Rhode Island consumers and
Rhode Island dealers from certain franchising practices of
automobile manufacturers which are perceived as harmful to the
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local community. R.I. Gen. Laws 31-5.1-4.2 is not designed to
promote local dealers at the expense of out-of-state dealers nor
to alter the terms at which dealers sell, or consumers purchase,
cars within or outside of Rhode Island.
In addition, the exclusion from licensing hearings of
out-of-state but not in-state dealers within a given area is not
facially discriminatory against interstate commerce such that "on
its face [it] appears to violate the cardinal requirement of
nondiscrimination." New Energy, 486 U.S. at 274; Healy v. The
__________ _____ ___
Beer Institute, 491 U.S. 324, 340-41 (1989). R.I. Gen. Laws
______________
31-5.1-4.2 is strictly concerned with licensing dealerships in
Rhode Island; it does not, on its face, regulate any aspect of
interstate commerce such as the flow of goods across borders, the
sale of out-of-state goods, the comparative cost of making or
selling those goods, or any other aspect of the commercial
activity of out-of-state businesses. Exxon Corp. v. Governor of
____________ ___________
Maryland, 437 U.S. 117, 126 (1978) (noting that a Maryland law
________
prohibiting producers and refiners of petroleum products from
operating retail service stations within the state was
distinguishable from laws discriminating against interstate
commerce because the law "creates no barriers whatsoever against
interstate independent dealers; it does not prohibit the flow of
interstate goods, place added costs upon them, or distinguish
between in-state and out-of-state companies in the retail
market"). Because Rhode Island's new car dealership law does not
facially apply to interstate commerce, it cannot facially
-17-
discriminate against interstate commerce.
We therefore turn to the alleged discriminatory effect
______
of Rhode Island's new dealership law. R.I. Gen. Laws 31-5.1-
4.2 does not place burdens on goods or services from out-of-state
or on the out-of-state businesses that produce them. The statute
concerns the rights and obligations of licensed Rhode Island
dealerships, a group that does not include Fireside. It simply
has no application whatsoever to Fireside. The statute in no way
hinders Fireside's ability to sell cars to Rhode Islanders; nor
does it increase Fireside's cost of doing business with Rhode
Island. These facts distinguish Rhode Island's statute from
those statutes which the Supreme Court has commonly struck down
because of their discriminatory effects. See, e.g., Healy, 491
___ ____ _____
U.S. at 337-40 (striking down Connecticut statute requiring beer
shippers to affirm that their prices are no higher than prices in
bordering states because the statute affected prices outside of
the state); Hughes v. Oklahoma, 441 U.S. 322, 336-38 (1979)
______ ________
(striking down Oklahoma statute prohibiting the sale of minnows
outside of the state because it blocked the flow of commerce
through state borders); Philadelphia v. New Jersey, 437 U.S. at
____________ __________
625-28 (striking down New Jersey law prohibiting the shipment of
garbage into the state for the same reason); Hunt v. Washington
____ __________
State Apple Advertising Comm'n, 432 U.S. 333, 349-352 (1977)
________________________________
(striking down North Carolina law that restricted grade
identifications on closed apple containers, including the
favorable grade for Washington apples, because the law raised the
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cost of doing business in North Carolina for Washington apple
growers and stripped away the competitive advantage of the
Washington apple industry). Rhode Island's law clearly does not
have the effect of burdening out-of-state businesses.
Instead, this case falls into the "local benefit" or
"subsidy" category of cases -- that is, cases dealing with state
laws that confer a benefit on businesses within the state while
withholding the benefit from similarly situated out-of-state
businesses. Fireside claims that R.I. Gen. Laws 31-5.1-4.2
grants to Rhode Island dealerships the privilege of protesting
the establishment of new car dealerships at locations close to
their existing dealerships, thus allowing them an opportunity to
limit their competition. At the same time, Fireside argues, R.I.
Gen. Laws 31-5.1-4.2 denies the same privilege to out-of-state
dealers in the same competitive area. The result of such
discriminatory effects, Fireside alleges, is to drive the
establishment of new car dealerships out towards Rhode Island's
borders where they can divert businesses from dealers in
neighboring states who have no standing to protest the
establishment of such dealerships at a good-cause hearing.
Supreme Court jurisprudence on discriminatory
privileges for in-state business under the Commerce Clause is,
unfortunately, somewhat inconsistent. On the one hand, several
state laws designed to promote local industry have been struck
down by the Court. E.g., Wyoming v. Oklahoma, 112 S. Ct. at 800
____ ___________________
(striking down Oklahoma law reserving a segment of the Oklahoma
-19-
coal market for Oklahoma-mined coal); New Energy, 486 U.S. at
___________
273-80 (striking down Ohio tax credit for ethanol produced in the
state); Bacchus Imports, Ltd. v. Dias, 468 U.S. 263 (1984)
_______________________ ____
(striking down Hawaiian law exempting local producers of certain
liquors from general liquor tax). On the other hand, the Court
has repeatedly affirmed the long-recognized proposition that
states may directly subsidize local industry as long as they do
so without burdening the ability of interstate competitors to
sell their products in the state. New Energy, 486 U.S. at 278;
__________
Bacchus, 468 U.S. at 271; Hughes v. Alexandria Scrap Corp., 426
_______ ______ _______________________
U.S. 794, 814-17 (1976) (Stevens., J., concurring);4 see also
________
West Lynn Creamery, Inc. v. Healy, 62 U.S.L.W. 4518, 4525 (June
________________________ _____
17, 1994) (Scalia, J., concurring) (describing this area of the
Court's Commerce Clause jurisprudence as a "quagmire"). As
Justice Scalia stated in New Energy:
__________
The Commerce Clause does not prohibit all
state action designed to give its
residents an advantage in the
marketplace, but only action of that
description in connection with the
___________________________
State's regulation of interstate
_________________________________________
commerce. Direct subsidization of
________
domestic industry does not ordinarily run
afoul of that prohibition; discriminatory
taxation of out-of-state manufacturers
____________________
4 Although the majority decided Alexandria Scrap according to
________________
what has become known as the "market participant" doctrine --
i.e., normal Commerce Clause scrutiny does not apply when the
state enters the market as a buyer, seller, or employer to favor
local citizens, Alexandria Scrap, 426 U.S. at 805-10 -- the
________________
majority also placed some emphasis on the fact that Maryland's
beneficial treatment of only in-state businesses, while affecting
the flow of interstate commerce, did not "interfere[] with the
natural functioning of the interstate market either through
prohibition or through burdensome regulation." Id. at 806.
__
-20-
does.
New Energy, 486 U.S. at 278 (emphasis in original).
__________
Although we see no practical difference between the tax
break offered to local liquor producers in Bacchus, for example,
_______
and a "direct" cash subsidy to those same industries (thus
blurring the imaginary line between discriminatory privileges
that burden interstate commerce and those that do not), the
Court's focus on laws "in connection with the State's regulation
of interstate commerce" appears to invoke the Commerce Clause
only where the challenged law relates to taxes, prices, or the
conditions and costs imposed on an out-state-business doing
business in the state. See Exxon Corp., 437 U.S. at 126; West
___ ___________ ____
Lynn Creamery, 62 U.S.L.W. at 4520-22.
_____________
R.I. Gen. Laws 31-5.1-4.2 does bestow the benefit of
protesting new dealerships on existing Rhode Island dealers in a
competitive area which is not simultaneously extended to Fireside
or other out-of-state dealers who are also in the competitive
area. This "advantage in the marketplace," however, is not one
"in connection with the state's regulation of interstate
commerce." New Energy, 486 U.S. at 278. The creation of new car
__________
dealerships in Rhode Island does not relate to the price of the
automobiles being sold, the taxes paid for them, or the costs and
conditions of selling them. Moreover, Rhode Island's procedure
for protesting new dealerships does not diminish the
opportunities for Massachusetts dealers to sell cars to Rhode
Island customers. Rhode Island's efforts to license and regulate
-21-
in-state dealers is thus far afield from protectionist laws that
serve to enhance economic prosperity of local citizens by
hindering the free flow of products or by affording privileges
provided at the expense of out-of-state businesses.
Fireside claims that denying it the protest privilege
provided by R.I. Gen. Laws 31-5.1-4.2 will have a differential
effect on the number of competitors a given car dealership will
face, ultimately reducing the number of Rhode Islanders who will
travel to Massachusetts to buy shiny new Nissan 380-Z's. This
diversionary effect is present in all subsidy cases and, thus,
cannot by itself establish a violation of the Commerce Clause.
In this case, the diversion of business does not result from a
comparative advantage in the marketplace created by the
challenged state action that would not normally exist in a free
market for new car sales. Consequently, this case does not
involve a practice that even comes close to the types of local
subsidies that raise Commerce Clause concerns. See Hunt v.
___ ____
Washington State Apple, 432 U.S. at 351-52 (striking down North
______________________
Carolina law because it stripped away advantages that out-of-
state competitor would normally have in the free market); Hyde
____
Park, 839 F.2d at 843 ("state action must not 'neutralize the
____
economic consequences of free trade among the states'") (quoting
Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 526 (1935)).
_______ ___________________
The mere act of granting a dealership license that
might not otherwise be granted had out-of-state dealers been
allowed to protest at the hearing does not mean that the new
-22-
dealership will have some preferential ability to sell cars to
Rhode Island customers. Similarly, nothing in R.I. Gen. Laws
31-5.1-4.2 affects Fireside's ability to sell a shinier Nissan at
a better price, and a Rhode Islander's ability to take advantage
of such bargains. The effect of the law is not to dictate the
terms of competition between businesses, but rather, to regulate
the existence of competitors. Given these circumstances, the
fact that some theoretical group of Rhode Island dealers in the
interior of the state face less competition from new dealerships
allegedly concentrated on the border is not significant for
purposes of a Commerce Clause analysis. The alleged beneficial
effect of R.I. Gen. Laws 31-5.1-4.2 is too far afield from the
protectionism that the Commerce Clause prohibits.
This case is distinguishable from the Bendix case
______
relied on by Fireside for the proposition that the withholding of
"legal defenses or like privileges" from out-of-state businesses
discriminates against interstate commerce. Bendix Autolite Corp.
_____________________
v. Midwesco Enters., Inc., 486 U.S. 888, 893 (1988). In Bendix,
_______________________ ______
the Supreme Court struck down an Ohio statute that tolled the
statute of limitations (i.e. suspended the running of time) on
fraud and breach of contract actions for any foreign business
that was not "present" in the state and had not designated an
agent for service of process. Id. To begin with, the Supreme
__
Court never determined whether or not the Ohio statute
discriminated against interstate commerce. Id. at 891. Instead,
__
the Court based its finding on a balancing of the burdens of the
-23-
law with the justifications for the law. Id. In any event,
__
Bendix is not applicable to the present case for a number of
______
reasons.
First, the Bendix Court found that the Ohio statute
______
places a "significant burden" on out-of-state businesses because
it "forces a foreign corporation to choose between exposure to
the general jurisdiction of Ohio courts or forfeiture of the
limitations defense, remaining subject to suit in Ohio in
perpetuity." Id. at 893. The statute thus affected the costs
__
and conditions of doing business in the state relative to local
businesses.
As already noted, that is not the case here. Fireside
does not face any increased liability, or other burden that would
increase its cost of doing business, by virtue of its exclusion
from the licensing hearings. The only effect of R.I. Gen. Laws
31-5.1-4.2 on Fireside is a relative limitation on its ability
to restrict the number of competitors it will face, an interest
beyond the purview of the Commerce Clause. Legal defenses in
contract or fraud actions are simply not comparable to
participation in a local hearing for the granting of a state
dealership license to a completely different party. The former
involves "an integral part of the legal system . . . relied upon
to project the liabilities of persons and corporations active in
the commercial sphere." Id. The latter involves local licensing
__
proceedings that have nothing to do with the out-of-state
business beyond its concern over the creation of a competitor.
-24-
Furthermore, the alleged protest right in this case,
unlike the statute of limitations defense in Bendix, is not part
______
of a statutory scheme that applies to out-of-state businesses.
As discussed above, R.I. Gen. Laws 31-5.1-4.2 is concerned with
local licenses and simply has no application to Fireside. The
statute of limitations defense, however, is a part of the general
scheme of civil commercial liability that applies to all
companies with minimum contacts to the state. The Ohio statute
was thus purposefully directed to out-of-state businesses to
revoke a procedural defense they would normally enjoy. In the
present case, no benefit was revoked or withheld from out-of-
state parties because R.I. Gen. Laws 31-5.1-4.2 was concerned
solely with local dealership licensing and was never intended to
afford any benefits to out-of-state dealers in the first place.
2. Impermissible Burdening of Interstate Commerce
2. Impermissible Burdening of Interstate Commerce
______________________________________________
Because we find no discriminatory purpose or effect on
interstate commerce from R.I. Gen. Laws 31-5.1-4.2, we must
apply the more lenient Pike balancing test to determine whether
____
the law imposes an unreasonable burden on interstate commerce.
Laws that have only an incidental impact on interstate commerce
will be upheld so long as the burden imposed on interstate
commerce is not clearly excessive in relation to the putative
benefits. Brown-Forman, 476 U.S. at 579; Philadelphia v. New
____________ ____________ ___
Jersey, 437 U.S. at 623-24; Pike, 397 U.S. at 142. "'[T]here is
______ ____
a residuum of power in the state to make laws governing matters
of local concern which nevertheless in some measure affect
-25-
interstate commerce or even, to some extent, regulate it.'"
Kassel v. Consolidated Freightways Corp., 450 U.S. 662, 669
______ _______________________________
(1981) (quoting Southern Pacific Co. v. Arizona, 325 U.S. 761,
____________________ _______
767 (1945)).
R.I. Gen. Laws 31-5.1-4.2 burdens interstate commerce
only minimally, if at all. As discussed above, no burdens are
placed on an out-of-state dealer's ability to sell cars to Rhode
Islanders. The only effect on interstate commerce, theoretically
anyway, appears to be a decrease in the number of Rhode Island
customers who go to Massachusetts to buy Nissans because out-of-
state dealers are not able to protest the establishment of new
Rhode Island dealerships near the border. This diversionary
effect, however, attributable to increased competition from
competitors who gain no special competitive advantage from the
state action, does not implicate the Commerce Clause. The free
flow of goods remains unaffected by R.I. Gen. Laws 31-5.1-4.2
and any changes in that flow are due solely to consumers acting
within the free market. See Minnesota v. Clover Leaf Creamery
___ _________ ____________________
Co., 449 U.S. 456, 473-74 (1981) (upholding Minnesota law banning
___
the use of plastic milk containers even though the statute
benefitted the predominantly local pulpwood producers at the
expense of the predominantly out-of-state plastics industry);
Exxon Corp., 437 U.S. at 126-28 (upholding Maryland statute
____________
prohibiting producers and refiners of petroleum products from
operating retail service stations within the state partly because
"in-state independent dealers will have no competitive advantage
-26-
over out-of-state dealers").
Given the lack of any significant burden on interstate
commerce in this case, we find Rhode Island's interest in
excluding out-of-state parties from participating in a matter of
strictly local concern -- the licensing of Rhode Island
dealerships -- more than sufficient to pass Constitutional muster
under the Pike balancing test. Certainly the state's desire to
____
protect local dealers and consumers from harmful franchising
practices is a lawful legislative goal. Even if we confine our
analysis to state interests that are directly tied to the
restriction on who can participate in hearings, however, the
statute survives the balancing test. Rhode Island's concerns for
administrative convenience and the reasonable belief that state
citizens are best qualified to represent local interests
sufficiently justify the state's exclusion of out-of-state
dealers from the new dealership hearings.
B. Other Constitutional Claims
B. Other Constitutional Claims
___________________________
1. Due Process
1. Due Process
___________
Fireside claims that RIDOT's exclusion of Fireside from
new dealership hearings deprived it of a protected property
interest without procedural due process. The district court
rejected this claim, finding that Fireside had no protectable
interest in pursuing its business free from competition. On
appeal, Fireside argues that it has a protected property interest
in the form of a legitimate claim of entitlement to be free from
"excessive intrabrand competition" in the market for new Nissans.
-27-
Fireside maintains that R.I. Gen. Laws 31-5.1-4.2 granted this
interest to Fireside when it bestowed protest rights on all
dealers within the "relevant market area" and that RIDOT then
deprived Fireside of this right when it excluded Fireside from
the hearings.
The protections of procedural due process are not
triggered unless Fireside can show it has been deprived of a
protectable liberty or property interest. Cleveland Bd. of Educ.
______________________
v. Loudermill, 470 U.S. 532, 538 (1985); Board of Regents v.
__________ _________________
Roth, 408 U.S. 564, 569 (1972). Property interests "'are created
____
and their dimensions are defined by existing rules or
understandings that stem from an independent source such as state
law.'" Loudermill, 470 U.S. at 538 (quoting Roth, 408 U.S. at
__________ ____
577).
Fireside does not have a protectable property interest
in being free from excessive intrabrand competition or from
participating in Rhode Island's new dealership hearings because
R.I. Gen. Laws 31-5.1-4.2 does not confer any protections or
rights of participation on out-of-state dealers. As we have
already found, Rhode Island's dealership licensing statute only
applies to dealerships within the state of Rhode Island and does
not have, nor has it ever had, any application to out-of-state
dealers like Fireside. Consequently, RIDOT did not deprive
Fireside of any existing property interest when it excluded
Fireside from its hearing on the establishment of Smithfield
Nissan. The district court correctly found no due process
-28-
violation in this case.
2. Equal Protection
2. Equal Protection
________________
Fireside finally claims that RIDOT's exclusion of
similarly situated out-of-state dealers from new dealership
hearings is an impermissible classification under the Equal
Protection Clause of the Constitution.
Absent a suspect classification or a fundamental right,
courts will uphold economic and social legislation that
distinguishes between two similarly situated groups as long as
the classification is rationally related to a legitimate
government objective. Nordlinger v. Hahn, 112 S. Ct. 2326, 2331-
__________ ____
32 (1992); Schweiker v. Wilson, 450 U.S. 221, 230 (1981);
_________ ______
Dandridge v. Williams, 397 U.S. 471, 485 (1970); LCM Enterprises,
_________ ________ ________________
Inc. v. Town of Dartmouth, 14 F.3d 675, 678-79 (1st Cir. 1994).
____ _________________
A state statute will survive this "rational basis" scrutiny under
the Equal Protection Clause as long as "any state of facts
reasonably may be conceived to justify it." Dandridge, 397 U.S.
_________
at 485 (quoting McGowan v. Maryland, 366 U.S. 420, 426 (1961));
_______ ________
accord LCM Enters., 14 F.3d at 679 (collecting cases). A state's
______ ___________
classification is not unconstitutional simply because it "'is not
made with mathematical nicety or because in practice it results
in some inequality.'" Dandridge, 397 U.S. at 485 (quoting
_________
Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78 (1911)).
________ ________________________
Fireside claims that RIDOT's application of R.I. Gen.
Laws 31-5.1-4.2 is not rationally related to the stated goal of
protecting Rhode Island consumers and Rhode Island dealerships
-29-
from certain franchising practices of automobile manufacturers.
Fireside argues that excluding out-of-state dealers from the
good-cause hearings not only fails to further the goals of
protecting consumers and dealers but actually undermines those
goals. According to Fireside, its exclusion from the hearings
gives Rhode Island regulators a distorted view of the "relevant
market area" by understating the existing competition among
automobile franchises, resulting in licensing decisions that are
detrimental to Rhode Island consumers and dealers. The only
purpose for excluding out-of-state dealers, Fireside posits, is
the illegitimate one of economic protectionism.
We disagree with Fireside's contention that RIDOT's
exclusion of Fireside bears no rational relationship to the goal
of protecting Rhode Island consumers and car dealers. Excluding
out-of-state parties from hearings on matters of strictly local
concern is a reasonable way to conduct state governmental
business. We find it reasonable for Rhode Island to believe,
rightly or wrongly, that members of its own community are best
qualified to represent community interests to regulators,
including interests concerning the effect of a manufacturer's
efforts to establish a new dealership on existing dealers and
consumers. Out-of-state parties may be more likely to have
interests that conflict with local interests. Further, Rhode
Island's interest in administrative convenience may justify its
decision to cut off the number of people participating in state
decisionmaking at the logical point of state citizenship.
-30-
Whether more information concerning out-of-state dealers would
better serve Rhode Island's goal of protecting consumers and
dealers is irrelevant for purposes of rational basis analysis
under the Equal Protection Clause. In any event, we are
skeptical of the proposition that Rhode Island consumers and
dealers are unable to fully represent their own interests at a
hearing without the participation of out-of-state dealers. If an
existing Rhode Island dealer or a consumer group finds it in
their interest to present information about other out-of-state
dealerships, nothing in the law prevents them from doing so.
Finally, we find that Rhode Island did not purposefully
discriminate against Fireside by excluding it from new dealership
hearings for the sole purpose of furthering the illegitimate goal
of economic protectionism. See Snowden v. Hughes, 321 U.S. 1, 8
___ _______ ______
(1944). As already discussed above, R.I. Gen. Laws 31-5.1-4.2
was designed and intended to regulate and protect licensed car
dealerships in Rhode Island and was not intended nor designed to
benefit local businesses at the expense of out-of-state
competitors. We therefore uphold the district court's holding
that RIDOT did not violate Fireside's constitutional rights.
Affirmed.
________
-31-
New Energy Co. of Indiana v. Limbach ( 1988 )
hyde-park-partners-lp-and-hyde-park-holdings-inc-v-michael-j ( 1988 )
The Bmw Stores, Inc. v. Peugeot Motors of America, Inc., ... ( 1988 )
Hunt v. Washington State Apple Advertising Commission ( 1977 )
Cleveland Board of Education v. Loudermill ( 1985 )
LCM Enterprises, Inc. v. Town of Dartmouth ( 1994 )
Exxon Corp. v. Governor of Maryland ( 1978 )
Baldwin v. G. A. F. Seelig, Inc. ( 1935 )
Pike v. Bruce Church, Inc. ( 1970 )
Brown-Forman Distillers Corp. v. New York State Liquor ... ( 1986 )
theodore-mitchell-frank-dolan-william-fischer-and-arthur-meadows-on ( 1984 )
National People's Action v. Village of Wilmette and Fred W. ... ( 1990 )
Gallison v. Bristol School Committee ( 1985 )
Lindsley v. Natural Carbonic Gas Co. ( 1911 )
Minnesota v. Clover Leaf Creamery Co. ( 1981 )