Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_13-cv-00802/USCOURTS-azd-2_13-cv-00802-0/pdf.json

Nature of Suit Code: 440
Nature of Suit: Other Civil Rights
Cause of Action: 42:1983 Civil Rights Act

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Magna Legal Services, 

Plaintiff, 

v. 

State of Arizona ex rel. Board of Certified 

Reporters, 

Defendant.

No. CV-13-00802-PHX-NVW

ORDER 

 Before the Court is Defendant’s Motion to Dismiss Amended Complaint (Doc. 

18), and Plaintiff’s Response. Defendant’s Reply was due by August 15, 2013, but no 

Reply was filed. Defendant moves to dismiss the Amended Complaint for lack of subject 

matter jurisdiction, or, in the alternative, to dismiss Count I for failure to state a claim for 

which relief can be granted. For the following reasons, Defendant’s Motion will be 

denied. 

I. Background 

These facts are taken from Plaintiff’s Amended Complaint, and are assumed true 

for the purposes of this Motion. Plaintiff Magna Legal Services (Magna) provides court 

reporting services to clients throughout the country, operating out of their central office in 

Philadelphia, Pennsylvania. Because of the national scope of their business, Magna 

endeavors to enter into multi-case contracts with its clients. Through those contracts, 

clients that are regularly involved in legal proceedings are able to negotiate lower rates 

for legal services, including court reporting, in exchange for retaining Magna to perform 

legal services for all of the client’s matters. The result is that Magna is able to provide 

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clients with court reporting services at a discount of up to 30%. In addition, Magna is as 

able to save its clients’ money by having its reporters transmit a draft transcript to 

Magna’s central office in Philadelphia after a proceeding to allow the staff there to print, 

copy, sign, and assemble transcripts and exhibits. Performing these back-end services in 

the central office allows Magna to process transcripts more efficiently and reduces 

delivery time and costs for clients. 

The Board of Certified Reporters (the Board) is the state agency responsible for 

the state’s certification of court reporters, created by A.R.S. § 32-4004. The State of 

Arizona (the State) has consented to be sued on behalf of the Board and its members, and 

represents the Board here. The Board is charged with the investigation, prosecution, 

adjudication, and disciplining of court reporters for violations of laws and regulations 

governing court reporters. A.R.S. § 32-4006. The Board is also responsible for making 

suggestions to the Arizona Supreme Court regarding rules, policies, and procedures for 

certifying court reporters. A.R.S. § 32-4005(B). No court reporter may report any legal 

proceeding in Arizona unless the reporter is certified by the Board. A.R.S. § 32-4003(a). 

In February 2011, the Arizona Supreme Court adopted a revised set of rules 

governing the certification of court reporters in Arizona Code of Judicial Administration 

§ 7-206 (the Regulations). The Regulations adopted a new series of rules for court 

reporters in Arizona that imposed restrictions on the way that court reporters could 

structure contracts for their services. The most salient rules for this Motion are found in 

§ 7-206(J)(1), titled “Code of Conduct: Ethics.” That section of the Regulations prohibits 

certified reporters from entering into any contract that requires them to: 

Relinquish control of a transcript in a manner that prevents the reporter from monitoring, overseeing, and reviewing the preparation, production, and distribution of the transcript before it is delivered to the custodial 

attorney, § 7-206(J)(1)(g)(1); 

Relinquish control in a manner that prevents the reporter’s inspection and copying of records of charges, invoicing, and billing to the parties to an action, § 7-206(J)(1)(g)(2); 

Provide special financing terms or other services that are not offered at the 

same time, on the same terms, to all other parties to the litigation, § 7- 206(J)(1)(g)(3); 

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Give any economic or other advantage to any party or its attorney, representative, agent, or insurer, § 7-206(J)(1)(g)(4); and 

Perform court reporting services (expressly or impliedly) in any other proceeding or case at a specific rate of compensation or compels, guarantees, regulates, or controls the use of court reporting services in other cases, § 7-206(J)(1)(g)(5). 

The Regulations also prohibit a certified reporter from taking a deposition if the reporter 

is: 

A relative, employee, or attorney of someone with financial interest 

in the action . . ., § 7-206(J)(1)(h)(4); 

An ‘employee’ includes a person who has a continuing contractual relationship, express or implied, with a person or entity interested in the outcome of the litigation, including anyone who may have ultimate responsibility for payment to provide reporting or other court services, and a person who is employed part-time or full-time under contract or otherwise by a person who has a contractual relationship with a party to provide reporting or other court services. § 7-206(J)(1)(h)(5) 

 The Regulations “may not be waived by disclosure, agreement, stipulation, or 

otherwise.” § 7-206(J)(1)(j). 

The Regulations allegedly have the effect of preventing court reporters in Arizona 

from entering into multi-case contracts with clients. In addition, the Regulations prevent 

court reporters in Arizona from contracting to provide services for Magna in a case in 

which Magna has a multi-case contract with one of the parties. In order to contract with 

Magna, then, Arizona court reporters in practice demand certifications from Magna that 

Magna has no multi-case contract or agreement with any party to the proceeding. To 

avoid violating the Regulations, Magna does not perform under its multi-case contracts in 

connection with any proceeding based in Arizona. 

Arizona court reporters are also prohibited by the Regulations from sending draft 

transcripts out of Arizona to Magna for the back-end services that Magna provides out of 

its central office. Because Arizona court reporters are required to personally monitor the 

preparation, production, and distribution of the transcript, the Arizona reporter cannot 

send a transcript that has not been finalized to Magna for processing. For the purposes of 

this lawsuit, then, the relevant effect of the Regulations are that they prevent national 

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court reporting service providers like Magna from providing clients preferred pricing 

under a multi-case contract in Arizona and from performing post-proceeding processing 

from a central location for proceedings in Arizona. 

II. Rule 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction 

Defendant the State of Arizona ex rel. the Board of Certified Reporters (the State) 

first contends that Magna lacks Article III standing such that its claims should be 

dismissed for lack of subject matter jurisdiction pursuant to Rule 12(b)(1) of the Federal 

Rules of Civil Procedure. 

A. Legal Standard 

The Court must analyze the jurisdictional question of standing at the outset 

because it “precedes, and does not require, analysis of the merits” of a case. Maya v. 

Centex Corp., 658 F.3d 1060, 1068 (9th Cir. 2011) (citing Equity Lifestyle Props., Inc. v. 

Cnty. of San Luis Obispo, 548 F.3d 1184, 1189 n. 10 (9th Cir. 2008)). In this case, the 

State contends that Magna fails to meet the Article III requirement that it have standing to 

invoke the power of the federal court. The doctrine of standing requires that a “plaintiff 

has alleged such a personal stake in the outcome of the controversy as to warrant his 

invocation of federal court jurisdiction.” Summers v. Earth Island Inst., 555 U.S. 488, 

493 (2009) (citation and internal quotation marks omitted).

 Because Magna is invoking federal jurisdiction in this case, it has the burden of 

establishing all of the elements of standing. Defenders of Wildlife, 504 U.S. at 561. In 

order to do so, Magna must show: 

(1) it has suffered an ‘injury in fact’ that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision. 

Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 181 (2000) 

(citing Defenders of Wildlife, 504 U.S. at 560-61.)). Magna has the burden of 

establishing all of these elements for each type of relief it seeks. Summers, 555 U.S. at 

493. 

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A motion to dismiss for lack of jurisdiction under Rule 12(b)(1) may either be 

facial or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). 

The State’s Motion is a facial attack because it “asserts that the allegations contained in 

the complaint are insufficient on their face to invoke federal jurisdiction.” Id. When 

evaluating such a motion to dismiss for lack of standing, “courts must accept as true all 

material allegations of the complaint and must construe the complaint in favor of the 

complaining party.” Warth v. Seldin, 422 U.S. 490, 501 (1975). Therefore, if Magna’s 

Amended Complaint contains factual allegations sufficient to establish each of the 

required elements of standing, it has met its burden. 

B. Analysis 

Magna has alleged that the Regulations have caused Magna to lose potential 

clients and to lose opportunities for additional engagements with existing clients. (Doc. 

15 ¶¶ 107, 124, 145). These are general allegations of injury, and Magna repeats them 

for each of its claims. However, “[a]t the pleading stage, general factual allegations of 

injury resulting from the defendant’s conduct may suffice, for on a motion to dismiss we 

presume that general allegations embrace those specific facts that are necessary to 

support the claim.” Maya, 658 F.3d at 1068 (citing Lujan v. Defenders of Wildlife, 504 

U.S. 555, 561 (1992) (internal quotation marks omitted)). The State’s Motion simply 

does not does not address those alleged injuries, and the State filed no Reply. Instead, the 

State focuses on Magna’s allegation that it cannot perform under its multi-case contracts, 

and contends that is not ripe because the State has not yet sought to enforce the 

Regulations against Magna. The State also argues that Magna does not have standing 

because the Regulations are only applicable to Arizona court reporters, and that Magna 

cannot assert the interests of third parties. These arguments do not address the existing 

injuries Magna has alleged that it has already suffered, in terms of lost clients and lost 

engagements with existing clients. Since those injuries are, on their own, sufficient to 

establish standing, the Court need not address the State’s other arguments. 

Further, in this case, Magna has alleged more specific facts that support these 

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general allegations. (Doc. 15 ¶¶ 43, 49-51, 55.) In short, Magna has alleged that it has 

already suffered an injury from the implementation of the Regulations and will continue 

to do so in the future. Those allegations are sufficient to satisfy the first requirement for 

standing. To satisfy the remaining two requirements, Magna must show that the injury it 

has alleged is fairly traceable to the Regulations, and that it is likely that the Court could 

provide effective relief. 

An injury is fairly traceable to a defendant’s conduct if a plaintiff can “establish a 

‘line of causation’ between defendants’ actions and [the plaintiff’s] alleged harm that is 

more than ‘attenuated.’” Maya, 658 F.3d at 1070 (citing Allen v. Wright, 468 U.S. 737, 

757 (1984). That standard is a lighter burden than the proximate cause standard; for this 

requirement a “causal chain does not fail simply because it has several ‘links,’ provided 

those links are ‘not hypothetical or tenuous’ and remain ‘plausible.’” Id. (citing Nat'l 

Audubon Soc., Inc. v. Davis, 307 F.3d 835, 849 (9th Cir. 2002). Magna has alleged that 

the Regulations, and the threat of the State’s enforcement thereof, have caused Arizona 

court reporters to refuse to abide to Magna’s multi-state contracts and to demand 

certification that Magna has no such contract before providing court reporting services. 

(Doc. 15 ¶ 48). Magna has also alleged that the Regulations have caused certain clients 

to refuse to enter into multi-case contracts with Magna in the first place. (Doc. 15 ¶ 51.) 

At the pleading stage, the Court must accept these allegations as true and construe them 

in Magna’s favor. In that light, Magna has met its burden of alleging that there is a line 

of causation between the Regulations and its alleged harm. 

Finally, because Magna has alleged that enjoining the State from enforcing the 

Regulations will redress their alleged injury, it has satisfied the third standing 

requirement. As a result, Magna has met its burden of establishing all three of the 

required elements of standing at the pleading stage. The State’s Motion to Dismiss 

Magna’s Complaint for lack of standing will therefore be denied. 

III. Rule 12(b)(6) Motion to Dismiss Count I for Failure to State a Claim 

In the alternative, the State moves to dismiss Count One, in which Magna claims 

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that the Regulations violate the Commerce Clause of the United States Constitution, for 

failure to state a claim upon which relief could be granted. 

A. Legal Standard 

To state a claim for relief under Fed. R. Civ. P. 8(a), a plaintiff must make “‘a 

short and plain statement of the claim showing that the pleader is entitled to relief,’ in 

order to ‘give the defendant fair notice of what the . . . claim is and the grounds upon 

which it rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations 

omitted). This “short and plain statement” must also be “plausible on its face.” Ashcroft 

v. Iqbal, 556 U.S. 662, 677 (2009). 

“Determining whether a complaint states a plausible claim for relief . . . [is] a 

context-specific task that requires the reviewing court to draw on its judicial experience 

and common sense.” Id. at 679. A claim is plausible if it contains “[f]actual allegations 

[sufficient] to raise a right to relief above the speculative level,” Twombly, 550 U.S. at 

555, and to permit a reasonable inference that the defendant is liable for the conduct 

alleged, Iqbal, 556 U.S. at 678. In evaluating a motion to dismiss, the Court accepts all 

of Plaintiffs’ plausible factual allegations as true and construes the pleadings in a light 

most favorable to them. Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). The 

principle that a court accepts as true all of the allegations in a complaint does not, 

however, apply to legal conclusions or conclusory factual allegations. Iqbal, 566 U.S. at 

678. “Threadbare recitals of the elements of a cause of action, supported by mere 

conclusory statements, do not suffice.” Id. Rather, the plaintiff must at least “allege 

sufficient facts to state the elements of [the relevant] claim.” Johnson v. Riverside 

Healthcare Sys., LP, 534 F.3d 1116, 1122 (9th Cir. 2008). 

B. Analysis 

The Commerce Clause provides that “Congress shall have Power . . . [t]o regulate 

Commerce with foreign Nations, and among the several States.” U.S. Const., Art. I, § 8, 

cl. 3. Although the plain text of the Constitution does not limit the power of States to 

regulate commerce, the Supreme Court has consistently interpreted the Commerce Clause 

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to have an implicit restraint on state authority. United Haulers Ass'n, Inc. v. OneidaHerkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007) (citations omitted). This 

negative aspect of the Commerce Clause has developed into a doctrine known as the 

“dormant” Commerce Clause. Id. The dormant Commerce Clause is implicated only 

when “state laws regulate an activity that has a substantial effect on interstate commerce 

such that Congress could regulate the activity.” Nat'l Ass'n of Optometrists & Opticians 

LensCrafters, Inc. v. Brown, 567 F.3d 521, 524 (9th Cir. 2009). Because of the difficulty 

of striking the optimal balance between the competing interests of legitimate local 

interests and preservation of national markets, courts undertaking a dormant Commerce 

Clause inquiry should “eschew[] formalism for a sensitive, case-by-case analysis of 

purposes and effects.” W. Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 201 (1994). 

1. Substantial Burden on Interstate Commerce 

In order to determine whether Magna can state a claim for a violation of the 

dormant Commerce Clause, the Court must first determine whether it has alleged that 

there is “a substantial burden on interstate commerce.” Nat'l Ass'n of Optometrists & 

Opticians v. Harris, 682 F.3d 1144, 1148 (9th Cir. 2012) (Harris). Magna argues that it 

has alleged that the Regulations substantially burden interstate commerce through a litany 

of interstate effects. Those alleged effects include: (1) preventing Magna from entering 

into multi-case contracts with Arizona clients; (2) preventing Magna from providing 

services in Arizona for its clients with whom Magna already has multi-case contracts; (3) 

affects the Magna’s ability to perform back-end court reporting services out of state; and 

(4) raising prices for court reporting services outside of Arizona in all cases. 

To determine whether the Regulations implicate the Commerce Clause, the Court 

must determine whether the Regulations impact “the interstate flow of goods.” Harris, 

682 F.3d at 1153. The State contends that Magna’s dormant Commerce Clause claim 

should be dismissed because Magna has not alleged that the Regulations impose a 

substantial burden on the interstate flow of goods. For the purposes of this Motion, the 

Court must accept as true all of the factual allegations Magna asserts to support its claim. 

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Magna has alleged that the Regulations eliminate its ability to work with Arizona court 

reporters to transmit drafts transcripts out of state for back-end services in Magna’s 

Philadelphia hub. Magna has also alleged that the Regulations result in price increases 

for court reporting services both in Arizona and nationwide. Magna alleges that these 

added costs result at least in part from limiting court reporters’ ability to send transcripts 

out of state for back-end services. Taking those allegations as true and construing them 

in Magna’s favor, those allegations are sufficient to allege a substantial burden on the 

flow of court reporting goods and services across state lines. The Regulations may not, 

in fact, impose a substantial burden on interstate commerce after evidence of the effects 

of Arizona’s specific regulations is presented, but those facts are not before the Court on 

this Motion. As a result, at the pleading stage, Magna has alleged sufficient facts for the 

dormant Commerce Clause to apply to its claims. 

2. Discriminatory Purpose 

Once the dormant Commerce Clause applies, to determine whether a state law 

violates it courts must first evaluate whether the law “discriminates on its face against 

interstate commerce.” United Haulers, 550 U.S. at 338 (citing American Trucking 

Assns., Inc. v. Michigan Pub. Serv. Comm’n, 545 U.S. 429, 433 (2005)). If a state law 

discriminates against interstate commerce on its face, it is subject to strict scrutiny. 

Brown, 567 F.3d at 524. Magna does not contend that the Regulations discriminate 

against interstate commerce on their face, so the Court need not evaluate the Regulations 

under strict scrutiny. 

3. Pike Balancing Test 

A non-discriminatory state law may still violate the dormant Commerce Clause, 

however, even when it is “a law directed to legitimate local concerns, with effects upon 

interstate commerce that are only incidental.” City of Philadelphia v. New Jersey, 437 

U.S. 617, 624 (1978). In that case, a law that incidentally affects interstate commerce 

will be upheld “unless the burden imposed on such commerce is clearly excessive in 

relation to the putative local benefits.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142 

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(1970). This test, known as the Pike test, is a balancing test in which “the extent of the 

burden [on interstate commerce] that will be tolerated will of course depend on the nature 

of the local interest involved, and on whether it could be promoted as well with a lesser 

impact on interstate activities.” Id. In other words, once a legitimate local purpose for a 

state law is identified, “then the question becomes one of degree.” Id. The plaintiff in a 

dormant Commerce Clause challenge “bears the burden of proof in establishing the 

excessive burden in relation to the local benefits.” Nat'l Ass'n of Optometrists & 

Opticians LensCrafters, Inc. v. Brown, 567 F.3d 521, 524 (9th Cir. 2009).

There are weighty local interests the Regulations are meant to serve, all centered 

on ensuring the prompt, effective, and impartial operation of the judicial system through 

court reporting services that are critical to that system. In order to state a claim upon 

which relief can be granted under the dormant Commerce Clause, Magna must allege 

facts sufficient to claim plausibly that the Regulations impose a burden on interstate 

commerce that is excessive in relation to those local benefits of the Regulations. 

Whether Magna has done so is a close question, because the intended benefits of the 

Regulations are plainly strong. But the dormant Commerce Clause analysis involves a 

case-by-case analysis of purposes and effects. Magna has alleged that the intended 

benefits of the Regulations are illusory and that the sole purpose behind them is 

anticompetitive animus. (Doc. 15 ¶66-90.) The Court has serious doubts about the 

credibility of those allegations, and would have been assisted in evaluating them by a 

Reply from the State. Lacking contrary assertions, however, those allegations are just 

sufficient to raise Magna’s right to relief above the speculative level. A more searching 

application of the Pike balancing test in this case would necessarily involve weighing of 

facts involving the purposes of the Regulations, the burden on interstate commerce they 

in fact create, if any, and whether other less burdensome alternatives were available. 

That balancing will be more finely calibrated once the Court has had the opportunity to 

consider actual evidence. The State’s Motion to Dismiss Count I for failure to state a 

claim will therefore be denied. 

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4. Zone of Interests 

Finally, the State contends that Count I should be dismissed because it does not 

concern interstate commerce, such that it falls outside of the zone of interests to be 

protected by the dormant Commerce Clause. According to the State, the Regulations 

concern only intrastate commerce within Arizona, because they regulate only Arizonalicensed court reporters, proceedings within Arizona, and transcripts produced for use in 

courts within Arizona. The State therefore argues that the Regulations affect only an 

intrastate market for legal transcription, and do not affect the ability of court reporters to 

sell or ship transcripts outside of Arizona. From this, the State urges the Court to 

“decline to expand the zone of interests protected by the Clause to purely intrastate 

disputes.” City of Los Angeles v. County of Kern, 581 F.3d 841, 848 (9th Cir. 2009). 

Magna has alleged, however, that the Regulations do prevent court reporters in 

Arizona from sending draft transcripts out of state for back-end services. Magna has also 

alleged that the Regulations have a variety of interstate effects discussed above. Those 

allegations are sufficient to bring this dispute outside of the purely intrastate dispute 

discussed in City of Los Angeles. Because Magna has alleged that the Regulations both 

hamper Arizona court reporters’ ability to ship draft transcripts out of state, and prevents 

Magna from sending finalized transcripts back into Arizona, in addition to a variety of 

other interstate effects, its claims are within the zone of interests protected by the 

dormant Commerce Clause. The State’s Motions will therefore be denied. 

IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss Amended 

Complaint (Doc. 18) is denied. 

 Dated this 21st day of August, 2013. 

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