Opinion ID: 760192
Heading Depth: 2
Heading Rank: 2

Heading: Territoriality

Text: 20 As these cases indicate, the constitutionality of state regulations of interstate commerce depends largely on the territorial scope of the transaction that the state law seeks to regulate. If the transaction to be regulated occurs wholly outside the boundaries of the state, the regulation is unconstitutional. MITE Corp., 457 U.S. at 642, 102 S.Ct. 2629. If the transaction occurs within the boundaries of the state, it is constitutional so long as the regulation furthers legitimate in-state interests. See id. at 643-46, 102 S.Ct. 2629; CTS Corp., 481 U.S. at 93, 107 S.Ct. 1637. 21 Therefore, the first issue we must address is the territorial scope of the transaction that New Jersey has attempted to regulate. The question is, what is the territorial basis of a contract entered into by telephone between a New Jersey broker soliciting sales of Imatec securities from New Jersey, and an out-of-state buyer who agrees to purchase them outside of New Jersey? More particularly, can it fairly be said that such a transaction occurs wholly outside New Jersey? As this is a legal question, our review is plenary. See Ciarlante v. Brown & Williamson Tobacco Corp., 143 F.3d 139, 145 (3d Cir.1998). 22 Goldmen and the Bureau offer divergent views of § 60's territorial scope. Goldmen argues that § 60 permits New Jersey to reach out beyond its borders and block willing buyers from completing transactions authorized by their home states. According to Goldmen, the effects of the Bureau's application of Section 60 is not to regulate instate brokers, but to preclude out-of-state residents from purchasing a product deemed appropriate for sale by their own regulators. Br. at 20. Goldmen suggests that the offer's origin in New Jersey is not relevant to the transaction's territoriality, because the 'practical effect' of permitting New Jersey to bar the sale of securities from New Jersey into states where those securities have been qualified for sale is that those out-of-state residents will be precluded altogether from receiving the opportunity to purchase these securities. Id. at 16. 23 The Bureau's position is that § 60 regulates the offering of securities entirely within the state of New Jersey. According to the Bureau, 24 Section 60 simply regulates how brokers located in New Jersey conduct business from their New Jersey offices. In this instance, these were Imatec securities ... offered for sale by the underwriter through solicitations of the public from New Jersey. The offer and sale arose in New Jersey. Goldmen chose to domicile its highly-regulated business in New Jersey and to conduct that business from within the State. 25 Br. at 27. 12 The Bureau concedes that § 60 may affect interstate commerce, to the extent that sellers such as Goldmen try to sell securities to buyers in other states. However, the Bureau contends that this is merely an indirect effect of what is essentially New Jersey's regulation of New Jersey parties seeking to sell securities in New Jersey. 26 In resolving this question, we begin by noting that notions of the territorial scope of contracts between citizens of different states have evolved in the past century. At one time, it was fashionable to conceive of contracts between diverse parties as being rooted in a single geographical location, such as the place the offer was accepted. See, e.g., Joseph H. Beale, What Law Governs Validity of a Contract, 23 Harv. L.Rev. 260, 270-71 (1910). Under this traditional approach, it was believed that when a contract offer made in New Jersey was accepted in New York, the contract was made in New York, and thus implicated New York's sovereignty. See id; cf. Perrin v. Pearlstein, 314 F.2d 863, 867 (2d Cir.1963). 27 The contrasting modern approach is to recognize that contracts formed between citizens in different states implicate the regulatory interests of both states. Thus, when an offer is made in one state and accepted in another, we now recognize that elements of the transaction have occurred in each state, and that both states have an interest in regulating the terms and performance of the contract. See, e.g., General Ceramics Inc. v. Firemen's Fund Ins. Co., 66 F.3d 647, 656-59 (3d Cir.1995) (comparing the regulatory interests of New Jersey and Pennsylvania to a contract formed between a New Jersey company and a Pennsylvania company in the course of determining applicable law). See generally Joseph W. Singer, A Pragmatic Guide to Conflicts, 70 B.U. L.Rev. 731, 785-802 (1990) (describing the regulatory interests of states in contract disputes between diverse parties). 28 This notion that the sovereignty of both the state of the offeror and offeree are implicated by contracts entered into by citizens in different states is the key to understanding the territorial scope of the contract between Goldmen and the prospective buyers of Imatec in another state such as New York. A contract between Goldmen in New Jersey and a buyer in New York does not occur wholly outside New Jersey, just as it does not occur wholly outside New York. Rather, elements of the transaction occur in each state, and each state has an interest in regulating the aspect of the transaction that occurs within its boundaries. 13 29 Accordingly, § 60 simply allows the Bureau to regulate its half of the transaction--the offer that occurs entirely within the state of New Jersey--and thus its territorial scope is indistinguishable from that in Hall v. Geiger-Jones Co., 242 U.S. 539, 37 S.Ct. 217, 61 L.Ed. 480 (1917), Caldwell v. Sioux Falls Stock Yards Co., 242 U.S. 559, 37 S.Ct. 224, 61 L.Ed. 493 (1917) and Merrick v. N.W. Halsey & Co., 242 U.S. 568, 37 S.Ct. 227, 61 L.Ed. 498 (1917). 30 Viewed in this light, Goldmen's view that § 60 violates the dormant commerce clause because it projects its ban into jurisdictions that would allow the transaction is logically flawed and simply proves too much. If New Jersey seeks to block Goldmen's offering but the buyer's state (say, New York) would allow it, one state must prevail. One state can in effect force its judgment upon the other. Under New Jersey's Blue Sky law, New Jersey can block the transaction even if New York would permit it. 31 Goldmen's alternative is no better, however: under its view of the dormant commerce clause, New York's approval would permit the transaction, over New Jersey's objection. Thus, the difference between New Jersey's Blue Sky law and Goldmen's proposal is simply the market's default rule: should the transaction be allowed if either state permits, or blocked if either side objects? Such questions of the market's structure and its method of operation are quite simply beyond the concern of the Commerce Clause, as they relate to the wisdom of the statute, not to its burden on commerce. Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 127-28, 98 S.Ct. 2207, 57 L.Ed.2d 91 (1978).