Opinion ID: 172372
Heading Depth: 3
Heading Rank: 1

Heading: Tier One: Does the Utah Statute Discriminate Against Interstate Commerce?

Text: Utah Code Ann. § 57-1-21(1)(a)(i) plainly does not discriminate on its face. It requires each Utah attorney acting as a trust-deed trustee, whether the attorney is a resident or a nonresident, to maintain a place. Mr. Kleinsmith can still prevail, however, if he can show that the statute discriminates in practical effect. The Supreme Court has not directly spoken to the question of what showing is required to prove discriminatory effect where, as here, a statute is evenhanded on its face. Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28, 36 (1st Cir.2007). But we agree with the First Circuit that the party claiming discrimination has the burden to put on evidence of a discriminatory effect on commerce that is significantly probative, not merely colorable. Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 40 (1st Cir.2005) (internal quotation marks omitted). That party must show both how local economic actors are favored by the legislation, and how out-of-state-actors are burdened. Cherry Hill Vineyards, LLC v. Lilly, 553 F.3d 423, 432 (6th Cir. 2008) (internal quotation marks omitted). Not every benefit or burden will suffice-only one that alters the competitive balance between in-state and out-of-state firms. Baldacci, 505 F.3d at 36; see West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 196, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994) (a state law that cause[s] local goods to constitute a larger share, and goods with an out-of-state source to constitute a smaller share, of the total sales in the market is unconstitutional because it, like a tariff, neutralizes advantages belonging to the place of origin. (brackets and internal quotation marks omitted)); R & M Oil & Supply, Inc. v. Saunders, 307 F.3d 731, 734-35 (8th Cir.2002) (Illinois-based propane seller failed to present sufficient evidence that Missouri statute requiring sellers to have in-state propane-storage facility put it at competitive disadvantage); see also Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd., 462 F.3d 249, 260-70 (3d Cir.2006) (out-of-state challenger failed to show that Pennsylvania milk-pricing scheme negated its competitive advantage); cf. Granholm, 544 U.S. at 473-74, 125 S.Ct. 1885 (holding discriminatory a law that required out-of-state wine, but not in-state wine, to pass through an in-state wholesaler and retailer before reaching consumers, adding two extra layers of overhead and thus a cost differential ... [that] can effectively bar small [out-of-state] wineries from the Michigan market.). We think it instructive to see how the presentation of evidence led to opposite results in Baldacci and Lilly, which involved challenges to state laws regulating direct sales by wineries to consumers. The Maine law challenged in Baldacci allowed a small winery (a farm winery) to sell its products directly to consumers (bypassing the otherwise mandatory distribution chain through a licensed wholesaler and a licensed retailer) in face-to-face transactions on its premises and at up to two off-site locations established by the winery within Maine. See 505 F.3d at 30-31. A farm-winery license was available on equal terms to Maine and out-of-state wineries. See id. The out-of-state wineries claimed that the Maine statute discriminated against interstate commerce by preventing them from selling their wines directly to Maine consumers. See id. at 31-32. The First Circuit rejected the challengers' claim under the dormant Commerce Clause because they had proffered no evidence that permitting farm wineries to sell only face to face, either on premises or at approved in-state locations, discriminates against interstate commerce. Id. at 36. They had not produced evidence that Maine law acts to protect Maine vineyards or that Maine consumers substitute wines purchased directly from Maine vineyards for wines that they otherwise would have purchased from out-of-state producers; that any wines at all are purchased by consumers directly from Maine vineyards; or that the law somehow alters the competitive balance between in-state and out-of-state firms. Id. The court continued: [P]laintiffs have adduced no evidence that would in any way undermine the plausible impression that Maine consumers (like imbibers everywhere) view trips to a winery as a distinct experience incommensurate withand, therefore, unlikely to be replaced bya trip to either a mailbox or a retail liquor store. Nor have they offered evidence to impeach the suggestion, made in one of the cases on which they rely, that bottles of wine are unique and, thus, unlikely to be perceived by consumers as interchangeable. Id. at 37 (citation and footnote omitted). In Lilly, by contrast, the challengers (one of whom had also been a plaintiff in Baldacci ) made an evidentiary showing of the discriminatory effect of Kentucky's law permitting licensed small wineries, whether in-state or out-of-state, to ship wine directly to consumers (thus bypassing wholesalers and retailers) but only if the consumer purchased the wine in person at the winery. 553 F.3d at 427-28. The evidence showed that in Oregon, the home of Cherry Hill Vineyards, only 13 of the 300 wineries marketed their wine in Kentucky, and most of the 300 were small. See id. at 432. Because it is not economical for a wholesaler to carry the products of a small winery, many were foreclosed from the Kentucky market altogether unless they [could] take orders directly from Kentucky residents and ship wine. Id. at 433. In particular, Cherry Hills aver[red] that in order to distribute their wine through a wholesaler, they and other wineries pay up to 50% of their profits to the wholesaler, which can result in a profit differential of $10-15 per bottle of wine. Id. And some Kentucky residents stated that they would buy wines directly from out-of-state wineries but for the in-purchase requirement. Id. The court also relied on a Federal Trade Commission... report which concluded that state laws like Kentucky's, which prevent direct sales and force producers to use wholesalers, create an anticompetitive barrier to e-commerce for small wineries. Id. The Sixth Circuit concluded that Plaintiffs have presented specific evidence that meets the[ir] burden.... Plaintiffs have demonstrated that the challenged statutes discriminate against interstate commerce in practical effect. Id. Unlike the challengers in Lilly, and like the challengers in Baldacci, Mr. Kleinsmith has not presented evidence that could satisfy his burden to establish a discriminatory effect of § 57-1-21(1)(a)(i). His statement of undisputed facts in support of his motion for summary judgment fails to show how the statute has affected his ability (or the ability of nonresident attorneys generally) to compete in the Utah market. With regard to economic loss attributable to the law, he says: From 1998-2001, [my] volume [of Utah foreclosure work] was good[,] generating $50,000 plus per year in gross income. Since 2001, volume has declined.... Since 2002, volume and dollar revenue has decreased further because of the changes in Utah's statutes in question herein. Aplt. App. at 138. But the period of time he describes includes the effective dates of the two amendments to § 57-1-21(1)(a)(i) that have been stricken in prior litigation. Mr. Kleinsmith provides no insight into the effect of the May 2004 amendment whose constitutionality we must decide. In particular, he fails to say that he has so much as investigated the costs of complying with the present statutefor example, by making arrangements (perhaps with Utah clients) to maintain a place in compliance with the Utah statute. Perhaps more importantly, Mr. Kleinsmith has not shown how the 2004 law alters the competitive balance between resident and nonresident attorneys. Even if he had made a competent showing of his own economic loss attributable to the law, he would still need to show a discriminatory effect upon interstate commerce in attorney-trustee services as a whole. Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91 (1978), is instructive. The Court in that case considered a dormant Commerce Clause challenge to a Maryland statute that prohibited producers and refiners of petroleum products from operating retail service stations within the state. See id. at 119, 98 S.Ct. 2207. Among the challengers were out-of-state refiners who sold their gasoline in Maryland only through stations that they owned. See id. at 122, 98 S.Ct. 2207. They pointed to evidence that the statute would cause them to discontinue selling in Maryland. See id. at 127, 98 S.Ct. 2207. The Supreme Court was not impressed, because the fate of a single interstate business, or even a class of such businesses, was not dispositive. Maryland did not produce or refine any petroleum products. See id. at 123, 98 S.Ct. 2207. The Court said: Some refiners may choose to withdraw entirely from the Maryland market, but there is no reason to assume that their share of the entire supply will not be promptly replaced by other interstate refiners. The source of the consumers' supply may switch from company-operated stations to independent dealers, but interstate commerce is not subjected to an impermissible burden simply because an otherwise valid regulation causes some business to shift from one interstate supplier to another. Id. at 127, 98 S.Ct. 2207 (emphasis added). In language that we find applicable here, the Court explained: We cannot ... accept appellants' underlying notion that the Commerce Clause protects the particular structure or methods of operation in a retail market.... [T]he Clause protects the interstate market, not particular interstate firms, from prohibitive or burdensome regulations. Id. at 127-28, 98 S.Ct. 2207. See Brown & Williamson Tobacco Co. v. Pataki, 320 F.3d 200, 212-13 (2d Cir.2003). In light of Exxon, Mr. Kleinsmith should at least have produced evidence that the work he had performed was now being done by attorneys who are residents of Utah. Yet, he appears to claim precisely the opposite. His opening brief in our court asserts that he has lost his Utah work to a national group[] of lawyers. Aplt. Br. at 5. Accordingly, we conclude that Mr. Kleinsmith has failed to carry his burden of proving that the Utah statute is discriminatory in practical effect.