Opinion ID: 3051621
Heading Depth: 3
Heading Rank: 3

Heading: Privileges and Immunities Clause of Article IV

Text: As noted, the Privileges and Immunities Clause of Article IV provides that the “Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.” “While the Privileges and Immunities Clause cites the term ‘Citizens,’ for analytic purposes citizenship and residency are essentially interchangeable.” Supreme Court of Virginia v. Friedman, 487 U.S. 59, 64 (1988). The primary purpose of the Privileges and Immunities Clause “was to help fuse into one Nation a collection of independent, sovereign States.” Toomer, 334 U.S. at 395. The clause “was intended to create a national economic union,” Supreme Court of New Hampshire v. Piper, 470 U.S. 274, 280 (1985), and “was designed to place the citizens of each State upon the same footing with citizens of other States, so far as the advantages resulting from citizenship in those States are concerned.” Friedman, 487 U.S. at 64 (internal quotations omitted); Toomer, 334 U.S. at 395. [7] “Like many other constitutional provisions, the privileges and immunities clause is not an absolute.” Id. at 396. While it bars “discrimination against citizens of other States where there is no substantial reason for the discrimination COUNCIL OF INS. AGENTS v. MOLASKY-ARMAN 3717 beyond the mere fact that they are citizens of other States . . . it does not preclude disparity of treatment in the many situations where there are perfectly valid independent reasons for it.” Id. Therefore, we examine claims that a residency classification offends the Privileges and Immunities Clause using a two-step inquiry. First, we decide whether the activity in question is “sufficiently basic to the livelihood of the nation . . . as to fall within the purview of the Privileges and Immunities Clause.” Friedman, 487 U.S. at 64 (citations and internal quotation marks omitted). “Second, if the challenged restriction deprives nonresidents of a protected privilege, we will invalidate it only if we conclude that the restriction is not closely related to the advancement of a substantial state interest.” Id. at 65 (citation omitted). [8] In the first step of our inquiry, it is “[o]nly with respect to those ‘privileges’ and ‘immunities’ bearing upon the vitality of the Nation as a single entity must the State treat all citizens, resident and nonresident, equally.” Baldwin v. Fish and Game Comm’n of Montana, 436 U.S. 371, 383 (1978). As the court noted in Silver, There can be no doubt that insurance and occupa- tions in the insurance industry are important to the national economy. Consequently, the ability of a citizen of one state to act as an insurance [agent or broker] in another state must be considered a fundamental right or privilege protected by the privileges and immunities clause. 760 F.2d at 36. Therefore, the ability of licensed nonresident agents and brokers to ply their trade in Nevada on substantially equal terms with resident agents falls within the purview of the Privileges and Immunities Clause. Section 680A.300 deprives licensed nonresident agents and brokers of this privilege by precluding them from finalizing insurance contracts without the countersignature of a resident agent, thereby satisfying the first step of our inquiry. 3718 COUNCIL OF INS. AGENTS v. MOLASKY-ARMAN [9] In the second step of our inquiry, we ask whether section 680A.300 is “closely related to the advancement of a substantial state interest.” Friedman, 487 U.S. at 64. A “substantial reason” for discrimination does not exist “unless there is something to indicate that non-citizens constitute a peculiar source of the evil at which the statute is aimed.” Toomer, 334 U.S. at 398. The Commissioner states that section 680A.300 protects Nevada’s consumers and that Nevada benefits by having a record of all transactions so that it can collect its premium tax. According to the Commissioner, section 680A.300 protects Nevada’s consumers by providing a local point of contact for policyholders, by providing a local agent that can offer advice on coverage issues, by providing a local agent to assist in the claims process, by protecting Nevada residents from unqualified or unlicensed insurance agents, and by giving consumers greater assurance that they will receive reputable and qualified services. However, as the Commissioner’s contentions are not supported by the record, there is no support for a conclusion that licensed nonresident agents and brokers are a “peculiar source of evil” to either Nevada’s consumers or its tax collection efforts; therefore, Nevada does not have a substantial reason to discriminate against them. See Toomer, 334 U.S. at 398. However, even assuming that licensed nonresident agents and brokers were a “peculiar source of evil,” section 680A.300 also fails to survive the second step of our inquiry because it is not closely related to either consumer protection or tax collection. [10] Section 680A.300 is not closely related to providing a “local” point of contact for the policyholder as a source of advice on coverage issues and to assist in the claims process. See Barnard v. Thorstenn, 489 U.S. 546, 553-554 (1989) (geographic isolation insufficient to justify discrimination against nonresidents); Council of Insurance Agents + Brokers v. Gallagher, 287 F. Supp. 2d 1302, 1312-13 (N.D. Fla. 2003) (same). The court confronted a similar argument in Gallagher, where Florida’s Commissioner of Insurance sought to uphold the state’s countersignature statute against a Privileges COUNCIL OF INS. AGENTS v. MOLASKY-ARMAN 3719 and Immunities Clause challenge. Id. As the Gallagher court noted, “the notion that an agent cannot provide assistance outside his home state is nonsense; whatever may have been said when people traveled by horseback and communicated by regular mail, today people communicate by telephone and facsimile and e-mail and overnight courier . . . ; state boundaries pose no obstacle.” Id. at 1312; Council of Ins. Agents & Brokers v. Juarbe-Jimenez, 363 F. Supp. 2d 47, 55 (D.P.R. 2005), aff’d on other grounds, 443 F.3d 103 (1st Cir. 2006). Here, too, just as in Gallagher, section 680A.300’s disparate treatment of licensed nonresident agents and brokers is also over-inclusive. Id. at 1312-13. For example, section 680A.300 allows a “local” resident agent in Las Vegas, Nevada, to finalize an insurance contract with a consumer more than 400 miles away in Stateline, Nevada, while allowing a licensed nonresident agent or broker in South Lake Tahoe, California, to negotiate, but not finalize, that same contract with the consumer, even though the licensed nonresident agent/broker and consumer may be separated by nothing more than the Nevada-California state line. Id. This contradicts the Commissioner’s argument that section 680A.300 allows Nevada’s consumers to walk right into the office of the “local” countersigning resident agent with policy questions and concerns. Not only is the Commissioner’s argument not supported by the record before us, it also flies in the face of all notions of modern business practices and commerce. “[E]recting a fence at the [Nevada] border does nothing to promote geographic proximity.” Id. Therefore, section 680A.300 is not closely related to providing Nevada consumers with a “local” point of contact to provide advice and assist with claims. Furthermore, section 680A.300 is neither closely related to protecting Nevada consumers from unqualified and unlicensed agents, nor assuring consumers that they will receive reputable and qualified services. In conformity with the wellestablished principle that residency does not equate with professional competence, nonresident producers of insurance (that are licensed for the same lines of authority in another 3720 COUNCIL OF INS. AGENTS v. MOLASKY-ARMAN state) are exempt from completing both the state’s education and written examination requirements, and becoming resident agents if they move to Nevada. See Thorstenn, 489 U.S. at 555; Piper, 470 U.S. 285 (“Nor may we assume that a nonresident lawyer-any more than a resident-would disserve his clients by failing to familiarize himself with the rules.”); Nev. Rev. Stat. §§ 683A.241, 683A.291. There is no evidence in the record that licensed nonresident agents and brokers are inherently less trustworthy or less competent insurance professionals than Nevada’s resident agents. See Silver, 760 F.2d at 38-39. In fact, Nevada’s statutory exemption directly contradicts both that notion and the Commissioner’s arguments that licensed nonresident agents and brokers are any less qualified than resident agents, and that consumers need any assurance of their qualifications. Therefore, section 680A.300 is not closely related to protecting Nevada’s consumers from unqualified insurance agents and brokers. Admittedly, Nevada has a valid interest in protecting its consumers from unlicensed agents. See Nev. Rev. Stat. § 683A.201 (“A person shall not sell, solicit or negotiate insurance in this state for any class of insurance unless he is licensed for that class of insurance.”). However, here, the plaintiffs challenge the constitutionality of section 680A.300 because of its treatment of licensed nonresident agents and brokers, not unlicensed persons. Therefore, section 680A.300 is not closely related to protecting consumers from unlicensed agents. [11] Finally, the Commissioner states that Nevada benefits by having a record of all transactions so that it can collect its premium tax. While Nev. Admin. Code § 680A.410 requires countersigning agents to “maintain complete records of countersignature transactions, including daily reports, correspondence, names of nonresident agents and brokers who wrote the policies, and evidence of fees and commissions charged,” there is no indication in the record that the Commissioner cannot obtain any information needed by Nevada to collect its COUNCIL OF INS. AGENTS v. MOLASKY-ARMAN 3721 premium tax from licensed nonresident agents and brokers in the first instance. Therefore, it appears that the Commissioner already has a less restrictive means of obtaining that information. As the Piper Court noted, “[i]n deciding whether the discrimination bears a close or substantial relationship to the State’s objective, [we consider] the availability of less restrictive means.” 470 U.S. at 284; see also Viken, 408 F. Supp. 2d at 844 (noting less restrictive means available to advance South Dakota’s goals). Here, obtaining records directly from nonresident agents and brokers is less restrictive than requiring them to obtain the countersignature of a resident agent who must then maintain the same transaction records under section 680A.410. The Commissioner has direct control over licensed nonresident agents and brokers, as Nev. Rev. Stat. § 683A.281 requires every nonresident producer of insurance to “appoint the commissioner in writing as his attorney upon whom may be served all legal process,” to agree “to appear before the commissioner pursuant to notice of hearing, show cause order or subpoena issued by the commissioner,” and allows the commissioner to impose penalties on the licensee if he fails to appear. Again, modern technology and business practices make records in the possession of nonresident agents and brokers just as accessible as records in the possession of resident agents. Therefore, section 680A.300 is not closely related to the collection of Nevada’s premium tax. [12] In sum, section 680A.300 is unconstitutional under the Privileges and Immunities Clause because it discriminates “against citizens of other States where there is no substantial reason for the discrimination beyond the mere fact that they are citizens of other States . . . .” Toomer, 334 U.S. at 396. Having concluded that section 680A.300 violates the Privileges and Immunities Clause, we don’t consider the plaintiffs’ alternative argument under the Equal Protection Clause of the Fourteenth Amendment. Id. at 403 (after concluding statute violated the privileges and immunities clause the Court did not consider an equal protection argument); Friedman, 487 U.S. at 63 n. (same). 3722 COUNCIL OF INS. AGENTS v. MOLASKY-ARMAN