Opinion ID: 404168
Heading Depth: 1
Heading Rank: 4

Heading: the validity of the prohibition of advance and guaranteed payments

Text: 19 The statutory pricing prohibition aimed at advance and guaranteed payments stands on less solid ground than the trade screening requirement and the bidding guidelines. The trade screening and bidding provisions foster disclosure of information and fair bidding procedures. Making more information available in the marketplace and increasing the regularity and orderliness of the bidding process leads presumably to more intelligent decision making. The orderly flow of accurate information tends to restrain misleading, fraudulent or otherwise unfair trade practices. The same reasoning does not support the pricing provisions. 20 Outlawing advance and guaranteed payments when box office receipts are used as a measure of payment appears to be simply a restriction on price. So far as we can tell from the present record, it rests solely on a perceived imbalance in bargaining power between distributors and exhibitors. Judge Duncan found that primarily the guarantee is ... a risk shifting device. 496 F.Supp. at 418. He did not identify any other state interest which supports these provisions. We understand this to mean that the statutory purpose is to increase the economic leverage of the exhibitors in order to redress a bargaining imbalance, or in other words, to increase the profits, or reduce the losses, of the exhibitors-who are local-at the expense of the distributors-who are from out of state. Judge Duncan found this state interest sufficient under the commerce clause, in part under the authority of New Motor Vehicle Bd. of California v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978), a case upholding as a legitimate state interest under the due process clause an effort to redress the balance of bargaining power of automobile dealers vis-a-vis the manufacturers. 21 The commerce clause analysis in Baldwin v. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032 (1935), appears to be more to the point for purposes of this case. There the Supreme Court was faced with similar pricing regulation of the milk industry in New England. In order to protect the economic welfare of its dairymen, New York enacted a system of minimum prices to be paid by dealers to producers, both in-state and out-of-state. The New York statute was drafted in such a way as to be neutral and nondiscriminatory on its face, just as is the Ohio statute, although the purpose of both was to help local interests. On the face of the two statutes, neither class involved (milk producers in Seelig, movie producers in the instant case) are treated differently depending on whether they are in or out of state. 22 In Seelig, a dealer paid less than the minimum price for milk to his Vermont producers. Justice Cardozo for a unanimous court first recognized the validity of the state's interest in the welfare of dairymen under the due process clause under the doctrine of Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940 (1934). See Seelig, 294 U.S. at 519, 55 S.Ct. at 498. Nevertheless, the Court held the pricing system invalid under the commerce clause: 23 New York asserts her power to outlaw milk so introduced by prohibiting its sale thereafter if the price that has been paid for it to the farmers of Vermont is less than would be owing in like circumstances to farmers in New York.... Such a power, if exerted, will set a barrier to traffic between one state and another as effective as if custom duties, equal to the price differential, had been laid upon the thing transported.... Impost and duties upon interstate commerce are placed beyond the power of the state, without the mention of an exception, by the provision committing commerce of that order to the power of the Congress. 24 294 U.S. 521-22, 55 S.Ct. at 499-500. 25 The Court in Seelig acknowledged that the state could regulate interstate milk for health and safety reasons and to prevent fraudulent substitution or other deceptive practices. But price security, the Court said, is not a state interest under the commerce clause equivalent to sanitary security. Id. at 523, 55 S.Ct. at 500. Making its inhabitants healthy, Justice Cardozo wrote, is different from making them rich. Id. The Court concluded: 26 (C)ommerce between the states is burdened unduly when one state regulates by indirection the prices to be paid to producers in another, in the faith that augmentation of prices will lift up the level of economic welfare.... 27 Id. at 524, 55 S.Ct. at 500. 28 The principle of Seelig appears to be that our competitive national economy is an equilibrium system of production and consumption, supply and demand, based on price; and in the absence of a strong justification, interference by the states in the pricing system to shift the balance of economic power to producers or dealers, farmers or processors, distributors or exhibitors cannot be permitted when it burdens the flow of interstate commerce. In the instant case we have been presented with no claim or finding of collusion, monopoly power, predatory pricing of similar justification-other than the economic welfare of exhibitors-for a restriction on pricing. 29 Parker v. Brown, 317 U.S. 341, 364, 63 S.Ct. 307, 320, 87 L.Ed. 315 (1943) and Exxon Corp. v. Governor of Md., 437 U.S. 117, 98 S.Ct. 2207, 57 L.Ed.2d 91 (1978) do not support a different analysis under the commerce clause. Although it is true that in Parker the California statute placed severe restrictions on the pricing of raisins, the Court found significant under the commerce clause the fact that the national government has contributed to these efforts either by its establishment of marketing programs pursuant to act of Congress or by aiding programs sponsored by the state. 317 U.S. at 365, 63 S.Ct. at 320. The negative aspect of the commerce clause does not come into play as a bar when Congress has affirmatively acted to authorize or approve the state conduct in question. In Exxon the Maryland statute preventing vertical integration of certain aspects of the gasoline business did not attempt to interfere or restrict price in the marketplace, and the purpose of the statute was not to redress an imbalance in bargaining power. 30 Thus we conclude that a state's interest in righting a bargaining imbalance, standing alone, is not sufficient under the commerce clause to permit direct interference with pricing where it burdens interstate commerce. We remand the case to the District Court for further consideration and fact finding under the test established in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970) respecting the extent of the burden on interstate commerce and the question whether any other legitimate local public interest is present to support the pricing provisions of the statute under the commerce clause. The test established in Pike v. Bruce Church, supra, is as follows: 31 Where the (challenged state) statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. Huron Cement Co. v. Detroit, 362 U.S. 440, 443. (80 S.Ct. 813, 815, 4 L.Ed.2d 852). If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden 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. 32 397 U.S. at 142, 90 S.Ct. at 847. 33 In view of our analysis, the best course to follow is to remand this aspect of the case to the District Court for further consideration. We cannot be sure on the basis of the present record whether there are other, as yet unidentified, state interests which support the pricing restriction; and we do not find in the record evidence that would allow us to assess with confidence the nature and extent of the burden imposed by the pricing restrictions.