Direct Marketing Association, The v. Huber
MOTION to Dismiss 10 Plaintiff's First Amended Complaint by Defendant Roxy Huber. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(McGovern, Karen) Modified on 8/2/2010 to create linkage (sah2, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 10-cv-01546-REB-CBS
THE DIRECT MARKETING ASSOCIATION,
ROXY HUBER, in her capacity as Executive Director,
COLORADO DEPARTMENT OF REVENUE,
DEFENDANT’S MOTION TO DISMISS PLAINTIFF’S FIRST AMENDED COMPLAINT
Defendant, Roxy Huber, in her official capacity as the Executive Director of the
Colorado Department of Revenue moves to dismiss the First Amended Complaint filed
by Plaintiff, Direct Marketing Association (DMA), pursuant to Federal Rules of Civil
Procedure 12(b)(1) and 12(b)(6).
Pursuant to REB Civ. Practice Standard V.I.1, undersigned counsel has read and
complied with the governing Practice Standards of this Court. Pursuant to REB Civ.
Practice Standard V.I.3, undersigned counsel conferred with DMA’s counsel regarding
the grounds for dismissal of the complaint. DMA then filed a First Amended Complaint.
DMA brings suit challenging a new Colorado statute, HB 10-1193 (“the Act”).
Exh. A., Colo. Rev. Stat. § 39-21-112 (2010). 1 The Act applies to all retailers or vendors
who sell goods to Colorado consumers and whose gross sales meet or exceed
$100,000 annually to Colorado consumers.
Exh. A., Colo. Rev. Stat. § 39-21-
112(3.5)(b). Retailers with less than $100,000 in gross sales are considered de minimis
and are not subject to the Act. Exh. B., 1 CCR 201-1, Reg. 39-21-112.3.5(1)(a)(iii).
Retailers who do not otherwise collect sales tax must inform Colorado
purchasers at the time of the purchase that although sales tax is not being charged, the
purchase is subject to Colorado’s use tax.
Exh. A., Colo. Rev. Stat. § 39-21-
112(3.5)(c)(I); Exh. B., 1 CCR 201-1, Reg. 39-21-112.3.5(2). At the end of the year,
retailers must send customers an annual report of the total amount spent, reminding
purchasers that they must pay use tax on the goods. Exh. A., Colo. Rev. Stat. § 39-21112(3.5)(d)(I)(A); Exh. B.,1 CCR 201-1, Reg. 39-21-112.3.5(3). Retailers also must
make an annual report to the Colorado Department of Revenue (“Department”) detailing
Colorado residents’ names, addresses, and the total amount of goods they purchased.
Exh. A., Colo. Rev. Stat. § 39-21-112(3.5)(d)(II)(A); Exh. B.,1 CCR 201-1, Reg. 39-21112.3.5(4). The annual report to customers and the Department covers only those
customers who purchased at least $500 of goods in the prior calendar year. Exh. B., 1
Consideration of the Act does not convert this motion to one for summary judgment.
When a party challenges subject-matter jurisdiction, the Court has “wide discretion” to
review additional documents to resolve disputed jurisdictional facts. See, e.g., Davis v.
United States, 343 F.3d 1282, 1296 (10th Cir. 2003). On a motion to dismiss, the Court
may consider a document “central to the plaintiff's claim and referred to in the
complaint” without converting the motion into one for summary judgment. Utah Gospel
Mission v. Salt Lake City Corp., 425 F.3d 1249, 1253 -1254 (10th Cir. 2005).
CCR 201-1, Reg. 39-21-112.3.5(3)(c) and (4)(d).
Retailers are prohibited from
revealing any information about the actual good purchased; the annual report to the
Department may include only taxpayers’ names, addresses, and total amounts spent.
Exh. B., Reg. 39-21-112.3.5(4)(a)(IV).
The Department is under a statutory mandate to keep all personal and tax
information collected pursuant to Article 21 of Title 39 of the Colorado Revised Statutes
strictly confidential. Colo. Rev. Stat. § 39-21-113(4)(a).
INTRODUCTION, STANDARDS OF REVIEW, AND BURDEN OF PROOF
Plaintiff brings suit asserting that the Act violates the United States and Colorado
Constitutions, both facially and as applied. Specifically, Plaintiff contends that the Act
violates the Commerce Clause, that the Act violates consumers’ rights of privacy, that it
violates the First Amendment rights of retailers and consumers, that it deprives retailers
of property without due process under the Fourteenth Amendment, and that the Act
constitutes a taking of property in violation of the Fifth and Fourteenth Amendments.
Defendant moves to dismiss each of Plaintiff’s claims under both Rule 12(b)(1)
and Rule 12(b)(6). First, all of Plaintiff’s claims are subject to dismissal under Rule
12(b)(1) because Plaintiff does not have standing to bring the claims. Plaintiff neither
satisfies the test for associational standing nor does the doctrine of jus tertii standing
apply in these circumstances.
Second, Plaintiff’s claims of violation of the Colorado Constitution must be
dismissed because those claims run afoul of the Eleventh Amendment and because
they are not properly pleaded under § 1983. Further, as detailed infra, supplemental
jurisdiction may not be exercised over claims that are barred by the Eleventh
Third, Plaintiff’s individual claims for relief fail to state a claim and should be
dismissed under Rule 12(b)(6). The violations of privacy and free speech alleged by
Plaintiff have not been recognized by courts and do not plausibly state an injury.
Plaintiff’s alleged violations of the Fifth and Fourteenth Amendment similarly fail to state
A motion to dismiss under Rule 12(b)(1) challenges a court’s subject matter
jurisdiction over the action, regardless of the sufficiency of the allegations in the
KVOS, Inc., v. Associated Press, 299 U.S. 269, 277-78 (1936).
jurisdiction of the federal courts is limited, and there is a general presumption against
jurisdiction. Merida Delgado v. Gonzales, 428 F.3d 916, 919 (10th Cir. 2005); Marcus v.
Kan. Dep’t of Revenue, 170 F.3d 1305, 1309 (10th Cir. 1999). Accordingly, the burden
of proof on a Rule 12(b)(1) motion is on the party asserting jurisdiction.
Delgado, 428 F.3d at 919. A court without jurisdiction cannot render judgment, and it
must dismiss the cause of action when at any time it is discovered that jurisdiction is
deficient. Fed. R. Civ. P. 12(h)(3); Basso v. Utah Power & Light Co., 495 F.2d 906, 909
(10th Cir. 1974).
A motion to dismiss under Rule 12(b)(6) challenges whether a complaint is
legally sufficient to state a claim for which relief may be granted. Dubbs v. Head Start,
Inc., 336 F.3d 1194, 1201 (10th Cir. 2003). When considering a motion to dismiss for
failure to state a claim, well-pleaded factual allegations are accepted as true and
construed in the light most favorable to Plaintiff. Alvarado v. KOB-TV, L.L.C., 493 F.3d
1210, 1215 (10th Cir. 2007). A complaint, however, must include enough facts to state
a claim that is plausible on its face. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
“‘Plausibility’ in this context must refer to the scope of the allegations in a
complaint: “the mere metaphysical possibility that some plaintiff could prove some set of
facts in support of the pleaded claims is insufficient; the complaint must give the court
reason to believe that this plaintiff has a reasonable likelihood of mustering factual
support for these claims.” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177
(10th Cir. 2007) (emphases in original). Conclusory statements that recite the elements
of a cause of action are not sufficient to survive a motion to dismiss. Ashcroft v. Iqbal,
___ U.S. ___, 129 S.Ct. 1937, 1950 (2009) (noting that the Rules of Federal Procedure
do not “unlock the doors of discovery for a plaintiff armed with nothing more than
conclusions.”). “The allegations must be enough that, if assumed to be true, the plaintiff
plausibly (not just speculatively) has a claim for relief.” Robbins v. Okla., 519 F.3d
1242, 1247 (10th Cir. 2008).
Finally, because DMA is challenging the constitutionality of the Act, it bears a
heavy burden throughout the proceedings.
To demonstrate that the Act is facially
unconstitutional, DMA must show “that no set of circumstances exists under which [the
Act] would be valid,” United States v. Stevens, ___U.S. ___,103 S.Ct 1577,1587 (2010);
West v. Derby Unified Sch. Dist. No. 260, 206 F.3d 1358,1367 (10th Cir. 2000) (both
cases quoting United States v. Salerno, 481 U.S. 739, 745 (1987)), or that the statute
lacks any “plainly legitimate sweep.” Stevens, 103 S.Ct. at 1587 (quoting Washington v.
Glucksberg, 521 U.S. 702, 740 (1997)). 2 This burden has been described as “ the most
difficult challenge to mount successfully.” Derby, 206 F.3d at 1367 (quoting Salerno,
481 U.S.at 745). To demonstrate that the Act is unconstitutional as applied, DMA must
establish beyond a reasonable doubt that the Act as applied to its particular situation is
unconstitutional. United States v. Platte, 401 F.3d 1176, 1189 (10th Cir. 2005).
respect to the allegations in the First Amended Complaint, DMA cannot meet these
DMA LACKS STANDING TO BRING THIS SUIT.
In order to claim violation of a constitutional right, Plaintiff must have standing.
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Plaintiff must demonstrate: 1)
actual injury to the plaintiff; 2) a causal relationship between the injury and the
challenged actions; and 3) redressability of the injury through a favorable decision from
the court. Byers v. City of Albuquerque, 150 F.3d 1271, 1274 (10th Cir. 1998) (citing
Ne. Fla. Chapter of Assoc. Gen. Contractors of Am. v. City of Jacksonville, 508 U.S.
656, 663-64 (1993)). Standing under federal law is comprised of two criteria - one
constitutional and one subconstitutional, or "prudential." See Elk Grove Unified Sch.
Dist. v. Newdow, 542 U.S. 1, 11 (2004); Pitt News v. Fisher, 215 F.3d 354, 359 (3rd Cir.
2000). The constitutional criterion is a limit on the jurisdiction, and the prudential is a
limit on its exercise. Kowalski v. Tesmer, 543 U.S. 125, 128 (2004).
The only exception to this rule, which is not “casually employed,” is First Amendment
challenges to laws based on overbreadth. Derby, 206 F.3d at 1367 (quoting Los
Angeles Police Dept. v. United Reporting Publ’g., 528 U.S. 32, 38 (1999)). As
discussed, infra, DMA does not sufficiently allege First Amendment overbreadth.
Standing “is considered a component of subject-matter jurisdiction and analyzed
under Fed.R.Civ.P. 12(b)(1).” Cascade Fund, LLLP v. Absolute Capital Mgmt. Holdings
Ltd., --- F. Supp. 2d ---, 2010 WL 1380389, at *3 (D. Colo. Mar. 31, 2010). DMA bears
the burden of proving subject matter jurisdiction, including the burden to show standing.
Id.; see also Day v. Bond, 500 F.3d 1127, 1132 (10th Cir. 2007). Issues of standing
must be resolved before proceeding to the merits of a case. Lance v. Coffman, 549
U.S. 437, 439 (2007).
This Court does not have subject matter jurisdiction over any of Plaintiff’s claims.
DMA has not asserted that it has standing to sue on its own behalf. For those claims it
raises on behalf of its members, DMA has not demonstrated the elements required for
standing of an association.
For those claims it brings on behalf of its members'
customers, DMA has not demonstrated the elements necessary for jus tertii, or third
DMA Lacks Standing as an Association to Sue on
Behalf of its Members.
DMA contends on behalf of its member-retailers that the Act violates the
Commerce Clause (Counts I and II), the First Amendment (Count V and VI), the Due
Process Clause of the Fourteenth Amendment (Count VII), and that the Act is a taking
of private property in violation of the Fifth and Fourteenth Amendments (Count VIII). As
an association, DMA does not have standing to bring these claims.
To meet the requirements for association standing, DMA must show: "(a) its
members would otherwise have standing to sue in their own right; (b) the interests it
seeks to protect are germane to the organization's purpose; and (c) neither the claim
asserted nor the relief requested requires the participation of individual members in the
lawsuit." Hunt v. Wash. State Apple Adver. Comm'n, 432 U.S. 333, 343 (1977).
Furthermore, to demonstrate injury in fact, DMA must show that the injury to its
members is concrete and particularized and actual or imminent, as opposed to
conjectural or hypothetical. Lujan, 504 U.S. at 560-61. The injury also must affect the
members in a personal and individual way. Id.
In Hunt, the challenged statute affected every member of the association. Hunt
432 U.S. at 343. Courts otherwise have required plaintiffs to identify members suffering
injury. Nat’l Collegiate Athletic Ass'n v. Califano, 622 F.2d 1382, 1392 (10th Cir. 1980)
(holding that an association “must prove facts conferring standing with respect to at
least one of its members.”); Coal. for Icann Transparency Inc. v. Verisign, Inc., 464 F.
Supp. 2d 948, 956 (N.D. Cal. 2006) (denying motion to dismiss where the complaint
identified by name member of the association who would suffer injury); see also Cal.
Bankers Ass’n v. Schultz, 416 U.S. 21, 44 (1974) (expressing doubt of association's
standing to bring suit on behalf of its members without sufficient allegations of ability to
represent members' interests).
In this case, DMA has not shown that its members would have standing on their
DMA similarly fails to sufficiently allege an injury in fact or that a favorable
decision will redress any injury other than a speculative one. The Act does not affect
retailers with Colorado gross sales of less than $100,000 per year. The First Amended
Complaint fails to plausibly allege that its members meet this threshold. Rather, DMA
vaguely asserts only that “many” of its unnamed 3,000 plus members meet the
threshold amount. First Amend. Compl., ¶¶ 24, 37, and 47.
The First Amended
Complaint does not identify any particular retailer-members that meet the threshold who
would suffer injury. The complaint does not even specify how many retailer-members
would be affected.
See, e.g., First Amend. Compl., ¶ 7 (generically alleging that
“hundreds” of retailers are “purportedly” subject to the reporting requirements). Only
those retailer-members meeting the gross sales threshold could suffer an injury and sue
in their own right. Without the participation of members with at least $100,000.00 in
Colorado sales, DMA does not have standing.
Additionally, as further detailed infra, Plaintiff’s failure to state a claim of a
constitutional violation endangers its standing. For example, Plaintiff alleges a taking of
property without due process of law in violation of the Fourteenth and Fifth Amendments
(Counts VII and VIII). DMA, however, does not establish that its retailer-members’
customer lists are proprietary trade secrets in which members have made a substantial
investment and have a protected property right. If the customer lists are not protected
trade secrets, DMA has no standing because the members would not have standing to
sue in their own right.
Finally, DMA has not demonstrated standing as to its claims of a deprivation or
taking of private property (Counts VII and VIII) because the alleged injury is not actual
or imminent, and thus, the claims are not ripe for adjudication. 3 See Lujan, 504 U.S. at
A ripeness inquiry focuses on whether the harm alleged has matured
sufficiently to warrant judicial intervention. The ripeness doctrine addresses a timing
"Although standing and ripeness are analytically distinct concepts, they overlap
substantially, and especially where the issue is whether the plaintiff has sustained an
injury-in-fact, "the issues of standing and ripeness are difficult to divorce.'" Bristol Co.
P’ship. v. Bosch Rexroth Inc., No 06-cv-00011(REB-CBS), 2006 WL 1050109 at *2 (D.
Colo. April 20, 2006) (internal citation omitted).
question - when it is appropriate for a court to take up an asserted claim. Kan. Judicial
Review v. Stout, 519 F.3d 1107, 1116 (10th Cir. 2008) (citations omitted). "A claim is
not ripe for adjudication if it rests upon contingent future events that may not occur as
anticipated or may not occur at all." Bristol Co. P’ship., at *2 (quoting Texas v. United
States, 523 U.S. 296 (1998)).
Here, the Act requires retailers to prepare an annual report listing Plaintiff's
members' Colorado customers. This is not a taking of property under the Due Process
or Takings Clauses. As further detailed infra, the Department is precluded from
disclosing the information contained in the annual reports. Even if information from the
annual reports ever were inadvertently disclosed, Colorado law provides a process for
the payment of just compensation. As a result, Plaintiff has not alleged a violation of the
Takings Clause that is ripe for review. Plaintiff's claims of a taking of private property
would not be ripe until a taking occurred and just compensation was denied.
DMA Lacks Jus Tertii Standing to Sue on Behalf
of its Members’ Customers.
DMA further asserts standing to sue on behalf of its retailer-members’ customers
under the jus tertii doctrine for violation of customers’ privacy rights (Counts III and IV)
and violation of customers’ free speech rights (Count V and IV).
Generally, a plaintiff must assert its own legal rights and interests and cannot rest
a claim for relief on the legal interests or rights of third parties. Warth v. Seldin, 422
U.S. 490, 499 (1975); Aid For Women v. Foulston, 441 F.3d 1101, 1111 (10th Cir.
2006). This principle is a prudential, as opposed to constitutional, limitation on standing.
See Kowalski, 543 U.S. at 128. The rule, however, is not absolute, and under the
doctrine of jus tertii, standing, a plaintiff may assert the rights of others not before the
court. Aid For Women, 441 F.3d at 1111.
Under the doctrine of jus tertii standing, a plaintiff may invoke the rights of a third
party if it can make two additional showings: 1) that it has a close relationship with the
person who possess the right allegedly abridged; and 2) that there is a hindrance to the
possessor's ability to protect his own interests. Id. at 1111-12 (citing Kowalski, 543 U.S.
at 130). The plaintiff itself also must have an injury in fact itself, satisfying the
constitutional requirement for standing. Sec’y of State v. Joseph H. Munson Co., 467
U.S. 947, 954-55 (1984); Craig v. Boren 429 U.S. 190, 194 (1976).
Assertions of jus tertii standing generally arise in two contexts: 1) claims where
enforcement of a restriction against a litigant prevents a third party from entering into a
relationship with the litigant to which the third party has a constitutional entitlement, and
2) First Amendment challenges to a statute or regulation based on overbreadth. Cole v.
Orville Union High Sch. Dist., 228 F.3d 1092, 1099, n.3 (9th Cir. 2000); Note, Standing
to Assert Constitutional Jus Tertii, 88 Harv. L. Rev. 423, 423-24 (1974); see also Craig,
429 U.S. at 195 n.4. In both circumstances, injury to the plaintiff is required (case or
controversy standing), as well as a constitutional right in or constitutional injury to the
third party. Cole at 1099. 4
Plaintiff alleges jus tertii standing, claiming that the challenged statute affects
customers’ rights to purchase from its retailer-members. Although facial overbreadth of
the statute and regulations is not specifically alleged, that claim may be implied by
DMA’s assertions of consumers’ First Amendment rights. See First Amend. Compl. ¶¶
5, 110, 112, and 114. Therefore, standing to raise both types of third party claims will be
DMA has not alleged a sufficiently close
relationship with its members’ potential
The first requirement of jus tertii standing is that an established close relationship
exists between the plaintiff and the third party. The purpose of the close relationship
requirement is to assure appropriate adversarial litigation. The litigating party must
operate fully or as nearly as effectively as a proponent of the potential plaintiff's rights as
the plaintiff himself. Aid for Women, at 1112 (citing Joseph H. Munson, Co., 467 U.S.
at 956). The jus tertii plaintiff must be reasonably expected to frame the issues and
present them with the necessary adversarial zeal. Joseph H. Munson, Co., 467 U.S. at
No bright line test defines a close relationship. Most courts have required either
a contractual relationship or a desire or right of the non-party to enter into a contractual
relationship with the plaintiff. See, e.g., Totes-Isotoner Corp. v. United States, 594 F.3d
1346, 1352 (Fed. Cir. 2010); Reese Bros. v. United States Postal Serv., 531 F. Supp.
2d 64, 65 (D.D.C. 2008). For example, in Craig v. Boren, 429 U.S. 190 (1976), the
Court held that a beer vendor had standing on behalf of 18-20 year-old males to
challenge a statute on equal protection grounds when the statute permitted purchase of
3.2% beer by 18-20 year-old females but denied males of the same age that right. Id. at
194-197. The Court reasoned that the threatened imposition of government sanctions
might deter the vendor and others similarly situated from selling the 3.2% beer to males,
thus ensuring that enforcement of the challenged restriction against the vendor would
result indirectly in the violation of the third part 18-20 year old males' rights. The Court
stated, "vendors and those in like positions have been uniformly permitted to resist
efforts at restricting their operations by acting as advocates of the rights of third parties
who seek access to their market or function." Id. at 195.
Following Craig, the Supreme Court explicitly stated, “[w]hen, however,
enforcement of a restriction against the litigant prevents a third party from entering into
a relationship with the litigant (typically a contractual relationship) to which the third
party has a legal entitlement (typically a constitutional entitlement), third party standing
has been held to exist.” United States v. Triplett, 494 U.S. 715, 721 (1990) (permitting
attorney to challenge constitutionality of a statute on grounds that existing client’s due
process rights would be deprived) (citing Joseph H. Munson, Co., 467 U.S. at 954958).
Here, DMA has not established a close relationship with its members’ customers
to demonstrate jus tertii standing. First, the relationship is too attenuated. DMA does
not allege, nor could it, that it has a contractual or otherwise close relationship with its
members’ customers. Rather, the First Amended Complaint asserts that DMA is “the
leading trade association of businesses and nonprofit organizations using and
supporting multichannel marketing methods…”
First Amend. Compl., ¶2.
DMA’s member-retailers market their products to consumers. Id. The First Amended
Complaint does not allege that any customers have, desire to have, or have a right to, a
contractual relationship with DMA.
Moreover, Triplett and other cases have turned on an existing relationship
between the plaintiff and third party. See Triplett, 494 U.S. at 720 (noting the existing
relationship between the attorney and client); Kowalski, 543 U.S. at 131 (standing
denied because attorney only had potential or hypothetical attorney-client relationship
with third parties). In this case, DMA has not alleged, nor could it, that it has an existing
relationship with any customers of its member- retailers.
Finally, the basic rationale for permitting vendor standing in Craig is missing in
this case. There, the Court stated, "[vendor] is entitled to assert those concomitant
rights of third parties that would be diluted or adversely affected should her
constitutional challenges fail and the statutes remain in force.” Otherwise, the Court
noted, the “threatened imposition of government sanctions might deter [vendor] and
other similarly situated vendors from selling 3.25% beer to young males, thereby
ensuring that enforcement of the challenged restriction against the (vendor) would result
indirectly in violation of third parties' rights."
Id. at 194-95 (citations and internal
DMA has not alleged, nor could it, that the rights of the customers of its members
are adversely affected. DMA does not allege that the Act would deter its members from
selling goods to Colorado purchasers and that, as a result, their customers'
constitutional rights would be violated by being denied their right to purchase goods.
DMA does not sufficiently allege that
customers would be hindered from bringing
their own suits.
The First Amended Complaint does not allege the second requirement of jus tertii
standing – that there is a hindrance to the possessor's ability to protect his own
interests. Kowalski, 543 U.S. at 130. DMA does not assert that any customers would
be precluded from protecting their own interests by bringing suit. DMA can make no
such assertion. Customers, in similar circumstances, have not been precluded from
protecting their own rights. Aronson v. Sprint Spectrum, LP., 90 F.Supp.2d 662, 662
(W.D.Pa. 2000) (customers initiated suit against telecommunications company for
invasion of privacy).
Indeed, the attenuated connection between DMA and the customers of its
members demonstrates that DMA’s interests are not aligned with the customers, and
thus, DMA would not be as effective a proponent of the customers' alleged rights as the
Accepting DMA’s allegations, the third-party customers are
motivated solely by their personal interests in ensuring privacy in the identity of those
from whom they purchase goods. First Amend. Compl., ¶43. DMA’s members, in
contrast, are motivated by business concerns and a profit motive. Id. ¶43; Sw. Ctr. for
Biological Diversity v. Berg, 268 F.3d 810, 823 (9th Cir. 2001) (regarding a petition to
intervene and finding inadequate representation where intervenors were, unlike plaintiff,
driven by profit motive).
DMA does not sufficiently allege First
Amendment overbreadth to claim jus tertii
standing as to those claims for relief.
In the area of the First Amendment, a plaintiff may bring a facial challenge to a
statute, not because his or her own rights are being violated but to vindicate a third
party whose rights of expressive conduct are potentially infringed. Broadrick v. Okla.,
413 U.S. 601, 611-13 (1973); Dickerson v. Napolitano, 604 F.3d 732, 742 (2d Cir.
2010). 5 Therefore, in the First Amendment arena, the jus tertii requirements of close
relationship and hindrance to the third party bringing his own claim have been relaxed,
Jus tertii standing cannot be asserted for the First Amendment claims for the
additional reason that the overbreadth doctrine does not apply to commercial speech.
Nat’l Council for Improved Health v. Shalala, 122 F.3d. 878, 882 n.6 (10th Cir.1997).
Thus, if the customers' speech is commercial, DMA cannot have standing to assert an
overbreadth claim. The commercial nature of the speech at issue is discussed infra.
and other concerns enunciated that justify a lessening of the prudential limitations on
standing. Kowalski, 543 U.S. at 129 (citing Joseph H. Munson Co., 467 U.S. at 956).6
“Litigants are permitted to challenge a statute not because their own rights of free
expression are violated, but because of a judicial prediction or assumption that the
statute's very existence may cause others not before the court to refrain from
constitutionally protected free speech or expression." Broadrick, 413 U.S. at 612. In
other words, to assert jus tertii standing on a First Amendment claim, Plaintiff must
sufficiently allege that a statute is facially overbroad.
A litigant's ability to raise an overbreadth challenge based on the rights of a third
party, however, is not broad. The challenged legislation must be a "substantial threat to
free speech, such that third parties are forced to forgo their rights entirely or face
criminal prosecution to vindicate them."
Pitt News, 215 F.3d at 364 (discussing
Eisenstadt v. Baird, 405 U.S. 438 (1972), Village of Schaumberg v. Citizens for a Better
Environment, 444 U.S. 620 (1980), and Joseph H. Munson Co., 467 U.S. at 947).
Here, customers of DMA’s members do not face criminal prosecution or civil
penalties under the statute, nor are they foreclosed from exercising their alleged free
speech rights by purchasing goods elsewhere. See Pitt News, 215 F.3d at 365 (finding
that advertisers prohibited from advertising in student publications could advertise in
non-student publications available at the same locations as the student newspaper). As
a result, DMA fails to allege facts sufficient to make a facial overbreadth challenge on
behalf of retail consumers.
The overbreadth standing exception doctrine applies only to expressive activity. See
Broadrick 413 U.S. at 612-13; Dickerson, 604 F.3d at 742. Accordingly, this exception
cannot apply to Plaintiff’s privacy claims, and those claims must be analyzed under the
close relationship test of Craig/Triplett, supra.
The facial overbreadth exception to case or controversy standing becomes even
more attenuated as the behavior subject to a statute or regulation moves from pure
speech toward conduct. Broadrick, 413 U.S. at 615. Here, the statute is directed at
conduct – the act of purchasing goods – not traditional expressive speech.
customer's conduct is not protected expressive speech for which third-party standing
has been granted. DMA, therefore, is precluded from asserting third-party standing to
raise the First Amendment rights of its members’ customers.
DMA’s standing on the First Amendment claims is further restricted by its failure
to demonstrate an actual injury.
As outlined infra, current First Amendment
jurisprudence protects not the identities of the sellers or the purchasers, but information
about the purchases. See, e.g., Tattered Cover, Inc. v. City of Thornton, 44 P.3d 1044,
1053 n.17 (Colo. 2002) (bookstore records that do not disclose titles of books
purchased by customers are not protected by the First Amendment). Here, the Act’s
reporting requirements cover only the names of sellers and purchasers and the amount
of purchases – not a description of items purchased. Because DMA cannot state a
claim for violation of a First Amendment right, it does not have standing.
DMA has not plausibly alleged that it has or
will suffer the requisite injury.
As outlined supra, a plaintiff may not assert jus tertii standing without an injury of
its own, although not necessarily one to its own legally protected interests. Pitt News,
215 F.3d at 362 (citing Powers v. Ohio, 499 U.S. 700, 411 (1991)); see also Reese
Bros., 531 F. Supp. 2d at 67. In this case, DMA does not allege anywhere in the First
Amended Complaint that it has suffered any injury. Rather, DMA asserts only that its
members and their customers have or will suffer an injury. As a result, DMA is not
situated to assert jus tertii standing on behalf of third party customers.
ALTERNATIVELY, THIS COURT LACKS JURISDICTION OVER
PLAINTIFF’S STATE-LAW CLAIMS (COUNTS IV, VI, VII, VIII).
The Eleventh Amendment Bars DMA’s Challenge
to the Act Under the Colorado Constitution.
Plaintiff brings this suit against Ms. Huber in her official capacity as the Executive
Director of the Department. The portions of the First Amended Complaint challenging
the Act under the Colorado Constitution are subject to dismissal under Federal Rule of
Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.
It is well-settled that the Eleventh Amendment to the U.S. Constitution does not
permit suits against states or their officials in federal court. Pennhurst State Sch. &
Hosp. v. Halderman, 465 U.S. 89, 98 (1984). A limited exception exists, however. A
state’s sovereign immunity is not implicated when suit is brought against a state official
in her official capacity challenging the constitutionality of the official’s conduct. Ex Parte
Young, 209 U.S. 123,159-60 (1908). The Ex Parte Young exception applies only to
suits seeking prospective injunctive relief based on an alleged violation of federal law.
See Edelman v. Jordan, 415 U.S. 651, 666-68 (1974).
Ex Parte Young does not permit federal court actions alleging violations of state
law. Pennhurst State Sch. & Hosp., 465 U.S. at 106 (“[I]t is difficult to think of a greater
intrusion on state sovereignty than when a federal court instructs state officials on how
to conform their conduct to state law.”); see also Johns v. Stewart, 57 F.3d 1544,
1553 (10th Cir. 1995) (holding that in cases challenging a statute under state law, the
need to promote the supremacy of federal law, which underlies the Ex Parte Young
exception, is absent (quoting Pennhurst State Sch. & Hosp., 465 U.S. at 106));
Neiberger v. Hawkins, 70 F. Supp. 2d 1177, 1187 (D. Colo. 1999).
DMA brings its claims pursuant to the Ex Parte Young doctrine and seeks only
prospective, injunctive relief.
First Amend. Compl., ¶¶1, 4.
Because the doctrine
cannot extend to Plaintiff’s challenges under the Colorado Constitution, Plaintiff’s statelaw claims should be dismissed at the outset of this litigation pursuant to Rule 12(b)(1).
See Lewis v. N.M. Dept. of Health, 261 F.3d 970, 979 (10th Cir. 2001) (holding that the
scope of a state’s immunity under Ex Parte Young is a matter of subject matter
Plaintiff’s First Amended Complaint attempts to avoid the restriction on Ex Parte
Young suits by asserting supplemental jurisdiction over its state-law claims.
Amend. Compl., ¶5. Supplemental jurisdiction, however, may not be asserted over
claims barred by the Eleventh Amendment. 7 Raygor v. Regents of the Univ. of MN, 534
U.S. 533, 541 (2002) (holding that the grant of supplemental jurisdiction does not
extend to claims against nonconsenting state defendants, which are otherwise barred
by the Eleventh Amendment).
As a result, Plaintiff’s state-law claims should be
dismissed for a lack of subject matter jurisdiction.
Section 1983 Cannot Be Employed to Assert
Violations of State Law.
Plaintiff’s Counts VII and VIII challenge the constitutionality of the Act under the
Colorado Constitution. Each of these counts is brought pursuant to § 1983.
Plaintiff’s assertion of supplemental jurisdiction fails for the additional reason that 28
U.S.C. § 1367(c)(1) provides that federal district courts may decline to exercise
supplemental jurisdiction over claims that raise “novel or complex issue[s] of State law.”
Plaintiff’s Complaint raises a number of new constitutional theories, none of which have
been resolved by Colorado courts.
Amend. Compl., ¶¶132-152.
The state-law portions of these claims are subject to
dismissal because the Tenth Circuit has repeatedly held that violations of state law
cannot give rise to a § 1983 claim. See, e.g., D.L. v. Unified Sch. Dist. No. 497, 596
F.3d 768, 776 (10th Cir. 2010) (“§ 1983 affords a remedy for violations of federal law
and does not provide a basis for redressing violations of state law.”) (emphasis in
original, internal citation omitted); see also Gomez v. Toledo, 446 U.S. 635, 640 (1980)
(holding that to state a cause of action under § 1983, Plaintiff must allege deprivation of
a federal right). Accordingly, the state-law portions of Counts VII and VIII should be
PLAINTIFF FAILS TO STATE A CLAIM FOR VIOLATION OF
CUSTOMERS’ RIGHT TO PRIVACY.
Counts III and IV allege that the Act’s annual reporting requirements violate
purchasers’ constitutionally-protected right to privacy.
The annual reporting
requirements of the Act, however, do not implicate any recognized privacy rights
protected by the Fourteenth Amendment or the Colorado Constitution. Accordingly, this
claim should be dismissed pursuant to Rule 12(b)(6).
The Act requires retailers who do not otherwise collect sales tax to file an annual
report with the Department. This report is limited in scope. It encompasses only the
name, billing and shipping addresses and total annual dollar amount of purchases for
each customer exceeding the “de minimis” threshold of $500. Exh. A., Colo. Rev. Stat.
§ 39-21-112(3.5)(d)(II); Exh. B., 1 CCR 201-1, Reg. 39-21-112.3.5(4)(a),(b). The Act
does not require the report to identify the particular items purchased from retailers, such
a disclosure is specifically prohibited. Exh. A., Colo. Rev. Stat. § 39-21-112(3.5)(d)(II);
Exh. B., 1 CCR 201-1, Reg. 39-21-112.3.5(4)(a)(IV) (“No other information about the
purchase shall be provided.”) (emphasis added).
The constitutionally-protected right to privacy protects those fundamental rights
and liberties which are, objectively, deeply rooted in this Nation's history and tradition.
See, e.g., Moore v. E. Cleveland, 431 U.S. 494, 503 (1977). The right to privacy
implicates two distinct interests: an individual’s interest in making decisions regarding
matters central to personal dignity and autonomy, and an individual’s interest in
avoiding disclosure of personal information. Whalen v. Roe, 429 U.S. 589, 599 (1977).
The Tenth Circuit generally has interpreted the interest in avoiding disclosure of
personal information to include the right of non-disclosure of certain personal
information by the government. Herring v. Keenen, 218 F.3d. 1171, 1175 (10th Cir.
2000) (internal citations omitted). However, in Eastwood v. Department of Corrections,
the Tenth Circuit also extended the right to non-disclosure of information to include the
right to non-disclosure of personal information to the government. 846 F.2d, 627, 631
(10th Cir. 1988).
The right to non-disclosure of certain information to the government has only
been extended to matters in which the government does not have a legitimate and
Whalen, 429 U.S.at 599 (privacy rights not implicated by statute
requiring disclosure to state health department of all prescriptions written for Schedule II
controlled substances). Matters in which the government does not have a legitimate
and proper interest include that information in which the individual has a fundamentally
protected privacy interest. See Eastwood, 836 F.2d. at 631 (State official’s inquiries into
employee’s sexual history cannot be sanctioned); Thorne v. City of El Segundo, 726
F.2d 459 (9th Cir. 1983), cert denied, 469 U.S. 979 (1984) (City police force’s inquiry
into prospective employee’s sexual history, recent miscarriage, her child’s paternity held
to violate “zone of privacy”);
Bloch v. Ribar, 156 F.3d 673, 684 (6th Cir. 1998)
(interpreting the right to informational privacy to include only interests implicating a
An individual’s privacy interest in non-disclosure to the government has not been
extended to include the information covered by this Act. Courts have not recognized
that a constitutional right of privacy exists in such basic information as the name of the
customer or taxpayer and the total amount of goods purchased from a particular retailer.
Because the courts have not recognized an individual’s purchasing information as so
“deeply rooted in this Nation's history and tradition” as to qualify as a fundamental
privacy right, DMA fails to state a claim for relief that is plausible on its face.
The First Amended Complaint further fails to plausibly allege that the annual
report at issue would contain any information that would implicate privacy interests.
DMA alleges in conclusory fashion that an individual’s status as a purchaser potentially
would reveal personal information about the purchaser, including not only his or her
interests and predilections, but also his or her religious beliefs, political opinions,
medical conditions, financial situation, family concerns, or sexual orientation.
Amend. Compl., ¶80. The First Amended Complaint, however, is devoid of actual facts
supporting these conclusory statements. Plaintiff does not give a single example of how
the information required in the annual customer information report would reveal
purchasers’ constitutionally protected information, i.e., information pertaining to a
fundamentally protected privacy interest.
Because DMA has failed to plausibly allege a violation of a recognized
constitutionally-protected privacy interest, Counts III and IV should be dismissed
pursuant to Rule 12(b)(6).
DMA’S COMPLAINT FAILS TO STATE A FIRST AMENDMENT
CLAIM BECAUSE IT ALLEGES NO COMPELLED SPEECH OR
DISCLOSURES PROTECTED BY THE FIRST AMENDMENT.
Counts V and VI of the First Amended Complaint allege that the Act’s annual
reporting requirements violate both retailers’ and customers’ First Amendment rights
under the United States and Colorado Constitutions.
The First Amendment rights
asserted by DMA, however, have not been recognized by courts, and Plaintiff
additionally fails to plead facts sufficient to demonstrate any First Amendment violation.
These counts, therefore, should be dismissed under Rule 12(b)(6).
Plaintiff bears the burden of demonstrating that the First Amendment protects
disclosure of the conduct that it asserts is expressive – purchasing goods. See Clark v.
Cmty. for Creative Non-Violence, 468 U.S. 288, 293 (1984). “Although it is common to
place the burden upon the Government to justify impingements on First Amendment
interests, it is the obligation of the person desiring to engage in assertedly expressive
conduct to demonstrate that the First Amendment even applies. To hold otherwise
would be to create a rule that all conduct is presumptively expressive.” Id. at 294, n.5.
Plaintiff must advance more than a mere plausible contention that a customer’s
purchase from a particular retailer is protected speech. Id. at 294.
The United States Supreme Court has recognized that some conduct may be
expressive enough to entitle it to First Amendment protection. See, e.g., Hurley v. IrishAmerican Gay, Lesbian & Bisexual Group of Boston, 515 U.S. 557 (1995) (marching in
a parade); United States v. Eichman, 496 U.S. 310 (1990) (burning the United States
flag); Spence v. Washington, 418 U.S. 405 (1974) (attaching a peace sign to an
American flag and displaying the peace flag upside down); Cohen v. California, 403
U.S. 15 (1971) (wearing an armband to protest a war); Tinker v. Des Moines Indep.
Cmty. Sch. Dist., 393 U.S. 503 (1969) (wearing black armband at school to protest the
Vietnam War); United States v. O’Brien, 391 U.S. 367 (1968) (burning Selective Service
certificate on courthouse steps to protest war). In all of these cases, the conduct in
question formed a particularized message clearly understood by those who viewed it.
It is possible, however, to find expression in almost every activity a person
undertakes. City of Dallas v. Stanglin, 490 U.S. 19, 25 (1989). Accordingly, the United
States Supreme Court has stated that it “cannot accept the view that an apparently
limitless variety of conduct can be labeled ‘speech’ whenever the person engaging in
the conduct intends thereby to express an idea.” O’Brien, 391 U.S. at 376.
To determine if conduct is sufficiently expressive to warrant First Amendment
protection and thus constitute “speech”, courts inquire whether an intent to convey a
particularized message was present and whether the likelihood was great that the
message would be understood by those who viewed it. Texas v. Johnson, 491 U.S.
397, 404 (1989).
Moreover, the United States Supreme Court has “extended First
Amendment protection only to conduct that is inherently expressive.”
Forum for Academic & Instit. Rights, Inc., 547 U.S. 47, 66 (2006).
Most conduct in the commercial sphere is not expressive. State v. Chepilko, 965
A.2d 190, 198 (N.J. Super. 2009). The sale of merchandise such as jewelry, clothing,
or incense is ordinarily not expressive, and therefore, not entitled to First Amendment
Id.; see, e.g., Al-Amin v. City of New York, 979 F. Supp. 168, 172-73
(E.D.N.Y. 1997) (holding that the sale of perfume oils and incense is not protected
expressive activity under the First Amendment).
Likewise, although information
regarding some purchases may be protected, the identity of sellers and purchasers is
not information protected by the First Amendment. See Tattered Cover, Inc., 44 P.3d at
Courts have not recognized that retailers have a First Amendment right in the
limited information covered by the Act.
Similarly, courts have not recognized that
customers have a First Amendment right in the information.
Because Plaintiff has
asserted a First Amendment right not recognized by the courts, it fails to state a claim
and the First Amendment claims should be dismissed.
The First Amended Complaint additionally fails to plausibly allege a First
Amendment violation. DMA alleges “many” retailers are highly specialized and offer
products containing expressive content and that an individual’s status as a purchaser
may reveal information regarding the expressive content of products purchased. First
Amend. Compl., ¶¶105-106. The First Amended Complaint offers no specific facts to
back up these very general allegations. Plaintiff fails to identify a single example of a
retailer whose name would reveal that it sold goods containing expressive content. In
particular, the Plaintiff fails to identify any such retailers that would be subject to the
gross sales threshold established by the Act. The First Amended Complaint further fails
to detail how an individual’s status as a purchaser from a retailer may reveal information
regarding the expressive content of products obtained by the purchaser. Plaintiff also
fails to allege an intent by the purchasers to convey a particularized message as it
relates to any such purchase.
Plaintiff also conclusorily alleges that the required disclosures would have a
chilling effect on the exercise of the right to freedom of speech “by consumers with
regard to purchasing and obtaining information and expressive content, and by retailers
with regard to selling and distributing expressive content.”
Amended Complaint again fails to set forth facts demonstrating how the reporting would
chill either consumers or retailers. See Gallagher v. Shelton, 587 F.3d 1063, 1068 (10th
Cir. 2009) (holding that conclusory allegations are not enough to withstand a motion to
dismiss). As a result, Counts V and VI are insufficient to survive scrutiny under Rule
12(b)(6), and should be dismissed.
PLAINTIFF FAILS TO STATE A CLAIM FOR VIOLATION OF THE
FIFTH AND FOURTEENTH AMENDMENTS BECAUSE IT HAS
NOT PLAUSIBLY ALLEGED THAT PRIVATE PROPERTY IS AT
ISSUE OR WOULD BE AFFECTED BY THE ACT.
DMA’s Seventh and Eighth Claims for Relief allege that the Act’s annual
reporting requirements deprive retailers of property in violation of the Fifth Amendment
Takings Clause and the Fourteenth Amendment Due Process Clause. Specifically,
DMA alleges that retailer’s “customer lists” are trade secrets, which are protected
property, and that the Act’s reporting requirements constitute both a deprivation of
property without due process of law and a taking of private property for public use
without just compensation.
Defendant addresses these counts together because
Plaintiff fails to state a claim under either theory by not alleged a protected property
right. Plaintiff further fails to state a claim because it fails to allege plausibly allege any
deprivation of a property right.
Plaintiff Fails to Plead Facts Sufficient to
Establish a Property Right.
Customer lists may constitute trade secrets, a protected property right.
Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1003-04 (1984). Whether customer lists
are protected property depends on existing rules or understandings that stem from an
independent source such as state law. Webb’s Fabulous Pharmacies, Inc. v. Beckwith,
449 U.S. 155, 161 (1980) (internal citations omitted); First Bet Joint Venture v. City of
Central City, 818 F. Supp 1409, 1413, (10th Cir. 1993).
Colorado law recognizes customer lists as trade secrets, provided that the
customer list is related to a business or profession, the owner has taken measures to
ensure the secrecy of the information, and the information is of value. See Colo. Rev.
Stat. § 7-74-102(4). Factors to be considered in determining if a trade secret exists
include: 1) the extent of which the information is known outside the business; 2) the
extent to which it is known to those inside the business; 3) the precautions taken by the
holder of the trade secret to guard the secrecy of the information; 4) the savings
effected and the value to the holder in having the information as against competitors; 5)
the amount of effort or money expended in obtaining and developing the information;
and 6) the amount of time and expense it would take for others to acquire and duplicate
the information. Colo. Supply Co. v. Stewart, 797 P.2d 1303, 1306 (Colo. App. 1991).
Courts have also considered the extent to which the customers on the customer list
were exclusive to the holder. Id.
DMA alleges that the customer lists are protected property in that the lists are
valuable proprietary trade secrets, and that retailers invest substantial resources in
compiling, maintaining, and protecting the lists from disclosure to competitors and other
unauthorized third parties. First Amend. Compl. ¶¶13, 146, 147. DMA does not allege
any specific facts supporting its threadbare recitation of the elements necessary to find
a protected property interest. See Stewart, 797 P.2d at 1306. For example, DMA does
not allege any facts plausibly demonstrating that it has members who have taken any
particular steps to protect its lists, that such lists are held confidential (for example, that
members do not sell the lists), what members did to develop the lists, or that the lists
have any particular value. Mere recitations of the elements of a cause of action do not
survive a motion to dismiss under Rule 12(b).
Iqbal, 129 S.Ct. at 1950.
establishing a plausible claim for a protected property right, Counts VII and VII fail to
state a claim.
Even Assuming a Property Right Exists, Plaintiff
Fails to Plead Facts Sufficient to Establish a
Deprivation of Property.
Even assuming that Plaintiff sufficiently alleged trade secrets entitled to
protection, Plaintiff fails to state a claim that the Act’s requirements constitute a
deprivation of property in violation of the Takings Clause and Due Process Clause.
The property interest in a trade secret lies in the extent to which the owner of the
secrets protects its interest from public disclosure to those under no obligation to protect
the confidentiality of the information. Monsanto, 467 U.S. at 1002 (internal citations
omitted). The value of a trade secret lies in the competitive advantage it gives the
owner over competitors. Id. Thus, it is only if the government publically discloses the
trade secret that a deprivation of property occurs because it is the public disclosure
enabling a competitor to use the information to improve its business that destroys the
value of the trade secret. Monsanto, 467 U.S. at 1013-14.
Here, the Act requires retailers to submit customer data to the Department. The
Act contains no provisions for public disclosure of the data. Exh. A., Colo. Rev. Stat.
§ 39-21-112(3.5)(d)(II). In fact, any such disclosure would be contrary to Colorado law.
Colo. Rev. Stat. § 39-21-113(4)(a) (2010) (the Department or any of its agents shall not
divulge or otherwise make known any information gathered pursuant to Article 21 of
Title 39 of the Colorado Revised Statues.); Losavio v. Robb, 579 P.2d., 1152, 1157
(Colo. 1978) (upholding the quashing of a grand jury subpoena duces tecum requesting
information collected pursuant to Article 21 of Tile 39 of the Colorado Revised Statutes);
see also Colo. Rev. Stat. § 39-21-113(6)(a) (2010) (imposing criminal penalties and
state employment termination for any person violating § 39-21-113(4)). Because the
Act does not provide for public disclosure and Colorado law expressly prohibits such
disclosure, any public disclosure of the retailers’ trade secrets would be unanticipated,
unintentional, and contrary to law.
Plaintiff alleges that the Act requires retailers to submit proprietary trade secrets
to the Department without provisions ensuring the confidentiality of the customer
information report, without an obligation to protect the information, and without funds
appropriated to ensure security of the information. First Amend. Compl., ¶¶28, 32, 149.
Plaintiff further alleges that a “substantial risk” for disclosure exists, as the Department
was cited in the past for failing to take steps to ensure the security of personally
identifiable information in its custody. Id., ¶¶29, 49, 50, 150. DMA does not and cannot
allege a deprivation of property based on the requirements of the Act. Instead, DMA
requests relief based on events that have not occurred and may not occur at all. 8 That
a customer list could conceivably be disclosed, perhaps depriving Plaintiff’s members of
an alleged property interest, does not amount to a claim for relief plausible on its face.
The conclusory and speculative nature of these allegations does not nudge Plaintiff’s
claims from conceivable to plausible.
Red Hawk, 493 F.3d at 1177.
deprivation of property, Plaintiff’s claims for deprivation for property in violation of the
Fifth Amendment Takings Clause and Fourteenth Amendment Due Process Clause
cannot survive and must be dismissed.
ALTERNATIVELY, PLAINTIFF HAS FAILED TO ALLEGE A
ACTIONABLE VIOLATION OF THE DUE PROCESS CLAUSE.
Plaintiff’s Seventh Claim for Relief alleges that the Act’s annual customer
information reports deprive retailers of property without due process of law in violation of
the Fourteenth Amendment. The Due Process Clause of the Fourteenth Amendment
confers both procedural and substantive rights. Miller v. Campbell County, 945 F.2d
348, 352 (10th Cir. 1991) cert denied, 502 U.S. 1096 (1992), citing Daniels v. Williams,
474 U.S. 327, 337 (1986) (Stevens, J., concurring). Plaintiff fails to plausibly allege a
violation of either.
Due Process Violations Must Be Based on an
Intentional Deprivation, Which DMA Does Not
The Due Process Clause is intended to secure an individual from deliberate
governmental deprivations of life, liberty or property.
Daniels, 474 U.S. at 337.
As argued supra, because Plaintiff’s claim relies on facts that have not occurred and
may not occur at all, this claim for relief is not yet ripe for review and should be
dismissed pursuant to Rule 12(b)(1). See Williamson County Reg’l. Planning Com’n. v.
Hamilton, 473 U.S. 172, 195 (1995); Nat’l Advertising Co. v. City & County of Denver,
912 F.2d 405, 413 (10th Cir. 1990).
Accordingly, the Due Process Clause is not implicated by the government’s less than
intentional act causing unintended loss of life, liberty, or property. Id.
Here, Plaintiff has not asserted a deliberate or intentional deprivation of property
by the Department.
Plaintiff has not even alleged an anticipated deliberate or
intentional deprivation of property. Plaintiff also fails to allege any official policy, law, or
intent by the Department to deprive them of their property. Instead, Plaintiff alleges that
because the Department was cited for a previous disclosure made “through inattention,
misconduct, or data breach,” a “real risk” for such disclosure of the customer list exists.
First Amend. Compl., ¶¶50, 137, 138.
As discussed above, any disclosure of the
customer list causing a deprivation of Plaintiff’s property that may occur is not required
by the Act, would be contrary to Colorado law, and therefore, would not be an
intentional deprivation. As such, Plaintiff falls short of alleging a due process claim
upon which relief can be granted.
Plaintiff Has Not Plausibly Asserted a Procedural
Due Process Violation.
First, Plaintiff fails to specifically allege a deprivation of property without notice or
hearing. Second, Plaintiff does not sufficiently allege a failure to be given notice and a
As previously discussed, the Act does not provide for disclosure of the
customer list by the Department, Colorado law prohibits such disclosure, and therefore,
any disclosure causing deprivation of the retailer’s property interest would be
unanticipated. The notice and hearing requirements of procedural due process cannot
be afforded in instances where the deprivation was unanticipated. Becker v. Kroll, 494
F.3d 904, 921 (10th Cir. 2007) (citing Parrat v. Taylor, 451 U.S. 527, 535-44 (1981) and
Hudson v. Palmer, 468 U.S. 517, 533 (1984)).
In such instances, post-deprivation
state-law tort remedies satisfy due process. Id.
Here, state-law tort remedies are
available should the unanticipated deprivation actually occur, thereby meeting the
procedural due process of the Due Process Clause. See Colo. Rev. Stat. § 38-1-101
(2010); Colorado Uniform Trade Secrets Act, Colo. Rev. Stat. §§ 7-74-101, et. seq.
(2010). Thus, Plaintiff has failed to state a claim entitling it to relief.
Plaintiff’s Substantive Due Process Claim Is
Subsumed by Its More Specific Takings Claim.
Plaintiff’s Count VII asserting a violation of substantive due process claim fails
because it is subsumed by Count VIII, which asserts a governmental taking of private
property for public use without just compensation in violation of the Fifth Amendment.
While the Due Process Clause of the Fourteenth Amendment confers some
substantive due process rights, the extension of such subjective rights is primarily
restricted to those liberties central to personal dignity and autonomy.
Parenthood of Se. Pa. v. Casey, 505 U.S. 833, 851 (1992) (internal citations omitted).
Such extensions demonstrate that the Fourteenth Amendment embraces liberty
interests beyond the express provisions of the Bill of Rights. However, in situations
where specific guarantees are enumerated in the Bill of Rights, the more specific
amendment, and not the generalized notion of substantive due process, must guide the
analysis of such claims. Graham v. Conner, 490 U.S. 386, 395 (1989).
Because the Fifth Amendment Takings Clause provides explicit limitations on the
governmental conduct challenged by Plaintiff, it is that amendment and not the
Fourteenth Amendment’s guarantee of substantive due process that applies in this
situation. Miller, 945 F.2d at 352 (declining to extend new and potentially inconsistent
substantive or procedural due process protections when the factual situation fell
squarely within the takings clause).
DMA does not allege any facts in support its Fourteenth Amendment Due
Process Clause claim that would necessitate using the more generalized protections of
the Due Process Clause over the more particularized requirements of the Takings
Clause. In fact, Plaintiff’s Count VII allegations are identical to those alleged in Count
VIII. First Amend. Compl. ¶¶132-154. As a result, Plaintiff’s Count VII is subsumed by
the Fifth Amendment Takings Clause alleged in Count VIII, and should be dismissed.
PLAINTIFF’S TAKINGS CLAIM FAILS TO STATE A CLAIM FOR
DMA fails to state a claim that the Act’s requirements constitute an
unconstitutional taking of that property interest. Specifically, Plaintiff fails to assert that
the provisions of the Act have or will deprive members of a property interest, and that
just compensation has been denied.
Governmental action, even in the absence of acquisition of title or occupancy, in
which the effects are so complete as to deprive the owner of all or most of its interest in
the property, amounts to a taking requiring just compensation. See United States v.
General Motors Corp., 323 U.S. 373, 377 (1945). A physical taking occurs when there
is a condemnation or physical appropriation of property while a regulatory taking
prohibits the private use of the property through regulation. Tahoe-Sierra Pres. Council,
Inc. v. Tahoe Reg’l. Planning Agency, 535 U.S. 302, 325 (2002).
requirements that a business submit trade secret information to the government have
been analyzed as a regulatory taking. Ruckelshaus v. Monsanto Co., 467 U.S. at 100304; Philip Morris, Inc. v. Reilly, 312 F.3d, 24, 34 (1st Cir. 2002).
Such a taking requires that the government: 1) deprive the property owner of its
property; and 2) refuse to compensate the owner for the loss. Miller, 945 F.2d at 352
(citing Williamson, 473 U.S. at 195 ). In determining whether a property deprivation has
occurred, courts consider factors such as “the character of the governmental action, its
economic impact, and its inference with reasonable investment-backed expectations.”
See Penn Cent. Transp. Co. v. New York City, 438 US 104, 124 (1978); Monsanto, 467
U.S. at 1005; Philip Morris, 312 F.3d at 36-45. As discussed supra, a property owner
with a reasonable investment-backed expectation of data confidentiality is not deprived
of his property unless or until the trade secret information is disclosed, enabling a
competitor to use the information to improve its business. Monsanto, 467 U.S. at 101012.
As previously discussed, there is no provision in the Act for public disclosure of
the data and any such disclosure would be contrary to Colorado law. As such, the
retailers could not be deprived of their property interest unless an unanticipated,
inadvertent data disclosure occurred.
Even if an unanticipated, inadvertent data
disclosure were to occur, the taking is not complete. A property owner has not suffered
a taking in violation of the Fifth Amendment until it has unsuccessfully attempted to
obtain just compensation through the procedures provided by the government for
obtaining such compensation. Williamson, 473 U.S. at 195; Nat’l Advertising Co., 912
F.2d at 413.
Colorado law provides mechanisms for an owner to seek just
compensation for a property deprivation caused by government action. See Colo. Rev.
Stat. § 38-1-101; Colorado Uniform Trade Secrets Act, Colo. Rev. Stat. §§ 7-74-101, et.
Here, DMA alleges that the Act requires retailers to submit proprietary trade
secrets to the Department without provisions ensuring the confidentiality, without clear
obligation to protect the information, and without funds appropriated to ensure security
of the information. First Amend. Compl. ¶¶28, 32,149. Plaintiff further alleges that a
“substantial risk” for disclosure exists as the Department was cited in the past for failing
to take steps to ensure the security of personally identifiable information. First Amend.
Compl. ¶¶28, 29, 32, 49, 50, 149, 150. DMA also alleges that the Act does not provide
a mechanism for compensating the retailer for the taking. Id. ¶146. These allegations,
even taken as true, do not rise to the level of a governmental taking for public use
without just compensation. Plaintiff fails to allege an economic loss, any deprivation of
property, or any denial of just compensation. Instead, Plaintiff requests relief based on
events that have not occurred and may not occur at all. That the customer list could
conceivably be disclosed, perhaps depriving Plaintiff of his property interests, and that
Plaintiff may not be justly compensated, does not amount to a plausible claim for relief
for an unconstitutional taking.
Plaintiff’s First Amended Complaint fails to show standing and fails to allege
claims upon which relief may be granted. Based on the authorities and arguments cited
above, Defendant respectfully requests that the Court dismiss Plaintiff’s First Amended
Complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6).
Respectfully submitted this 30 day of July, 2010.
JOHN W. SUTHERS
s/ Karen M. McGovern
KAREN M. MCGOVERN, 32140*
Assistant Attorney General
ROBERT H. DODD, JR., 27869*
Senior Assistant Attorney General
Revenue, Business and Licensing
Telephone: (303) 866-4589 (Dodd)
Telephone: (303) 866-5455 (McGovern)
Fax: (303) 866-5395
*Counsel of Record
STEPHANIE LINDQUIST SCOVILLE*
Senior Assistant Attorney General
Civil Litigation and Employment Law Section
Attorneys for Defendant
1525 Sherman Street, 7th Floor
Denver, Colorado 80203
*Counsel of Record
CERTIFICATE OF SERVICE
IT IS HEREBY CERTIFIED that on the 30 day of July, 2010, a copy of the
foregoing MOTION TO DISMISS was, in addition to being electronically filed with the Clerk
of the Court using the CM/ECF system, sent to the following e-mail addresses via the
s/ Steve Morrow
cc: Via inter-office mail
Ms. Roxy Huber
Colorado Department of Revenue
1375 Sherman Street
Denver, Colorado 80261