Direct Marketing Association, The v. Huber
REPLY to Response to 15 MOTION for Preliminary Injunction with Incorporated Memorandum of Law filed by Plaintiff Direct Marketing Association, The. (Attachments: # 1 Affidavit Reply Exh A (Barry Decl.), # 2 Deposition Excerpts Reply Exh B (Barry Deposition), # 3 Deposition Excerpts Reply Exh C (Gable Deposition), # 4 Deposition Excerpts Reply Exh D (Keller Deposition), # 5 Affidavit Reply Exh E (Adler Decl.), # 6 Deposition Excerpts Reply Exh F (Adler Deposition), # 7 Affidavit Reply Exh G (Woock Decl.), # 8 Deposition Excerpts Reply Exh H (Fox Deposition))(Isaacson, George)
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,
PLAINTIFF’S REPLY TO DEFENDANT’S RESPONSE IN OPPOSITION
TO PLAINTIFF’S MOTION FOR A PRELIMINARY INJUNCTION [DOC. 50]
Plaintiff, the Direct Marketing Association (“the DMA”), submits this reply to the
Defendant’s opposition to the DMA’s motion for a preliminary injunction (“Opp.”), filed on
November 19, 2010 [Doc. 50].
THE DEFENDANT MISCHARACTERIZES AND IGNORES CONTROLLING
TENTH CIRCUIT AUTHORITY CONCERNING IRREPARABLE HARM.
The Defendant begins her opposition by insisting that the unprecedented notice
and reporting obligations imposed on out-of-state retailers under Colorado House Bill
10-1193 (“the Act”) and the regulations promulgated by the Colorado Department of
Revenue (“Department”) to implement the Act (“the Regulations”) will not cause DMA
members irreparable harm. Her argument, however, is demonstrably at odds with
Tenth Circuit case law that is directly on point, including ACLU v. Johnson, 194 F.3d
1149 (1999), and the Court of Appeals’ 2010 decision in Chamber of Commerce of the
United States v. Edmondson, 594 F.3d 742 (10th Cir. 2010).
The Tenth Circuit in ACLU v. Johnson Held That A Violation Of The
Commerce Clause Supports The Entry Of A Preliminary Injunction.
The Defendant argues that the “Tenth Circuit has not definitively resolved”
whether a violation of the Commerce Clause constitutes irreparable harm for purposes
of a preliminary injunction. According to the Defendant, the Court should regard the
Tenth Circuit’s holding on this issue in ACLU v. Johnson, 194 F.3d at 1163, as mere
dicta, and its citation to American Libraries Ass’n v. Pataki, 969 F. Supp. 160, 168
(S.D.N.Y. 1997)) as lacking in analysis. See Opp. at 5-6. Contrary to the Defendant’s
attempts to minimize the Court of Appeals’ decision in Johnson, however, the Tenth
Circuit carefully considered the Commerce Clause claims presented, and expressly
endorsed the Pataki court’s analysis, in upholding the entry of a preliminary injunction.
The Court of Appeals’ ruling in Johnson thus squarely applies to the DMA’s claim of
irreparable harm based on violations of the Commerce Clause.
ACLU v. Johnson concerned a challenge to a New Mexico statute arising under
both the First Amendment and the Commerce Clause. The Tenth Circuit analyzed the
strength of the plaintiff’s First Amendment claims and then expressly addressed the
merits of each of the plaintiff’s three contentions regarding the Commerce Clause. 194
F.3d at 1160 (“Although we do not need to reach this issue [plaintiff’s claims under the
Commerce Clause] . . . we do so, albeit briefly.”) (bracketed language, ellipses, and
emphasis added). In upholding the entry of an injunction, the Tenth Circuit stated:
The court below largely relied upon the detailed Commerce Clause analysis in
American Libraries Ass’n v. Pataki, 969 F. Supp. 160, 168-83 (S.D.N.Y. 1997).
We agree with that analysis.
.ACLU v. Johnson, 194 F.3d at 161 (emphasis added). This is not dicta, and the Court
of Appeals could not have been clearer. The Tenth Circuit stated that it had carefully
considered the plaintiff’s Commerce Clause claims as grounds for the preliminary
injunction, based on the holding in Pataki.1 Indeed, although the District Court in
Johnson had relied solely on the First Amendment violation in finding the irreparable
harm necessary for the injunction (see 4 F. Supp.2d 1029, 1034 (D.N.M. 1998)), the
Tenth Circuit went farther, and specifically cited the deprivation of rights under both the
First Amendment and the Commerce Clause as establishing the element of irreparable
harm, by “noting that the ‘[d]eprivation of the rights guaranteed under the Commerce
Clause constitutes irreparable injury.’” Johnson, 194 F.3d at 1163. The Defendant’s
sampling of decisions from other district courts outside of the Tenth Circuit (Opp. at 6) to
show that there is a conflict among federal district courts on this issue is patently
irrelevant, because there is controlling Tenth Circuit case law on the subject.2
The Commerce Clause grounds for enjoining the Act and Regulations in this case are
even stronger than in Johnson (or Pataki). First, the New Mexico legislation enjoined in Johnson
did not discriminate against interstate commerce (indeed, the Defendant argued that the law
applied only to intrastate communications, 194 F.3d at 1161). Moreover, the local interest
served by the law enjoined in Johnson was “protecting minors from sexually oriented materials,”
(id.) a state interest of far greater importance than promoting compliance with the state’s sales
and use tax. In addition, the Colorado law at issue in this case even more clearly regulates
commerce occurring outside of the state’s borders, since the Colorado law applies to sales
made by out-of-state retailers to out-of-state purchasers, where the only connection to Colorado
is the fact that the donee of the purchaser (e.g., Grandma’s grandchild) is located in Colorado
and receives the package via mail. Finally, like the New Mexico law, the Colorado law in this
case improperly “subjects the use of the Internet to inconsistent regulations.” 194 F.3d at 1162.
The District of Colorado’s decision in S.W. Shattuck Chem. Co. v. City & County of
Denver, 1 F. Supp.2d 1235 (D. Colo. 1998), cited by the Defendant (Opp. at 6), pre-dates the
The Tenth Circuit in Chamber of Commerce v. Edmondson Held That
More Modest Compliance Costs Than Those Faced By Out-Of-State
Retailers in This Case, As Well As Lost Business Opportunities,
Constitute Irreparable Harm.
The Defendant furthers her mischaracterization of controlling Tenth Circuit
authority on the issue of irreparable harm by ignoring completely the Court of Appeals’
2010 decision in Edmondson. The Defendant asserts that the unavoidable harm faced
by DMA members, each of whom (by Defendant’s own admission) will be forced either
to incur thousands of dollars of expense to comply with the law, or face tens of
thousands of dollars in penalties for non-compliance, is inadequate as a matter of law to
warrant an injunction. The Defendant declares that “[c]ourts across the country have
rejected the notion that the cost of complying with government regulations constitutes
irreparable harm.” Opp. at 7. Although she points to cases from within the Second and
Third Circuits, which themselves do not support this categorical assertion,3 the
Tenth Circuit’s decision in ACLU v. Johnson. To the extent S.W. Shattuck has any relevance, it
supports the DMA’s right to an injunction. The Court in S.W. Shattuck held that constitutional
deprivations that could be fully remedied by monetary damages would not warrant injunctive
relief, but that harm for which compensation was unavailable would. Id. at 1238-39 (finding
irreparable harm because the plaintiff could not be fully compensated for its injuries). DMA
members have no adequate remedy at law against the State of Colorado for the expenses they
will incur, and the business they will lose, as a result of the Act and Regulations.
The Defendant principally relies upon A.O. Smith Corp. v. FTC, 530 F.2d 515, 527-28
(3d Cir. 1976), to which a number of the other cases she relies upon likewise cite. In addition
to being directly at odds with the Tenth Circuit’s decision in Edmondson, the Court in A.O. Smith
expressly stated that it was “not fashion[ing] a general rule” (530 F.2d at 527 n.9a) and left
open the issue of whether compliance costs could support a finding of irreparable harm for
purposes of a permanent injunction. Id. at 528. The Court in A.O. Smith rejected costs of
compliance as a basis for entry of an injunction in the circumstances of that case because it
found they were “unsupported” and based upon government reports, rather than evidence
offered by the plaintiffs. Id. In this case, the DMA offers evidence of compliance costs through
the declaration and expert report of F. Curtis Barry, and the Defendant herself offers competing
evidence of a different level of compliance costs through her own expert, Dieter Gable. There is
no dispute that DMA members will incur compliance costs; there is only a dispute as to their
amount. Both parties’ estimates vastly exceed the costs held to be sufficient in Edmondson.
Defendant fails even to cite, let alone distinguish, the Tenth Circuit’s decision in
Edmondson, on which the DMA relies. In direct contradiction to the Defendant’s
argument, the Tenth Circuit stated:
The imposition of monetary damages that cannot later be recovered for reasons
such as sovereign immunity constitutes irreparable injury. [Internal citations
omitted.] If forced to comply with the Oklahoma Act, the Chambers’ members will
face a significant risk of suffering financial harm as described in Part II. Yet,
because Oklahoma and its officers are immune from suit for retrospective relief,
Edelman, 415 U.S. at 667-68, 94 S.Ct. 1347, these financial injuries cannot be
remedied. ... These consequences, in and of themselves, demonstrate a
likelihood of irreparable harm.
594 F.3d at 770-71 (emphasis and ellipses added). The Tenth Circuit’s ruling could not
be clearer: compliance costs of “more than a thousand dollars” per association member
that cannot be later recovered from the State constitute irreparable harm.
1. Both Parties Project That Affected Out-Of-State Retailers Will
Incur Thousands Of Dollars Of Compliance Costs.
There is nothing “speculative” about the compliance costs that out-of-state
retailers will incur. Moreover, the discovery mandated under the Court’s October 1
Scheduling Order has provided specific evidence of those costs, calculated by the
parties’ competing experts. The estimates of the DMA’s expert, Curt Barry, should be
viewed as more reliable, as he has performed hundreds of projects for direct marketers
to modify their systems and operations. See Reply Ex. A (Barry Decl.), ¶5; Reply Ex. B
In Part II of the opinion, the Court stated:
Both compliance and non-compliance with Section 7(B) injure the Chambers’ members.
As noted above, Section 7(B) effectively forces members to use Basic Pilot. . . Adopting
Basic Pilot imposes significant economic injuries in the form of implementation and
training expenses, which the Chambers allege may total well more than a thousand
dollar per year. 594 F.3d at 756 (emphasis added).
(Barry Deposition) at 217:16 – 218:1. In contrast, Defendant’s expert is an IT consultant
who only recently familiarized himself with current industry practices and costs by
reviewing literature. Opp. Ex. 6, Ex. 1 (Report of Dieter G. Gable) at 4-5. According to
Mr. Barry, affected retailers will incur upwards of $26,500 to comply in the first year, and
perhaps $9,000 annually thereafter, plus mailing/postage expense. Barry Decl., Ex.1
(Report at 2 & Exs. A.1, B.1, C.1). Even Mr. Gable, whose estimates are unrealistically
low, acknowledges costs between $2,500 and $6,000 in the first year, and additional
expenses every year thereafter. Reply Ex. C (Gable Deposition) at 161:18 – 162:10.5
Regardless of which estimates the Court accepts, compliance costs for HB 101193 will greatly exceed the $1,000 per association member that the Tenth Circuit held
were sufficient to establish irreparable harm in Edmondson. Of course, the penalties
imposed for non-compliance could easily exceed the compliance costs. See Motion at
15 (detailing penalties). As in Edmondson, DMA members cannot recover these costs
from the State, due to its sovereign immunity under the Eleventh Amendment.
2. The Defendant Offers No Survey Evidence To Refute The
Prospective Lost Sales Demonstrated By The DMA.
As the Defendant concedes, and Edmondson held, lost future business also
constitutes irreparable injury for purposes of an injunction. See Opp. at 13; Edmondson,
194 F.3d at 1156, 1171. In support of its motion, the DMA presented the results of a
Mr. Gable’s opinion in this case must be weighed in light of serious questions about his
objectivity and credibility. Gable testified at his deposition that his firm has a $4 million contract
with the Colorado lottery, whose executive director is appointed by Ms. Huber (who also sits on
the lottery’s board). Gable Dep. at 83:17 – 86:20. The Colorado lottery work was not included
on his resume. Gable Dep. Ex. 108. In addition, Gable was ordered by two different states to
cease engaging in mortgage loan transactions through Intellichoice Mortgage Services LLC, a
company that Gable also did not include on his resume. Gable Dep. at 48:15 – 58:5 and Exs.
survey conducted by an internationally–respected research firm,6 regarding the effect of
the law on the future purchasing decisions of Colorado consumers, as well as the
corroborating testimony of one of the nation’s leading marketing experts, Professor
Kevin Keller.7 Nowhere in her opposition does the Defendant dispute Keller’s opinion
that the Act will harm retailers, potentially permanently. See Keller Dep. at 30:14 –
31:22 and Keller Decl. [Doc. 18], ¶¶ 6-9, 12-13.
The Defendant seeks to minimize the weight the Court should afford the survey
through the declaration of Donald Lichtenstein, but his criticisms are unfounded and
readily rebutted by Dr. Adler. See generally, Reply Ex. E (Adler Decl.). First, Professor
Lichtenstein’s opinion is unsupported by any counter-survey. See id. at 2 (¶4). The
RSG survey was disclosed to the Defendant on August 13, 2010, when the DMA filed
its motion. The Defendant and Lichtenstein had ample time to conduct their own survey
regarding the effects of the law on consumer purchasing decisions, but did not.
Second, three of the four criticisms raised in the Defendant’s opposition concern
the survey question regarding consumer privacy, rather than the issue of future
purchasing decisions now before the Court.8 The Defendant’s only criticism on that
Resource Systems Group, Inc. (“RSG”) and its founder, Thomas Adler have conducted
hundreds of surveys for major business (including American Airlines, Motorola, Ford, and Time
Warner) and governmental agencies (including the U.S. Department of Transportation, New
York MTA, and Texas DOT). See [Doc.19] (Adler Decl.) (filed 8/13/10), Ex. A (curriculum vitae)
at 1. Dr. Adler is not a professional “litigation witness,” he is a prominent researcher who has
conducted studies in 30 U.S. states, 5 Canadian provinces, and 20 other countries. Id.
Professor Keller’s textbook on consumer marketing is the best-selling textbook on the
subject in the world, Reply Ex. D (Keller Deposition) at 131:17 – 132:6, and his writings have
been recognized as among the most-influential works in the field of marketing over the past 25
years. See [Doc. 18] (Keller Decl.) (filed 8/13/10) Ex. A (curriculum vitae) at 12.
The criticisms of the privacy question are groundless, in any event. Reply Ex. E (Adler
Decl.) at 3-7. For example, Lichtenstein’s claim that the use of the phrase “kinds of products I
issue fundamentally misreads the survey. Adler Decl. at 9-10. Lichtenstein presents no
direct criticism of the survey’s core question, which shows that 67% of Colorado
consumers will decrease their purchases from out-of-state retailers. [Doc. 19], Ex.B at 6.
Lichtenstein instead insists that consumers’ stated intentions in response to a
survey do not equate to their actual behavior. He bases his conclusion, however, on
literature concerning utterly inapplicable surveys (e.g., presidential voting, weight loss,
and condom use), and not consumer purchasing decisions. Adler Decl. at 10-11. The
DMA’s experts contend that the survey represents strong evidence of consumers’ future
purchasing decisions. Keller Dep. at 124:17 – 128:10; Adler Dep. at 112:18 – 114:19.
The evidence shows a “significant risk” of irreparable harm to DMA members
“that cannot be compensated after the fact by monetary damages.” RoDa Drilling Co. v.
Siegal, 552 F.3d 1203, 1210 (10th Cir. 2009). In contrast, the only consequence to the
State that would result from the Court entering an injunction, if the Court ultimately
determines the law is constitutional, is a modest delay in the notice to consumers and in
the Department’s receipt of information regarding Colorado consumers’ purchases.
THE DEFENDANT’S COMMERCE CLAUSE ANALYSIS IS WRONG.
The Defendant argues that the Act is not motivated by a “protectionist” purpose
and, therefore, is non-discriminatory. In support of her argument that the Supreme
Court “has recently taken a more permissive approach” to state legislation under the
buy” misled respondents regarding the nature of the data to be disclosed to the Department
ignores the question’s introduction, which specifically informed respondents to assume that the
law requires out-of-state retailers “to report your name, billing address, shipping address, the
amount of your purchases and the name of the retailer to the Colorado Department of
Revenue.” Id. at 6-7; see [Doc. 19] (Adler Decl.)(filed 8/13/10), Ex. B (“Final Results”) at 18.
dormant Commerce Clause (Opp. at 17), the Defendant relies upon a narrow, and
inapplicable, exception derived from the state–as–market–participant doctrine. See
Department of Revenue of Kentucky v. Davis, 553 U.S. 328, 343-44 (2008) (“[t]his case,
like United Haulers, may also be seen under the broader rubric of the market
participation doctrine”). The Defendant asserts that this exception has become the rule
that supplants over 150 years of established constitutional law. The Defendant is wrong.
In two recent cases, the Supreme Court held that where a state law gives
preferential treatment to “a public facility [or enterprise], while treating all private
companies exactly the same,” the law should be analyzed differently than laws that
favor in-state businesses over their out-of-state competitors. United Haulers
Association, Inc. v. Oneida-Herkimer Solid Waster Authority, 550 U.S. 330, 340-45
(2007) (bracketed language added); Davis, 553 U.S. at 339-346. This narrow exception
in no way alters traditional Commerce Clause analysis of state laws that mandate
“differential treatment of in-state and out-of-state economic interests that benefits the
former and burdens the latter.” Oregon Waste Sys., Inc. v. Department of Envtl.
Quality, 511 U.S. 93, 99 (1994). Such discriminatory laws affecting purely private
interests continue to face a “virtually per se rule of invalidity” and only survive if the
State proves it has “no other means to advance a legitimate local purpose.” United
Haulers, 550 U.S. at 338-339 (internal citation omitted and emphasis added).
The new Colorado law challenged by the DMA does not favor a State enterprise
over private businesses. Rather, it prescribes onerous duties that apply to out-of-state
retailers but not to in-state Colorado retailers. The exception described in Davis and
United Haulers is, therefore, utterly inapplicable.9
The Defendant’s next argument that, even though Colorado law imposes criminal
sanctions on in-state retailers that fail to collect Colorado tax, the Act, nevertheless,
“applies equally to all retailers that sell to Colorado purchasers and do not collect sales
tax” (Opp. at 21), makes the DMA’s case. The Defendant insists that because the Act
treats criminally–operated in-state retailers the same as lawfully–operated out-of-state
retailers, the law is non-discriminatory. To state the argument is to prove its weakness.
There can be no serious doubt that the legislation was directed exclusively at
out-of-state retailers, with unique burdens imposed on their relations with customers.
The bill’s history and implementation make this clear. The title of the Act, as adopted by
the General Assembly and signed by the Governor, expressly refers to “sales made by
out-of-state retailers.” See Opp. Ex. 1. The Joint Budget Committee’s “Appropriations
Report: Fiscal Year 2010-11,” likewise explains that HB 10-1193 applies to “out-of-state
retailers that do not collect Colorado sales tax.”10 The Department’s own “Statement of
Basis and Purpose” for the Regulations states that HB 10-1993 “sets forth new criteria
for retailers who are not required to collect Colorado sales and use tax,” a category that
The fact that the Defendant denies a protectionist motive for the Act does not change
the constitutional analysis. A law may be discriminatory in either intent or effect, or both. See
Hughes v. Oklahoma, 441 U.S. 322, 336-37 (1979). Moreover, while the Defendant argues that
the “non-protectionist” purpose of the law is improving the collection of use tax due to the State
(Opp. at 19) that purported interest cannot make a law “non-discriminatory” within the meaning
of the Commerce Clause. As the Defendant concedes (id. at 18), the Supreme Court has
made clear a State’s interest in generating revenue cannot justify discrimination against
interstate commerce. C&A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 393 (1994).
Available at http://www.state.co.us/gov_dir/leg_dir/jbc/FY10-11apprept.pdf. Copies of
the relevant pages from sections on both the Department of Law (at 342) and Department of
Revenue (at 553) are attached to Reply Ex. G (Woock Decl.) as Ex. 1.
excludes all in-state retailers. Woock Decl., Ex. 2. Indeed, even the Department’s
“Template for Transactional Notice” provides a sample notice that begins “[COMPANY
NAME] is not required, and does not, collect Colorado sales or use tax.” (Emphasis
added.)11 The Court should reject the Defendant’s strained position, adopted for this
litigation, that the Act applies even-handedly to in-state and out-of-state retailers.12
The discriminatory effect of the Act is dramatic. The Defendant’s own expert
estimated that the law would affect up to 10,000 smaller, out-of-state Internet retailers,
in addition to many larger retailers within the Internet “Top 500.” Gable Dep. at 96:25 –
102:15. Even if the Act requires such retailers to incur only $5,000 in first-year costs
and $1,000 annually thereafter, the aggregate impact on interstate commerce would be
$50 million in the first year and $10 million per year thereafter. The DMA’s expert puts
the costs much higher. Furthermore, the survey and expert opinions presented to the
Court project a significant shift by consumers (43% according to RSG) to Colorado
retailers as a result of the law. See [Doc. 19], Ex. B at 6. Such discriminatory effects,
even for a statute having “facial neutrality” (which is not the case here), subject the law
Available on the DOR’s website and at Opp. Ex. 4 (Stevens Decl.), Ex. B. As this
sample notice highlights, the Defendant’s litigation argument that non-collecting in-state retailers
are expected to comply with the Act necessarily implies that such retailers, even as they are
violating Colorado law by not collecting the tax, are supposed to give a notice to the consumer
on each such unlawful transaction, informing the consumer that the in-state business is
breaking the law, but that the consumer will need to obey the law by self-reporting.
The fact that some out-of-state retailers volunteer or are required to collect Colorado
sales and use does not make the law non-discriminatory. It is not constitutionally-permissible to
discriminate against any portion of interstate commerce in favor of in-state interests. New
Energy Co. v. Limbach, 486 U.S 269, 273 (1988) (law burdening only one out-of-state company
violated the Commerce Clause). Moreover, as the Department’s own director of tax policy
admitted, the Act is expressly targeted at non-collecting out-of-state retailers with the goal of
imposing alternative burdens that are so severe that they will surrender their constitutional rights
under Quill Corp. v. North Dakota, 504 U.S. 298 (1992) and begin collecting Colorado use tax.
to strict scrutiny and require the State to prove it lacked non-discriminatory alternatives.
Hunt v. Washington State Apple Advertising Comm’n,432 U.S. 333, 352-53 (1977).
Since the Department now concedes that the Act has no purpose other than
generating revenue, a state interest which cannot justify discrimination against interstate
commerce, the Court need not even consider such non-discriminatory alternatives,
although there are many.13 It is important to recognize that the actual revenue estimate
associated with the Act, which the Defendant never mentions in her opposition or ten
supporting declarations, was projected at the time of enactment (see [Doc. 17], Ex. B) to
be $4.7 million per year ― slightly more than 2/1000ths (0.0022) of total sales/use tax
revenues, and less than 1/1000th (0.00067) of the total $7 billion in state tax revenues.
See Opp. Ex. 3 (Saliman Decl.) at ¶ 7. The inflated, and irrelevant, figure of over $130
million in uncollected tax referred to by her expert, William Fox, reflects his estimate of
total uncollected use tax in Colorado resulting from the state’s inability under Quill Corp.
v. North Dakota to require out-of-state retailers with no physical presence in the state to
collect the tax. Reply Ex. H (Fox Deposition) at 31:6 – 33:9.14 Tellingly, while decrying
Publicly-available reports detail many different programs Colorado could implement to
increase use tax compliance by consumers (both individuals and businesses), including: (1) a
line on its resident income tax return, like those used by 23 other states, including New York; (2)
increased audits of business consumers by the Department such as California has undertaken;
(3) consumer education campaigns like Maine’s recent effort; and (4) correspondence or other
consumer notification programs like those undertaken in Indiana, Rhode Island, Massachusetts
and Kentucky in recent years. Fox Dep. Ex. 101 at 2, 8 (Study by Minn. House of Reps.
Research Dept., http://www.house.leg.state.mn.us/hrd/pubs/usetax.pdf), and Ex. 106 at 1, 6
(Cal. BOE Revenue Estimate, http://www.boe.ca.gov/legdiv/pdf/e-commerce-11-09.pdf).
Professor Fox did no analysis of the revenue impact to HB 10-1193. Fox Dep. at
95:19-21. Fox’s estimates of the uncollected tax resulting from Quill’s nexus requirement are
disputed by others as wildly exaggerated. A more recent study (Eisenach and Litan) places the
figure at less than half that of Fox. Fox Dep. at 36:5 – 38:9 and Ex. 97. Moreover, Fox admitted
that his estimates take no account of either the Regulation’s “de minimis” seller threshold (which
the perceived effects of Quill and exaggerating the importance of the Act to the State’s
budget, the Defendant’s opposition and supporting declarations nowhere explain how
the Department will use the Act to increase tax collection from Colorado consumers.15
The Defendant correctly notes that the Act is not a tax law (Opp. at 25), but she
misunderstands the two-fold relevance of Quill. First, Quill is the subtext that underlies
this entire case: the Act is an unprecedented attempt by the State to circumvent the
limitations on its authority under Quill to require out-of-state retailers with no physical
presence in the state to collect use tax. By imposing alternative, discriminatory burdens
on retailers who exercise their rights under Quill and do not collect the tax, the State
seeks to compel them to surrender such rights, a strategy abhorrent to the Constitution.
Second, Quill is relevant because, along with National Bellas Hess v. Department
of Revenue, 386 U.S. 753, 759 (1967), it reflects application of the fundamental
“structural” concerns of the Commerce Clause to a segment of commerce that is
“inherently interstate.” As both the Supreme Court and the Tenth Circuit have
recognized, the Commerce Clause dictates that such national economic interests must
remain “free from interference by the States” through inconsistent laws and instead
require a “cohesive scheme of national regulation.” Kassel v. Consolidated Freightways
Corp., 450 U.S. 662, 669 (1981); Johnson, 194 F.3d at 1163.16
Fox concedes would reduce by nearly 40% the tax that could be collected) or the fact that most
Colorado local taxes are locally–administered and not collected by the State. Id. at 96:5- 98:17.
Because the Act is discriminatory, Pike v. Bruce Church, Inc., 397 U.S. 137 (1970)
does not apply, but the Act’s burden on interstate commerce clearly exceeds the local benefit.
The danger of conflicting state regulation posed by the Act’s requirements is already
evident. Oklahoma has enacted a conflicting Transactional Notice requirement. As Gable
conceded, if every state adopted its own Transactional Notice, the burdens and costs for
affected retailers would multiply. Gable Dep. 113:2–20 and Ex. 117 (Okla.Reg. 710:65–21–8).
As Quill itself makes clear, Congress, rather than individual states or the courts,
is “better qualified to resolve” the underlying tension between the state interest in tax
collection and burdens imposed on interstate commerce. 504 U.S. at 316. Indeed,
there is currently legislation before Congress addressing this issue. H.R. 5660, 111th
Cong. (2009-2010), available at http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.5660.
As recognized in Quill, “it may be that ‘the better part of both wisdom and valor is to
respect the judgment of [Congress]’” on the perceived problem of uncollected use tax.
Id. at 318-19. Even the Defendant’s expert, Professor Fox, agrees that action by
Congress is preferable to individual state efforts that may violate the Commerce Clause.
Fox Dep. at 34:16 – 36:4.
The cases cited by the Defendant do not compel a different result. American
Target Advertising, Inc. v. Giani, 199 F.3d 1241 (10th Cir. 2000), involved a Utah statute
requiring “all professional fundraising consultants to register with the state and obtain a
permit.” 199 F.3d at 1246. In stark contrast, the current case, like Quill, involves the
imposition of onerous, and potentially conflicting, reporting burdens that attach to every
sales transaction. The parallel is direct: Quill concerned the collection of use tax from
consumers on behalf of the State, while the present burden involves reporting
confidential consumer purchase information to the State. In Quik Payday, Inc. v. Stork,
549 F.3d 1302, 1312-13 (10th Cir. 2008), the Tenth Circuit held that merely requiring an
Internet lender to obtain a state license did not unduly burden interstate commerce. The
Court, however, reaffirmed Johnson’s holding that the Commerce Clause prevents
burdensome, inconsistent regulation of the Internet, like that imposed by the Act. Id.
The continuing vitality of Quill in limiting state efforts to regulate interstate
commerce is illustrated by the recent case of Hemi Group LLC v. City of New York, 130
S.Ct. 983 (2010), in which the Court rejected an effort by the City to find a creative way
to “end-run its lack of authority” under Quill. Id. at 994 (Ginsburg, J. concurring). To
borrow from Justice Roberts’ conclusion for the majority, in the context of HB 10-1193:
It bears remembering what this case is about. It is about notice and reporting
obligations, and attendant harm, imposed upon out-of-state companies with respect to
“lost” use taxes that the companies “had no obligation to collect, remit, or pay, which
harmed a party [Colorado] to whom the companies owed no duty.” 130 S.Ct at 994. It
is about imposing such notice and reporting obligations “to substitute for or complement
a governing body’s uncertain ability or desire to collect taxes directly from those who
owe them [Colorado’s businesses and individuals].” Id. The State’s “injuries” resulting
from such unreported use taxes were not caused by out-of-state companies; the State
cannot impose discriminatory and burdensome obligations upon such companies in an
effort to remedy such perceived injuries. The Act and Regulations should be enjoined.
Dated: November 29, 2010
s/ George S. Isaacson
George S. Isaacson
Matthew P. Schaefer
BRANN & ISAACSON
184 Main Street, P. O. Box 3070
Lewiston, ME 04243−3070
Tel. (207) 786−3566
Attorneys for The Direct Marketing
CERTIFICATE OF SERVICE
I hereby certify that on November 29, 2010, I electronically filed the foregoing,
Plaintiff’s Reply to the Defendant’s Response In Opposition to Plaintiff’s Motion for a
Preliminary Injunction [Doc. 50], using the CM/ECF system, which will send notification
of such filing to counsel of record:
Jack Wesocky, Jr.
Senior Assistant Attorney General
State of Colorado
1525 Sherman Street, 7th Floor
Denver, CO 80203
Stephanie Lindquist Scoville
Senior Assistant Attorney General
State of Colorado
1525 Sherman Street, 7th Floor
Denver, CO 80203
Melanie J. Snyder
Assistant Attorney General
State of Colorado
1525 Sherman Street, 7th Floor
Denver, CO 80203
Attorneys for Defendant
s/ George S. Isaacson
George S. Isaacson