Direct Marketing Association, The v. Huber

Filing 10

FIRST AMENDED COMPLAINT against Roxy Huber, filed by Direct Marketing Association, The.(Isaacson, George) Modified on 7/26/2010 to note that the document is the First Amended Complaint (sah, ).

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Civil Action No. 10–CV–01546–REB–CBS

The Direct Marketing Association,
Plaintiff,
v.
Roxy Huber, in her capacity as Executive
Director, Colorado Department of Revenue,
Defendant.
______________________________________________________________________
FIRST AMENDED COMPLAINT
______________________________________________________________________

The Plaintiff, the Direct Marketing Association (“the DMA”), brings this complaint
for declaratory and injunctive relief against the Defendant, Roxy Huber, in her capacity
as the Executive Director of the Colorado Department of Revenue (“Department”), and
states as follows:
Introduction
1.

This is an action by the DMA, the nation’s largest trade association of

businesses and nonprofit organizations marketing products directly to consumers via
mail order, telephone orders, and the Internet, to enjoin enforcement by the Defendant
of the unconstitutional requirements of a new Colorado law specifically targeted at outof-state retailers. The new law represents an unprecedented attempt by the State, in

violation of multiple constitutional protections, to compel businesses and organizations
located outside of Colorado to report to the Department the identities and purchasing
behavior of their customers who reside both within and outside the state. Effective
March 1, 2010, the State of Colorado enacted House Bill 10-1193, an act “Concerning
The Collection Of Sales And Use Taxes On Sales Made By Out-Of-State Retailers, And
Making An Appropriation Therefor” (“the Act”). The Act purports to require retailers
located outside the state who have no obligation to collect Colorado sales tax to notify
each of their Colorado customers of the customer’s obligation to self-report use tax, and
to disclose to the Department the name and the amount of purchases of each Colorado
customer. The notice and reporting requirements of the Act, and of the regulations
promulgated thereunder by the Department, violate both the United States Constitution
and the Colorado Constitution by: (a) imposing discriminatory treatment on out-of-state
retailers lacking any physical presence in the state; (b) trampling the right to privacy of
Colorado residents, as well as certain non-residents; (c) chilling the exercise of free
speech by certain purchasers and vendors of products that have expressive content; (d)
exposing confidential information regarding consumers and their purchases to the risk
of data security breaches; and (e) depriving retailers, without due process or fair
compensation, of both the value of their proprietary customer lists and the substantial
investment made to protect such lists from disclosure. DMA members and their
Colorado purchasers will suffer irreparable harm to their constitutionally protected rights
and interests as a result of the notice and reporting requirements imposed under the
Act. The DMA, on behalf of its affected members and their customers, seeks a

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declaration that the Act’s provisions, and the Department’s regulations to implement
them, are unconstitutional, and also seeks an injunction preventing the Defendant from
enforcing the Act.
The Parties
2.

The Plaintiff, the Direct Marketing Association, is a not-for-profit

corporation with headquarters in New York, New York. Founded in 1917, the DMA is
the leading trade association of businesses and nonprofit organizations using and
supporting multichannel marketing methods, with more than 3,000 members from all
fifty states and numerous foreign countries. Members of the DMA market their products
directly to consumers via catalogs, magazine and newspaper advertisements,
broadcast media, and the Internet.
3.

The Defendant, Roxy Huber, is the duly appointed Executive Director of

the Colorado Department of Revenue (“Department”). The Defendant is charged with
the enforcement of the Act and the regulations promulgated by the Department
pursuant to the Act.
Jurisdiction and Venue
4.

The Court has federal question jurisdiction over this action pursuant to 28

U.S.C. § 1331, as well as jurisdiction under 42 U.S.C. § 1983, because the action
presents multiple claims arising under the Constitution of the United States. The Court
also has jurisdiction under the doctrine of Ex parte Young, 209 U.S. 123 (1908). This
lawsuit does not seek to enjoin, suspend or restrain the assessment, levy or collection
of any tax.

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5.

The Court has supplemental jurisdiction over the DMA’s claims for

violation of the Colorado Constitution pursuant to 28 U.S.C. § 1367(a), because such
claims are so related to the DMA’s claims for violation of the United States Constitution
that they form part of the same case or controversy. All of the DMA’s claims arise out of
the same statutory and regulatory requirements imposed on affected out-of-state
retailers under the Act and have a common nucleus of operative facts.
6.

Venue is proper in this court pursuant to 28 U.S.C. § 1391(b).
Standing

7.

The DMA has standing to bring this action on behalf of affected DMA

members and their customers pursuant to the standards for association standing
established by the Supreme Court in Hunt v. Washington Apple Advertising
Commission, 432 U.S. 333 (1977), and the principles of jus tertii standing set forth in
Craig v. Boren, 429 U.S. 190 (1976). A central purpose of the DMA is to advance the
interests of direct marketers in securing fair and non-discriminatory treatment under
both federal and state laws and regulations. Hundreds of DMA members with no
physical presence in Colorado who would have standing in their own right are
purportedly subject to the unconstitutional notice and reporting requirements of the Act,
which, in turn, directly implicate the privacy and free speech rights of the members’
Colorado customers. Affected DMA members face injuries as a result of the Act which
are real, immediate and direct. No individual retailer’s participation is required for the
relief sought by the DMA to redress the injuries suffered by DMA members ― a
declaration that the notice and reporting obligations imposed on out-of-state retailers

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under the Act are unconstitutional, on their face and as applied, and an injunction
prohibiting their enforcement.
Factual Background
8.

Direct to consumer marketing via catalog, print and broadcast media, and

the Internet allows business of all sizes, as well as non-profit organizations including
educational, religious, political and advocacy groups, to reach consumers nationwide,
including in Colorado. The diversity of different organizations relying upon direct
marketing methods, and of the products and services they offer to consumers, is
virtually limitless.
9.

Retailers utilizing direct marketing methods do not need to have facilities,

employees or personal property in a state to sell products and /or services to
consumers in the state. Many direct marketers have no physical presence in Colorado,
but sell products and services to Colorado consumers from outside the state using the
instrumentalities of interstate commerce.
10.

The ability to reach a nationwide clientele allows and encourages

specialized businesses and organizations engaged in direct marketing to target their
products and services to consumers having very specific interests, needs and
preferences. Consequently, many businesses and organizations that sell directly to
consumers are closely identified with particular product categories, personal concerns,
and belief systems of relevance to their customers. In many circumstances, the mere
status of an individual as a customer of such a remote seller will reveal personal
information about the purchaser, including not only the purchaser’s private interests and

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individual predilections, but also, for example, his or her religious beliefs, political
opinions, medical conditions, financial situation, family issues, or sexual orientation. In
addition, many such remote sellers also offer products that contain or embody
expressive content, including books, magazines, video and audio recordings, art work,
and advocacy materials concerning the seller’s particularized focus with respect to,
among other things, potentially controversial, unpopular, revealing, personal and/or
sensitive subject matters.
11.

The DMA is a national association of remote sellers, the great majority of

whom are located outside of Colorado.
12.

The DMA’s members include businesses and organizations engaged in

every type of direct-to-consumer marketing and offering a vast array of different
products and services.
13.

DMA members enter into remote sales transactions with thousands of

Colorado consumers and businesses each day.
14.

The identities, contact information, and recent purchasing histories of a

direct marketer’s customers (“Customer List”) constitute valuable, proprietary, trade
secrets. Retailers, including DMA members, invest substantial resources in compiling,
maintaining and protecting from disclosure to competitors and other unauthorized thirdparties such Customer Lists.
15.

Retailers, including DMA members, are obligated pursuant to numerous

federal and state laws, as well as their own privacy policies, to maintain the
confidentiality of certain information collected from customers and to protect it from

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unauthorized disclosure to third-parties. Retailers invest substantial resources to
ensure that such confidential customer information is protected against data breaches
that may expose customers to a risk of identity theft or other injury.
16.

Retailers with a physical presence in Colorado are required under

Colorado law to obtain a sales tax license from the Department and to collect and remit
Colorado sales tax to the Department on all non-exempt, retail sales.
17.

Retailers that have no office, store, property, employees or other physical

presence in Colorado are not obligated under Colorado law, and are protected by the
Commerce Clause of the United States Constitution from being required, to collect
Colorado sales tax on retail sales to Colorado consumers. Many DMA members with
no physical presence in Colorado do not collect Colorado sales tax.
18.

For retail sales on which the retailer does not collect sales tax, Colorado

law requires the purchaser to self-report the transaction and remit use tax to the
Department.
19.

Colorado purchasers are expected to report their use tax liability on a

Colorado Consumer Use Tax Return, Form DR 0252W.
20.

Colorado’s Individual Income Tax Return, Form 104, does not include a

section enabling Colorado taxpayers to report their use tax when reporting their state
income tax. The individual income tax returns of more than twenty other states include
a section for a taxpayer to report and pay consumer’s use tax in order to facilitate their
citizens’ self-reporting of use tax.

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The Act’s Notice and Reporting Provisions and the Obligations
Imposed On Out-Of-State Retailers Under The Act and Department Regulations
21.

Enacted in February 2010, the Act imposes new notice and reporting

obligations upon “each retailer that does not collect Colorado sales tax,” as codified at
Colorado Revised Statutes § 39-21-112(3.5). Because retailers that are located in
Colorado must collect Colorado sales tax, each retailer that does not collect Colorado
sales tax is, by definition, located outside the state. Thus, the Act imposes notice and
reporting obligations solely on retailers who have no physical presence in Colorado and
who make sales to Colorado purchasers via the instrumentalities of interstate
commerce. The Act does not impose these notice and reporting obligations upon
Colorado retailers.
22.

Under the Act, each retailer that does not collect Colorado sales tax is

required to: (a) notify its customers that Colorado sales tax is due on certain sales by
the retailer and that the purchaser is required to report such tax to the Department
(“Transactional Notice”); (b) send to each Colorado customer by First Class Mail an
annual statement containing certain information regarding the customer’s purchases
during the prior year and informing the customer that s/he is required to report sales/use
tax to the Department (“Annual Purchase Summary”); and (c) file with the Department
an annual report identifying each Colorado purchaser and setting forth the total amount
of the customer’s purchases from the retailer during the prior calendar year (“Customer
Information Report”). C.R.S. § 39-21-112(3.5).
23.

The Department has promulgated regulations that set forth requirements

for the content and delivery of the Transactional Notice, the Annual Purchase Summary,
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and the Customer Information Report. On February 28, 2010, the Department
promulgated an emergency regulation regarding the Transactional Notice that applies
prior to the effective date of permanent regulations. On June 18, 2010, the Department
modified the emergency regulation and adopted a permanent regulation for the
Transactional Notice, the Annual Purchase Summary, and the Customer Information
Report (“Regulations”).
24.

The Act by its terms applies to all businesses and organizations that sell

goods at retail to Colorado purchasers and do not collect Colorado sales tax. The
Regulations provide that retailers whose Colorado sales are “de minimis” within the
meaning of the Regulations are not subject to the Act’s notice and reporting
requirements. Reg. 39-21-112.3.5(1)(a)(iii). Many DMA members with no physical
presence in Colorado that do not collect Colorado sales tax have annual gross sales in
Colorado, and reasonably expect future annual gross sales in Colorado, that exceed the
“de minimis” amount set forth in the Regulations and thus are affected by the
requirements of the Act and Regulations.
25.

The Regulations define “Colorado purchaser” to mean, with respect to

sales of goods that are shipped, any purchaser who requests that goods be shipped to
Colorado, including a purchaser located outside of Colorado who requests that the
goods purchased be shipped to a recipient located in Colorado. Reg. 39-21112.3.5(1)(b)(i). The Regulations do not require that the out-of-state purchaser have
any connection to Colorado other than requesting that goods be shipped into the state.
Colorado purchasers are thus defined to include not only Colorado residents, but also

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any residents of other states who purchase from an affected out-of-state retailer and
request that the retailer ship the goods to a location in Colorado. On information and
belief, each year there are hundreds of thousands of Colorado purchasers who make
purchases from affected out-of-state retailers.
26.

Under the Act and Regulations, out-of-state retailers that agree to collect

Colorado sales tax, even though they have no obligation to collect sales tax under
Colorado law and the United States Constitution, are not required to comply with the
requirements for Transactional Notice, Annual Purchase Summary, or Customer
Information Report.
27.

The Department’s Tax Policy Director has stated publicly that he believes

most affected retailers would choose to collect Colorado sales tax to avoid the more
unpleasant option of having to send tax notices to their customers.
28.

The Act and Regulations contain no provisions setting data security

standards to which the Department must, or will seek to, adhere, in order to ensure the
protection of the Customer List information that must be submitted to the Department by
affected retailers in their Customer Information Reports.
29.

The Department was cited in a May 2008 Report of the State Auditor for

its failure to take appropriate measures to protect the confidentiality of personally
identifiable information that it maintains in its databases.
30.

The Act includes an appropriation of moneys from the General Fund, not

otherwise appropriated to the Department, for implementation of the Act. According to
the Colorado Legislative Counsel Staff Fiscal Note dated February 8, 2010 (“Fiscal

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Note”), only $30,000 is appropriated by the Act for Operating Expense and Capital
Outlay, with the remainder appropriated for the cost of full time or temporary employees
of the Department. On information and belief, and based on the Fiscal Note, this
$30,000 appropriation is intended for the development of an online tax payment system
for consumer’s use tax by customers of affected out-of-state retailers whose names and
purchase information must be included in the Customer Information Reports, rather than
to implement measures to safeguard the Customer List information submitted by
affected retailers.
31.

The Fiscal Note indicates that the Department will hire one half-time

employee whose responsibilities will be to “maintain records regarding online retailers,
including seeking out and investigating retailers, sending letters, responding to calls,
and building a database to track information.”
32.

On information and belief, the Act contains no appropriation for the

Department to develop or implement procedures or systems to ensure the security of
the confidential, valuable, proprietary Customer Lists to be submitted by affected out-ofstate retailers in their Customer Information Reports, or to protect the private, personal
information of the retailers’ Colorado consumers contained in such Customer
Information Reports.
The Transactional Notice
33.

Under the Act and Regulations, each retailer that does not collect

Colorado sales tax is required, in connection with each sale to a Colorado purchaser, to
provide a Transactional Notice informing the purchaser that: (a) the retailer does not

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collect Colorado sales tax; (b) the purchase is not exempt from Colorado sales or use
tax merely because it is made over the Internet or by other remote means; and (c) that
the State of Colorado requires the purchaser to file a sales or use tax return and pay the
tax on those purchases. See C.R.S. § 39-21-112(3.5)(c); Reg. 39-21-112.3.5(2)(b).
The Transactional Notice must be clearly legible and prominently displayed to the
customer. Reg. 39-21-112.3.5(2)(d).
34.

Affected retailers that fail to provide the Transactional Notice to Colorado

purchasers in connection with each sale are penalized five dollars for each such failure.
C.R.S. § 39-26-112(3.5)(c)(II); Reg. 39-21-112.3.5(2)(f).
35.

Affected out-of-state retailers must incur time and expense, and alter their

standard business practices, to comply with the Transactional Notice requirements.
36.

Colorado retailers are not required to give the Transactional Notice and

are not subject to the same burdens imposed on out-of-state retailers by the Act and
Regulations.
The Annual Purchase Summary
37.

The Act requires each retailer that does not collect Colorado sales tax to

send an Annual Purchase Summary to each of its Colorado purchasers by January 31
of each year concerning the prior calendar year. C.R.S. § 39-21-112(3.5)(d)(I)(A).
Pursuant to the Department’s Regulations, affected retailers may, but are not required
to, send the Annual Purchase Summary to certain purchasers whose purchases are
deemed “de minimis” under the Regulations. Reg. 39-21-112.3.5(3)(c). Many affected
DMA members have Colorado purchasers whose purchases exceed the “de minimis”

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amount set forth in the Regulations and will be required to send one or more Annual
Purchase Summaries to Colorado purchasers.
38.

Under the Act and Regulations, each affected out-of-state retailer is

required to send the Annual Purchase Summary separately to its Colorado purchasers
via First-Class Mail, not included with other shipments, and must include the words
“Important Tax Document Enclosed” on the exterior of the mailing. C.R.S. § 39-21112(3.5)(d)(I)(B); Reg. 39-21-112.3.5(3)(a)(i). Because the term “Colorado purchaser”
includes customers located outside the state who request that goods be shipped into
Colorado, affected out-of-state retailers are required to send the Annual Purchase
Summary to certain customers residing outside of Colorado.
39.

The Annual Purchase Summary provided to Colorado purchasers must

state the total dollar amount of the customer’s Colorado purchases from the retailer in
the previous calendar year, including the date, amount and category of each purchase
from the retailer. The Annual Purchase Summary must also inform the purchaser that
the State of Colorado requires the purchaser to file a sales or use tax return and pay tax
on taxable purchases made from the retailer on which no tax was collected. C.R.S.
§ 39-21-112(3.5)(d)(I)(A); Reg. 39-21-112.3.5(3)(a)(ii), (iii). The Annual Purchase
Summary must also inform the customer that the retailer is required by law to report to
the Department the total dollar amount of purchases made by the purchaser. Reg. 3921-112.3.5(3)(a)(iv).
40.

Under the Act and Regulations, affected out-of-state retailers that fail to

send Annual Purchase Summaries to Colorado purchasers are penalized ten dollars for

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each such failure, absent reasonable cause. C.R.S. § 39-21-112(3.5)(d)(III)(A); Reg.
39-21-112.3.5(3)(d).
41.

Affected out-of-state retailers who are required to provide customers the

Annual Purchase Summary will incur substantial time and expense in preparing and
mailing such Annual Purchase Summaries, including, but not limited to, computer
programming costs and the postage charges associated with sending Annual Purchase
Summaries to customers via First-Class Mail.
42.

The standard United States Postal Service (“USPS”) charges for letters

sent via First-Class Mail begin at $0.44 per mail piece, and increase with size and
weight. Such rates are set forth at:
http://www.usps.com/send/waystosendmail/senditwithintheus/firstclassmail.htm.
43.

A substantial majority of Colorado consumers who purchase from out-of-

state retailers, when informed that an out-of-state retailer must report their names and
the amount of their purchases to the Department, consider such reporting an invasion of
their privacy and will discontinue or decrease their purchases from such retailers as a
result. On information and belief, customers of affected out-of-state retailers who reside
outside of Colorado will likewise consider the reporting of their names and purchase
amounts to the Department – a revenue agency in a foreign state – improper and an
invasion of their privacy, and may discontinue or decrease their purchases from affected
retailers as a result. Affected retailers who comply with the Annual Purchase Summary
requirements thus risk losing sales and alienating customers, and face substantial
monetary penalties under the Act if they do not comply.

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44.

Colorado retailers are not subject to the same burdens or expense

because they are not required to provide their customers the Annual Purchase
Summary.
The Customer Information Report
45.

Each retailer that does not collect Colorado sales tax is required to file

with the Department on or before March 1 of each year a Customer Information Report
concerning its Colorado purchasers showing the total amount paid by the customer for
purchases from the retailer during the prior calendar year. C.R.S. § 39-21112(3.5)(d)(II).
46.

The Customer Information Report must include, in regard to each

Colorado purchaser: the name of the customer; the billing address of the customer; all
shipping addresses used by the customer; and the total dollar amount of purchases for
the customer. Reg. 39-21-112.3.5(4)(a), (b).
47.

An affected out-of-state retailer who provides any customer with an

Annual Purchase Summary is required to include in its Customer Information Report
filed with the Department information with respect to all of the retailer’s Colorado
purchasers, even those customers whose purchases were deemed “de minimis.” Reg.
39-21-112.3.5(4)(e). Many affected DMA members have Colorado purchasers whose
purchases exceed the “de minimis” amount set forth in the Regulations and will be
required to file a Customer Information Report with the Department. Because affected
out-of-state retailers are not required to provide an Annual Purchase Summary to “de
minimis” Colorado purchasers but, nonetheless, are required to include the name,

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address, “ship to” information, and purchase amount for such “de minimis” purchasers
in the Customer Information Report submitted to the Department, many Colorado
purchasers will receive no prior notice that their name, address and purchase amount
information are being provided to the Department.
48.

Moreover, because the Regulations provide that the term “Colorado

purchaser” includes customers located outside of Colorado who ship goods into the
state, affected out-of-state retailers will be required to report to the Department not only
the names, addresses, “ship to” information, and purchase amounts of the retailers’
Colorado customers, but also the names, addresses, “ship to” information and purchase
amounts of many customers residing in states other than Colorado.
49.

Affected retailers with more than $100,000 in Colorado gross sales during

the prior calendar year are required to file the Customer Information Report
electronically. Reg. 39-21-112.3.5(4)(c). The Regulations contain no standards for data
security concerning the transmission, receipt, maintenance or disposal of Customer
Information Reports filed by out-of-state retailers.
50.

Moreover, there is a substantial risk of public disclosure of the purchasers’

personal information submitted to the Department. The Act contains no provision
restricting the release of information contained within the Customer Information Reports.
In addition, the Department has been cited in the past for failing to take adequate steps
to ensure the security of personally identifiable information in its custody. Whether
through intention, inadvertence, misconduct, or data breach, there is a real risk that

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sensitive, personal information contained in the Customer Information Reports will
become public.
51.

Under the Act, affected out-of-state retailers that fail to file the Customer

Information Report with the Department are penalized ten dollars for each Colorado
purchaser whose information should have been included in the Customer Information
Report, absent reasonable cause. C.R.S. § 39-21-112(3.5)(d)(III)(B).
52.

A substantial majority of Colorado consumers who purchase from out-of-

state retailers, when informed that an out-of-state retailer must report their names and
the amount of their purchases to the Department, consider such reporting an invasion of
their privacy and will discontinue or decrease their purchases from such retailers as a
result. On information and belief, customers of affected out-of-state retailers who reside
outside of Colorado will likewise consider the reporting of their names and purchase
amounts to the Department – a revenue agency in a foreign state – an invasion of their
privacy, and may discontinue or decrease their purchases from affected retailers as a
result. Affected retailers who comply with the Customer Information Report
requirements thus risk losing sales and alienating customers, and face substantial
monetary penalties under the Act if they do not comply.
53.

Colorado retailers are not subject to the same burdens or expense as

affected out-of-state retailers because they are not required to file a Customer
Information Report with the Department for all of their Colorado customers and out-ofstate “Colorado purchasers.”

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COUNT I
Pursuant to 42 U.S.C. § 1983 and 28 U.S.C. § 2201
For Discrimination Against Interstate Commerce in Violation
of the Commerce Clause of the United States Constitution, Art. I, Sec. 8, Cl. 3
54.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–53 as if fully set forth herein.
55.

The Commerce Clause of the United States Constitution, Article I, Section

8, Clause 3, provides that Congress has the power to regulate commerce among the
states. Under the Commerce Clause, state laws may not discriminate against or burden
interstate commerce.
56.

The Act and Regulations discriminate against interstate commerce.

57.

The Act and Regulations impose upon out-of-state retailers who do not

collect Colorado sales tax, including affected DMA members, notice and reporting
obligations concerning the Transactional Notice, the Annual Purchase Summary, and
the Customer Information Report that the Act does not impose on Colorado retailers.
58.

The Transactional Notice, the Annual Purchase Summary, and the

Customer Information Report requirements burden affected out-of-state retailers to the
benefit of in-state retailers with whom they compete.
59.

Affected out-of-state retailers will incur compliance costs that Colorado

retailers will not incur, including, but not limited to, the costs of sending the Annual
Purchase Summary to each Colorado customer via First-Class Mail.
60.

Affected out-of-state retailers will lose sales and revenue as a result of the

Act’s requirements. Many Colorado consumers are less likely to purchase products
from out-of-state retailers who must file a Customer Information Report with the
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Department regarding the consumer’s Colorado purchases from the retailer, because
they consider such disclosure an invasion of their privacy. Many such consumers will
instead seek to purchase the same or similar items from a retailer located in Colorado
that is not required to file a Customer Information Report. Affected retailers will also
alienate customers who reside outside of Colorado and whose name, address and
purchase amount information must be reported to the Department under the
Regulations.
61.

Affected out-of-state retailers who fail to comply with the requirements of

the Act and Regulations are subject to substantial monetary penalties under the Act.
62.

There is no legitimate justification for the Act’s discriminatory treatment of

out-of-state retailers that cannot be served by reasonable nondiscriminatory
alternatives.
63.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is liable pursuant to 42 U.S.C. § 1983 for the deprivation of the rights
secured for out-of-state retailers by the Commerce Clause.
64.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a), to declare the

rights of affected out-of-state retailers, including DMA members.
65.

The DMA is entitled to declaratory and injunctive relief, and attorneys’ fees

pursuant to 42 U.S.C. § 1988, as requested below.

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COUNT II
Pursuant to 42 U.S.C. § 1983 and 28 U.S.C. § 2201
For Improper Regulation of Interstate Commerce in Violation
of the Commerce Clause of the United States Constitution, Art. I, Sec. 8, Cl. 3
66.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–65 as if fully set forth herein.
67.

The Commerce Clause of the United States Constitution limits the power

of the states, including Colorado, to regulate interstate commerce.
68.

Under the Commerce Clause, there must be a sufficient, minimum

connection between an out-of-state retailer and a state, in the form of a physical
presence, before the state may impose regulatory obligations on such retailers of the
type imposed by the Act and Regulations. The Commerce Clause further bars state
laws that unduly burden interstate commerce.
69.

The State of Colorado lacks sufficient connection to the out-of-state

retailers targeted by the Act’s notice and reporting requirements to allow the State to
impose such obligations upon them consistent with the Commerce Clause.
70.

The requirements with respect to the Transactional Notice, the Annual

Purchase Summary, and the Customer Information Report imposed under the Act and
Regulations expressly apply only to out-of-state retailers, including DMA members, with
no physical presence in Colorado. Affected retailers who fail to comply with the
requirements of the Act and Regulations are subject to substantial monetary penalties
under the Act.
71.

The notice and reporting requirements imposed under the Act and

Regulations also seek to regulate transactions in interstate commerce between non- 20 -

Colorado retailers and non-Colorado purchasers, by requiring affected retailers to
provide Annual Purchase Summaries to so-called “Colorado purchasers” located
entirely outside the state, and by requiring affected retailers to include such so-called
“Colorado purchasers” located outside the state in the Customer Information Reports
filed with the Department.
72.

The Act and Regulations do not promote a constitutionally significant

interest of local concern that justifies the improper and burdensome regulation of
interstate commerce.
73.

By relieving out-of-state sellers who agree to collect Colorado sales tax on

purchases by Colorado customers from the Act’s requirements and penalty provisions,
the Act further seeks improperly to coerce affected out-of-state sellers to surrender their
protection under the Commerce Clause in order to avoid the burdens and penalties
imposed by the Act.
74.

The requirements with respect to the Transactional Notice, the Annual

Purchase Summary, and the Customer Information Report are invalid under the
Commerce Clause.
75.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is liable pursuant to 42 U.S.C. § 1983 for the deprivation of the rights
secured for out-of-state retailers by the Commerce Clause.
76.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a), to declare the

rights of affected out-of-state retailers, including DMA members.

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77.

The DMA is entitled to declaratory and injunctive relief, and attorneys’ fees

pursuant to 42 U.S.C. § 1988, as requested below.
COUNT III
Pursuant to 42 U.S.C. § 1983 and 28 U.S.C. § 2201
For Violation of the Right of Privacy of Colorado Consumers
Guaranteed under the United States Constitution
78.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–77 as if fully set forth herein.
79.

The United States Constitution protects an individual’s right of privacy with

respect to information concerning personal matters.
80.

An individual’s status as a purchaser from certain businesses and

organizations, including various direct marketers, will reveal personal information about
the purchaser, including not only the purchaser’s private interests and individual
predilections, but also, among other things, potentially his or her religious beliefs,
political opinions, medical conditions, financial situation, family concerns, or sexual
orientation. Colorado purchasers making purchases from such businesses and
organizations have a reasonable expectation of privacy with respect to their purchasing
information.
81.

Non-profit organizations, including political, educational, social, literary,

religious, and advocacy groups, making sales at retail are deemed to be “retailers”
required to collect sales tax on sales of non-exempt products and services under
Colorado law. Out-of-state nonprofit organizations that make non-exempt retail sales
and do not collect Colorado sales tax are, therefore, subject to the Act’s notice and
reporting requirements.
- 22 -

82.

The requirement to file a Customer Information Report applies to all

affected out-of-state businesses and organizations without any exception for retailers
whose identity, mission or product line will reveal personal matters concerning their
customers. Moreover, affected out-of-state retailers must file a Customer Information
Report regarding not only Colorado consumers, but also certain customers residing in
states other than Colorado, including “de minimis” purchasers both inside and outside
the state who will receive no prior notice that their information is being provided to the
Department. Affected retailers who fail to comply with the requirements of the Act and
Regulations are subject to substantial monetary penalties under the Act.
83.

The requirement of the Act and Regulations that each retailer that does

not collect Colorado sales tax must file a Customer Information Report with the
Department is overbroad and will, in a substantial number of its applications, result in
the disclosure to the Department of personal information regarding Colorado purchasers
that is protected from disclosure by the right of privacy guaranteed under the United
States Constitution.
84.

The privacy interests of Colorado purchasers with respect to purchasing

information that reveals protected personal matters outweigh any interest the State of
Colorado has in obtaining such purchasing information from out-of-state retailers.
85.

The Act and Regulations contain no provisions by which a Colorado

purchaser whose protected personal matters will be reported to the Department in a
Customer Information Report may assert his or her right to privacy before disclosure of
such information to the Department occurs. Moreover, there is no requirement that “de

- 23 -

minimis” purchasers receive any formal notice that affected retailers are required to
submit their names and purchasing information to the Department. The Act and
Regulations thus fail to establish an appropriate legal process to ensure protection of an
individual’s privacy rights.
86.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is liable pursuant to 42 U.S.C. § 1983 for the deprivation of the privacy
rights of Colorado purchasers secured by the Constitution.
87.

The DMA has standing to assert the rights of Colorado purchasers

because the Act imposes upon out-of-state retailers, including affected DMA members,
the requirement to disclose the private, personal information of their Colorado
customers.
88.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a), to declare the

rights of Colorado purchasers and out-of-state retailers.
89.

The DMA is entitled to declaratory and injunctive relief, and attorneys’ fees

pursuant to 42 U.S.C. § 1988, as requested below.
COUNT IV
Pursuant to C.R.S. § 13-51-101 et seq. and 28 U.S.C. § 2201
For Violation of the Right of Privacy of Colorado Consumers
Guaranteed under the Colorado Constitution
90.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–89 as if fully set forth herein.
91.

The Colorado Constitution protects an individual’s right of privacy with

respect to information concerning personal matters.

- 24 -

92.

An individual’s status as a purchaser from certain businesses and

organizations, including various direct marketers, will reveal personal information about
the purchaser, including not only the purchaser’s private interests and individual
predilections, but also, among other things, potentially his or her religious beliefs,
political opinions, medical conditions, financial situation, family issues, or sexual
orientation. Colorado purchasers making purchases from such businesses and
organizations have a reasonable expectation of privacy with respect to their purchasing
information.
93.

Non-profit organizations, including political, educational, social, literary,

religious, and advocacy groups, making sales at retail are deemed to be “retailers”
required to collect sales tax on sales of non-exempt products and services under
Colorado law. Out-of-state nonprofit organizations that make non-exempt retail sales
and do not collect Colorado sales tax are, therefore, subject to the Act’s notice and
reporting requirements.
94.

The requirement to file a Customer Information Report applies to all

affected out-of-state businesses and organizations without any exception for retailers
whose identity, mission or product line will reveal personal matters concerning their
customers. Moreover, affected out-of-state retailers must file Customer Information
Reports regarding not only Colorado consumers, but also certain customers residing in
states other than Colorado, including “de minimis” purchasers both inside and outside
the state who will receive no formal notice that their information is being provided to the

- 25 -

Department. Affected retailers who fail to comply with the requirements of the Act and
Regulations are subject to substantial monetary penalties under the Act.
95.

The requirement of the Act and Regulations that each retailer that does

not collect Colorado sales tax must file a Customer Information Report with the
Department is overbroad and will, in a substantial number of its applications, result in
the disclosure to the Department of personal information regarding Colorado consumers
that is protected from disclosure by the right of privacy guaranteed under the Colorado
Constitution.
96.

The Act and Regulations contains no provisions by which a customer

whose protected personal matters will be reported to the Department in a Customer
Information Report may assert his or her right to privacy before disclosure of such
information to the Department occurs. Moreover, there is no requirement that “de
minimis” purchasers receive any formal notice that affected retailers are required to
submit their names and purchasing information to the Department. The Act and
Regulations thus fail to establish an appropriate legal process to ensure protection of an
individual’s privacy rights.
97.

The privacy interests of Colorado purchasers with respect to purchasing

information that reveals protected personal matters outweigh any interest the State of
Colorado has in obtaining such purchasing information from out-of-state retailers.
98.

The DMA has standing to assert the rights of Colorado purchasers

because the Act imposes upon out-of-state retailers, including affected DMA members,

- 26 -

the requirement to disclose the private, personal information of their Colorado
customers.
99.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a) and C.R.S. §

13-51-101 et seq., to declare the rights of Colorado purchasers and out-of-state
retailers.
100.

The DMA is entitled to declaratory and injunctive relief, as requested

below.
COUNT V
Pursuant to 42 U.S.C. § 1983 and 28 U.S.C. § 2201
For Violation of the Right of Free Speech of Out-Of-State Retailers
and of Colorado Consumers Guaranteed under the
First and Fourteenth Amendments to the United States Constitution
101.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–100 as if fully set forth herein.
102.

The First Amendment to the United States Constitution prohibits laws that

abridge the freedom of speech.
103.

The First Amendment applies to the State of Colorado under the

Fourteenth Amendment to the United States Constitution.
104.

The right to freedom of speech guaranteed by the Constitution applies to

both distributors and recipients of expressive content.
105.

Many businesses and organizations that employ direct marketing methods

and sell products and services at retail are highly specialized and closely associated
with particular ideas, issues, opinions, and beliefs. Many such retailers offer, either

- 27 -

primarily or exclusively, products containing expressive content concerning particular
ideas, issues, opinions, and beliefs.
106.

An individual’s status as a purchaser from such businesses and

organizations may reveal information regarding the expressive content of products
obtained by the purchaser.
107.

Nonprofit organizations, including political, educational, social, literary,

religious, and advocacy groups, making sales at retail are deemed to be “retailers”
required to collect sales tax on sales of non-exempt products and services under
Colorado law. Out-of-state nonprofit organizations that make retail sales and do not
collect Colorado sales tax are, therefore, subject to the Act’s notice and reporting
requirements.
108.

The requirement to file a Customer Information Report applies to all

affected out-of-state businesses and organizations without any exception for retailers
whose identity, mission or product line(s) implicate the free speech rights of their
customers. Moreover, affected out-of-state retailers must file Customer Information
Reports regarding not only Colorado consumers, but also certain customers residing in
states other than Colorado, including “de minimis” purchasers both inside and outside
the state who will receive no formal notice that their information is being provided to the
Department. Affected retailers who fail to comply with the requirements of the Act and
Regulations are subject to substantial monetary penalties under the Act.
109.

The requirement of the Act and Regulations that each retailer that does

not collect Colorado sales tax must file a Customer Information Report with the

- 28 -

Department is overbroad and will result in the disclosure of information regarding the
expressive content of products obtained by Colorado consumers in a substantial
number of its applications.
110.

The required disclosure of such information to the Department in the

Customer Information Report will have a chilling effect on the exercise of the right to
freedom of speech guaranteed by the Constitution by consumers with regard to
purchasing and obtaining information and expressive content, and by retailers with
regard to selling and distributing expressive content.
111.

Moreover, as set forth above, there is a substantial risk of disclosure of the

purchasers’ personal information to the public that will further chill the exercise of free
speech rights by Colorado purchasers and retailers.
112.

The State of Colorado has no interest, let alone a compelling interest, that

justifies interfering with the free speech rights of out-of-state retailers and of consumers
both within and outside of Colorado. Any purported State interest advanced by the Act
could be achieved through alternative means.
113.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is liable pursuant to 42 U.S.C. § 1983 for the deprivation of the privacy
rights of Colorado purchasers secured by the Constitution.
114.

The DMA has standing to assert the rights of Colorado purchasers

because the Act imposes upon out-of-state retailers, including affected DMA members,
the requirement to disclose the identity of their Colorado customers.

- 29 -

115.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a), to declare the

rights of Colorado purchasers and out-of-state retailers.
116.

The DMA is entitled to declaratory and injunctive relief, and attorneys’ fees

pursuant to 42 U.S.C. § 1988, as requested below.
COUNT VI
Pursuant to Colorado Constitution, Art. II, Sec. 10,
C.R.S. § 13-51-101 et seq. and 28 U.S.C. § 2201
For Violation of the Right of Free Speech of Out-Of-State Retailers
and of Colorado Consumers Guaranteed under the Colorado Constitution
117.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–116 as if fully set forth herein.
118.

Article II, Section 10 of the Colorado Constitution prohibits laws that impair

the freedom of speech, and guarantees that every person shall be free to speak.
119.

The right to freedom of speech guaranteed by the Colorado Constitution

applies to both distributors and recipients of expressive content.
120.

Many businesses and organizations that employ direct marketing methods

and sell products and services at retail are highly specialized and closely associated
with particular ideas, issues, opinions, and beliefs. Many such retailers offer, either
primarily or exclusively, products containing expressive content concerning particular
ideas, issues, opinions, and beliefs.
121.

An individual’s status as a purchaser from such businesses and

organizations may reveal information regarding the expressive content of products
obtained by the purchaser.

- 30 -

122.

Nonprofit organizations, including political, educational, social, literary,

religious, and advocacy groups, making sales at retail are deemed to be “retailers”
required to collect sales tax on sales of non-exempt products and services under
Colorado law. Out-of-state nonprofit organizations that make non-exempt retail sales
and do not collect Colorado sales tax are, therefore, subject to the Act’s notice and
reporting requirements.
123.

The requirement to file a Customer Information Report applies to all

affected out-of-state businesses and organizations without any exception for retailers
whose identity, mission or product line(s) implicate the free speech rights of their
customers. Moreover, affected out-of-state retailers must file Customer Information
Reports regarding not only Colorado consumers, but also certain customers residing in
states other than Colorado, including “de minimis” purchasers both inside and outside
the state who will receive no formal notice that their information is being provided to the
Department. Affected retailers who fail to comply with the requirements of the Act and
Regulations are subject to substantial monetary penalties under the Act.
124.

The requirement of the Act and Regulations that each retailer that does

not collect Colorado sales tax must file a Customer Information Report with the
Department is overbroad and will result in the disclosure of information regarding the
expressive content of products obtained by Colorado purchasers in a substantial
number of its applications.
125.

The required disclosure of such information to the Department in the

Customer Information Report will have a chilling effect on the exercise of the right to

- 31 -

freedom of speech guaranteed by the Colorado Constitution by consumers with regard
to purchasing and obtaining information and expressive content, and by retailers with
regard to selling and distributing expressive content.
126.

Moreover, as set forth above, there is a substantial risk of disclosure of the

purchasers’ personal information to the public that will further chill the exercise of free
speech rights by Colorado purchasers and retailers.
127.

The State of Colorado has no interest, let alone a compelling interest, that

justifies interfering with the free speech rights of out-of-state retailers and of consumers
both within and outside of Colorado. Any purported State interest advanced by the Act
could be achieved through alternative means.
128.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is subject to suit for the deprivation of the privacy rights of Colorado
purchasers secured by the Colorado Constitution.
129.

The DMA has standing to assert the rights of Colorado consumers

because the Act imposes upon out-of-state retailers, including affected DMA members,
the requirement to disclose the identity of their Colorado purchasers.
130.

This Court is empowered, pursuant to C.R.S. § 13-51-101 et seq. and 28

U.S.C. § 2201(a), to declare the rights of Colorado purchasers and affected retailers.
131.

The DMA is entitled to declaratory and injunctive relief, as requested

below.

- 32 -

COUNT VII
Pursuant to 42 U.S.C. § 1983, 28 U.S.C. § 2201, and C.R.S. § 13-51-101 et seq.
For Depriving of Out-Of-State Retailers of Property Without Due Process of Law
In Violation of the Fourteenth Amendment to the United States Constitution
and Article II, Section 25 of the Colorado Constitution
132.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–131 as if fully set forth herein.
133.

Section 1 of the Fourteenth Amendment to the United States Constitution

and Article II, Section 25 of the Colorado Constitution prohibit the State of Colorado
from depriving any person of property without due process of law.
134.

The required disclosure by an affected out-of-state retailer of its Customer

List of Colorado purchasers to the Department in the Customer Information Report
compromises the value of the Customer List and deprives the disclosing retailer of its
protected property right in the list, without due process of law.
135.

The Customer Lists of out-of-state retailers subject to the Act are valuable,

proprietary trade secrets, in which such retailers make a substantial investment and
have a protected property right.
136.

The Act and Regulations require each affected out-of-state retailer,

including DMA members, to disclose its confidential, proprietary Customer List of
Colorado purchasers to the Department in a Customer Information Report containing
the personal information of all of its Colorado purchasers.
137.

The Department has no clear obligation under Colorado law to protect

such Customer Lists from disclosure, and no obligation to provide the same level of
data security for such information as the retailer provides.

- 33 -

138.

The Department has a history of failing to ensure the security of

confidential data against risks of unauthorized disclosure. The Act and Regulations
make no provision for additional data security measures to protect the enormous
volume of Customer List information that retailers are required to file with the
Department in their Customer Information Reports.
139.

Affected retailers who fail to comply with the requirements of the Act and

Regulations by filing a Customer Information Report are subject to substantial monetary
penalties under the Act.
140.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is liable pursuant to 42 U.S.C. § 1983 and state law for the deprivation of
the property rights of affected out-of-state retailers, including DMA members, secured
by the United States and Colorado Constitutions.
141.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a) and C.R.S. §

13-51-101 et seq., to declare the rights of out-of-state retailers.
142.

The DMA is entitled to declaratory and injunctive relief, and attorneys’ fees

pursuant to 42 U.S.C. § 1988, as requested below.
COUNT VIII
Pursuant to 42 U.S.C. § 1983, 28 U.S.C. § 2201, and C.R.S. § 13-51-101 et seq.
For Taking of Property Without Due Process of Law
In Violation of the Fifth and Fourteenth Amendment to the United States
Constitution and Article II, Section 15 of the Colorado Constitution
143.

The DMA repeats and incorporates by reference each of the allegations

set forth in paragraphs 1–142 as if fully set forth herein.

- 34 -

144.

The Fifth Amendment to the United States Constitution and Article II,

Section 15 of the Colorado Constitution prohibit the State of Colorado from taking
private property for public use without just compensation.
145.

The Takings Clause of the Fifth Amendment applies to the State of

Colorado under the Fourteenth Amendment to the United States Constitution.
146.

The requirement of the Act that an affected out-of-state retailer must

disclose its Customer List of Colorado purchasers to the Department in the Customer
Information Report constitutes, on its face, a final decision by the Colorado General
Assembly to take the retailer’s private property for public use. The Act provides no
mechanism for compensating the retailer for the taking of its property.
147.

The Customer Lists of out-of-state retailers subject to the Act are valuable,

proprietary trade secrets, in which such retailers make a substantial investment and
have a protected property right.
148.

The Act and Regulations require each affected out-of-state retailer,

including DMA members, to disclose its confidential, proprietary Customer List of
Colorado purchasers to the Department in a Customer Information Report containing
the personal information of all of its Colorado purchasers.
149.

The Department has no clear obligation under Colorado law to protect

such Customer Lists from disclosure, and no obligation to provide the same level of
data security for such information as the retailer provides.
150.

The Department has a history of failing to ensure the security of

confidential data in its custody against risks of unauthorized disclosure. The Act and

- 35 -

Regulations make no provision for additional data security measures to protect the
Customer List information that must be included in the Customer Information Report.
151.

Affected retailers who fail to comply with the Act’s requirements are

subject to substantial monetary penalties under the Act.
152.

As the state official charged with enforcement of the Act and Regulations,

the Defendant is liable pursuant to 42 U.S.C. § 1983 and state law for the deprivation of
the property rights of affected out-of-state retailers, including DMA members, secured
by the United States and Colorado Constitutions.
153.

This Court is empowered, pursuant to 28 U.S.C. § 2201(a) and C.R.S. §

13-51-101 et seq., to declare the rights of out-of-state retailers.
154.

The DMA is entitled to declaratory and injunctive relief, and attorneys’ fees

pursuant to 42 U.S.C. § 1988, as requested below.

Prayer for Relief
WHEREFORE, The DMA requests that the Court:
A. Declare the Act’s notice and reporting obligations set forth in C.R.S. § 39-21112(3.5), and all regulations promulgated pursuant thereto, unconstitutional;
B. Enter an injunction enjoining enforcement by the Defendant of any such
requirements;
C. Award the DMA its attorneys’ fees pursuant to 42 U.S.C. § 1988;
D. Award the DMA its costs; and

- 36 -

E. Award such further relief as the Court deems just and proper.

Respectfully submitted,
Dated: July 23, 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
Fax: [phone]
E-mail: [e-mail]
[e-mail]
Attorneys for the
Direct Marketing Association

Address of Plaintiff:
1120 Avenue of the Americas
New York, NY 10036-6713

- 37 -

CERTIFICATE OF SERVICE
I hereby certify that on July 23, 2010, I electronically filed the foregoing First
Amended Complaint, using the CM/ECF system, which will send notification of such
filing to counsel of record:
Stephanie Lindquist Scoville
Senior Assistant Attorney General
State of Colorado
1525 Sherman Street, 7th Floor
Denver, CO 80203
[e-mail]
Robert H. Dodd, Jr.
Senior Assistant Attorney General
State of Colorado
1525 Sherman Street, 7th Floor
Denver, CO 80203
[e-mail]
Attorneys for Defendant

/s/ George S. Isaacson
George S. Isaacson

- 38 -