Wolverine Fireworks Display, Inc. et al v. Karen E. Towne
Filing
37
ORDER denying 2 Motion for Preliminary Injunction; granting 21 Motion to Dismiss. Signed by District Judge Thomas L. Ludington. (SGam)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
NORTHERN DIVISION
WOLVERINE FIREWORKS DISPLAY et al.,
Plaintiffs,
Case No. 12-10426
Hon. Thomas L. Ludington
v.
KAREN E. TOWNE, Acting Michigan State
Fire Marshal, in her official capacity,
Defendant.
__________________________________________/
OPINION AND ORDER DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY
INJUNCTION AND GRANTING DEFENDANT’S MOTION TO DISMISS
The Michigan Fireworks Safety Act, Mich. Comp. Laws §§ 28.451–471 (enacted
effective January 1, 2012), requires that firms selling certain types of fireworks purchase liability
insurance. Specifically, firms selling “consumer fireworks” (such as roman candles, bottle
rockets, and other fireworks of like construction) are required to purchase a liability insurance
policy providing coverage “in an amount not less than $10,000,000.” § 28.455(d)(3). The issue
in this case is whether the particular amount of liability insurance required, $10 million, has any
possible rational justification. As explained below, this is answered in the affirmative.
Eight fireworks vendors bring a constitutional challenge to the Act, contending that the
insurance requirement violates their substantive due process rights. The plaintiffs concede that
the legislature acted rationally in requiring some liability insurance — their challenge, instead, is
focused on the specific amount of insurance required. See, e.g., Pls.’ Resp. to Def.’s Mot. to
Dismiss ¶ 10, ECF No. 22 (“Plaintiffs agree that the Legislature’s decision to require retail
fireworks locations to carry mandatory insurance is within its power.”); Pls.’ Br. in Supp. Resp.
to Def.’s Mot. to Dismiss 9 (“Plaintiff[s] [acknowledge] that protection of the public health,
safety, and welfare is a legitimate state interest, but [contend] that MCL 28.455(3)’s requirement
of $10 million coverage per occurrence per location is not rationally related to furthering that
interest where the actual risks and losses associated with the sale and use of consumer fireworks
is nowhere close to that amount.”). “Of all other states permitting retail sales of consumer
fireworks,” the plaintiffs write, “only three set a statutory minimum insurance requirement
applicable to retail sellers of consumer fireworks. The highest insurance coverage requirement is
$2,000,000, with two other states requiring $1,000,000 in coverage.” Compl. ¶ 19. Accordingly,
the plaintiffs seek an order declaring the insurance requirement unconstitutional and enjoining its
enforcement by the state of Michigan.
The state responds by moving to dismiss the complaint for failure to state a claim on
which relief can be granted. As the Act regulates economic activity, the state notes, the $10
million insurance policy requirement must be upheld unless the plaintiffs “negate all possible
rational justifications for the [challenged statutory requirement].” Midkiff v. Adams Cnty. Reg.
Water Dist., 409 F.3d 758, 770 (6th Cir. 2005), quoted in Def.’s Mot. to Dismiss 15, ECF No.
21. The state further notes that “the Legislature already considered and rejected the same
arguments that the [plaintiffs] make before this Court.” Def.’s Mot. 16–17. Specifically, while
the legislature was considering the various provisions of the Act, the plaintiffs “submitted written
and oral testimony to the Legislature in opposition of the $10 million insurance requirement.”
Id. at 16. The plaintiffs, however, “were unsuccessful in persuading the Legislature that the $10
million insurance requirement was too high.” Def.’s Opp’n to Pls.’ Mot. for Prelim. Inj. 13, ECF
No. 35. The state concludes that this Court should not substitute its judgment for that of the
legislature.
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The state is correct that the plaintiffs have not stated a claim upon which relief can be
granted. “On rational-basis review,” the Supreme Court instructs, a challenged statute enjoys “a
strong presumption of validity, and those attacking the rationality of the legislative classification
have the burden ‘to negative every conceivable basis which might support it.’ ” F.C.C. v. Beach
Commc’ns, Inc., 508 U.S. 307, 314–15 (1993) (internal citation omitted) (citing Lyng v. Auto.
Workers, 485 U.S. 360, 370 (1988), and quoting Lehnhausen v. Lake Shore Auto Parts Co., 410
U.S. 356, 364 (1973)). “These restraints on judicial review have added force,” the Supreme
Court cautions, “where the legislature must necessarily engage in a process of line-drawing.”
Beach Commc’ns, 508 U.S. at 315 (internal quotation marks omitted) (quoting U.S. R.R. Ret. Bd.
v. Fritz, 449 U.S. 166, 179 (1980)).
Here, the parties agree that the legislature’s general decision to require fireworks vendors
carry insurance has a rational basis. The only question is whether the particular amount required,
$10 million in liability insurance, has any possible rational justification. Situations justifying
such an amount — a spark causing a cascading series of explosions in a fireworks store where
dozens of customers are shopping or igniting an eruption in a fireworks tent situated in a busy
shopping mall parking lot — do not strain the imagination. Moreover, the legislative history
reveals that the Michigan legislature actually considered such scenarios when deciding on the
minimum amount of insurance to require of fireworks vendors.
Although this Court might choose a different minimum coverage baseline, if it were
merely a question of what coverage amount was wisest, the time has long since passed that the
judiciary may substitute its economic preferences for that of the legislature. Because it cannot be
said that the particular baseline the legislature drew is necessarily the product of irrational minds,
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the Court will deny the plaintiffs’ motion for a preliminary injunction and grant the state’s
motion to dismiss the complaint.
I
A
The Michigan Fireworks Safety Act is not the first instance of Michigan regulating
fireworks sales. For the forty years prior to January 1, 2012, fireworks sales were governed by
Chapter 34 of the Michigan Penal Code, Mich. Comp. Laws §§ 750.243–750.243e (repealed
effective Jan. 1, 2012); see generally Burda Bros., Inc. v. Walsh, 22 F. App’x 423, 426 (6th Cir.
2002) (providing “a brief description of the relevant Michigan fireworks law” under Chapter 34);
Stajos v. City of Lansing, 561 N.W.2d 116, 119–20 (Mich. Ct. App. 1997) (same).
Under Chapter 34, fireworks vendors were prohibited from selling “roman candles . . .
bottle rockets . . . or other fireworks of like construction” for private use. Mich. Comp. Laws §
750.243a(c). (As discussed below, such fireworks could be sold “for public display.”) The
responsibility for regulating firework vendors was largely delegated to local governments.
Section 750.243a provided in pertinent part:
2. Except as provided in subsection (3) and [§§ 750.243b, 750.243c, and
750.243d], a person, firm, partnership, or corporation shall not offer for sale,
expose for sale, sell at retail, keep with intent to sell at retail, possess, give,
furnish, transport, use, explode, or cause to explode . . .
c. firecrackers, torpedoes, skyrockets, roman candles, daygo bombs, bottle
rockets, whistling chasers, rockets on sticks, or other fireworks of like
construction. . . .
3. A permit is not required for the following . . .
c. Sparklers containing not more than .0125 pounds of burning portion per
sparkler.
d. Flitter sparklers in paper tubes not exceeding [one-eighth] inch in
diameter, cone fountains, and cylinder fountains.
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e. Toy snakes not containing mercury, if packed in cardboard boxes with not
more than 12 pieces per box . . . .
§ 750.243a(2)–(3) (repealed effective Jan. 1, 2012). Section 750.243b, in turn, authorized local
governments to grant permits for fireworks otherwise prohibited under § 750.243a for “public
display,” providing:
1. [Local governments] may grant a permit for the use of fireworks otherwise
prohibited by section 243a, within their political jurisdiction . . . for public
display by municipalities, fair associations, amusement parks, or other
organizations or groups of individuals approved by the city, village, or
township . . . .
2. [Local governments] may grant a permit . . . to a resident wholesale dealer or
jobber to have in his or her possession within the political jurisdiction,
fireworks otherwise prohibited by section 243a, for sale only to holders of
permits as provided in this section.
3. Before a permit . . . is issued, the person, firm, or corporation making
application therefore shall furnish proof of financial responsibility by a bond
or insurance in an amount deemed necessary by the local governing authority.
§ 750.243b(1)–(3) (repealed effective Jan. 1, 2012).
To summarize, under Chapter 34 private persons were not permitted to “possess, . . . use,
explode, or cause to explode . . . firecrackers, torpedoes, skyrockets, roman candles, daygo
bombs, bottle rockets, whistling chasers, rockets on sticks, or other fireworks of like
construction.” § 750.243a(2). Consequently, fireworks vendors in Michigan could not sell such
fireworks to private persons.
Vendors could sell to “groups of individuals,” but only if the vendors obtained a permit
from the local government. § 750.243b(1). To receive a permit, the applicant was required to
“furnish proof of financial responsibility by a bond or insurance in an amount deemed necessary
by the local governing authority.” § 750.243b(3). Moreover, the fireworks could not be sold for
private use — they had to be for “public display.” § 750.243b(1).
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B
The Michigan legislature repealed these restrictions, as noted, effective January 1, 2012.
In their place, the legislature enacted the Michigan Fireworks Safety Act. As explained below,
the Act broadens the availability of “consumer fireworks” (such as roman candles, bottle rockets,
and other fireworks of like construction), permitting their sale for private use. But the Act also
requires the vendors to maintain a significant amount of liability insurance.
1
Prior to becoming law, however, the Act was contained in House Bill 4293. It passed in
the Michigan House of Representatives on October 19, 2011, by a vote of ninety-eight to ten.
Received by the senate the following day, the bill was referred to the senate regulatory reform
committee for consideration.
The senate committee scheduled a hearing on the bill for the following month. A number
of persons, including representatives of two plaintiffs in this case, submitted written testimony to
the committee. “I wish to express my opposition to House Bill 4293,” a representative of
Plaintiff Great Lakes Fireworks wrote, explaining: “my biggest opposition comes as a result of
the $10 million liability insurance requirement. It is my understanding that this will be the
highest limit in the country by $8 million. The cost of this high policy limit is very restrictive to
any small business.” Def.’s Mot. Ex. 2, at 2.
A representative of Plaintiff Captain Boom also wrote to the committee in opposition the
insurance requirement. The gentleman asserted that the insurance requirement “will dramatically
affect the fireworks and retail industries in Michigan.” Id. at 16. He acknowledged “that a
retailer can obtain [the required insurance] as an additional insured from [a] wholesaler,” but
cautioned,
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Problems with obtaining coverage through a wholesaler include the following:
1. It ties the retailer to a single wholesaler. Most fireworks retailers purchase
from more than one wholesaler. . . .
2. Obtaining additional insurance through a wholesaler will give the wholesaler
undue influence in the operation of the independent retail business. . . .
3. The ability to obtain $10 million liability insurance from a fireworks
wholesaler is extremely limited, as most importers and wholesalers simply
don’t carry that much insurance.
4. Coverage as an additional insured will not likely contain the protection that
the retailer wants or needs, limiting free market choice of insurance products.
Additional insured status is not an acceptable option for my business. . . .
In summary, requiring $10 million insurance in order to sell an item that the
Consumer Product Safety Commission deems safe for consumers to use without
training or supervision is simply ludicrous. I request an amendment to lower the
insurance requirement to $1 million.
Id. at 17. Others wrote in support of the bill, such as the Michigan Fire Service Coalition (a
coalition that includes, among others, the Michigan Association of Fire Chiefs, the Michigan
Professional Fire Fighters Union, and the Michigan Fire Inspectors Society). Id. at 5.
2
On November 3, 2011, the senate regulatory reform committee held a hearing on House
Bill 4293. A number of persons testified. Among them was a representative of B.J. Alan
Company (a wholesaler marketing fireworks under brands such as Phantom Fireworks). The
gentleman first testified regarding his firm’s opposition to the insurance requirement, noting:
“Our company carries this much insurance and would not be affected by this provision. Most
sellers would be.” Senate Regulatory Reform Comm. Hearing: House Bill 4293, at 13 (Mich.
Nov. 3, 2011), attached as Def.’s Opp’n Ex. 2. The gentleman further testified in opposition to
the “tent sales” provision of the Act, which authorizes vendors operating retail locations out of
tents (rather than permanent structures). The gentleman testified:
[The National Fire Protection Association] specifically requires that aerial devices
in a consumer retail sales facility be packaged and displayed [in] a manner that
will limit travelled distance of ejected pyrotechnic components if ignition of the
fireworks occur. Tents do not have a system to provide for such restraint of aerial
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devices which makes a fire in a fireworks tent particularly dangerous, because the
canvas tent will burn through quickly as compared to a roof system. A fire in a
tent will definitely result in aerial fireworks discharging and travelling substantial
distances from the tent. If an aerial product is designed to climb 125 to 150 feet
straight up, imagine the distance if the trajectory of the flaming product is of an
arcing linear type. The danger to adjacent structures, vehicles and people would
be significant especially considering the most popular and common tent locations
are in the parking lot immediate vicinity of extreme high traffic areas such as big
box chain stores, malls, strip plazas and gas stations.
Id. at 13–14.
Representatives of two other fireworks vendors testified in support of the Act. The first,
a representative of Berta Brothers, Inc., testified:
We are a small Michigan based business. I’m born and bred here. We’re in total
support of the bill. I don’t think that any bill can ever be 100 percent pleasing to
everyone. And from my small business point of view, we’re willing to work
within the confines of the bill and the increased understanding of the way
businesses should be run in the fireworks industry in Michigan. It can only
increase our opportunity personally to grow our business, and I think it would be
great for the state of Michigan.
Id. at 24. The second, a representative of Big Fireworks, testified that the Act would be good for
small businesses in Michigan:
My name is Ben Bakken. I’m the Chief Financial Officer of Big Fireworks. It’s a
Michigan based family owned, small business founded here in Lansing several
decades ago. You’ve heard some testimony today with regard to concerns . . . .
The question is, who would benefit from this bill being struck down and not
passed today? The answer is, Indiana and Ohio based companies who have
reaped the rewards of the prior Michigan law . . . .
As a Michigan based fireworks company who does business in Indiana, I have a
unique perspective. I’ll also point out that prior to being Chief Financial Officer
of Big Fireworks, I was Vice-President . . . . When the discussion several years
ago became about the potential legislation here in Michigan, my immediate
concerns were those Indiana stores owned by Big Fireworks and what the impact
to them would be. Now as a CFO can tell you that when this legislation passes
they will likely close. The bill will benefit the Michigan companies, tax payers,
job seekers, but it will negatively impact those Ohio and Indiana companies that
have benefited from the prior legislation.
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In conclusion what I would say is that this bill is something to be very proud of.
It’s a great example of bipartisan support and collaboration for five years to get to
this point.
Id. at 30–32.
Senator Joe Hune then inquired how the $10 million insurance requirement was
developed, explaining: “I assume that came up numerous times in years past and I wasn’t
involved within those discussions.” Id. at 32. Mr. Bakken deferred to a vice president of Big
Fireworks, Jim Stamos, who explained:
The 10 million dollar insurance policy was come up over the course of many
discussions [on] how to make sure that the residents of the State of Michigan were
safe. . . . [E]verybody got together and finally hashed [it] out. But if there was an
accident and somebody was hurt and it was busy and it was one of the senators
that actually brought it up, if there [were] five people in there and they got hurt,
would a million dollar policy be sufficient? And the answer to that is no. And a
million is not enough. Maybe even 10 million is not enough. As the states
legalize, they’re going more towards the 5 million dollar policy and now like in
the State of California, nothing is written besides a 10 million dollar policy. You
know I guess it’s like auto insurance or anything else. At one time 1 million
dollars seemed to be a lot of money. 10 million isn’t anymore.
The difference with the fireworks industry is though you can’t go out to Farm
Bureau Insurance or Auto Owners and get a high risk policy like this. While we
believe it’s a safe product that we are selling, it is a high risk policy. It’s
underwritten at the end of the day by Lloyds of London. And while a lot the
people that we sell to are churches and small individuals are setting up tents, as a
fireworks provider, we have to provide insurance for our customers and I dropped
off a little pamphlet up there.
In 2011 to add a retailer selling fireworks as an additional insured, you can see
some different costs and I only put five companies out there. But every wholesale
fireworks company in the country sells insurance to their customers. At the end
of the day they can’t go out and get one of these policies. The minimum start for
even a million dollar policy is $5,000 and they won’t issue to new businesses. So
as a wholesaler ourselves, we have to provide it to our customers. And those fees
start at [$]236 and if you look at all five companies there, the highest out of any of
those is $450. So for less than $500 somebody could be insured to sell fireworks.
I guess to finalize, to answer your question, the reason I came up with the 10
million dollars was for the citizens of Michigan. And the only ones that it ends up
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hurting at the end of the day are the bootleggers and the people who are
uninsurable.
Id. at 33–35.
Following the hearing, the committee referred the bill back to the senate,
recommending that the senate pass the bill. On November 9, 2011, the senate did so, by a
vote of thirty-three to one. Technical amendments and reconciliations by both chambers
followed.
Finally, on December 13, 2011, the governor signed into law Act 256 of 2011, the
Michigan Fireworks Safety Act.
B
Codified in sections 28.451 through 28.471 of the Michigan Compiled Laws, the Act
broadens the availability of fireworks to consumers in Michigan by permitting the sale of
“consumer fireworks” for private use. “Consumer fireworks” is a defined term under the Act; it
“means fireworks devices that are designed to produce visible effects by combustion, that are
required to comply with the construction, chemical composition, and labeling regulations
promulgated by the United States consumer product safety commission under 16 CFR parts 1500
and 1507, and that are listed in APA standard 87-1, 3.1.2, 3.1.3, or 3.5.” Mich. Comp. Laws §
28.452(e). The “APA standards” referenced are the definitions promulgated by the American
Pyrotechnics Association. For example, among the fireworks defined in standard 3.1.2, “Aerial
Devices,” are “bottle rocket” and “roman candle.” APA standards 3.1.2.3, 3.1.2.4.
The Act further provides that the definition of “consumer fireworks” excludes “lowimpact fireworks.” Mich. Comp. Laws § 28.452(e). “Low-impact fireworks” is a defined term;
it means, for example, “handheld sparkling devices as that phrase is defined under APA standard
87-1, 3.1, 3.1.1.1 to 3.1.1.8, and 3.5.” Mich. Comp. Laws § 28.452(e).
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The Act also identifies the particular amount of liability insurance required. Specifically,
“each retail location selling consumer fireworks either shall be added as an additional insured, or
public liability and product liability insurance coverage shall be obtained and maintained, in an
amount not less than $10,000,000.00 per occurrence.” Mich. Comp. Laws § 28.455(3)(d).
Subsection 28.455(3)(d) also creates a civil fine of up to five thousand dollars for
noncompliance, providing: “A person that knows, or should know, that he or she is required to
comply with this subsection and who fails or neglects to do so is liable for a civil fine of not
more than $5,000.00.” Id.
In sum, the Act expands the types of fireworks that vendors may sell for private use in
Michigan. But the Act also imposes a significant insurance requirement on vendors that choose
to enter this market.
II
A
On February 1, 2012 (one month to the day after the Act went into effect), eight
fireworks vendors brought in suit this Court. The plaintiffs included Wolverine Fireworks
Display, Inc.; F&F All Seasons, Inc.; Captain Boom Fireworks Productions, LLC; Ace Pyro,
LLC; RKM Fireworks Co.; P&P Imports, Inc.; Pyrotek, Inc.; and Great Lakes Fireworks, LLC.
The two-count complaint seeks declaratory and injunctive relief. Count one, which seeks
declaratory relief, asserts in pertinent part:
MCL 28.455(3), requiring retailers of consumer fireworks to obtain $10 million in
insurance coverage, is invalid and unconstitutional insofar as it impairs Plaintiffs’
fundamental right to engage a legal business specifically authorized by statute,
without any rational basis or relationship to the protection of public health and
safety, thereby violating the Fourth, Fifth and Fourteenth Amendments.
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Compl. ¶ 30. (The complaint does not specify what particular Fourth Amendment rights the
statute violates.) Count two, which seeks injunctive relief, asserts:
MCL 28.455(3) as described above, injure[s] Plaintiff in its pursuit of its
established legal and profitable business, insofar as the irrational and onerous $10
million insurance coverage requirement threatens to render Plaintiff’s business
unprofitable. . . .
Although Plaintiffs might be able to obtain monetary compensation and damages,
the law holds that the destruction of an ongoing legal business, along with its
goodwill is irreparable and that the mere awarding of damages is not an adequate
remedy at law.
Id. ¶¶ 33, 35. The same day that they filed a complaint, Plaintiffs moved for a preliminary
injunction, asserting:
There is no scientific authority on which Defendants do or can rely for MCL
28.455(3)’s irrational and onerous $10 million insurance requirement, which has
the practical effect of depriving Plaintiffs of all economic benefit of their existing
businesses.
Because MCL 28.455(3) impairs Plaintiffs’ fundamental right to engage in a
legitimate enterprise, it is subject to strict scrutiny. Where Michigan requires
retailers of consumer fireworks to obtain insurance coverage in an amount five to
ten times greater than that required by any other state, it is clear that MCL
28.455(3) cannot survive strict scrutiny.
For the same reason, even if Plaintiffs’ fundamental rights were not impaired by
MCL 28.455(3), the statute could not survive rational basis review because the
insurance coverage requirement is not rationally related to any risk to the public
health, safety, or welfare arising out of Plaintiffs’ business activities.
Pls.’ Mot. Prelim. Inj. ¶¶ 6–8.
B
Since filing their motion, Plaintiffs have filed more than a dozen separate sets of
supplemental papers. See ECF No. 5 (Steinburg & Pease affidavits, filed February 4); ECF No.
6 (first supplemental memorandum, filed Feb. 11); ECF No. 7 (Stringer affidavit, filed February
15); ECF No. 8 (first supplemental request for hearing, filed February 22); ECF No. 11 (Beltz
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affidavit, filed February 23); ECF No. 13 (second supplemental memorandum, filed February
26); ECF No. 16 (Towne affidavit, filed March 1); ECF No. 18 (third supplemental
memorandum, filed March 13); ECF No. 19 (second supplemental request for hearing, filed Feb.
March 13); ECF No. 23 (fourth supplemental memorandum, filed April 9); ECF No. 25 (fifth
supplemental memorandum, filed April 16); ECF No. 29 (sixth supplemental memorandum, filed
April 24, 2012); ECF No. 32 (seventh supplemental memorandum, filed May 11, 2012); ECF
No. 34 (attaching 2001 APA Standard 87-1, filed May 18, 2012).
Three days after filing suit, Plaintiffs made their first supplemental filing, attaching
exhibits containing affidavits of two gentlemen. ECF No. 5 (Steinburg & Pease affidavits).
These gentlemen testify to the burden that the insurance requirement imposes. Specifically, Mr.
Steinburg, an expert witness in pyrotechnics, offers a multi-jurisdictional survey of fireworks
laws, observing: “There are 41 states that allow sale and use of some or all types of consumer
fireworks permitted by federal regulations. I am aware of three states with statutory insurance
requirement to sell consumer fireworks. Two states, Idaho and Rhode Island, require $1 million
insurance, and Pennsylvania requires $2 million.” Steinburg Aff. ¶¶ 4–5. Mr. Pease, an owner
of one of the firms that is a Plaintiff in this case, testifies regarding the burden that the insurance
requirement imposes. He writes: “I have made attempts to cost out and obtain that insurance and
have found out that my insurance could triple or more depending on sales.” Pease Aff. ¶ 5.
On February 11, Plaintiffs filed their first supplemental memorandum in support of their
motion. ECF No. 6. In it, Plaintiffs identify a vagueness challenge to § 28.455(3)(d), writing:
Plaintiffs now present the Affidavit of John Stringer of Drayton Insurance . . . .
According to Mr. Stringer, the language “per occurrence” is standard in some
policies and, according to its ordinary usage within the industry, would apply to
every sale made at every location . . . .
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There is an arguable contradiction within MCLA 28.455(3) because in its first
line it references “each retail location selling consumer fireworks.” The net result
is that First Amendment issues of vagueness are raised, in addition to Fifth and
Fourteenth Amendment issues of due process and rational basis. Neither
Plaintiffs nor their attorneys appreciated this potential distinction and
interpretation at the time of the filing of their Complaint.
Pls.’ Supp. Mem. 2. Plaintiffs do not elaborate on what First Amendment rights are implicated.
And, not wishing to advance the vagueness challenge unnecessarily, Plaintiffs conclude the
memorandum by noting: “The question of whether the provision might be unenforceable as
vague and contradictory is not a determination which the Court must necessarily reach.” Id. at 3.
An independent review of Mr. Stringer’s affidavit reveals that it addresses Plaintiffs’
concern. The gentleman does not in fact suggest that “per occurrence” means “per sale.”
Rather, he explains that “each retail location” means just that — under the statute, each retail
location must maintain $10 million in insurance. He further opines that this requirement may
have unintended consequences, explaining: “[T]he Michigan statute’s requirement that each
retail location must carry public and product liability insurance in the amount of $10 million per
occurrence means that fireworks companies with multiple retail locations would have to
individually incorporate each retail location and purchase separate policies for each location.
Otherwise, the product-aggregate or general-aggregate limits of a single policy would be spread
over multiple locations.” Stringer Aff. ¶ 7.
On February 23, Plaintiffs again supplemented their pleadings, filing the affidavit of a
third gentleman. ECF No. 11 (Beltz affidavit). This gentleman, another owner of one of the
firms that is a party to this case, explains: “I am the owner of Great Lakes Fireworks, LLC, a
display fireworks company doing business putting on holiday fireworks at 55 locations . . . . I
ordinarily purchase insurance coverage for my fireworks display in the amount of $5,000,000,
which until this year has been deemed sufficient by the various local governments with whom I
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do business. Since the passage of the new Michigan fireworks statute, I have already received a
request from a municipality that I obtain $10 million in liability insurance.” Beltz Aff. ¶¶ 1, 3–4.
On February 26, Plaintiffs supplemented their first supplemental memorandum. ECF No.
13 (second supplemental memorandum). The “addendum to the supplemental memorandum,”
Plaintiffs explain, is necessary to correct an error in the prior memorandum. They elaborate:
[The] Supplemental Memorandum of February 11, 2012 suggested that the State
Fire Marshal’s office was not proceeding with the development of applications
and certificates for consumer fireworks sales pending this Court’s decision.
Based on communications with the Fire Marshal’s office and with the Attorney
General, that does not appear to be true. While the process is behind schedule, it
is ongoing.
Pls.’ 2d Supp. Mem. 1–2 (internal citation omitted).
On March 1, Plaintiffs again supplemented their supplemental exhibits by filing another
affidavit of an insurance broker. ECF No. 16 (Towne affidavit). “To my knowledge,” the broker
writes, “an insurance policy providing coverage of $10 million per occurrence, per location,
without any product-aggregate or general-aggregate limits is extremely difficult to obtain and if
obtained would be very expensive to the business owner and thus be passed on to the consumer.”
Towne Aff. ¶ 7.
On March 13, Plaintiffs once again supplemented their supplemental memorandums.
ECF No. 18 (third supplemental memorandum). Addressing whether the insurance requirement
is severable from the rest of the Act, Plaintiffs write:
The remaining subsections of MCL 28.455 require retailers of consumer
fireworks to comply with the requirements of NFPA 101 and NFPA 1124, to be
licensed under the general sales tax act, and to have a valid federal taxpayer
identification number. When read in conjunction with the other sections of the
Act, it is clear that severing only MCL 28.455(3) would leave the remainder of
the statute complete and operative.
Pls.’ 3d Supp. Mem. 3.
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C
On April 2, Defendant timely filed its first pleading with this Court, moving to dismiss
the complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
ECF No. 21. Defendant first argues that the insurance requirement of § 28.455(3)(d) is subject
to rational basis review, not strict scrutiny. Defendant further argues the requirement should be
upheld because
the legislative history indicates that the Legislature was well aware of the debate
within the industry surrounding the insurance requirement. Many of the Plaintiffs
already submitted written and oral testimony to the Legislature in opposition of
the $10 million insurance requirement. An early version of the House Bill had the
insurance requirement set at $2 million, but subsequent versions in both the
House and the Senate raised that threshold to $10 million. This history shows that
the Legislature already considered and rejected the same arguments that the
[Plaintiffs] make before this Court.
Def.’s Mot. 16–17 (internal citations omitted). Addressing Plaintiffs’ argument that the statute
imposes an insurmountable barrier to entry into the new market for supplying these products,
Defendant observes that several hundred of Plaintiffs’ competitors disagree:
As of March 29, 2012, the Fire Marshal has received over 650 applications for
certificates required under Section 4 of the Act, Mich. Comp. Laws § 28.454, to
sell consumer fireworks. Contrary to [Plaintiffs’] assertions, the Act is not having
any significant detrimental effect on the willingness of Michigan businesses to
sell fireworks to Michigan’s citizens during the summer holiday season.
Id. at 5. And addressing Plaintiffs’ vagueness argument, Defendant writes:
The Fire Marshal takes the position that “per occurrence” is an insurance standard
phrase meaning “per event” or “per incident,” and not “per transaction,” or “per
sale.” In other words, all injuries and damages arising out of a single fireworks
accident would be subject to a $10,000,000 cap. The Fire Marshal has confirmed
with several national companies specializing in fireworks insurance that such
coverage is available.
Id. at 10. Defendant concludes by requesting that this Court dismiss the complaint.
-16-
One week after the motion to dismiss was filed, Plaintiff responded. ECF No. 22.
Contesting Defendant’s statutory interpretation, Plaintiffs reference their previously filed expert
affidavits and reiterate that “per occurrence” is unconstitutionally vague:
Defendant takes the position that the “per occurrences” language in the statute
means “per event” or “per incident,” not “per transaction” or “per sale.” But
Defendant offered no affidavit or other evidence in support of that position.
Further, that position is not reflected in any of the emergency rules attached to
Defendant’s Motion. Thus, Defendant’s ipse dixit declaration is unsupported and,
according to the affidavits filed by Plaintiff, incorrect. Despite the Fire Marshal’s
unsubstantiated assertion that they have “confirmed with several national
companies who specialize in fireworks insurance that such coverage is available,”
there is no specification who said what to whom or what question propounded.
There is no affidavit. That claim means nothing.
Pl.’s Resp. to Def.’s Mot. to Dismiss ¶ 5. Turning to Defendant’s argument regarding rational
basis review, Plaintiffs write:
Plaintiffs agree that the Legislature’s decision to require retail fireworks locations
to carry mandatory insurance is within its power. But insofar as that power is
exercised in irrational, vague, confiscatory manner unrelated to public health,
safety or welfare, it should be analyzed under the “rational basis” test. Further, as
shown here and in Plaintiffs’ contemporaneously filed Supplemental Motion for
Preliminary Injunction, the confusion about the meaning of this penal statute and
the interpretations of the insurance provision involved, including the riders as
“additional insureds” on wholesalers’ policies, render the statute, which must be
strictly construed, unconstitutionally vague.
Id. ¶ 10. Plaintiffs conclude by requesting that the Court deny Defendant’s motion.
D
The same day as Plaintiffs filed their opposition brief, they also filed a supplemental
memorandum in support of their motion for a preliminary injunction. ECF No. 23 (fourth
supplemental memorandum). Although the memorandum does not cite any case law, it again
argues that the insurance requirement is unconstitutionally vague, asserting:
The provision itself refers in two different places in one paragraph to the
insurance being required “per location” and the insurance being required “per
occurrence”.
-17-
In their Motion to Dismiss, Defendant claims to have interpreted that provision to
mean something other than “per sale” or “per transaction,” although their
purported interpretation utilizes language not in the statute, “incident” and
accident.
Plaintiffs point out that this statement by the Attorney General in a pleading
before this Court is nowhere set forth in any statutory, legislative, regulatory
materials or opinion, including the emergency regulations which were
promulgated by Defendant on March 10, 2012.
However, as is shown by the attached affidavits of practicing fireworks insurance
brokers Tami Towne and Deborah M. Merlino, regardless of how the Fire
Marshall unofficially claims to interpret the statute, it is the insurance companies
and the common usages within the industry which will control in the event an
injury occurs and a claim is made. According to them, the Attorney General’s
interpretation of the statute is inaccurate. The result is that, if the Fire Marshall
ultimately properly interprets the statutory language “per occurrence” in
conformity with the practices of the insurance industry, then it will be impossible
for anyone, even the wholesalers, to comply with the statute and no company will
issue such a policy. . . .
These post-filing developments lead to an additional argument by Plaintiffs for a
Preliminary Injunction against the enforcement of the statute as it relates to the
$10,000,000 insurance provision this fireworks season because the statute is void
for vagueness. No local fire enforcement official, state police officer, state fire
marshal or those acting under their control or at their direction can know whether
a particular operation or insurance policy violates the statute, independently of the
ability of the insurers to deny coverage in the event that something which has
never happened (the Plaintiffs have had no claims) does in fact happen.
Pl.’s 4th Supp. Mem. ¶¶ 8–11, 17.
An independent review of Ms. Merlino’s affidavit reveals that Plaintiff’s concern is
addressed.
She does not suggest that Attorney General’s interpretation of the statute is
inaccurate. Rather, like Mr. Stringer, Ms. Merlino testifies that insurers generally require a
policy limit, explaining: “I have marketed the $10 million coverage with 12 insurance
companies. None of those companies would write the coverage on a ‘per occurrence’ basis
without an aggregate limit.” Merlino Aff. ¶ 5.
-18-
One week after filing their fourth supplemental memorandum, Plaintiffs filed their fifth.
ECF No. 25 (fifth supplemental memorandum). This memorandum directs the Court to the
previously filed affidavit of Mr. Stringer and informs the Court that the gentleman “maintains his
position.” Pl.’s 5th Supp. Mem. 2.
Ten days later, Plaintiffs filed their sixth supplemental memorandum. ECF No. 29 (sixth
supplemental memorandum). Attached is a certificate of liability insurance obtained by a vendor
who is not a party to this litigation (American Eagle Fireworks).
To summarize, in their papers Plaintiffs identified two fundamental constitutional
challenges to the insurance requirement. First, Plaintiffs allege, the requirement offends the
substantive due process protections of the Fourteenth Amendment because it lacks a rational
basis. And second, the “per occurrence” insurance requirement is unconstitutionally vague.
To ensure that the substantive due process issue is fully briefed prior to rendering a
decision, the Court directed supplemental briefing in an order issued May 4, 2012. Wolverine
Fireworks Display v. Towne, No. 12–10426, 2012 WL 1570864 (E.D. Mich. May 4, 2012).
Finding the parties’ papers sufficiently briefed the vagueness challenge, in contrast, the Court
addressed that claim’s merits in its May 4 order.
E
“Per occurrence” is not unconstitutionally vague, the Court found in its May 4 order.
Wolverine Fireworks, 2012 WL 1570864, at *10. As a preliminary matter, the Court first
discussed the standards for evaluating whether a statute is void for vagueness.
“Living under a rule of law entails various suppositions, one of which is that all persons
are entitled to be informed as to what the State commands or forbids.” Papachristou v. City of
Jacksonville, 405 U.S. 156, 162 (1972) (internal quotation marks and alterations omitted)
-19-
(quoting Lanzetta v. New Jersey, 306 U.S. 451, 453 (1939)). Accordingly, the Supreme Court
has long held that “a statute which either forbids or requires the doing of an act in terms so vague
that men of common intelligence must necessarily guess at its meaning and differ as to its
application violates the first essential of due process of law.” Connally v. Gen. Constr. Co., 269
U.S. 385, 391 (1926) (citing Int’l Harvester Co. v. Kentucky, 234 U. S. 216, 221 (1914); Collins
v. Kentucky, 234 U. S. 634, 638 (1914)). The Court explains:
Vague laws offend several important values. First, because we assume that man
is free to steer between lawful and unlawful conduct, we insist that laws give the
person of ordinary intelligence a reasonable opportunity to know what is
prohibited, so that he may act accordingly. Vague laws may trap the innocent by
not providing fair warning. Second, if arbitrary and discriminatory enforcement
is to be prevented, laws must provide explicit standards for those who apply them.
A vague law impermissibly delegates basic policy matters to policemen, judges,
and juries for resolution on an ad hoc and subjective basis, with the attendant
dangers of arbitrary and discriminatory applications.
Vill. of Hoffman Estates v. Flipside, 455 U.S. 489, 498 (1982) (quoting Grayned v. City of
Rockford, 408 U.S. 104, 108–09 (1972)).
The Court cautions, however, that “[t]hese standards should not, of course, be
mechanically applied,” elaborating:
The degree of vagueness that the Constitution tolerates — as well as the relative
importance of fair notice and fair enforcement — depends in part on the nature of
the enactment. Thus, economic regulation is subject to a less strict vagueness test
because its subject matter is often more narrow, and because businesses, which
face economic demands to plan behavior carefully, can be expected to consult
relevant legislation in advance of action.
Flipside, 455 U.S. at 498 (footnote omitted); see also Papachristou, 405 U.S. at 162 (“In the
field of regulatory statutes governing business activities, where the acts limited are in a narrow
category, greater leeway is allowed.”).
-20-
Likewise, “The Court has also expressed greater tolerance of enactments with civil rather
than criminal penalties because the consequences of imprecision are qualitatively less severe.”
Flipside, 455 U.S. at 498–99. The Sixth Circuit adds: “When the persons affected by the
regulations are a select group with specialized understanding of the subject being regulated the
degree of definiteness required to satisfy due process concerns is measured by the common
understanding and commercial knowledge of the group.” Fleming v. U.S. Dep’t of Agric., 713
F.2d 179 (6th Cir.1983).
In this case, Plaintiffs challenge the term “per occurrence” as vague.
Contrary to
Plaintiffs’ contention, “occurrence” is a commonly used term in the insurance industry. The
Supreme Court notes, for example, that “[commercial general liability] insurance has
traditionally been sold in the United States on an ‘occurrence’ basis, through a policy obligating
the insurer ‘to pay or defend claims, whenever made, resulting from an accident.’ ” Hartford
Fire Ins. Co. v. California, 509 U.S. 764, 771 (1993); see generally Tom Baker, Insurance Law
and Policy, 388–93 (2d ed. 2008) (discussing standard insurance policies providing coverage for
“occurrences,” i.e., “accidents”); John Dobbyn, Insurance Law in a Nutshell 44 (West 2003)
(noting commercial general liability policies “require that the injury result from an occurrence”
and that occurrence “is defined in the standard policy as an accident”); Robert E. Keeton & Alan
I. Widiss, Insurance Law § 5.10(d)(1), at 594–96 (3d ed. 2003) (discussing liability coverage for
“occurrences”).
Liability insurers widely understand the term “per occurrence.” It means “per accident.”
Reinforcing this conclusion are the affidavits of Plaintiffs’ own insurance professionals, Mr.
Stringer, Ms. Towne, and Ms. Merlino. None of these individuals testify that “per occurrence” is
vague. None testify that it could mean “per sale” rather than “per accident.” Instead, their
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testimony concerns the difficulty of obtaining an insurance policy because of the lack of an
aggregate policy limit. Providing $10 million in coverage “per occurrence” is not the problem
they suggest; the problem is unlimited potential liability.
Section 28.455(3)(d) is not
unconstitutionally vague, this Court concluded.
Dismissing the void for vagueness challenge, the Court then directed supplemental
briefing on the remaining substantive due process claim.
F
Plaintiffs timely filed a supplemental brief on May 11, 2012, writing that they “concede
that the State may regulate the sale, storage, etc., of such fireworks. Thus, Plaintiffs must prove
that the legislation is unreasonable or arbitrary, with the presumption running to validity.” Pls.’
7th Supp. Mem. 7, ECF No. 32 (“Pls.’ Br.”). Taking up this task, Plaintiffs ask rhetorically
“what possible rational basis is there for requiring $10 million per location to sell consumer
fireworks, but not having any insurance requirement, except at local option, for public displays
of a substantially more powerful class of explosives?” Id. at 10. Plaintiffs further draw a
contrast to other types of dangerous activities, noting:
The legislature just agreed that motorcycle riders could go helmetless if they
bought an additional $20,000 worth of insurance. The Liquor Control
Commission will grant a license to operate a bar and sell any amount of alcohol
while requiring only $100,000 in insurance. The above [$10 million insurance
policy requirement] is the very definition of an arbitrary, capricious provision
unrelated to public health safety or welfare.
Id. at 11. “Although Plaintiffs cannot definitively say that there is no industry or product in
Michigan which is required to have as much or more insurance as a temporary tent or roadside
consumer fireworks stand,” Plaintiffs conclude, “there are none that come easily to mind or
appear in the statutes.” Id.
-22-
Defendant responded on May 24, 2012, arguing that Plaintiffs did not, and in fact “cannot
show that the Legislature’s decision to require retail locations that sell consumer fireworks to
carry insurance is not rationally related to the State’s legitimate interest in protecting the public
health and safety.” Def.’s Resp. to Pls.’ 7th Supp. Mem. 19, ECF No. 35 (“Def.’s Resp.”).
Noting that Plaintiffs’ “central issue is with the amount of the insurance, and not with the
insurance requirement itself,” Defendant asserts that Plaintiffs “may not invoke judicial review
to argue about how much insurance coverage is appropriate to adequately protect the public from
retail locations selling consumer fireworks. As the Supreme Court said in [F.C.C. v. Beach
Communications, Inc., 508 U.S. 307 (1993)], the ‘legislative choice is not subject to courtroom
fact-finding.’ ” Id. at 12 (quoting Beach Commc’ns, 508 U.S. at 315). Moreover, Defendant
asserts, “the Legislature was well aware of the debate within the industry surrounding the
insurance requirement,” id. at 13, explaining:
There are significant dangers associated with selling consumer fireworks from
tents, including the risk of significant travel distance of discharged fireworks,
danger to adjacent structures, vehicles, and vendor tent locations are likely to be
in high traffic areas near shopping areas where people may not even be aware of
the risk that an adjacent tent selling consumer fireworks may pose. This
testimony alone provides sufficient rational basis for the Legislature to conclude
that $10 million in liability insurance was necessary to adequately protect the
Michigan public.
Id. at 14. Finally, Defendant observes that the $10 million insurance requirement has not posed
an insurmountable barrier to entry, noting: “At least 523 consumer fireworks sales certificates
have been issued under the Act to date. Inspections of the retail locations have been conducted,
and Michigan businesses are actively selling consumer fireworks under the new Act.” Id. at 7.
III
To survive a Rule 12(b)(6) motion to dismiss, the pleading “must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
-23-
Iqbal, 129 S. Ct. 1937, 1949 (2009). (internal quotation marks omitted) (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the [party] pleads
factual content that allows the court to draw the reasonable inference that the [opposing party] is
liable for the misconduct alleged.” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 555–
56). “In determining whether to grant a Rule 12(b)(6) motion, the court primarily considers the
allegations in the complaint, although matters of public record, orders, items appearing in the
record of the case, and exhibits attached to the complaint, also may be taken into account.”
Nieman v. NLO, Inc., 108 F.3d 1546, 1554 (6th Cir. 1997) (quotation marks omitted).
IV
A
“No state,” the Due Process Clause of the Fourteenth Amendment provides, “[shall]
deprive any person of life, liberty, or property, without due process of law.” U.S. Const. amend.
XIV, § 2. From the text, it is not immediately obvious that the protected “due process of law”
includes substantive rights.1 Notwithstanding “the distinctly procedural cast of the clause’s
language,” however, “there is a reasonable historical argument that, by 1868 [when the
Fourteenth Amendment was enacted], a recognized meaning of the qualifying phrase ‘of law’
was substantive.” Lawrence Tribe, American Constitutional Law § 8–1, at 1332–33 (3d ed.
2000) (emphasis omitted).
1
See generally John Hart Ely, Democracy and Distrust 18 (1980) (writing that “ ‘substantive due process’
is a contradiction in terms — sort of like ‘green pastel redness’ ”), quoted in Lawrence Tribe, American
Constitutional Law § 8–1, at 1333 (3d ed. 2000); but see generally Charles L. Black, Jr., A New Birth of Freedom:
Human Rights, Named and Unnamed 92 (1997) (writing that substantive due process “resembles a Zen Buddhist
Koan, a saying that expresses or asks for the impossible, even the unimaginable, in order to tease or stimulate or
press the mind or the spirit into a transcendent reality”), quoted in Tribe, supra, at 1333 n.7.
-24-
Writing in Hurtado v. California, 110 U.S. 516 (1884), for example, the Court held that
“due process of law” incorporates substantive rights because “law” requires more than
bicameralism and presentment — it requires the reasoned judgment:
Law is something more than mere will exerted as an act of power. . . . It must be
not a special rule for a particular person or a particular case, but, in the language
of Mr. Webster, in his familiar definition, “the general law, a law which hears
before it condemns, which proceeds upon inquiry, and renders judgment only
after trial,” so “that every citizen shall hold his life, liberty, property, and
immunities under the protection of the general rules which govern society,” and
thus excluding, as not due process of law, acts of attainder, bills of pains and
penalties, acts of confiscation, acts reversing judgments, and acts directly
transferring one man’s estate to another, legislative judgments and decrees, and
other similar special, partial, and arbitrary exertions of power under the forms of
legislation. Arbitrary power, enforcing its edicts to the injury of the persons and
property of its subjects, is not law, whether manifested as the decree of a personal
monarch or of an impersonal multitude.
Id. at 535–36. Hurtado involved a question of criminal law; however, the following decade the
Court extended “substantive due process” protections to economic regulations.
In Allgeyer v. Louisiana, 165 U.S. 578 (1897), the Court took up (and then struck down
as unconstitutional) a state statute requiring that all policies insuring marine property located in
the state be issued by insurers licensed to do business in that state. The Court explained that the
liberty protected by the Due Process Clause included the liberty to engage in lawful enterprises:
The statute which forbids such act does not become due process of law, because it
is inconsistent with the provisions of the constitution of the Union. The “liberty”
mentioned in [the Fourteenth Amendment] means, not only the right of the citizen
to be free from the mere physical restraint of his person, as by incarceration, but
the term is deemed to embrace the right of the citizen to be free in the enjoyment
of all his faculties; to be free to use them in all lawful ways; to live and work
where he will; to earn his livelihood by any lawful calling; to pursue any
livelihood or avocation; and for that purpose to enter into all contracts which may
be proper, necessary, and essential to his carrying out to a successful conclusion
the purposes above mentioned.
Id. at 589. Over the next four decades, “what is referred to (usually deprecatingly) as the
Lochner era,” the Court regularly held state and federal statutes regulating economic activity
-25-
unconstitutionally impaired the substantive due process rights of citizens by interfering with their
liberty of contract. Stop the Beach Renourishment v. Fla. Dep’t of Envtl. Prot., 120 S. Ct. 2592,
2602 (2010) (internal quotation marks omitted) (citing Lochner v. New York, 198 U.S. 45, 56–58
(1905)); see generally Tribe, supra, at 1344 n.4 (noting the “standard estimate” is that the Court
invalidated 197 state and federal statutes pursuant to the Due Process Clause between 1899 and
1937).
In New State Ice Co. v. Liebmann, 285 U.S. 262 (1932), for example, the Court
invalidated a state law prohibiting a person from manufacturing ice without a permit. “Plainly,”
the Court wrote, “a regulation which has the effect of denying or unreasonably curtailing the
common right to engage in a lawful private business, such as that under review, cannot be upheld
consistent with the Fourteenth Amendment.” Id. at 278. The Court further observed that
“nothing is more clearly settled than that it is beyond the power of a state, under the guise of
protecting the public, arbitrarily to interfere with private business or prohibit lawful
occupations.” Id. (internal quotation marks and alterations omitted) (quoting Burns Baking Co.
v. Bryan, 264 U. S. 504, 513 (1924)).
Notwithstanding that “nothing [was] more clearly settled” than the Lochner doctrine in
the mid-1930s, soon thereafter the doctrine was “discarded.” See Ferguson v. Skrupa, 372 U.S.
726, 729, 730 (1963) (“The doctrine that prevailed in Lochner . . . and like cases — that due
process authorizes courts to hold laws unconstitutional when they believe the legislature has
acted unwisely — has long since been discarded. We have returned to the original constitutional
-26-
proposition that courts do not substitute their social and economic beliefs for the judgment of
legislative bodies, who are elected to pass laws.”).2
Fundamentally recalibrating the balance between private liberty and public power in West
Coast Hotel v. Parrish, 300 U.S. 379 (1937), the Court held that the liberty protected by the
Fourteenth Amendment was not an unfettered freedom of contract, but one bound up in the
social contract:
The Constitution does not speak of freedom of contract. It speaks of liberty and
prohibits the deprivation of liberty without due process of law. In prohibiting that
deprivation, the Constitution does not recognize an absolute and uncontrollable
liberty. Liberty in each of its phases has its history and connotation. But the
liberty safeguarded is liberty in a social organization which requires the protection
of law against the evils which menace the health, safety, morals, and welfare of
the people. Liberty under the Constitution is thus necessarily subject to the
restraints of due process, and regulation which is reasonable in relation to its
subject and is adopted in the interests of the community is due process.
Id. at 391–92; see generally Alexander M. Bickel, The Least Dangerous Branch: The Supreme
Court at the Bar of Politics 16–17 (1962) (discussing “the counter-majoritarian difficulty” of
judicial review, which “thwarts the will of representatives of the actual people of the here and
now” and “exercises control, not in behalf of the prevailing majority, but against it”).
Extending its holding the next year in United States v. Carolene Products Co., 304 U.S.
144 (1938), the Court wrote that “regulatory legislation affecting ordinary commercial
transactions is not to be pronounced unconstitutional unless in the light of the facts made known
or generally assumed it is of such a character as to preclude the assumption that it rests upon
some rational basis within the knowledge and experience of the legislators.” Id. at 152.
In the intervening seven decades, “not one law has been declared unconstitutional by the
Supreme Court as violating economic substantive due process.”
2
Erwin Chemerinsky,
What caused this shift— often referred to as “the switch in time that saved nine” — is subject to a rich,
ongoing debate. See generally Barry Cushman, The Hughes-Roberts Visit, 15 Green Bag 2d 125 (2012); Daniel E.
Ho & Kevin M. Quinn, Did a Switch in Time Save Nine?, 2 J. Legal Analysis 69 (2010).
-27-
Constitutional Law: Principles and Policies 628 (3d ed. 2006). As the Court itself notes (with
gracious understatement), the rational basis “standard of review is a paradigm of judicial
restraint.” F.C.C. v. Beach Commc’ns, Inc., 508 U.S. 307, 314 (1993).
B
On rational basis review, a statute now enjoys “a strong presumption of validity, and
those attacking the rationality of the legislative classification have the burden ‘to negative every
conceivable basis which might support it.’ ” Beach Commc’ns, 508 U.S. at 314–15 (internal
citation omitted) (citing Lyng v. Auto. Workers, 485 U.S. 360, 370 (1988), and quoting
Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 364 (1973)). “Moreover,” the Court
notes, “because we never require a legislature to articulate its reasons for enacting a statute, it is
entirely irrelevant for constitutional purposes whether the conceived reason for the challenged
distinction actually motivated the legislature. Thus, the absence of legislative facts explaining
the distinction on the record has no significance in rational-basis analysis.” Beach Commc’ns,
508 U.S. at 315 (internal alterations, citation, and quotation marks omitted) (citing U.S. R.R. Ret.
Bd. v. Fritz, 449 U.S. 166, 179 (1980); Flemming v. Nestor, 363 U.S. 603, 612 (1960); and
Nordlinger v. Hahn, 505 U.S. 1, 15 (1992)). Likewise, “legislative choice is not subject to
courtroom fact-finding and may be based on rational speculation unsupported by evidence or
empirical data.” Beach Commc’ns, 508 U.S. at 315 (citing Vance v. Bradley, 440 U.S. 93, 11
(1979)). “These restraints on judicial review have added force,” the Court further cautions,
“where the legislature must necessarily engage in a process of line-drawing.” Beach Commc’ns,
508 U.S. at 315 (internal quotation marks omitted) (quoting Fritz, 449 U.S. at 179).
This deference to the political branches is founded on the very structure of our
government.
“Under the system of government created by our Constitution, it is up to
-28-
legislatures, not courts, to decide on the wisdom and utility of legislation.” Ferguson v. Skrupa,
372 U.S. 726, 729 (1963). Because of the allocation of powers established by the constitution,
“courts [ought] not substitute their social and economic beliefs for the judgment of legislative
bodies, who are elected to pass laws.” Id. at 730; see Lochner, 198 U.S. at 76 (1905) (Holmes,
J., dissenting) (“This case is decided upon an economic theory . . . . If it were a question whether
I agreed with that theory, I should desire to study it further and long before making up my mind.
But I do not conceive that to be my duty, because I strongly believe that my agreement or
disagreement has nothing to do with the right of a majority to embody their opinions in law.”).
Moreover, this deference is appropriate not only because of structural considerations
(including the respective institutional competencies of the branches of government),3 but also
because of democratic considerations. “The Constitution presumes that, absent some reason to
infer antipathy, even improvident decisions will eventually be rectified by the democratic
process and that judicial intervention is generally unwarranted no matter how unwisely we may
think a political branch has acted.” Beach Commc’ns, 508 U.S. at 314 (quotation marks omitted)
(quoting Bradley, 440 U.S. at 97).
Illustrating the degree of deference given state legislatures, in Williamson v. Lee Optical
Co., 348 U.S. 483 (1955), the Court upheld a state statute that forbid opticians from fitting or
duplicating lenses “except upon written prescriptive authority of an Oklahoma licensed
ophthalmologist or optometrist.” Id. at 485. The Court wrote: “The Oklahoma law may exact a
needless, wasteful requirement in many cases. But it is for the legislature, not the courts, to
balance the advantages and disadvantages of the new requirement. . . . It is enough that there is
3
See generally Henry M. Hart, Jr. & Albert M. Sacks, The Legal Process: Basic Problems in the Making
and Application of Law (William N. Eskridge, Jr. & Philip P.Frickey eds., 1994); but see generally Richard Posner,
Theories of Economic Regulation, 5 Bell J. Econ. & Mgmt. Sci. 335 passim (1974) (noting that among the most
popular theories attempting to “explain the pattern of government intervention in the market” include both “public
interest theory” and “capture theory”).
-29-
an evil at hand for correction, and that it might be thought that the particular legislative measure
was a rational way to correct it.” Id. at 487, 488.
Similarly, in Ferguson v. Skrupa, 372 U.S. 726 (1963), the Court upheld a state law
limiting the practice of debt-adjustment to licensed attorneys. “Unquestionably,” the Court
wrote, “there are arguments [against this statute], but such arguments are properly addressed to
the legislature, not to us.” Id. at 731. “The Kansas debt adjusting statute may be wise or
unwise,” the Court cautioned, “[b]ut relief, if any be needed, lies not with us but with the body
constituted to pass laws for the State of Kansas.” Id. at 732.
In this case, Plaintiffs concede that the legislature had a rational basis for requiring
fireworks vendors purchase insurance — “protection of the public health, safety, and welfare.”
See, e.g., Pls.’ Resp. to Def.’s Mot. to Dismiss ¶ 10 (“Plaintiffs agree that the Legislature’s
decision to require retail fireworks locations to carry mandatory insurance is within its power.”).
The sole issue is whether the specific amount required, $10 million, has any possible
rational justification. Scenarios justifying such an amount come to mind readily — a spark
causing an explosion in a crowded fireworks store, for example, or a carelessly discarded
cigarette igniting an eruption in a fireworks tent in a busy mall parking lot.
In fact, the
legislative history suggests that such scenarios were actually considered by the legislature before
enacting the $10 million insurance policy requirement:
[I]f there was an accident and somebody was hurt and [the store] was busy and it
was one of the senators that actually brought it up, if there [were] five people in
there and they got hurt, would a million dollar policy be sufficient? And the
answer to that is no. . . . Maybe even 10 million is not enough. As the states
legalize, they’re going more towards the 5 million dollar policy and now like in
the State of California, nothing is written besides a 10 million dollar policy. You
know I guess it’s like auto insurance or anything else. At one time 1 million
dollars seemed to be a lot of money. 10 million isn’t anymore.
-30-
Senate Regulatory Reform Comm. Hearing: House Bill 4293, at 33 (Mich. Nov. 3, 2011). Even
opponents of the insurance requirement testified regarding the risks associated with selling
consumer fireworks. As noted, a representative of B.J. Alan Company testified:
A fire in a tent will definitely result in aerial fireworks discharging and travelling
substantial distances from the tent. If an aerial product is designed to climb 125
to 150 feet straight up, imagine the distance if the trajectory of the flaming
product is of an arcing linear type. The danger to adjacent structures, vehicles and
people would be significant especially considering the most popular and common
tent locations are in the parking lot immediate vicinity of extreme high traffic
areas such as big box chain stores, malls, strip plazas and gas stations.
Id. at 14. Considering these scenarios, the Court cannot conclude that the $10 million baseline
that the Michigan legislature drew could only be the product of irrational minds. While this
Court might draw a different baseline of the minimum insurance coverage required, if it were
merely a question of what was wisest, the time has long since passed that the Court may enact its
economic preferences, substituting them for that of the legislature. Defendant is entitled to
judgment on Plaintiffs’ substantive due process claim.
C
Against this conclusion, Plaintiffs make a number of arguments.
None, however,
demonstrate that the statutory insurance requirement lacks a rational basis.
For example,
Plaintiffs argue, the Act is unconstitutional because “[t]here is no scientific authority on which
Defendants do or can rely for MCL 28.455(3)’s irrational and onerous $10 million insurance
requirement.” Pls.’ Mot. Prelim. Inj. ¶ 6; see also Pls.’ Br. in Supp. of Resp. to Def.’s Mot. to
Dismiss 9 (“MCL 28.455(3)’s requirement of $10 million coverage per occurrence per location
is not rationally related to furthering that interest where the actual risks and losses associated
with the sale and use of consumer fireworks is nowhere close to that amount.”). As noted, the
Supreme Court instructs that “legislative choice is not subject to courtroom fact-finding and may
-31-
be based on rational speculation unsupported by evidence or empirical data.” Beach Commc’ns,
508 U.S. at 315. Bound by this precedent, this Court cannot hold that the Act is unconstitutional
because the Michigan legislature’s choice did not expressly reference empirical data or
“scientific authority.”4
Likewise lacking merit is the argument that the insurance requirement lacks rational basis
because other jurisdictions have not required the same amount of insurance. Plaintiffs write:
[M]any other state legislatures have analyzed this issue and concluded that the
public interest would be served without requiring consumer fireworks retailers to
carry insurance, or at most, to carry $1 million to $2 million in coverage. Indeed,
Michigan legislators recognized as much: When the Act was still known as HB
4293, it passed the House Regulatory Reform Committee with a $2 million
insurance requirement.
Pls.’ Br. Supp. Mot. Prelim. Inj. 6; see also Pls.’ Mot. Prelim. Inj. ¶ 7 (“Where Michigan
requires retailers of consumer fireworks to obtain insurance coverage in an amount five to ten
times greater than that required by any other state, it is clear that MCL 28.455(3) cannot
survive.”).
That other states have adopted different minimum levels demonstrates not a flaw in
Michigan’s statute, but rather a strength of our system of government. “It is one of the happy
incidents of the federal system,” Justice Brandeis once observed, “that a single courageous state
may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments
without risk to the rest of the country.” New State Ice Co. v. Liebmann, 285 U.S. 262, 311
(1932) (Brandeis, J., dissenting). Part of the genius of our federal constitution is its federalist
character. A state is not required to enact the same laws as its sister states. Rather, learning
4
Although not essential to the decision, the Court further notes that if Plaintiffs are in fact correct that “the
actual risks and losses associated with the sale and use of consumer fireworks is nowhere close to [the $10 million
insurance requirement],” competition in the insurance market can be expected to account for this. Policy premiums,
assuming a competitive market, will be based on expected risks, rendering the excess amount of insurance required
largely surplusage in the calculation of policy rates.
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from their examples, a state may calibrate its economic regulations to reflect the particular
values of its citizens.
In the specific case of consumer fireworks, states have taken a variety of approaches.
Some absolutely prohibit the sale of such fireworks, Plaintiffs’ own expert acknowledges. See
Steinburg Aff. ¶ 4. (Prior to January 1, 2012, this was the Michigan legislature’s approach.)
Others take a relatively laissez-faire approach, permitting the sale of consumer fireworks while
imposing modest insurance requirements on the vendors. Id. Effective January 1, 2012,
Michigan has chosen an intermediate course, permitting the sale of such fireworks, but
imposing a more significant insurance requirement on the vendors. The Court cannot say that
this intermediate course could only be the product of irrational minds. Rather, as in Skrupa, the
legislature “was free to decide for itself” how stringently to regulate consumer fireworks. 372
U.S. at 731; see also Beach Commc’ns, 508 U.S. at 315 (noting that the “restraints on judicial
review have added force where the legislature must necessarily engage in a process of linedrawing.” (internal quotation marks omitted) (quoting Fritz, 449 U.S. at 179)).
Similarly without merit is the argument that the insurance requirement lacks a rational
basis because it is significantly higher than that imposed by the Michigan legislature on
motorcycle riders, dram shop operators, and firms putting on public fireworks displays. See
Pls.’ 7th Supp. Mem. 10, 11. “The legislature just agreed that motorcycle riders could go
helmetless if they bought an additional $20,000 worth of insurance,” Plaintiffs write,
continuing: “The Liquor Control Commission will grant a license to operate a bar and sell any
amount of alcohol while requiring only $100,000 in insurance.
The above [$10 million
insurance policy requirement] is the very definition of an arbitrary, capricious provision.” Id.
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Demonstrating that the legislature adopted relatively modest insurance requirements for
one category of risks, however, does not eliminate “all possible rational justifications” for the
legislature’s decision regarding the risk at issue in this case. Midkiff v. Adams Cnty. Reg. Water
Dist., 409 F.3d 758, 770 (6th Cir. 2005). As in Williamson, the $10 million insurance policy
“may exact a needless, wasteful requirement in many cases. But it is for the legislature, not the
courts, to balance the advantages and disadvantages of the new requirement.” 348 U.S. at 487.
Plaintiffs’ disagreement with the wisdom of the $10 million insurance policy should be
addressed to the body that made it, the Michigan legislature. As noted, the time has long since
passed that the Court may substitute its economic preferences for that of the legislature.
Finally, Plaintiffs assert that the insurance requirement lacks a rational basis because it
presents an insurmountable barrier to entry into the market. Assuming that the premise is
correct (that is, if the market is opened, any barriers to entry must be rational),5 Plaintiffs’
argument nevertheless lacks merit.
First, for the reasons detailed above, as a matter of law the Court cannot conclude that
the $10 million insurance requirement lacks any rational justification. Second, as a factual
matter, public records reveal that the insurance requirement has not proved to be an
insurmountable barrier to entry into this newly authorized market — since the Act took effect
six months ago, more than five hundred consumer fireworks sales certificates have been issued.
See Michigan Bureau of Fire Services, Consumer Fireworks Certificate Database, (reporting
5
As a threshold matter, it is not immediately obvious that the premise of this argument is correct (that is, it
is not obvious that a state violates the federal constitution by blocking access to this particular market). Cf. Burda
Bros., Inc. v. Canton Township, No. 195051, 1997 WL 33344716, at *2 (Mich. Ct. App. Jul. 1, 1997) (noting federal
law does not preempt the Michigan state regulation precluding sale of consumer fireworks), cited in Burda Bros.,
Inc. v. Walsh, 22 F. App’x 423, 426 (6th Cir. 2002). Nevertheless, the Court concludes that Plaintiff is correct that
while the legislature has the authority to close this market, if it is to be opened, it must be opened in a rational
manner. Cf. Republican Party of Minn. v. White, 536 U.S. 765, 788 (2002) (“The greater power to dispense with
elections altogether does not include the lesser power to conduct elections under conditions of state-imposed voter
ignorance.” (internal alterations omitted) (quoting Renne v. Geary, 501 U.S. 312, 349 (1991) (Marshall, J.,
dissenting)).
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that as of June 1, 2012, Defendant has issued 566 consumer fireworks sales certificates),
available at http://www7.dleg.state.mi.us/consumerfireworks/default.aspx (last visited June 1,
2012); see generally Ashland, Inc. v. Oppenheimer & Co., Inc., 648 F.3d 461, 467 (noting that
public records may be considered on Rule 12(b)(6) motions).
In sum, because it cannot be said that the Act’s insurance requirement lacks a rational
basis, the Court will grant Defendant’s motion to dismiss the complaint.
V
Accordingly, it is ORDERED that Plaintiffs’ motion for a preliminary injunction (ECF
No. 2) is DENIED.
It is further ORDERED that Defendant’s motion to dismiss (ECF No. 21) GRANTED.
s/Thomas L. Ludington
THOMAS L. LUDINGTON
United States District Judge
Dated: June 7, 2012
PROOF OF SERVICE
The undersigned certifies that a copy of the foregoing order was served
upon each attorney or party of record herein by electronic means or first
class U.S. mail on June 7, 2012.
s/Tracy A. Jacobs
TRACY A. JACOBS
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