Teltech Systems, Inc. et al v. Barbour et al

Filing 33

Memorandum Opinion and Order finding as moot 5 MOTION for Preliminary Injunction, granting 19 MOTION for Summary Judgment, denying 25 Cross MOTION for Summary Judgment. A separate judgment shall be entered as set out herein. Signed by District Judge Tom S. Lee on 12/8/11 (LWE)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
JACKSON DIVISION
TELTECH SYSTEMS, INC., WONDERLAND
RENTALS, INC AND MEIR COHEN
VS.

PLAINTIFFS
CIVIL ACTION NO. 3:10CV679TSL-FKB

HALEY BARBOUR, IN HIS OFFICIAL
CAPACITY AS GOVERNOR OF THE STATE
OF MISSISSIPPI, AND JIM HOOD, IN
HIS OFFICIAL CAPACITY AS ATTORNEY
GENERAL OF THE STATE OF MISSISSIPPI

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This cause is before the court on the motions of plaintiffs
Teltech Systems, Inc., Wonderland Rentals, Inc. and Meir Cohen for
preliminary injunction and for summary judgment, and on the crossmotion of defendants Governor Haley Barbour and Mississippi
Attorney General Jim Hood for summary judgment.1

Having

considered the memoranda of authorities submitted by the parties,
the court concludes that defendants’ motion should be denied and
that plaintiffs’ motion should be granted for reasons which
follow.

1

Plaintiffs filed their motion for preliminary injunction
one day after filing their complaint but did not seek a hearing on
the motion. In that motion, plaintiffs argued for injunctive
relief on the basis that Mississippi’s Caller ID Anti-Spoofing act
is unconstitutional because it violates the Commerce Clause.
Plaintiffs subsequently filed their motion for summary judgment on
the bases of preemption and violations of the Commerce Clause and
First Amendment. Plaintiffs’ summary judgment motion, by which
they seek permanent injunctive relief, effectively moots the
motion for preliminary injunction.

In June 2010, the Mississippi Legislature passed the “Caller
ID Anti-Spoofing Act” which prohibits a person from entering or
causing to be entered false information into a telephone caller
identification system “with the intent to deceive, defraud or
mislead the recipient of a call.”

Miss. Code Ann. § 77-3-805.

“False information” is defined as “data that misrepresents the
identity of the caller to the recipient of a call or to the
network itself....”

Id. § 77-3-803.

The Act provides for a fine

of up to $1,000 and/or a sentence of up to one year in the county
Id. § 77-3-809.

jail.

Plaintiffs herein are commercial entities

which provide communications services that include the capability
of “spoofing” caller ID and organizations and individuals who use
caller ID spoofing for political or personal reasons to maintain
their anonymity or to appear to be someone else.2

More

specifically, Wonderland Rentals, Inc. provides market research,
“mystery shopping” and customer service analysis for a wide
variety of business clients located in Mississippi and throughout
the United States.

It routinely uses caller ID spoofing to

provide “mystery shopping” customer interactions with its clients’
customer service representatives to gather an unbiased measurement
of their performance.

TelTech Systems offers the SpoofCard

service, which operates like a regular long-distance calling card
2

The term “spoofing” refers to the practice in which
callers use a device to block caller IDs from displaying the
caller’s correct name and/or phone number.
2

service but also provides each customer the capability to change
(or “spoof”) the caller ID that is displayed on a called party’s
telephone.

Plaintiff Meir Cohen is the president of TelTech and

uses a SpoofCard to make calls.
In this action, plaintiffs challenge the Mississippi Act on
three grounds: (1) that it conflicts with federal law, and
specifically the recently-enacted Truth in Caller ID Act of 2009,
47 U.S.C. § 227(e), and thus is preempted; (2) that it violates
the Commerce Clause; and (3) that it violates the First Amendment.
Preemption
On December 22, 2010, President Obama signed into law the
Truth in Caller ID Act of 2009, which, among other things, amended
Section 227 of the Telephone Consumer Protection Act, 47 U.S.C.
§ 227, by adding the following:
(e) Prohibition on Provision of Inaccurate Caller
Identification Information(1) IN GENERAL- It shall be unlawful for any person
within the United States, in connection with any
telecommunications service or IP-enabled voice service,
to cause any caller identification service to knowingly
transmit misleading or inaccurate caller identification
information with the intent to defraud, cause harm, or
wrongfully obtain anything of value, unless such
transmission is exempted pursuant to paragraph (3)(B).
Plaintiffs contend that the federal statute preempts the
Mississippi Act since the state Act directly conflicts with the
federal statute.

3

The Fifth Circuit recently explained as follows:
Preemption can take multiple forms: Congress can
expressly preempt state law in federal statutory
language, or it can impliedly preempt state law.
Implied preemption can take the form of field
preemption, where federal law “is sufficiently
comprehensive to make reasonable the inference that
Congress ‘left no room’ for supplementary state
regulation,” or “the federal interest [in the field] is
so dominant” that it “preclude[s] enforcement of state
laws on the same subject.” Implied preemption can also
take the form of conflict preemption....
Castro v. Collecto, Inc., 634 F.3d 779, 785 (5th Cir. 2011).
Plaintiffs do not contend that express preemption or field
preemption applies in this case, but rather advocate only conflict
preemption.

They submit that the Mississippi Act directly

conflicts with the federal statute since the federal statute
proscribes only caller ID spoofing with “the intent to defraud,
cause harm or wrongfully obtain anything of value,” whereas the
Mississippi Act also prohibits the provision or use of caller ID
spoofing with the intent “to deceive” or “mislead.”

Plaintiffs

argue that since Congress only made it illegal for callers to use
caller ID spoofing on interstate calls if their intent was to
defraud the recipient of the call and did not make it illegal for
callers to use caller ID spoofing on interstate calls if their
only intent was to deceive (but not defraud), then the Mississippi
Act directly conflicts with the federal law by criminalizing
conduct in interstate commerce, i.e., the use of caller ID

4

spoofing with the intent merely to deceive, which Congress
intended would remain legal.
Conflict preemption requires that it would be “physically
impossible” for a private party to comply with both federal and
state law, or that the law “stand[] as an obstacle to the
accomplishment and execution of the full purposes and objectives
of Congress.”

Empacadora de Carnes de Fresnillo, S.A. de C.V., v.

Curry, 476 F.3d 326, 334 (5th Cir. 2007) (citing Planned Parenthood
of Houston & Se. Tex. v. Sanchez, 403 F.3d 324, 336 (5th Cir.
2005)); see also Castro v. Collecto, Inc., 634 F.3d 779, 785 (5th
Cir. 2011).

In this case, it is apparent that it would not be

physically impossible for plaintiffs to comply with both federal
and state law:

Complying with the Mississippi Act by not using

caller ID spoofing to defraud, deceive or mislead would not
violate the federal act.

The federal statute, like the state Act,

proscribes the use of caller ID spoofing to defraud.

And while

the federal Act, unlike the Mississippi Act, does not proscribe
the use of caller ID spoofing to deceive or mislead, the state Act
does not conflict with the federal Act merely because it goes
further and proscribes more conduct than federal law.

Moreover,

plaintiffs have not shown that the state Act stands as an obstacle
“to the accomplishment and execution of the full purposes and
objectives of Congress.”

5

Commerce Clause
The Constitution's affirmative grant of power to Congress
“[t]o regulate Commerce ... among the several States,” U.S. Const.
art. I, § 8, cl. 3, has long been understood to imply a negative
aspect, referred to as the dormant Commerce Clause, which limits
the power of the states to regulate commerce.

See Piazza's

Seafood World, LLC v. Odom, 448 F.3d 744, 749 (5th Cir. 2006)
(citations omitted).

The Fifth Circuit has stated that a dormant

Commerce Clause analysis begins by asking whether the statute at
issue “‘(1) facially discriminate[s] against out-of-state economic
interests, or (2) regulate[s] evenhandedly and thereby evince[s]
only an indirect burden on interstate commerce.’”

Nat’l Solid

Waste Mgmt. Ass'n v. Pine Belt Regional Solid Waste Mgmt. Auth.,
389 F.3d 491, 497 (5th Cir. 2004) (quoting Dickerson v. Bailey, 336
F.3d 388, 396 (5th Cir. 2003)).

If a state statute facially

discriminates against out-of-state economic interests, i.e., has a
discriminatory purpose, it is “virtually per se invalid.”
at 497 (citing Dickerson, 336 F.3d at 396).

See id.

“The [statute] will

be unconstitutional unless the state actor ‘can demonstrate, under
rigorous scrutiny, that it has no other means to advance a
legitimate local interest.’” Id. (quoting Dickerson, 336 F.3d at
396).

In contrast, “‘evenhanded statutes’ that effectuate a

legitimate local interest and that only incidentally affect
interstate commerce,” i.e., which reflect merely a discriminatory
6

effect, are evaluated under the “Pike balancing test,” and will be
upheld unless the burden imposed on interstate commerce is
“‘clearly excessive in relation to the putative local benefits.’”
Id. at 597 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 90
S. Ct. 844, 847, 25 L. Ed. 2d 174 (1970)).
In addition, the Supreme Court has held that the Commerce
Clause prohibits “extraterritorial legislation,” so that “a state
law that has the ‘practical effect’ of regulating commerce
occurring wholly outside that State's borders is invalid under the
Commerce Clause.”

Healy v. Beer Institute, Inc., 491 U.S. 324,

332, 109 S. Ct. 2491, 2497, 105 L. Ed. 2d 275 (1989).

In Healy,

the Court recognized the proposition that “the ‘Commerce Clause
... precludes the application of a state statute to commerce that
takes place wholly outside of the State's borders, whether or not
the commerce has effects within the State,’ Id. at 336, 109 S. Ct.
at 2499 (quoting Edgar v. MITE Corp., 457 U.S. 624, 642-643, 102
S. Ct. 2629, 2640-2641, 73 L. Ed. 2d 269 (1982)(plurality
opinion)); and further, “a statute that directly controls commerce
occurring wholly outside the boundaries of a State exceeds the
inherent limits of the enacting State's authority and is invalid
regardless of whether the statute's extraterritorial reach was
intended by the legislature.”

Id., 109 S. Ct. at 2499.

Plaintiffs herein submit that Mississippi’s Caller ID AntiSpoofing Act violates the dormant Commerce Clause because it has
7

the practical effect of regulating commerce that occurs wholly
outside Mississippi.

In this regard, plaintiffs note that whereas

it was once easy to determine where telephone calls began and
ended, that is no longer the case.

Due to the tremendous growth

of mobile phone usage and the fact that many cell customers have
mobile numbers that are associated with an area code other than
the one where they live, to the Federal Communication Commission’s
imposition of mobile number portability (which permits a mobile
customer which switches carriers to keep his existing phone
number), to the introduction of IP-based services, including voice
over internet protocol (VoIP) (which enables the delivery of voice
communications over the Internet), and to the growth of call
forwarding, it is impossible for a user or provider of caller ID
spoofing service to know whether the recipient of their caller ID
spoofing is in Mississippi.

Consequently, to ensure they do not

risk criminal liability for violating the Mississippi Act, they
must refrain from all caller ID spoofing.

Plaintiffs submit that

in this manner, the Act has “the ‘practical effect’ of regulating
commerce occurring wholly outside ‘that [s]tate’s borders.”
Healy, 491 U.S. at 332, 109 S. Ct. 2491.
This is precisely what the court held in Teltech v. McCollum,
Case No. 08-61644-CIV-Martinez-Brown (S.D. Fla. July 16, 2009).
There, as here, the plaintiffs (Teltech, Wonderland and Cohen)
challenged a nearly identical Florida Caller ID Anti-Spoofing Act
8

based on the extraterritoriality principle.

The court first found

as a logical consequence of the undisputed fact that it was
impossible for the plaintiffs to determine whether the recipient
of their caller ID spoofing was in Florida, that it was impossible
for the plaintiffs to conduct their businesses or use caller ID
spoofing services anywhere in the country without risk of
liability under the Florida statute.

The court thus concluded

that the Act had the practical effect of regulating commerce that
occurred wholly outside the state of Florida and therefore
violated the Commerce Clause.
While defendants herein criticize the Florida court’s resort
to the extraterritoriality principal, characterizing it as “a
fairly unused and nuanced test that has recently become in vogue
for challenging state statutes on the Commerce Clause,” they
acknowledge (albeit only implicitly), that nearly all circuits
have recognized and applied this principle.3
3

This is hardly

Defendants note that in In re National Century Financial
Enterprises, Inc., Inv. Litigation, 755 F. Supp. 2d 857, 2010 WL
5174585 (S.D. Ohio 2010), the court compiled the growing number of
circuits that have “considered this trendy third test” to the
Commerce Clause. There, the court wrote:
Several circuits refer to “extraterritorial
control” as the third part of their dormant Commerce
Clause test—economic protectionism and Pike balancing
being the first two. See Selevan v. New York Thruway
Auth., 584 F.3d 82, 90 (2d Cir. 2009); Cloverland–Green
Spring Dairies, Inc. v. Pa. Milk Mktg. Bd., 462 F.3d
249, 261–63 (3d Cir. 2006); Grand River Enterprises Six
Nations, Ltd. v. Beebe, 574 F.3d 929, 942 (8th Cir.
2009); KT & G Corp. v. Att'y Gen. of Okla., 535 F.3d
1114, 1143 (10th Cir. 2008). Other circuits have
9

surprising, given the Supreme Court’s pronouncements in Healy,
from which it is clear that the extraterritoriality principle is a
viable component of Commerce Clause analysis.
Defendants submit, alternatively, that even if viable in this
circuit, the extraterritoriality principle has no potential
applicability here since Mississippi’s statute applies only in
Mississippi and does not attempt to “directly control” commerce

expressly recognized the extraterritoriality principle.
See, e.g., Midwest Title Loans, Inc. v. Mills, 593 F.3d
660, 665 (7th Cir. 2010) (“But another class of
nondiscriminatory local regulations is invalidated
without a balancing of local benefit against
out-of-state burden, and that is where states actually
attempt to regulate activities in other states.”);
Carolina Trucks & Equip., Inc. v. Volvo Trucks of N.
Am., Inc., 492 F.3d 484, 489 (4th Cir. 2007). And the
First Circuit, despite calling the extraterritoriality
principle the “dormant branch of the dormant Commerce
Clause,” conceded that the doctrine “remains viable.”
IMS Health Inc. v. Mills, 616 F.3d 7, 29 n.27 (1st Cir.
2010).
The Sixth Circuit recently adopted the
extraterritoriality principle in International Dairy
Foods Association v. Boggs, 622 F.3d 628 (6th Cir.
2010). The court followed the other circuits in holding
that “a state regulation that controls extraterritorial
conduct is per se invalid.” 622 F.3d at 645. The key
inquiry is whether the regulation would control conduct
occurring wholly outside the state's boundaries. Id. at
645–46.
In re Nat’l Century Financial Enters., Inc., 755 F. Supp. 2d at
878-79, 2010 WL 5174585, at 18. The Ninth Circuit has also
recognized the extraterritoriality principle. See Pacific
Merchant Shipping Ass'n v. Goldstene, 639 F.3d 1154, 1178 (9th Cir.
2011) (observing that “the Commerce Clause prohibits state
legislation regulating commerce that takes place wholly outside of
the state's borders, regardless of whether the commerce has
effects within the state.”) (citing Healy and Edgar).
10

that occurs “wholly outside” the state.

However, under Healy, the

inquiry is not whether the statute aims to directly control
extraterritorial commerce but whether it has “the ‘practical
effect’ of regulating commerce occurring wholly outside that
State's borders.”

Healy, 491 U.S. at 332, 109 S. Ct. at 2491.

The Mississippi statute indisputably and inevitably has a
significant wholly extraterritorial effect and thus, as the court
held in Teltech v. McCollum, violates the Commerce Clause.

On

this basis, therefore, the court concludes that plaintiffs’ motion
for summary judgment should be granted and defendants’ motion
denied.4
4

Plaintiffs submit that even under the Pike balancing
test, the Mississippi statute is unconstitutional. Under the Pike
balancing test:
Where the statute regulates even-handedly to effectuate
a legitimate local public interest, and its effects on
interstate commerce are only incidental, it will be
upheld unless the burden imposed on such commerce is
clearly excessive in relation to the putative local
benefits. If a legitimate local purpose is found, then
the question becomes one of degree. And the extent of
the burden that will be tolerated will of course depend
on the nature of the local interest involved, and on
whether it could be promoted as well with a lesser
impact on interstate activities.
Pike, 397 U.S. at 142, 90 S. Ct. 844. Plaintiffs contend there is
no legitimate local interest which the Act seeks to protect that
is not already protected by existing legislation and that the
effects on interstate commerce are more than merely incidental.
The only putative local benefit defendants have identified is the
prevention, investigation and prosecution of fraud. Indeed, in
their motion and briefs on the pending motions, defendants
repeatedly identify as the sole purpose for the Act the
prevention, investigation and prosecution of fraud. Since fraud
is already illegal, both under state and federal law, the Act adds
nothing toward improving the prevention or investigation of fraud.
11

For these reasons,5 it is ordered that plaintiffs’ motion for
summary judgment is granted and that defendants’ motion for
summary judgment is denied.
A separate judgment will be entered in accordance with Rule
58 of the Federal Rules of Civil Procedure.
SO ORDERED this 8th day of December, 2011.

/S/Tom S. Lee
UNITED STATES DISTRICT JUDGE

And plaintiffs have shown that there is a more than minimal burden
on interstate commerce that cannot be justified.
5

The court finds it unnecessary to address plaintiffs’
First Amendment claim.
12