357 F.Supp. 20
HOLIDAY MAGIC, INC., et al., Plaintiffs,
v.
Robert W. WARREN et al., Defendants.
Civ. A. No. 71-C-659.
United States District Court,
E. D. Wisconsin.
April 3, 1973.
OPINION AND ORDER
REYNOLDS, District Judge.
The question in this litigation is whether
Wisconsin may prohibit the promotion of
a chain distributor or "pyramid" scheme
without running afoul of certain provisions
of the federal Constitution. Jurisdiction
arises under 28 U.S.C. 1331 and
1343(3). The *23 plaintiff corporations are
charged with employing such a scheme.
Together with an individual plaintiff they
have moved for the convening of a three-judge court to declare unconstitutional Ag
122, a general order of the Wisconsin
Department of Agriculture, and to enjoin
its further enforcement. Defendant state
officials have opposed that request and
have moved to dismiss. The motions for
the convening of a three-judge court and
to dismiss were briefed and argued
together. I have concluded that the
federal constitutional claims are
insubstantial. This conclusion prohibits
me from requesting the convening of a
three-judge court and requires me to
dismiss the complaint for want of
jurisdiction. Ex parte Poresky, 290 U.S.
30, 54 S.Ct. 3, 78 L.Ed. 152 (1933).
The alleged constitutional defects in Ag
122 are that it violates freedom of speech,
that it fails to give adequate notice of the
conduct prohibited, that it constitutes an
undue burden on interstate commerce,
that it intrudes into an area pre-empted by
the federal government, that it violates
plaintiffs' right to work, that it impairs the
obligation of contracts, that it bears no
rational relation to a valid state purpose,
and that it results in discriminatory
enforcement. The general order provides:
"Ag 122.01 Unfair trade practice. The
promotional use of a chain distributor
scheme in connection with the
solicitation of business investments from
members of the public is an unfair trade
practice under section 100.20,
Wis.Stats. When so used the scheme
serves as a lure to improvident and
uneconomical investment. Many small
investors lack commercial expertise and
anticipate unrealistic profits through use
of the chance to further perpetuate a
chain of distributors, without regard to
actual market conditions affecting
further distribution and sale of the
property purchased by them or its
market acceptance by final users or
consumers. Substantial economic
losses to participating distributors have
occurred and will inevitably occur by
reason of their reliance on perpetuation
of the chain distributor scheme as a
source of profit.
"Ag 122.02 Definitions. (1) 'Chain
distributor scheme' is a sales device
whereby a person, upon a condition that
he make an investment, is granted a
license or right to recruit for profit one or
more additional persons who also are
granted such license or right upon
condition of making an investment and
may further perpetuate the chain of
persons who are granted such license
or right upon such condition. A
limitation as to the number of persons
who may participate, or the presence of
additional conditions affecting eligibility
for the above license or right to recruit
or the receipt of profits therefrom, does
not change the identity of the scheme as
a chain distributor scheme.
"(2) 'Investment' is any acquisition, for a
consideration other than personal
services, of personal property, tangible
or intangible, for profit or business
purposes, and includes, without
limitation, franchises, business
opportunities and services. It does not
include real estate, securities registered
under chapter 551, Wis.Stats., or sales
demonstration equipment and materials
furnished at cost for use in making sales
and not for resale.
"(3) 'Person' includes partnerships,
corporations and associations.
"Ag 122.03 Prohibition. No person shall
promote, offer or grant participation in a
chain distributor scheme.
"Ag 122.04 Statutory exemption. This
chapter does not apply to banks,
savings and loan associations,
insurance companies and public utilities
to the extent exempted from department
regulations under section 93.01(13),
Wis.Stats."
The general order was issued pursuant to
authority vested in the Department of *24
Agriculture by 100.20 of the Wisconsin
Statutes which provides in part:
"Methods of competition and trade
practices. (1) Methods of competition in
business and trade practices in
business shall be fair. Unfair methods
of competition in business and unfair
trade practices in business are hereby
prohibited.
"(2) The department, after public
hearing, may issue general orders
forbidding methods of competition in
business or trade practices in business
which are determined by the department
to be unfair. ***
* * *
"(6) The department may commence an
action in circuit court in the name of the
state to restrain by temporary or
permanent injunction the violation of any
order issued under this section. ***"
Violating an order issued under 100.20
subjects a person to a fine of not less
than $25 nor more than $5,000 and to
imprisonment of not more than one year.
Wis.Stats. 100.26(3). Violating an
injunction issued pursuant to 100.20(6)
subjects a person to a civil forfeiture of
not less than $100 nor more than
$10,000. Wis.Stats. 100.26(6).
THE FIRST AMENDMENT
[1] The alleged First Amendment
violation lies in prohibiting the mere
"promotion" of a chain distributor scheme.
Promotion alone, plaintiffs argue, may
involve only speech. Consequently, the
argument goes, the state may not restrict
it without showing that it urges imminent
lawless action of an extremely serious
nature. Brandenburg v. Ohio, 395 U.S.
444, 89 S.Ct. 1827, 23 L.Ed.2d 430
(1969); Bridges v. California, 314 U.S.
252, 62 S.Ct. 190, 86 L.Ed. 192 (1941).
Past opinions of the United States
Supreme Court make the decision of the
First Amendment claim as easy to reach
as it is difficult to justify. In an unbroken
line of decisions the Supreme Court, and
lower courts as well, have distinguished
between the expression protected by the
First Amendment and the use of speech,
whether truthful or not, in a commercial
context like that presented here. Valentine
v. Chrestensen, 316 U.S. 52, 62 S.Ct.
920, 86 L.Ed. 1262 (1942). Compare
Breard v. Alexandria, 341 U.S. 622, 71
S.Ct. 920, 95 L.Ed. 1233 (1951), with
Martin v. Struthers, 319 U.S. 141, 63
S.Ct. 862, 87 L.Ed. 1313 (1943). See
New York State Broadcasters Ass'n v.
United States, 414 F.2d 990 (2d Cir.
1969), cert. denied, 396 U.S. 1061, 90
S.Ct. 752, 24 L.Ed.2d 755 (1970);
Banzhaf v. Federal Communications
Commission, 132 U.S.App.D.C. 14, 405
F.2d 1082 (1968), cert. denied sub nom.,
Tobacco Institute, Inc. v. Federal
Communications Commission, 396 U.S.
842, 90 S.Ct. 50, 24 L.Ed.2d 93 (1969);
Capital Broadcasting Co. v. Mitchell, 333
F.Supp. 582 (D.D.C.1971), (three-judge
court), aff'd sub nom., Capital
Broadcasting Co. v. Acting Attorney
General, 405 U.S. 1000, 92 S.Ct. 1289,
31 L.Ed.2d 472 (1972); Williamson v. Lee
Optical Co., 348 U.S. 483, 75 S.Ct. 461,
99 L.Ed. 563 (1955). Cf. United States v.
Mitchell, 327 F.Supp. 476 (N.D.Ga.1971);
United States v. Bob Lawrence Realty,
Inc., 313 F.Supp. 870 (N.D.Ga.1970);
United States v. Mintzes, 304 F.Supp.
1305 (D.Md.1969); United States v.
Hunter, 459 F.2d 205 (4 Cir., 1972). [FN1]
FN1. Justice Douglas would depart
from past authority and afford
commercial expression the
protection of the First Amendment.
See his concurring opinion in
Cammarano v. United States, 358
U.S. 498, 79 S.Ct. 524, 3 L.Ed.2d
462 (1959), and his dissent in Dun
& Bradstreet, Inc. v. Grove,
Trustee et al., 404 U.S. 898, 904,
92 S.Ct. 204, 30 L.Ed.2d 175
(1971). On occasion lower courts
have implied that constitutional
protection hinges on whether the
commercial expression is "true."
See, e. g., L. G. Balfour Co. v.
Federal Trade Commission, 442
F.2d 1, 24 (7 Cir., 1971).
As commentators have noted, the
rationale for the distinction is seldom *25
made explicit, and the tests for
distinguishing between commercial and
noncommercial expression would never
survive evenhanded application.
Developments in the Law-Deceptive
Advertising, 80 Harv.L.Rev. 1005, 1027-
1038 (1967); Note, Freedom of
Expression in a Commercial Context, 78
Harv.L.Rev. 1191 (1965); Dun &
Bradstreet, Inc. v. Grove, Trustee et al.,
404 U.S. 898, 904, 92 S.Ct. 204, 30
L.Ed.2d 175 (1971) (Douglas, J.,
dissenting). For example, the original test
implied in Valentine v. Chrestensen, 316
U.S. 52, 62 S.Ct. 920, 86 L.Ed. 1262
(1942), considered commercial all
expression made for the primary purposes
of commercial gain. See Resnick,
Freedom of Speech and Commercial
Solicitation, 30 Cal.L.Rev. 655 (1942).
Yet commercial gain is no doubt the
primary purpose of many involved in labor
disputes and of innumerable authors,
journalists, dramatists, and others who
earn their livelihood through expression
that is unquestionably entitled to First
Amendment protection. Thornhill v.
Alabama, 310 U.S. 88, 60 S.Ct. 736, 84
L.Ed. 1093 (1940); Smith v. California,
361 U.S. 147, 80 S.Ct. 215, 4 L.Ed.2d
205 (1959); cf. Bantam Books, Inc. v.
Sullivan, 372 U.S. 58, 83 S.Ct. 631, 9
L.Ed.2d 584 (1963). Even if the
expression of professional writers is
considered noncommercial, despite the
commercial purpose, on the ground that
the gain arises from selling the expression
itself rather than from using the
expression to sell some other product, the
expression of those, for example, who
advertise to raise funds for a political
purpose would still have to be considered
commercial under the "primary purpose"
test. Yet in New York Times, Inc. v.
Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11
L.Ed.2d 686 (1964), the Supreme Court
granted First Amendment protection to
political advertisements, noting that
neither the desire to raise funds nor the
commercial form of the expression
dictated a contrary result. Instead the
opinion in New York Times implied a new
ground for identifying commercial
expression and denying it protection;
namely, that it dealt exclusively with
matters of private rather than public
concern. 376 U.S. at 266, 84 S.Ct. 710.
See also Time, Inc. v. Hill, 385 U.S. 374,
87 S.Ct. 534, 17 L.Ed.2d 456 (1967). But
it is apparent that informative commercial
expression dealing with, for example, the
safety, cost, and quality of consumer
products or, as in this case, the wisdom of
possible investments, involves matters of
public concern. See Banzhaf v. Federal
Communications Commission, 132 U.S.
App.D.C. 14, 405 F.2d 1082 (1968). The
concern about the characteristics of
products and investments is often more
widespread than the concern about labor
disputes; individuals will often better
develop their capacity to govern
themselves and influence their society by
evaluating a sales pitch than by reading
the crime-oriented magazines and comics
granted protection in other cases. See
Winters v. New York, 333 U.S. 507, 68
S.Ct. 665, 92 L.Ed. 840 (1947); Thomas
v. Collins, 323 U.S. 516, 65 S.Ct. 315, 89
L.Ed. 430 (1945). See also Meiklejohn,
The First Amendment Is An Absolute,
1961 Sup.Ct.Rev. 245; Radish, The First
Amendment in the Marketplace;
Commercial Speech and the Value of
Free Expression, 39 Geo.Wash.L.Rev.
429 (1971).
[2][3] Despite the conceptual difficulties
in articulating a test to distinguish
commercial from noncommercial
expression, the decision to deny
protection to commercial expression
reflects the Supreme Court's sound
judgment about the function of the First
Amendment. Put simply, the use of
speech to sell products or promote
commercial ventures bears little, if any,
relation to the discussion of politics,
religion, philosophy, art, and other more
mundane subjects which the Supreme
Court believes the First Amendment was
historically designed to protect. See
Kalven, The New York Times Case: A
Note on "The Central Meaning of the First
Amendment," 1964 Sup.Ct.Rev. 191;
Brennan, The Supreme Court and the
Meiklejohn Interpretation of the First
Amendment, *26 79 Harv.L.Rev. 1 (1965);
Meiklejohn, Political Freedom (New York,
Harper and Row, 1960); Emerson, The
System of Free Expression 414 (1970);
Emerson, Toward A General Theory of
the First Amendment, 72 Yale L.J. 877,
948-949 n. 93 (1963). Where the
government is often barred from
interfering with an individual's free choice
on those subjects where expression is
protected, it has taken an active role in
regulating individual behavior in the
commercial marketplace. West Coast
Hotel Co. v. Parrish, 300 U.S. 379, 57
S.Ct. 578, 81 L.Ed. 703 (1937); Nebbia v.
New York, 291 U.S. 502, 54 S.Ct. 505, 78
L.Ed. 940 (1935). That commercial
activity takes the form of speech does not
necessarily immunize it from regulation.
[FN2] Just as solicitation of murder is
regulable, though only speech is involved,
so is the promotion of an unlawful
commercial activity. In both cases the
speech is inseparably related to the
particular unlawful activity and not
remotely related to the suggested
purposes of the First Amendment. See
Emerson, Toward a General Theory of
the First Amendment, 72 Yale 877-886
(1963). By comparison, advocating the
social benefits of pyramiding schemes in
general in order to change the law is
protected. But such advocacy designed
to obtain the political support of others is
easily distinguishable from the solicitation
designed to obtain their immediate
financial participation. In this case, the
word "promote" is amenable to a
construction prohibiting only the
expression used in the actual
organization, advertisement, or
implementation of the prohibited schemes.
See Zwickler v. Koota, 389 U.S. 241, 249,
88 S.Ct. 391, 19 L.Ed.2d 444 (1967);
Harrison v. N.A.A.C.P., 360 U.S. 167, 79
S.Ct. 1025, 3 L.Ed.2d 1152 (1959).
FN2. By as much as plaintiff
overstates the significance of the
fact that the unlawful activity takes
the form of speech, the often-cited
opinion of Giboney v. Empire
Storage & Ice Co., 336 U.S. 490,
502, 69 S.Ct. 684, 691, 93 L.Ed.
834 (1949), understates its
significance in declaring that:
"*** it has never been deemed an
abridgment of freedom of speech
or press to make a course of
conduct illegal merely because the
conduct was in part initiated,
evidenced, or carried out by means
of language, either spoken, written,
or printed. ***"
Often using speech to carry out an
illegal course of conduct will
immunize the speaker from arrest.
For instance, a speaker at an
unruly public demonstration may
know that continuing his speech
will cause a breach of the peace,
yet even if the state shows that he
intended that result, he cannot be
convicted of breach of the peace
or attempted breach of the peace
as long as his speech itself
qualifies for constitutional
protection. See Bachellar v.
Maryland, 397 U.S. 564, 90 S.Ct.
1312, 25 L.Ed.2d 570 (1970);
Gregory v. Chicago, 391 U.S. 964,
88 S.Ct. 2033, 20 L.Ed.2d 877
(1968); see also Epton v. New
York, 390 U.S. 29, 88 S.Ct. 824,
19 L.Ed.2d 808 (1968) (Douglas,
J., dissenting). Were the law
otherwise, public demonstrations
would be a thing of the past.
VAGUENESS
[4][5][6] Fundamental fairness requires
that people be given notice of the conduct
the law proscribes. Connally v. General
Construction Co., 269 U.S. 385, 46 S.Ct.
126, 70 L.Ed. 322 (1925). But it does not
require that regulations prescribe conduct
with absolute or mathematical precision,
nor does it require that there never be
disagreement on the application of the
regulation to particular factual situations.
United States v. Wurzbach, 280 U.S. 396,
50 S.Ct. 167, 74 L.Ed. 508 (1929); United
States v. Petrillo, 332 U.S. 1, 67 S.Ct.
1538, 91 L.Ed. 1877 (1946). Vagueness
is not a wooden concept but a flexible
one, based on a common sense
evaluation of the notice given by a
regulation and calling for consideration of
the entire text, the subject matter dealt
with, and the difficulty in being more
precise. Winters v. New York, 333 U.S.
507, 524-525, 68 S.Ct. 665, 92 L.Ed. 840
(1947). The alleged vagueness of Ag 122
lies in the inherent ambiguity of the words
"promote" and "scheme" in 122.03 and
the words "investment," "*27 recruiting for
profit," and "additional conditions affecting
eligibility" in 122.02. Plaintiffs suggest
hypothetical factual situations where the
application of those words and, hence, of
the regulation is uncertain. But, as
mentioned above, that does not make the
regulation unconstitutionally vague. If it
did, statutory interpretation would never
be necessary.
Section 122.03, the only prohibitive
section, states that no person shall
"promote, offer or grant participation in a
chain distributor scheme." The words
"promote, offer or grant participation in"
indicate that the prohibition extends to any
efforts to involve others in the scheme.
The scheme itself is defined in
122.02(1) as "a sales device whereby a
person, upon a condition that he make an
investment, is granted a license or right to
recruit for profit one or more additional
persons who also are granted such
license or right *** upon such condition."
The words "investment" and "person"
used in defining chain distributor schemes
are in turn defined in 122.02(2) and (3).
I believe the regulation gives a man of
common intelligence a sufficiently definite
idea of what is proscribed. Though
comparison with other statutes is of
dubious value, see Note, The Void-for-Vagueness Doctrine in the Supreme
Court, 109 U.Pa.L.Rev. 67 (1960), the
regulation is certainly more definite than
the Sherman Antitrust Act which prohibits
all "contracts *** in restraint of trade or
commerce" and which was held
sufficiently definite by Justice Holmes in
Nash v. United States, 229 U.S. 373, 33
S.Ct. 780, 57 L.Ed. 1232 (1913). See 15
U.S.C.A. 1 et seq. (1962). Plaintiffs'
contention that the regulation is
unconstitutionally vague is insubstantial.
BURDEN ON INTERSTATE
COMMERCE
[7][8][9] Though a state has wide-ranging authority under its police power to
enact all laws furthering the interests of its
citizens, it cannot enact laws which
discriminate against or unduly burden
interstate commerce. United States
Constitution, Art. I, 8. Plaintiffs cannot
contend that Ag 122 discriminates against
interstate commerce for by its terms it
applied evenhandedly to all chain
distributor schemes within the state,
whether intrastate or interstate in
character. Prohibiting the use of
commercial schemes, moreover, cannot
be compared with burdening the interstate
movement of trucks and trains engaged in
admittedly lawful commercial activities.
Compare Cooley v. Board of Wardens of
the Port of Philadelphia, 12 How. 299, 13
L.Ed. 996 (1851), with Southern Pacific
Co. v. Arizona, 325 U.S. 761, 65 S.Ct.
1515, 89 L.Ed. 1915 (1945), and South
Carolina State Highway Dept. v. Barnwell
Bros., 303 U.S. 177, 58 S.Ct. 510, 82
L.Ed. 734 (1938). Ag 122 in no way
inhibits plaintiffs' use of the schemes in
other states. Cf. Bibb v. Navajo Freight
Lines, Inc., 359 U.S. 520, 79 S.Ct. 962, 3
L.Ed.2d 1003 (1959). Finally, a state's
interest in protecting its citizens against
fraud or other unlawful business practices
has a prominence which would warrant
upholding the regulation even if it had a
considerable impact on interstate
activities. See H. P. Hood & Sons v.
DuMond, 336 U.S. 525, 533, 69 S.Ct.
657, 93 L.Ed. 865 (1949); Hygrade
Provision Co. v. Sherman, 266 U.S. 497,
45 S.Ct. 141, 69 L.Ed. 402 (1925).
Justice Stewart recently set forth the
proper approach in deciding whether
regulations like Ag 122 violate the
commerce clause:
"*** 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. ***" Pike v. Bruce Church,
Inc., 397 U.S. 137, 142, 90 S.Ct. 844,
847, 25 L.Ed.2d 174 (1970).
*28 Thus far plaintiffs have not indicated
in what way Ag 122 imposes any burden
on interstate commerce. Accordingly,
plaintiffs' contention that it is
unconstitutional on that ground is
insubstantial.
PRE-EMPTION
Plaintiff Holiday Magic, Inc., states that it
has been charged by the Federal Trade
Commission with several counts of
violating section 5 of the Federal Trade
Commission Act of 1934, as amended,
which provides:
"Unfair methods of competition in
commerce, and unfair or deceptive acts
or practices in commerce, are declared
unlawful." 15 U.S.C.A. 45(a)(1).
See In the Matter of Holiday Magic, Inc.
et al., Federal Trade Commission, Docket
No. 8834. Holiday Magic, Inc., then
contends that by taking this action the
Federal Trade Commission has
preempted Wisconsin from enforcing Ag
122 and, it would follow from plaintiffs'
argument, from enforcing any general
order issued pursuant to Wis.Stats.
100.20.
[10] In passing the Federal Trade
Commission Act, Congress certainly did
not intend to bar states from stopping
unfair business practices which might
injure their own citizens. Indeed the Act
which authorized the Federal Trade
Commission to proceed against unfair
practices committed in interstate
commerce impliedly encouraged states to
develop their own laws. Today "little FTC
Acts" and other state laws prohibiting
unfair practices are in force in more than
two-thirds of the states. See, e. g., 9
Vt.S.A. 2453 et seq. (1971). As Justice
Brennan found in Florida Lime & Avocado
Growers, Inc. v. Paul, 373 U.S. 132, 141,
83 S.Ct. 1210, 1217, 10 L.Ed.2d 248
(1963), where a California statute barred
out of state avocados which did not meet
state standards, there is "neither such
actual conflict between the two schemes
of regulation that both cannot stand in the
same area, nor evidence of a
congressional design to pre-empt the
field."
[11][12] However, Holiday Magic, Inc.,
does not claim that the "field" of unfair
business practices has been preempted.
It admits that the state has coordinate
authority with the federal government to
deal with unfair practices and may
generally enforce Ag 122. But it asserts
that when as here the Federal Trade
Commission has begun an action against
the same company that the state seeks to
enjoin, the Federal Trade Commission
has exclusive jurisdiction until the action it
began is resolved. This assertion is
plainly incorrect. Since Congress in
enacting the Federal Trade Commission
Act left the states free to establish their
own standards and penalties for unfair
practices, there is not reason why the
outcome of the suit brought by the
Federal Trade Commission would have
any bearing on plaintiffs' liability under
state law. It is well settled that when the
same act by an individual violates both
state and federal law, both the state and
the federal government may act without
waiting for the other to finish.
In addition, plaintiff has not shown that
the Federal Trade Commission is suing it
for the same acts that Wisconsin attacks.
Being sued by the Federal Trade
Commission for certain practices surely
does not immunize one during the many
months in which the suit is pending from
state actions brought to enjoin other
practices.
RIGHT TO WORK
[13][14] Plaintiff Dale Schmidt contends
that the regulation deprives him of his
constitutional right to work at his chosen
occupation. To illustrate his right to work,
plaintiff cites authorities holding that an
individual may not be denied the
opportunity to work in a lawful vocation
because of his beliefs or his exercise of
First Amendment rights. Cohen v. Hurley,
366 U.S. 117, 81 S.Ct. 954, 6 L.Ed.2d
156 (1961); Peters v. *29 Hobby, 349
U.S. 331, 75 S.Ct. 790, 99 L.Ed. 1129
(1955); Barsky v. Board of Regents of
New York, 347 U.S. 442, 74 S.Ct. 650, 98
L.Ed. 829 (1954). But the right not to be
barred from a lawful vocation for an
unlawful reason does not imply the right to
work at what the legislature deems a
vocation inimical to the public interest.
Plaintiff may respond with Falstaff who
met the charge of "purse- taking" with the
answer, "But 'tis my vocation Hal, 'tis no
sin for a man to labor in his vocation."
Henry the Fourth, Part I, Act I, sc. II, lines
116- 117. But sin or not, nothing in the
Constitution prevents a state from
outlawing activities because others have
profited from them in the past. Nor must
a regulation affecting previous vocations
be supported by a more compelling state
interest than that supporting any other
regulation. Plaintiff's reliance on his right
to work does not state a claim on which
relief can be granted.
IMPAIRMENT OF CONTRACTS AND
DUE PROCESS
[15][16] The allegations that Ag 122
impairs the obligations of contracts and
bears no reasonable relation to a valid
state purpose may be treated together.
Historically designed to bar states from
arbitrarily relieving debtors from their
contracts, the contract clause has long
been interpreted to prevent it from being
an inflexible barrier to public regulation. In
Home Building & Loan Association v.
Blaisdell, 290 U.S. 398, 54 S.Ct. 231, 78
L.Ed. 413 (1934), a decision upholding the
Minnesota mortgage moratorium law
which postponed foreclosure sales and
extended the period for redemption of
mortgages, Chief Justice Hughes
reiterated that state laws reasonably
related to a valid state purpose would not
be held unlawful because they have
incidental effects on contracts created in
the past:
"Not only is the [contract clause]
qualified by the measure of control
which the state retains over remedial
processes, but the state also continues
to possess authority to safeguard the
vital interests of its people. *** Not only
are existing laws read into contracts in
order to fix obligations as between the
parties, but the reservation of essential
attributes of sovereign power is also
read into contracts as a postulate of the
legal order. The policy of protecting
contracts against impairment
presupposes the maintenance of a
government by virtue of which
contractual relations are worth while,-a
government which retains adequate
authority to secure the peace and good
order of society. This principle of
harmonizing the constitutional
prohibition with the necessary residuum
of state power has had progressive
recognition in the decisions of this
Court.
* * *
"*** The states retain adequate power to
protect the public health against the
maintenance of nuisances despite
insistence upon existing contracts. ***"
290 U.S. at 434-436, 54 S.Ct. at 238-239.
In this case those in the chain who had
already paid for the right to recruit others
obviously had the value of their contract
impaired when Ag 122 was issued. The
question then becomes whether Ag 122
was reasonably related to a valid state
purpose.
[17] To show that Ag 122 is not
reasonably related to a valid state
purpose, plaintiffs must overcome the
presumption of the constitutionality which
all regulations of commercial activity
enjoy. Moreover, the ordinary
presumption that the regulation bears a
reasonable relation to the public interest is
buttressed by the regulation's preamble,
122.01, in which the Department set forth
the facts which led it to believe that
prohibiting chain distributor schemes
would serve the public interest.
[18] Although plaintiffs state in their brief
that at trial they will show that the facts
set forth in the preamble are incorrect and
that there is no legitimate reason for
prohibiting the use of chain distributor
schemes, they have not *30 indicated by
way of affidavits, detailed allegations in
the complaint, assertions of counsel, or
otherwise what the nature of these facts
would be. Instead they rely upon their
conclusory allegations in the complaint
that the general order is irrational, but in
the context of this case, such allegations
alone do not justify requesting a three-judge court.
DENIAL OF EQUAL PROTECTION
[19][20] Plaintiffs' final contention is that
the regulation results in discriminatory
enforcement. It is true that if the
administrators of a regulation enforce it in
bad faith or in a manner which
unreasonably discriminates, the defendant
may seek to enjoin enforcement on
constitutional grounds. See People v.
Utica Daw's Drug Co., 16 A.D.2d 12, 225
N.Y.S.2d 128 (1962); People v. Walker,
14 N.Y.2d 901, 252 N.Y.S.2d 96, 200
N.E.2d 779 (1964). But here plaintiffs do
not seek to enjoin the mere discriminatory
enforcement of a valid regulation. Rather,
in asking for a three-judge court they
contend that the regulation must
necessarily result in discriminatory
enforcement, and they seek to enjoin all
enforcement. Yet nothing on the face of
the regulation indicates that it is more
likely to result in discriminatory
enforcement than any law. Enforcement
of Ag 122 turns solely on whether a
person has attempted to involve another
in a chain distributor scheme. No other
distinctions are suggested. To distinguish
between those who "promote, offer or
grant participation in" the schemes and
those who, though otherwise involved in
the schemes do not, does not appear to
be unreasonable. See Skinner v.
Oklahoma, 316 U.S. 535, 62 S.Ct. 1110,
86 L.Ed. 1655 (1942). Plaintiffs'
contention does not merit a three-judge
court.
For the reasons stated above,
It is hereby ordered that plaintiffs' motion
for a three-judge court be and it hereby is
denied.
It is further ordered that this action be
and it hereby is dismissed.
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