issued "from" Arizona within the meaning of § 44-1991. If, after further discovery, San Diego can show that century did not perform significant actions in Arizona in connection with this transaction, then San Diego will be entitled to summary judgment on this claim.
III. CONSTITUTIONALITY OF § 44-1991 AS APPLIED
In Media Products, after finding that the transaction at issue was "from" Arizona, the court determined that enforcement of the registration provision of Arizona's blue-sky law, § 44-1841, would constitute an improper interference with interstate commerce. Media Products, 763 P.2d at 533-34. San Diego now argues that application of § 44-1991 to the instant transaction would similarly offend the Commerce Clause.
The Supreme Court has adopted what amounts to a two-tiered approach to analyzing state economic regulation under the Commerce Clause. When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, the Court has generally struck down the statute without further inquiry. Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 579-80, 90 L. Ed. 2d 552, 106 S. Ct. 2080 (1986). When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, the Court has examined whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits. Id. at 579 (citing Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 25 L. Ed. 2d 174, 90 S. Ct. 844 (1970)).
The Supreme Court has also recognized, however, that there is no clear line separating the category of state regulation that is virtually per se invalid under the Commerce Clause, and the category subject to the Pike v. Bruce Church balancing approach. "In either situation, the critical consideration is the overall effect of the statute on both local and interstate activity." Id. As one commentator has noted:
The distinction between "direct" and "indirect" burdens has been rejected as overly conclusory and misleadingly precise. In its place, the Court has substituted the following, more openly indeterminate, principle: State regulation affecting interstate commerce will be upheld if (a) the regulation is rationally related to a legitimate state end, and (b) the regulatory burden imposed on interstate commerce, and any discrimination against it, are outweighed by the state interest in enforcing the regulation.
Laurence H. Tribe, American Constitutional Law 408 (1988).
San Diego does not contend that Arizona's interest in preventing securities fraud is not a legitimate state end. Rather, it maintains that application of the § 44-1991 to this transaction would impose a burden on interstate commerce which outweighs any local benefits. San Diego fails, however, to show how interstate commerce will be burdened by application of the statute.
San Diego fails to cite any case in which a remedial anti-fraud statute was found to burden interstate commerce. Rather, the cases upon which San Diego relies all concern Commerce Clause challenges to state statutes of a regulatory nature which tended to burden otherwise lawful interstate transactions. For example, Media Products addressed a challenge to application of Arizona's blue-sky registration provision which, as noted above, required corporations issuing securities "within or from" Arizona to register the securities prior to the offer or sale of the securities. Media Products, 763 P.2d at 533-34. The provision thus imposed an additional burden on corporations wishing to participate in interstate transactions of securities, thereby tending to inhibit putatively lawful interstate commerce.
San Diego also relies on State ex rel. Corbin v. Goodrich, 151 Ariz. 118, 726 P.2d 215 (Ariz. Ct. App. 1986), wherein the court expressed agreement with the principle that "if the statute sought to regulate the sale of securities outside Arizona, it would conflict with the commerce clause and would be unconstitutional." Id. at 219 (citing Polaris Int'l Metals Corp. v. Arizona Corp. Comm'n, 133 Ariz. 500, 652 P.2d 1023, 1028 (Ariz. 1982)). However, the statute at issue in Goodrich, and in Polaris, was the same inherently burdensome registration provision at issue in Media Products: § 44-1841.
Lastly, San Diego relies on Edgar v. MITE Corp., 457 U.S. 624, 73 L. Ed. 2d 269, 102 S. Ct. 2629 (1982), wherein the Supreme Court invalidated an Illinois anti-takeover law which also, by its very nature, burdened interstate transactions. The Illinois law required the registration of certain tender offers with the Illinois Secretary of State; empowered the Secretary to hold hearings to adjudicate the substantive fairness of registered tender offers; and authorized the Secretary to deny registration, and thus prevent interstate transactions, where a tender offer: would not "provide full and fair disclosure to the offerees," was "inequitable," or "would work or tend to work a fraud or deceit upon the offerees." Id. at 627. Thus, in the same vein as the Arizona registration provision, the Illinois law imposed additional burdens on otherwise lawful interstate transactions of securities.
Unlike the provisions at issue in Media Products, Goodrich, and Edgar, the Arizona anti-fraud statute is not preventative, but remedial in nature. Section 44-1991 imposes no additional requirements on persons engaged in interstate commerce, nor does it impede any interstate transactions. Rather, like any tort recovery statute, it merely provides a post-hoc remedy for persons aggrieved by allegedly unlawful conduct. Thus, in no sense does it prevent or burden interstate commerce. As Plaintiffs note:
A statute proscribing fraud is not discriminatory; it does not prevent or delay commercial transactions; it merely creates liability for behavior deemed undesirable everywhere. If anything, such legislation facilitates commerce far more than it can even be argued to "burden" in any sense . . . because it provides a measure of assurance that commerce will be honestly transacted.
Pl. Supp. Mem. at 10.
Accordingly, because San Diego has failed to show that application of § 44-1991 to the instant transaction imposes a burden on interstate commerce which outweighs the state interest in providing remedies for fraudulent securities transactions, such application does not offend the Commerce Clause.
For the reasons stated above, the Court adheres to its June 24 Opinion denying San Diego's motion to dismiss Plaintiffs' claim under § 44-1991. All counsel are ordered to appear in courtroom 302 for a pretrial conference on September 15, 1992 at 9:00 a.m. Counsel for San Diego is ordered to notify counsel for the other Defendants of this conference.
IT IS SO ORDERED.
Dated: New York, New York
September 4, 1992
Robert P. Patterson, Jr.