of his or her account, Aldens attempts to collect the account by mailing letters and other communications from Chicago to the customer in Pennsylvania and, when appropriate, by telephoning the Pennsylvania customer, from Chicago, to discuss the account and request payment.
24. After an account has been delinquent for 6 months, Aldens writes it off as a bad debt. Aldens turns over approximately one half of the Pennsylvania accounts which have been written off (about 2.5 percent of its Pennsylvania receivables) to independent collection agencies located outside of Pennsylvania.
I. Commerce Clause.
Plaintiff's chief ground in support of its contention that the Pennsylvania Goods and Services Installment Sales Act is unconstitutional is based upon the commerce clause. Traditional analysis of the commerce clause cases holds that a state statute affecting interstate commerce is constitutional providing that the following criteria are satisfied:
1. That it does not conflict with a federal statute or regulation. McDermott v. Wisconsin, 228 U.S. 115, 33 S. Ct. 431, 57 L. Ed. 754 (1913).
2. That it is not inconsistent with a federal policy. Chicago v. Atchison, T. & S.F.R. Co., 357 U.S. 77, 78 S. Ct. 1063, 2 L. Ed. 2d 1174 (1958).
3. That the field has not been occupied by federal authority. Napier v. Atlantic Coast Line R. Co., 272 U.S. 605, 47 S. Ct. 207, 71 L. Ed. 432 (1926).
4. That the subject of the statute is not a national problem. Edwards v. California, 314 U.S. 160, 62 S. Ct. 164, 86 L. Ed. 119 (1941).
5. That it does not discriminate against interstate commerce. Dean Milk Co. v. Madison, 340 U.S. 349, 71 S. Ct. 295, 95 L. Ed. 329 (1951).
6. That it does not constitute an undue burden upon interstate commerce. Bibb v. Navajo Freight Lines, 359 U.S. 520, 79 S. Ct. 962, 3 L. Ed. 2d 1003 (1959).
While Aldens asserts that the Act is an undue burden upon interstate commerce, it apparently does not contend that the Act fails to fulfill requirements (1) through (4) listed above. But Aldens urges that the Court need never reach the burden determination since the application of the Act to Aldens' transactions with Pennsylvania residents, which are exclusively interstate in character and do not involve any local activity, indicates that the state is attempting to regulate purely interstate transactions. This, Aldens asserts, is a "direct burden" upon interstate commerce, and not an "indirect burden," such as to require an undue burden analysis by the Court. I would have thought that the "direct burden" label was dead, DiSanto v. Pennsylvania, 273 U.S. 34, 44, 47 S. Ct. 267, 71 L. Ed. 524 (1927) (Stone, J., dissenting), and that the present test was whether the state interest involved is outweighed by the national interest in the unhampered operation of interstate commerce. South Carolina State Highway Department v. Barnwell Brothers, 303 U.S. 177, 58 S. Ct. 510, 82 L. Ed. 734 (1938). This latter test is applied by means of the traditional analysis noted above.
However, the novelty of the factual situation in this case requires that the Court consider Plaintiff's "direct burden" argument. Aldens has no physical presence in Pennsylvania. The agreements between Aldens and its Pennsylvania customers which the Act seeks to regulate are accepted in Illinois by Aldens. Aldens' argument that we must make a threshold determination as to whether Pennsylvania may regulate the contracts between Aldens and Pennsylvania residents, where the only local activity on the part of Aldens is through the United States mails and common carrier, has some appeal since there appears to be no reported case upholding state regulation of interstate commerce where the local activities of the business concerned are as scanty as they are here.
Aldens places its chief reliance upon the case of National Bellas Hess v. Department of Revenue of Illinois, 386 U.S. 753, 87 S. Ct. 1389, 18 L. Ed. 2d 505 (1967). That case involved a Missouri mail order house, National Bellas Hess (National), which conducted its business entirely through the mails and by common carrier to its customers throughout the nation, including those in Illinois. National had no physical presence in Illinois, but advertised through catalogs and flyers to its Illinois customers. Its sales to Illinois residents amounted to about $2,000,000 for the 15-month period in dispute. In fact, the dealings between National and its Illinois customers, except as to the extent of solicitation and the dollar amount of the sales, are remarkably similar to the dealings between Aldens and its Pennsylvania customers. The Illinois courts entered a money judgment against National for refusal in violation of an Illinois statute to collect from its customers the 3 1/2% tax imposed on goods sold for use within the state. The Supreme Court reversed the decision of the Illinois court and held that the Illinois statute violated both the Commerce Clause and the Due Process Clause of the 14th Amendment. The Court noted that the due process and commerce clause claims were closely related. Then, using due process analysis, the Court found that the paucity of contacts between National and Illinois negated the presence of a "minimum benefit" upon National from Illinois upon which the requirement to collect the use tax must be based. The Court observed that requiring a mail order business to collect use taxes would expose that business to similar burdens imposed by thousands of political subdivisions throughout the nation.
National Bellas Hess, because it concerns state taxation of interstate business, is not controlling upon the issues in the case sub judice.2 Taxation is regarded as an exaction by the state for the general benefits of living under an organized government, and when falling upon interstate commerce, "can only be justified as designed to make such commerce bear a fair share of the cost of the local government whose protection it enjoys." National Bellas Hess v. Department of Revenue, supra, at p. 756, of 386 U.S., at p. 1391 of 87 S. Ct., quoting Freeman v. Hewit, 329 U.S. 249, 253, 67 S. Ct. 274, 91 L. Ed. 265 (1946). Thus, the question becomes whether the state has given anything for which it can ask a return. Wisconsin v. J. C. Penney Co., 311 U.S. 435, 61 S. Ct. 246, 85 L. Ed. 267 (1940). The Supreme Court in National Bellas Hess answered that question in the negative.
Plaintiff also relies on that line of cases which holds that state statutes requiring licensing of entities doing interstate business within the state are unconstitutional unless the activities performed within the state are unrelated to the interstate aspect of the business. Crutcher v. Kentucky, 141 U.S. 47, 11 S. Ct. 851, 35 L. Ed. 649 (1891); International Textbook Co. v. Pigg, 217 U.S. 91, 30 S. Ct. 481, 54 L. Ed. 678 (1910); Eli Lilly & Co., v. Sav-On-Drugs, Inc., 366 U.S. 276, 81 S. Ct. 1316, 6 L. Ed. 2d 288 (1961). However, the state licensing statutes must also be considered as an exaction by the state for the privilege of doing business within the state. See Breard v. Alexandria, 341 U.S. 622, 638, 71 S. Ct. 920, 95 L. Ed. 1233 (1951). When that business is purely interstate in nature, a licensing requirement is unconstitutional under the commerce clause because the states are prohibited from imposing conditions upon the right to engage in interstate commerce.
The statute involved in the case at bar is distinguishable from taxing and licensing statutes in that it involves an exercise of the state's police power to protect local customers from overreaching and deception. The state has considerable power in this area even though interstate commerce is affected. See Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 83 S. Ct. 1210, 10 L. Ed. 2d 248 (1963). Plaintiff does not contest the power of the Commonwealth to regulate service charge rates for revolving credit accounts, or the reasonableness of the 15% ceiling. Indeed, Plaintiff has advised the Court that 41 states plus the District of Columbia regulate at various rates service charges in revolving credit accounts. We are not here dealing with an exaction for the privilege of doing business with Pennsylvania residents, but with a statute reasonably calculated to protect consumers residing in Pennsylvania from unfair credit practices. This is a crucial distinction. Thus, the state need not demonstrate a benefit conferred upon Aldens in exchange for the right to regulate its transactions with Pennsylvania residents.
The Plaintiff points out that every case upholding a statute seeking to protect the public's health, safety, morals, or welfare involves some local activity or physical presence of the regulated entity within the regulating state. However, the physical presence is often transitory. Thus, a state can regulate the highway speed of trucks engaged solely in interstate commerce, South Carolina State Highway Department v. Barnwell Bros., 303 U.S. 177, 58 S. Ct. 510, 82 L. Ed. 734 (1938), or control the emission of smoke from ships involved in interstate commerce while the ships are docked at the port of the regulating jurisdiction. Huron Portland Cement Co. v. City of Detroit, 362 U.S. 440, 80 S. Ct. 813, 4 L. Ed. 2d 852 (1960). The interest of the state in protecting its citizens is so strong that the state may even prohibit certain dangerous products from entering the state at all. Rasmussen v. Idaho, 181 U.S. 198, 21 S. Ct. 594, 45 L. Ed. 820 (1901); Missouri, K. & T.R. Co. v. Haber, 169 U.S. 613, 18 S. Ct. 488, 42 L. Ed. 878 (1898). In these quarantine cases, local activity or physical presence within the state is obviously absent.
In my view, application of the Pennsylvania Goods and Services Installment Sales Act to Aldens does not depend upon Aldens' physical presence in Pennsylvania. Aldens' annual solicitation of over two million Pennsylvania residents and its sales to Pennsylvania residents in an amount of almost $15,000,000 per year indicates an exploitation of the Pennsylvania market and requires Aldens to conform with the Act which protects Pennsylvania consumers in those types of transactions in which Aldens engages. To hold otherwise would expose Pennsylvania consumers to the type of credit sales practices which the Pennsylvania legislature deemed unfair and prohibited in Pennsylvania. In Robertson v. People of State of California, 328 U.S. 440, 459-460, 66 S. Ct. 1160, 1170, 90 L. Ed. 1366 (1946), the Supreme Court, in upholding provisions of the California Insurance Code which prohibited the sale of insurance in California by unadmitted foreign insurance companies stated the following:
"It is quite obvious . . . that if appellant's contentions were accepted and foreign insurers were to be held free to disregard California's reserve requirements and then to clothe their agents or others acting for them with their immunity, not only would the state be made helpless to protect her people against the grossest forms of unregulated or loosely regulated foreign insurance, but the result would be inevitably to break down also the system for control of purely local insurance business. In short, the result would be ultimately to force all of the states to accept the lowest standard for conducting the business permitted by one of them or, perhaps, by foreign countries."