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Vizio, Inc. v. Klee

United States District Court, D. Connecticut

March 31, 2016

VIZIO, INC., Plaintiff,
v.
ROBERT KLEE, in his official capacity as the Commissioner of the State of Connecticut Department of Energy and Environmental Protection, Defendant.

RULING ON MOTION TO DISMISS [Doc. No. 21]

VICTOR A. BOLDEN UNITED STATES DISTRICT JUDGE

TABLE OF CONTENTS

Page

I. INTRODUCTION ................................................................................................................. 1

II. FACTUAL BACKGROUND ............................................................................................... 2

III. STANDARD OF REVIEW ................................................................................................... 6

IV. DISCUSSION ......................................................................................................................... 8

A. THE COMMERCE CLAUSE CLAIMS ............................................................................ 8

1. The General Dormant Commerce Clause Claim ............................................................ 9

a. Discriminatory Burdens Analysis ............................................................................... 9

b. Extraterritoriality ....................................................................................................... 15

i. Out-of-State Pricing ........................................................................................... 16

ii. Out-of-State Transactions .................................................................................. 21

c. Conclusion ................................................................................................................ 27

2. User Fee Claim under the Commerce Clause ............................................................... 27

B. TAKINGS CLAIMS ......................................................................................................... 30

C. EQUAL PROTECTION CLAIMS ................................................................................... 34

1. Television Manufacturers Versus Other CED Manufacturers ...................................... 35

2. New Versus Old Television Manufacturers .................................................................. 37

3. Television Manufacturers Versus Non-CED Manufacturers ........................................ 40

4. Conclusion .................................................................................................................... 41

D. SUBSTANTIVE DUE PROCESS CLAIMS .................................................................... 42

1. Existence of Retroactive Provisions ............................................................................. 44

2. Rational Basis Review .................................................................................................. 45

3. Conclusion .................................................................................................................... 49

V. CONCLUSION .................................................................................................................... 50

I. INTRODUCTION

On June 17, 2015, VIZIO, Inc., a California-based television brand-owned seller, filed a complaint (the “Complaint”) [Doc. No. 1] challenging the constitutionality of Connecticut’s “E-waste Law.” Plaintiff VIZIO seeks the following declaratory and injunctive relief: a declaration that the law is unconstitutional under the Commerce Clause of the United States Constitution; a declaration that the law is unconstitutional under the Takings Clause of the Fifth Amendment of the United States Constitution and under Article I, Section 11 of the Connecticut Constitution; a declaration that the law is unconstitutional under the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution and under Article I, Section 20 of the Connecticut Constitution; a declaration that the law violates VIZIO’s due process rights under the Fourteenth Amendment of the United States Constitution and under Article I, Section 8 of the Connecticut Constitution; and an order enjoining Defendant from enforcing the law.

On August 20, 2015, Defendant, the Commissioner of the State of Connecticut Department of Energy and Environmental Protection, moved to dismiss under Rule 12(b)(6), arguing that VIZIO had failed to state a claim upon which relief can be granted.

For the reasons that follow, the Court GRANTS Defendant’s Motion to Dismiss [Doc. No. 21]. Plaintiff’s claim for violation of the Dormant Commerce Clause under an extraterritoriality theory is dismissed without prejudice. All of Plaintiff’s other claims are dismissed with prejudice.

II. FACTUAL BACKGROUND[1]

Incorporated in late 2002, VIZIO entered the television market in 2003. When it entered the market, there were no laws in place requiring it to finance the recycling of other manufacturers’ electronic devices or of types of electronic devices that it never produced or intended to produce or electronic devices that were the subject of transactions occurring prior to the law’s implementation.

In July 2007, Connecticut enacted Public Act No. 07-189, which has been amended several times and is codified at Sections 22a-629 through 22a-640 of the Connecticut General Statutes, and the Connecticut Department of Energy and Environmental Protection (“DEEP”) subsequently promulgated regulations, located at Sections 22a-630(d)-1 and 22a-638-1 of the Regulations of Connecticut State Agencies (collectively, the “E-waste Law”). DEEP is responsible for administering the E-waste Law, which applies to each manufacturer of covered electronic devices, or “CEDs.” Conn. Gen. Stat. § 22a-630(a). VIZIO is considered a “manufacturer” for purposes of the statute. See Conn. Gen. Stat. §§ 22a-629(7), (11).

Like many electronic products, televisions contain heavy metals and other hazardous materials that pose serious environmental and public health risks. The E-waste Law creates a comprehensive regulatory scheme for the collection and recycling of CEDs, including televisions. Recycling activities are carried out by covered electronic recyclers (“CERs”), who are private entities approved and regulated by DEEP.

Under the E-waste Law, each CED manufacturer must register with DEEP and participate in the program to implement and finance the collection, transportation, and recycling of CEDs. Manufacturer registration fees fund DEEP’s administration of the E-waste program. The initial registration fee for each manufacturer is at least $5, 000, and manufacturers must pay subsequent annual registration fees that are based on a sliding scale that is representative of the manufacturer’s current share of sales in the national television market (“National Market Share”).

There are a number of models by which states can and do assess e-waste recycling costs under “Extended Producer Responsibility” (“EPR”) laws such as Connecticut’s E-waste Law. Twenty-four other states regulate e-waste. Most states that have EPR laws use some form of sales data as the basis for allocating recycling obligations, but there is not uniformity in the kinds of sales data used. For example, New York uses state market share rather than National Market Share. Other states, such as New Hampshire, have chosen not to regulate e-waste at all.

The various state e-waste programs also differ in various other ways. Some state programs require use of state-sanctioned recyclers that invoice manufacturers throughout the year. Other states require manufacturers actually to collect and recycle CEDs. Some states set recycling “goals” for each manufacturer, while other states, like Connecticut, have no limits on the amount of waste that may be recycled and billed to manufacturers. Some state programs assign allocations according to sales, while others assign allocations based on television units returned for recycling. Some state laws account for the weight of the manufacturers’ televisions in deriving regulatory obligations, while others do not. VIZIO expends large amounts of resources to administer the different state programs, each of which imposes a separate obligation and additional cost on VIZIO.

Connecticut has adopted two formulas for assessing costs under the E-waste Law. For CEDs other than televisions, the law uses a “Return Share” model that apportions costs on each manufacturer based on the weight of its own products that are actually returned for recycling in a given period. For televisions, the law uses a “market share” approach, under which each manufacturer’s costs are based on a percentage of the total weight of all televisions that are recycled in a given period, regardless of brand, multiplied by a specified price per pound. The percentage of the total weight of all televisions that each manufacturer is responsible for is based on its current National Market Share.

CERs directly bill manufacturers quarterly. DEEP approves recyclers to become CERs through an application process. In deciding whether to approve an applicant, DEEP considers such matters as a recycler’s qualifications and experience, proposed procedures and process flow, the transporters and facilities proposed to be used, and the fees proposed to be charged. After approval, DEEP retains oversight over the CER and may revoke, suspend, or modify a CER’s approval. Connecticut’s oversight over e-waste recyclers allegedly has created barriers to market entry and has led to recycling costs that are higher than the national average.

As an alternative compliance mechanism, the E-waste Law permits television manufacturers to participate in a private program or arrange for the return of CEDs for third party recycling. These alternatives remain tied to the manufacturer’s National Market Share.

The E-waste Law also imposes labeling requirements. “A manufacturer or retailer shall not sell or offer for sale a covered electronic device in the state unless it is labeled with the manufacturer’s brand, and the label is permanently affixed and readily visible.” Conn. Gen. Stat. § 22a-633.

DEEP compiles a list of manufacturers that are in compliance with the E-waste Law and requires retailers in Connecticut to consult the list prior to selling any CED; retailers are prohibited from offering a CED for sale in Connecticut unless the manufacturer of the CED appears on that list. Conn. Gen. Stat. § 22a-634. DEEP has the power to impose cease and desist orders and to revoke registrations for any violations; courts may grant temporary and permanent injunctive relief for violations; and the state attorney general can bring a civil proceeding to enforce any violation. Conn. Gen. Stat. § 22a-637.

VIZIO has been subject to and complied with the E-waste Law since its implementation. Its customers consist predominantly of large retailers and its sales to these retailers generally take place in states where the retailers have distribution operations, such as New York. The retailers then distribute the televisions, at their discretion, to various locations throughout the country for resale to individual consumers. VIZIO does not sell to any distribution centers in Connecticut and allegedly has relatively few direct sales in the state (97 in 2012, 47 in 2013, and 46 in 2014). DEEP has determined that VIZIO’s billable market share was 14.33% in 2012 and 16.088% in 2013, and proposed a market share of 17.16% for 2014. As a relatively new entrant into the television marketplace, VIZIO has never sold cathode ray tube (“CRT”) televisions and has only distributed flat panel televisions. CRT televisions often weigh more than ten times as much as VIZIO’s flat panel televisions.

The E-waste Law does not account for the weight of a manufacturer’s products in determining National Market Share, but only considers sales data. Similarly, the law does not account for the type or amount of hazardous substances in manufacturers’ televisions. For example, CRTs contain significant quantities of lead, which is expensive to recycle, but VIZIO’s flat screen televisions only contain miniscule concentrations of lead in compliance with multiple state and international regulations restricting the use of hazardous materials in consumer electronics.

There is no Return Share data for Connecticut, but in a recent study of over 23, 000 pounds of televisions collected for recycling in Connecticut, not a single VIZIO product was found. Return Share data does exist for Washington, where, based on two recent invoices, VIZIO’s Return Share was calculated to be 0.09% and 0.16% of the total e-waste stream collected and invoiced.

The E-waste Law also provides that “No Connecticut resident giving seven or fewer covered electronic devices to a collector at any one time shall be charged any fees or costs for the collection, transportation or recycling of such covered electronic devices.” Conn. Gen. Stat. § 22a-635(b). In addition, the law specifically exempts clothes washers, clothes dryers, refrigerators, freezers, microwave ovens, conventional ovens and ranges, dishwashers, air conditioners, dehumidifiers, air purifiers, telephones of any type, and handheld devices, which are types of products that often contain potentially hazardous or toxic substances.

III. STANDARD OF REVIEW

A motion to dismiss for failure to state a claim under Rule 12(b)(6) is designed “merely to assess the legal feasibility of a complaint, not to assay the weight of evidence which might be offered in support thereof.” Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 158 (2d Cir. 2003) (citations omitted). When deciding a Rule 12(b)(6) motion to dismiss, a court must accept the material facts alleged in the complaint as true, draw all reasonable inferences in favor of the plaintiff, and decide whether it is plausible that the plaintiff has a valid claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007); In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d Cir. 2007).

A plaintiff’s “[f]actual allegations must be enough to raise a right to relief above the speculative level, ” and assert a cause of action with enough heft to show entitlement to relief and “enough facts to state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 555, 570. A claim is facially plausible if “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. Although “detailed factual allegations” are not required, a complaint must offer more than “labels and conclusions, ” or “a formulaic recitation of the elements of a cause of action, ” or “naked assertion[s]” devoid of “further factual enhancement.” Twombly, 550 U.S. at 555, 557 (2007). Plausibility at the pleading stage is nonetheless distinct from probability, and “a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of [the claims] is improbable, and . . . recovery is very remote and unlikely.” Id. at 556 (internal quotation marks omitted).

Plaintiff challenges the E-waste Law both facially and as applied. A party “making a facial challenge to a statute . . . must show that no set of circumstances exists under which the [challenged statute] would be valid.” Ohio v. Akron Ctr. for Reprod. Health, 497 U.S. 502, 514 (1990) (internal quotation marks omitted). “Facial challenges are generally disfavored.” Dickerson v. Napolitano, 604 F.3d 732, 741 (2d Cir. 2010). “In an as-applied challenge, the question is whether the statute was unconstitutional as applied to the facts of the case.” Tsirelman v. Daines, 19 F.Supp.3d 438, 447-48 (E.D.N.Y. 2014) aff’d, 794 F.3d 310 (2d Cir. 2015). “[A] plaintiff generally cannot prevail on an as-applied challenge without showing that the law has in fact been (or is sufficiently likely to be) unconstitutionally applied to him.” McCullen v. Coakley, 134 S.Ct. 2518, 2534 n.4 (2014).

“[T]he distinction between facial and as-applied challenges . . . goes to the breadth of the remedy employed by the Court, not what must be pleaded in a complaint.” Citizens United v. Fed. Election Comm’n, 558 U.S. 310, 331 (2010).

IV. DISCUSSION

A. THE COMMERCE CLAUSE CLAIMS

The Commerce Clause provides that “[t]he Congress shall have power . . . [t]o regulate commerce . . . among the several states.” U.S. Const. art I, § 8, cl. 3. “Although the Constitution does not in terms limit the power of States to regulate commerce, [the Supreme Court has] long interpreted the Commerce Clause as an implicit restraint on state authority, even in the absence of a conflicting federal statute.” United Haulers Ass’n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 338 (2007). “This ‘negative’ aspect of the Commerce Clause prohibits economic protectionism-that is, regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.” New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273 (1988).

The dormant Commerce Clause prohibits laws that: (1) “clearly discriminate[] against interstate commerce in favor of intrastate commerce”; (2) violate the Pike balancing test by imposing “a burden on interstate commerce incommensurate with the local benefits secured”; or (3) “ha[ve] the practical effect of ‘extraterritorial’ control of commerce occurring entirely outside the boundaries of the state in question.” Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 216 (2d Cir. 2004) (“Freedom Holdings I”). In addition, for state laws that impose a “user fee, ” the fee must (1) be “based on some fair approximation of use of the facilities, ” (2) not be “excessive in relation to the benefits conferred, ” and (3) “not discriminate against interstate commerce.” Northwest Airlines, Inc. v. County of Kent, Mich., 510 U.S. 355, 369 (1994).

Plaintiff asserts that the E-waste Law is unconstitutional under each of these tests, while Defendant argues that none of them is violated on the facts alleged. The Court finds that the Complaint fails to state a plausible claim that, under the Commerce Clause, the E-waste Law is clearly discriminatory, imposes burdens on interstate commerce that outweigh the benefits secured, regulates commerce extraterritorially, or imposes user fees.

1. The General Dormant Commerce Clause Claim

Plaintiff alleges that the E-waste Law has a discriminatory effect on out-of-state manufacturers with no physical presence in Connecticut, see Compl. ¶ 72, that the E-waste Law’s burdens on interstate commerce outweigh its local benefits to Connecticut residents, see Compl. ¶ 71, and that the E-waste Law has an extraterritorial reach that has the practical effect of controlling and regulating transactions beyond the boundaries of Connecticut, see Compl. ¶ 70.

a. Discriminatory Burdens Analysis

The E-waste Law survives the first two prongs of the dormant Commerce Clause analysis-clear discrimination and Pike balancing-for the same reason: Plaintiff has failed to allege facts to support a reasonable inference that the law imposes a disparate burden on interstate commerce.

The central issue in dormant Commerce Clause cases is whether the benefits of the state law outweigh its burdens on interstate commerce. The nature of the balancing test depends on whether the law discriminates against those outside of a state in favor of those within it or treats all alike regardless of residence. “[A] statute that clearly discriminates against interstate commerce in favor of intrastate commerce is virtually invalid per se.” Freedom Holdings I, 357 F.3d at 216.

Absent clear discrimination, however, “[w]here 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 (1970). In particular, “regulations that touch upon safety . . . are those that the [Supreme] Court has been most reluctant to invalidate. Indeed, if safety justifications are not illusory, the Court will not second-guess legislative judgment about their importance in comparison with related burdens on interstate commerce. Those who would challenge such bona fide safety regulations must overcome a strong presumption of validity.” Kassel v. Consol. Freightways Corp. of Delaware, 450 U.S. 662, 670 (1981).

“The bottom line is . . . that, under either the ‘clear discrimination’ or the ‘Pike’ forms of analysis, the minimum showing required is that the state statute have a disparate impact on interstate commerce.” Freedom Holdings I, 357 F.3d at 218 (internal quotation marks and citation omitted). In this case, construing the Complaint in the light most favorable to Plaintiff, ...


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