United States District Court, M.D. Tennessee, Nashville Division
RICHARDSON UNITED STATES DISTRICT JUDGE.
before the Court is Plaintiffs' Motion for a Preliminary
Injunction. (Doc. No. 3). Via the motion, Plaintiffs request
that the Court preliminarily enjoin the State from enforcing
its licensure regime on auctioneers that conduct online
extended-time auctions. The Court has considered the motion
and its accompanying memorandum of law (Doc. Nos. 3 & 5),
Defendants' response (Doc. No. 43), each party's
court-ordered supplemental brief, (Doc. Nos. 18 & 20),
and the arguments and evidence received at the July 10, 2019
hearing on the motion. For the reasons discussed below,
Plaintiffs' motion will be GRANTED.
1967, Tennessee created the Tennessee Auction Commission
(“the Commission”) with the goal of regulating
the profession of auctioneering. (Doc. No. 4 at ¶ 54).
In 2006, as e-commerce began to emerge, Tennessee amended its
auctioneering regulatory statutes and created an exemption
for “fixed price or timed listings that allow bidding
on an Internet website but that does not constitute a
simulcast of a live auction.” See Tenn. Code
Ann. § 62-19-103(9). By including this exemption, which
was known as the “eBay law, ” Tennessee placed
(non-simulcast) online auctions outside its regulatory
purview. (Doc. No. 4 at ¶ 65; Doc. No. 4-5 at 23, 25;
Doc. No. 4-11 at 25).
2016, the Commission proposed a rule that would have excluded
extended-time auctions (i.e., auctions whereby the
ending time can be extended based on bidding activity) from
the eBay exemption. (Doc. No. 4 at ¶ 86; Doc. No. 4-3).
Tennessee's Joint Government Operations Committee
rejected the proposed rule, and the Tennessee Auctioneers
Association proposed a similar rule in 2017.
(Id. at ¶ 98). After that bill failed, the
issue was again raised in 2018. (Id. at ¶ 105).
The 2018 bill was amended to create a Task Force to study the
question of online auction regulation. (Id. at
¶ 114). The Task Force analyzed three years of complaint
data which revealed very few complaints for online auctions
in general (11 overall in three years) and even fewer for
extended-time auctions-three overall and none in 2018.
(Id. at ¶¶ 155-57). The Task Force then
recommended, among other things, that
“electronic” exchanges be added to the definition
of an auction for the purpose of requiring auctioneers
participating in online extended-time auctions to be
licensed. (Id. at ¶¶ 159-161).
with this recommendation, a bill was introduced to amend
Tennessee's statutes regulating auctions and the
licensing requirements for those who conduct
“auctions.” See 2019 Tenn. Pub. Ch. 471
(hereinafter “PC 471”). Specifically, the bill
amends the definition of “auction” to include
“electronic” exchanges. (Id. at §
4). The bill further stated that it is unlawful for any
person to “[a]ct as, advertise as, or represent to be
an auctioneer without holding a valid license issued by the
commission.” (Id. at § 5). The bill
further narrowed the exemption (i.e., the exemption
from otherwise applicable licensing requirements) for
so-called “timed listings” that allow bidding on
an Internet website; the bill carved out from this exemption
extended-time auctions. (Id. at § 6(9)).
included in the bill are numerous exemptions to the
requirement that an auctioneer conducting an online
extended-time auction must be licensed. These exemptions
include, among others, “[a]n auction conducted by or
under the direction of a governmental entity”;
“[a]n auction conducted on behalf of a political party,
church, or charitable corporation or association”;
“[a]n auction conducted for the sale of
livestock”; “an auction for the sale of
tobacco”; “[a]ny fixed price or timed listings
that allow bidding on an Internet website, but do not
constitute a simulcast of a live auction”; “[a]n
in person or simulcast auction whose primary business
activity is selling nonrepairable or salvage vehicles in this
state”; and “[a]n individual who generates less
than twenty-five thousand dollars ($25, 000) in revenue a
calendar year from the sale of property in online
auctions.” (Id. at § 6). On May 24, 2019,
Tennessee Governor Bill Lee signed PC 471 into law.
(See Doc. No. 4-2 at 8). The law was to go into
effect on July 1, 2019. (Id. at 7).
McLemore Auctions Company, LLC (“McLemore
Auction”), is a Tennessee limited liability company
with a physical location in Nashville, Tennessee. (Doc. No. 4
at ¶ 7). Plaintiff Will McLemore is the president of
McLemore Auction. (Id. at ¶ 6). McLemore
Auction has operated, and plans to continue to operate,
online extended-time auctions of real estate and personal
property in Tennessee. (Id. at ¶¶ 22 &
29). McLemore Auction employs one full-time employee, Will
McLemore, and four independent contractors-Blake Kimball,
Wilson Land, Jamie Boyd, and Dwayne Smith-who act as
McLemore's auction managers. (Id. at ¶ 23).
Kimball, Land, and Boyd do not hold any license under
Tennessee's auctioneer laws, and McLemore relies on these
unlicensed auction managers to conduct the auctions on
McLemore Auction's website. (Id. at ¶¶
24, 267). McLemore Auction exclusively uses the extended-time
auction format, whereby (as noted above) the time of the
auction closing extends based on bidding activity.
(Id. at ¶ 32). McLemore Auction generates, and
anticipates that it will continue to generate, more than $25,
000 in sales revenue per calendar year from the sale of goods
or real estate through online auctions. (Id. at
¶ 53). McLemore contends he and his company will suffer
injury if the new law is enforced because the company would
have to break contracts, which would threaten its business
and cost it goodwill and customers. (Doc. No. 18-1 at 2-3).
McLemore also avers that it would forever mar his reputation
as a credible auctioneer. (Id.).
Purple Wave, Inc., is a privately held corporation,
incorporated in Delaware and physically located in Manhattan,
Kansas. (Doc. No. 4 at ¶ 9). Plaintiff Adam McKee is the
president and CEO of Purple Wave. (Doc. No. 48-2 at ¶
4). Via its website, Purple Wave conducts auctions of
agricultural and construction equipment, and industrial,
fleet, and government assets. (Id. at ¶ 5).
Purple Wave's website uses an extended-time auction
format and has already sold over $99, 000 worth of goods in
Tennessee during 2019. (Id. at ¶¶ 9-10,
12). No. person employed by Purple Wave holds any license
issued by the Tennessee Auctioneer Commission. (Doc. No. 4 at
Interstate Auction Association (IAA) is an unincorporated
association with members who are dedicated to online
auctioneer freedom. (Id. at ¶ 10). It was
organized by McLemore as a direct response to the proposed
amendment, and is made up primarily of online auctioneers,
both licensed and unlicensed. (Id.). Kimball, Land,
and Boyd are members of the IAA. (Id. at ¶
26, 2019, Plaintiffs filed their Complaint in this Court,
asserting that the provisions of the amended statute that
require licensure for extended-time online auctions violate
their rights to free speech under the First Amendment and
Fourteenth Amendment of the United States Constitution and
Article I, Section 19 of the Tennessee Constitution; burden
interstate commerce in violation of the Commerce Clause of
the United States Constitution; and violate the Privileges or
Immunities Clause of the United States Constitution.
(See Doc. No. 4). On June 27, 2019, Plaintiffs filed
their Motion for Temporary Restraining Order and a
Preliminary Injunction requesting the Court to enjoin the
State from enforcing its licensure regime on online websites
prior to the date the law was to go into effect-July 1, 2019.
(Doc. No. 3). On June 28, 2019, the Court entered a temporary
restraining order (“TRO”) that enjoined the State
from applying Tennessee's auctioneering laws and licenses
to “electronic” exchanges, or online auction
websites, or against Plaintiffs. (Doc. No. 14). The TRO went
into effect on June 28, 2019 and was to expire on July 11,
2019 at 12:00 p.m. (Id.). On July 10, 2019, the
Court held a hearing on Plaintiffs' motion for
preliminary injunction. At the hearing, the Court indicated
that it would extend the duration of the TRO by 14 days
pursuant to Federal Rule of Civil Procedure 65(b)(2).
Accordingly, the Court therefore issued a written order
extending the TRO until July 26, 2019 at 12:00 p.m. (Doc. No.
Rule of Civil Procedure 65(a) authorizes a district court to
issue a preliminary injunction prior to a trial on the
merits. Wright & Miller, Federal Practice and
Procedure § 2947 (2d ed. 1995). A preliminary
injunction is an extraordinary remedy requiring the party
seeking such relief to demonstrate a clear entitlement to the
injunction under the given circumstances. Overstreet v.
Lexington-Fayette Urban Cnty. Gov't, 305 F.3d 566,
573 (6th Cir. 2002). The purpose of a preliminary injunction
is to preserve the status quo until the district court can
hold a trial on the merits. United States v. Edward Rose
& Sons, 384 F.3d 258, 261 (6th Cir. 2004).
factors must be considered and balanced when deciding whether
to issue a preliminary injunction: (1) whether the movant has
a strong likelihood of success on the merits; (2) whether the
movant would suffer irreparable harm without the injunction;
(3) whether issuance of the injunction would cause
substantial harms to others; and (4) whether the public
interest would be served by issuance of the injunction.
Bonnell v. Lorenzo, 241 F.3d 800, 809 (6th Cir.
2001). “No single factor is a prerequisite to the
issuance of a preliminary injunction; rather the Court must
balance all four factors.” Young v. Giles Cnty. Bd.
of Edu., 181 F.Supp.3d 459, 463 (M.D. Tenn. 2015)
(citing Neveux v. Webcraft Tech., Inc., 921 F.Supp.
1568, 1570-71 (E.D. Mich. 1996)). However, a plaintiff must
always demonstrate an irreparable injury before a preliminary
injunction may issue. Id. (citing Neveux,
921 F.Supp.3d at 1571).
Likelihood of Success on the Merits
assert that they are likely to prevail on the merits of their
Dormant Commerce Clause claim because the amended statute,
which requires a Tennessee license to conduct an
extended-time online auction, impermissibly regulates
interstate commerce. The Commerce Clause provides the United
State Congress a vehicle with which to regulate aspects of
interstate commerce. See U.S. Const. art. I, §
8, cl. 3. Congress has the authority to regulate the channels
and instrumentalities of interstate commerce as well as
economic activities that have a substantial effect on
interstate commerce. See, e.g., Hodel v. Virginia Surface
Min. & Reclamation Ass'n, Inc., 452 U.S. 264,
275-77 (1981); Perez v. United States, 402 U.S. 146,
150-52 (1971). The Tenth Amendment to the United States
Constitution states that all powers not granted to the United
States, nor prohibited to the states, are reserved to the
states or the people and, therefore, acts as a limit on
Congressional power. See U.S. Const. amend. X;
S. Pac. Co. v. Arizona ex rel. Sullivan, 325 U.S.
761, 767 (1945) (“[I]n the absence of conflicting
legislation by Congress, there is a residuum of power in the
state to make laws governing matters of local concern which
nevertheless in some measure affect interstate commerce or
even, to some extent, regulate it.”).
a state or local law may be held unconstitutional if it
places an undue burden on interstate commerce. See C
& A Carbone, Inc. v. Town of Clarkstown, 511 U.S.
383, 390 (1994). Courts have long held that the Commerce
Clause “limits the power of the [s]tates to erect
barriers against interstate trade.” Dennis v.
Higgins, 498 U.S. 439, 446 (1991) (quoting Lewis v.
BT Inv. Managers, Inc., 447 U.S. 27, 35 (1980)). The
doctrine analyzed below, the Dormant Commerce Clause, has
been inferred by the Supreme Court to represent the negative
implications-the above-referenced negating (or at least
limitation) of states' power-of the Commerce Clause.
See, e.g., Wickard v. Filburn, 317 U.S. 111, 123-24
Sixth Circuit has adopted a two-step analysis to evaluate
challenges based on the Dormant Commerce Clause. Am.
Beverage Ass'n v. Snyder, 735 F.3d 362, 370-71 (6th
Cir. 2013) (citing Int'l Dairy Foods Ass'n v.
Boggs, 622 F.3d 628, 644 (6th Cir. 2010)). First, the
court must determine whether the state regulation is per
se invalid. Int'l Dairy Foods Ass'n,
622 F.3d at 645. “[A] state regulation is
‘virtually per se invalid' if it is
either extraterritorial or discriminatory in
effect.” Id. A state statute is discriminatory
if it “directly regulates or discriminates against
interstate commerce, or [whether] its effect is to favor
in-state economic interests over out-of-state
interests.” Snyder, 735 F.3d at 370-71
(quoting Int'l Dairy Foods Ass'n, 622 F.3d
at 644) (brackets in original). “A [state regulation]
can discriminate against out-of-state interests in three
different ways: (a) facially, (b) purposefully, or (c) in
practical effect.” Id. (quoting Int'l
Dairy Foods, 622 F.3d at 648). The plaintiff bears the
initial burden of proof to show that the state regulation is
discriminatory. Id. “If the plaintiff
satisfies its burden, then ‘a discriminatory law is
virtually per se invalid and will survive only if it
advances a legitimate local purpose that cannot be adequately
served by reasonable nondiscriminatory
alternatives.'” Id. (citation omitted).
indicated above, a statute that is a direct regulation of
interstate conduct (i.e., controls extraterritorial
conduct) is also a per se violation the Dormant
Commerce Clause. Int'l Dairy Foods Ass'n,
622 F.3d at 645. This is because “a statute that
directly controls commerce occurring wholly outside the
boundaries of a State exceeds the inherent limits of the
enacting State's authority.” Healy v. Beer
Inst., Inc., 491 U.S. 324, 336 (1989). “Most
critical to this inquiry is the issue of ‘whether the
practical effect of the regulation is to control conduct
beyond the boundaries of the State.'” Int'l
Dairy Foods, 622 F.3d at 645 (quoting Healy,
491 U.S. at 337). “Circuits outside the Sixth Circuit
have recognized that, ‘[b]ecause the [I]nternet does
not recognize geographic boundaries, it is difficult, if not
impossible, for a state to regulate Internet activities
without project[ing] its legislation into other
States.'” Backpage.com, LLC v. Cooper, 939
F.Supp. 2d. 805, 841 (M.D. Tenn. 2013) (quoting Am.
Booksellers Found. v. Dean, 342 F.3d 96, 103 (2d Cir.
2003)). If a “statute has an impermissible
extraterritorial effect, [a court has] no need to consider
whether the state has some legitimate local purpose or
whether there is a reasonable nondiscriminatory
alternative.” Snyder, 735 F.3d at 376.
“[w]hen a state regulation is neither extraterritorial
nor discriminates against out-of-state actors, it may still
violate the Commerce Clause if its burden on interstate
commerce is ‘clearly excessive in relation to the
putative local benefits.'” Id. (quoting
Pike v. Bruce Church, Inc., 397 U.S. 137, 142
(1970)) Under this balancing test:
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.
Id. (citing Pike, 397 U.S. at 142).
The Scope ...