Filed: Sep. 16, 1994
Latest Update: Mar. 02, 2020
Summary: Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit 9-16-1994 Instructional Syst. Inc. v. Computer Curric. Corp. Precedential or Non-Precedential: Docket 93-5490 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994 Recommended Citation "Instructional Syst. Inc. v. Computer Curric. Corp." (1994). 1994 Decisions. Paper 135. http://digitalcommons.law.villanova.edu/thirdcircuit_1994/135 This decision is brought to you for free
Summary: Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit 9-16-1994 Instructional Syst. Inc. v. Computer Curric. Corp. Precedential or Non-Precedential: Docket 93-5490 Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994 Recommended Citation "Instructional Syst. Inc. v. Computer Curric. Corp." (1994). 1994 Decisions. Paper 135. http://digitalcommons.law.villanova.edu/thirdcircuit_1994/135 This decision is brought to you for free ..
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Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
9-16-1994
Instructional Syst. Inc. v. Computer Curric. Corp.
Precedential or Non-Precedential:
Docket 93-5490
Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994
Recommended Citation
"Instructional Syst. Inc. v. Computer Curric. Corp." (1994). 1994 Decisions. Paper 135.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/135
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UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
No. 93-5414
INSTRUCTIONAL SYSTEMS, INC.,
a Corporation of the State of New Jersey
v.
COMPUTER CURRICULUM CORPORATION,
a Corporation of the State of Delaware
INSTRUCTIONAL SYSTEMS, INC.,
Appellant
DEBORAH T. PORITZ,*
Attorney General of New Jersey,
Intervenor
(per the Court's
Nov. 19, 1993 order)
No. 93-5490
INSTRUCTIONAL SYSTEMS, INC.,
a Corporation of the State of New Jersey
v.
COMPUTER CURRICULUM CORPORATION,
a Corporation of the State of Delaware
v.
HON. ALFRED J. LECHNER, JR.,
United States District Judge
for the District of New Jersey,
Nominal Respondent
DEBORAH T. PORITZ,*
Attorney General of New Jersey,
*
. Caption amended pursuant to Fed. R. App. P. 43(c).
Petitioner
No. 93-5635
INSTRUCTIONAL SYSTEMS, INC.,
a Corporation of the State of New Jersey,
Petitioner
v.
COMPUTER CURRICULUM CORPORATION,
a Corporation of the State of Delaware
HON. ALFRED J. LECHNER, JR.,
United States District Judge
for the District of New Jersey,
Nominal Respondent
No. 93-5722
INSTRUCTIONAL SYSTEMS, INC.,
a Corporation of the State of New Jersey
v.
COMPUTER CURRICULUM CORPORATION,
a Corporation of the State of Delaware
INSTRUCTIONAL SYSTEMS, INC.,
Appellant
No. 94-5048
INSTRUCTIONAL SYSTEMS, INC.,
a Corporation of the State of New Jersey
v.
COMPUTER CURRICULUM CORPORATION,
a Corporation of the State of Delaware
DEBORAH T. PORITZ,
Attorney General of New Jersey,
Intervenor in D.C., Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civ. No. 89-00502)
Argued July 11, 1994
Before: SLOVITER, Chief Judge,
ROTH, Circuit Judge, and POLLAK,** District Judge
(Filed September 16, 1994)
Nicholas deB. Katzenbach (Argued)
Douglas S. Eakeley
Sigrid S. Franzblau
Anne M. Patterson
Jeffrey J. Miller
Debra H. Azarian
Riker, Danzig, Scherer, Hyland
& Perretti
Morristown, N.J. 07962-1981
John J. Gibbons
Crummy, Del Deo, Dolan,
Griffinger & Vecchione
Newark, N.J. 07102-5497
Warren S. Robins
Robert E. Rochford
Dunn, Pashman, Sponzilli, Swick
& Finnerty
Hackensack, N.J. 07601
Counsel for Appellant/Petitioner Instructional
Systems, Inc.
*
*. Hon. Louis H. Pollak, United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
Sidney S. Rosdeitcher (Argued)
Paul, Weiss, Rifkind, Wharton & Garrison
New York, N.Y. 10019-6064
A. Leon Higginbotham, Jr.
Jay Greenfield
Gary Stein
Marcella David
Of Counsel
Andrew T. Berry
McCarter & English
Newark, N.J. 07101-0652
Counsel for Appellee/Respondent Computer
Curriculum Corp.
Bertram P. Goltz, Jr. (Argued)
Deputy Attorney General
Joseph L. Yannotti, Jr.
Assistant Attorney General
Office of Attorney General of N.J.
Newark, N.J. 07101
Counsel for Intervenor/Petitioner Attorney
General of New Jersey
OPINION OF THE COURT
SLOVITER, Chief Judge.
In a far-reaching opinion, the district court limited
the application of the New Jersey Franchise Practices Act to the
activities of a New Jersey franchisee within New Jersey on the
ground that giving the Act extraterritorial effect would conflict
with the dormant Commerce Clause. Before we reach this issue of
first impression, we must wind through the present status of the
law on Pullman abstention and an England reservation.
I.
FACTS AND PROCEDURAL HISTORY
The relevant facts are not disputed. Computer
Curriculum Corporation (CCC), a Delaware corporation
headquartered in Palo Alto, California, produces and markets an
integrated learning system that uses computer technology to teach
and monitor a student's progress. Since 1975, Instructional
Systems, Inc. (ISI), a New Jersey corporation,1 was CCC's
exclusive distributor in the northeastern United States, subject
to limited reservations by CCC. The parties entered into an
agreement in 1984 that provided that ISI would be CCC's exclusive
reseller in Connecticut, Delaware, Maine, Maryland,
Massachusetts, New Hampshire, New Jersey, Rhode Island, Vermont
and Washington D.C., and that for its part ISI would sell only in
those states and would deal only in CCC products. The Agreement
provided that it would continue in effect until July 31, 1989.
Finally, the Agreement provided that it "shall be construed and
interpreted, and the legal relations created by it shall be
determined, in accordance with the laws of the State of
California." Jt. App. at 934.
As 1989 approached, CCC decided not to extend its
relationship with ISI for the entire territory covered by the
1
. Originally, CCC's arrangement was with ISI's predecessor,
Educomp of New Jersey. The principal of both corporations was
the same, Phyllis Kaminer.
1984 Agreement because, it claims, ISI was not aggressively
marketing in some of the states. Instead, it offered ISI a two-
year contract which limited ISI's market territory to New Jersey,
New York and Massachusetts, thereby allowing CCC to distribute
its products directly in the other (former ISI) states. ISI
executed the 1989 Agreement under protest on January 30, 1989,
and simultaneously filed its complaint in the Superior Court of
New Jersey, Chancery Division.
The complaint contained seven counts. Count One
alleged that the 1984 Agreement constituted a "franchise" for
purposes of the New Jersey Franchise Practices Act ("NJFPA" or
"Act"), N.J. Stat. Ann. § 56:10-3,2 10-4,3 and that CCC violated
the NJFPA by (a) failing to renew without good cause in violation
2
. Section 10-3(a) of the NJFPA defines a "franchise" as a:
written arrangement for a definite or indefinite
period, in which a person grants to another person a
license to use a trade name, trade mark, service mark,
or related characteristics, and in which there is a
community of interest in the marketing of goods or
services at wholesale, retail, by lease, agreement, or
otherwise.
N.J. Stat. Ann. § 56:10-3(a) (West 1989) (emphasis added).
3
. Section 10-4 limits the scope of the NJFPA by providing that
"[t]his act applies only to a franchise . . . the performance of
which contemplates or requires the franchisee to establish or
maintain a place of business within the State of New Jersey."
N.J. Stat. Ann. § 56:10-4 (West 1989 & Supp. 1994) (emphasis
added). The NJFPA defines a "place of business" as a "fixed
geographical location at which the franchisee displays for sale
and sells the franchisor's goods or offers for sale and sells the
franchisor's services. Place of business shall not mean an
office, a warehouse, a place of storage, a residence or a
vehicle." Id. § 56:10-3(f).
of Section 10-5,4 and (b) attempting to impose unreasonable
standards of performance upon ISI in the formation of the 1989
Agreement in violation of Section 10-7.5 Counts Two through
Seven alleged a variety of state common law claims.6 As a remedy
for each count, ISI sought an injunction restraining CCC from
terminating its relationship with ISI and damages.
CCC removed the case to federal court on the basis of
diversity of citizenship. In June 1989, following discovery, ISI
moved for a preliminary injunction and partial summary judgment
on the issue of whether the 1984 Agreement constituted a
franchise agreement under the NJFPA. CCC opposed ISI's motions
and filed a cross-motion for partial summary judgment, arguing
that (1) California, not New Jersey, law applied to the 1984
4
. Section 10-5 of the NJFPA, which sets forth the requirements
for the termination of a franchise, provides in part:
It shall be a violation of this act for any franchisor
to terminate, cancel or fail to renew a franchise
without good cause. For the purposes of this act, good
cause for terminating, canceling, or failing to renew a
franchise shall be limited to failure by the franchisee
to substantially comply with those requirements imposed
upon him by the franchise.
N.J. Stat. Ann. § 56:10-5 (West 1989) (emphasis added).
5
. Section 10-7 of the NJFPA prohibits franchisors from
"impos[ing] unreasonable standards of performance upon a
franchisee." N.J. Stat. Ann. § 56:10-7(e) (West 1989).
6
. Specifically, Count Two alleged a breach of contract; Count
Three, a breach of the implied covenant of good faith and fair
dealing; Count Four, tortious interference with prospective
economic advantage; Count Five, a breach of a covenant of non-
competition; Count Six, unjust enrichment; and Count Seven, a
breach of fiduciary duty.
Agreement; (2) application of the NJFPA to the franchise
territory outside New Jersey would violate the dormant Commerce
Clause; (3) the 1984 Agreement was not a franchise as defined by
the NJFPA; and (4) CCC's actions were not in violation of the
NJFPA. ISI responded by petitioning the district court to
abstain pursuant to Railroad Commission v. Pullman, 312 U.S. 496
(1941), so that the NJFPA claim could be considered by the New
Jersey courts.
The district court granted ISI's request for abstention
over CCC's objection that the case could be resolved without
reaching the constitutional questions raised by its motion for
partial summary judgment. The court reasoned that "[i]f the New
Jersey courts determine ISI does not fit within the definitional
requirements of a franchise or that the Franchise Practices Acts
is inapplicable to States other than New Jersey, then the need to
address the commerce clause question in this matter will be
eliminated." Jt. App. at 577.
ISI filed a suit for declaratory judgment in the New
Jersey Superior Court, Chancery Division on July 27, 1989. After
additional discovery, both parties moved for summary judgment.
The court entered a declaratory judgment in favor of ISI, holding
(1) that New Jersey law applied to the 1984 Agreement despite the
choice-of-law provision of the Agreement; (2) that the 1984
Agreement was a "franchise" for purposes of the NJFPA, and (3)
that the NJFPA applied even though the agreement encompassed a
multistate territory. See Instructional Sys., Inc. v. Computer
Curriculum Corp., No. C-4116-89E (N.J. Super. Ct. Ch. Div. Oct.
30, 1989) (ISI I). The Appellate Division of the Superior Court
reversed, see Instructional Sys., Inc. v. Computer Curriculum
Corp., 578 A.2d 876 (N.J. Super. Ct. App. Div. 1990) (ISI II),
but the New Jersey Supreme Court reversed the Appellate Division
and reinstated the judgment of the Chancery Division in October
1992, see Instructional Sys., Inc. v. Computer Curriculum Corp.,
614 A.2d 124 (N.J. 1992) (ISI III).
The Supreme Court analyzed the issues before it in a
series of questions. First, it decided what a franchise was
under the NJFPA. Then it proceeded with the threshold choice-of-
law question, holding that although "a close question," the trial
court had not erred in applying New Jersey law because New Jersey
has a strong policy in favor of protecting its franchisees and
because the franchisee is located in New Jersey, the majority of
its employees reside in New Jersey, the investments relate
primarily to assets in New Jersey, and the goodwill was developed
for CCC by New Jersey residents. Id. at 135.
The Court then proceeded to determine whether the
evidence was sufficient to find the statutory requirements for
the existence of a franchise, which depended on whether ISI had a
"place of business" in New Jersey, a "license," and a "community
of interest" with CCC. Finding that these were all satisfied,
see id. at 136-46, the Court then turned to the question whether
the Act has "extraterritorial reach to the franchise activities
in states other than New Jersey."
Id. at 146. The Court
reasoned that at its core, the NJFPA "is meant to deal with the
unconscionable business practices affecting New Jersey
franchises,"
id. at 147, but that in meeting that purpose, the
application of the Act did not stop at New Jersey's border. In
its consideration of this issue, the Court discussed whether the
application of New Jersey law in this manner would be consistent
with the Commerce Clause. It reasoned that "New Jersey has no
power, and therefore no interest, to regulate commerce that
occurs entirely beyond its borders," but that this statute was
regulating only "in-state conduct that has out-of-state effects."
Id. at 146. The Court thus saw no unconstitutionality under the
Commerce Clause or Due Process Clause "despite some incidental
extraterritorial effects."
Id. at 148.
The case then returned to the district court. CCC
moved for partial summary judgment as to that portion of Count
One that was based on application of the NJFPA outside of New
Jersey. The district court gave notice of the attack on the
constitutionality of the NJFPA to the Attorney General of New
Jersey, see 28 U.S.C. § 2403(b) (1988), who chose to participate
but did not formally intervene. On June 2, 1993, the district
court granted CCC's motion for partial summary judgment as to the
portion of Count One that sought to enjoin CCC from terminating
ISI's franchise in states other than New Jersey. The district
court's ruling was based on its determination that application of
the NJFPA outside New Jersey was a per se violation of the
Commerce Clause. See Instructional Sys., Inc. v. Computer
Curriculum Corp., 826 F. Supp. 831, 848 (D.N.J. 1993) (ISI IV).
ISI and the Attorney General appealed.7
CCC then moved for summary judgment on the six
remaining common law claims as well as the remainder of Count
One. The district court granted partial summary judgment on the
common law claims on November 9, 1993, leaving for trial only
7
. On June 16, ISI petitioned the district court for
certification of an interlocutory appeal under 28 U.S.C. §
1292(b), and the Attorney General asked for a certification under
either Federal Rule of Civil Procedure 54(b) or § 1292(b) on June
18. ISI also filed a notice of appeal (docketed in this court as
No. 93-5414) on July 2, arguing that this court had jurisdiction
because the district court had denied its motion for an
injunction. On July 22, the district court denied the parties'
requests under § 1292(b) and Rule 54(b), reasoning that ISI's
notice of appeal deprived it of jurisdiction to certify the order
under either of the sections.
The Attorney General filed a petition for mandamus on
August 12 (No. 93-5490) asking this court to order the district
court to consider the certification requests, and a motions panel
of this court remanded the case to the district court on
September 20 "so that it may consider whether to grant motions
for certification under 28 U.S.C. § 1292(b) or Fed. R. Civ. P.
54(b) free of its concern as to jurisdictional restraint by
reason of the interlocutory appeal." Jt. App. at 1301. After
the district court denied the motions on the merits on October 5,
ISI filed a petition for mandamus on October 25 to vacate the
June 2 district court order (No. 93-5635) and the Attorney
General filed a supplemental petition for mandamus on November 10
seeking the same.
that portion of Count One that which alleged that CCC has imposed
unreasonable terms and conditions on ISI in the 1989 Agreement as
regards to New Jersey. See Instructional Sys., Inc. v. Computer
Curriculum Corp., No. 89-502(AJL) (D.N.J. Nov. 9, 1993) (ISI V).
ISI appealed.8
On appeal, this court granted the Attorney General's
motion to intervene in No. 93-5414, and consolidated the five
related appeals and petitions for disposition. We have
jurisdiction over the appeals docketed at Nos. 93-5414, 93-5722
and 94-5048 pursuant to 28 U.S.C. § 1291 (1988).9 Because the
questions on appeal are legal, we exercise plenary review.
8
. ISI filed a notice of appeal on November 24, 1993 (No. 93-
5722), claiming jurisdiction under 28 U.S.C. § 1292(a)(1). In
mid-December CCC moved to certify the summary judgment orders as
final under Rule 54(b). After ISI withdrew its opposition, the
district judge to whom the case had been reassigned certified the
summary judgment orders of June 2 and November 9 under Rule 54(b)
on December 27. The Attorney General then filed a timely appeal
from this order on January 25, 1994 (No. 94-5048). The remaining
claim under the NJFPA, that the 1989 Agreement imposed
unreasonable conditions of performance, was stayed pending the
appeal.
9
. While there is some question whether we would have had
jurisdiction over the appeals docketed at Nos. 93-5414 and 93-
5722 because the action was still pending below and the orders
may not have met the requirements laid out in Carson v. American
Brands, Inc., 450 U.S. 79, 83-84 (1981), the district court's
certification of these orders as appealable under Rule 54(b)
resolves this issue. We have held that even after a notice of
appeal has been filed, a proper Rule 54(b) certification will
cure any jurisdictional defect of a premature appeal. See
Feather v. United Mine Workers of America,
711 F.2d 530, 535 (3d
Cir. 1983). Since we have jurisdiction over all the district
court's relevant orders to date, we will deny the petitions for
mandamus in Nos. 93-5490 and 93-5635. See Helstoski v. Meanor,
442 U.S. 500, 506 (1979) (mandamus inappropriate when direct
appeal immediately available).
II.
DISCUSSION
A.
Abstention, Reservation and Preclusion
ISI contends that we are bound to accept not only the
New Jersey Supreme Court's decision on the scope of the NJFPA and
its application to its arrangement with CCC but also that Court's
conclusion that such an application did not violate the dormant
Commerce Clause, as CCC had argued. CCC would limit not only the
effect of the New Jersey courts' interpretation of the federal
constitutional issue, but also their interpretation of the state
law issues. These contentions require that we examine the
circumstances surrounding the district court's Pullman
abstention.
In deciding to abstain, the court stated that it was
"remitt[ing]" to the state courts: "(a) Whether the Act has
extraterritorial reach beyond the State of New Jersey . . . ; and
(b) What are the definitions and standards of 'community of
interest,' 'license' and 'place of business' under the Act?" Jt.
App. at 587. It reserved to itself the "[a]pplication of the
principles of law determined by the state court to the facts of
this case"; "[a]ny constitutional challenge to the Act"; and
"[a]ny application for injunctive or other interim relief." Jt.
App. at 588. On ISI's request for clarification, the court
explained that it expected the parties to file a declaratory
judgment action. It recognized that to avoid giving an advisory
opinion, the state court would have to look at the facts of this
case in order to render its decision on the state law issues, but
reiterated that it was maintaining fact-finding jurisdiction over
the constitutional question.
Neither party presently challenges the propriety of
abstaining per se.10 However, the parties vigorously dispute the
scope and effect of the district court's abstention.
1.
Pullman Abstention
It is a general rule that "federal courts lack the
authority to abstain from the exercise of jurisdiction that has
been conferred." New Orleans Pub. Serv., Inc. v. Council of New
Orleans, 491 U.S. 350, 358 (1989). There are a small number of
"exceptional circumstances" which justify deviation from this
rule. See Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 14 (1983). "Abstention . . . is the exception and
not the rule. The federal courts' obligation to adjudicate
claims within their jurisdiction is virtually unflagging." Marks
v. Stinson,
19 F.3d 873, 881 (3d Cir. 1994) (quotations and
citation omitted).
The abstention doctrine that stems from Railroad
Commission v. Pullman, 312 U.S. 496 (1941), provides that "when a
10
. No party took an appeal from the order abstaining and
staying the federal proceedings. See Hovsons Inc. v. Secretary
of the Interior of the U.S.,
711 F.2d 1208, 1211 (3d Cir. 1983)
(the Court of Appeals has jurisdiction over appeal from district
court's order to stay federal proceedings on Pullman grounds).
federal court is presented with both a federal constitutional
issue and an unsettled issue of state law whose resolution might
narrow or eliminate the federal constitutional question,
abstention may be justified under principles of comity in order
to avoid needless friction with state policies."
Marks, 19 F.3d
at 882 n.6 (quotation and citation omitted); see also Chez Sez
III Corp. v. Township of Union,
945 F.2d 628, 631 (3d Cir. 1991)
(describing three-step analysis of Pullman abstention), cert.
denied,
112 S. Ct. 1265 (1992).
Pullman abstention is "virtually prohibited in
diversity cases where the only difficulty is the unsettled
posture of state law." Urbano v. Board of Managers of N.J. State
Prison, 415 F.2d 247, 253 (3d Cir. 1969), cert. denied,
397 U.S.
948 (1970); see also McNeese v. Board of Educ.,
373 U.S. 668, 673
n.5 (1963); Meredith v. Winter Haven,
320 U.S. 228, 236 (1943).
However, there are some situations for abstention even when the
suit is brought under diversity jurisdiction. In Clay v. Sun
Insurance Office Ltd.,
363 U.S. 207, 212 (1960), the Court held
that abstention was appropriate in a diversity suit when the
defendant had raised doubts about the constitutionality of the
statute relied upon by the plaintiff and the court "could not, on
the available materials, make a confident guess how the [state]
Supreme Court would construe the statute." Under these
conditions, the Court found that abstention was justified "where
a federal constitutional question might be mooted [by securing]
. . . an authoritative state court's determination of an
unresolved question of its local law."
Id.
This court has also recognized such a situation under
precisely the same statute at issue here. In Consumers Oil Corp.
v. Phillips Petroleum Co.,
488 F.2d 816, 819 (3d Cir. 1973), we
held that abstention was appropriate in a diversity suit claiming
a violation of the NJFPA because state law was unclear as to
whether the Act applied to the agreement at issue and, if it did,
"substantial constitutional questions" would need to be faced.
But see Mariniello v. Shell Oil Co.,
511 F.2d 853, 860-61 (3d
Cir. 1975) (abstention inappropriate in adjudicating
constitutional objections to New Jersey common law analog to the
NJFPA).
2.
England Reservation
A party displaced from federal court under Pullman does
not lose its right to a federal forum for all its claims. In
England v. Louisiana State Board of Medical Examiners, 375 U.S.
411 (1964), the Supreme Court was presented with a case in which
the plaintiffs sued in federal court, were sent to the state
courts under Pullman abstention, litigated all their claims
there, lost, and then returned to federal court in an attempt to
litigate their federal claims anew. Plaintiffs argued that they
felt compelled to litigate their federal claims in state court by
the Court's decision in Government & Civic Employees Organizing
Committee, CIO v. Windsor,
353 U.S. 364, 366 (1957), which
required parties remitted to the state courts under Pullman to
inform those courts what their federal claims were so that the
state courts had the opportunity to construe the statute "in
light of" those claims.
In England, the Court sought to balance the parties'
rights to a federal forum with the federalism concerns inherent
in rendering a constitutional judgment on an unclear state
statute. It held that a party may preserve its right to return
to federal court by making an express reservation in the state
court that "he is exposing his federal claims there only for the
purpose of complying with Windsor, and that he intends, should
the state courts hold against him on the question of state law,
to return to the District Court for disposition of his federal
contentions." 375 U.S. at 421. Such a reservation of federal
claims may be made by any party to the litigation. See
id. at
422 n.13.
In this case it is clear that the federal question of
whether the NJFPA could be constitutionally applied to the 1984
Agreement was explicitly reserved by CCC throughout the course of
the state proceedings. Indeed, when the case was reactivated in
the district court, it was ISI which submitted a letter to the
district court that "concluded that the record supports CCC's
contention that it entered a proper England reservation." Jt.
App. at 1746.11
Although ISI now seeks to recant its conclusion,12 it
is clear from the record that CCC properly preserved its England
reservation. At every stage of the state court proceedings, one
11
. While noting several times when CCC had discussed the issue,
ISI stated that "[t]he record can be interpreted to indicate that
CCC presented the constitutional issue to the state courts in
order to inform those court of its existence, as required by
Windsor and England. We have therefore concluded that CCC
reserved its right to a determination by this Court of the
federal constitutional issue." Jt. App. at 1747.
12
. ISI claims for the first time in its brief in No. 93-5722
that its concession was "mistaken," and suggests that despite its
waiver of the issue, because there was no valid reservation the
district court lacks subject matter jurisdiction over the claim
under the Rooker-Feldman doctrine. See Port Auth. Police
Benevolent Ass'n v. Port Auth., 973 F.2d 169, 177 (3d Cir. 1992)
(Rooker-Feldman doctrine provides that "lower federal courts lack
subject matter jurisdiction to engage in appellate review of
state court determinations or to evaluate constitutional claims
that are 'inextricably intertwined with the state court's
[decision] in a judicial proceeding.'" (citation omitted)). It
concedes that Rooker-Feldman does not apply if we find the
England reservation to be properly preserved. See Ivy Club v.
Edwards,
943 F.2d 270, 284 (3d Cir. 1991), cert. denied, 112 S.
Ct. 1282 (1992). Because we do so find, we need not consider the
effect of ISI's waiver.
party, if not both, stated that any constitutional questions were
reserved for the district court and were being raised only to
comply with the Supreme Court's Windsor decision.13 We therefore
reject ISI's claim that the fact that the New Jersey Supreme
Court discussed the Commerce Clause issue in rendering its
13
. In the Chancery Division of the Superior Court, CCC
expressly reserved its federal claims both at a hearing, Jt. App.
at 1583-84, and in its brief, Supp. App. at 833-34. At the
Appellate Division of the Superior Court, CCC noted that the
district court had reserved jurisdiction to rule on any
constitutional claims. Supp. App. at 1094. Its reference to the
Commerce Clause was in the context of disputing the Chancery
Division's statutory construction and arguing that interpreting
the statute as the Chancery Division did would violate the
Commerce Clause. Supp. App. at 1107-09.
The parties took the same position before the New
Jersey Supreme Court. There was no dispute, as ISI noted in its
submissions to the Supreme Court, that "the federal
constitutional issue arising under the Commerce Clause . . . is
reserved for the federal court." Supp. App. at 1455; see also
Supp. App. at 1461 n.2, 1492-93. CCC also made that point clear.
Supp. App. at 1481.
Although CCC did mention the Commerce Clause issue in
its merits brief, Supp. App. at 1543-44, it did so once again in
the context of arguing that the Court should not construe the
NJFPA to apply extraterritorially because that construction would
impermissibly burden interstate commerce. At the original oral
argument and on rehearing, CCC and ISI both noted at various
times that the Commerce Clause question was reserved for the
district court. Supp. App. at 1662, 1666, 1837, and a member of
the Court noted during the argument that "[t]he Commerce Clause
issue is reserved." Supp. Ap. at 1807.
In post-argument briefs, ISI suggested for the first
time that CCC violated the England command not to "affirmatively
argue" the constitutional issue because CCC had discussed the
Commerce Clause issue in its brief and at oral argument. Supp.
App. at 1740-41. CCC responded that "CCC has merely informed the
Court, for its assistance in construing the New Jersey statute,
of the serious constitutional problem presented by ISI's
construction." Supp. App. at 1772.
decision about whether the Act applied extraterritorially, see
ISI III, 614 A.2d at 146-48, precludes the federal courts'
consideration of the issue, which was properly preserved.14 As
the Supreme Court noted in England, "the parties cannot prevent
the state court from rendering a decision on the federal question
if it chooses to do
so." 375 U.S. at 421; see also 17A Charles
A. Wright et al., Federal Practice and Procedure § 4243 (1988).
It is the actions of the displaced litigant which are controlling
and thus, after reviewing the parties' actions, we agree with the
Attorney General that "the Commerce Clause issue did remain
pending before the District Court, and the District Court was
obligated to adjudicate it." Attorney General's Br. at 25.
ISI insists that even if CCC made a proper England
reservation, we are bound by the factual findings and legal
conclusions of the New Jersey courts by the full faith and credit
statute, 28 U.S.C. § 1738 (1988), which requires that federal
courts give "full faith and credit" to "judicial proceedings of
14
. Parsons Steel, Inc. v. First Alabama Bank, 474 U.S. 518
(1986), which ISI cites, is inapposite. In Parsons, the parties
had concurrent actions pending in state and federal court
regarding events arising out of the same conduct, the defendants
first won in federal court, but the state court rejected the
defenses of res judicata and collateral estoppel, and the
defendants were found liable in that forum. The federal court
then enjoined enforcement of the state court judgment because it
determined that the state action was barred by res judicata.
The Supreme Court held that the district court erred in failing
to apply state preclusion law and remanded for a determination of
whether the state court's resolution of the res judicata issue
would be given preclusive effect in another court of the same
state. It did not hold, as ISI implicitly suggests, that a state
court's consideration of an issue precludes a federal court from
doing so.
any court of any State." It is true that a federal court is
normally bound to extend preclusive effect to state proceedings
to the same extent that courts of that state would do so. See
Migra v. Warren City School Dist. Bd. of Educ.,
465 U.S. 75, 84
(1984); Allen v. McCurry,
449 U.S. 90, 99 (1980); cf. Township of
Washington v. Gould,
189 A.2d 697, 700 (N.J. 1963) (declaratory
judgments given preclusive effect under New Jersey law).
However, the Supreme Court noted in both those cases
that when a party sought to adjudicate his claims in a federal
forum and then was involuntarily remitted to state court, the
party "can preserve his right to a federal forum for his federal
claims by informing the state court of his intention to return to
federal court on his federal claims following litigation of his
state claims in state court." Migra, 465 U.S. at 85 n.7 (citing
England); see also
Allen, 449 U.S. at 101-02 n.17 (distinguishing
England reservations as having "no bearing on the present case").
As we noted in Kovats v. Rutgers,
749 F.2d 1041, 1046 (3d Cir.
1984), "in its major preclusion decisions the [Supreme] Court has
sought to distinguish the England situation." Thus the
traditional rules of res judicata and collateral estoppel as
applied by section 1738 do not apply to state proceedings that
follow Pullman abstention and an England reservation. See
Bradley v. Pittsburgh Bd. of Educ.,
913 F.2d 1064, 1072 (3d Cir.
1990) (claim preclusion does not apply to state court proceedings
when proper England reservation made); see also Fields v.
Sarasota Manatee Airport Auth.,
953 F.2d 1299, 1302 n.1, 1306
(11th Cir. 1992) (Pullman/England situation is an exception to
full faith and credit requirements).
CCC argues that notwithstanding the England
reservation, the New Jersey decisions are binding only on
discrete facts found, i.e. the existence of a "place of
business," "community of interest," and "license," but not on the
ultimate facts, such as whether the relationship was a franchise
under New Jersey law. It relies on the emphasis given in England
to federal fact-finding. See 375 U.S. at 416-17 ("How the facts
are found will often dictate the decision of federal claims . . .
[Therefore,] in cases where, but for the application of the
abstention doctrine, the primary fact determination would have
been by the District Court, a litigant may not be unwillingly
deprived of that determination.").
We believe that the state law issues determined in the
state court proceedings must be viewed as more than merely
persuasive authority. We held in Kovats that a "state court's
resolution of the state law question that required Pullman
abstention clearly must be given some preclusive effect;
otherwise abstention would be a meaningless procedure." 749 F.2d
at 1046. The Supreme Court did not expect the state courts to
issue abstract opinions of law, removed from the facts of the
case, or resolve factual disputes only to have them treated as
advisory opinions. Instead, the Court anticipated that the state
court decision might resolve the suit entirely. See
England, 375
U.S. at 421; see also Phillips v. Pennsylvania Higher Educ.
Assistance Agency,
657 F.2d 554, 560 n.9 (3d Cir. 1981)
(suggesting that state court decision under Pullman could
definitively resolve the suit, even if resolution of legal issue
was fact-intensive), cert. denied,
455 U.S. 924 (1982). Implicit
in that assumption is the acknowledgement that the state courts
will be rendering judgments based on a factual record.
While some states have certification provisions which
may permit obtaining a state court's views on state law with only
a sketchy factual context, see John B. Corr & Ira P. Robbins,
Interjurisdictional Certification and Choice of Law, 41 Vand. L.
Rev. 411, 421-22 (1988), New Jersey is not such a state. In
fact, New Jersey has expressed a strong policy against issuing
advisory opinions. See New Jersey Ass'n for Retarded Citizens,
Inc. v. New Jersey Dep't of Human Servs., 445 A.2d 704, 707 (N.J.
1982) ("We will not render advisory opinions or function in the
abstract."); Civil Serv. Comm'n v. Senate of New Jersey, 397 A.2d
1098, 1101 (N.J. Super. Ct. App. Div.), certif. denied,
405 A.2d
811 (N.J. 1979); Biegenwald v. Fauver,
882 F.2d 748, 753 (3d Cir.
1989).
Thus, the judgment the parties have received from the
New Jersey courts on the state law claims binds them, absent
any federal impediment. This is so even in the rare Pullman
abstention case such as this, where the state court must resolve
factual disputes or engage in a totality-of-the-circumstances
analysis in reaching its conclusions. In Ivy Club v. Edwards,
943 F.2d 270, 283 (3d Cir. 1991), cert. denied,
112 S. Ct. 1282
(1992), this court held that "[u]pon return to federal court
[after Pullman/England], the federal plaintiff may fully litigate
his federal claims, including the factual issues that may be
identical to those underlying the state law question." However,
in recognition of the nature of the state court proceedings as
authoritative, we also held that "issue preclusion applies . . .
to the state law question decided by the state court."
Id.
This modified application of the preclusion doctrine to
the state law claims is consistent with the policies underlying
not only the full faith and credit statute, but also the Rules of
Decisions Act, 28 U.S.C. § 1652 (1988). The Rules of Decision
Act, as interpreted by the Supreme Court in Erie Railroad v.
Tompkins,
304 U.S. 64 (1938), and its progeny, requires as a
matter of federalism that a federal court sitting in diversity
attempt to apply state law as if it were a state court. In this
case, for example, the district court needed to determine which
state's law a New Jersey court would apply to the 1984 Agreement.
See Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487 (1941). A
New Jersey court, in fact the highest New Jersey court, has
definitively answered that question. As long as the parties had
a full and fair opportunity to litigate the issue in the state
proceeding, cf. Kremer v. Chemical Constr. Corp.,
456 U.S. 461,
481-82 (1982), it would offend all notions of comity and common
sense to permit relitigation of that issue. Thus we hold that
the New Jersey courts were entitled to resolve the state law
issues presented in the context of the declaratory judgment suit
(whether the parties' agreement was covered by the NJFPA), and we
are bound to accept their answer (yes), as well as the factual
and legal findings necessary to that answer.
B.
Commerce Clause
We thus turn to the district court's holding that,
accepting the New Jersey Supreme Court's decision that the 1984
Agreement was governed by the NJFPA, that statute violates the
dormant Commerce Clause when applied to activities of a New
Jersey franchise outside New Jersey.15
The Commerce Clause provides that "Congress shall have
Power . . . To regulate Commerce . . . among the several States."
U.S. Const., art. I, § 8, cl. 3. The Supreme Court "long has
recognized that this affirmative grant of authority to Congress
also encompasses an implicit or 'dormant' limitation on the
authority of the States to enact legislation affecting interstate
commerce." Healy v. Beer Institute, 491 U.S. 324, 326 n.1
(1989).16 The Commerce Clause reflects "the Constitution's
15
. CCC does not claim that New Jersey's choice-of-law holding
itself violates the Commerce Clause and thus we do not reach that
distinct question. See Harold W. Horowitz, Comment, The Commerce
Clause as a Limitation on State Choice-of-Law Doctrine, 81 Harv.
L. Rev. 806, 813-24 (1971).
16
. ISI seems to argue that if application of the NJFPA to the
1984 Agreement meets the requirements of due process, there can
be no Commerce Clause problem. It is clear, however, that the
"[l]ocal regulations which would pass muster under the Due
Process Clause might nonetheless fail to survive other challenges
to constitutionality that bring the Supremacy Clause into play.
Like any local law that conflicts with federal regulatory
measures, state regulations that run afoul of the policy of free
trade reflected in the Commerce Clause must also bow." Bibb v.
Navajo Freight Lines,
359 U.S. 520, 529 (1959) (citations
omitted); see also Quill Corp. v. North Dakota,
112 S. Ct. 1904
(1992) (distinguishing application of due process and commerce
clauses).
special concern both with the maintenance of a national economic
union unfettered by state-imposed limitations on interstate
commerce and with the autonomy of the individual States within
their respective spheres."
Id. at 335-36.
The Supreme Court has articulated two tiers of scrutiny
in analyzing statutes that regulate interstate commerce:
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, we have generally struck down
the statute without further inquiry. When, however, a
statute only has indirect effects on interstate
commerce and regulates evenhandedly, we have examined
whether the State's interest is legitimate and whether
the burden on interstate commerce clearly exceeds the
local benefits.
Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476
U.S. 573, 579 (1986) (citations omitted). In the end, the
crucial consideration is "the overall effect of the statute on
both local and interstate commerce."
Healy, 491 U.S. at 337
n.14.
1.
Per Se Violations
"The principal objects of dormant Commerce Clause
scrutiny are statutes that discriminate against interstate
commerce." CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69,
87 (1987). Such statutes are virtually per se invalid. See C &
A Carbone, Inc. v. Town of Clarkstown,
114 S. Ct. 1677, 1683
(1994); Philadelphia v. New Jersey,
437 U.S. 617, 627-28 (1978).
However, both parties agree that as the NJFPA does not
differentiate between in-state and out-of-state franchisors,
there is no discrimination against interstate commerce. Instead,
the district court treated the statute as a "direct" regulation
of interstate commerce.
CCC argues, and the district court agreed, that
imposing the NJFPA upon a multistate contract is per se invalid
because it has the practical effect of regulating
extraterritorially.17 The Supreme Court has noted on more than
one occasion that "the Commerce Clause precludes the application
of a state statute to commerce that takes place wholly outside of
the State's borders, whether or not the commerce has effects
within the State," and that the "critical inquiry is whether the
practical effect of the regulation is to control conduct beyond
the boundaries of the State." Healy, 491 U.S. at 336 (quotation
and citations omitted); see also
Brown-Forman, 476 U.S. at 582
("Forcing a merchant to seek regulatory approval in one State
before undertaking a transaction in another directly regulates
interstate commerce."); Edgar v. MITE Corp., 457 U.S. 624, 643
(1982) ("[A]ny attempt 'directly' to assert extraterritorial
jurisdiction over persons or property would offend sister States
and exceed the inherent limits of the State's power." (quotation
17
. At least one commentator has suggested that
"extraterritoriality is not a dormant commerce clause problem"
but acknowledges that the "[Supreme] Court has frequently treated
extraterritorially, when it has arisen in the context of a
dormant commerce clause case, as if it were a dormant commerce
clause problem." Donald H. Regan, Siamese Essays: (I) CTS Corp.
v. Dynamics Corp. of America and Dormant Commerce Clause
Doctrine; (II) Extraterritorial State Legislation, 85 Mich. L.
Rev. 1865, 1873 (1987).
and citation omitted)); Baldwin v. G.A.F. Seelig, Inc.,
294 U.S.
511, 521 (1935) ("New York has no power to project its
legislation into Vermont by regulating the price to be paid in
that state for milk acquired there."); see also Old Bridge
Chems., Inc. v. New Jersey Dep't of Envtl. Protection, 965 F.2d
1287, 1293 (3d Cir.) ("The Supreme Court has invalidated state
statutes where a state has 'projected' its legislation into other
states and directly regulated commerce therein, thereby either
forcing individuals to abandon commerce in other states or
forcing other states to alter their regulations to conform with
the conflicting legislation."), cert. denied, 113 S. Ct. 602
(1992).
The fact that application of the NJFPA is triggered by
in-state activity does not in itself insulate it from scrutiny
under the dormant Commerce Clause, for not all in-state activity
is sufficient to justify a law which regulates out-of-state
transactions of an interstate actor. Compare Brown-Forman, 476
U.S. at 580 ("The mere fact that the effects of New York's ABC
Law are triggered only by sales of liquor within the State of New
York . . . does not validate the law if it regulates the out-of-
state transactions of distillers who sell in-state.") and MITE,
457 U.S. at 641-42 (fact that corporation has some contacts with
Illinois insufficient to permit Illinois to regulate its
takeovers) with
CTS, 481 U.S. at 93 (fact that corporation was
incorporated in Indiana and has a substantial number of Indiana
shareholders sufficient to permit Indiana to regulate its
takeovers).
On the other hand, it is inevitable that a state's law,
whether statutory or common law, will have extraterritorial
effects. The Supreme Court has never suggested that the dormant
Commerce Clause requires Balkanization, with each state's law
stopping at the border. See Donald H. Regan, Siamese Essays: (I)
CTS Corp. v. Dynamics Corp. of America and Dormant Commerce
Clause Doctrine; (II) Extraterritorial State Legislation, 85
Mich. L. Rev. 1865, 1878 (1987) ("prohibition [of all state laws
that have substantial extraterritorial effects] would invalidate
much too much legislation."). In traditional contract
litigation, courts must apply some state's law to interpret the
contract. While a contract which covers multiple states may
raise a difficult choice-of-law question, once that question is
resolved there is nothing untoward about applying one state's law
to the entire contract, even if it requires applying that state's
law to activities outside the state.
CCC does not dispute this, but attempts to distinguish
the NJFPA, a "state regulation," from an ordinary state contract
rule. We see no basis for any such dichotomy. The construction
of a contract, including the interpretive policies embodied in
common law and statutory enactments, is no more or less
regulatory than the NJFPA, which imposes on franchises governed
by New Jersey law certain provisions designed to promote fairness
between the parties.
This is not to say that New Jersey would have a right
to apply the NJFPA to any franchise agreement in the country, as
long as suit is brought in New Jersey. But nothing in the text
of the NJFPA reaches that far. Indeed, the New Jersey Supreme
Court noted that "[b]y definition, the Act, and particularly its
community-of-interest requirement, is intended to protect
business parties who made a franchise-specific capital investment
of either goods or services in New Jersey. Thus the statute's
own terms . . . will allow the application of the Act only in
situations in which there are 'contacts' with the forum [and]
'interests' arising out of those contacts." ISI III, 614 A.2d at
148 (citation omitted); see also N.J. Stat. Ann. § 56:10-4 (West
1989 & Supp. 1994) (statute limits itself to franchises "the
performance of which contemplates or requires the franchisee to
establish or maintain a place of business within the State of New
Jersey"). Furthermore, under generally accepted choice-of-law
analysis, the courts measure whether New Jersey has sufficient
interests with the franchise as to make it appropriate to apply
the NJFPA.
In this case the record is clear that it was the
parties, not New Jersey, who contemplated that the franchisee
maintain a place of business in New Jersey. And it was the
parties, not New Jersey, who bound themselves to an exclusive
multistate distribution agreement. Therefore, it is the parties'
own agreement which operated to project the New Jersey law
outside of New Jersey's borders, a result which CCC will find
ironic but which inevitably follows from the choice-of-law
analysis.
This factor distinguishes this situation from the cases
relied on by the district court. In those cases, the state laws
that were held to burden interstate commerce operated independent
of any party's agreement. In Healy and Brown-Forman, the states
enacted price-affirmation statutes for beer and liquor, requiring
suppliers to affirm that their prices in-state were no higher
than the lowest price they would charge for their product in
border states. These laws were designed in such a way that a
supplier's price in other states would be dependent on the prices
it posted in the state enacting the regulation. However, in
these cases it was the state, operating independently of any
parties' contract, which dictated the extraterritorial effect.
As noted, the situation here is distinguishable.
Of course, if the parties were subject to "inconsistent
legislation" from different states, a law's "practical effect"
might lead to a Commerce Clause violation. See, e.g., Healy, 491
U.S. at 336-37;
CTS, 481 U.S. at 88-89;
Brown-Forman, 476 U.S. at
582-83;
MITE, 457 U.S. at 642-43. On the other hand, state laws
which merely create additional, but not irreconcilable,
obligations are not considered to be "inconsistent" for this
purpose. See Buzzard v. Roadrunner Trucking,
966 F.2d 777, 784
n.9 (3d Cir. 1992).
In this case, there is no indication that any other
state will impose demands on ISI or CCC which would require them
to violate New Jersey law or vice versa. And while the laws of
other states might permit CCC to conduct its franchise
relationship with ISI under a different framework than that
imposed by the NJFPA, that difference in approach by different
states is not sufficient to require per se invalidation. See Old
Bridge Chems., 965 F.2d at 1293 (must show "actual conflict among
state regulations" in order to demonstrate per se invalidity).
Thus the essence of CCC's objection, despite its
assurance to the contrary, goes to New Jersey's decision on
choice of law. Having accepted that decision, as we must, we see
no facial conflict between the NJFPA and the dormant Commerce
Clause.
2.
Pike Balancing
Because the district court decided the NJFPA was per se
invalid, it never considered whether the NJFPA passes the
balancing test enunciated in Pike v. Bruce Church, Inc., 397 U.S.
137 (1970). The Supreme Court has explained that where the
statute addresses 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."
Id. at
142.18
Inasmuch as the parties argued the Pike balancing test
in the district court and before us, we will consider whether,
18
. The Supreme Court has continued to recite, even if it has
not applied, the Pike test as late as its last term, see C & A
Carbone, Inc. v. Town of Clarkstown, 114 S. Ct. 1677, 1681
(1994); Oregon Waste Sys., Inc. v. Department of Envtl. Quality,
114 S. Ct. 1345, 1350 (1994), notwithstanding criticism of the
Pike balancing by members of the Supreme Court, see, e.g.,
CTS,
481 U.S. at 95-96 (Scalia, J., concurring) and commentators, see
Donald H. Regan, The Supreme Court and State Protectionism:
Making Sense of the Dormant Commerce Clause,
84 Mich. L. Rev.
1091, 1106-08 (1986).
again looking at the NJFPA from a facial standpoint only, it
fails to meet requisite balancing. In doing so we do not balance
one state's interests against another, as ISI suggests we should,
but rather we balance the state's interest against the burden on
interstate commerce. See
MITE, 457 U.S. at 643; Aldens, Inc. v.
Packel,
524 F.2d 38, 45-50 (3d Cir. 1975), cert. denied,
425 U.S.
943 (1976).
Furthermore, contrary to CCC's argument, we do not look
at the effect of the state regulation on the commerce of other
states when we balance. Instead, "[u]nder this court's
precedent, the only incidental burdens on interstate commerce
that implicate the commerce clause . . . are those that
discriminate against interstate commerce. We have so held
because the commerce clause is concerned with protectionism and
the need for uniformity, and case law demonstrates that
legislation will not be invalidated under the Pike test unless it
imposes discriminatory burdens on interstate commerce. . . .
Thus, where the burden on out-of-state interests rises no higher
than that placed on competing in-state interests, it is a burden
on commerce rather than a burden on interstate commerce." Old
Bridge Chems., 965 F.2d at 1295 (citations omitted, first
emphasis added); see also J. Filiberto Sanitation, Inc. v. New
Jersey Dep't of Envtl. Protection,
857 F.2d 913, 922 (3d Cir.
1988); Norfolk Southern Corp. v. Oberly,
822 F.2d 388, 406 (3d
Cir. 1987).
As we explained in Ford Motor Co. v. Insurance Comm'r,
874 F.2d 926, 942-43 (3d Cir.), cert. denied,
493 U.S. 969
(1989), where we upheld a law prohibiting companies that were
affiliated with savings and loan institutions anywhere in the
country from selling insurance in Pennsylvania, the fact that a
law may have "devastating economic consequences" on a particular
interstate firm is not sufficient to rise to a Commerce Clause
burden.
Id. at 943. Instead, the inquiry requires that we
examine whether the state law adversely affects interstate
commerce. "[T]he focus [of the Supreme Court is on] . . . the
manner by which the statute regulated [and] . . . the fact that
the statute regulated indiscriminately compel[s] the conclusion
that the Commerce Clause [has] not been violated."
Id. at 944.
Applying this settled law, it is clear that there is no
burden on interstate commerce inasmuch as the NJFPA is facially
neutral as to the interstate nature of the parties' agreement.
CCC claims the NJFPA imposes a straitjacket on its operations and
ultimately harms consumers by prohibiting the creation of an
efficient distribution system. But even assuming this to be
true, it is indisputable that the statute simply does not
differentiate between in-state and out-of-state franchisors. The
limitation on termination of franchises to reasons of good cause
is equally applicable to New Jersey-based franchisors as to those
headquartered elsewhere. Thus, although the NJFPA may burden
commerce, it creates no incidental burdens on interstate commerce
for purposes of Pike balancing. "Once it is clear no such
discrimination has been alleged, the inquiry as to the burden on
interstate commerce should end." J. Filiberto, 857 F.2d at 922
(quotations and citations omitted). In the absence of such a
burden, an analysis of the "putative local benefits" of the NJFPA
is unnecessary.19
In ISI's argument before this court, it expressly
limited itself to the district court's facial analysis. It thus
recognized that the New Jersey Supreme Court's holding did not
purport to consider whether the NJFPA might, when applied, have a
burdensome effect on interstate commerce. That issue, of course,
could not be resolved as a matter of law, and indeed might have
to await the interpretation given to the "good cause" provisions
of the NJFPA. Although the Commerce Clause analysis and the Due
Process analysis are distinct, see supra note 17, ISI's counsel
recognized that there might be due process implications to
certain interpretations of the NJFPA in the context of existing
contracts. That issue was not raised by CCC in its pleadings in
19
. Despite the district court's uncertainty about whether the
New Jersey court's choice-of-law analysis was binding, the court
applied New Jersey law when entering summary judgment for CCC on
Counts Two through Seven. We have reviewed ISI's objections to
the district court's reasoning and agree with the independent
state law grounds articulated by the court.
The district court also entered summary judgment for
CCC on the part of Count One which alleged that CCC "fail[ed] to
renew a franchise without good cause" under § 10-5 of the NJFPA.
See N.J. Stat. Ann. § 56:10-5 (West 1989). Both parties agree
that there may be changes in a franchise agreement that are so
significant that they amount to a constructive nonrenewal of the
franchise. In this case, however, the district court based its
holding that the 1989 Agreement was a "renewal" of the 1984
Agreement on its decision that the elimination of the territory
of eight states followed from the Commerce Clause. See ISI V,
supra, at 80 n.47. In light of our decision, we will reverse the
entry of summary judgment on this ground as well to allow the
district court to evaluate the nonrenewal claim anew.
this case,20 and we consider it as beyond the scope of this
appeal.
III.
CONCLUSION
For the foregoing reasons, we will deny the petitions
for writs of mandamus docketed at Nos. 93-5490 and 93-5635; in
the appeals docketed at Nos. 93-5414 and 94-5048, we will reverse
the district court's judgment declaring the NJFPA
unconstitutional as applied to activities of New Jersey
franchisees outside of New Jersey and remand for further
proceedings consistent with this opinion; and in the appeal
docketed at No. 93-5722, we will affirm the district court's
judgment for CCC on Counts Two through Seven, and reverse its
judgment for CCC on the nonrenewal portion of Count One and
remand for further proceedings consistent with this opinion.
Costs in Nos. 93-5490, 93-5635, 93-5414 and 94-5048 to be
assessed against CCC; costs in No. 93-5722 to be assessed against
ISI.
20
. The New Jersey Supreme Court's decision mentioned the due
process clause, but we did not understand it to make a definitive
ruling in that connection, and view that reference as part of its
general discussion on the interpretation of the NJFPA.
