Ford Motor Co. v. Texas Department of Transportation

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_________________________________

No. 00-50750
_________________________________

FORD MOTOR COMPANY, a Delaware Corporation,

Plaintiff - Appellant,

v.

TEXAS DEPARTMENT OF TRANSPORTATION, MOTOR VEHICLE DIVISION, ET
AL.,

Defendants,

BRETT BRAY, individually and as Director, Chief Executive and
Administrative Officer of the Texas Department of Transportation,
Motor Vehicle Division,

Defendant - Appellee.

---------------------------------
Appeal from the United States District Court
for the Western District of Texas
---------------------------------
August 27, 2001

Before JONES, DEMOSS and BENAVIDES, Circuit Judges.

BENAVIDES, Circuit Judge:

This case involves Ford Motor Company’s (“Ford”) attempt to

market preowned vehicles in Texas via their internet site known

as The Showroom. On November 2, 1999, the Texas Motor Vehicle

Division (“the State”) filed an administrative complaint against

Ford with the Texas Motor Vehicle Board. In the complaint, the

State alleged that Ford violated the Texas Motor Vehicle

Commission Code (“the Code”), TEX. REV. CIV. STAT. art. 4413(36),
§§ 4.01, .06(a)(3), (6) & 5.02C(c), as well as TEX. TRANSP. CODE §

503.021, by selling used vehicles to Texas consumers without a

dealer’s license. Section 4.01(a) of the Code makes it unlawful

to “engage in business as, serve in the capacity of, or act as

a[n] [automobile] dealer . . . without first obtaining a

license.”1 Ford is ineligible under Texas law to receive a

license because § 5.02C(c) provides that:

(c) Except as provided by this section, a manufacturer or
distributor may not directly or indirectly:
(1) own an interest in a dealer or dealership;
(2) operate or control a dealer or dealership; or
(3) act in the capacity of a dealer.

In response to the State’s administrative complaint, Ford

filed suit in federal court alleging that § 5.02C(c) violates

Ford’s rights under the United States Constitution.

Specifically, (1) that § 5.02C(c) facially, or in practical

effect, violates the dormant Commerce Clause;2 (2) that §

5.02C(c), as applied to the Showroom, violates Ford’s First

Amendment right to free speech; (3) that § 5.02C(c) is

unconstitutionally vague; (4) that the State’s enforcement of §

5.02C(c) denied Ford equal protection under the law; and (5) that

Ford was denied due process in the Enforcement Action brought

1
Unless otherwise indicated, all section numbers refer to
those contained in TEX. REV. CIV. STAT. art. 4413(36).
2
Although there is no per se dormant Commerce Clause, we use
the term herein to generically refer to the Supreme Court’s
jurisprudence restricting the rights of the States to discriminate
against or burden interstate commerce.

2
pursuant to § 5.02C(c). The parties filed cross-motions for

summary judgment. The district court granted the State’s motion

for summary judgment as to all of Ford’s claims. Ford filed a

timely appeal with this Court.

We review grants of summary judgment de novo, guided by the

same Rule 56 standard as the district court. Fed.R.Civ.P. 56(c);

Stults v. Conoco, Inc., 76 F.3d 651, 654 (5th Cir. 1996).

Pursuant to Rule 56, a party may obtain summary judgment when

“the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that

the moving party is entitled to judgment as a matter of law.”

Fed.R.Civ.P. 56(c). On cross-motions for summary judgment, we

review each party’s motion independently, viewing the evidence

and inferences in the light most favorable to the nonmoving

party. Taylor v. Gregg, 36 F.3d 453, 455 (5th Cir. 1994).

Applying this standard, we find summary judgment appropriate

against all of Ford’s constitutional claims. Accordingly, the

judgment of the district court is AFFIRMED.

Facts

Through the Showroom, located at www.fordpreowned.com.,

customers in Houston, Atlanta, Boston, Washington D.C., New York,

and Newark are able to view an on-line selection of preowned Ford

3
vehicles. The vehicles available through Ford’s website were

originally leased by a Ford dealer to a consumer, sold or leased

by Ford to national car rental companies, or used as company

service vehicles by Ford employees. Ford does not otherwise

obtain used vehicles in order to re-sell them. Rather, the

Showroom is Ford’s attempt to create the most profitable market

to re-sell these vehicles. Interested customers, after placing a

$300 refundable deposit, may arrange to have a designated vehicle

sent to a local dealer in order that they may test-drive it.

Following their test-drive, the customer may then accept or

decline to purchase the vehicle at the “no-haggle” price

determined by Ford and listed on the website. Upon payment or

financing approval, Ford transfers title to the dealer, who, in

turn, transfers title to the customer.

Twenty-two dealers in the Houston metropolitan area joined

the program by signing Dealer Participation Agreements. The

Agreement prohibits dealers from selling the selected vehicle at

any price other than that set by Ford or charging the customer

any handling or documentary fees. The Agreement also prohibits

the dealer from attempting to interest the customer in any of the

dealer’s inventory until after the customer has declined to

purchase the Ford internet vehicle. These dealers were advised

through a letter sent by Carol Kent, the Director of the Texas

Department of Transportation, Enforcement Section, of Ford’s

alleged violation and that their participation in the program

4
constituted aiding and abetting a violation of the Code. They

were notified of potential administrative enforcement action if

they did not discontinue their participation.

Discussion

Ford argues that § 5.02C(c) of the Code violates the dormant

Commerce Clause because it discriminates against of out-of-state

interests. Alternatively, Ford contends that § 5.02C(c)

unconstitutionally burdens the flow of interstate commerce. The

Commerce Clause provides that “[t]he Congress shall have Power .

. . [t]o regulate Commerce . . . among the several States.” Art.

I, § 8, cl. 3. The Constitution thus specifically grants

Congress power to regulate interstate commerce. If state

regulation conflicts with federal law governing commerce, the

Supremacy Clause mandates that the state law be invalidated. In

matters not governed by federal legislation, “the Clause has long

been understood to have a ‘negative’ aspect that denies the

States the power unjustifiably to discriminate against or burden

the interstate flow of articles of commerce.” Oregon Waste

Systems, Inc. v. Department of Environmental Quality, 511 U.S.

93, 98, 114 S.Ct. 1345, 1349 (1994).

In reviewing state regulations on interstate commerce under

the dormant Commerce Clause, “the first step is to determine

whether it ‘regulates evenhandedly with only ‘incidental’ effects

5
on interstate commerce, or discriminates against interstate

commerce.’” Id. at 99 (quoting Hughes v. Oklahoma, 441 U.S. 322,

325-26, 99 S.Ct. 1727, 1731 (1979)). A statute discriminates

against interstate commerce when it provides for “differential

treatment of in-state and out-of-state economic interests that

benefits the former and burdens the latter.” Id. “If a

restriction on commerce is discriminatory, it is virtually per se

invalid.” Oregon Waste Sys., 511 U.S. at 99. On the other hand,

nondiscriminatory regulations are analyzed under the balancing

test established in Pike v. Bruce Church, Inc., whereby the

regulation is valid unless “the burden imposed on such commerce

is clearly excessive in relation to the putative local benefits.”

397 U.S. 137, 142, 90 S.Ct. 844, 847 (1970). Because of the wide

variation in scrutiny under the respective tests, this initial

inquiry is often dispositive of the underlying issue. And while

“there is no clear line separating the category of state

regulation that is virtually per se invalid under the Commerce

Clause, and the category subject to the Pike v. Bruce Church

balancing approach,” this case clearly falls on the Pike side of

the equation. Brown-Forman Distillers Corp. v. New York State

Liquor Auth., 476 U.S. 573, 579, 106 S.Ct. 2080, 2084 (1986).

The State’s purpose for enacting the Code is set forth in §

1.02, which provides:

The distribution and sale of new motor vehicles in this

6
 State vitally affects the general economy of the State and
the public interest and welfare of its citizens. It is the
policy of this State and the purpose of this Act to exercise
the State’s police power to insure a sound system of
distributing and selling new motor vehicles through
licensing and regulating the manufacturers, distributors,
and franchised dealers of those vehicles to provide for
compliance with manufacturer’s warranties, and to prevent
frauds, unfair practices, discrimination, impositions, and
other abuses of our citizens.

Specifically, with respect to the addition of § 5.02C(c), the

legislative history indicates the legislature’s intent to prevent

manufacturers from utilizing their superior market position to

compete against dealers in the retail car market. The

legislature’s concern was fueled by the recent opening of several

dealerships owned by manufacturers and the perceived detriment to

the public from vertical integration of the automobile market.

Ford argues that this isolation of Texas’ retail car market

impermissibly discriminates against out-of-state interests and

amounts to nothing more than economic protectionism.

Ford would have us interpret Oregon Waste Sys.’s basic

definition of discrimination – “differential treatment of in-

state and out-of-state economic interests that benefits the

former and burdens the latter” – to include all instances in

which a law, in effect, burdens some out-of-state interest while

benefitting some in-state interest. Certainly, a facially

neutral statute may be discriminatory because of its effect. See

Minnesota v. Clover Leaf Creamery Company, 449 U.S. 456, 471

n.15, 101 S.Ct. 715, (1981) (“A court may find a state law

7
constitutes ‘economic protectionism’ on proof of either

discriminatory effect, or of discriminatory purpose.” (citations

omitted)). However, beyond this point, Ford’s expansive

interpretation of discrimination is inconsistent with Supreme

Court precedent including Oregon Waste Sys. itself. The Court’s

jurisprudence finds discrimination only when a State

discriminates among similarly situated in-state and out-of-state

interests. Thus, in Oregon Waste Sys., the Court found facially

discriminatory an Oregon law that subjected out-of-state waste to

substantially higher fees than in-state waste. This critical

distinction is highlighted in the principal cases relied upon by

the parties.

The State relies heavily, and justifiably so, on Exxon Corp.

v. Maryland, 437 U.S. 117, 98 S.Ct. 2207 (1978). We find no

significant factual or legal distinction between Exxon and the

instant case. In Exxon, oil companies challenged the validity of

a Maryland statute prohibiting producers and refiners of

petroleum products from operating retail service stations within

Maryland. In the present case, Ford, an automobile manufacturer,

challenges the validity of a Texas statute prohibiting

manufacturers of automobiles from retailing automobiles within

Texas. The oil producers in Exxon presented Commerce Clause

challenges identical to those raised by Ford. The producers

argued that “the Maryland statute violate[d] the Commerce Clause

8
in three ways: (1) by discriminating against interstate commerce;

(2) by unduly burdening interstate commerce; and (3) by imposing

controls on a commercial activity of such an essentially

interstate character that it is not amendable to state

regulation.” Exxon, 437 U.S. at 125. The Court rejected each of

these claims. In so doing, the Court made clear that merely

because “the burden of a state regulation falls on some

interstate companies does not, by itself, establish a claim of

discrimination against interstate commerce.” Exxon, 437 U.S. at

126. Absent a facially discriminatory purpose, a State statute

or regulation is discriminatory when it provides for differential

treatment of similarly situated entities based upon their

contacts with the State or has the effect of providing a

competitive advantage to in-state interests vis-a-vis similarly

situated out-of-state interests.

Ford’s response is to characterize Exxon as an anomaly, born

solely of the Supreme Court’s reaction to the existing gas

crisis. In support of this contention, Ford cites Hunt v.

Washington Advertising Comm., 432 U.S. 333, 97 S.Ct. 2434 (1977)

and Lewis v. BT Invest. Managers, Inc., 447 U.S. 27, 100 S.Ct.

2009 (1980), two cases in which the Court found the contested

statutes discriminatory. Far from undermining the holding in

Exxon, these cases serve to punctuate why its holding controls

the outcome of this case.

9
 In Hunt, the Washington State Apple Advertising Commission,

which is comprised of Washington apple growers and dealers,

challenged a North Carolina statute that prohibited containers

from bearing any grade other than the applicable U.S. grade or

standard. Hunt, 432 U.S. at 335. The statute thus prohibited

the display of Washington State apple grades which had gained

nationwide acceptance among consumers. The Court held that the

law at issue was discriminatory because it raised the costs of

doing business in the local market, stripped away the economic

advantages for an out-of-state participant, and gave advantages

to local participants. Hunt, 432 U.S. at 350-52. Importantly,

the Court evaluated the discriminatory effect of these factors on

Washington apples growers and dealers as compared to North

Carolina apple growers and dealers. Hunt, 432 U.S. at 351-52.

In the same respect, the Court’s focus in Exxon was on the

discriminatory effect between in-state and out-of-state dealers,

not on discrimination between out-of-state producers and in-state

dealers. Exxon, 437 U.S. at 125-26. Hence, in analyzing whether

§ 5.02C(c) is discriminatory under the dormant Commerce Clause we

examine its effect on similarly situated business entities.

This critical basis of comparison was the focus of the

Court’s holding in Lewis v. BT Invest. Managers, Inc. At issue

in Lewis was a Florida Statute prohibiting out-of-state banks,

bank holding companies, and trust companies from owning or

10
controlling a business within the State that sells investment

advisory services. Lewis, 447 U.S. at 31-32. The Florida

statute placed no similar restriction on in-state banks, bank

holding companies, or trust companies offering investment

advisory services. The Court began its analysis of the Florida

statute by noting certain similarities between the statutes in

Exxon and Lewis: first, each statute discriminated against

vertical organization and second, each statute permitted certain

kinds of interstate competitors into the market while prohibiting

others. Lewis, 447 U.S. at 41. Section 5.02C(c) likewise

possesses both of these attributes. The significant point of

distinction, and why Exxon did not control in Lewis, was because:

Section 659.141(1) engages in an additional form of
discrimination that is highly significant for purposes of
Commerce Clause analysis. Under the Florida statute,
discrimination against affected business organization is not
evenhanded because only banks, bank holding companies, and
trust companies with principal operations outside of Florida
are prohibited from operating investment subsidiaries or
giving investment advice within the State. It follows that
§ 659.141(1) discriminates among affected business entities
[banks, bank holding companies, and trust companies]
according to the extent of their contacts with the local
economy. The absence of a similar discrimination between
interstate and local producer-refiners was a most critical
factor in Exxon.

Lewis, 447 U.S. at 42 (emphasis in original).

Ford has failed to show that, either facially or in

practical effect, § 5.02C(c) discriminates according to the

extent of a business entity’s contacts with the State. Section

5.02C(c) does not discriminate based on Ford’s contacts with the

11
State, but rather on the basis of Ford’s status as an automobile

manufacturer. It is irrelevant under § 5.02C(c) whether Ford, as

a manufacturer, is domiciled in Texas or Michigan. In either

circumstance, it is similarly prohibited from engaging in retail

automobile sales in Texas. See CTS Corp. v. Dynamics Corp. of

America, 481 U.S. 69, 87, 107 S.Ct. 1637 (1987) (upholding a

statute because “[i]t has the same effects . . . whether or not

the [entity] is a domiciliary or resident of [the State].”).

Ford points to the fact that Texas has no motor vehicle

manufacturers as evidence of the law’s discriminatory purpose and

effect. In actuality, under the Code’s broad definition of motor

vehicle, Texas manufacturers of motorboats and motorcycles are

considered motor vehicle manufacturers. See § 1.03(25).

Irrespective of this fact, the Court rejected a similar assertion

in Exxon, finding of no consequence that there were no Maryland

oil producers or refiners. Exxon, 437 U.S. at 125.

Moreover, § 5.02C(c) does not discriminate against

independent automobile dealers seeking to operate in Texas. The

section only prevents manufacturers, regardless of their

domicile, from entering the retail market. Consequently, §

5.02C(c) does not protect dealers from out-of-state competition,

it protects dealers from competition from manufacturers. Out-of-

state corporations, which are non-manufacturers, have the same

opportunity as in-state corporations to obtain a license and

12
operate a dealership in Texas. Thus, § 5.02C(c) does not

discriminate among in-state and out-of-state manufacturers, nor

does it discriminate among in-state and out-of-state dealers by

raising the costs of doing business in the local market,

stripping away the economic advantages for an out-of-state

participant, or giving advantages to local participants. The

absence of such discrimination, either facially or in practical

effect, removes § 5.02C(c) from the Supreme Court’s definition of

a discriminatory law.

The controlling question thus becomes whether, under Pike v.

Bruce Church, “the burden imposed on [interstate] commerce is

clearly excessive in relation to the putative local benefits.”

397 U.S. at 142. As evidence of the burden on commerce caused by

§ 5.02C(c), Ford extols the benefits of the Showroom to

consumers, Texas automobile dealers, and Ford itself. The

district court correctly ignored these alleged benefits, the

elimination of which is not a constitutional burden on commerce.

These arguments relate to the economic efficacy of the statute

and are misdirected to this Court. Exxon, 437 U.S. at 128 (“It

may be true that the consuming public will be injured . . . but .

. . that argument relates to the wisdom of the statute, not its

burden on commerce.”). Ford has also failed to demonstrate that

§5.02C(c) will burden commerce by inhibiting the flow of

interstate goods. The number of out-of-state vehicles retailed

13
in Texas will not decrease because of § 5.02C(c). Section

5.02C(c) merely requires that automobiles be retailed through

independent dealerships, rather than manufacturer-operated

dealerships. See Exxon, 437 U.S. at 127 (holding that the

Commerce Clause does not protect “the particular structure or

methods of operation in a retail market.”). However, even

assuming that § 5.02C(c) does create a burden on interstate

commerce, Ford has failed to establish that the burden is clearly

excessive in relation to the putative local benefits.

Ford initially posits that there are no legitimate state

interests to protect, so any burden is clearly excessive. Ford’s

argument is without merit. The State’s asserted purposes for

passing § 5.02C(c) – to prevent vertically integrated companies

from taking advantage of their incongruous market position and

“to prevent frauds, unfair practices, discrimination,

impositions, and other abuses of our citizens” – are legitimate

state interests. See Lewis, 447 U.S. at 43 (“Discouraging

economic concentrations and protecting the citizenry against

fraud are undoubtedly legitimate state interests.”).

Ford next argues that even if the State’s interests are

legitimate, § 5.02C(c) does not further these interests. In this

regard, Ford’s most compelling argument is that it does not

14
occupy a superior position in the preowned vehicle marketplace.3

Consistent with the use of the term “putative” in the Pike

balancing, this Court will not “second guess the empirical

judgment of lawmakers concerning the utility of legislation.”

CTS Corp., 481 U.S. at 92. As Justice Brennan explained in his

concurring opinion in Kassel v. Consolidated Freightways Corp.:

In determining those benefits, a court should focus
ultimately on the regulatory purposes identified by the
lawmakers and on the evidence before or available to them
that might have supported their judgment. Since the court
must confine its analysis to the purposes the lawmakers had
for maintaining the regulation, the only relevant evidence
concerns whether the lawmakers could rationally have
believed that the challenged regulation would foster those
purposes. It is not the function of the court to decide
whether in fact the regulation promotes its intended
purpose, so long as an examination of the evidence before or
available to the lawmaker indicates that the regulation is
not wholly irrational in light of its purposes.

450 U.S. 662, 680-81, 101 S.Ct. 1309 (citations omitted)

(emphasis in original). Irrespective of Ford’s or this Court’s

view of the law’s potential effect, there is certainly evidence

from which a reasonable legislator could believe § 5.02C(c) would

further the State’s legitimate interest in preventing

manufacturers from utilizing their superior market position to

3
Ford also argues that it is not competing against
independent dealers through the Showroom. Such a contention is
without merit. Ford seeks to have consumers purchase a vehicle
directly from Ford through its internet site rather than purchasing
a vehicle from the inventory on the dealer’s lot. In addition to
this obvious competition, the price Ford sets for its Showroom
vehicles will certainly effect the price of preowned vehicles sold
by independent dealers.

15
compete against dealers.4

Ford obtains a large volume of preowned vehicles that were

originally leased by a Ford dealer to a consumer, sold or leased

by Ford to national car rental companies, or used as company

service vehicles by Ford employees. These are not “used”

vehicles in the sense that they have been previously retailed to

a consumer.5 The vehicles are relatively new, Ford and Lincoln-

Mercury vehicles to which Ford never relinquished title.

Previously, Ford sold these vehicles through closed auctions to

its dealers. Ford now selects some of these vehicles and,

through the Showroom, retails the vehicles itself.6 With respect

4
As background on the relationship between automobile
manufacturers and dealers, at least as it existed in the late
1970’s, see excerpts from a congressional committee report cited by
the Supreme Court in New Motor Vehicle Bd. of California v. Orrin
W. Fox Co., 439 U.S. 96, 100 n.4 99 S.Ct. 403 (1978).

5
It appears that nothing in the Code would prohibit Ford from
selling such “used” vehicles to consumers. The Code only prohibits
a manufacturer from selling “new motor vehicles” – motor vehicles
which have not been the subject of a prior retail sale. See §
103(15) and (26).
6
Pervading Ford’s constitutional challenges is its insistence
that it is not technically selling automobiles to consumers since
it transfers title to the dealer who, in turn, transfers title to
the consumer. Regardless of the merit of this argument, it is not
relevant to Ford’s constitutional claims. It relates to Ford’s
alleged violation of § 5.02C(c), a question not before this Court
and appropriately left to the administrative law judge by the
district court. In its brief, Ford states that “[t]he district
court concluded that, because Ford ‘sold’ Showroom Vehicles
directly to consumers, Ford was ‘acting in the capacity of a
dealer’ in violation of § 5.02C(c)(3).” On the contrary, the
district court expressly declined “to determine whether Ford’s
conduct violate[d] the Code as this determination is best made by

16
to these vehicles, Ford seems to remain in a superior market

position to its dealers. At least, the evidence is not so one-

sided as to lead this Court to believe that the proffered state

interests are an excuse to discriminate against or burden

interstate commerce for the benefit of local industry. Ford has

thus failed to carry its burden of proving that “the burden

imposed on such commerce is clearly excessive in relation to the

putative local benefits.”

Finally, Ford asserts, as did the oil producers in Exxon,

that the need for nationwide uniformity outweighs the State’s

interests in regulating. Here, Ford does not rely on the

nationwide market for the automobile, but instead on the role of

the internet and so-called e-commerce. For this proposition, it

cites American Libraries Assoc. v. Pataki, 969 F. Supp. 160

(S.D.N.Y. 1997). The challenged statute in Pataki sought to

prohibit the knowing dissemination, via the internet, of sexual

depictions or communications to a minor. Id. at 963. One of the

bases on which the district court ruled the Act unconstitutional

the administrative law judge.” Ford Motor Co. v. Texas Dept. of
Trans., 106 F.2d Supp. 905, 913-14 (W.D. Tex. 2000). At the time
the briefs were filed in this case, the administrative law judge
had submitted her Proposal for Decision to the Motor Vehicles
Board. The ruling is a recommendation to the Board, which then
renders a final decision. A party is entitled to judicial review
of any final board action in a District Court of Travis County,
Texas. See Section 7.01(a). Any ruling by this Court on whether
Ford violated the Code would improperly preempt established
administrative procedures.

17
was that the internet falls among those types of commerce that

“demand consistent treatment and are therefore susceptible to

regulation only on a national level.” Id. at 181. When

considering laws that directly regulate internet activities, this

alleged need for uniformity may well prevail. However,

application of this principle in circumstances like the instant

case would lead to absurd results. It would allow corporations

or individuals to circumvent otherwise constitutional state laws

and regulations simply by connecting the transaction to the

internet. Section 5.02C(c) serves as a prohibition on all forms

of marketing and sales by manufacturers, not just those conducted

via the internet. In the absence of Congressional legislation, §

5.02C(c)’s incidental regulation of internet activities does not

violate the Commerce Clause.

Ford’s second challenge is that § 5.02C(c), as applied to

the Showroom, violates its First Amendment right to speech. The

advertising and information on Ford’s website constitutes

commercial speech. “The First Amendment, as applied to the

States through the Fourteenth Amendment, protects commercial

speech from unwarranted governmental regulation.” Central Hudson

Gas & Elec. Corp. v. Public Service Comm. of New York, 447 U.S.

557, 561 100 S.Ct. 2343, 2349 (1980) (citing Virginia Pharmacy

Board v. Virginia Citizens Consumer Council, 425 U.S. 748, 761-

18
62, 96 S.Ct. 1817, 1825 (1976)). Commercial speech is, however,

afforded lesser protection under the Constitution than other

forms of expression. See Florida Bar v. Went For It, Inc., 515

U.S. 618, 623, 115 S.Ct. 2371, 2375 (1995) (“Commercial speech

enjoys a limited measure of protection, commensurate with its

subordinate position in the scale of First Amendment values, and

is subject to modes of regulation that might be impermissible in

the realm of noncommercial expression.”). This Court analyzes

commercial speech cases under Central Hudson’s four-part

framework:

At the outset, we must determine whether the expression is
protected by the First Amendment. For commercial speech to
come within that provision, it at least must concern lawful
activity and not be misleading. Next, we ask whether the
asserted governmental interest is substantial. If both
inquiries yield positive answers, we must determine whether
the regulation directly advances the governmental interest
asserted, and whether it is not more extensive than is
necessary to serve that interest.

Dunagin v. City of Oxford, Miss., 718 F.2d 738, 746-47 (5th Cir.

1983) (en banc) (quoting Central Hudson, 447 U.S. at 566). The

first step is thus to determine whether the speech involved in

this case concerns a lawful activity. The State does not contest

that the information on Ford’s website is truthful and not

misleading.

Ford argues that in order for the commercial speech to be

unlawful, it must be inherently unlawful or otherwise prohibited

by some law independent from § 5.02C(c). Specifically, Ford

19
reasons that “[t]he proper analysis under Central Hudson’s first

prong is to determine whether some valid law, besides the

challenged law, made the speech unlawful. If this were not true,

then the challenged state law would always trump the First

Amendment because one’s speech would always be ‘unlawful’ under

the challenged law.” While superficially appealing, the flaw in

Ford’s logic becomes apparent upon consideration of its

underlying assumptions and established Supreme Court precedent.

Section 5.02C(c) prohibits manufacturers from retailing

motor vehicles to consumers. An accompanying result of this

prohibition is that Ford is not allowed to advertise the sale of

motor vehicles to consumers. The Supreme Court has made clear

that “[a]ny First Amendment interest which might be served by

advertising an ordinary commercial proposal and which might

arguably outweigh the governmental interest supporting the

regulation is altogether absent when the commercial activity

itself is illegal and the restriction on advertising is

incidental to a valid limitation on economic activity.”

Pittsburgh Press Co. v. Pittsburgh Commission on Human Relations,

413 U.S. 376, 389, 93 S.Ct. 2553, 2561 (1973). In the present

case, the restriction on Ford’s ability to advertise on their

website is only incidental to § 5.02C(c)’s prohibition on Ford’s

right to engage in the economic activity of retailing

20
automobiles.7 In contrast, if § 5.02C(c) prohibited advertising

the sale of motor vehicles by licensed dealers, a commercial

activity lawful in Texas, the regulation would invoke the

protections of the First Amendment and be subjected to the

intermediate scrutiny outlined in Hudson.

Typically, when an individual or corporation challenges an

economic regulation under the Due Process or Equal Protection

Clause, a State has the minimal burden of showing that the law

has a rational basis. Under Ford’s reasoning, a petitioner could

bootstrap themselves into the heightened scrutiny of the First

Amendment simply by infusing the prohibited conduct with some

7
In this case, Ford is not really challenging the prohibition
on advertising through its website, it is challenging its ability
to retail automobiles in Texas. Therefore, it is Ford’s burden to
prove that § 5.02C(c) is not a valid limitation on economic
activity; it is not the State’s burden to show another law under
which the economic activity is prohibited. See Pittsburgh Press,
413 U.S. at 388 (“Discrimination in employment is not only a
commercial activity, it is illegal commercial activity under the
Ordinance.”) (emphasis added). The federal district court for the
Southern District of Texas expounded this principle in response to
a similar First Amendment challenge to § 5.03 of the Code – Texas’
Anti-Brokering Statute. The district court explained that “[t]he
statute is aimed at regulating the business of brokering, not the
speech of brokers. The statute does not proscribe what a broker
may or may not say – it makes the business of brokering unlawful,
and thus makes any conduct or speech made in furtherance of
brokering unlawful. . . . If the State may constitutionally
prohibit an activity, it may also prohibit commercial speech
relating to that activity. In the instant case, if the State’s
regulation of new vehicle brokering is otherwise constitutional,
then the resulting restriction on commercial speech of those not
permitted to broker new vehicles will not render the same statute
unconstitutional.” Automaxx, Inc. v. Morales, 906 F.Supp. 394, 402
& n.6 (S.D. Tex. 1995).

21
element of speech. Petitioners in Giboney v. Empire Storage &

Ice Co., 336 U.S. 490, 69 S.Ct. 684 (1949), attempted to lead the

Supreme Court down the same erroneous path suggested by Ford. In

Giboney, the petitioners were Union members who sought to picket

outside of their employer’s place of business. Id. at 492.

Their picketing was in protest of a company agreement to purchase

ice from non-union peddlers. Id. A state court enjoined the

picketers pursuant to Missouri law, which prevented unreasonable

interferences with trade. Id. at 493. After concluding that the

challenged State law was within the power of the State, the

Supreme Court rejected the picketers’ contention that the

injunction was an unconstitutional abridgement of free speech

because they were only disseminating truthful facts. Id. The

Court found that the speech was part of an integrated course of

conduct “which was in violation of Missouri’s valid law.” Id.

Furthermore, that “it has never been deemed an abridgement of

freedom of speech or press to make a course of conduct illegal

merely because the conduct was in part initiated, evidenced, or

carried out by means of language, either spoken, written, or

printed. . . . Such an expansive interpretation of the

constitutional guaranties of speech and press would make it

practically impossible ever to enforce laws against agreements in

restraint of trade as well as many other agreements and

conspiracies deemed injurious to society.” Id. at 502; see also

22
Ohralik v. Ohio State Bar Assoc., 436 U.S. 447, 456, 98 S.Ct.

1912, 1918 (1978).

The Court’s reasoning in Giboney applies to Ford’s

advertisement, via the internet, of preowned motor vehicles.

That advertisement, while of truthful facts, is part of an

integrated course of conduct which violates Texas law – retailing

motor vehicles without a license. Ford’s speech does not concern

a lawful activity and any restriction on Ford’s commercial speech

is only incidental to the State’s prohibition on Ford’s ability

to retail motor vehicles. Thus, we need not progress further in

the Central Hudson analysis in order to reject Ford’s First

Amendment claim.

Section 5.02C(c) provides that a manufacturer may not

directly or indirectly, operate or control a dealer or act in the

capacity of a dealer. In its administrative complaint, the State

alleged that Ford, through the operation of the Showroom, acted

in the capacity of a dealer. Ford counters that § 5.02C(c) is

unconstitutionally vague and does not provide it fair notice of

what conduct constitutes “operating or controlling a dealer” or

“acting in the capacity of a dealer.” In this regard, Ford

correctly notes that neither of these phrases are defined in the

Code. The term “dealer” is, however. Additionally, during her

deposition, Carol Kent, the Director of the Texas Department of

23
Transportation, Enforcement Section, indicated that if a company

had any questions regarding whether their conduct violated the

Code, they could contact the Motor Vehicle Division. Ford

attacks this position as unreasonable.

Under this Court’s precedent, the appropriate test for a

vagueness challenge depends on whether the statute at issue is

civil or criminal. For criminal statutes “[w]e employ the

two-part void-for-vagueness test described in City of Chicago v.

Morales”:

Vagueness may invalidate a criminal law for either of two
independent reasons. First, it may fail to provide the kind
of notice that will enable ordinary people to understand
what conduct it prohibits; second, it may authorize and even
encourage arbitrary and discriminatory enforcement.

United States v. Escalante, 239 F.3d 678, 680 (5th Cir. 2001)

(quoting 527 U.S. at 56). A less stringent standard is applied

to civil statutes that regulate economic activity. See Village

of Hoffman Estates v. Flipside Hoffman Estates, Inc., 455 U.S.

489, 495, 102 S.Ct. 1186, 1191 (1982) (“[E]conomic regulation is

subject to a less strict vagueness test”). An economic

regulation is invalidated “only if it commands compliance in

terms ‘so vague and indefinite as really to be no rule or

standard at all’ . . . or if it is ‘substantially

incomprehensible.’” United States v. Clinical Leasing Services,

Inc., 925 F.2d 120, 122 n.2 (5th Cir. 1991) (quoting A.B. Small

Co. v. American Sugar Refining Co., 267 U.S. 233, 239 (1925) and

24
Exxon Corp. v. Busbee, 644 F.2d 1030, 1033 (5th Cir. 1981)).

There is, however, a caveat to this general rule. Civil statutes

or regulations that contain quasi-criminal penalties may be

subject to the more stringent review afforded criminal statutes.

The Supreme Court applied the more stringent standard in

reviewing an ordinance that required stores to obtain a license

to sell “any items, effect, paraphernalia, accessory or thing

which is designed or marketed for use with illegal cannabis or

drugs . . . .” Hoffman, 455 U.S. at 500. Customers that

purchased such goods were forced to sign their names and

addresses to a register that would be available to police. Id.

at 500 n.16. The Court concluded that, while the statute

nominally imposed civil penalties, its prohibitory and

stigmatizing effect warranted quasi-criminal treatment. Id. at

489.

In United States v. Clinical Leasing Service, Inc., 925 F.2d

120, 122 (5th Cir. 1991), this Court reviewed a federal statute

prescribing civil penalties for “[a]ny party who distributes or

authorizes the distribution of controlled substances without

adequate registration.” Although the statute authorized civil

penalties, this Court determined that “its prohibitory effect is

quasi-criminal and warrants a relatively strict test.” Id. As

such, the statute was required to define the offense “‘with

sufficient definiteness that ordinary people can understand what

25
conduct is prohibited and in a manner that does not encourage

arbitrary and discriminatory enforcement.’” Id. (citing Kolender

v. Lawson, 461 U.S. 352, 357, 103 S.Ct. 1855, 1858 (1983)).

Similarly, this Court found that where a statute permits

“potentially significant civil and administrative penalties,

including fines and license revocation,” quasi-criminal treatment

is appropriate and thus the more strict standard of review

applies. Woman’s Medical Center of Northwest Houston v. Bell,

2001 WL 370053 (5th Cir. 2001). In the present case, the Code

only provides for civil monetary damages in the event of a

violation. And while the potential fines are substantial,8 no

prohibitory effect or quasi-criminal penalties are associated

with a violation of the Code. Thus, Ford must show that §

5.02C(c) is vague, “not in the sense that it requires a person to

conform to an imprecise, but comprehensible normative standard,

but rather in the sense that no standard of conduct is specified

at all.” Ferguson v. Estelle, 718 F.2d 730, 735 (5th Cir. 1983)

(quoting Coates v. Cincinnati, 402 U.S. 611, 614, 91 S.Ct. 1686

(1971)).

The Motor Vehicle Code provides that for purposes of § 5.02

“dealer” means “franchised dealer.” Therefore, in deciding

whether § 5.02C(c) provides a comprehensible standard for “acting

8
Indeed, the administrative law judge submitted her Proposal
for Decision to the Motor Vehicles Board recommending a civil
penalty of approximately $ 1.7 million.

26
in the capacity of a dealer,” this Court must first look to the

definition of a franchised dealer. A franchised dealer is “any

person . . . who is engaged in the business of buying, selling,

or exchanging new motor vehicles and servicing or repairing motor

vehicles . . . .”9 Section 1.03(15). A new motor vehicle means

“a motor vehicle which has not been the subject of a ‘retail

sale’ without regard to the mileage of the vehicle.” Section

1.03(26). A retail sale means “the sale of a motor vehicle

except a sale in which the purchaser acquires a vehicle for the

purpose of resale.” Section 1.03(32). Ford argues that, based

on the definitions in § 1.03, it did not technically engage in a

retail sale because it sold the automobile to the dealer who then

sold it to the customer. Because the purchaser, the dealer,

purchased the vehicle for the purpose of resale, the transaction

is excepted from the definition of a retail sale. Or, in any

event, they could not know if such an arrangement was prohibited

by § 5.02C(c).

Ford essentially argues that § 5.02C(c) is vague because

9
The full text of § 1.03(15) provides:

“Franchised dealer” means any person who holds a franchised
motor vehicle dealer’s general distinguishing number issued by
the Department pursuant to the terms of Chapter 503,
Transportation Code, and who is engaged in the business of
buying, selling, or exchanging new motor vehicles and
servicing or repairing motor vehicles pursuant to the terms of
a franchise and a manufacturer’s warranty at an established
and permanent place of business pursuant to a franchise in
effect with a manufacturer or distributor.

27
Ford was unsure whether its operation of the Showroom constituted

acting the capacity of a dealer. Ford’s argument misapprehends

the basic purpose behind prohibiting vague statutes. Vague

statutes violate due process, because laws must “give the person

of ordinary intelligence a reasonable opportunity to know what is

prohibited, so that he may act accordingly.” Grayned v. City of

Rockford, 408 U.S. 104, 108, 92 S.Ct. 2294, 2298 (1972). Ford

knew, that as a manufacturer, it was prohibited from selling

automobiles and it had fair notice that its conduct may violate §

5.02C(c).10 In drafting § 5.02C(c), the legislature probably

intended, permissibly so, to capture whatever creative conduct

could be imagined by manufacturers to circumvent the statute’s

intended prohibition. A statute is not unconstitutionally vague

merely because a company or an individual can raise uncertainty

about its application to the facts of their case. A statute is

unconstitutionally vague “only where no standard of conduct is

10
A brief review of the Showroom’s operation makes clear that
Ford’s activities implicate the prohibition on a manufacturer
acting in the capacity of a dealer. Ford directly operates the
Showroom through its website www.fordpreowned.com. Ford owns title
to the vehicles displayed on the site; controls which vehicles are
displayed on the site; controls what information is presented about
the vehicles; and sets the “no-haggle” price for each vehicle.
Consumers select a vehicle from the site and, for a $300 refundable
deposit, Ford delivers the vehicle to a local dealer for a test
drive. After the test drive, the consumer decides whether or not
to purchase the vehicle. Until the consumer clearly rejects the
Ford internet vehicle, the dealer cannot offer the consumer a
vehicle from the dealer’s inventory. If the consumer decides to
purchase the Ford internet vehicle, Ford transfers title to the
dealer, who then transfers title to the consumer.

28
outlined at all; when no core of prohibited activity is defined.”

Margaret S. v. Edwards, 794 F.2d 994, 997 (5th Cir. 1986).

The level of precision a statute must contain depends, in

part, upon the nature of the enactment. Clinical Leasing, 925

F.2d at 122. Broader proscriptions are permitted in economic

regulations because “businesses, which face economic demands to

plan behavior carefully, can be expected to consult relevant

legislation in advance of action. Indeed, the regulated

enterprise may have the ability to clarify the meaning of the

regulation by its own inquiry, or by resort to an administrative

process.” Id. at 498. By making an inquiry in this case, Ford

could have obtained a pre-enforcement ruling on whether the

Showroom complied with Texas law. In fact, negotiations between

the State and General Motors allowed GM to become involved in

running a website in compliance with Texas law. Even absent an

administrative procedure, § 5.02C(c) is not unconstitutionally

vague. Section 5.02C(c) provides a comprehensible standard of

the proscribed conduct – acting in the capacity of a dealer. The

phrase “in the capacity of a dealer” is naturally read to include

those activities performed by a licensed dealer. The Code

defines exactly what activities are performed by a dealer –

buying, selling, or exchanging motor vehicles. See Escalante,

239 F.3d at 680 (upholding a Mississippi statute prohibiting

careless and imprudent driving). Thus, it is clear under §

29
5.02C(c) what conduct is proscribed. Accordingly, Ford’s

argument that § 5.02C(c) is unconstitutionally vague fails.

The Equal Protection Clause commands that no person shall be

denied equal protection of the law by any State. U.S. CONST.

amend. XIV, § 1. Ford alleges it was denied equal protection in

two respects: first, the State had no rational basis for

classifying manufacturers different than dealers; and second,

that no rational basis exists to justify differential treatment

between Ford’s Showroom and a similar website program named GM

DriverSite.

The equal protection guarantee applies to all government

actions which classify individuals for different benefits or

burdens under the law. See Labar v. Bennett, 365 F.2d 698, 723

(5th Cir. 1966) (“The equal protection clause prohibits a state

from making arbitrary and unreasonable classifications.”). “In

areas of social and economic policy, a statutory classification

that neither proceeds along suspect lines nor infringes

fundamental constitutional rights must be upheld against equal

protection challenge if there is any reasonably conceivable state

of facts that could provide a rational basis for the

classification.” FCC v. Beach Communications, Inc., 508 U.S.

307, 313, 113 S.Ct. 2096, 2101 (1993). Ford argues that there is

no rational basis for classifying manufacturers differently than

30
dealers because manufacturers do not have disproportionate power

in the preowned vehicle market. For the reasons discussed in the

dormant Commerce Clause analysis, we “have no hesitancy in

concluding that [§ 5.02C(c)] bears a reasonable relationship to

the State’s legitimate purpose in controlling the [automobile]

retail market . . . .” Exxon, 437 U.S. at 125.

Ford’s second claim is that the State violated the Equal

Protection Clause because it did not have a rational basis for

treating Ford differently than General Motors. “[T]he Equal

Protection Clause essentially directs that all persons similarly

situated be treated alike.” Wheeler v. Miller, 168 F.3d 241, 252

(5th Cir. 1999). Thus, “[i]t is clearly established that a state

violates the equal protection clause when it treats one set of

persons differently from others who are similarly situated.”11

Yates v. Stalder, 217 F.3d 332, 334 (5th Cir. 2000).

General Motors and Ford are both manufacturers and should be

similarly prohibited from entering the retail automobile market.

Nothing in this case indicates that differing restrictions have

been placed on the two companies. Ford argues that the State has

treated General Motors differently by allowing them to operate a

website retailing automobiles. Despite Ford’s attempt to

11
It is questionable, here, whether Ford’s claim even amounts
to the sort of discrimination prohibited by the Equal Protection
Clause. However, the Supreme Court has recognized that even a
“class of one” can present a challenge to discriminatory treatment.
Village of Willowbrook v. Olech, 120 S.Ct. 1073, 1074 (2000).

31
characterize the GM website as a mirror image of their own, there

are significant differences. First, General Motors contracted

with a third party, DeMontrond, to operate the website.12

DeMontrond is an independent dealer licensed to sell automobiles

in Texas. DeMontrond, unlike Ford’s situation, immediately

receives title to the automobile for sale on the website. If the

automobile is not sold, DeMontrond, not GM, is responsible for

finding an alternative means of selling the car. DeMontrond’s

internet price for the vehicle is established through the use of

a mutually developed pricing schedule. Ford, on the other hand,

has sole discretion to set the price for its vehicle. A price

which may influence the price of other preowned vehicles being

sold throughout the State. While there are certainly

similarities between the two websites, the differences between

them are significant enough to justify the State’s position.

Ford has not shown any restriction placed upon their involvement

in the retail market that has not similarly been placed on GM.

Notably, there is no evidence that the State would not allow Ford

to maintain a website through similar ties to a third party

dealer. Ford’s equal protection challenge thus fails.

Due process requires “a fair trial in a fair tribunal.” In

12
GM apparently owns the hardware and software used to run the
site.

32
re Murchison, 349 U.S. 133, 136, 75 S.Ct. 623, 625 (1955). This

fundamental right applies equally to proceedings before an

administrative agency. Gibson v. Berryhill, 411 U.S. 564, 569,

93 S.Ct. 1689, 1693 (1973). Ford’s final claim is that it was

denied due process during its enforcement hearing. First,

because the outcome was predetermined and second, because Brett

Bray has an inherent conflict of interest in serving in his

several capacities within the Motor Vehicle Division.

Ford’s first claim that the outcome of the hearing was

predetermined is baseless. Carol Kent, the Director of the Texas

Department of Transportation, Enforcement Section, sent out a

letter advising dealerships that their participation in the

Showroom program violated state law. Perhaps improperly, the

letter stated that Ford was in violation of the Code, a

conclusion which should properly be left to the Board. Brett

Bray apparently “acquiesced” in this letter being sent out.

Because the letter definitively stated that Ford was in violation

of the Code, Ford contends that the outcome of the Enforcement

Action was predetermined before its hearing. Ford’s position

ignores the fact that the letter carries no weight in the later

proceedings nor does Kent’s opinion that the Code was violated.

Even Bray’s apparent acquiescence in the letter, and the opinion

stated therein, has no binding effect in the hearing before the

administrative law judge or the Board. Finally, as a general

33
matter, the pre-hearing opinion of an enforcement agent that a

defendant violated the law does not rise to the level of a

procedural due process violation.

In his position as Director of the Motor Vehicle Division,

Bray administers both Kent, who brought the Enforcement Action,

and the administrative law judge who presided over it. Ford

alleges that by serving in these multiple roles, Bray can

improperly influence the individuals involved and that the mere

possibility of impropriety inherent in this structure means it

cannot obtain a fair hearing. The Supreme Court has identified

several types of decision makers in which the mere probability of

bias renders them constitutionally unacceptable: (1) where the

decision maker has a pecuniary interest in the outcome of the

case; and (2) where an adjudicator has been the target of

personal abuse or criticism from the party before him. Withrow

v. Larkin, 421 U.S. 35, 47, 95 S.Ct. 1456, 1464 (5th Cir. 1975).

A third class of decision makers, the one at issue in the instant

case, are those that exercise both investigative and adjudicative

responsibilities. Id. With respect to this third class, “[t]he

movant must overcome two strong presumptions: (1) the presumption

of honesty and integrity of the adjudicators; and (2) the

presumption that those making decisions affecting the public are

doing so in the public interest.” Valley v. Rapides Parish

School Bd., 118 F.3d 1047, 1052-1053 (5th Cir. 1997); see also

34
Withrow, 421 U.S. at 55 (“Without a showing to the contrary,

state administrators ‘are assumed to be men of conscience and

intellectual discipline, capable of judging a particular

controversy fairly on the basis of its own circumstances.’”

(quoting United States v. Morgan, 313 U.S. 409, 421, 61 S.Ct.

999, 1004 (1941))). Even assuming that the administrative

structure of the Motor Vehicle Division places Bray in a position

to function both as an investigator and an adjudicator, Ford has

not offered any proof to overcome the presumption of fairness.

Without evidence of Bray’s improper influence, Ford’s due process

challenge fails.

Having reviewed and rejected Ford’s attacks on the judgment

of the district court, the same is AFFIRMED.

35
EDITH H. JONES, specially concurring:

I concur in Judge Benavides’s conscientious opinion, but

as to the negative commerce clause analysis, I do so only because

Exxon Corp. v. Maryland, 437 U.S. 117, 98 S.Ct. 2201 (1978), compels

this result. The Exxon case found no discrimination against

interstate commerce where a state statute prohibited competition with

local gasoline retailers by out-of-state companies at another level

of product distribution (refiners). Exxon seems woefully out of step

with the Court’s more recent cases. See, e.g., West Lynn Creamery,

Inc. v. Healy, 512 U.S. 186, 114 S.Ct. 2205 (1994). Texas’s outright

prohibition on retail competition from out-of-state auto

manufacturers is about as negative toward interstate commerce as

legislative action can get. If, as the Court says, its negative

commerce clause jurisprudence intends to prevent “economic

protectionism” of local businesses, 114 S.Ct. at 2217, and to stop

states from imposing higher (in this case prohibitive) costs on

products from out-of-state sources, 114 S.Ct. at 2213-14, then Ford’s

dealer-cooperative, consumer-friendly program ought not be stymied by

parochial state legislation. It should be obvious that the flow of

interstate goods is diminished when barriers to entry totally prevent

fair competition by a class of potential distributors: the favored

local distributors’ price and service incentives become less keenly

competitive, prices rise, and overall sales will decline from the

free-market equilibrium point. Since this Texas statute appears to

36
reflect a genre of state laws favoring local automobile dealers over

out-of-state manufacturers, perhaps the Supreme Court will give us

further guidance.

37