STYCZINSKI LLC v. ARNOLD (2024)

ORDER ON SEVERABILITY

When a statute is unconstitutional, a Court may strike down the entire statute or strike only the unconstitutional portions, keeping the rest. The Eighth Circuit found Minnesota Statute Chapter 80G—Minnesota's bullion-dealer law—unconstitutional. The issue before this Court is whether to strike down the entire statute (Plaintiff's request) or only part of the statute (the Commissioner's request). Because Minnesota statutes are presumed severable, and Plaintiffs cannot overcome the presumption, this Court will strike only part of the statute.

BACKGROUND

I. This Court's Prior Order

This dispute comes to this Court on remand from the Eighth Circuit. Plaintiffs sued to challenge the constitutionality of Minnesota's bullion-dealer law, Minnesota Statute Chapter 80G. (ECF No. 1 (“Compl.”).) Plaintiffs’ challenge was on several grounds, including that Chapter 80G violates the dormant Commerce Clause because it is unconstitutionally extraterritorial, meaning that it regulates transactions outside Minnesota. (Id. ¶¶ 45–123.) Plaintiffs moved for summary judgment and the Commissioner moved to dismiss. (ECF Nos. 19, 26.)

This Court concluded that two sections of the statute—Section 80G.01, subdivision 3(b)(5) and Section 80G.07—violated the dormant Commerce Clause, but the remainder did not. (ECF No. 38 (“Order”) at 5–25.) It struck language in Section 80G.01, subdivision 3(b)(5) and severed Section 80G.07 from the valid provisions, thus upholding the rest of the statute. (Id. at 33.)

Plaintiffs appealed, arguing that this Court should have struck down the entire chapter as unconstitutional because additional provisions are unconstitutional, and those provisions are not severable. (ECF No. 56.)

II. Amended Chapter 80G

After this Court issued its decision, and before the Eighth Circuit decided the appeal, the Minnesota Legislature amended Chapter 80G. 2022 Minn. Sess. Law Serv. Ch. 75 (H.F. 4030). Chapter 80G as amended regulates “dealers” and their “Minnesota transactions.” Minn. Stat. § 80G.01, subdivs. 3, 5a. A “dealer” is “any person who buys, sells, solicits, or markets bullion products or investments in bullion products to consumers and conducts Minnesota transactions,” subject to a few exceptions not relevant to this dispute. Id. subdiv. 3. A “Minnesota transaction” is defined as:

a bullion product transaction conducted:

(1) by a dealer that is incorporated, registered, domiciled, or otherwise located in Minnesota;

(2) by a dealer representative at a location in Minnesota;

(3) between a dealer and a consumer who lives in Minnesota; or

(4) between a dealer and a Minnesota consumer when the transaction involves:

(i) delivering or shipping a bullion product to an address in Minnesota;

(ii) delivering to or shipping from a precious metal depository on behalf of a Minnesota resident; or

(iii) making payment to a consumer or receiving a payment from a consumer at an address in Minnesota, unless the transaction occurs when the consumer is at a business location outside of Minnesota.

Id. subdiv. 5a.

Plaintiffs argued to the Eighth Circuit that Minnesota Statutes Sections 80G.02, 80G.06, and 80G.07 as amended violate the dormant Commerce Clause. Under Section 80G.02, “It is unlawful for a dealer or dealer representative to conduct a Minnesota transaction without being registered by the commissioner.” Under Section 80.06, “Every dealer shall maintain a current, valid surety bond issued by a surety company admitted to do business in Minnesota in an amount based on the Minnesota transactions during the 12-month period prior to registration, or renewal, whichever is applicable.” Section 80.07 uses the new definition of “Minnesota transaction,” but it is otherwise no longer relevant to this dispute.

III. On Appeal

The Eighth Circuit held that Chapter 80G unconstitutionally exerts extraterritorial control. Styczinski v. Arnold, 46 F.4th 907 (8th Cir. 2022). Relying on Healy v. Beer Inst., Inc., the Eighth Circuit explained 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.’ ” Id. at 913. (citing Healy v. Beer Inst., Inc., 491 U.S. 324, 336 (1989) and Edgar v. MITE Corp., 457 U.S. 624, 642–43 (1982) (plurality opinion)).

The Eighth Circuit concluded that “Chapter 80G's registration scheme does exactly what Healy forbids—it applies Minnesota law to commerce wholly outside of Minnesota.” Id. Central to the Eighth Circuit's decision was the definition of “Minnesota transactions,” which, under the Legislature's definition, applies to transactions both inside and outside of Minnesota. Critically, it includes a bullion product transaction conducted “between a dealer and a consumer who lives in Minnesota.” Minn. Stat. § 80G.01, subdiv. 5a(3). A “dealer,” in turn, is generally defined as any person ¹ —including an out-of-state person—“who buys, sells, solicits, or markets bullion products or investments in bullion products to consumers and conducts Minnesota transactions.” Id. § 80G.01, subdiv. 3(a). So “a Minnesota transaction includes a transaction anywhere in the world between a bullion trader and a Minnesota resident.” Styczinski, 46 F.4th at 913. “A bullion trader could therefore become subject to and violate Minnesota law without conducting a single transaction in Minnesota.” Id.

The Eighth Circuit found Chapter 80G's application to in-state dealers equally problematic. The definition of “Minnesota transactions” also includes a bullion product transaction conducted “by a dealer that is incorporated, registered, domiciled, or otherwise located in Minnesota.” Minn. Stat. § 80G.01, subdiv. 5a(1). So “an in-state dealer conducting a bullion product transaction is always conducting a ‘Minnesota transaction,’ wherever the dealer might be.” Styczinski, 46 F.4th at 913. The Eighth Circuit concluded that this scheme also unconstitutionally controls wholly out-of-state commerce. Id. at 913–14.

Sections 80G.02 and 80G.06 include registration and surety bond requirements for “Minnesota transactions.” Because these sections require wholly out-of-state commerce to comply with Minnesota law, the Eighth Circuit held those sections unconstitutional. Id. at 914–15. It then remanded to this Court “to decide in the first instance whether the extraterritorial provisions of Chapter 80G, as amended, are severable from the remainder of the statute.” Id. at 915.

ANALYSIS

I. National Pork Producers v. Ross

After the Eighth Circuit remanded this case, the Supreme Court decided National Pork Producers v. Ross, 598 U.S. 356 (2023). There is a good argument that the entire statute is constitutional under the dormant Commerce Clause following National Pork Producers, given the Court's characterization of the dormant Commerce Clause jurisprudence and recharacterization of Healy, especially because Healy laid the foundation of Eighth Circuit extraterritoriality jurisprudence and the Eighth Circuit's decision here. This Court thus requested supplemental briefing on the issue.

In National Pork Producers, the Court explained that the “antidiscrimination principle lies at the ‘very core’ of our dormant Commerce Clause jurisprudence.” Id. at 369. The Court clarified that Healy—the same case on which the Eighth Circuit in this case relied for the proposition that states cannot regulate wholly out-of-state conduct—“typifies the familiar concern with preventing purposeful discrimination against out-of-state economic interests.” Id. at 371. The Court cabined Healy to price-control statutes that tied the price of in-state products to out-of-state prices. Id. at 374 (citing Healy, 491 U.S. at 338–39).

That is troubling here, where the Eighth Circuit explained that “Chapter 80G's registration scheme does exactly what Healy forbids—it applies Minnesota law to commerce wholly outside of Minnesota.” Styczinski, 46 F.4th at 913. Yet this Court need not decide whether Pork Producers changes the outcome, because the Eighth Circuit has given this Court a direct mandate. It has found the statute unconstitutional, leaving only one question for this Court—whether it is severable. When a remand is limited to resolving a specific issue, “those issues outside the scope of the remand are generally not available for consideration.” United States v. Walterman, 408 F.3d 1084, 1085 (8th Cir. 2005). While there is an exception for when a Supreme Court opinion casts the circuit opinion into doubt, United States v. Steward, 598 F.3d 960, 962 (8th Cir. 2010) (per curiam), several factors militate against doing so here.

First, on supplemental briefing, the parties agree to follow the mandate, and the Commissioner asserts that National Pork Producers does not alter the Eighth Circuit's remand. Second, the statute, as set forth below, is severable. And as severed, it is not dramatically different from the unsevered statute. Finally, the Supreme Court did not directly overturn Healy or reject extraterritoriality jurisprudence, and the intervening case law is distinguishable. National Pork Producers involved a law that regulated in-state sale of goods that resulted in indirect out-of-state effects; meanwhile, the law at issue here directly regulates out-of-state transactions. This undermines the intervening-change-in-law argument. Accordingly, this Court will turn from the Pork Producers question to the question of severability.

II. Severability

In Minnesota,² a statute is generally severable. Minn. Stat. § 645.20. It becomes non-severable only if: (1) the statute includes a provision saying it is not severable; (2) the valid and the void portions of the statute are so interconnected and dependent on each other that the Legislature would not have enacted the statute in its severed form; or (3) the valid provisions, by themselves, are “incomplete and are incapable of being executed in accordance with the legislative intent.” Id. Minnesota Statutes Chapter 80G does not contain a provision saying it is not severable, so this Court must decide whether the latter two conditions are met. As discussed below, they are not.

This Court will adopt the following proposed rewrite to Section 80G.01, subdivision 5a:³

“Minnesota transaction” means a bullion product transaction conducted:

(1) by a dealer that is incorporated, registered, domiciled, or otherwise located in Minnesota;

(2) by a dealer representative at a location in Minnesota;

(3) between a dealer and a consumer who lives in Minnesota; or

(4) between a dealer and a Minnesota consumer when the transaction involves:

(i) delivering or shipping a bullion product to an address in Minnesota;

(ii) delivering to or shipping from a precious metal depository on behalf of a Minnesota resident; or

(iii) making payment to a consumer or receiving a payment from a consumer at an address in Minnesota, unless the transaction occurs when the consumer is at a business location outside of Minnesota.4

(ECF No. 86 at 5.) By redefining Minnesota transactions to exclude transactions that are out of state and with no connection to the state, the other provisions of Chapter 80G, insofar as they apply to Minnesota transactions, will no longer be unconstitutionally extraterritorial.

Plaintiffs assert that the severed statute is still unconstitutionally extraterritorial, pointing to the last sentence of Section 80G.02, subdivision 1. That sentence reads: “A dealer representative may not buy, sell, solicit, or market bullion products or investments in bullion products on behalf of a dealer unless the dealer is properly registered with the commissioner under this section.” Plaintiffs argue that this sentence is not limited to “Minnesota transactions,” so the sentence regulates extraterritorially. This Court disagrees. Registration is required when a dealer or dealer representative “conduct a Minnesota transaction.” Minn. Stat. § 80G.02, subdiv. 1. So to be “properly registered” requires a Minnesota transaction. Accordingly, the provision is not extraterritorial. And if there was any doubt, there is a presumption that Minnesota statutes do not apply extraterritorially. Hull v. ConvergeOne, Inc., 570 F. Supp. 3d 681, 691 (D. Minn. 2021); In re Pratt, 18 N.W.2d 147, 153 (Minn. 1945). Thus, with the Commissioner's proposed rewrite, the statute no longer regulates extraterritorially.⁵

Having determined that the severed statute cures the extraterritorial defect, the next step is to determine whether the valid and the void portions of the statute are so interconnected and dependent on each other that the Legislature would not have enacted the statute in its severed form or whether the valid provisions, by themselves, are “incomplete and are incapable of being executed in accordance with the legislative intent.” Minn. Stat. § 645.20. Neither of those circumstances applies. The Legislature made clear in their amendments to Chapter 80G that they would prefer a cabined statute rather than an invalid statute. The Legislature tried to cure any constitutional defect by amending the statute in accordance with this Court's Order. The amendments themselves prove as such. This Court severed “in this state” from a portion of the statute, and the Legislature adopted that change in its amendments. This Court also found Section 80G.07 unconstitutional on extraterritoriality grounds and severed that section. The Legislature responded by cabining Section 80G.07 to Minnesota transactions, presumably to preclude extraterritorial reach (at this point, no court had found that Minnesota transactions apply to wholly out-of-state conduct).

Legislative history buttresses this Court's conclusion. Statements regarding the amendments centered on ensuring the statute is constitutional and complying with this Court's Order. See Hearing on S.F. 4345 Before S. Comm. On Com. & Consumer Prot. & Policy, 92 Leg. at 6:07–7:10 (Mar. 28, 2022) (statement of John Kelley, Minn. Dep't of Com. Gov't Affs. Dir.) (the goal of the amendment was to “follow the Court's instructions and get [the statute] Minnesota-specific”). While the Legislature was not successful in making the entire statute constitutional, their amendment makes clear that they would prefer the severed statute over no statute.

Plaintiffs make several counterarguments to the severed statute. First, Plaintiffs argue that the Eighth Circuit held Section 80G.02, subdivision 1, and Section 80G.06, subdivision 1, unconstitutional, so this Court must invalidate those portions of the statute. This argument is unpersuasive because the Eighth Circuit focused on the definition of Minnesota transactions, which applies to transactions outside the state. The Eighth Circuit held Chapter 80G unconstitutional to the extent that it imposes requirements on out-of-state transactions, so if the Commissioner's proposed rewrite precludes unconstitutional application, this Court sees no reason not to sever the statute accordingly.⁶

Second, Plaintiffs argue that the proposed rewrite creates ambiguity. For example, they argue that it is unclear what it means for a dealer to be “located” in Minnesota—it could mean a dealer that resides or is domiciled in Minnesota, even when physically present outside the state. Even if the rewrite creates ambiguity, it is nothing that courts cannot handle, especially because they are used to giving meaning to similar language. E.g., In re HarborView Mortg. Loan Tr. 2005-10, No. A18-0043, 2018 WL 4201211, at *6 (Sept. 4, 2018) (interpreting the meaning of “located in Minnesota”). Nor does this argument go to the key inquiry that this Court must engage in when analyzing severability—whether the Legislature would not have enacted the statute in its severed form because the statute is so interconnected and dependent on the invalid portions,⁷ or whether the valid portions can be executed in accordance with legislative intent.

Ultimately, courts have broad authority when it comes to severance, and the goal is to “effectuate the intent of the legislature had it known that a provision of the law was invalid.” State v. Melchert-Dinkel, 844 N.W.2d 13, 24 (Minn. 2014) (citation omitted). This Court presumes that “statutes are severable unless the Legislature has specifically stated otherwise.” Id. (citing Minn. Stat. § 645.20 (2018)). The Legislature confirmed with its amendments of Chapter 80G that it would prefer to sever the unconstitutional portions of the statute than strike down the entire statute. Accordingly, this Court will sever the unconstitutional portions, and keep the rest of the statute intact.

CONCLUSION

Based on the foregoing and on all the files, records, and proceedings herein, Plaintiffs’ Motion for Summary Judgment (ECF No. 19) is GRANTED IN PART and DENIED IN PART:

1. The words “incorporated, registered, domiciled, or otherwise” are stricken from Minnesota Statute Section 80G.01, subdivision 5a(1);

2. The words “who lives” are stricken from Minnesota Statute Section 80G.01, subdivision 5a(3);

3. The words “delivering to or shipping from a precious metal depository on behalf of a Minnesota resident;” are stricken from Minnesota Statute Section 80G.01, subdivision 5a(4)(i); and

4. The number “(iii)” and the words “at a business location” are stricken from Minnesota Statute Section 80G.01, subdivision 5a(4)(iii).

LET JUDGMENT BE ENTERED ACCORDINGLY.

FOOTNOTES

1.   There are exceptions that are not relevant here.

2.   The severability of a state statute is a matter of state law. Leavitt v. Jane L., 518 U.S. 137, 139 (1996).

3.   The Commissioner proposes three other rewrites, but this Court addresses only one because it is the Commissioner's preferred rewrite and retains the most of the statute's language. State v. Jorgenson, 934 N.W.2d 362, 373 (Minn. Ct. App. 2019) (Minnesota courts “attempt to retain as much of the original statute as possible while striking the portions that render the statute unconstitutional.”).

4.   This Court notes that “or” is in the wrong place. This apparent typographical error does not impact this Court's decision because (1) the placement of the “or” does not create ambiguity in interpreting the statute and (2) severing the statute does not amend the statute, instead any language this Court strikes will result in a note to the statute about unenforceability. See Minn. Revisor, Unconstitutional and Preempted Statutes, https://www.revisor.mn.gov/statutes/unconstitutional (last visited Mar. 29, 2024).

5.   Plaintiffs argue that the definition is still unconstitutional because it retains Section 80G.01, subsection (4)(i), and National Pork Producers explains that a state cannot prosecute acts “that are not ‘intended to produce [or that do not] produc[e] detrimental effects within it.’ ” 598 U.S. at 375–76 (alterations in original) (emphasis added). Plaintiffs argue that the shipments are not detrimental, nor are they intended to be, so Minnesota cannot regulate them. But this portion of National Pork Producers discusses territorial and sovereign boundaries, and the quoted language regards a state's jurisdiction. This Court will not entertain Plaintiffs’ attempt to litigate constitutionality under other doctrines when they already had the opportunity to do so before this Court and the Eighth Circuit. And the Eighth Circuit remanded to this Court “to decide in the first instance whether the extraterritorial provisions of Chapter 80G, as amended, are severable from the remainder of the statute.” 46 F.4th at 915. This Court will not exceed its mandate by analyzing other potential constitutional violations.

6.   Plaintiffs contend that if saving in-state applications were the correct remedy for Chapter 80G's extraterritoriality, the Eighth Circuit would have addressed their excessive-burden argument. Because it did not, Plaintiffs argue, the Eighth Circuit must have held the registration and surety-bond requirement themselves unconstitutional. This Court will not speculate about why the Eighth Circuit did not address Plaintiffs’ excessive-burden argument. This Court's duty is to follow the Eighth Circuit's mandate: “On remand, we leave to the district court to decide in the first instance whether the extraterritorial provisions of Chapter 80G, as amended, are severable from the remainder of the statute.” 46 F.4th at 915. Following the Eighth Circuit's mandate, because the rewrite cures the extraterritoriality, this Court may sever.

7.   Plaintiffs maintain that the valid and invalid portions are interconnected, looking to Cellco P'ship v. Hatch, 431 F.3d 1077, 1084 (8th Cir. 2005). There, the Eighth Circuit found the statute's main substantive provision unconstitutional. Id. Because that provision was central to the statute, the panel found it “difficult to presume that the legislature would have enacted the two remaining substantive provisions standing alone.” Id. That is distinguishable from the dispute before this Court; instead of severing a central substantive provision, here severing a portion of the definition of “Minnesota transaction” cures the constitutional defect. And legislative history makes it clear that the Legislature would have adopted the statute as severed.

Nancy E. Brasel, United States District Judge