Vizio, Inc. v. Klee

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

No. 3:15-cv-00929 (VAB)

UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT

March 31, 2016

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

TABLE OF CONTENTS

Page

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I. INTRODUCTION

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

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

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

II. FACTUAL BACKGROUND¹

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

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

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

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

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

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

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

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

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

The E-waste Law also imposes labeling requirements. "A manufacturer or retailer shall not sell or offer for sale a covered electronic device in the state unless it is labeled with the manufacturer's brand, and the label is permanently affixed and...