Bullion statute overturned

A Minnesota statute regarding bullion transactions has been ruled unconstitutional. On Aug. 31, the 8th U.S. Circuit Court of Appeals found that Minnesota Statute Chapter 80G violated the dormant Commerce Clause.

The statute in question was passed in 2013. Several fraud cases in the Twin Cities involving coin dealers primarily targeting elderly individuals—either selling counterfeit coins or taking money without providing the coins—spurred the passage of a coin dealer registration law.  The law was promoted as a way to protect consumers from these disreputable coin dealers.

Some dealers of coins and precious metals took issue with the new law, finding it restricted activities not just in Minnesota but outside of the state as well.

Chapter 80G regulates bullion dealers, which is anyone who buys, sells, solicits, or markets bullion products or investments in bullion products to consumers and conducts Minnesota transactions. According to the statute, dealers have to register with the state commerce commissioner within 45 days after conducting at least $25,000 in Minnesota transactions between July 1 and the following June 30 of any period of one year. They must also renew their registration annually. Those who do not register are guilty of a misdemeanor.

Additionally, dealers have to attain a surety bond. The amount of the bond is at minimum $25,000, but it is based on the amount of Minnesota transactions the dealer conducted the year before registration or renewal. Violation of the statute permits the commissioner to deny, suspend, revoke, or condition the dealer’s registration. If the commissioner prevails in a civil action, the court can freeze assets, order the commissioner to take the dealer’s property, or impose a civil penalty of up to $10,000 per violation.

This case was brought by both in-state and out-of-state precious metal traders. They asked the district court to deem Chapter 80G unconstitutional because it had an extraterritorial effect and excessively burdened interstate commerce. While the district court found part of the statute unconstitutional, it did not deem that the whole statute was unconstitutional, maintaining that the unconstitutional sections were severable from the valid provisions. Appellants argued, however, that the registration and surety bond requirement were also unconstitutional and inseverable from the rest of the statute.

Assistant Attorney General Allen Barr represented Commerce Commissioner Grace Arnold. “The law imposes minimal requirements. You have to pay a $25 registration fee and obtain a surety bond if you do more than $25,000 worth of sales and either buy or sell in Minnesota or your business is based in Minnesota,” Barr argued.

Erick Kaardal, who represented appellants, stated at oral arguments, “This case is not just about gold and silver, bars and coins, it’s about our federal system, stability, and the limits on state’s authority. Once states learn that they can regulate their residents … beyond their borders, they will do it. As massive as statute books are in this country, they will become even larger with the enactment of universe-wide laws.”

Ultimately, the 8th Circuit panel determined that the statute did violate the dormant Commerce Clause by imposing a burden on interstate commerce that outweighed the benefits and having the effect of extraterritorial control on interstate commerce. Specifically, it found that Minnesota’s statute affected transactions happening wholly outside of Minnesota’s borders by requiring out-of-state merchants to get regulatory approval in Minnesota before conducting transactions in other states.

The court noted that, on its face, the statute did not appear to regulate out-of-state commerce, as it specifically talked about a “Minnesota transaction.” A Minnesota transaction is defined as a bullion product transaction made 1) by a dealer 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; 4) between a dealer and a Minnesota consumer when the transaction involves either delivering or shipping the product to a Minnesota address, delivering or shipping from a precious metal depository on behalf of the Minnesota resident, or making payment to a consumer or receiving payment from a consumer at a Minnesota address, unless the transaction occurred at a business location outside Minnesota.

On a closer reading, the court maintained, it was plain that a Minnesota transaction could include a transaction taking place anywhere in the world between a Minnesota resident and a bullion trader. The court found that the statute would have the effect of subjecting a bullion trader to Minnesota law, even if the bullion trader never conducted one transaction within Minnesota. “For example, Chapter 80G would require a Las Vegas bullion dealer to register with the Commissioner after making one $25,000 sale to a Minnesota resident in Las Vegas,” the court wrote. “Thus, a dealer who has never set foot or conducted business in Minnesota could violate Chapter 80G by making a wholly out-of-state transaction without the Commissioner’s approval.”

In defense of the statute, the commissioner asserted that Minnesota dealers that domicile in Minnesota accept the benefits of Minnesota law and thereby subject themselves to the laws of the state.

“The Commissioner has taken the extravagant position that Minnesota may imprison its domiciliaries for transactions they conduct anywhere in the universe,” Kaardal declared.

The court agreed, noting that there was a limit to Minnesota’s grasp on its residents’ conduct outside the state. “But while Minnesota residents certainly subject themselves to certain obligations by residing in Minnesota, this does not give the State carte blanche to regulate all conduct of residents regardless of where it occurs,” the court wrote.

The 8th Circuit reversed the district court’s partial grant of the commissioner’s motion to dismiss.