STORY

June 27, 2019 9:24AM

Current Status of Lawsuit: The District Court granted permanent injunctive relief to Plaintiffs on May 3, 2022. The State appealed the District Court’s Order to the Sixth Circuit Court of Appeals. The Sixth Circuit reversed and dismissed Plaintiffs’ claims for lack of jurisdiction.

—

The Story

Like other forms of e-Commerce, online auctions are the exact sort of business that has exploded with the internet. Consumers, entrepreneurs, and clients alike have benefitted from an auction marketplace that entirely exists online, precisely because it a marketplace largely free from the burdens and costs associated with more traditional commerce. Tennessee especially was forward thinking because in 2006 it specifically exempted online auctions from needing to hold an auctioneer’s license. In 2019, Tennessee suddenly made the decision to lurch backward and impose an auctioneer license requirement on online auctioneers.

Will McLemore is exactly the sort of entrepreneur who made the most of the opportunities afforded by Tennessee’s formerly enlightened approach to the internet. In 2007, he started a new Tennessee business from the ground up: McLemore Auction Company. Since then, Will has successfully represented hundreds of clients on his website free from oversight and with little problem. Auctions are exactly the sort of business can be done more safely and conveniently online. This business is overwhelmingly moving in that direction and away from the traditional “bid calling” format at a physical location. Will was at the cutting edge. He now has a successful business where he employs multiple individuals, most of whom are not licensed.

But by 2016, Will could no longer count on the same freedom. Licensed auctioneers realized that the ground was disappearing underneath their feet. Since then, they aggressively rallied to expand their reach into the online marketplace. They finally succeeded in 2019. When this new online auction licensing law goes into effect on July 1, 2019, Tennessee will, for the first time ever, require an auctioneers license to run an online auction website.

Will, along with other principled auctioneers, has formed a group, the Interstate Auction Association, that aims to restore freedom for online auctioneers.

The Problem

When Tennessee decided to shoehorn online auctions into the licensing regime for traditional auctions, there was no reason why. In fact, in 2018, the Tennessee legislature convened a task force to study the issue. The task force reviewed the available data, which showed very few consumer complaints for online auctions. The vast majority of complaints were auctioneers complaining about other auctioneers. That data is published on the task force’s website and shows that there simply was no problem. Note that there was not a single consumer complaint in 2018.

Rather than leave the issue alone, the task force ignored its own data and pushed a law regulating online auctions anyway.

Even worse, the law picks and chooses winners and losers, even among online auctions. It has arbitrary exemptions based on the auction format designed to leave big online auction companies unregulated. The legislative record was clear that this was pure politics.

The law goes further still. It exempts political parties but not advocacy groups. The law exempts “churches.” Since the dictionary defines “church” to mean “a building for public Christian worship,” Random House Webster’s College Dictionary (1991), it means that synagogues and mosques do not have the same equal treatment. The law also exempts governmental entities and the University of Tennessee. None of these specified carve-outs have any valid basis.

The licensure of online auctions presents two major constitutional problems.

First, the law presents First Amendment problems because auctioneering is speech. The other major problem has to do the burdens on interstate commerce that follow efforts to regulate the internet. State efforts to burden interstate commerce were precisely the sort of concerns that animated the founders to give Congress, not the states, authority to regulate interstate commerce.

The Law

There are two main legal issues involved. The first is free speech. This case represents our first case on the “occupational speech” front. Occupational speech refers to speech made by a professional. Countless Americans – from web designers, to reporters, to tour guides, to authors, to lawyers – make their living by speaking. Auctioneering is the classic example of a “speaking” profession.

Because the trade of auctioneering consists of speech, it triggers First Amendment protection. In a recent Supreme Court case, the Court addressed occupational speech head on, ruling that “occupational speech” is just speech, entitled the same full-blown constitutional protections of any other speech restriction. Under the First Amendment, the government cannot make its laws apply based on the content of the law and it cannot make speaker-based distinctions. This law does both. And the law makes medium-based distinctions because it heavily regulates based on bidding format.

The other problem with this state law is that it burdens interstate commerce. The internet is the ultimate instrumentality of interstate commerce. One of the principal problems that concerned the drafters of the Constitution was that under the Articles of Confederation, the states were increasingly balkanizing themselves by drafting laws designed to favor in-state businesses. For that reason, the Constitution gives Congress the authority to regulate interstate commerce. Under this provision, the courts have ruled that states may not impermissibly burden interstate commerce.

Tennessee’s own data shows that hardly any consumers complain about online auctions, period. And within that small number of complaints, the majority concern timed auctions, the type of auctions that Tennessee will leave unburdened. The other exemptions further undermine any notion that the law has any benefit at all. Extended-time online auctions need no license if they are free, or under $25,000 in revenue, or if they are for salvage vehicles. Obviously, there is nothing uniquely harmful that will come if extended-time online auctions continue. When considered alongside the fact that 20 states require no license whatsoever to auctioneer, and that Tennessee did not require a license for online auctions until now, there is simply no benefit to speak of.

This case aims to restore the right to work through speech and remove senseless and protectionist barriers to interstate commerce on the internet.

The Legal Team

Braden Boucek is the Vice President of Legal Affairs for the Beacon Center.

Meggan DeWitt is the Staff Attorney for the Beacon Center.

David L. Harbin is a Senior Legal Fellow for the Beacon Center.

Legal Documents

Complaint

Motion for Preliminary Injunction

Response to Preliminary Injunction

Order Granting Temporary Restraining Order

Order Granting Preliminary Injunction

Defendants’ Motion to Dismiss