Allstate Ins Co v. Abbott ( 2007 )

  •                                                      United States Court of Appeals
                                                                  Fifth Circuit
                                                               F I L E D
                         REVISED August 22, 2007
                                                                August 1, 2007
                          For the Fifth Circuit            Charles R. Fulbruge III
                              No. 06-10500
      GREG ABBOTT, in his official capacity as Attorney General of
       Texas, and SUSAN COMBS, in her official capacity as Texas
                     Comptroller of Public Accounts,
               Appeal from the United States District Court
           For the Northern District of Texas, Dallas Division
    Before KING, DAVIS, and BARKSDALE, Circuit Judges.
    W. EUGENE DAVIS, Circuit Judge:
         Allstate Insurance Co. (“Allstate”) and Sterling Collision
    Centers, Inc. (“Sterling”) brought this action against Greg Abbott
    and Susan Combs as Defendants in their official capacities as
    Attorney General of Texas and Texas Comptroller of Public Accounts
    (collectively “State Defendants”)1 to challenge a Texas statute
    known as House Bill 1131 (codified as Tex. Occ. Code § 2307.001, et
    seq.). H.B. 1131 restricts the right of an auto insurer to own and
    operate auto body shops in Texas.                Allstate and Sterling argue the
    statute       violates     the   dormant    Commerce     Clause    and   the   First
    Amendment of the United States Constitution.
           After a bench trial, the district court rejected Allstate’s
    dormant Commerce Clause challenge but found that certain provisions
    of the statute violated the First Amendment.                We AFFIRM.
                          I.   FACTUAL AND PROCEDURAL BACKGROUND
           In    2000,     Allstate,   a    Delaware     insurance    company   holding
    approximately 15% of the automobile insurance market in Texas,
    implemented a plan to enter the auto body repair business by
    acquiring Sterling, a multi-state chain of repair shops.                    Sterling
    operates approximately 60 auto body repair shops in 14 states,
    including 15 shops in the state of Texas.                   Allstate planned to
    improve existing Sterling facilities and to cultivate new ones. By
    influencing its customers and other claimants to obtain repair work
    from       Sterling    rather    than   from     unaffiliated     shops,    Allstate
          Two other parties, Automotive Service Association (a
    national organization of auto body shops) and Consumer Choice in
    Auto Body Repair (a group formed contemporaneously with the
    effort to pass H.B. 1131), intervened and have jointly filed
    briefs in support of the State Defendants. Because the State
    Defendants and the Intervenors advance identical positions, we
    refer to both entities interchangeably as the State Defendants.
    believed it could minimize charges for unnecessary or overpriced
           At    the   time      of     its    acquisition        of    Sterling,     Allstate
    maintained a relationship with several local body shops in Texas
    through a program called the Priority Repair Option (“PRO”).
    Allstate recommended the PRO shops to its insureds and other
    claimants if the shops maintained a certain level of quality and
    efficiency.        If a customer chose to go to a PRO shop, Allstate
    provided a guarantee for the repairs performed and became the
    direct purchaser for the repair services. Allstate found that most
    PRO shops had a lower average repair cost than other body shops.
    However,       while   the        PRO   program       led    to    some   cost    savings,
    Allstate——still        troubled           by    the    prevalence         of   fraud     and
    inefficiencies in repair work (even in PRO shops) and seeking to
    gain    an     advantage       over     competitors         that    maintained     similar
    programs——decided         to      explore      auto   body    shop    ownership     as    an
    additional strategy for cost savings.
           After its acquisition of Sterling, Allstate had its telephone
    service representatives use a script in speaking with policyholders
    and    other    claimants.          Representatives          would    first      offer   the
    services of the Sterling shops to policyholders, without offering
    a referral to PRO shops as had been done previously.                              Allstate
    followed this approach to boost business at Sterling shops which
    had lost their pre-existing referral relationships with other
    insurers after Allstate’s acquisition.                       Under the new practice,
    Allstate referred policyholders to PRO shops only when asked.2
         In   addition   to   using   this    sales   pitch   from   the   script,
    Allstate sought to boost Sterling’s market share by eliminating its
    PRO relationship with shops that were near a Sterling shop, thus
    funneling repair opportunities to Sterling.
         In 2003, the Texas Legislature began considering H.B. 1131, a
    bill which would bar insurers from acquiring an interest in auto
    body shops.   The parties dispute the precise motivation for the
    bill’s introduction and passage. Allstate claims that the bill was
    part of a coordinated political strategy to hurt its venture with
    Sterling and to maintain the dominance of local Texas body shops.
    The State Defendants argue that the bill grew out of concerns for
    customer welfare, particularly that Allstate’s dual role as insurer
    and body shop owner would create a conflict of interest and an
          The script read as follows:
         Mr./Mrs. ______, of course you are always free to
         choose any repair shop and are under no obligation or
         requirement to use a shop we recommend, however, I
         would like to make you aware of the benefits of
         Sterling Auto Body Centers, which are affiliated with
         the Allstate Corporation.
         Sterling Auto Body Centers are highly respected and
         provide exceptional customer service. Sterling
         provides a lifetime guarantee as long as you own your
         vehicle on both parts and labor. In addition, they
         will handle all the paper work, keep you updated
         throughout the repair process, guarantee a completion
         date, and, even, professionally clean your vehicle
         inside and out. They can also assist with rental
         arrangements on site and will pay for additional rental
         expenses if the guaranteed delivery date is missed.
    incentive to short change customers.
          Transcripts of the legislative hearings on the bill reflect
    both consumer protection and local industry concerns.               On consumer
    protection, members in the House and Senate heard testimony from
    several individuals, many of them affiliated with body shop trade
    groups, detailing the danger of insurance company ownership of auto
    body repair shops.     These witnesses all warned of the conflict of
    interest inherent in such an arrangement, arguing that it raised
    the   risk   of   illegal    customer      steering.     The   witnesses     also
    predicted that such arrangements would encourage body shops “tied”
    to insurers to cut corners in an effort to reduce repair costs.3
    Legislators also heard about the adverse impact on local industry
    which would result from Allstate’s entry into the auto body repair
    business.     For instance, the Vice President of the Automotive
    Services Association warned that the rise of insurer owned repair
    shops would lead to the demise of the independent repair industry,
    along with    billions      of   dollars    in   local   economic   impact    and
    hundreds of thousands of jobs.        Another bill proponent, a body shop
          Both customers and body shop owners testified in support of
    these concerns. One customer who had been involved in an
    accident with an Allstate insured told the committee that
    Allstate discouraged him from taking his car to an independent
    shop by asserting that the shop kept cars longer than necessary,
    a claim the witness said was untrue. He further stated that
    Allstate did not give the shop adequate time to complete repairs.
    Another witness, a body shop owner, testified that Allstate's
    management had refused to agree with its own on-site adjuster's
    assessment that a car was a total loss and instead insisted that
    the car be repaired.
    owner, told the House Committee about how his shop had been forced
    from Allstate’s PRO referral program after a Sterling shop opened
    down the street.   Several representatives for Allstate also spoke
    at the hearings.    These individuals attempted to assuage fears
    about illegal steering and to frame the bill as an obstacle to
    consumer choice.
         It is difficult to say from the legislative history what
    primary factor motivated passage of the legislation.   We have the
    not unusual situation where both sides find passages from the
    legislative history supporting their view of the predominant reason
    for the legislation.4
          For instance, Representative Flores’s explanation of the
    bill prominently highlighted local industry concerns:
         REP. FLORES: What this seeks is to remedy a situation
         that is occurring in a lot of the major metropolitan
         areas, which is – and it’s spreading, and it’s allowing
         insurance companies, which are purchasing and building
         body shops, to compete with those run by our local
         independent folks back home in our communities.
    Hearing on Tex. H.B. 1131 Before the House Comm. on Licensing &
    Admin. Procedures, 78th Leg., R.S. [hereinafter “H.B. 1131 House
    Hearing”] 2 (March 6, 2003) (emphasis added). Similarly,
    Representative Homer at the same hearing and then Senator Carona
    in a subsequent Senate hearing commented on the issue of
    competition with local industry:
         REP. HOMER: Because I’m a small businessman . . .,
         there’s nothing that angers me more than when the big
         guy comes in and just . . . run[s] you out of town . .
         . . It’s kind of the Wal*Mart scenario.
    H.B. 1131 House Hearing, pg. 92.
         SEN. CARONA: I think the most significant thing we’ve
         tried to do here is . . . just make sure that – in the
         H.B. 1131 was passed on May 27, 2003, and took effect on
    September 1, 2003.   As enacted, it accomplished two broad reforms.
    First, the new law generally prohibits an insurer from owning or
    acquiring an interest in an auto repair facility.5         However,
    facilities already open for business at the time of the bill’s
    passage are exempted.6   Second, the statute establishes a set of
    rules to govern these existing shops.   Most notably, it requires an
    insurer to offer the same referral arrangement it has with its tied
         shops that the insurance companies actually own . . .
         we don’t let those actual shops owned by the insurance
         companies have any kind of competitive advantage in a
    Hearing on Tex. H.B. 1131 Before the Senate Comm. on Bus. &
    Commerce, 78th Leg., R.S., 11 (May 20, 2003).
         On the other hand, several comments and questions by various
    members focused on consumer protection:
         REP. WISE: [D]id you say that some employees at
         Sterling have anonymously told you that their customers
         are being steered to them by their adjustors?
         REP. DELWIN: [To Allstate lobbyist] I’d like to hear
         how would you address some of the allegations that
         you’ve heard about Allstate adjustors basically forcing
         people into Sterling . . . .
         REP. DRIVER: But the concept and what the concern is
         here is how many of those Sterling clients are Allstate
         clients? How many of them are being directed that way?
    H.B. 1131 House Hearing, pg. 14, 41, 73.
          Tex. Occ. Code § 2307.002.
    body shop to at least one unaffiliated body shop.7    The law does
    not require that an insurer treat all body shops the same, only
    that the insurer extend an invitation into a referral program to at
    least one untied shop and that the insurer treat all tied and
    untied shops in that referral program the same.
         H.B. 1131 carries no criminal penalties.   It instead creates
    a private cause of action in “any person aggrieved by a violation
    of the statute.”8   Based on the seriousness of the violation, a
    court may impose a civil penalty which is to be sent to the
    comptroller for deposit in the state’s general revenue fund.9
         Allstate and Sterling are the only entities affected by the
    law because Sterling is the only body shop in Texas directly owned
    by an insurer and Allstate is the only insurer in Texas which owns
    a body shop.
         In 2003, Allstate filed the present suit, claiming that H.B.
    1131 violates the dormant Commerce Clause and the First Amendment.
    Allstate argued that because H.B. 1131 forecloses Sterling, an
    interstate body shop, from opening more body shops in Texas, the
    purpose and effect of the law is to discriminate against interstate
    commerce.   The company acknowledged that while the law does not
          Tex. Occ. Code § 2307.006(11) (“An insurer may not enter
    into a favored facility agreement exclusively with its tied
    repair facilities.”).
          Tex. Occ. Code § 2307.009(a).
          Tex. Occ. Code § 2307.009(b).
    accomplish    this   discrimination      directly   by    using   statutory
    classifications based on domicile, the law was adopted for the
    purpose, and has the effect, of advantaging local industry at the
    expense of Sterling, a non-resident.         Allstate also claimed that
    the bill’s provisions, which make Allstate’s ability to promote
    Sterling shops contingent on Allstate’s promotion of other body
    shops, run afoul of the First Amendment’s protection of truthful
    and non-deceptive commercial speech.
         A   bench   trial   was   completed   in   October   2004.     At   the
    conclusion of the trial, the district court upheld the bill’s
    restrictions on the acquisition of auto body repair shops.               The
    district court found that the bill was not intended to, nor did it
    have the effect of, discriminating against interstate commerce.
    Rather, the district court explained, H.B. 1131 created different
    treatment of two business forms, independent (or “mom and pop”)
    operations on the one hand versus auto body repair shops owned by
    insurance companies on the other hand——a permissive basis for
    discrimination.      However, the district court concluded that the
    bill’s speech provisions violated the First Amendment.            The court
    explained that H.B. 1131's provisions were not sufficiently narrow
    and instead served to deprive consumers of information which may be
    beneficial.      The judge observed that the need for the speech
    provisions was questionable since Texas consumers already enjoyed
    the benefit of an anti-steering law, which prohibits insurers from
    requiring policyholders to use a certain auto body shop.10       The
    court reasoned that less restrictive means existed to accomplish
    the consumer welfare aims, for instance, a simple requirement that
    Allstate disclose its ownership of Sterling.
         Allstate appeals the dormant Commerce Clause ruling.       The
    State Defendants defend that portion of the judgment but find fault
    with the First Amendment aspect of the trial court’s ruling.
                                II. JURISDICTION
         This case was brought initially in Dallas county state court
    pursuant to the Texas Declaratory Judgment Act.11   On September 23,
    2006, the State Defendants timely removed the case to federal
    district court.     The parties agree that this removal accomplished
              See Tex. Ins. Code § 5.07-1(b)(2).
    11 Tex. Civ
    . Prac. & Rem. Code § 37.004(a) (“a person . . .
    whose rights . . . are affected by a statute . . . may have
    determined the question of construction or validity arising under
    the . . . statute . . . and obtain a declaration of rights . . .
    thereunder.”). Under the TDJA, the Attorney General is a
    necessary party where the validity of a statute is at issue. See
    Tex. Civ. Prac. & Rem. Code § 37.006(b). Texas courts have
    recognized that the TDJA waives the state’s sovereign immunity.
    See Tex. Educ. Agency v. Leeper, 
    893 S.W.2d 432
    , 446 (Tex.1994)
    (“[B]y authorizing declaratory judgment actions to construe the
    legislative enactments of governmental entities and authorizing
    awards of attorneys fees, the [Declaratory Judgments Act]
    necessarily waives governmental immunity for such awards.”); see
    also Wichita Falls State Hosp. v. Taylor, 
    106 S.W.3d 692
    , 698
    (Tex. 2003) (stating that if the Legislature required the State
    to be joined in a lawsuit for which immunity would otherwise
    attach, the Legislature intentionally waived the State's
    sovereign immunity and noting that Leeper stands for the
    proposition that the TDJA does waive aspects of sovereign
    a waiver of the state’s Eleventh Amendment immunity.12
         The State Defendants argue that the dispute does not satisfy
    Article III’s      case   or   controversy   requirement.   In   order   to
    establish a case or controversy sufficient to give a federal court
    jurisdiction over their claims, plaintiffs must satisfy three
    criteria: (1) they must show that they have suffered, or are about
    to suffer, an “injury in fact”; (2) “there must be a causal
    connection between the injury and the conduct complained of”; and
    (3) “it must be likely, as opposed to merely speculative, that the
    injury will be redressed by a favorable decision.”13
         While conceding that Allstate has suffered an injury, the
    State Defendants cite our decision in Okpalobi v. Foster14 in
    support of their argument that causation and redressability are
    lacking in this case.           In Okpalobi, we considered whether a
    district court had properly enjoined the operation and effect of a
    Louisiana state tort statute which made abortion providers liable
    to patients in tort for any damage occasioned by abortions.              We
    concluded that because the named defendants (the Governor and the
    Attorney General) had caused no injury to the plaintiffs and could
    never themselves cause any injury under the private civil scheme,
          See Lapides v. Bd. of Regents of Univ. Sys. Of Ga., 
    535 U.S. 613
    , 620 (2002).
          Lujan v. Defenders of Wildlife, 
    504 U.S. 555
    , 560 (1992)
    (citation omitted).
    244 F.3d 405
    , 426-27 (5th Cir. 2001) (en banc).
    the plaintiffs failed to fulfill Article III’s case and controversy
           Okpalobi does not control this case.             A case brought against
    a state officer in his official capacity is essentially a suit
    against the state.16          While the states are immune from suit under
    the Eleventh Amendment, Ex parte Young allows a plaintiff to avoid
    this bar by naming a state official for the purpose of enjoining
    the enforcement of an unconstitutional state statute.                     In turn,
    Young requires that “[i]n making an officer of the state a party
    defendant in a suit to enjoin the enforcement of an act alleged to
    be unconstitutional, . . . such officer must have some connection
    with the enforcement of the act, or else it is merely making . . .
    the state        a    party.”17    Because   neither    the   authority    of   the
    Louisiana Governor nor Attorney General extended to enforcing the
    provision challenged by the Okpalobi plaintiffs, the Eleventh
    Amendment remained a bar to the suit.                Our standing analysis was
    thus        limited    to   an    examination   of     whether   causation      and
                Id. at 426.
          See, e.g., Diamond v. Charles, 
    476 U.S. 54
    , 57 n.2 (1986)
    (stating that “[a] suit against a state officer in his official
    capacity is, of course, a suit against the State”); Kentucky v.
    473 U.S. 159
    , 166 (1985) (noting that suits against state
    agents are just another way of pleading actions against the
    state); McCartney v. May, 
    50 S.W.3d 599
    , 606 (Tex.App.–-Amarillo,
    2001, no pet.) (“[a] claim against a state employee in [his]
    official capacity is, in effect, a claim against the state,” and
    thus, “to that extent, the state is a party.”).
                Ex parte Young, 
    209 U.S. 123
    , 157 (1908) (emphasis added).
    redressability could be linked to the enforcement connection the
    Governor and Attorney General had with the statute.18
         Unlike Okpalobi, the state removed this case to federal court
    and thereby waived its Eleventh Amendment immunity.                  Therefore,
    because it is unnecessary to employ the fiction of Young to defeat
    the state’s immunity, the connection between the state officer
    named in the suit and the enforcement of H.B. 1131 is irrelevant to
    our standing analysis.           Rather, the state is the real party in
         Because      the    state     itself    is   a   party,   causation   and
    redressability are easily satisfied in this case.                Causation is
    satisfied because the state passed H.B. 1131, a law which threatens
    Allstate with private civil law suits and civil penalties if it
    continues with its business plan to acquire additional Sterling
    body shops.     A declaration of unconstitutionality directed against
    the state would redress Allstate’s injury because it would allow
    Allstate to avoid these penalties and lawsuits.19              Accordingly, we
    are satisfied that a genuine case or controversy exists.
                           III.   COMMERCE CLAUSE CHALLENGE
         A      district     court’s     judgment     concerning     a    statute’s
              See Okpalobi. at 426-27.
          See Franklin v. Massachusetts, 
    505 U.S. 788
    , 790-91 (1992)
    (finding redressability prong satisfied where actors who were not
    parties to the lawsuit could be expected to amend their conduct
    in response to a court's declaration).
    constitutionality is reviewed de novo.20                To the extent relevant to
    the constitutional question, subsidiary facts are reviewed for
    clear error.21
         A statute violates the dormant Commerce Clause where it
    discriminates      against        interstate    commerce    either     facially,   by
    purpose,      or     by    effect.22       If     the     statute      impermissibly
    discriminates, then it is valid only if the state “can demonstrate,
    under rigorous scrutiny, that it has no other means to advance a
    legitimate local interest.”23 If the statute does not discriminate,
    then the statute is valid unless the burden imposed on interstate
    commerce is “clearly excessive” in relation to the putative local
         Allstate first attacks H.B. 1131 on the ground that the
    statute was passed with a discriminatory purpose.                       The company
    relies     heavily    on    the    legislative    statements     cited     above   in
    asserting      that       economic     protectionism       was   the     predominant
    motivation for the legislation.
              Castillo v. Cameron County, 
    238 F.3d 339
    , 347 (5th Cir.
    21 Me. v
    . Taylor, 
    477 U.S. 131
    , 144-45 (1986).
              Bacchus Imports, Ltd. v. Dias, 
    468 U.S. 263
    , 270 (1984).
          C & A Carbone, Inc. v. Town of Clarkstown, N.Y., 
    511 U.S. 383
    , 392 (1994).
              Pike v. Bruce Church, Inc., 
    397 U.S. 137
    , 142 (1970).
         The burden of establishing that a challenged statute has a
    discriminatory purpose under the Commerce Clause falls on the party
    challenging the provision.25
         The Supreme Court has identified the following factors as
    relevant in determining whether purposeful discrimination animated
    a state legislature’s action: (1) whether a clear pattern of
    discrimination emerges from the effect of the state action; (2) the
    historical background of the decision, which may take into account
    any history of discrimination by the decisionmaking body; (3) the
    specific sequence of events leading up the challenged decision,
    including      departures   from   normal   procedures;    and     (4)   the
    legislative     or   administrative   history   of   the   state    action,
    including contemporary statements by decisionmakers.26
         Considering these factors, we conclude the district court did
    not clearly err in rejecting Allstate’s contention that H.B. 1131
    was purposefully discriminatory.
         For one, Allstate and Sterling have failed to demonstrate a
    clear and consistent pattern of discriminatory action by the Texas
    Legislature.     As discussed further below, while the effect of H.B.
    1131 is to disadvantage Allstate, this effect derives solely from
              See Hughes v. Oklahoma, 
    441 U.S. 322
    , 336 (1979).
          See Village of Arlington Heights v. Metropolitan Housing
    Development Corp., 
    429 U.S. 252
    , 266-268 (1977); see also Waste
    Mgmt. Holdings, Inc. v. Gilmore, 
    252 F.3d 316
    , 336 (4th Cir.
    2001) (applying Arlington Heights factors to dormant Commerce
    Clause analysis).
    Allstate’s status as the only body shop owning insurer in Texas.
    Allstate has failed to establish a history of hostility towards
    Allstate singularly or towards out-of-state companies in general.
         Further, while characterizing the legislative hearings on H.B.
    1131 as      “perfunctory,”        Allstate      has   failed       to   show     that   the
    Legislature departed from usual procedures in its consideration or
    enactment     of    the    bill.      The    Legislature          held     well   attended
    committee hearings in both of its chambers where proponents for and
    against the measure were given comparable time to testify.                                In
    addition,     there      is   no   dispute    that     key       legislators      met    with
    Allstate executives on several occasions, allowing the company to
    express its concerns about the bill.                   Indeed, these discussions
    produced     a    Senate      amendment     stripping        a    provision       requiring
    complete divesture of Allstate’s ownership interest in Sterling.
         Finally,        the      stray   protectionist              remarks     of     certain
    legislators        are    insufficient      to   condemn         this    statute.        Our
    independent review of the legislative record reveals that the
    Legislature heard extensive testimony from various witnesses on the
    legitimate consumer protection concerns sought to be remedied by
    H.B. 1131.       For instance, legislators heard from several witnesses
    that vertical integration in the insurance business would create an
    inherent conflict of interest and an irresistible opportunity for
    insurers to engage in predatory practices.27                      They also heard that
              H.B. 1131 House Hearing, supra note 4, pg. 5, 7.
    a system in which the insurance company and the body shop are
    aligned would eliminate the traditional checks and balances in the
    industry, meaning that the insurer’s interest in keeping repair
    costs as low as possible would become the overriding interest.28
    Further, witnesses reported specific instances demonstrating these
    dangers.29      This     evidence   provided    a    more    than   adequate   and
    legitimate basis for the Legislature’s decision to adopt the
    proposed regulations and undercuts Allstate’s contention that the
    enactment     of   the    overall   statutory       scheme   was    driven   by   a
    discriminatory purpose.30
         Moreover, much of Allstate’s evidence of “discrimination”
    towards out-of-state companies is simply evidence of a legislative
    desire to treat differently two business forms——independent auto
    body shops on the one hand and insurance-company-owned auto body
    shops on the other——a distinction based not on domicile but on
    business form.      In Ford v. Texas Department of Transportation, we
    recently approved the Texas Legislature’s enactment of an analogous
    statute based on this distinction.31            In Ford, we upheld, against
              Id. at 8, 30, 100.
              Id. at 17-28, 30-31, 102, 104.
          See Maine, 477 U.S. at 150-51 (plaintiff's evidence,
    including statements made by state administrative agency
    expressing protectionist motivation for challenged legislation,
    would not establish violation of dormant Commerce Clause where
    evidence did not demonstrate that the state had no legitimate
    interest in enacting the challenged regulation).
    264 F.3d 493
     (5th Cir. 2001).
    a   dormant     Commerce     Clause   challenge,    a    Texas    statute      which
    prohibited      automobile    manufacturers     from     acting   as    automobile
    dealers.32      The plaintiff, Ford Motor Company, alleged that the
    statute violated the dormant Commerce Clause because it isolated
    Texas’s retail car market and prevented the entry of out-of-state
    firms.       Like the present case, the legislative history of the
    challenged provision in Ford revealed a legislative desire to
    prevent firms with superior market position (car manufacturers)
    from entering a downstream market (car dealership), a desire drawn
    from concern that vertical integration of the automobile market
    would be detrimental to consumers.33               We held that because the
    challenged      provision    did   not    discriminate    on   the     basis   of a
    company’s business contacts with the state, but rather on the basis
    of its status as an automobile manufacturer, the statute did not
    offend the dormant Commerce Clause.34               We find no significant
    factual or legal distinction between Ford and the instant case.
    Like Ford, the Legislature in this case sought to prevent firms
    with superior market position (insurance companies) from entering
    a downstream market (auto body repair) upon the belief that such
    entry would be harmful to consumers.            The dormant Commerce Clause
               Ford, 264 F.3d at 502.
               See id. at 500.
          Id. at 502 (observing that out-of-state corporations which
    were non-manufacturers had the same opportunity as in-state
    corporations to operate in Texas).
    is no obstacle to such regulation.
         Next,     Allstate    and   Sterling      argue   that   H.B.    1131     has a
    discriminatory effect because it favors in-state body shops and
    will cause these services to shift from an out-of-state provider
    (i.e., Sterling) to in-state providers.                For this proposition,
    Allstate relies heavily upon Exxon Corp. v. Maryland.35                      In that
    case, various oil companies challenged the validity of a Maryland
    statute prohibiting producers and refiners of petroleum products
    from operating retail service stations in Maryland.                  The producers
    and refiners argued that the effect of the statute was to protect
    in-state independent dealers from out-of-state competition.                     They
    contended     that   the   burden   of    the    provision     fell    solely     on
    interstate companies since Maryland had no in-state producers or
    refiners.36     The Supreme Court rejected the argument and in so
    doing, explained        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.”37
    The Court observed that the challenged act “creat[ed] no barriers
    whatsoever     against     interstate     independent     dealers,      [did    not]
    prohibit the flow of interstate goods, place added costs upon them,
    437 U.S. 117
              Id. at 125.
              Id. at 126.
    or distinguish between in-state and out-of-state companies in the
    retail     market.”38          The        absence       of   these       factors,         the    Court
    continued, “distinguishe[d] th[e] case from those in which a State
    ha[d]     been     found       to        have    discriminated            against     interstate
    commerce.”39           While    Exxon       illustrates           an    unsuccessful           dormant
    Commerce Clause challenge, Allstate relies heavily upon a footnote
    in the opinion in which the Court observed that “[i]f the effect of
    a state regulation is to cause local goods to constitute a larger
    share, and goods with an out-of-state source to constitute a
    smaller share,          of     the       total    sales      in    the    market      .    .    .   the
    regulation        may    have        a     discriminatory              effect    on   interstate
    commerce.”40 Allstate argues that H.B. 1131 results in this precise
         Allstate’s argument is unpersuasive.                              As an initial matter,
    H.B. 1131 does not require Allstate to shut any Sterling stores.
    Thus it is unclear how the new regulations would affect any shift
    in the current level of business presently enjoyed by out-of-state
    suppliers of body shops to in-state shops.                               However, even if we
    were to assume that H.B. 1131 would act to reduce Sterling’s
    ability to attract new business, which local body shops would then
    capture,        this    would        still       not    establish         a     Commerce        Clause
              Id. at 126, n.16.
    violation.         A state statute impermissibly discriminates only when
    it discriminates between similarly situated in-state and out-of-
    state interests.41         Under H.B. 1131, as with the provision upheld
    in Exxon, similarly situated in-state and out-of-state companies
    are   treated       identically.      Neither    in-state   nor   out-of-state
    insurers may acquire a body shop and the statute raises no barriers
    whatsoever to out-of-state body shops entering the Texas market so
    long as they are not owned by insurance companies.                Further, H.B.
    1131 does not “prohibit the flow of interstate [services], place
    additional costs upon them, or distinguish between in-state and
    out-of-state companies in the retail market.”42               As the Supreme
    Court concluded under identical circumstances in Exxon, “[t]he
    absence of any of these factors fully distinguishes this case from
    those in which a State has been found to have discriminated against
    interstate commerce.”43
          The record does not support Allstate’s bare allegation that
    business will shift from Sterling to in-state providers.                      The
    district         court   correctly   concluded   that   Allstate     failed    to
    establish a dormant Commerce Clause violation where none of the
               Id. at 126.
          Id.; Ford, 
    264 F.3d 493
     (where challenged provision did
    not “rais[e] the costs of doing business in the local market,
    strip[] away the economic advantages for an out-of-state
    participant, or giv[e] advantages to local participants[,]” it
    did not offend the dormant Commerce Clause).
    hallmarks of past violations were present.   Finally, that no Texas
    insurer is affected by the new regulation is of no consequence.
    The Supreme Court rejected the same assertion when offered in Exxon
    and this court has rejected similar arguments in the past.44
         The controlling question thus becomes whether, under Pike,
    “the burden imposed on [interstate] commerce is clearly excessive
    in relation to the putative local benefits.”45    A statute imposes
    a burden when it inhibits the flow of goods interstate.46
         Allstate claims that H.B. 1131 inhibits the flow of goods
    interstate because it deprives Sterling of access to the Texas
    collision repair services market.
         Again, Allstate’s argument fails. The dormant Commerce Clause
    “protects the interstate market, not particular interstate firms.”47
    The Supreme Court has “rejected the ‘notion that the Commerce
    Clause protects the particular structure or methods of operation in
          Exxon, 437 U.S. at 125; Int’l Truck and Engine Corp. v.
    372 F.3d 717
    , 726 (5th Cir. 2004) (“That all or most
    affected businesses are located out-of-state does not tend to
    prove that a statute is discriminatory.”); Ford, 264 F.3d at 502
    (finding it of no relevance that Texas had no motor vehicle
    manufacturers in challenge to law which limited ability of
    manufacturer’s to engage in retail automobile sales).
              Pike, 397 U.S. at 142.
              Ford, 265 F.3d at 503.
              Exxon, 437 U.S. at 127-28.
    a . . . market.’”48     While H.B. 1131 inhibits Sterling’s ability to
    expand its auto body repair chain in Texas, the law does not
    prohibit     other   interstate       repair    chains   or   non-resident   auto
    dealers not owned by insurance companies from operating in, or
    entering, the Texas market.              Evidence was presented at trial
    showing that several interstate repair shops operate in the state.
         Further, even if we were to characterize Sterling’s inability
    to expand as a burden on interstate commerce, that burden would not
    be clearly excessive as compared to H.B. 1131's putative local
    benefits.      In assessing a statute’s putative local benefits, we
    cannot      “second-guess      the    empirical     judgments     of   lawmakers
    concerning the utility of legislation.”49                 Rather, we credit a
    putative local benefit “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.”50
         A reasonable legislator could have believed that H.B. 1131
    would further legitimate interests in protecting consumers.                   As
    discussed     above,   House    and    Senate    committees    heard   extensive
    testimony on the dangers of insurer-owned body shops. A legislator
    could reasonably have believed that a ban on the targeted business
          CTS Corp. v. Dynamics Corp. of Am., 
    481 U.S. 69
    , 93-94
    (1987) (quoting Exxon, 437 U.S. at 127)).
              CTS, 481 U.S. at 92.
          Ford, 264 F.3d at 504 (quoting Kassel v. Consolidated
    Freightways Corp., 
    450 U.S. 662
    , 680-81 (1981)).
    form    would     further      Texas’s      legitimate     interests      in   consumer
    protection.       That reasonable belief is enough to confirm that H.B.
    1131 has at least putative local benefits.51                       Allstate has not
    established that the burden on one interstate firm constitutes a
    burden on interstate commerce that clearly outweighs these local
           Because we conclude H.B. 1131 does not violate the dormant
    Commerce       Clause,   we    need    not     consider    the    State   Defendant’s
    alternative       argument      that       McCarran-Ferguson      Act    removes    this
    regulation from the reach of the dormant Commerce Clause.
                             IV.   FIRST AMENDMENT CHALLENGE
           Alleged violations of free speech present a mixed question of
    fact and law that is reviewed de novo.52
           Allstate       challenged      in    the     district   court    the    following
    provisions of H.B. 1131 as violations of the First Amendment’s
    protection of truthful and non-deceptive commercial advertising:
           •       Tex. Occ. Code § 2306.006(3), which prohibits an
                   insurer from engaging in a joint marketing program
                   with a tied repair facility.
           •       Tex. Occ. Code § 2306.006(4), which prohibits an
                   insurer from providing to tied repair facilities a
                   recommendation,   referral  or   description   not
                   provided on identical terms to other preferred
                   repair facilities.
           •       Tex.    Occ.    Code    §    2306.006(6),       which    prohibits
                See Int’l Truck, 372 F.3d at 729.
          LLEH, Inc. v. Wichita County, Tex., 
    289 F.3d 358
    , 364-65
    (5th Cir. 2002).
                   allowing a tied repair facility to use an insurer’s
                   name in a manner different from that allowed for
                   any other facility with which the insurer has a
                   referral arrangement.
           •       Tex. Occ. Code § 2306.006(9), which prohibits an
                   insurer from recommending that policyholders have
                   their vehicles repaired at tied repair facilities,
                   except to the same extent it recommends other
                   repair facilities with whom the insurer has entered
                   into a referral arrangement.
    These regulations apply to the existing Sterling stores which are
    authorized to continue operation in Texas after enactment of H.B.
    1131.         The   district   court   upheld   Allstate’s   First    Amendment
           The First Amendment, as applied to the states through the
    Fourteenth Amendment, generally protects commercial speech from
    unwarranted governmental regulation where the speech is not false,
    deceptive, or misleading.53 In Central Hudson Gas & Electric Corp.,
    v. Public Service Commission of New York,54 the Supreme Court
    articulated a test for determining whether a particular commercial
    speech regulation is constitutionally permissible.                   Under that
    test, a court asks as a threshold matter whether the commercial
    speech concerns unlawful activity or is misleading.              If so, then
    the speech is not protected by the First Amendment.            If the speech
    concerns lawful activity and is not misleading, however, a court
    next        asks    whether    the   asserted   governmental    interest     is
          Zauderer v. Office of Disciplinary Council, 
    471 U.S. 626
    628 (1985).
    447 U.S. 557
    substantial.     If it is, then a court determines whether the
    regulation directly advances the governmental interest asserted,
    and, finally, whether it is not more extensive than is necessary to
    serve that interest.55     Each of these latter three inquiries must
    be answered in the affirmative for the regulation to be found
         The State Defendants first attempt to defend H.B. 1131's
    speech provisions under the first prong of the Central Hudson test,
    i.e., they argue that the prohibited advertisements concern (1)
    unlawful activity or (2) misleading speech.
    1.   Does H.B.      1131   prohibit        advertisements   about   unlawful
         The State Defendants claim that the speech restraints are
    valid because they are merely incidental to H.B. 1131's provision
    which requires insurers and their collision repair subsidiaries to
    negotiate at “arm’s length.”          The State Defendants attempt to
    analogize this case to Ford, in which we upheld a state law
    restricting car manufacturers from advertizing cars for sale on
    their websites.      In that case, we explained that because the
    regulation was only incidental to Texas’s general prohibition
    against manufacturers selling automobiles at retail, it was not
          Thompson v. Western States Med. Ctr., 
    535 U.S. 357
    , 367
    entitled to the protection of the First Amendment.57
         The instant case is distinguishable from Ford, where the
    challenged speech regulation sought to prevent a manufacturer from
    advertising a product it was strictly prohibited by law from
    selling.     Unlike that case, H.B. 1131's speech provisions are not
    incidental to the regulation of activity made illegal by Texas law.
    Prohibiting Allstate from giving an exclusive recommendation to a
    Sterling body repair shop does not help ensure that the two
    entities are operating at arm’s length. Similarly, an arm’s length
    transaction may very well include a negotiated agreement in which
    an insurer agrees to recommend one body shop exclusively to its
    customers. Indeed, this is roughly the deal that various auto body
    shops enrolled in the PRO program have struck with Allstate.
    Because H.B. 1131 does not make it illegal for Allstate to have a
    business affiliation with Sterling, there is no legal prohibition
    preventing     Allstate   from   communicating   that   relationship    to
    2.   Does H.B. 1131       prohibit    advertisements    which   would   be
         The State Defendants alternatively seek to uphold H.B. 1131's
    regulations to prevent false and misleading representations, such
              Ford, 264 F.3d at 506.
          See id. (noting that if challenged speech regulation
    prohibited advertising a commercial activity lawful in Texas, the
    regulation would invoke the protections of the First Amendment
    and be subjected to Central Hudson).
    as the Allstate script’s recommendation of Sterling.                         The State
    Defendants     argue   that   the   implication         of   the    script    is   that
    Sterling is the best available auto body repair service in terms of
    services offered and quality of repair, an implication that is not
    true.      The State Defendants also contend that the Allstate script
    is misleading because it suggests a link between Allstate and
    Sterling that would give customers utilizing Sterling pricing or
    other advantages that are prohibited by Texas law.
          The State Defendants’ rationale for finding a script which
    recommends     only    a   tied   body    shop    “false      and   misleading”     is
    unpersuasive.       While it may be that a recommended tied body shop
    does not enjoy as good a reputation for quality work as other body
    shops, a recommendation to that shop does not involve an inherently
    false or misleading representation.                    This characterization is
    particularly inapt when applied to Allstate’s script, which informs
    customers of the Allstate/Sterling affiliation at the outset of the
    pitch, and thus gives customers the option of discounting the
    recommendation and puffing.          Further, the evidence revealed that
    the majority of Allstate’s customers choose not to have their
    vehicle     repaired   by   Sterling.           This   is    certainly     persuasive
    evidence that an exclusive recommendation does not necessarily
    mislead consumers into believing that Sterling is far superior to
    other facilities nor that utilization of the recommended shop is
    required.      Unlike the situation in the principal case relied upon
    by   the    State   Defendants,     Zauderer      v.    Office      of   Disciplinary
    Council,59 the potential for customer confusion here is minimal.
    We agree with the district court’s conclusion that the Allstate
    script     is    neither    false   nor    misleading.       In   light   of   this
    conclusion, we turn to the remaining prongs of the Central Hudson
         Under Central Hudson, after the threshold inquiry, a court
    must determine whether (1) the state has a substantial interest in
    regulating the speech; (2) the restriction on speech directly
    advances the state interest involved; and (3) the state’s interest
    could be equally well served by a more limited restriction on
    commercial speech.61
    1.   Is there a legitimate state interest?
         The State Defendants have successfully asserted a legitimate
    interest        in    consumer   protection      and   the   promotion    of   fair
    2.   Does       the    regulation   directly     and   materially   advance    the
    471 U.S. 626
     (1985) (rejecting First Amendment challenge
    to the application of state rule against deceptive advertising
    where attorney advertisement was likely to mislead average
          See Ford, 264 F.3d at 506 (if a challenged speech
    provision prohibits advertising a lawful commercial activity, the
    regulation is subject to intermediate scrutiny outlined in
    Central Hudson).
              Central Hudson, 447 U.S. at 566.
          See Ohralik v. Ohio State Bar Ass’n, 
    436 U.S. 447
    , 460
    (1978) (state clearly has an interest in consumer protection).
         State’s asserted interest            of   benefitting    consumers      and
         ensuring fair competition?
         As    the   district   court   persuasively      explained,     the   State
    advances no legitimate interest in preventing non-misleading and
    truthful referrals to a tied body shop:
          Consumers benefit from more, rather than less,
          information. Attempting to control the outcome of the
          consumer decisions following such communications by
          restricting lawful commercial speech is not an
          appropriate way to advance a state interest in
          protecting consumers. Thompson v. Western States Med.
    535 U.S. 357
    , 374 (2002)).
    H.B. 1131's speech provisions do not require that customers be
    informed of a insurer/body shop arrangement or the existence of a
    law against steering, regulations which would arguably reduce the
    potential    for   consumer     confusion.        Rather,    the     challenged
    provisions only prevent an insurer from recommending its tied body
    shop to customers.      This would encourage business to shift away
    from the tied shop but it would not protect consumers, who may or
    may not choose to use a tied shop even after being informed of its
    advantages, and who may have a good rather than bad experience if
    they do choose to use a tied shop.63             If the work performed on
    customer    vehicles   at   a   tied    body   shop   is   shoddy,   aggrieved
          See Central Hudson, 447 U.S. at 562 (“Commercial
    expression not only serves the economic interest of the speaker,
    but also assists consumers and furthers the societal interest in
    the fullest possible dissemination of information. . . . People
    will perceive their own best interests if only they are well
    enough informed, and the best means to that end is to open the
    channels of communication rather than to close them.”) (internal
    alterations and citation omitted).
    customers are free to pursue legal and administrative remedies.
    Ultimately, the State Defendants have not shown that restricting
    the truthful speech about the benefits of using a tied auto body
    repair shop benefits customers.64           Notably, Allstate’s challenged
    script gives customers notice of the affiliation between itself and
    Sterling and further informs them that “[they] are always free to
    choose    any   repair   shop   of   [their]    choice   and   are   under   no
    obligation or requirement to use a shop [Allstate] recommend[s] .
    . . .”    These statements offer ample protection against the danger
    of consumer confusion.
         Moreover, on the issue of fair competition, it is not clear
    how requiring the insurer to recommend at least one other body shop
    in the PRO program in addition to its tied shop——but not all
    shops——promotes fair competition.        While this widens the circle of
    advantaged shops, it does not ensure overall fair competition for
    all body shops.
    3.   Is the restriction narrowly tailored to the state interests
         Our analysis of the first three Central Hudson prongs leads us
    to conclude that H.B. 1131's commercial speech provisions are not
    narrowly tailored to meet the asserted state objectives.                It is
    well established that the party seeking to uphold a restriction on
          See id. at 567 (suppression of advertising reduces the
    information available for consumer decisions and is contrary to
    the purpose of the First Amendment).
    commercial speech carries the burden of justifying it.65                 The State
    Defendants here fail to demonstrate why a more limited restriction,
    such as a requirement that Allstate disclose its ownership of
    Sterling or inform customers of Texas’s anti-steering law, would
    not   have     adequately   served   the     state’s   interest     in   consumer
    protection.66 Moreover, the State Defendants have not explained how
    compelling Allstate to provide a referral to at least two body
    shops would have a positive effect on overall competition or why
    requirements similar to those we have alluded to above would be any
    less effective in promoting such ends.
          The State Defendants finally contend that while Allstate’s
    script      may   provide   an   occasion    for   a   successful    as-applied
    challenge to certain provisions of H.B. 1131, the district court
    erred in declaring those provisions facially invalid.
          We disagree.      It is not the content of the specific Allstate
    script at issue which guides our analysis above, but rather the
    failure of the State Defendants to suggest a single circumstance in
    which these provisions, which ban non-misleading and truthful
    advertising, could be constitutionally applied.             The Supreme Court
    has recently invalidated provisions containing similar blanket bans
               Thompson, 535 U.S. at 373.
          See Central Hudson, 447 U.S. at 571 (“In the absence of a
    showing that more limited speech regulation would be ineffective,
    we cannot approve the complete suppression of [plaintiff]’s
    on advertising.67
                             V.   CONCLUSION
         For the foregoing reasons, we AFFIRM the judgment of the
    district court.
          See Thompson, 535 U.S. at 371-77 (declaring invalid a
    provision of the Food and Drug Administration Modernization Act
    of 1997 which prohibited pharmacists from advertising certain
    types of patient customized drugs where Government failed to
    demonstrate that the speech restrictions were not more extensive
    than necessary to serve its asserted interest in public health;
    “if the Government [can] achieve its interest in a manner that
    does not restrict speech, or that restricts less speech, the
    Government must do so."); 44 Liquormart, Inc. v. Rhode Island,
    517 U.S. 484
     (1996) (striking down state ban on all
    advertisements containing information about the price of alcohol;
    state failed to satisfy heavy burden under Central Hudson of
    justifying a complete ban all ads that contain accurate and
    non-misleading information); see also Secretary of State of Md.
    v. Joseph H. Munson Co., Inc., 
    467 U.S. 947
     (1984) (“Where . . .
    a statute imposes a direct restriction on protected First
    Amendment activity, and where the defect in the statute is that
    the means chosen to accomplish the State's objectives are too
    imprecise, so that in all its applications the statute creates an
    unnecessary risk of chilling free speech, the statute is properly
    subject to facial attack.”).