Advisory opinion letter: conflict of State (Virginia, Maryland and the District of Columbia) laws (the…

June 3 1974 Gentlemen:

This offce represents Major Finance Corporation and its subsidiaries (the "Company ), a company engaged (among other lending and 851' financing operations) in purchasing commercial paper from door-todoor sellers in the Washington, D.C. metropolitan area (including . nearby Maryland and Virginia areas). This request for advisory opinion is made on behalf of the Company and for our own guidance in the light of the facts set forth below.

The facts. The Company requested our opinion concerning conflict of State (Virginia, Maryland and the District of Columbia) laws (the statutes ) with the Rule and methods of compliance with the Rule and the statutes. After studying the statutes and the Rule and discussions with state enforcement authorities, we advised our client as is set forth in a copy of our opinion letter, annexed hereto as Exhibit I. On May 30, 1974, the undersigned received a telephone call from a member of your legal staff, Ms. Anne Fortney, who advised the undersigned that she had learned of our opinion and recommendations from a seller of commercial paper to the Company; that if the Company should adopt our recommendations to print, or requie printing of, both the notice required by state statutes and the Rule, the F. C. would immediately bring suit against our client to require removal of statutory notices required by the States and for other unspecified violation(s) of the Rule, all on the ground that the addition of mandatory state notices would be contrary to the Rule, which she vehemently asserted supersede, annul and repeal all statutes in conflict therewith (notwithstanding the provisions of note 2(b) of the rule). The undersigned informed Ms. Fortney that this office could not accept her opinion; that we were aware of possible changes in the statutes which would permt the use of only the notice required by the rue (whicb, in the case of Maryland, has occurred); and that until such time as such changes should occur, we believed we had no alternative but to advise our clients as set forth in ;xhibit I hereto. Ms. Fortney agan threatened action against our client and after a somewhat difficult conversation, the undersigned requested that he be transferred to your 1974) and General Counsel's office. After discussion that day (May 30, on June 3, 1974 with Mrs. Mary Foldes, who, incidently, is more moderate and understanding in her approach to the problem and who has been both belpful and grcious, we have decided to request the Commission s opinion with respect to the confict of laws problem which presently exists. We respectfully call your attention to the fact adequately set forth in Exhibit I hereto, that the Company desires only to be in compliance with, and to have all sellers of commercial paper to it in compliance with, all applicable law. The Company does not desire to make test cases or become engaged in unnecessary litigation with the Commission or any State authority.

The basis of our opinion. We acknowledge that under present law ADVISORY Ol-lNLUN:- ANJJ J(l'.l:Ul' IC) 1 nC.J\.IrVl\

and recent court decisions, rules of the Commission have the force and effect of law and must be complied with, where applicahle. We do not acknowledge that a Commission rule can invalidate or repeal a State statute or a specific Act of Congress in its capacity as the legislative branch of. t\1e District of Columbia Government. State cour (including in such term the District of Columbia) judges are obliged to enforce the Jaws of their respective jurisdictions (or in some c""es, the jurisdiction wherein the transaction arose) and cannot simply defer to Federal rules, regulations or law unless the State law is unconstitutional or the matter involves interstate commerce, as to which the ederal law would generally be superior. It is impractical to think that in an area such as the Washington, D.C. metropolitan area, involving three jursdictions, a door-to-door seller could make a proper decision as to the use of separate forms, one complying solely with Federal law (on the ground that Federal law is superior since interstate commerce is involved) and one complying solely with State statute (on the ground that the transaction is solely intra-State). Where a Commission rule and a state statute are in confict with each other and both are applicable to our client, we see no alternative but to recommend compJiance with both, which can be done in the instant situation, by simply not enforcing certain rights under State statutes retention of the deposit under the Marland statute. We believe that this is the thrust and force of note 2(b) of the rule.

Request for opinion. Your opinion is respectfully requested as to the following matters:

Will printing of both the notice required by the rue and the notice required by statute (see ,,;xhbit I recommendations as to the District of Columbia, Marland being no longer a problem), identifying one as the rule and the other as State law, violate the provisions of the rule where the statutes involved prescribe a mandatory fOrJn of notice and that form of notice is incompatible with the form of notice prescribed by the rule? We respectfully call to your attention our advice to our client to the effect that it is not to enforce provisions of State law which are less favorable to thc consumer than the provisions of the rue and vice versa if such situation should exist. Accordingly, the foregoing request is not to be interpreted as seeking an opinion which would permit the making of charges or use of other provisions of State law which are in confict with the rule and less beneficial to the consumer; nor should it be interpreted as a request for permission to omit the notice of cancellation requied by the rule, since we have advised our client to see to it that such notice of cancellation is provided in accordance with the rule.