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Do State Licensing Laws Violate the First Amendment of the United States Constitution?
Question: Do state auctioneer licensing laws violate the First Amendment of the United States Constitution by improperly restricting speech?
In what could prove to have far-reaching implications for states regulating the auction method of marketing, this issue is currently being litigated and will be decided upon. The case started in Tennessee and is now being considered by the Sixth Circuit of the United States Court of Appeals. The United States District Court for the Middle District of Tennessee ruled on August 19, 2024, that Tennessee's statutory provisions regulating auctions—including extended-time auctions—did not violate the First Amendment of the United States Constitution. (McLemore v. Gumucio, 3:23-cv-01014). The plaintiffs subsequently filed a notice of appeal on August 26, 2024, taking this case to the Sixth Circuit of the United States Court of Appeals.
Here is the background. Since 1967, Tennessee has regulated auctions and auctioneers within its borders. The current law makes it unlawful to “[a]ct as, advertise as, or represent to be an auctioneer without holding a valid license issued by” the Tennessee Auctioneer Commission. Tenn. Code Ann. § 62-19102(a)(1). An individual can receive a license as an auctioneer by completing a course of instruction and passing the licensure examination. Tennessee law makes a distinction between a principal auctioneer and an affiliate auctioneer. No license is required if an individual “generates less than twenty-five thousand dollars ($25,000.00) in revenue in a calendar year from the sale of property in online auctions.” Tenn. Code Ann. § 62-19-103(12). The current Tennessee statutes apply only to individual auctioneers; they do not require a business entity that employs or works with licensed auctioneers to obtain a separate license. A licensed auctioneer can “conduct auctions at any time or place” in Tennessee. The definition of an auction is broadly written and includes internet auctions. There are several exemptions to that definition, including an exemption for “[a]ny fixed price or timed listings that allow bidding on an internet website, but do not constitute a simulcast of a live auction.” Tenn. Code Ann. § 62-19-103(3). There is no exemption for an “extended-time” auction. An extended-time auction may begin with a minimum period, but that period is extended as long as bidders keep bidding—much like an ordinary, in-person auction.
The plaintiffs in the lawsuit conduct online extended-time auctions through a business entity. The plaintiffs argued that the licensing law violated the First Amendment and improperly restricted their freedom of speech. Judge Aleta A. Trauger evaluated the plaintiffs' argument but ruled against them in favor of the Tennessee Auctioneer Commission. The Court ruled that the license requirement was simply an ordinary business regulation. The Court acknowledged that Tennessee can regulate economic activity and that the First Amendment does not prevent restrictions directed at commerce or conduct from imposing incidental burdens on speech. The Court recognized that “Auctioneers do ‘speak' for a living, in a colloquial sense …. Every salesperson does.”
The Court also concluded that Tennessee's licensure scheme is drafted to regulate transactions, not speech. The license is required to conduct an auction, which is a type of sales transaction. The Court concluded that the “Tennessee statute … is simply a straightforward licensing scheme for performing a specific type of commercial transaction” and did not unduly burden their speech.
The Court further reasoned that since auctioneers' core function is facilitating product sales, the analysis should consider “commercial speech.” The law provides less protection for commercial speech under the First Amendment. “An auction consists of parties proposing a series of alternative transactions to each other before settling on one that actually goes into effect; it is little more than a competition between commercial utterances.” It continued, “Contentneutral commercial speech regulations are typically subject only to intermediate scrutiny, … which requires a law to ‘be narrowly tailored to serve a significant government interest and leave open alternative channels of communication.” The State of Tennessee's significant interest in overseeing the practice of auctioneering has been established and acted upon for over fifty years. It reflects the inherent vulnerability of auctions to fraud – for example, through fake or covertly subsidized bids to drive up a price. The licensure requirement is a relatively undemanding tool for addressing that genuine problem.
The Court explained, “Tennessee's auctioneer licensing system is an economic regulation that burdens speech only insofar as that speech is made in facilitation of the economic transactions that Tennessee has, within its ordinary authority, chosen to regulate.” Tennessee has a legitimate interest in addressing fraud and incompetence in the auctioneering field, and its relatively undemanding licensure scheme is rationally related to that interest.” Finally, the “decision to require a license for extended-time online auctions, but not timed online auctions, is rationally supported by extended-time auctions' greater similarity to conventional auctions and greater vulnerability to escalatory bidding strategies, including the fraudulent ones.”
The Court's decision was appealed to the Sixth Circuit. The Sixth Circuit will take some time to consider and evaluate the issues and arguments. Stay tuned for future updates.