Federal Appeals Court Rules Lower Court Lacked Jurisdiction to Enjoin Colorado Notice and Reporting Law; Direct Marketing Association Will Seek Rehearing En Banc

Many of our readers have been following closely the litigation challenging the Colorado law passed in 2010, which required remote sellers to inform consumers of their obligation to self-report sales and use tax and also required direct marketers to turn over to the Colorado Department of Revenue the names of their Colorado customers along with sales transaction information. In 2012, the United States District Court in Denver declared the Colorado law unconstitutional, as a violation of the Commerce Clause. The Colorado Department of Revenue appealed the District Court decision to the Tenth Circuit Court of Appeals.

On Tuesday, August 20, 2013, the Tenth Circuit issued its decision in Direct Marketing Association v. Brohl. The three judge panel hearing the case did not reach, or address in any way, the constitutional issues in the case. Instead, the Court ruled solely on the question of whether the District Court had jurisdiction to hear the case.

Although the jurisdiction of the federal courts was not contested by the parties, the appellate court concluded that the United States District Court in Denver did not have jurisdiction because of the so-called Tax Injunction Act (28 U.S.C. sec. 1341) (“TIA”). This jurisdictional statute prevents federal courts from entering judgments that restrain the collection of state taxes, and the Tenth Circuit ruled that it applied in this case. The Court stated that the challenge to the constitutionality of the Colorado law must be filed in state court rather than federal court. Therefore, the Court of Appeals remanded the case back to the District Court and directed it to dismiss the DMA’s Commerce Clause claims and to dissolve the permanent injunction against the Department of Revenue’s enforcement of the law.

Nondisclosure Agreement Do’s and Don’ts

The nondisclosure agreement (“NDA”) is perhaps the most common single agreement that a business person is likely to run across. Virtually any preliminary business conversation, either with a potential vendor or a potential customer, is likely to be prefaced with the exchange of an NDA. In general, these documents are fairly standard and innocuous. The typical business person may feel comfortable executing and NDA without consulting counsel. If you are tempted to do so, here are five tips that can help you avoid making a mistake you may later regret.

1. Home Cooking is the Best. Have a standard form of mutual NDA that you can readily offer up. In some instances, this is a pure leverage issue, but if you are dealing with a party that does not have its own form, you can seize the initiative by providing your own.
2. What’s Sauce for the Goose is Sauce for the Gander. Some so-called “standard” NDA’s only protect the information of one party (typically the one providing the form of agreement). It is important to make sure that any NDA that you sign is mutual. Obviously, you want your confidential information to be protected to the same degree as that of the other party. In addition, a mutual NDA tends to be more even-handed than a one-way NDA.