Federal Court Halts Enforcement of Texas H.B. 1131 Provisions; U.S. District Court Judge Labels Restrictions ‘Unlawful’

The United States Federal District Court for the Northern District of Texas granted Allstate Insurance Company and Sterling Autobody Centers’ request for a preliminary injunction against enforcement of several provisions of Texas House Bill 1131, saying the restrictions violate Allstate’s and Sterling’s First Amendment rights to free speech.

The court’s decision reportedly clears the way for Allstate and Sterling to resume joint marketing of their relationship and allows Allstate to resume recommending Sterling as an option to Allstate customers and claimants in Texas. Neither the State of Texas (Greg Abbott or Carol Keeton Strayhorn in their official capacities as Texas Attorney General and Texas Comptroller of Public Accounts, respectively) nor the intervenors named in the lawsuit, appealed the decision. The last date to file an appeal was Jan. 12, 2004.

In his opinion, U.S. District Court Judge Ed Kinkeade said, “A ban on Plaintiff’s (Allstate’s and Sterling’s) speech promoting Sterling inhibits the dissemination of information that may benefit consumers.” The judge noted that Allstate makes it clear to consumers that they may always take their cars to any shop of their choosing.

Judge Kinkeade stated in his decision to grant the injunction that “consumers benefit from more information rather than less.” Judge Kinkeade’s decision also says the law fails to advance its backer’s stated goals of consumer protection or the promotion of fair competition. The judge writes, “The state cannot undertake to level the playing field for the purpose of protecting local business from competitors…so that local companies can maintain their profit margins.”

Texas H.B. 1131 became Texas law on Sept. 1, 2003. The law prohibits further expansion of insurance company owned auto body repair facilities in Texas and restricts the ability of these companies to speak to Texas customers and claimants.

“Allstate and Sterling are pleased with the judge’s decision and are hopeful that this temporary decision will become permanent,” said Allstate Vice President for Property and Casualty Claims Cathy Lazaroff. “We believe strongly in the freedom to compete for consumers’ business and will continue to oppose legislation in Texas and other states that attempts to deny consumers the benefits of innovation and competition.”

Kinkeade said in his injunction, “The fact Sterling may have raised the bar by claiming to provide additional and/or superior products and services should spur further competition.”

Allstate and Sterling filed a legal challenge to H.B. 1131 on Aug. 29, 2003. The case is currently in U.S. District Court in the Northern District of Texas and alleges H.B 1131 is unconstitutional because it violates both Allstate’s and Sterling’s First Amendment right of free speech and the Commerce Clause by unduly interfering with interstate commerce.

“The restrictions placed on Allstate Insurance Company and Sterling Autobody Centers are clearly anti-business and anti-consumer,” Lazaroff said. “The viability of an insurer-owned repair facility should be determined by free and open competition. This type of legislation unnecessarily deprives Texas consumers of access to a lawful and legitimate, high quality, consumer focused, cost-effective repair option. Sterling provides consumers with the opportunity for quality repairs, comprehensive guarantees and overall improved auto repair experience.”

Allstate and Sterling’s continuing constitutional challenge to this legislation will be heard at trial, currently scheduled for September 2004.

“Having one company outlawed because its innovations or ideas provide a superior customer option compared to the rest of the industry is contrary to the essence of free enterprise,” Lazaroff said. “Our economy needs laws that welcome and encourage businesses to invest and expand in the state, not laws that place unfair and onerous restrictions on growth.”