                                                     United States Court of Appeals
                                                              Fifth Circuit
                                                           F I L E D
                     REVISED August 22, 2007
                                                            August 1, 2007
                 UNITED STATES COURT OF APPEALS
                      For the Fifth Circuit            Charles R. Fulbruge III
                                                               Clerk


                          No. 06-10500




ALLSTATE INSURANCE COMPANY and STERLING COLLISION CENTERS, INC.,

                           Plaintiffs-Appellants/Cross-Appellees,

                             VERSUS

  GREG ABBOTT, in his official capacity as Attorney General of
   Texas, and SUSAN COMBS, in her official capacity as Texas
                 Comptroller of Public Accounts,

                            Defendants-Appellees/Cross-Appellants

                             VERSUS

 AUTOMOTIVE SERVICE ASSOCIATION and CONSUMER CHOICE FOR AUTOBODY
                             REPAIR,

                           Intervenors-Appellees/Cross-Appellants



           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


                                  -1-
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

       1
      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.


                                           -2-
believed it could minimize charges for unnecessary or overpriced

repairs.

       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,

                                               -3-
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


     2
      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.

                                    -4-
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


      3
      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.

                                      -5-
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

     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

                                -6-
     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
     region.

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.
     5
      Tex. Occ. Code § 2307.002.
     6
      Id.

                                -7-
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



     7
      Tex. Occ. Code § 2307.006(11) (“An insurer may not enter
into a favored facility agreement exclusively with its tied
repair facilities.”).
     8
      Tex. Occ. Code § 2307.009(a).
     9
      Tex. Occ. Code § 2307.009(b).

                               -8-
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



                                   -9-
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




     10
          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
immunity).

                                  -10-
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,



     12
      See Lapides v. Bd. of Regents of Univ. Sys. Of Ga., 535
U.S. 613, 620 (2002).
     13
      Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)
(citation omitted).
     14
          244 F.3d 405, 426-27 (5th Cir. 2001) (en banc).

                                    -11-
the plaintiffs failed to fulfill Article III’s case and controversy

requirement.15

       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



       15
            Id. at 426.
       16
      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.
Graham, 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.”).
       17
            Ex parte Young, 209 U.S. 123, 157 (1908) (emphasis added).

                                        -12-
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

interest.

     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




     18
          See Okpalobi. at 426-27.
     19
      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).

                                      -13-
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

benefits.24

                                          A.

     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.



     20
          Castillo v. Cameron County, 238 F.3d 339, 347 (5th Cir.
2001).
     21
          Maine v. Taylor, 477 U.S. 131, 144-45 (1986).
     22
          Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 270 (1984).
     23
      C & A Carbone, Inc. v. Town of Clarkstown, N.Y., 511 U.S.
383, 392 (1994).
     24
          Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

                                         -14-
     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


     25
          See Hughes v. Oklahoma, 441 U.S. 322, 336 (1979).
     26
      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).

                                   -15-
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


     27
          H.B. 1131 House Hearing, supra note 4, pg. 5, 7.

                                          -16-
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


     28
          Id. at 8, 30, 100.
     29
          Id. at 17-28, 30-31, 102, 104.
     30
      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).
     31
          264 F.3d 493 (5th Cir. 2001).

                                      -17-
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



      32
           Ford, 264 F.3d at 502.
      33
           See id. at 500.
      34
      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).

                                         -18-
is no obstacle to such regulation.

                                         B.

     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,



     35
          437 U.S. 117 (1978).
     36
          Id. at 125.
     37
          Id. at 126.

                                        -19-
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

effect.

     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



     38
          Id.
     39
          Id.
     40
          Id. at 126, n.16.

                                                 -20-
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



      41
           Id. at 126.
      42
           Id.
      43
      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).

                                       -21-
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

                                    C.

     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




     44
      Exxon, 437 U.S. at 125; Int’l Truck and Engine Corp. v.
Bray, 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).
     45
          Pike, 397 U.S. at 142.
     46
          Ford, 265 F.3d at 503.
     47
          Exxon, 437 U.S. at 127-28.

                                   -22-
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



     48
      CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69, 93-94
(1987) (quoting Exxon, 437 U.S. at 127)).
     49
          CTS, 481 U.S. at 92.
     50
      Ford, 264 F.3d at 504 (quoting Kassel v. Consolidated
Freightways Corp., 450 U.S. 662, 680-81 (1981)).

                                        -23-
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

benefits.

       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

       51
            See Int’l Truck, 372 F.3d at 729.
       52
      LLEH, Inc. v. Wichita County, Tex., 289 F.3d 358, 364-65
(5th Cir. 2002).

                                             -24-
               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

challenge.

       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

       53
      Zauderer v. Office of Disciplinary Council, 471 U.S. 626,
628 (1985).
       54
            447 U.S. 557 (1980).

                                       -25-
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

constitutional.56

                                      A.

     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
     activity?

     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


     55
      Thompson v. Western States Med. Ctr., 535 U.S. 357, 367
(2002).
     56
          Id.

                                  -26-
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

customers.58

2.   Does H.B. 1131       prohibit    advertisements    which   would   be
     misleading?

     The State Defendants alternatively seek to uphold H.B. 1131's

regulations to prevent false and misleading representations, such


     57
          Ford, 264 F.3d at 506.
     58
      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).

                                   -27-
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

                                         -28-
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

test.60

                                           B.

     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

competition.62

2.   Does       the    regulation   directly     and   materially   advance    the


     59
      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
customer).
     60
      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).
     61
          Central Hudson, 447 U.S. at 566.
     62
      See Ohralik v. Ohio State Bar Ass’n, 436 U.S. 447, 460
(1978) (state clearly has an interest in consumer protection).

                                          -29-
     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.
      Ctr., 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


     63
      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).

                                       -30-
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
     advanced?

     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



     64
      See id. at 567 (suppression of advertising reduces the
information available for consumer decisions and is contrary to
the purpose of the First Amendment).

                                     -31-
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.

                                       C.

      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

      65
           Thompson, 535 U.S. at 373.
      66
      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
advertising.”).

                                      -32-
on advertising.67

                         V.   CONCLUSION

     For the foregoing reasons, we AFFIRM the judgment of the

district court.




     67
      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.”).

                               -33-
