<![CDATA[Filed January 7, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-5618
A.S. GOLDMEN & COMPANY, INC.
v.
NEW JERSEY BUREAU OF SECURITIES,
Appellant
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 96-cv-05280)
District Judge: Honorable Dickinson R. Debevoise
Argued Thursday, May 21, 1998
BEFORE: ROTH1, McKEE and GARTH, Circuit Judges
Reargued Friday, December 4, 1998
BEFORE: ALITO, McKEE and GARTH, Circuit Judges
(Opinion filed January 7, 1999)
_________________________________________________________________
1. Judge Roth was obliged to recuse herself after argument but before
clearance of this Opinion. Judge Alito took Judge Roth's place upon
reconstitution of the panel and reargument. 
Peter Verniero, Attorney General
Office of the Attorney General of
New Jersey
Andrea M. Silkowitz, Assistant
Attorney General
Division of Law
Hughes Justice Complex
CN-112
Trenton, New Jersey 08625
Gail M. Cookson (argued)
Deputy Attorney General
Tracy Thayer
Deputy Attorney General
Office of the Attorney General of
New Jersey
124 Halsey Street
P.O. Box 45029
Newark, New Jersey 07101
Attorneys for Appellant
New Jersey Bureau of Securities
Martin Flumenbaum (argued)
Brad S. Karp
Paul, Weiss, Rifkind, Wharton &
Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Michael A. Lampert
Saul, Ewing, Remick & Saul
214 Carnegie Center, Suite 202
Princeton, New Jersey 08540
Attorneys for Appellee
A.S. Goldmen & Company, Inc.
2 
Karen M. O'Brien, General Counsel
North American Securities
Administrators Association, Inc.
10 G Street, NE
Suite 710
Washington, D.C. 20002
Attorneys for Amicus-Appellant
North American Securities
Administrators Association, Inc.
Richard E. Walker
Eric Summergrad
Luise de la Torre
Paul Gonson
Securities & Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Attorneys for Amicus-Appellant
Securities & Exchange Commission
OPINION OF THE COURT
GARTH, Circuit Judge:
This case raises a dormant commerce clause challenge to
one aspect of the New Jersey Uniform Securities Law. The
appellee, A.S. Goldmen & Co., Inc. ("Goldmen"), claims that
N.J.S.A. S 49:3-60 ("S 60") violates the dormant commerce
clause insofar as it authorizes the appellant New Jersey
Bureau of Securities to prevent Goldmen from selling
securities from New Jersey to buyers in other states where
purchase of the securities was authorized by state
regulators. The district court agreed, and granted summary
judgment in favor of Goldmen. We hold that S 60 does not
run afoul of the dormant commerce clause, and therefore
reverse.
3 
I.
A.
Because of the noted potential for fraud and deception in
the buying and selling of securities, securities markets are
among the most heavily regulated markets in the United
States.2 Regulation of securities first flourished at the state
level in the 1910s, when states began enacting laws that
required the registration of a securities offering before the
sale of the security was permitted. The purpose of these so-
called "blue sky" laws was to allow state authorities to
prevent unknowing buyers from being defrauded into
buying securities that appeared valuable but in fact were
worthless.3 By 1933, all but one state had passed blue sky
laws; today, all fifty states, the District of Columbia, Guam,
and Puerto Rico have blue sky laws in force. See Louis Loss
& Joel Seligman, 1 Securities Regulation 40-41 (3d ed. Rev.
1998) (hereinafter, "Loss & Seligman").
Aggressive federal regulation of securities markets began
in the early 1930s with the passage of the Securities Act of
1933 and the Securities Exchange Act of 1934. Today, the
Securities and Exchange Commission ("SEC") administers
these and five other federal statutes, which altogether form
a complex web of federal regulations. See id. at 224-81.
Despite this complex federal scheme, Congress, the courts,
and the SEC have made explicit that federal regulation was
not designed to displace state blue sky laws that regulate
interstate securities transactions. See, e.g., 15 U.S.C.
S 77r(c) (1997) (preserving state jurisdiction "to investigate
and bring enforcement actions with respect to . . . unlawful
conduct by a broker or dealer") (National Securities Markets
Improvement Act of 1996); Merrill Lynch, Pierce, Fenner &
Smith, Inc. v. Ware, 414 U.S. 117, 137 (1973) ("Congress
_________________________________________________________________
2. Securities are the collective term used to describe documents that
represent ownership in a company or a debt. Common examples include
stocks, bonds, notes, convertible debentures, and warrants. See Black's
Law Dictionary 1215 (5th ed. 1979); Joseph C. Long, 12 Blue Sky Law
S 2.01 (1997).
3. See generally Jonathan R. Macey & Geoffrey P. Miller, Origin of the
Blue Sky Laws, 70 Tex. L. Rev. 347 (1991).
4 
intended to subject [securities] exchanges to state
regulation that is not inconsistent with the federal [laws].");
Loss & Seligman at 275-281. Although the enactment of
the National Securities Markets Improvement Act of 1996
narrowed the role of state blue sky laws by expanding the
range of federal preemption, federal and state regulations
each continue to play a vital role in eliminating securities
fraud and abuse. See Loss & Seligman at 60-62; Manning
G. Warren III, Reflections on Dual Regulation of Securities
Regulation: A Case Against Preemption, 25 B.C. L. Rev. 495,
497, 501-27 (1984) (describing how Congress, the courts,
and the SEC have expressly authorized the enforcement of
state blue sky laws).
B.
Among blue sky laws, the most common regulatory
approach is the mixed disclosure and merit regulation
scheme offered by the Uniform Securities Act ("Uniform Act").4
Drafted in large part by the late Professor Louis Loss, the
Uniform Act has been adopted with some modification in
nearly forty states, including New Jersey. See N.J.S.A.
S 49:3-47 to 76. The Act contains three essential parts:
provisions requiring the registrations of securities sold
within the state; provisions requiring the registration of
persons involved in the securities industry; and various
antifraud provisions. See id; see also Joseph C. Long, 12
Blue Sky Law S 1.07 (1997) (hereinafter, "Long").
This case raises a constitutional challenge to N.J.S.A.
S 49:3-60 ("S 60"), which is New Jersey's codification of the
portion of the Uniform Act that makes it "unlawful for any
security to be offered or sold in this State" unless the
security is either registered by state authorities, is exempt
_________________________________________________________________
4. The various state and federal securities regulations reflect two broad
regulatory philosophies: merit regulation and disclosure. Regulations
based on disclosure principles, such as the federal Securities Act of
1933, seek to provide investors with all material and relevant
information about the securities and the company offering them. In
contrast, merit regulations seek to protect investors by prohibiting
transactions that authorities deem unfair or unjust. See Joseph C. Long,
12 Blue Sky Law S 1.05 (1997).
5 
under N.J.S.A. S 49:3-50, or is a federally covered security.5
When read in conjunction with N.J.S.A. S 49:3-51(c), which
states that "an offer to sell or buy is made in this State . . .
when the offer . . . originates in this State," S 60 grants New
Jersey regulatory authorities the power to regulate the offer
or sale of all non-exempt, non-covered securities whenever
the offer is made within the state of New Jersey. Under
N.J.S.A. S 49:3-64 and the 1985 amendments to the New
Jersey statute, this authority permits the chief of the New
Jersey Bureau of Securities ("Bureau") to exercise broad
powers to regulate sale of such securities in New Jersey
when it is deemed in the public interest and various
statutory requirements have been met.
II.
A.
A.S. Goldmen & Co. is a securities broker-dealer with its
sole office located in Iselin, New Jersey.6 At the time of
proceedings before the District Court, Goldmen's sole office
was located in New Jersey. Since that time, it has opened
at least one other office out of state.
Goldmen specializes in underwriting the public offerings
of low priced, over-the-counter securities, and then selling
those securities in the secondary market. During thefirst
several months of 1996, Goldmen planned the initial public
_________________________________________________________________
5. In its current form, N.J.S.A. S 49:3-60 (1997) states:
It is unlawful for any security to be offered or sold in this State
unless:
(a) The security or transaction is exempt under section 3 of
P.L.1967, c. 93 (C.49:3-50);
. . .
(e) The security is registered under this act; or
(f) It is a federal covered security for which a notice filing and fees
have been submitted as required by section 14 of this act (C.49:3-
60.1).
6. A "broker-dealer" is defined by the Act as "any person engaged in the
business of effecting or attempting to effect transactions in securities for
the accounts of others or for his own account." N.J.S.A. S 49:3-49(c).
6 
offering of Imatec, Ltd. ("Imatec"). Imatec is a Delaware
corporation, located in New York, that was formed in 1988
to develop, design, market, and license image enhancement
technologies. Goldmen planned for the Imatec securities to
be traded as a NASDAQ Small Cap stock because such
stocks are exempt from initial federal registration
requirements, see 15 U.S.C. S 77(d) (1997). The primary
regulation of the Imatec security during the first 25
calendar days of the offering would occur at the state level.
See 17 C.F.R. S 230.174(d) (1992). Accordingly, in May
1996, Goldmen concurrently filed registration statements
with the SEC, and also attempted to register the offering
"by qualification" with state regulatory authorities in over a
dozen states, including New Jersey.7
The prospectus filed by Goldmen with the New Jersey
Bureau of Securities ("the Bureau") listed Goldmen as the
sole underwriter, and also indicated that Goldmen would
own the shares to be offered to the public. Reviewing
Goldmen's application, the Bureau expressed various
concerns regarding the Imatec offering to Goldmen's
counsel. Although the Bureau was not prepared to make
allegations of fraud, it had already been investigating
Goldmen's business practices at that time, and was
concerned that the combination of Goldmen's practices and
the bleak financial prospects of Imatec made the offering a
high-risk investment that was likely to be associated with
abusive and manipulative sales practices.
On August 7, 1996, the Bureau informed Goldmen's
counsel that it was considering the issuance of a stop order
that would block the Imatec offering from being registered
in New Jersey. Goldmen's counsel and the Bureau then
entered into negotiations concerning the future of the
Imatec offering. On October 23, 1996, these negotiations
_________________________________________________________________
7. Registration "by qualification" is the most comprehensive form of blue
sky registration, and is generally necessary when the security is exempt
from initial federal registration requirements. The other types of
registration, registration "by notification" and registration "by
coordination," are much simpler and are reserved for securities that
carry a higher indicia of reliability than securities that must be
registered by qualification. See N.J.S.A.S 49:3-61 (describing
requirements for registration by qualification).
7 
resulted in a Consent Order signed by the CEO of Imatec
and the Bureau chief. According to the Consent Order,
Goldmen withdrew its application to register the Imatec
offering in New Jersey, and agreed that the Imatec offering
did not qualify for N.J.S.A. S 49:3-50(b) exemptions to the
registration rule of S 60. Goldmen was permitted to make
unsolicited sales from New Jersey or to sell to certain
financial institutions or to other broker-dealers. However,
the Consent Order specifically denied Goldmen exemptions
that would have allowed it to solicit members of the public
to purchase Imatec stock in the secondary market. App.
38-41; App. 156-57.
Five days after Goldmen entered into the Consent Order,
on October 28, 1996, the registration statement that
Goldmen had filed with the SEC became effective. 8 As of
that date, Goldmen had managed to register the Imatec
offering in sixteen states, but had been forced to withdraw
its registration in several others, including New Jersey.
On the morning of October 29, 1996, Goldmen
commenced the initial public offering from its office in
Iselin, New Jersey. By telephone, Goldmen solicited sales to
individuals outside of New Jersey, but did not solicit any
sales to individuals within New Jersey. By 3 p.m. of that
day, Goldmen had sold the entire public offering. 9
Subsequently, Goldmen continued to buy and sell Imatec
securities in the interdealer market from its New Jersey
office.
_________________________________________________________________
8. Registration with the SEC does not imply SEC approval of the offering.
See 15 U.S.C. S 77w (1997) ("[T]he fact that the registration statement for
a security has been filed or is in effect . . . shall [not] be deemed a
finding by the Commission that the registration statement is true and
accurate on its face . . . , or be held to mean that the Commission has
in any way passed upon the merits of, or given approval to, such
security.")
9. We do not regard this case as moot despite the fact that the Imatec
offerings are concluded. We are concerned that this kind of case
presents a problem that may be capable of repetition but avoiding review
with respect to Goldmen. Weinstein v. Bradford, 423 U.S. 147 (1975).
Due to the nature of Goldmen's business, this same problem may be
confronted in the future.
8 
The Bureau learned of Goldmen's sales on November 7,
1996. Because the window for state regulation of the
Imatec offering closed 25 days after the offering began,10 the
Bureau acted immediately, notifying Goldmen that it
believed that the sales violated the Securities Act and the
Consent Order. Goldmen took the position that its sales
violated neither state law nor the consent order, and
informed the Bureau that it intended to continue to buy
and sell securities from its New Jersey office. The Bureau
responded by issuing a Cease and Desist Order dated
November 12, 1996, which ordered Goldmen to "cease and
desist from the solicitation of customers, offer and sale of
Imatec in or from the State of New Jersey to any members
of the public." App. 91.
B.
On the same day that the Bureau issued the Cease and
Desist Order, Goldmen filed this declaratory judgment
action against the Bureau in federal district court.
Goldmen's complaint claimed that "the New Jersey
Securities Act, as applied to securities that were not
registered or exempt from registration in New Jersey and
were sold by brokers located in New Jersey to residents of
states (other than New Jersey) in which the securities were
qualified for sale, violates the Commerce Clause of the
United States Constitution." The complaint also alleged that
even if the Securities Act was constitutional, the Act and
the Consent Order did not apply to block Goldmen's sales
of Imatec securities from New Jersey. According to
Goldmen, the sole legal effect of the Act and the Consent
Order was to prohibit Goldmen from selling the securities
to buyers located in New Jersey.
The district court issued an Order to Show Cause, and
held a hearing on November 20, 1996.11 The district court
_________________________________________________________________
10. Under 15 U.S.C. S 77r(b)(4)(A) and 17 C.F.R. S 230.174(d), the Imatec
security became a "covered security" 25 days after the initial public
offering. At that time, state regulation was preempted. See 15 U.S.C.
S 77r(a)(1)(A) (1997).
11. At the hearing, the Bureau argued that Goldmen's federal action
should be stayed under the abstention principles enunciated in Younger
9 
issued a preliminary injunction the same day, enjoining the
Bureau from taking any action that would prohibit
Goldmen from "soliciting, offering or selling securities that
are not registered or exempt from registration in New Jersey
to residents of states (other than New Jersey) in which the
securities are qualified for sale." App. 402-03.
The case then proceeded to cross-motions for summary
judgment. On August 21, 1997, the district court granted
Goldmen's motion for summary judgment and denied the
Bureau's summary judgment motion. The sole issue
addressed was whether the New Jersey Uniform Securities
Law violated the dormant commerce clause by authorizing
the Bureau to block the sale of securities from New Jersey
to buyers in other states where the security was registered.
The district court concluded that it did. According to the
district court, the law directly regulated interstate
commerce because it effectively allowed the Bureau"to
impose New Jersey securities regulations onto other states."
The district court argued that "[t]o allow the Bureau to
preclude consumers in other states from receiving
solicitations to purchase securities which their own state
regulators have deemed appropriate for purchase is, in
essence, to allow the Bureau to substitute its own
regulatory judgment for that of other states." Further, the
district court argued that absent allegations of fraud, the
Bureau had no interest in regulating such transaction.
Accordingly, the New Jersey Uniform Securities Law
imposed an excessive burden on interstate commerce in
relation to New Jersey's local benefits. App. 581 (citing Pike
v. Bruce Church, 397 U.S. 137 (1970)).
The Bureau filed a timely appeal.
_________________________________________________________________
v. Harris, 401 U.S. 37, 91 S. Ct. 746 (1971). The district court rejected
this argument. App. 446. Because the Bureau has chosen not to raise
this issue on appeal, we will not address it further. Compare Ohio Bureau
of Employment Services v. Hodory, 431 U.S. 471, 477-80, 97 S.Ct. 1898,
1904 (1977).
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III.
A. Legal Framework
The Supreme Court has long construed the Commerce
Clause as implying a judicial power to invalidate state laws
that interfere improperly with interstate commerce. See,
e.g., Cooley v. Board of Wardens, 53 U.S. (12 How.) 299
(1851). One consistent strain of these cases authorizes
courts to invalidate state regulations when their
extraterritorial impact is so great that their "practical effect
. . . is to control conduct beyond the boundaries of the
state." Healy v. The Beer Institute, 491 U.S. 324, 336, 109
S.Ct. 2491, 2499 (1989). As Justice Cardozo explained in
Baldwin v. G.A.F. Seelig, 294 U.S. 511, 523, 55 S.Ct. 497,
500 (1935), such a power is necessary to prevent states
from applying "parochial" laws that can bring about "a
speedy end of our national solidarity." "The Constitution,"
Justice Cardozo stated, "was framed upon the theory that
the peoples of the several states must sink or swim
together, and that in the long run prosperity and salvation
are in union and not division." Id.
According to these "extraterritorial effects" cases, a state
may not attempt to regulate commerce that takes place
"wholly outside" of its borders: such a "projection of one
state regulatory regime into the jurisdiction of another
State" is impermissible. Healy, 491 U.S. at 336-37; 109
S. Ct. at 2499. Under this rubric, the Supreme Court has
invalidated state laws that restricted interstate movement of
goods based on the price paid for them in out-of-state
transactions. See, e.g., Baldwin, 294 U.S. at 521, 55 S. Ct.
at 499 (invalidating New York law that banned the
importation of milk into New York when the price paid
outside of New York to the out-of-state producer was lower
than that permitted under then-existing laws regulating
milk purchases from New York producers); Lemke v.
Farmers Grain Co., 258 U.S. 50, 61, 42 S. Ct. 244, 248
(1922) (invalidating North Dakota law requiring exported
wheat to be sold outside of North Dakota at price set by
North Dakota state inspector). Similarly, the Court has
struck down state laws that prohibited the importation of
out-of-state goods unless the importer guaranteed that its
11 
in-state prices were no higher than elsewhere. See, e.g.,
Healy, 491 U.S. at 337, 109 S. Ct. at 2499 (invalidating
Connecticut law prohibiting beer imports unless seller
guaranteed that prices offered in Connecticut were no
higher than in neighboring states); Brown-Forman Distillers
Corp. v. New York State Liquor Auth., 476 U.S. 573, 579,
106 S. Ct. 2080, 2084 (1986) (invalidating New York law
requiring liquor importers to affirm that prices offered to
New York wholesalers were lowest nationwide). Finally, the
Court has invalidated laws granting officials in one state
the authority to block multistate transactions that only
marginally involve in-state interests. See Edgar v. MITE
Corp., 457 U.S. 624, 643-46, 102 S. Ct. 2629, 2641-42
(1982) (invalidating Illinois law that authorized Illinois
officials to block substantively unfair takeovers of
multistate companies that had connections to Illinois and
also other states).
Of course, these cases do not establish that the states
are forbidden categorically to regulate transactions that
involve interstate commerce. See H.P. Hood & Sons v. Du
Mond, 336 U.S. 525, 532-33, 69 S. Ct. 657, 662 (1949)
(Jackson, J.) (recognizing that States have "broad power . . .
to protect its inhabitants against . . . fraudulent traders . . .
even by use of measures which bear adversely upon
interstate commerce"). Rather, states are permitted to
regulate in-state components of interstate transactions so
long as the regulation furthers legitimate in-state interests.
A particularly relevant example of this is Hall v. Geiger-
Jones Co., 242 U.S. 539, 37 S. Ct. 217 (1917), and its
companion cases, Caldwell v. Sioux Falls Stock Yards Co.,
242 U.S. 559, 37 S.Ct. 224 (1917) and Merrick v. N.W.
Halsey & Co., 242 U.S. 568, 37 S.Ct. 227 (1917)
(collectively, the "Blue Sky Cases"). In the Blue Sky Cases,
the Court considered dormant commerce clause challenges
to then-recently enacted Blue Sky laws in Ohio, South
Dakota, and Michigan. Although the three statutes differed
somewhat, each granted state securities commissions the
authority to block the in-state sale or purchase of
unlicensed securities. The laws were challenged both by
unlicensed in-state securities sellers and the out-of-state
purchasers who had traveled in-state to make their
purchases, but the Court rejected their claims that the laws
12 
violated the dormant commerce clause. The key to the laws'
constitutionality, the Court held, was that "[t]he provisions
of the law . . . apply to dispositions of securities within the
state." Hall, 242 U.S. at 557, 37 S. Ct. at 223 (emphasis in
original). By limiting the scope of the statute to dispositions
of securities "within the State," the Court announced, the
states had merely enacted "police regulation[s]," that
"affect[ed] interstate commerce . . . only incidentally." Id. at
558, 37 S. Ct. at 223; see also CTS Corp. v. Dynamics
Corp., 481 U.S. 69, 93, 107 S.Ct. 1637, 1651-52 (1987)
(rejecting challenge by out-of-state company to Indiana law
conditioning acquisition of corporate control of Indiana
corporation on approval of a majority of the pre-existing
disinterested shareholders, reasoning that law regulated in-
state corporations); cf. Shafer v. Farmers' Grain Co, 268
U.S. 189, 200, 45 S. Ct. 481, 485 (1925) (invalidating North
Dakota law that regulated in-state handling of wheat
headed for interstate commerce that served no legitimate
in-state interests).
B. Territoriality
As these cases indicate, the constitutionality of state
regulations of interstate commerce depends largely on the
territorial scope of the transaction that the state law seeks
to regulate. If the transaction to be regulated occurs "wholly
outside" the boundaries of the state, the regulation is
unconstitutional. MITE Corp, 457 U.S. at 642. If the
transaction occurs "within" the boundaries of the state, it is
constitutional so long as the regulation furthers legitimate
in-state interests. See id. at 643-46; CTS Corp, 481 U.S. at
93.
Therefore, the first issue we must address is the
territorial scope of the transaction that New Jersey has
attempted to regulate. The question is, what is the
territorial basis of a contract entered into by telephone
between a New Jersey broker soliciting sales of Imatec
securities from New Jersey, and an out-of-state buyer who
agrees to purchase them outside of New Jersey? More
particularly, can it fairly be said that such a transaction
occurs "wholly outside" New Jersey? As this is a legal
question, our review is plenary. See Ciarlante v. Brown &
13 
Williamson Tobacco Corp., 143 F.3d 139, 145 (3d Cir.
1998).
Goldmen and the Bureau offer divergent views ofS 60's
territorial scope. Goldmen argues that S 60 permits New
Jersey to reach out beyond its borders and block willing
buyers from completing transactions authorized by their
home states. According to Goldmen, "the effects of the
Bureau's application of Section 60 is not to regulate in-
state brokers, but to preclude out-of-state residents from
purchasing a product deemed appropriate for sale by their
own regulators." Br. at 20. Goldmen suggests that the
offer's origin in New Jersey is not relevant to the
transaction's territoriality, because "the `practical effect' of
permitting New Jersey to bar the sale of securities from
New Jersey into states where those securities have been
qualified for sale is that those out-of-state residents will be
precluded altogether from receiving the opportunity to
purchase these securities." Id. at 16.
The Bureau's position is that S 60 regulates the offering
of securities entirely within the state of New Jersey.
According to the Bureau,
Section 60 simply regulates how brokers located in
New Jersey conduct business from their New Jersey
offices. In this instance, these were Imatec securities
. . . offered for sale by the underwriter through
solicitations of the public from New Jersey. The offer
and sale arose in New Jersey. Goldmen chose to
domicile its highly-regulated business in New Jersey
and to conduct that business from within the State.
Br. at 27.12 The Bureau concedes that S 60 may affect
interstate commerce, to the extent that sellers such as
Goldmen try to sell securities to buyers in other states.
However, the Bureau contends that this is merely an
indirect effect of what is essentially New Jersey's regulation
of New Jersey parties seeking to sell securities in New
Jersey.
_________________________________________________________________
12. Both amici, North American Securities Aministrators Association and
the Securities and Exchange Commission, support the position taken by
the New Jersey Bureau of Securities that S 60 does not violate the
dormant commerce clause.
14 
In resolving this question, we begin by noting that
notions of the territorial scope of contracts between citizens
of different states have evolved in the past century. At one
time, it was fashionable to conceive of contracts between
diverse parties as being rooted in a single geographical
location, such as the place the offer was accepted. See, e.g.,
Joseph H. Beale, What Law Governs Validity of a Contract,
23 Harv. L. Rev. 260, 270-71 (1910). Under this traditional
approach, it was believed that when a contract offer made
in New Jersey was accepted in New York, the contract was
"made" in New York, and thus implicated New York's
sovereignty. See id; cf. Perrin v. Pearlstein, 314 F.2d 863,
867 (2d Cir. 1963).
The contrasting modern approach is to recognize that
contracts formed between citizens in different states
implicate the regulatory interests of both states. Thus,
when an offer is made in one state and accepted in another,
we now recognize that elements of the transaction have
occurred in each state, and that both states have an
interest in regulating the terms and performance of the
contract. See, e.g., General Ceramics Inc. v. Fireman's Fund
Ins. Co., 66 F.3d 647, 656-59 (3d Cir. 1995) (comparing the
regulatory interests of New Jersey and Pennsylvania to a
contract formed between a New Jersey company and a
Pennsylvania company in the course of determining
applicable law). See generally Joseph W. Singer, A
Pragmatic Guide to Conflicts, 70 B.U. L. Rev. 731, 785-802
(1990) (describing the regulatory interests of states in
contract disputes between diverse parties).
This notion that the sovereignty of both the state of the
offeror and offeree are implicated by contracts entered into
by citizens in different states is the key to understanding
the territorial scope of the contract between Goldmen and
the prospective buyers of Imatec in another state such as
New York. A contract between Goldmen in New Jersey and
a buyer in New York does not occur "wholly outside" New
Jersey, just as it does not occur "wholly outside" New York.
Rather, elements of the transaction occur in each state,
15 
and each state has an interest in regulating the aspect of
the transaction that occurs within its boundaries.13
Accordingly, S 60 simply allows the Bureau to regulate its
"half" of the transaction-- the offer that occurs entirely
within the state of New Jersey-- and thus its territorial
scope is indistiguishable from that in Hall v. Geiger-Jones
Co., 242 U.S. 539, 37 S. Ct. 217 (1917), Caldwell v. Sioux
Falls Stock Yards Co., 242 U.S. 559, 37 S.Ct. 224 (1917)
and Merrick v. N.W. Halsey & Co., 242 U.S. 568, 37 S.Ct.
227 (1917).
Viewed in this light, Goldmen's view that S 60 violates the
dormant commerce clause because it projects its ban into
jurisdictions that would allow the transaction is logically
flawed and simply proves too much. If New Jersey seeks to
block Goldmen's offering but the buyer's state (say, New
York) would allow it, one state must prevail. One state can
in effect "force its judgment" upon the other. Under New
Jersey's Blue Sky law, New Jersey can block the
transaction even if New York would permit it.
Goldmen's alternative is no better, however: under its
view of the dormant commerce clause, New York's approval
would permit the transaction, over New Jersey's objection.
Thus, the difference between New Jersey's Blue Sky law
and Goldmen's proposal is simply the market's default rule:
should the transaction be allowed if either state permits, or
blocked if either side objects? Such questions of the
market's "structure" and its "method of operation" are quite
simply beyond the concern of the Commerce Clause, as
they "relate to the wisdom of the statute, not to its burden
on commerce." Exxon Corp. v. Governor of Maryland, 437
U.S. 117, 127-28 (1978).
C. Legitimate Interests
Having concluded that S 60 regulates the in-state
component of an interstate transaction, we next consider
whether the statute reasonably furthers a "legitimate
interest" within the boundaries of New Jersey. MITE Corp.,
_________________________________________________________________
13. A discussion of New Jersey's interests in this transaction appears in
subsection C.
16 
457 U.S. at 644, 102 S. Ct. at 2641; CTS Corp., 481 U.S. at
93, 107 S. Ct. at 1651-52.
Goldmen claims that New Jersey has no legitimate
interest in regulating Goldmen's non-fraudulent sales to
out-of-state residents. If Goldmen's business practices are
manipulative, Goldmen argues, the harm will be suffered
entirely by out-of-state consumers. Br. at 29. Because the
protection of out-of-state consumers from potentially
manipulative sales practices is not New Jersey's legitimate
concern, Goldmen contends, its regulation of Goldmen's
non-fraudulent sales to out-of-state consumers does not
implicate any legitimate regulatory interests within the
state of New Jersey.
The Bureau responds by arguing that its regulation of in-
state sales of securities to out-of-state purchasers furthers
important New Jersey interests. We agree. In particular, we
consider two legitimate state interests to be particularly
strong ones. First, preventing New Jersey companies from
offering suspect securities to out-of-state buyers helps
preserve the reputation of New Jersey's legitimate securities
issuers. States that have failed to monitor out-of-state sales
by in-state broker-dealers have suffered in the past, as
their legitimate broker-dealers suffered from association
with suspect firms offering questionable securities. See
Long, S 3.04[3][a] at 3-51 to 3-52 (providing examples); see
also Stevens v. Wrigley Pharma. Co., 154 A. 403, 403 (N.J.
Ch. Div. 1931) (noting that New Jersey's interest in
regulating in-state offers to out-of-state buyers is"not so
much to protect the citizens of other states, as to prevent
this state from being used as a base of operations for
crooks marauding outside the state."); Simms Inv. Co. v.
E.F. Hutton & Co., 699 F. Supp. 543, 545 (M.D.N.C. 1988)
("[T]he laws protect legitimate resident issuers by exposing
illegitimate resident issuers."). Although this state interest
is heightened when the state can prove that the in-state
firm has engaged in outright fraud, the interest is
nonetheless legitimate when the state seeks to block sales
of securities that it believes might be associated with
dubious or manipulative sales practices. The difference
between a state's (i.e., New Jersey's) interest in preventing
fraud and preventing questionable practices is a difference
in degree, not a difference in kind.
17 
The dissent contends that absent proof of actual fraud,
New Jersey has an insufficient interest in regulating
securities dealers who sell to out-of-state buyers. It is
undisputed that the purpose of securities registration laws
is to prevent fraud before it happens, and S 60 serves such
a prophylactic purpose. Merrick v. N.W. Halsey & Co., 242
U.S. 568, 587 (1917);14 Caldwell v. Sioux Falls Stock Yards
Co., 242 U.S. 559, 564 (1917) (upholding Blue Sky Law
designed "to prevent fraud in the sale and disposition of
stocks, bonds or other securities sold or offered for sale
within the state"); Hall v. Geiger-Jones Co., 242 U.S. 539,
551 (1917) (upholding Blue Sky Law designed to "prevent
deception and save credulity and ignorance from
imposition"); Cola v. Terzano, 322 A.2d 195, 198 (N.J.
Super. Ct. Law Div. 1974) (providing that the New Jersey
Uniform Securities Law is intended to protect the
uninitiated and to prevent frauds upon the public at large),
aff'd sub nom. Cola v. Packer, 383 A.2d 460 (N.J. Super. Ct.
App. Div. 1974); New Jersey v. Russell, 291 A.2d 583, 587
(N.J. Super. Ct. App. Div. 1972) (recognizing that the sale
of securities is a specialized field of activity in which the
potential for abuse and financial injury is great); Enntex Oil
& Gas Co. (of Nevada) v. Texas, 560 S.W.2d 494 (Tex. Civ.
App. 1977, writ ref'd n.r.e.), appeal dismissed for want of a
substantial federal question, 439 U.S. 961 (1978). New
Jersey's regulation of sales by in-state brokers to out-of-
state buyers serves the legitimate purpose of preventing
fraudulent transactions.
Regulating in-state offers to out-of-state buyers also
serves New Jersey interests by protecting New Jersey
residents from dubious securities that enter the state in the
secondary market. This risk is particularly great because a
_________________________________________________________________
14. [W]e think the [securities registration] statute under review is within
the power of the state. It burdens honest business, it is true, but
burdens it only that under its forms dishonest business may not be
done. This manifestly cannot be accomplished by mere declaration;
there must be conditions imposed and provision made for their
performance. Expense may thereby be caused and inconvenience,
but to arrest the power of the state by such considerations would
make it impotent to discharge its function.
Id. at 587 (emphasis added).
18 
broker-dealer such as Goldmen could otherwise delay or
even avoid the Bureau's scrutiny through an initial sale to
a cooperative party outside New Jersey. Because there is no
filing requirement for secondary transactions, Goldmen
could arrange to "sell" a security to a friendly out-of-state
party, immediately buy back the security, and then sell it
freely to New Jersey residents using possibly questionable
sales practices. App. 77-78.15 New Jersey's most effective
means of preventing such an undesirable result would be to
block the initial public offering. See Long, S 3.04[3][b-c] at
3-52 to 3-53.
In conclusion, the Bureau's application of S 60 to
Goldmen's Imatec offering furthers two legitimate state
interests: preserving the reputation of New Jersey broker-
dealers, and protecting New Jersey buyers in the secondary
market.
IV.
Because the Bureau's application of S 60 regulates the in-
state portion of an interstate transaction and furthers
legitimate in-state interests, the application ofS 60 to
regulate the Imatec offering does not violate the dormant
commerce clause. In so holding, we note that our
conclusion is in accordance with the overwhelming majority
of courts that have considered dormant commerce clause
challenges to blue sky laws. See, e.g., Hall, 242 U.S. at 557;
Enntex Oil & Gas Co. v. Texas, 560 S.W.2d 494 (Tex. Ct.
App. 1977), appeal dismissed for lack of a substantial
federal question, 439 U.S. 961 (1978); Chrysler Capital
Corp. v. Century Power Corp., 800 F. Supp. 1189, 1194
(S.D.N.Y. 1992); Upton v. Trinidad Petroleum Corp., 468 F.
Supp. 330, 336 (N.D.Ala. 1979), aff'd on other grounds, 652
F.2d 424 (5th Cir. 1981); Oil Resources v. Florida, 583 F.
Supp. 1027 (S.D.Fla. 1984), aff'd without op., 746 F.2d 814
(11th Cir. 1984); see also Loss & Seligman at 39-40 ("On
the whole, it seems fair to say that there no longer need be
_________________________________________________________________
15. Notably, there is evidence in the record that Goldmen had engaged in
such practices before. App. 196-98.
19 
any substantial constitutional doubts about blue sky
provisions.").16
Indeed, the established heritage and near universality of
the provision that Goldmen has challenged itself
underscores its constitutionality. See Healy, 491 U.S. at
336-37, 109 S. Ct. at 2499. Goldmen has challenged a state
provision that is an established strand in the legal fabric of
securities regulation. The power that Goldmen claims would
unduly burden interstate commerce is one that most states
have long exercised, and that Congress has for decades
expressly allowed to continue. This is not the sort of
"parochial" state power that Justice Cardozo warned of in
Baldwin, the broad exercise of which "would .. . invite a
speedy end of our national solidarity." Baldwin, 294 U.S. at
523, 55 S.Ct. at 500.
We will therefore reverse the order of the district court
dated August 21, 1997, and remand for proceedings
consistent with this opinion.
_________________________________________________________________
16. Goldmen relies heavily on Arizona Corp. Comm'n v. Media Products,
Inc., 158 Ariz. 463, 763 P.2d 527 (Ariz. App. 1988), the one case that
runs counter to the many upholding state blue sky laws against dormant
commerce clause challenges. Media Products is distinguishable, however,
because in that case Arizona sought to bar an Arizona company from
selling a security outside of Arizona through an agent outside of Arizona
to a buyer who was also outside of Arizona. In other words, the only
connection the transaction had with Arizona was that the principal place
of business of the seller was located there. See id. at 464-65; 763 P.2d
at 528-29. ("Sales of the entire issue were negotiated out-of-state[,] solely
by [an] out-of-state underwriter . . . . No sales or offers of sale were made
in Arizona."). Because the offer and acceptance took place entirely
outside of Arizona, Arizona's attempt to block the transaction was not an
effort to regulate the in-state component of an interstate transaction, as
is the case here.
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