Constitutional Law I Dormant Commerce Clause March 15, 2006

Spring, 2006Con Law I - Manheim2 Yuck, the Commerce Clause again Interstate (economic) rivalries Plagued the Articles of Confederation  States tried (succeeded) to gain economic advantage for their own citizens at expense of other states  States taxed and regulated imports and exports  Annapolis convention called to fix this problem Constitution Art. I, § 10: “No state shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports [or] lay any Duty of Tonnage” Art. I, § 8: Commerce Clause

Spring, 2006Con Law I - Manheim3 Protectionism Why Do States Enact Protectionist Laws? Boost state economy  valid purpose; helps reelection At the expense of other states  invalid purpose; helps reelection (externalizes costs) Types of Protectionist Laws Restricting business entry Preserving state resources for residents Discriminating against Interstate Commerce  In-state businesses get preferential treatment

Spring, 2006Con Law I - Manheim4 What’s so good about free trade? Cost of protectionism outweighs its benefits Problem of externalities  Political process can’t cure imbalances & inefficiency Invites retaliation; Balkanization of commerce In long run, free trade helps all parties collective AND individual benefits e.g., NAFTA, WTO Is this true? Race to the bottom Economic efficiency doesn’t always outweigh other factors (environment, fairness, good wages)

Spring, 2006Con Law I - Manheim5 Congress’ Power over IC The grant of enumerated power “The congress shall have Power … To regulate Commerce with foreign nations, and among the several States, and with the Indian Tribes” Is this power concurrent or exclusive? exclusive If exclusive, only congress can regulate IC (and maybe even those aspects of intra-state commerce that satisfy Lopez). concurrent If concurrent, states can also regulate inter- state commerce (and intra-state commerce).

Spring, 2006Con Law I - Manheim6 Congress’ Power over IC concurrent If congress’ power is concurrent preempted State law can be preempted by federal law, but is otherwise valid exclusive If congress’ power is exclusive precluded State law is precluded whether or not congress legislates; i.e., its power over IC lies “dormant” Answer: Congress’ power over interstate commerce is sometimes exclusive and sometimes concurrent  What else would you expect?

Spring, 2006Con Law I - Manheim7 Working hypothesis direct regulation) exclusively The power to regulate IC itself (direct regulation) is vested exclusively in Congress State regulation of IC per se is const. precluded indirectlyconcurrent Power to regulate local matters (which indirectly affect IC) is usually concurrent State regulation of local matters is not precluded just because it has an incidental effect on IC indirect direct reg’n But, indirect regulation may be protectionist or burdensome, with the same effect as direct reg’n  So, indirect state regulation can be const’ly precluded

Spring, 2006Con Law I - Manheim8 Working hypothesis Directprecluded Direct State regulation of IC is precluded Indirectprecluded Indirect State regulation may be precluded DirectIndirect Economic ProtectionismProtectionist purpose Regulating Competition Economic Regulations (including taxes) that Unduly Burden IC Regulating Entry/Exit Discriminating Against IC Regulating Economic Matters in Other States (extraterritorial effects) Subjects admitting of only a single (national) uniform standard

Spring, 2006Con Law I - Manheim9 State Taxes Principle 1: Interstate commerce not immune from state tax  Even IC must pay its fair share Principle 2: No multiple taxation (due to interstate status)  Each state can tax only the local incidents of IC I.e, those activities with a “substantial nexus” to the state Principle 3: No discriminatory taxes  State can’t structure taxes to favor in-state business May occur with combined tax/subsidy schemes

Spring, 2006Con Law I - Manheim10 State Regulation of Competition Buck v. Kuykendall (1925) denial of operating permit on ground that it would adversely affect existing IC carriers  What power is the state exercising here? The power to regulate interstate competition Bradley v. PUC (1933) denial of operating permit on ground that it would burden state’s roadways  What power is the state exercising here? The power to regulate highway safety What is the source of these powers?

Spring, 2006Con Law I - Manheim11 H.P. Hood v. DuMond (1939) Facts: NY denied permission for Mass. company to build a plant and export milk to Mass. What is NY regulating? Health and safety?  Presumptively valid use of state’s police power Interstate commerce  NY cannot regulate directly Only congress can directly regulate interstate commerce  Can NY regulate indirectly? by using police power regulation of health/safety as guise? States have no power to regulate interstate commerce per se States have police power

Spring, 2006Con Law I - Manheim12 H.P. Hood v. DuMond (1939) When is a state’s use of its police power a disguised regulation of interstate commerce Clues:  Avowed purpose is to curtail imports/exports (economic protectionism)  Discriminates in favor of in-state business/residents  Connection to health & safety (or other legitimate state interests) is tenuous Depends upon state’s objective  If to regulate health and safety, consumer protection, etc., then ok, even if IC feels the pinch  If to protect economic interests, then unconst’l.

Spring, 2006Con Law I - Manheim13 H.P. Hood v. DuMond (1939) What is the state’s justification for denying H.P. Hood a permit for new bottling plant? New plant unnecessary?  Would have adverse impact on competition in milk market What state interest is plausibly at stake?  Promoting state’s own economic interests at expense of out-staters is not a legitimate local interest  Lack of legitimate local benefits is indication that state is regulating IC, not health & safety

Spring, 2006Con Law I - Manheim14 South Carolina v. Barnwell (1938) How do size & weight limit for trucks on state highways affect (burden) IC? Increase the cost of doing IC business  Note: all regulations can increase the cost of IC What power does the state rely on?  Power over IC, which it does not have, or  Power over health & safety, which it does? Does the S.Car. law discriminate against IC?  Are in-state and out-state trucks treated differently?  Does it depend on source or destination of cargos?

Spring, 2006Con Law I - Manheim15 South Carolina v. Barnwell (1938) Direct or Indirect Regulation of IC? Regulate Business Entry or Exit from state? Economic Protectionism (reserving state resources for state residents and businesses) Discriminating against IC? If Indirect, does the state law impose too great a burden on IC in any event? Is this reasonable regulation of state highways?  What is the role of federal courts in this analysis?  Can they do a better job than the state legislature?

Spring, 2006Con Law I - Manheim16 The DCC “Balancing Test” Southern Pacific v. Arizona (1945) Size limit for trains on railroads within state Direct:  What power does the state rely on (IC or H/S)? Is rail safety a proper exercise of state police power?  Does the Arizona law discriminate against IC?  Is it “ protectionist ” of state resources, economy? Indirect:  Does it impose a burden on IC ? Long trains (commonly used) must decouple Serious burden on So.Pac. (in economic terms) Regulation ought to be nationally uniform probably true generally of instrumentalities of IC

Spring, 2006Con Law I - Manheim17 The DCC “Balancing Test” Southern Pacific v. Arizona (1945) Serious burden on IC imposed by Arizona law  That alone doesn’t render local law unconstitutional  But if burden exceeds benefit, perhaps it was designed to impede IC. Local benefit?  Trial court finds “no reasonable relation to safety” In fact, short trains are more dangerous (number vs length)  Other local benefits? Full employment of engineers? Role of Court?  To balance burdens on IC against local benefits? If not the court, then who?

Spring, 2006Con Law I - Manheim18 The DCC “Balancing Test” Problems with Balancing Institutional competence  Consider the evidence adduced in trial court Institutional legitimacy  Balancing of economics and safety is quintessentially a legislative role Which weighs more?  Added cost to So.Pac. in transporting goods, or  Health & Safety costs to Arizona?  Scalia: “incommensurate interests”  Easy case if local interests are “illusory” (weigh 0)

Spring, 2006Con Law I - Manheim19 Bibb v. Navajo Freight (1959) Illinois law specifying mudflap size/shape

Spring, 2006Con Law I - Manheim20 Bibb v. Navajo Freight (1959) What is the burden on IC here? Does the S.Ct. get to select which mud flap? Are all regulations of highways burdensome? Some subjects are capable of only uniform reg’n Is the burden on IC itself, or just interstate firms? Is the burden offset by local benefits? Who balances?

Spring, 2006Con Law I - Manheim21 Bibb v. Navajo Freight (1959) Illinois law specifying mudflap size/shape Imposed significant burden on interstate shipping, especially “interline” operations Who should solve this problem? State legislature? Congress? Courts? Holding: At least where burden on IC is substantial, and Local benefits are slight Courts will strike state law under DCC Note: this is tantamount to declaring a consti- tutional “right” to free interstate trade

Spring, 2006Con Law I - Manheim22 Another Look at Balancing State directly regulates IC – per se invalid State intentionally discriminates against IC – strict scrutiny All other state laws affecting IC – ad hoc balancing Burdens on IC vs. Benefits to state especially problematic for channels/instrumentalities especially problematic when local benefits are illusory

Spring, 2006Con Law I - Manheim23 Kassel v. Cons. Freightways (1981) Are twin trailers as safe as semis? Who decides?

Spring, 2006Con Law I - Manheim24 Kassel v. Cons. Freightways (1981) Are twin trailers as safe as semis? Who decides?

Spring, 2006Con Law I - Manheim25 Kassel v. Cons. Freightways (1981) Are twin trailers as safe as semis? Who decides? shouldn’t a federal judge be making these decisions, instead of a legislat. body?

Spring, 2006Con Law I - Manheim26 Kassel v. Cons. Freightways (1981) Balancing in disrepute 4 Justices found Iowa law invalid per balacing 2 members concurred based on discrimination Brennan/Marshall approach any balancing must be done per RB test  burdens weighed against benefits the state sought to achieve where law discloses no local benefits, we may presume it was enacted for protectionist purposes  where actual benefits are illusory. Scalia concurrence in CTS Corp

Spring, 2006Con Law I - Manheim27 Discriminatory State Laws Rule: Laws that discriminate against IC are invalid  unless no “non-discriminatory alternatives” Justification for Rule  Historical basis for non-discrimination principle  Courts are more adept at ferreting out discrimi- nation than at balancing incomparables Types of discrimination Facially discriminatory (intentional) Facially neutral, but with discriminatory effect  Can be either intentional or unintentional

Spring, 2006Con Law I - Manheim28 Dean Milk v. Madison (1951) Discrimination by municipality City ordinance requires milk pasteurization within 5 miles of city and production within 25 miles  Is the law discriminatory (intentional or unintentional)? Discrimination against IC is protectionist unless no non-discriminatory alternative is available to achieve a legitimate local interest  What legitimate local interest at stake? Healthy milk, verified by inspection  Does it require 5/25 mile restrictions? Uniform inspection available

Spring, 2006Con Law I - Manheim29 Discrimination Against What? Minn. v. Clover Leaf Creamery (1981) Prohibition on plastic nonrecyclable containers  Stated purpose: health & safety (solid waste mgmt)  DC finds: economic protectionism Discrimination against out-state commerce?  Neutral: Dairy industry; presumably can adjust easily  Losers: Plastics industry (slightly, only wrt nonrecyclable bottles)  Winners: Cardboard industry; a major Minnesota product But out-state pulpwood firms can pick up slack DCC protects I/S commerce not industries Test: Does law necessarily cause a shift in business from out-state to in-state firms?

Spring, 2006Con Law I - Manheim30 Rule in DCC cases

Spring, 2006Con Law I - Manheim31 How to Identify Protectionism Quarantine Laws (Facially Discriminatory) Protectionist  Purported health & safety measure  But less discriminatory means available Not Protectionist  Purported health & safety measure  No less discriminatory means available

Spring, 2006Con Law I - Manheim32 Disguised Protectionism Minnesota v. Barber (1890) Inspection law operated to effectively require business operation to be performed locally  Logical consequence of law was to ban imports Foster-Fountain Packing v. Haydel (1928) Shrimp heads had to be removed before export  Requires local processing Pike v. Bruce Church (1970) Local packing requirement (to promote Arizona) Note test, bottom p. 310

Spring, 2006Con Law I - Manheim33 Carbone v. Clarkstown (1994) City law required local waste processing Creating a monopoly for the designated facility How does this monopoly affect IC? Can charge monopoly (above market) prices  This may “burden” IC, but doesn’t regulate it Bars import/export of processing services  I.e., out-state providers (of garbage services) are excluded from Clarkstown market  Note: a municipal law affecting out-of-city commerce necessarily affects out-of-state commerce

Spring, 2006Con Law I - Manheim34 City of Philadelphia v. NJ (1978) Ban on garbage imports Questions: Is garbage (an article of) commerce? What is the local benefit obtained by NJ?  conservation of scarce landfill resources What is the burden imposed on IC?  increased cost of disposal for Phil. residents How does NJ balance the benefits & burdens?  Externalizes cost of conservation Intentional discrim. (econ protec- tionism) is presumptively invalid

Spring, 2006Con Law I - Manheim35 City of Philadelphia v. NJ (1978) Intentional discrim. (econ protec- tionism) is presumptively invalid but not conclusively invalid Can NJ protect scarce resources without discriminating against IC? raise the cost to everyone Is that fair? Why doesn’t PA have own dumps? Internalizing benefits and externalizing costs is always politically expedient and not always remediable by legislature

Spring, 2006Con Law I - Manheim36 Facial Neutrality Hunt v. WA Apple Com’n (1977) N.Car. law requires all closed containers of apples to bear USDA grade, and no other Rationale:  Consumer protection measure to reduce confusion  Is this plausible? NB:applies only to closed containers Is the S.Car. law discriminatory?  No, treats all apples the same, irrespective of origin  Yes, leveling removes WA competitive advantage benefiting local apple industry  Non-discriminatory alternatives available? Facially neutral with necessary discrim. effect intentional discrimination Not covered Spring 2006

Spring, 2006Con Law I - Manheim37 Not covered Spring 2006

Spring, 2006Con Law I - Manheim38 Exxon v. MD (1978) MD prohibits refinery-owned retail gas stations Facially Discriminatory?  Law draws no distinction between in-state & out-state refineries Facially Neutral, but with Discriminatory Effects?  No MD refineries; all out-state and all affected by law  Intentionally discriminatory? Burdens falls only on out-state companies Benefits both in-state and out-state independent-owned gas stations DCC prohibits discrimination against IC, not interstate companies  What if law is neither facially nor necessarily discriminatory, but just turns out that way? Doesn’t matter; not discriminatory for DCC purposes Only intentional discrimination (against IC) prohibited  Facial, or necessary/inevitable effect unintentional discrimination Not assigned, but covered, Spring 2006

Spring, 2006Con Law I - Manheim39

Spring, 2006Con Law I - Manheim40 Discrim Against In-State Commerce Do any of the evils attending discrimination against IC apply to In-State discrimination? No externalities Political process can cure abuses Unlikely to provoke retaliation Am Trucking Assns v. Michigan PSC (2005) Even a seemingly benign law may covertly discriminate against IC  Eg, discouraging interstate trucks from using MI roads No evidence in record to support that claim Discrim against Intra-state commerce ok (DCC)

Spring, 2006Con Law I - Manheim41 Granholm v. Heald (2005) Ban on out-of-state direct wine sales 21 st Amendment as Exception to DCC  Sect. 1. The eighteenth amendment … is hereby repealed  Sect. 2. The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited. Does this allow states to regulate imports of alcohol that the Commerce Clause otherwise forbids? Can 21 st be reconciled with DCC? Compelling reason to discriminate against IC?  Policing underage drinking  Aiding tax collections strong reasons, but state ban unnecessary to advance them

Spring, 2006Con Law I - Manheim42 Extra-Territorial Effect CTS Corp v. Dynamics Corp (1987) Indiana anti-hostile takeover statute  regulates tender offers for Indiana corporations  most tender offers originate from out of Indiana  does law regulate out-of-state commercial activity? Rule: State laws cannot have direct extra- territorial effect (operate out-of-state) Can’t regulate foreign economic activity Ok  Baldwin v. G. A. F. Seelig: New York law regulates wholesale prices of milk purchased in-state. Ok  Also prohibits retail sale of imported milk unless wholesale price paid (out-of-state) is as high as NY Not covered Spring 2006

Spring, 2006Con Law I - Manheim43 Extra-Territorial Effect Rule: State laws cannot have direct extra- territorial effect (operate out-of-state) Can’t regulate foreign economic activity  Edgar v. MITE Corp (1982): Illinois reviewed sale of stock occurring out-of-state to see if met state stds.  Brown-Forman v. NY (1986); Healy v. Beer (1989): Most-favored-nation trading status: Could not sell in-state for more than lowest price sold out-of-state. Can regulate in-state economic activity, even w/ incidental impact out-of-state  E.g. foreign goods sold in-state must meet standards  Tender offers (wherever made) must meet standards Not covered Spring 2006

Spring, 2006Con Law I - Manheim44 Pike Test Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” discrimination against IC exercise of police not commerce power direct vs. indirect effect balancing of interests - even indirect effects can be too great

Spring, 2006Con Law I - Manheim45 Pike Test Where the statute regulates evenhandedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” If a legitimate local purpose is found, then the question becomes one of degree … can the local interest be promoted as well with a lesser impact on IC? are these questions judicial or legislative in character?