Constitutional Law I Market Participant Doctrine March 29, 2006

Spring, 2006Con Law I - Manheim2 Market Participant Doctrine State laws that discriminate against IC are presumptively invalid What about state’s own purchases?  Doesn’t it have to favor 1 supplier over others? Or state’s own sales (e.g., timber sales)  Doesn’t it have to favor 1 buyer over others? When state is acting like private party, does it have same freedom of action? Should there be a distinction between the governmental & proprietary functions of gov’t?

Spring, 2006Con Law I - Manheim3 Market Participant Doctrine Hughes v. Alexandria Scrap (1976) Maryland car recycling program pays bounties for re-processing of junk cars Bounty available only to in-state processors  As if the state were buying only from MD firms  Note: no regulatory distinctions for in-state vs out- state reprocessing Can state refuse to buy from out-staters?  Is this like regulating business entry or discriminating against IC?

Spring, 2006Con Law I - Manheim4 Reeves v. Stake (1980) SD-owned cement plant favors in-state buyers  What is a nice state like SD doing making cement?

Spring, 2006Con Law I - Manheim5 MPD Theories State is not “regulating” anything DCC operates as a “negative” preemption of state laws, but when the state is not regulating, there is nothing to preempt [preclude]  DCC fails on formalism grounds Commerce Cl. designed to limit state taxing & regulatory powers, not market activities  DCC fails on originalism grounds

Spring, 2006Con Law I - Manheim6 MPD Theories Aren’t these contradictory? When regulating, states exercise sovereign power over market; but when participating, states are governed by market forces  Theory: since markets are self-correcting (punish favoritism); there is no need for judicial intervention Sovereign / proprietary distinction When participating in market, states act as fiduciaries over public funds Sovereignty basis for exempting states  See Powell dissent (no sovereignty under DCC)

Spring, 2006Con Law I - Manheim7 Sovereign vs. Proprietary Interests States act in a “sovereign” capacity when they are regulating i.e., as parens patriae of their citizenry States don’t act in a sovereign capacity when they are merely participating in a market When states are market “participants,” they are acting at the height of their sovereignty because they are protecting economic self-interest which implicates their treasury which they hold in trust as parens patriae Isn’t state sovereignty fun?

Spring, 2006Con Law I - Manheim8 Federalism Basis for MPD Two different sovereign interests at stake: sovereign power over own citizens sovereign power over its own conduct Note parallels to 10th amendment the 1st sovereign interest gives way to domin- ant federal interest (in DCC and fed regul’n) the 2nd sovereign interest gives rise to a form of immunity (reflected in MPD and 10th amd.) State market activity subject to fed regul’n if valid per 10th amd

Spring, 2006Con Law I - Manheim9 MPD Theories Under MPD, states can be protectionist Despite their effect on interstate markets But, if truly a market participant,  Then subject to federal laws regulating markets  Including antitrust laws Test for MPD Does state action more resemble that of a private trader, or of a market regulator?

Spring, 2006Con Law I - Manheim10 White v. Mass. Council (1983) Boston local hire law Are municipal laws ordinarily subject to DCC? What is Boston buying or selling? Is discrimination in labor also exempt from DCC  Is the City exempt from other constitutional limits on state discrimination (e.g., equal protection)? Is Boston a participant re federal funds? If not, why is the City exempt from DCC?  Congress not bound by DCC; may authorize state  Has it here? City action is “harmonious” with federal regulations

Spring, 2006Con Law I - Manheim11 S.Central Timber v. Alaska (1984) Down-stream regulating under guise of MPD Low-price timber sales to firms processing in AK What market is AK a participant in? Timber sales? Lumber processing? Can it use its MPD exemption in the former to impose conditions on the latter? No. AK is engaging in “downstream regulation” outside of the “discrete, identifiable class of economic activity in which it is a participant” Designed to protect local lumber industry

Spring, 2006Con Law I - Manheim12 S.Central Timber v. Alaska (1984) Market participant or market regulator? With its in-state processing conditions, AK is acting more like a sovereign than a proprietor Rehnquist dissent: distinction w/o a difference  AK could sell only to companies with in-state mills  Could process the timber itself, then sell products  Could directly subsidize in-state mills Is formalism important here? Does it matter that most of AK’s timber sales were to Japan?

Spring, 2006Con Law I - Manheim13 Exceptions to MPD When state has monopoly power in the market in which it participates Monopolists enjoy “market power,” i.e., the ability to “regulate” the market Sale of natural resources States have special stewardship responsibilities (akin to regulatory power) over natural resources Foreign commerce The “dormant” foreign commerce clause is even stronger than the DCC, and may not admit of an exception for state market activities

Spring, 2006Con Law I - Manheim14 Taxation as Market Activity New Energy of Indiana v. Limbach (1988) Tax credit for ethanol produced in Indiana  Note: state subsidies ordinarily not subject to DCC Otherwise, state could never provide benefits for its residents  But when coupled with taxes, treated as discrim. tax State not buying/selling gas; just taxing it  Why is this subsidy not equivalent to Hughes?  Maybe Hughes was not really a MPD case

Spring, 2006Con Law I - Manheim15 Taxation as Market Activity Camps Newfound-Owatonna v. Harrison (1997) tax exemption for camps serving residents Taxing is a sovereign function, not a function of market participants tax exemption viewed as a subsidy is still not a proprietary function This exception would swallow the rule (against discriminatory taxes) a prime target of the DCC

Spring, 2006Con Law I - Manheim16 Criticism of MPD States never act in non-sovereign capacity even when promoting economic self-interest, it is for benefit of taxpayers as shareholders confusing federalism basis for doctrine Skews marketplace encourages states to buy previously regulated enterprises so as to be exempt from DCC  Landfills; airports Manifestation of judicial balancing discarded in Garcia SCt hasn’t found MPD since Garcia