Constitutional Law I
Dormant Commerce Clause
March 15, 2006
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
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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
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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)
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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?


If exclusive, only congress can regulate IC
(and maybe even those aspects of intra-state
commerce that satisfy Lopez).
If concurrent, states can also regulate interstate commerce (and intra-state commerce).
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Congress’ Power over IC
If congress’ power is concurrent

State law can be preempted by
federal law, but is otherwise valid
If congress’ power is exclusive

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?
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Working hypothesis
The power to regulate IC itself (direct
regulation) is vested exclusively in Congress
 State regulation of IC per se is const. precluded
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
 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
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Working hypothesis
Direct State regulation of IC is precluded
Indirect State regulation may be precluded
Direct
Indirect
Economic Protectionism
Regulating Competition
Regulating Entry/Exit
Discriminating Against IC
Regulating Economic
Matters in Other States
(extraterritorial effects)
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Protectionist purpose
Economic Regulations
(including taxes) that
Unduly Burden IC
Subjects admitting of
only a single (national)
uniform standard
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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

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May occur with combined tax/subsidy schemes
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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?

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The power to regulate highway safety
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What is
the source
of these
powers?
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H.P. Hood v. DuMond
Facts:

States have
police power
NY denied permission for Mass. company to
build a plant and export milk to Mass.
What is NY regulating?

(1939)
Health and safety?
States have no power
to regulate interstate
commerce per se
 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?

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by using police power regulation of health/safety as guise?
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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.
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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
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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?
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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?
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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 ?



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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
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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.
If not
the
court,
then
who?

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?
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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)
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Bibb v. Navajo Freight
(1959)
Illinois law specifying mudflap size/shape
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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?
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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:



Note: this is tantamount
to declaring a constitutional “right” to free
interstate trade
At least where burden on IC is substantial, and
Local benefits are slight
Courts will strike state law under DCC
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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
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especially problematic for
channels/instrumentalities
especially problematic when
local benefits are illusory
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Kassel v. Cons. Freightways (1981)
Are twin trailers as safe as semis?

Who decides?
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Kassel v. Cons. Freightways (1981)
Are twin trailers as safe as semis?

Who decides?
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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?
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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
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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
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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?

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Uniform inspection available
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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:
DCC protects
I/S commerce
not industries
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

Cardboard industry; a major Minnesota product
But out-state pulpwood firms can pick up slack
Test: Does law necessarily cause a shift in
business
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to in-state firms?
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Rule in DCC cases
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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
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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
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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
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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 protectionism) is presumptively invalid
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City of Philadelphia v. NJ
(1978)
Intentional discrim. (econ protectionism) 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
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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:
Not covered
Is this plausible? NB:applies only to closed containers
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Is the
S.Car. law discriminatory?
 Consumer protection measure to reduce confusion


intentional
discrimination
 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
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Not covered
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Not assigned, but covered, Spring 2006
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


unintentional
discrimination
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
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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)
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Granholm v. Heald
(2005)
Ban on out-of-state direct wine sales

21st 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 21st be reconciled with DCC?
Compelling reason to discriminate against IC?
 Policing underage drinking
 Aiding tax collections
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strong reasons, but state ban
unnecessary to advance them
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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?
Not covered
Rule: State laws cannot have direct extraSpring
2006
territorial
effect (operate
out-of-state)

Can’t regulate foreign economic activity
 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
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Extra-Territorial Effect
Rule: State laws cannot have direct extraterritorial effect (operate out-of-state)

Can’t regulate foreign economic activity
Not covered
Brown-Forman v. NY (1986); Healy v. Beer (1989):
Spring 2006
 Edgar v. MITE Corp (1982): Illinois reviewed sale of
stock occurring out-of-state to see if met state stds.

Most-favored-nation trading status: Could not sell instate 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
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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.”
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discrimination
against IC
exercise of police not
commerce power
direct vs. indirect
effect
balancing of interests
- even indirect effects
can be too great
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Pike Test
Where the statute regulates
evenhandedly
to effectuate
legitimate local
are these aquestions
judicial
or legislative
public
interest,
in character?
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.”
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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?
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