Dormant Commerce Clause

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Why can credit card companies
evade IN law by locating in SD?

Under federal law, federally chartered banks
“may charge interest ‘on any loan’ at the rate
allowed by the laws of the State in which the
bank is ‘located.’”

If a national bank is located in SD, it may charge
interest rates permitted by SD


What constitutional provision tells us that the
SD bank is not subject to IN’s interest rate
laws?


Marquette Nat'l Bank v. First of Omaha Service Corp., 439
U.S. 299 (1978) (thanks to Mark Holwager for finding this
case)
The Supremacy Clause
Note that other states have followed SD’s lead
1
Printz
■
How could Congress have gotten local law
enforcement officers to conduct its
background checks?



Congress may adopt statutes that are generally
applicable to both private companies and state and
local governments
Congress may use financial incentives to persuade
state and local governments to regulate private
activity in a certain way (the spending power)
When regulating private activity, Congress may
give states the choice of regulating according to
federal standards or having the federal government
preempt state regulation
2
Dormant Commerce Clause

Overview of topic



What are the “negative” implications of
Congress’ Commerce Clause power?
That is, to what extent does the fact that the
Constitution grants a “positive” power to
Congress to regulate interstate commerce affect
the ability of states to regulate interstate
commerce?
Today, we consider “facial” or “disparate
treatment” discrimination against out-of-state
commerce; next week we consider “facially
neutral” or “disparate impact” discrimination
against out-of-state commerce
3
What do we learn from text in
isolation?

The Congress shall have Power . . . To
regulate Commerce with foreign Nations,
and among the several States, and with
the Indian Tribes (Art. I, § 8, cl. 3)



Congress shall have power
Congress shall have power
What does it mean “to regulate?”

If Congress does not pass a regulatory law,
does that mean it has chosen to leave the
matter free of government regulation?
4
What do we learn from text
compared to other text?

The Powers not delegated to
the United States by the
Constitution, nor prohibited
by it to the States, are
reserved to the States
respectively, or to the people

10th Amendment
5
What do we learn from text
compared to other text?

Art. I, § 8, cl. 5


The Congress shall have Power . . . To
coin Money, regulate the value thereof,
and of foreign Coin, and fix the Standard
of Weights and Measures
Art. I, § 10, cl. 1

No State shall enter any Treaty, Alliance,
or Confederation, grants Letters of
Marque and Reprisal; coin Money; emit
Bills of Credit . . . .
6
What do we learn from text?



Congress shall have power—it’s an
exclusive power (see Tenth Amendment)
Congress shall have power—states can act
as long as they don’t conflict with federal
legislation (see Article I, § 10 and
Supremacy Clause)
Inaction is also a form of regulation—it’s
an exclusive power
7
What do we learn from the nature
of our Constitution?


On one hand, we know that the
Articles of Confederation failed
because of state regulation of
interstate commerce.
On the other hand, we know that the
framers were worried about a too
powerful national government

States may regulate as long as they
don’t unreasonably interfere with
interstate commerce?
8
What do we learn from principles
of representation-reinforcement?


If we’re concerned about the
regulation of interstate commerce,
can one state’s voters speak for all
voters?
But maybe there are important
local concerns at stake—do we want
those sorted out by all voters?
9
Old Dormant Commerce Clause



Purposes of the state regulation
(commercial goals vs. police power
goals like public health or safety)
Regulating matters of local
concern or matters that demand
uniform national rules
Direct or indirect effect on
commerce (as in the pre-1937
commerce clause cases)
10
Dormant Commerce Clause today


If there is pure economic protectionism at
work, state regulation is prohibited, unless
the state can show no other way (or no
reasonable alternative) to achieve a
legitimate state interest (disparate
treatment discrimination)
If a statute has an even-handed effect on
intrastate and interstate commerce, and
effects on interstate commerce are
incidental, statute allowed unless burdens
on interstate commerce clearly excessive
(disparate impact discrimination)
11
City of Philadephia

What are the facts in this case?



A NJ law prohibited the importation of waste that
originated, or was collected, outside of New
Jersey
Note that we have a regulation of private conduct
Does it matter that the law regulated waste
rather than goods with economic value?


No. If there is interstate commerce involving
waste, it is subject to Commerce Clause
protection.
To put it another way, wastes may not have
value, but there is money to be made in providing
the service of waste disposal
12
City of Philadephia

What does the Court say about the ability of
states to regulate interstate commerce at
the outset of Section III (pages 239-240)?


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Congress does not regulate all aspects of
interstate commerce—some aspects are local in
character, and there are too many aspects of
interstate commerce for Congress to attend to
States have interests in the health and safety of
their residents to safeguard; protecting those
interests may require regulation of interstate
commerce
But states may not engage in economic
protectionism
This takes us to the Court’s two-part test
13
City of Philadephia

Is NJ’s law an unconstitutional exercise of
economic protectionism, or is it a
legitimate effort to lower waste disposal
costs and protect the environment for
residents of NJ?


It’s unconstitutional economic protectionism
Why? Is NJ not allowed to worry about its
residents’ pocketbooks and environment?

NJ’s goals were legitimate, but its means of
achieving those goals were not—NJ may not
discriminate against out-of-state commerce just
because it is from out of state
14
City of Philadephia

On what basis could NJ have discriminated
against out-of-state waste? (Think Maine
fishbait case, page 243)


It could have banned waste that had too high a
level of toxic metals, or waste that had too high
a level of radioactivity
How else could NJ have addressed the
problem of too much waste coming into its
waste disposal sites?

Placed a cap on the total amount of trash that
could come in during a year’s time, or imposed a
tax on trash disposal in the state—as long as the
cap or tax applied equally to in-state and out-ofstate disposers of waste
15
City of Philadephia

Why are quarantine laws for diseased
livestock permissible when they are
directed against out-of-state commerce
(page 241)?


What is the representation-reinforcement
argument for the Court’s decision?


The laws target the livestock because they are
diseased, not because they are from other states
NJ voters were trying to enjoy the benefits of
reducing waste disposal while placing the costs
of the reduction on people in other states, who
have no say in the NJ legislature
But NJ landfill operators brought the suit

Still, most of the burdens fell on out-of-staters
16
C & A Carbone

What are the facts in this case?


This was another effort to deal with the
problems of waste disposal
The city of Clarkstown, NY required all waste to
be deposited at a private “waste transfer
station,” which would then pull out the
recyclable items before disposing of the waste


The station’s fees were higher than its competitors that
did not sort recyclable waste (there were higher fees to
cover the costs of building the station, page 245)
Carbone did his own sorting of recyclable items
and wanted to send his remaining waste out of
state

Clarkstown is close to the NY-NJ border
17
C & A Carbone

Why was the Clarkstown ordinance a
discrimination against out-of-state
disposers of waste? Carbone was based in
Clarkstown.


All out-of-state waste that was processed by
Carbone had to go to the waste station; also,
none of the locally-generated wastes could be
sent for processing to out-of-state waste stations
You can’t justify your discrimination against
out-of-staters by also discriminating against
some in-staters

There still is an in-state/out-of-state imbalance. The
favored company is in-state; all out-of-state companies
are disfavored (note how strict the Court was being)
18
C & A Carbone


Once we’re in disparate treatment of out-of-staters,
we have a virtual per se rule of invalidity; the
government must show it has no other way to
promote its legitimate state interest (pages 244-5)
Were there other ways for Clarkstown to ensure that
its waste station was financially viable without
discriminating against out-of-state commerce?

It could have given the station a subsidy from general
taxes or issued municipal bonds to raise funds

As Souter’s dissent observes, however, these policies
also allow the in-state company to squelch out-of-state
competition because its costs are lower (page 247)

In addition, there are good economic reasons to place
the burden of waste disposal on the generators of the
waste rather than on all taxpayers (page 247)
19
C & A Carbone

Why from a representation-reinforcement
perspective, should we not worry about the
Clarkstown ordinance?


Local competitors of the waste recycling facility
are harmed just as much as out-of-state
competitors, so they are going to speak up in the
debate.
Also, the residents of Clarkstown bear most of the
costs of the facility since they will have to send
their garbage there.


These points are made in O’Connor’s concurrence (pages
245-246) and Souter’s dissent (page 247).
As the dissenters pointed out, this was really
a discrimination in favor of a monopolist not
a discrimination against out-of-staters
20
C & A Carbone

What if Clarkstown had owned the waste
station rather than favored a private waste
station?



That would have been acceptable, as the Court
held in United Haulers, page 248
There’s no protection of local companies at the
expense of out-of-state companies
To put it another way, there’s no economic
protectionism at work when the state is
spending its own money

The Court also found that there was no excessive
burden on out-of-state interests under the disparate
impact standard
21
Granholm v. Heald


Dormant commerce clause cases not only
come up over garbage disposal; they also
come up with respect to the selling of
wine.
What are the facts in Heald?



In-state wineries could obtain a license to sell
their wines directly to customers; out-of-state
wineries could not
In MI, out-of-state wineries had to sell through
a state-licensed wholesaler, who in turn had to
sell through a state-licensed retailer
In NY, out-of-state wineries could obtain a
license to sell directly to consumers, but they
had to establish a branch office in NY
22
Granholm v. Heald

Could MI or NY save its statute by citing a
legitimate state interest that “cannot be
adequately served by reasonable
nondiscriminatory” alternatives?


The states were worried about underage drinking
and the ease with which teenagers can buy wine
over the Internet
What’s wrong with this argument?


No problem with teenage wine purchases in the 26
states that allowed direct sale to consumers

Minors prefer beer and other alcoholic beverages

Minors have easier and quicker ways to buy their alcohol
Minors can purchase from in-state wineries—states
should be adopting regulations that apply to both instate and out-of-state wineries
23
Granholm v. Heald

Could MI or NY save its statute by citing a
legitimate state interest that “cannot be
adequately served by reasonable
nondiscriminatory” alternatives?


The states also were worried about collecting
taxes for the direct shipments to consumers
What’s wrong with this argument?

MI collected its taxes from the wineries even when they
sold wine through local wholesalers

NY could collect taxes from out-of-state wineries for
direct shipment the same way it collected them from
in-state wineries—indeed, other states have not had
problems collecting taxes from out-of-state wineries

Out-of-state wineries are subject to federal sanctions if
they evade their state tax obligations
24
Dormant Commerce Clause today

If a state disfavors out-of-state interests
simply because they are from out of state,
we have pure economic protectionism



NJ prohibiting the disposal in NJ landfills of
waste from out of state
MI/NY allowing in-state wineries but not out-ofstate wineries to ship directly to state residents
States may disfavor out-of-state interests
not because of geography but because of a
meaningful difference

ME may prohibit importation of live fishbait
from other states because of parasites, nonnative species
25
West Lynn Creamery

States cannot discriminate against out-ofstate companies by imposing higher taxes
on them


West Lynn Creamery illustrates the implications
of the no-taxing-differential principle
What are the facts in West Lynn Creamery?


Instead of imposing a tax on out-of-state milk
producers, MA imposed a tax on all milk
producers and sent a rebate to in-state milk
producers
Is that permissible?

No. It’s functionally equivalent to a tax only on out-ofstate milk producers
26
West Lynn Creamery


But wait. MA could impose a tax on all
milk producers, and it also could give
subsidies only to in-state milk producers
(page 251).
Why can’t it combine two policies that
would be valid separately? Don’t two rights
make a right?

No. We have a representation-reinforcement
problem. Ordinarily, in-state milk producers
would have lobbied against the tax, but they
were bought off by the subsidy (page 251)
27
Discriminatory taxation




No higher taxes on out-of-state
businesses
No subsidies to in-state businesses from
an even-handed tax on in-state and outof-state businesses (West Lynn Creamery)
No exemption for in-state businesses
from an even-handed tax on in-state and
out-of-state businesses
May give special subsidies to in-state
businesses from general revenues (more
to come on this principle)
28
Discriminatory taxation

May give special subsidies to in-state
businesses from general revenues

Why is this different from the West Lynn
Creamery law?



With special subsidies, voters have an interest in
resisting the law to save the money for other uses
With subsidies from a tax on the industry, voters
know the subsidies wouldn’t be available for other
uses
Why is this different from a tax exemption for
in-state businesses?

Subsidies are more visible to the voter than tax
breaks so we can rely more comfortably on the
political process (page 253)
29
Market participant doctrine

When the state runs a business venture, it can
favor state residents over out-of-state residents.


NJ cannot deny out-of-staters access to privately-owned
landfills in NJ, but it can reserve state-owned landfills
for state residents
The Court draws a distinction between state as
market participant and state as market regulator

Thus, the state cannot use its market participant
authority to regulate the market in favor of in-state
companies beyond the benefits it bestows as a
participant

In Wunnicke, Alaska could favor in-staters when it sold
state-owned timber, but it could not require the purchasers
to process the timber in state
30
Market participant doctrine

More on the principle that the state cannot use its
market participant authority to regulate the
market in favor of in-state companies beyond the
benefits it bestows as a participant


Recall that in United Waste Haulers (page 248), the Court
upheld a government-owned version of the waste station
in Carbone.
Why didn’t the Court invoke the market participant
doctrine in that case?



It would have been a market participant case if the city had
given in-staters preferential access to the facility
But the city went further and required everyone to use the
facility, thereby disfavoring out-of-state waste facilities even
more
Consider the distinction between a state university that
charges lower tuition to in-staters, and a requirement that instate students attend the state university
31
Privileges and Immunities Clause
of Article IV
The Citizens of each State shall be
entitled to all Privileges and
Immunities of Citizens in the
several States

(Art. IV, § 2, cl. 1)
32
Privileges and Immunities
Clause of Article IV

Does the law burden an Art. IV privilege or
immunity (i.e., is the out-of-state resident’s
interest in the state’s privilege sufficiently
fundamental to the promotion of interstate
harmony)?


Can deny access to public services but not to
the private market
Does the state (or municipality) have a
substantial reason for its discrimination,
and is there a close relationship between
the reason and the degree of
discrimination?
33
Combining the doctrines

Dormant Commerce Clause

Market participant exception
Privileges and Immunities Clause limitation
(for individuals only)
 Equal Protection Clause limitation (for
corporations and individuals)


Dormant Commerce Clause

Congressional Consent
Privileges and Immunities Clause limitation
(for individuals only)
 Equal Protection Clause limitation (for
corporations and individuals

34
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