Tag: Commerce Clause

California Shouldn’t Be Able to Impose Regulations on Businesses Outside of California

One of the several failures of the Articles of Confederation was the incapacity of the central government to deal with trade disputes among the states. The Constitution resolved this problem by empowering the federal government to regulate interstate commerce. It has since become a basic principle of American federalism that a state may not regulate actions in other states or impede the interstate flow of goods based on out-of-state conduct (rather than on the features of the goods themselves).

That principle was axiomatic until the U.S. Court of Appeals for the Ninth Circuit upheld one particular extra-territorial California regulation. California recently established a Low Carbon Fuel Standard (“LCFS”) that attempts to rate the “carbon intensity” of liquid fuels, so that carbon emissions can be reduced in the Golden State. California considers not only the carbon emissions from the fuel itself being burnt, however, but also the entire “lifetime” of the fuel, including its manufacture and transportation.

This has led to complaints from Midwestern ethanol producers, whose product—which is in all other ways identical to California-produced ethanol—being severely disadvantaged in California’s liquid fuel markets, simply because it comes from further away. Groups representing farmers and fuel manufacturers sued, arguing that the LCFS constitutes a clear violation of the Commerce Clause (the Article I federal power to regulate interstate commerce) by discriminating against interstate commerce and allowing California to regulate conduct occurring wholly outside of its borders. The Ninth Circuit recently upheld the LCFS, finding the regulation permissible because its purpose was primarily environmental and not economic protectionism (although judges dissenting from the court’s denial of rehearing pointed out that this is the wrong standard to apply).

The farmers and fuel manufacturer groups have now submitted a petition to have their case heard by the Supreme Court. Cato has joined the Pacific Legal Foundation, National Federation of Independent Business, Reason Foundation, California Manufacturers & Technology Association, and the Energy & Environmental Legal Institute on an amicus brief supporting the petition.

We argue that the lower court’s ruling provides a template for other states to follow should they want to evade Supreme Court precedents barring obstruction of interstate commerce and extraterritorial regulation. As the Founders fully recognized, ensuring the free flow of commerce among the states is vital to the wellbeing of the nation, and California’s actions—and the Ninth Circuit’s endorsement of them—threaten to clog up that flow. Not only does the appellate ruling allow California to throw national fuel markets into disarray, it invites other states to destabilize interstate markets and incite domestic trade disputes—precisely the type of uncooperative behavior the Constitution was designed to prevent.

The Supreme Court will likely decide whether to take Rocky Mountain Farmers Union v. Corey before it recesses for the summer. For more on the case, see this blogpost by PLF’s Tony Francois.

This blogpost was co-authored by Cato legal associate Julio Colomba.

Justice Thomas Shows Again that the Federal Emperor Has No Constitutional Clothes

Yesterday’s unanimous Supreme Court opinion in American Trucking Associations v. City of Los Angeles is a run-of-the-mill federal preemption case, not inviting much attention. But the interesting bit isn’t Justice Kagan’s majority opinion. It’s Justice Thomas’s short concurrence. Thomas agrees that federal law trumps conflicting state/local law regarding certain regulations related to the Port of Los Angeles, but seizes on the plain language of the preempting statute to take a shot at the massive expansion of federal authority under a misreading of the Commerce Clause.

Justice Thomas focuses on a section of the relevant statute (the Federal Aviation Administration Authorization Act, or FAAAA–don’t ask why this covers ports) titled “Federal authority over intrastate transportation.” He denies that Congress possesses this authority: the Commerce Clause, part of Article I, section 8, only gives Congress the power to regulate commerce “among the several States.” Thomas can’t believe that Congress could have been granted power to legislate something so local as where trucks park once they leave the port (one of the regulations at issue in American Trucking):

Congress cannot pre-empt a state law merely by promulgating a conflicting statute–the preempting statute must also be constitutional, both on its face and as applied. As relevant here, if Congress lacks authority to enact a law regulating a particular intrastate activity, it follows that Congress also lacks authority to pre-empt state laws regulating that activity

The reason that Justice Thomas nevertheless concurs in the judgment here, however, is that Los Angeles waived any constitutional claims against the FAAAA, instead relying solely on statutory arguments (which correctly lost 9-0).

This isn’t the first time that Thomas upheld a federal law but noted federalism concerns that, as here, the plaintiffs didn’t raise (or didn’t preserve on appeal). In Gonzales v. Carhart, for example, Thomas concurred with a majority decision that sustained the federal Partial-Birth Abortion Ban Act against a challenge based on Roe v. Wade and Planned Parenthood v. Casey but noted that the issue of whether a federal abortion regulation “constitutes a permissible exercise of Congress’ power under the Commerce Clause is not before the Court. The parties did not raise or brief that issue; it is outside the question presented; and the lower courts did not address it.”

Justice Thomas’s opinions in these sorts of cases illustrate the misuse of the Commerce Clause given the Constitution’s careful enumeration of congressional powers. These brief, pointed concurrences show that our imperial government isn’t clothed in constitutional authority.

And they also have a direct use for legal practitioners. I wasn’t a “real” lawyer for that long before joining Cato, but here’s an easy practice tip: Don’t just assume that the federal government has the power to pass the law you don’t want applied to your client.

States Shouldn’t Discriminate Against Out-of-State Retailers

The National Association of Optometrists & Opticians represents eyewear manufacturers and distributors in California, where state officials have been myopic with respect to business regulation.

Under California’s Business and Professions Code, state-licensed optometrists and ophthalmologists are allowed to conduct eye exams and sell glasses at their place of business, while commercial retailers—such as the national eyewear chains represented by the NAOO—are barred from furnishing onsite optometry services. Since consumers have a strong preference for “one stop shopping”—buying their glasses at the same place where they have their eye exams—California’s law gives instate retailers a crucial competitive advantage. Businesses that cannot co-locate their services have quickly vanished from the market.

The NAOO thus sued California officials for discriminating against out-of-state retailers in violation of the “dormant” Commerce Clause, which prohibits states from imposing unjustifiable burdens on interstate commerce. The district court ruled in the group’s favor, concluding that the relevant statutes have a widespread and unjustified discriminatory effect that can’t be reconciled with Supreme Court precedent. The U.S. Court of Appeals for the Ninth Circuit reversed, however, holding that state-licensed optometrists and out-of-state retailers aren’t similarly situated competitors—even though they compete for the same customers in the same market.

On the case’s second round in the Ninth Circuit, the court scrutinized the California law under a more lenient balancing test and again upheld the ban on co-location by out-of-staters. Cato now joins the Opticians Association of America and five individual optometrists on an amicus brief urging the Supreme Court to take the case (supporting a petition for review filed by former solicitor general Paul Clement).

We argue that California’s laws are unconstitutional because their true purpose—as revealed through legislative history and the scheme’s hollow public health rationale—was merely to protect in-state business interests. California’s protectionist regime also has an adverse impact on poor and minority consumers, who confront increased costs and diminished access to eye care while also being disproportionately afflicted with visual impairments.

Not only does the Ninth Circuit’s ruling stifle competition, restrict consumer choice, and increase prices, it also encourages state and local governments to evade scrutiny of discriminatory regulations by relying on superficial distinctions between in- and out-of-state businesses that warp the meaning of “similarly situated competitors.”  The Supreme Court should intervene to prevent any further erosion of its dormant Commerce Clause jurisprudence and uphold the anti-protectionism principles envisioned by the Founders when they abandoned the Articles of Confederation in favor of the Constitution.

The Court will decide whether to take up National Association of Optometrists & Opticians v. Harris later this year or in early 2013.

(Alas) There’s No BBQ Clause in the Constitution

Surprisingly, President Obama’s first direct attack on Paul Ryan since the congressman’s selection as Mitt Romney VP nominee doesn’t involve the threat of grandma being pushed off a cliff. Instead, it involves the latest farm bill, which has too many subsidies and food-stamp increases for House Republicans’ tastes (good for them).

Now, I’m no expert in agriculture policy – for more on farm bills and related disasters, I recommend my colleague Sallie James’s work – but one provision in the disputed legislation caught my eye: Apparently the federal government plans to buy over $150 million of meat and fish. Sounds like a great cookout, but what gives the government the power to do that? Where exactly is the Constitution’s BBQ Clause?

If only President Obama could take a page from another embattled Democratic president facing a drought-stricken nation: In 1887, Grover Cleveland vetoed a bill appropriating $10,000 for seeds for suffering Texas farmers, saying, “I can find no warrant for such an appropriation in the Constitution.” (For more on that and other similar examples, see this report from 10 years ago this month.)

What a long way we’ve come.

Stop Using Slippery-Slope Arguments? Where Would that End?

Richard Thaler writes in the New York Times:

Justice Scalia is arguing that if the court lets Congress create a mandate to buy health insurance, nothing could stop Congress from passing laws requiring everyone to buy broccoli and to join a gym…Can anyone imagine Congress passing a broccoli mandate law, much less the court allowing it to take effect?

Yes annnnd…yes. Next question.

Surely, the justices have the conceptual resources to draw a distinction between the health care market and the market for broccoli. And even if they don’t, then all the briefs, the zillions of blog posts and a generation’s worth of economic literature can help them.

If drawing a constitutionally meaningful distinction between the markets for health insurance and broccoli is child’s play for Thaler, he should school all the brief- and blog-post-writers who so far have failed. That would have been a more productive use of his thousand words than his build-up to this thesis:

If you are opposed to a policy, state your case based on the merits — not on the imagined risk of what else might happen down the road. The path of that road is so unpredictable that it may even produce a U-turn.

Good grief. Slippery-slope arguments are about principles. As in, “If you concede this principle because you don’t mind the result here, you will no longer have it to protect you against that bad result there.” Thaler’s thesis would lead, for example, to all manner of civil-liberties violations by the state because there simply isn’t enough political support to protect all the civil liberties of various minorities. But Thaler doesn’t want us to think about things like consequences or the future.

The potential for U-turns makes no more sense as an argument against invoking slippery slopes principles, because principled arguments can help generate the U-turn that opponents of, say, ObamaCare want to see.

I take silly arguments like this to be evidence that ObamaCare supporters are in complete panic mode.

Chris Christie Allows New Jerseyans to Quaff Better Wine

While perhaps more identified with eating than drinking, New Jersey Governor Chris Christie – who headlined Cato’s recent Milton Friedman Prize Dinner – signed a law in January that allowed out-of-state winemakers to sell directly to in-state consumers and retailers.  This wasn’t a spontaneous bit of New Year’s bonhomie – the U.S. Court of Appeals for the Third Circuit had ruled in Freeman v. Corzine that the previous rules benefiting in-state wineries was unconstitutional (that pesky Commerce Clause again) – but still it was a positive sign: even Wine Spectator took note.

More importantly, the district judge in charge of the nine-year lawsuit challenging that earlier law recently approved the consent decree whereby New Jersey’s new law remedied the claims brought by the out-of-state wineries.  The agreement creates an out-of-state plenary winery license (good luck saying that after having consumed too much of the the vintage) under which “foreign” wine can compete on an equal playing field with good ol’ New Jersey stock.  Specifically, the new law grants this license to out-of-state applicants, including those who sell their wares over the internet, who do not produce more than 250,000 gallons of wine per year and are duly licensed in another state.

The upshot is that the new law takes effect as of this month.

This all still seems like a bit too much regulation to me, but at least everyone is now subject to the same rules.  I may have to take advantage of this newfound freedom when I travel up to the Garden State for my college reunion in a few weeks.

For my previous writings on booze and the Commerce Clause, read this and listen to this.

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