Constitutional Law: Regularion of Interstate Commerce

Question 1

Regulation of Commerce by Congress

Answer 1

As already seen, Congress’s power over interstate commerce is very broad and pervasive.
However, the power is nonexclusive—it is shared with the states to some degree.

Question 2

Regulation of Commerce by Congress: (1) Power of Congress to Supersede or Preempt State Regulation

Answer 2

Recall that the Supremacy Clause makes federal law supreme. (See IV.C., supra.) Thus,
if a state law regulating commerce conflicts with a federal law, the state law will be void.
Moreover, if Congress desires, it may preempt an entire area of regulation, thus preventing
states from making any laws concerning the area preempted. (See IV.C.3., supra.)

Question 3

Regulation of Commerce by Congress: (2) Power of Congress to Permit or Prohibit State Regulation

Answer 3

Although Congress’s commerce power is nonexclusive, the states’ power to regulate interstate
commerce is restricted by the negative implications of the Commerce Clause, even absent
federal legislation—the states generally may not discriminate against interstate commerce.
(See below.) Nevertheless, Congress is not so restricted; it may allow the states to adopt legislation that would otherwise violate the Commerce Clause.

Note: as indicated above, Congress may also prohibit the states from adopting legislation that would otherwise be permitted under the commerce clause.

Question 4

Regulation of Commerce by Congress: (2) Power of Congress to Permit or Prohibit State Regulation

(a) Limitation

Answer 4

While Congress may permit states to adopt regulations that would otherwise violate the
Commerce Clause, such consent will not obviate other constitutional objections to the
regulation. Thus, Congress may not give states the power to restrict civil liberties. (See
X.A.1.b.2)a), infra.)

Question 5

State Regulation of Commerce in the Absence of Congressional Action

Answer 5

If congress has not enacted laws regarding the subject, a state or local government may regulate local aspects of interstate commerce of the regulation:

(i) Does not discriminate against out-of-state competition to benefit local economic interest; and
(ii) is not unduly burdensome (i.e., the incidental burden on interstate commerce does not outweigh the legitimate local benefits produced by the regulation).

If either test is not met, the regulation will be held void for violating the Commerce clause (sometimes the dormant commerce clause or negative commerce clause under such circumstances)

Question 6

what are the two requirements for states when enacting legislation that regulates local interstate commerce where congress has not enacted laws regarding the subject

Answer 6

1. the law can not discriminate against out of state competition to the benefit of local economic interests; and
2. the law cannot be unduly burdensome

Question 7

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Generally Invalid

Answer 7

state or local regulations that discriminate against interstate commerce to protect local economic interest are almost always invalid.

Question 8

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Examples (1) Regulations Protecting Local Businesses

Answer 8

Laws designed to protect local businesses against interstate competition generally
will be invalidated.

Examples:
1) A state cannot place a surcharge on out-of-state milk to make that milk as expensive as (or more expensive than) milk produced in the state.

2) A state cannot exempt local businesses or products from taxation or regulation that it seeks to apply to out-of-state businesses or products that come into the
state.

3) A law requiring all locally produced solid waste to be processed at a local
waste processing business was held to violate the Commerce Clause because it
was a trade barrier against competition from out-of-state waste processors. [C&A
Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383 (1994)]

Question 9

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Examples (2) Regulations Requiring Local Operations

Answer 9

If a state law requires a business to perform specific business operations in the
state to engage in other business activity within the state, the law will normally be
held invalid as an attempt to discriminate against other states where the business
operations could be performed more efficiently.

Example:
If a state required all businesses that produce melons in the state and all businesses that purchase melons from local producers to wrap or package the melons
in the state (before the melons were exported from the state), the law would be
invalid as an attempt to force businesses to locate their packaging operations in
the state.

Question 10

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Examples (3) Regulations Limiting Access to In-State Products

Answer 10

A state law that makes it difficult or impossible for out-of-state purchasers to have
access to in-state products (other than products owned by the state itself) is likely
to be held invalid.

Examples:
1) A state cannot prohibit in-state owners of “ground water” from selling and
exporting the water they own to persons in other states.

2) A state cannot require in-state companies to sell products at a lower price to instate residents than to out-of-state residents.

Question 11

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Examples (4) Regulations Prohibiting Out-of-State Wastes

Answer 11

A state may not prohibit private landfill or waste disposal facilities from accepting
out-of-state garbage or waste or surcharge such waste [Philadelphia v. New Jersey,
437 U.S. 617 (1978); Chemical Waste Management v. Hunt, 504 U.S. 334 (1992)]
unless Congress authorizes such discrimination [New York v. United States, VI.A.2.,
supra—federal statute allowing states to impose surcharge on certain out-of-state
nuclear wastes upheld]. This rule applies even to hazardous wastes. [Oregon Waste
Systems, Inc. v. Department of Environmental Quality, 511 U.S. 93 (1994)]

Question 12

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Exceptions (1) Necessary to Important State Interest

Answer 12

A discriminatory state or local law may be valid if it furthers an important, noneconomic state interest (e.g., health or safety) and there are no reasonable
alternatives available.

Example:
A state could prohibit the importation of live baitfish (such as minnows) into the
state because the state could demonstrate that it had no other way of effectively
avoiding the possibility that such baitfish might bring certain parasites into the
state or, in other ways, have a detrimental effect on the state’s wild fish population. [Maine v. Taylor, 477 U.S. 131 (1986)] However, a state could not prohibit
the export of live baitfish to out-of-state purchasers because the sale of such fish
to out-of-state purchasers would not impair any interest of the state, except the
interest of protecting local purchasers of baitfish from competition by out-of-state
purchasers. [Hughes v. Oklahoma, 441 U.S. 322 (1979)]

Question 13

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Exceptions (2) State as Market Participant

Answer 13

The Commerce Clause does not prevent a state from preferring its own citizens
when the state is acting as a market participant (e.g., buying or selling products,
hiring labor, giving subsidies).

EXAMPLES
1) A state may purchase scrap automobiles from its citizens at a higher-than-market rate and refuse to pay nonresidents the same amount. [Hughes v. Alexandria
Scrap Corp., 426 U.S. 794 (1976)]
2) Under the market participant exception to the Commerce Clause, a city may require that all construction projects funded by the city be performed by contractors
using a workforce composed of at least 50% bona fide residents of the city. [White
v. Massachusetts Council of Construction Employers, 460 U.S. 204 (1983)]

Question 14

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Exceptions (2) State as Market Participant

(a) Limitation—Interstate Privileges and Immunities Clause

Answer 14

While a state or local government does not violate the Commerce Clause
by preferring its own citizens while acting as a market participant, there is
no market participant exception to the Interstate Privileges and Immunities
Clause. Thus, a regulation that interferes with private sector employment, such as the one in example 2), above, may violate the Privileges and
Immunities Clause unless the regulating entity can show a substantial justification for the regulation. (See VII.B.3., supra.)

Question 15

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Exceptions (2) State as Market Participant

(b) Limitation—“Downstream” Restrictions

Answer 15

While a state may choose to sell only to state residents, it may not attach
conditions to a sale that would discriminate against interstate commerce.

EXAMPLE
Alaska violated the Commerce Clause when it imposed a contractual requirement on purchasers of state-owned timber that the timber be processed in
Alaska before being shipped out of state. [South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82 (1984)—plurality opinion]

Question 16

State Regulation of Commerce in the Absence of Congressional Action: Discriminatory Regulations - Exceptions (3) Favoring Government Performing Traditional Government Functions

Answer 16

The Supreme Court applies a more lenient standard when a law favors government action involving the performance of a traditional government function (such
as waste disposal). Discrimination against interstate commerce in such a case is
permissible because it is likely motivated by legitimate objectives rather than by
economic protectionism.

EXAMPLES
1) A county flow control ordinance that favored a state-created public waste facility by requiring waste haulers to bring the wastes to the state facility rather than
to private facilities is valid. [United Haulers Association, Inc. v. Oneida-Herkimer
Solid Waste Management Authority, 550 U.S. 330 (2007)]
2) A state may exempt from state taxation interest on its own bonds and bonds of
its municipalities while taxing bonds of other states and their subdivisions. [Department of Revenue of Kentucky v. Davis, 553 U.S. 328 (2008)—issuing debt
securities to pay for public projects is a “quintessentially public function” with a
venerable history]

Question 17

State Regulation of Commerce in the Absence of Congressional Action: Nondiscriminatory Laws—Balancing Test

Answer 17

Sometimes a nondiscriminatory state or local law that regulates commerce may impose a
burden on interstate commerce; e.g., a state law regulating the size of trucks within that
state may burden interstate commerce because interstate trucking operations will be subject
to the law when their trucks enter the state. A nondiscriminatory law will be invalidated
only if the burden on interstate commerce outweighs the promotion of legitimate (not
discriminatory) local interests. This is a case-by-case balancing test. Thus, some regulations of trucks will be upheld, because they do not impose an undue burden on interstate
commerce, whereas other truck regulations will be invalidated, because they would make
it extremely difficult for interstate trucking operators to have their trucks travel into or
through the state.

Question 18

State Regulation of Commerce in the Absence of Congressional Action: Nondiscriminatory Laws—Balancing Test (a) Absence of Conflict with Other States

Answer 18

State and local laws regulating commerce are more likely to be upheld when there is
little chance that states would have conflicting regulations of the same subject matter.

EXAMPLE
A state could validly apply a state law prohibiting racial or gender discrimination in
the hiring of personnel to an airline doing business in the state because the law was not
discriminatory against out-of-state businesses, it promoted a legitimate interest, and no
other state could validly require or permit racial or gender discrimination by airlines.

Question 19

State Regulation of Commerce in the Absence of Congressional Action: Nondiscriminatory Laws—Balancing Test (b) State Control of Corporations

Answer 19

A different standard may apply to statutes regulating the internal governance of a
corporation adopted by the state of incorporation. Because of the states’ long history of
regulating the internal governance of corporations that they create, and because of their
strong interest in doing so, even a statute that heavily impacts interstate commerce may
be upheld.

EXAMPLE
To protect shareholders of corporations incorporated in Indiana from hostile takeovers, the Indiana legislature adopted a “control share acquisition statute.” The
statute provided that once a person acquires shares that take him across a specified
ownership threshold (e.g., one-third ownership of all voting shares), he may not
vote those shares unless the other shareholders consent. Even though most hostile
takeover bids originate from outside the state, the Supreme Court found that the
statute did not violate the Commerce Clause because its aim was to protect current
shareholders, it did not discriminate between takeover bidders based on their state of
origin, and there is no chance that the state law would conflict with the laws of other
states because the internal governance of a corporation is regulated only by the state
in which the corporation is incorporated. [CTS Corp. v. Dynamics Corp. of America,
481 U.S. 69 (1987)]

Question 20

Twenty-First Amendment—State Control Over Intoxicating

Liquor: Intrastate Regulations

Answer 20

The Twenty-First Amendment, which repealed prohibition, gives state governments wide
latitude over the importation of liquor and the conditions under which liquor is sold or used
within the state. However, state liquor regulations that constitute only an economic preference for local liquor manufacturers may violate the Commerce Clause. The Commerce
Clause prohibits both outright economic favoritism for local businesses and attempts to
regulate out-of-state transactions in order to guarantee the competitive position of in-state
businesses.

EXAMPLES
1) A state law that prohibits out-of-state wineries from shipping wine directly to in-state
consumers, but permitting in-state wineries to do so if licensed, discriminates against interstate commerce. [Granholm v. Heald, 544 U.S. 460 (2005)]

2) A state law that requires out-of-state distillers or sellers of alcoholic beverages to affirm
that the price the distiller/seller is charging liquor retailers or wholesalers in the state is no
greater than the price the distiller/seller is charging in other states violates the Commerce
Clause. Such a price affirmation law directly interferes with and burdens interstate commerce. The Twenty-First Amendment does not authorize this type of state interference with
commerce. [Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S.
573 (1986); Healy v. The Beer Institute, Inc., 491 U.S. 324 (1989)]

Question 21

Twenty-First Amendment—State Control Over Intoxicating

Liquor: Interstate Regulations

Answer 21

Transitory liquor (liquor bound for out-of-state destinations) is subject to the Commerce
Clause. Thus, a state prohibition on transporting liquor through the state would probably be
held unconstitutional as violating the Commerce Clause.

Question 22

Twenty-First Amendment—State Control Over Intoxicating

Liquor: Federal Power

Answer 22

The Twenty-First Amendment does not prohibit Congress from controlling economic transactions involving alcoholic beverages under the federal commerce power. Thus, federal
antitrust law can prohibit a practice of liquor dealers that has the effect of fixing minimum prices. [324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987)] Similarly, as mentioned above,
Congress may, without violating the Twenty-First Amendment, “regulate” liquor distribution
by imposing conditions on the grant of federal funds given under the spending power. [South
Dakota v. Dole, VI.A.2.b., supra]

Question 23

Bar Exam Approach

Answer 23

Whenever a bar exam question involves a state regulation that affects the free flow of interstate
commerce, you should proceed as follows:
First, see if the question refers to any federal legislation that might be held either to: (i) supersede the state regulation or preempt the field, or (ii) authorize state regulation otherwise impermissible.
Second, if neither of these possibilities is dispositive of the question, ask if the state legislation
either discriminates against interstate or out-of-state commerce or places an undue burden on the
free flow of interstate commerce. If the legislation is discriminatory, it will be invalid unless (i) it
furthers an important state interest and there are no reasonable nondiscriminatory alternatives, or
(ii) the state is a market participant. If the legislation does not discriminate but burdens interstate
commerce, it will be invalid if the burden on commerce outweighs the state’s interest. Consider
whether there are less restrictive alternatives.