The Dormant Commerce Clause

The Dormant Commerce Clause involves not federal power to act but the restrictions on state power that are inherent in the Commerce Clause. There is no actual “Dormant Commerce Clause” found in the Constitution. Rather, the restrictions on state action have been inferred by the Supreme Court from the Commerce Clause.

You will recall that in Gibbons v. Ogden, 9 Wheat. 1 (1824), the issue involved a state-granted monopoly that conflicted with a federal licensing law for the operation of steamboats. Ogden’s New York monopoly, according to the Court would render the federal law impotent in New York, and therefore the Supremacy Clause required the Court to enforce the federal law.

EXAMPLE: In order to encourage a free market, federal law requires all trucking companies to charge a single per-pound weight for all non-hazardous freight, regardless of the nature of the freight carried. The state of Verhampshire, in an effort to bolster its dairy economy, establishes a lower state-enforced price for the transport of locally produced dairy products. The Verhampshire law is preempted by the federal legislation, and will likely be struck down.

When enacting legislation, Congress has the ability to expressly preempt any competing state laws. Even absent such a statement of exclusivity, if a state law conflicts with federal law or impedes the achievement of a federal objective, such as in the trucking example above, or if Congress evidences a clear intent to preempt state law, the theory of implied preemption applies and the federal law will rule rather than the state law.

There is also the concept of field preemption.  Field preemption stands for the proposition that Congress has so heavily regulated an area of law such that it is implicit that Congress has chosen to preempt state law on the subject matter. 

Preemption applies, however, only when there is a federal law that is on point. When there is no existing federal law, the Dormant Commerce Clause applies to tell us what states may or may not do.

The “Dormant” Commerce Clause ultimately means that because Congress has been given power over interstate commerce, states cannot discriminate against interstate commerce nor can they unduly burden interstate commerce, even in the absence of federal legislation regulating the activity.

Any state law which affects interstate commerce:

1. Must not discriminate against out-of-state actors or out-of-state competition, or have the effect of favoring in-state economic actors.
   If the law is discriminatory, then the state must show it has no other (reasonable) means of advancing a legitimate local (important, non-economic state interest, such as health of safety) purpose.
2. Must not be unduly burdensome.
   If the law only incidentally burdens interstate commerce, or if the law is nondiscriminatory, the court will balance whether the benefits of the state’s interest are outweighed by the burden on state commerce, by looking to the following: Are there less restrictive alternatives? Are there any conflicts with other states’ regulations?

In determining whether the burden is outweighed by the benefits, a court must examine whether the state objective could be achieved by a means less restrictive on interstate commerce. Furthermore, it is important to note that promoting the economic interest of its own citizens at the expense of out-of-state citizens is not a legitimate state objective.

EXAMPLE: The Oregon state highway system is falling into disrepair despite constant road maintenance efforts. An exhaustive study of road usage determines that the excessive road wear is largely due to large trucks which pass through the state from an origination point in one state to a destination in another state. The state considered establishing a toll system, but could not find a way to do so without also tolling its own citizens. The state legislature therefore decides to pass a law banning any commercial vehicles from passing through the state by using state highways unless cargo is to be delivered or picked up within the state.

What effect would the Commerce Clause have on the proposed Oregon statute? (The Commerce Clause applies, and not preemption, because there is no federal law here.) First we must ask whether the maintenance of state roads is a legitimate state end, which we can surely answer in the affirmative. Then we ask whether the law prohibiting through-traffic is rationally related to that end, and the “exhaustive study” reassures us there. This satisfies the first portion of the two-part test. More problematic is part 2: Is the burden on interstate commerce outweighed by the state’s interest? The burden seems quite heavy here, so the benefits would have to be extraordinary in order to win out. Part of this balancing involves asking whether there is no less restrictive means to achieve the goal. (Perhaps by placing weight limits on trucks or restricting them to certain lanes?) Finally, is this merely a way of hiding a form of discrimination against out-of-staters, as most in-state truckers will have either pick-ups or deliveries inside the state? If it is discriminatory against interstate commerce, simply passing the two-part test will not be enough to save the law (this is discussed in more detail below).

In Lopez, Kennedy pointed out that

“One element of our dormant Commerce Clause jurisprudence has been the principle that the States may not impose regulations that place an undue burden on interstate commerce, even where those regulations do not discriminate between in-state and out-of-state businesses” -Lopez at 579.

In the hypothetical Oregon example above, there may be hidden discrimination, but even absent such discrimination the statute may be unduly burdensome on interstate commerce. Consider another example:

The Colorado state legislature in an effort to appease the increasingly environmentally-concerned citizens of its state passes a law requiring that all commercial trucks traveling on public roads in Colorado run on electricity rather than diesel fuel or gasoline. An Arizona trucking company violates the statute and is fined $10,000. The company could bring the case to federal court claiming the Colorado statute violates the Dormant Commerce Clause because the activity regulated by the state of Colorado has some commercial connection with another state (Arizona), and the burden on interstate commerce is severe.

The Colorado statute certainly does not discriminate against out-of-state truckers, but the Commerce Clause still prohibits the state interference with interstate commerce. The state’s environmental goal is certainly a valid state concern, and the regulation is obviously related to that end. The difficult part of the analysis involves balancing the benefits to the state as compared to the burden on interstate commerce. There may be no less restrictive means of meeting the state’s environmental goals, as even restricting the number of miles driven by diesel-fueled vehicles would not have the same environmentally friendly result as eliminating all such vehicles. Still, checking for less-restrictive means of accomplishing the state goal is only part of the burden-balancing analysis. The Supreme Court has held that “Where the statute regulates even-handedly 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.” Pike v. Bruce Church, Inc, 397 U.S. 137, 143 (1970), citing Huron Cement Co. v. Detroit, 362 U.S. 440, 443 (1960). 

EXAMPLE: Bubba-Gump Shrimp is in the shrimp business. The company catches shrimp in Louisiana and ships what they catch to a canning facility in Biloxi, Mississippi, home to about 25% of the U.S. shrimp canning industry. Louisiana state law prohibits exporting shrimp from the state unless the heads and shells have been removed. Louisiana law also prohibits shipping such unshelled shrimp to any point in Louisiana. The unstated, but apparent, purpose of the law “is to favor the canning of the meat and the manufacture of [shrimp products] in Louisiana.” Foster-Fountain Packing Co. v. Haydel, 278 U.S. 1, 13 (1928). Although the local interest here is entirely legitimate, the Court will not uphold a state law which forces a company to conduct certain business operations within the state when those operations can be more efficiently carried out elsewhere.

So state laws that burden interstate commerce are permissible if they pass the two-part test. There are three exceptions which, when applicable, will permit a court to find a state law is constitutional despite being discriminatory against interstate commerce.

• First, if the state law is necessary to achieve an important state goal, the law might not run afoul of the negative implications of the Commerce Clause. In order to be necessary, there must be no other means of achieving the goal. So while a non-discriminatory law only needs to be rationally related to a legitimate state goal, a law which discriminates against interstate commerce must be necessary to achieve an important state goal in order to be upheld.
• Second, if Congress authorized the states to pass legislation in a certain area despite the effect on interstate commerce, so long as the law does not violate other constitutional provisions, it will be upheld.
• Finally, the “Market Participant” exception allows states to discriminate against out-of-staters insofar as the state itself is acting as a market participant. For example, when a state is engaging in the buying or selling of goods it may choose to buy from local companies at a higher price than it would pay outside the state, or sell to local companies at a lower price than it would otherwise receive. But in the absence of one of these three exceptions, laws discriminating against out-of-staters will be struck down as violating the Commerce Clause.

EXAMPLE (1): Massahampshire refuses to give Sticky Syrup Co, a company based in a neighboring state, a license to open a new maple syrup farm in Massahampshire. Sticky Syrup already operates 7 such farms in the state. Massahampshire’s refusal to issue the license is based on the fear that Sticky Syrup will divert even more of sweet local commodity out-of-state and take away business from small, local farmers. The refusal to issue the license would likely be ruled a Commerce Clause violation, because Massahampshire’s only interest is an economic one, which is insufficient to warrant discrimination against other states. See H.P. Hood & Sons v. DuMond, 336 U.S. 525 (1949).

EXAMPLE (2): There’s a new Mayor in town and his name is Reggie Hammond. He aims to clean up New York, starting with the many thousands of abandoned home appliances filling empty lots and cluttering curbs. In order to achieve this goal, the city offers to purchase used appliances for a certain price-per-pound. The price offered is substantially above the average market price paid per-pound. The only catch is that the offer is available only to New York residents and New York companies for 48 hours. Because New York would be acting as a market participant, there is no Commerce Clause violation here. See Hughes v. Alexandria Scrap Corp, 426 U.S. 794 (1976).