State Regulation of Commerce

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STATE REGULATION OF COMMERCE

When the Framers of the Constitution granted Congress the power "to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes," they did not specify what regulatory powers were to be left to the states. Did they intend simply to grant a power to Congress which left the states free to regulate until such time as Congress acted? Were states restrained only from enacting statutes inconsistent with federal statutes? Or was the grant of power to Congress intended to be exclusive, forbidding the states to regulate commerce among the states even though Congress had not acted?

These questions troubled the Court several times during john marshall's tenure as Chief Justice. As a strong nationalist, he was attracted by the argument presented by daniel webster in gibbons v. ogden (1824) that the word "regulate" implied full power over the thing to be regulated and necessarily excluded the power of the states to regulate the same thing. But Congress could not be expected to regulate all commerce among the states. Most transportation was by water. Inland transportation was slow and difficult. It could take a week or ten days to travel from Boston to New York, and in practical effect Georgia was more remote from New York than from the ports of Europe.

Marshall's solution was to suggest that Congress had full power to regulate interstate commerce but that in the absence of conflicting federal regulations, the states had power to enact local police laws—inspection laws, quarantine laws, health laws, laws respecting turnpike roads and ferries—even though such laws might affect commerce. After Marshall's death the Justices were sharply divided between those advocating the position that exclusive power to regulate interstate commerce was vested in Congress and those, led by the new Chief Justice, roger b. taney, advocating the position that states had full power to regulate interstate commerce so long as Congress had not acted.

In 1851, in cooley v. board of wardens of philadelphia, the Court arrived at a compromise of the conflicting views. In upholding a state law requiring vessels in interstate and foreign commerce to accept local pilots, the Court said that when the subjects being regulated "are in their nature national, or admit only of one uniform system, or plan of regulation" they "require exclusive legislation by Congress." On the other hand, when the subjects were local, as in the case of pilotage regulations attuned to individual conditions of the various ports, the states could regulate until Congress might intervene.

During the next half century the Court struggled to limit the negative implications of its notion of broad federal powers to regulate during a time when the federal government regulated little outside of water transportation. Some theory was needed to support the necessary state regulation of commerce. One way to do this was to narrow the definition of interstate commerce. In paul v. virginia (1868) the Court held that the insurance business was not commerce among the states and so could be regulated by the states. In kidd v. pearson (1888) it upheld an Iowa statute forbidding the manufacture of intoxicating beverages as applied to a manufacturer who sold all his output in other states. The Court said that manufacturing was not commerce. If it were commerce, the Court assumed, "Congress would be invested, to the exclusion of the States, with the power to regulate not only the manufacturers, but also agriculture, horticulture, stock raising, domestic fisheries, mining—in short, every branch of human industry." In other cases the Court decided when an interstate journey began (when the goods had been actually shipped, or delivered aboard a common carrier for shipment, across state borders) and when it ended (when it came to rest at the end of its journey available for final disposition or use).

Toward the end of the century the Court devised another method for enabling states to regulate in areas Congress had not chosen to regulate. In Cooley the Court had said that a federal statute consenting to all present and future state pilotage regulations was invalid insofar as it incorporated future regulations because the division of power between state and nation was fixed in the Constitution and Congress could not change it. In leisy v. hardin (1890) the Court held that one state could not forbid the sale of liquor brought in from another state while still in its original package, but added that "so long as Congress does not pass any law to regulate it, or allowing the States so to do, it thereby indicates its will that such commerce shall be free and untrammelled." Congress took the hint and enacted a law permitting states to regulate such traffic in liquor, and the Court upheld the law in In re Rahrer (1891). Since then it has been settled that Congress may, if it wishes, permit states to regulate in areas otherwise reserved for Congress.

But even these rules did not result in agreement on the principles to be used in deciding individual cases. Despite the fact that Cooley appeared to have established that the states sometimes could regulate, the Court continued to refer from time to time to the "exclusive" power of Congress to regulate interstate commerce. In other cases the Court suggested that the test of validity of a state regulation of interstate commerce was whether it imposed a forbidden "direct" burden on commerce or a permitted "indirect" burden. By the beginning of the twentieth century there was clear agreement on only one principle: state regulations that clearly discriminated against interstate commerce by imposing burdens on such commerce beyond those imposed on comparable intrastate commerce were invalid.

During the first third of this century the Court dealt with a large mass of state regulations of transportation. A fair characterization of the cases would be one of doctrinal confusion. While the Court affirmed that states could not ban interstate transportation or discriminate against it for economic reasons, it had great difficulty in deciding when formally nondiscriminatory state regulations might be invalid because of the burdens they cast on commerce.

Today the Court does not get transportation cases involving state discrimination against interstate commerce. Instead, it is asked to determine that even nondiscriminatory regulations may be invalid if they impose substantial burdens on commerce without compensatory state advantages. South Carolina State Highway Department v. Barnwell Bros. (1938) involved a state statute prohibiting the use on state highways of any trucks wider than ninety inches. Although nondiscriminatory, the statute had a major impact on interstate commerce; all other states permitted a width of ninety-six inches, and thus most trucks engaged in interstate commerce would not be able to enter South Carolina. The Court said that few matters of state regulation were "so peculiarly of local concern" as was the use of state highways. The problem was one of determining whether local conditions demanded the regulation in the interests of safety. That determination was "a legislative, not a judicial choice," and the state's conclusion that the regulation was necessary was presumed correct unless "upon the whole record … it [was] without a rational basis."

But seven years later, in southern pacific v. arizona ex rel. sullivan (1945), the Court indicated that the courts rather than the state legislatures would have the final say in such commerce cases. A state statute limited the length of all trains in Arizona to fourteen passenger cars or seventy freight cars. The Court declared that Congress could "permit the states to regulate the commerce in a manner which would otherwise not be permissible … or exclude state regulations even of matters of peculiarly local concern which nevertheless affect interstate commerce." But when Congress had not acted, the final determination was for the courts. The question was whether the state interest in preventing injuries to railroad employees due to the slack action of cars on longer trains was outweighed by the burden the statute would have upon interstate commerce. The Court concluded that the state justification was weak and the burden heavy and so invalidated the statute. Barnwell was said to be different because it had dealt with the peculiarly local nature of state highways.

In recent years the Court has struggled with the question whether the Barnwell or the Southern Pacific approach should be used to judge state regulations of highways. In bibb v. navajo freight lines, inc. (1959) the Court held invalid an Illinois statute requiring trucks to use contour mudguards when all other states permitted, and Arkansas required, straight mudflaps. The Court reaffirmed Barnwell, saying that courts should not engage in rebalancing the interests which the state legislature had, but added that this was "one of those cases—few in number—where local safety measures that are nondiscriminatory place an unconstitutional burden on interstate commerce." The Court has also dealt with state laws forbidding the use of trucks pulling double trailers as applied to interstate carriers. In raymond motor transportation, inc. v. rice, (1978) the Court unanimously invalidated a Wisconsin statute, noting that extensive evidence showed the law's heavy burden on interstate commerce and that the state had made no effort to demonstrate any safety interest. In Kassel v. Consolidated Freightways Corp. (1981) the Court invalidated a similar Iowa statute but was unable to agree upon an opinion or upon the way in which such regulations should be judged. Only four Justices clearly applied the Southern Pacific approach in highway regulation cases; the others were willing to leave the matter to the states when the safety interests at stake were substantial.

Cases involving regulation of production and trade also give the Court difficulty in arriving at consistent standards. Some governing rules are fairly straightforward. A state cannot ban the importation of goods, except in the rare case when goods must be excluded to avoid substantial damage to persons or property. So the Court in great atlantic & pacific tea co. v. cottrell (1976) held that Mississippi could not forbid the importation of milk from Louisiana which had refused to sign a reciprocity agreement with Mississippi. In philadelphia v. new jersey (1978) the Court held invalid a state law banning importation of garbage destined for private landfills. The Court said: "[W]here simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected.… The clearest example of such legislation is a law that overtly blocks the flow of interstate commerce at a State's borders."

Nor can a state ban the exportation of goods, even for the purpose of conserving scarce goods for use by citizens of the state. Thus in Hood & Sons v. Du Mond (1949) the Court held that New York could not deny a milk dealer the right to purchase milk and ship it out of state, even though milk was short for a nearby city. In Hughes v. Oklahoma (1979) the Court said the commerce clause forbade the state from preventing the transportation or sale outside the state of minnows procured within the state. And an attempt by New Hampshire to make sure that electricity generated by water power served first the needs of local citizens, by forbidding the export of such power without permission of the state, was invalidated in New England Power Co. v. New Hampshire (1982). The Court said that the regulation was "precisely the sort of protectionist regulation that the commerce clause declares off-limits to the States." However, Sporhase v. Nebraska (1982) suggests that a state restriction on the exportation of ground water may be upheld when done "to conserve and preserve for its own citizens this vital resource in times of severe shortage."

Regulations which discriminate against interstate commerce or otherwise operate to protect local commerce against competition are also invalidated. In Baldwin v. G. A. F. Seelig, Inc. (1935) the Court held unconstitutional a New York statute that made it unlawful to sell milk purchased from out-of-state producers at prices less than those paid local producers. The Court said: "If New York, in order to promote the economic welfare of her farmers, may guard them against competition with the cheaper prices of Vermont, the door has been opened to rivalries and reprisals that were meant to be averted by subjecting commerce between the states to the power of the nation." A Louisiana statute forbidding the export of shrimp unless the heads and hulls had been removed was held invalid in Foster-Fountain Packing Co. v. Haydel (1928) because the effect was to favor the canning of meat and the manufacture of bran in Louisiana.

Much more difficult for the Court have been cases that do not overtly discriminate against interstate commerce. In dean milk co. v. madison (1951) the Court invalidated a city ordinance forbidding the sale of milk as pasteurized unless it had been processed and bottled at an approved plant located within five miles of the center of Madison. Although the criterion excluded in-state as well as out-of-state milk, the Court said it discriminated against interstate commerce. The Court recognized that Madison had a legitimate interest in the purity of milk, but held it could not give an economic preference to local businesses if there were reasonable nondiscriminatory alternatives, such as inspection outside the state.

In Pike v. Bruce Church, Inc. (1970) the Court held unconstitutional, as applied to a grower with a substantial packing plant in California, an Arizona statute forbidding shipment of fruit out of the state unless it was packed in containers bearing the name of Arizona. The court set out a series of tests which have been frequently referred to in later cases: "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.… If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate activities."

The Court has difficulty in applying the Pike formula. The major problem comes in deciding whether a case presents a nondiscriminatory statute with an incidental effect on commerce or one which can be characterized as discriminatory, hence requiring the higher standard of review. In Hunt v. Washington State Apple Advertising Commission (1977) a North Carolina statute requiring all closed containers of apples sold in the state to bear no grade other than the applicable U.S. grade or standard was challenged by Washington, which marketed under its own grades which were equivalent or superior to the U.S. grades. Even though the statute applied equally to local and out-of-state shippers of apples, the Justices found that the statute discriminated against the Washington apples and held it invalid. The principal difficulty appeared to be that the statute took from Washington the market advantages it had earned through its own grading system.

The next year, in Exxon Corp. v. Maryland (1978), however, the Court upheld a state law forbidding a producer or refiner of petroleum products to operate any retail service station within the states. Maryland had no in-state oil production or refining. The Court said that the act did not affect the interstate transportation of gasoline—presumably the same volume would come in after the statute as before—but merely the structure of retailing. Further, since owners of multi-state chains of retail stations who did not produce gas could continue to compete, there was not even a preference for locally owned stations. The Court said that Hunt was different because there the statute favored in-state operators over out-of-state ones.

More recently, in Minnesota v. Clover Leaf Creamery Co. (1981), the Court upheld a Minnesota statute banning the retail sale of milk in plastic nonreturnable, nonrefillable containers while permitting such sale in other nonreturnable, nonrefillable containers such as paperboard milk cartons. The Court noted that the statute did not discriminate. The burden imposed on commerce was very slight since most dairies packaged their milk in various kinds of containers, and the shifts in the business would not be distributed on in-state, out-of-state lines.

Finally, the Court has held that when the state itself is in the market producing or selling goods, the commerce clause does not restrict the state. Thus in Reeves, Inc. v. Stake (1980) the Court upheld, 5–4, a decision by South Dakota to cease selling cement which the state manufactured to out-of-state customers in order to supply the needs of South Dakota customers. The Court said that the state, as a market participant, was free to prefer its own citizens, even though it could not order private businesses to do the same. The Court distinguished the manufacture of cement from regulating private use of natural resources such as coal, timber, wild game, or minerals. The cement was the end product of a complex process in which a physical plant and human labor of the state had acted on raw materials. The dissenters said the policy upheld was "precisely the kind of economic protectionism that the Commerce Clause was intended to prevent."

Today, as in 1824, the Court has great difficulty in defining its place with reference to state regulation of interstate commerce. States can regulate commerce in the absence of conflicting federal regulation so long as they do not go too far. The Court will strike down clear discriminations or economic preferences for local economic interests. But, when confronted with a nondiscriminatory regulation that imposes an incidental burden on commerce, the Court will sometimes let the regulation stand until Congress acts and in other cases will intervene to protect commerce. This uncertainty is likely to persist.

Edward L. Barrett, Jr.
(1986)