Category Archives: interstate commerce

Bendix Autolite Corp. v. Midwesco Enterprises, Inc.

486 U. S. 888

June 17, 1988

Ohio had a 4 year statute of limitations on contract disputes. But that time limit was tolled if the corporation being sued was out-of-state, unless the corporation had a designated agent in Ohio. When an Illinois corporation without an Ohio agent was sued six years after a contract, it argued that Ohio’s strange law discriminated against interstate commerce. It forced a choice between being subject to Ohio’s general jurisdiction, or being subject to contract disputes without any time limit.

The Supreme Court ruled 8-1 that Ohio was violating the Commerce clause. Kennedy said that being subject to general Ohio jurisdiction was a significant burden, and that not being able to take advantage of a statute of limitations was another significant burden. Because only out-of-state corporations had to choose between these two burdens, and because there was little compelling interest for Ohio’s law, there was clear discrimination against interstate commerce, and the law had to go.

Scalia concurred in judgment. He had difficulty assessing just how burdensome the alleged burdens were. He absolutely hated the ‘balancing’ that the Supreme Court did in state commerce cases. “[T]he scale analogy is not really appropriate, since the interests on both sides are incommensurate. It is more like judging whether a particular line is longer than a particular rock is heavy.” He would leave all balancing to Congress, where it belonged. Nonetheless, he did agree that in this case Ohio’s law did blatantly discriminate against foreign corporations.

Rehnquist filed a cryptic dissent, which argued that Ohio’s law had some non-obvious similarities to other state laws that the Supreme Court had upheld. His argument is a bit too subtle and underdeveloped for me to fairly evaluate it.

New Energy Co. of Ind. v. Limbach

486 U. S. 269

May 31, 1988

Ohio had a law that gave a big tax credit to sellers of Ethanol gasoline, but only if the Ethanol came from Ohio or from a state that gave an equally large tax credit for Ohio Ethanol. An Indiana Ethanol producer wanted the tax credit, but could not get it because Indiana did not offer Ethanol tax credits. The question was whether Ohio’s law violated the Interstate Commerce clause by unfairly restraining commerce.

With Scalia writing, the Court unanimously ruled that Ohio’s law did violate the Commerce clause. Judicial precedent had long since held commercial reciprocity laws out of order, and the fact that this reciprocity law involved a denied tax credits rather than a flat embargo was irrelevant. Precedent also held out of order laws which placed less severe economic disadvantages on out-of-state businesses. Scalia was unimpressed by Ohio’s claim that only the one Indiana seller would be disadvantaged by the law, because the number disadvantaged did not matter.

Under the market-participation doctrine, some discrimination could be acceptable if the state itself was an actor in the economic market, but mere tax credits did not suffice to bring Ohio into the Ethanol market. A case where Maryland was allowed to subsidize in-state car junkers was carefully distinguished. Finally, Scalia rejected as obviously untrue Ohio’s contention that the law was intended to promote health and commerce rather than to discriminate against out-of-state Ethanol.

While Scalia’s opinion seems correct as a legal matter, there does seem to be a really unfair double standard with Interstate Commerce clause cases. Congress seems able to do whatever it wants with no restrictions under the clause at all. But the moment a state does the teeniest, tiniest little bit of commercial discrimination, the Supreme Court brutally slaps them down in summary fashion.

D. H. Holmes Co. v. McNamara

486 U. S. 24

May 16, 1988

A Louisiana company called D. H. Holmes had catalogs designed and printed outside of Louisiana. It then mailed these catalogs to potential customers, most of which lived in Louisiana. The state tried to collect a ‘use’ tax on the catalogs. In a use tax, a tax is levied on material purchased out-of-state, but used in-state, as the catalogs were. D. H. Holmes argued, among other things, that such a use tax on the catalogs violated the Interstate Commerce Clause.

Rehnquist wrote for the Court, which ruled unanimously that the tax was just fine. The legal test for use taxes, from a case called Complete Auto, said that use taxes were constitutional if: 1. The tax was levied on an entity with a substantial nexus to the state levying the tax. 2. The tax was fairly apportioned. 3. The tax did not discriminate against interstate commerce. 4. The tax was related to benefits provided by the state. As Rehnquist demonstrated, the Louisiana tax inarguably met all four conditions.

Rehnquist slapped down a few other arguments. Because the catalogs alerted Louisiana residents about the store, the catalogs were certainly being “used,” contrary to the assertions of D. H. Holmes. And even though catalogs from out-of-state companies had been held exempt from use taxes, there was no reason to extend this exemption to in-state companies. Even though I think this decision was legally correct, I also think ‘creative’ taxes like the use tax are awful, and ought to be scrapped.

American Trucking Assns., Inc. v. Scheiner

483 U. S. 266

June 23, 1987

To pay for the cost of highway maintenance, Pennsylvania imposed a flat tax of $36 per axle on all trucks that used Pennsylvania roads, whether registered in or out of state (there was also a $5 tax for vehicle identification). Trucks registered in-state paid registration taxes which were correspondingly reduced to offset these flat taxes. Out-of-state truckers pointed out that they used Pennsylvania roads far less than in-state truckers, and therefore paid a much higher cost per mile through this tax scheme. They sued, claiming a Commerce Clause violation.

The Court ruled 5-4 that the flat taxes did violate the Commerce Clause. Justice Stevens, writing for the majority, found the cost per mile disparity highly significant, and detrimental to interstate commerce. The majority said state taxes must conform to an “internal consistency” test, meaning that taxes are invalid if commerce would be negatively affected should all 50 states impose the same tax. Simply put, the tax was too much of a barrier to interstate trade. Stevens was forced to admit that several old cases approved of facially neutral taxes for use of state roads. These were unceremoniously overruled on the plea that the earlier Justices insufficiency valued form over substance. As in the other tax case decided the same day, the question of remedy was remanded.

O’Connor’s dissent was joined by Rehnquist and Powell. She didn’t like the casual obliteration of a long line of precedent, and pointed out that Congress had never seen fit to challenge those precedents in spite of political pressure to do so. She showed that the “internal consistency” test was a misreading of prior cases, and made the general observation that the Court had rendered it far too difficult to states to raise revenues for highway maintenance. Scalia’s dissent, joined by Rehnquist, likewise affirmed that the “internal consistency” test was an invention, and also refuted the potential contention that the axle and vehicle identification taxes were in fact facially discriminatory.

I’m genuinely surprised by how merciless the Court is toward state taxes. I would have expected far more deference, especially from the more liberal Justices. Certainly, you’ll never see them strike down a national tax on such feeble grounds.

Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue

483 U. S. 232

June 23, 1987

In 1984, the Supreme Court held a West Virginia tax scheme unconstitutional under the Commerce Clause. West Virginia exempted goods manufactured in the state from sales tax, reasoning that the state’s tax on manufacturing was an effective substitute. The Supreme Court, however, said that subjecting only out-of-state goods to the sales tax was discriminatory, and hampered interstate commerce. The State of Washington had a tax scheme which was sort of the inverse: all goods were subject to the sales tax, but goods sold in-state were exempted from the manufacturing tax.

The Supreme Court ruled 6-2 that Washington’s law was also unconstitutional (Powell did not participate). Stevens, writing for the Court, said that the law was still discriminatory on its face against interstate commerce, because only goods sold across state lines were subjected to the manufacturing tax. He rejected any argument that the two taxes could be viewed as offsetting, and claimed that the issue was squarely controlled by the earlier 1984 ruling. With regard to the question of remedy (i.e., whether any taxes would have to be refunded), Stevens remanded. In a unanimous section, the Court quickly shot down a separate legal challenge by an out-of-state manufacturer which objected to having to pay Washington’s sales tax. The court ruled that the company had enough contact with Washington to render it subject to the tax.

O’Connor’s concurrence stated that she agreed only because Washington’s scheme was facially discriminatory. Scalia filed a dissent joined by Rehnquist. He did not feel the West Virginia case controlled, and pointed out that the majority’s gloss on it ran counter to many decades worth of precedents. He saw no discrimination in the tax system at all: all it did was ensure that no good sold inside or outside of the state was taxed twice. It certainly had neither the goal or effect of weakening interstate commerce. Finally, in a section not joined by Rehnquist, Scalia gloriously attacked the entire doctrine of the ‘Dormant Commerce Clause,’ which the Court had long used to strike down state attempts to regulate commerce. It’s yet another brilliant display of originalism from the then-newest Justice.

To me, tax law is the most intimidating domain of our legal system. The last thing it needs is the Supreme Court making it more complex still, and on highly specious grounds at that. Sadly, the companion case decided the same day is an even more headache-inducing ruling. If I never come across another tax case, it will be too soon.

Citicorp Industrial Credit, Inc. v. Brock

483 U. S. 27

June 22, 1987

The Fair Labor Standards Act (FLSA) prohibited the sale or distribution of goods manufactured by a company which violated minimum wage laws. For many years, Citicorp underwrote a large clothing manufacturer, but that manufacturer ultimately failed in 1985. During the last month of production, the employees were not paid. The Department of Labor then took active steps to prevent Citicorp from attempting to place any of the products manufactured during this last month into commerce. Citicorp argued that a longstanding appeals court ruling exempted creditors from the general FLSA rule.

The Court ruled 7-2 that the FLSA non-distribution rule applied to creditors. Marshall showed that the text of the FLSA was clear and unambiguous. The law made two exceptions to its general rule, but neither one applied to Citicorp. He was unsympathetic to the claim that the FLSA’s rule was not intended to apply to creditors. To the contrary, the law’s purpose was to remove tainted goods from the market, and as to that purpose, it hardly mattered whether a manufacturer or a creditor did the distributing. Scalia’s brief concurrence grumbled about (what else?) the majority’s inquiry into the intent of Congress in passing the law.

Stevens dissented, and was joined by White. He did not see any evidence that Congress had intended the FLSA rule to apply to bankruptcy situations. Furthermore, the court of appeals rule exempting creditors, which the majority rejected, had stood unchallenged by either Congress or other courts for two decades. In light of all this practical, real world experience, Stevens did not believe it was appropriate for the Court to go ultra-textualist, and overturn the prevailing legal understanding of the FLSA.

This case illustrates the contrast between formalism and functionalism better than just about any other case all term. Formalism is frequently disruptive and painful, while the argument Stevens makes is undeniably seductive. In the end though, unswerving fidelity to the text better serves the long term good of a court and a nation. “And why do you break the commandment of God for the sake of your tradition?” – Matthew 15:3.

Burlington Northern R. Co. v. Oklahoma Tax Comm’n

481 U. S. 454

April 28, 1987

Burlington Northern again? What the heck was going on at that railroad in the 1980s? After seeing them three times in 1987, they will not show up again until 1992. In any event, a law passed by Congress prohibited states from imposing discriminatory taxes on railroad property, and allowed for judicial remedy if such a tax were ever levied. In this case, Burlington Northern argued that Oklahoma’s computation of the value of the railroad’s property was way off, and that the resulting property tax was thus discriminatory.

Unanimously, the Court held that a railroad could sue under the act for an alleged miscomputation of property value. Marshall looked to the plain text of the act, which clearly implied in more than one place that the property assessment itself could be subjected to legal review. Marshall also rejected the claim that evidence of discriminatory intent on the part of Oklahoma was necessary for a legal challenge. Once again, it was the plain text of the statute itself which he used in response. Textualism FTW!

CTS Corp. v. Dynamics Corp. of America

481 U. S. 69

April 21, 1987

Indiana passed a law that changed the default stock selling and shareholder voting rights rules governing corporations. The law was intended to stop hostile takeovers of Indiana corporations. When this law prevented Dynamics from acquiring a large portion of CTS, Dynamics challenged the law, claiming it was preempted by the federal Williams Act, and that it violated the dormant commerce clause by excessively limiting the rights of interstate stock owners and purchasers.

The Court ruled 6-3, with Powell writing, that the Indiana law could stand. There was no obvious basis on which the Williams Act preempted the Indiana law. In response to the objection that the Williams Act was frustrated by the tougher restrictions Indiana placed on offerors, Powell stated that the basic purposes of the two laws were still one and the same – protecting shareholders against coercive offers. Moving on to the dormant commerce clause challenge, Powell pointed out that states generally do retain the right to set default rules for corporations, and that the Indiana law made no explicit distinctions based on the home state of offerors. He also rejected some more novel commerce clause arguments that the effect of the law would be to discourage out-of-state offers, and offers more generally, continuing to cite a state’s well-established right to regulate its own corporations

Scalia concurred in judgment. He had joined the opening section of Powell’s commerce clause discussion, but did not join the parts discussing the more novel theories. He felt that a commerce clause violation should never be found on the basis of balancing purposes and predicted effects. Scalia also thought that the Williams Act utterly disclaimed any intent to preempt laws which did not directly conflict with it. White dissented. The Indiana law frustrated the rights of certain shareholders to sell their stock, and that, he contended, was emphatically contrary to the purpose of the Williams Act. In another section joined by Blackmun and Stevens, he argued that the law’s intent was so protectionist, and its effects on out-of-state traders so severe, that a dormant commerce clause violation ought to be found.

The Court made the right call. The arguments of the dissenters are an interesting illustration of the degradation of the Court’s commerce clause jurisprudence. Rather than limiting federal power, by the 1980s the commerce clause appears to have ironically become primarily a limitation on state power.

United States v. Cherokee Nation of Okla.

480 U. S. 700

March 31, 1987

In 1970, a Supreme Court decision held that the Cherokee Nation and other Indian tribes were given virtually exclusive rights to a portion of the Arkansas River by some old treaties. On the strength of this ruling, the Cherokees sought to obtain compensation under the takings clause for damage that the United States had caused to sand and gravel in the river while working on some channel project.

Unanimously, the Supreme Court rejected the arguments of the Cherokees. Rehnquist explained that the United States still retained a navigational servitude in the Arkansas River even after signing the treaties with the Indian tribes. As far as I can make out, “navigational servitude” essentially means ‘the right to do whatever the **** you want without any consequences whatsoever.’ Court precedents established that the navigational servitude was a part of the commerce clause power of the United States, and that it required absolutely no compensation to property owners. Furthermore, even the aforementioned 1970 ruling that the Cherokees relied on suggested strongly that full navigational servitude rights were retained by the United States. Thus, the United States was immune from having to provide compensation.

So far as I can tell, the existing precedents were correctly applied. That doesn’t change the fact that this decision was utterly atrocious as a matter of natural justice. I loath all manifestations of sovereign immunity in the law, especially this navigational servitude nonsense. No earthly government should have this sort of control over rivers, and far less should one be able to cause grave damage without even being held financially responsible.

ICC v. Texas

479 U. S. 450

January 20, 1987

The Interstate Commerce Commission (ICC) had the authority to exempt interstate railways from state regulations. This exempting authority did not, however, reach intrastate motor transportation. Three interstate railroads provided intrastate services where railway owned trucks would drive onto railroad flatcars. The flatcars would then go to another location, where the trucks would drive off to a final destination. The ICC exempted these entire transportation relays from state regulation, but Texas contended that it had the authority to regulate the truck driving sections, since they were intrastate and involved motor vehicles.

Stevens wrote for a unanimous Court, finding that the ICC’s authority extended to the non-railroad portions of the transportation scheme. Key was that the railroads actually owned the trucks that drove on the road. The statute which granted the ICC its exempting authority directly said that it could exempt “transportation that is provided by a rail carrier as a part of a continuous intermodal movement.” Because the railroads actually provided the trucks, the road portions of the transportation could be exempted. Agency practice and the apparent intent of Congress to benefit railroad companies both buttressed the Court’s holding.

As is usually the case with unanimous opinions so far, I find myself wanting to read a dissent. The Stevens opinion is probably correct in its ultimate conclusion, and I’m all for exempting railroads from unnecessary state regulations, but I’m not 100% sold that the ICC truly had adequate statutory authority.