Why can credit card companies evade IN law by locating in SD?

Why can credit card companies evade IN law by locating in SD? • Under federal law, federally chartered banks “may charge interest ‘on any loan’ at the rate allowed by the laws of the State in which the bank is ‘located.’” • If a national bank is located in SD, it may charge interest rates permitted by SD • Marquette Nat'l Bank v. First of Omaha Service Corp., 439 U.S. 299 (1978) (thanks to Mark Holwagerfor finding this case) • What constitutional provision tells us that the SD bank is not subject to IN’s interest rate laws? • The Supremacy Clause • Note that other states have followed SD’s lead

Printz How could Congress have gotten local law enforcement officers to conduct its background checks? Congress may adopt statutes that are generally applicable to both private companies and state and local governments Congress may use financial incentives to persuade state and local governments to regulate private activity in a certain way (the spending power) When regulating private activity, Congress may give states the choice of regulating according to federal standards or having the federal government preempt state regulation

Dormant CommerceClause • Overview of topic • What are the “negative” implications of Congress’ Commerce Clause power? • That is, to what extent does the fact that the Constitution grants a “positive” power to Congress to regulate interstate commerce affect the ability of states to regulate interstate commerce? • Today, we consider “facial” or “disparate treatment” discrimination against out-of-state commerce; next week we consider “facially neutral” or “disparate impact” discrimination against out-of-state commerce

What do we learn from text in isolation? • The Congress shall have Power . . . To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes (Art. I, § 8, cl. 3) • Congress shall have power • Congress shall have power • What does it mean “to regulate?” • If Congress does not pass a regulatory law, does that mean it has chosen to leave the matter free of government regulation?

What do we learn from text compared to other text? • The Powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people • 10th Amendment

What do we learn from text compared to other text? • Art. I, § 8, cl. 5 • The Congress shall have Power . . . To coin Money, regulate the value thereof, and of foreign Coin, and fix the Standard of Weights and Measures • Art. I, § 10, cl. 1 • No State shall enter any Treaty, Alliance, or Confederation, grants Letters of Marque and Reprisal; coin Money; emit Bills of Credit . . . .

What do we learn from text? • Congress shall have power—it’s an exclusive power (see Tenth Amendment) • Congress shall have power—states can act as long as they don’t conflict with federal legislation (see Article I, § 10 and Supremacy Clause) • Inaction is also a form of regulation—it’s an exclusive power

What do we learn from the nature of our Constitution? • On one hand, we know that the Articles of Confederation failed because of state regulation of interstate commerce. • On the other hand, we know that the framers were worried about a too powerful national government • States may regulate as long as they don’t unreasonably interfere with interstate commerce?

What do we learn from principles of representation-reinforcement? • If we’re concerned about the regulation of interstate commerce, can one state’s voters speak for all voters? • But maybe there are important local concerns at stake—do we want those sorted out by all voters?

Old Dormant Commerce Clause • Purposes of the state regulation (commercial goals vs. police power goals like public health or safety) • Regulating matters of local concern or matters that demand uniform national rules • Direct or indirect effect on commerce (as in the pre-1937 commerce clause cases)

Dormant Commerce Clause today • If there is pure economic protectionism at work, state regulation is prohibited, unless the state can show no other way (or no reasonable alternative) to achieve a legitimate state interest (disparate treatment discrimination) • If a statute has an even-handed effect on intrastate and interstate commerce, and effects on interstate commerce are incidental, statute allowed unless burdens on interstate commerce clearly excessive (disparate impact discrimination)

City of Philadephia • What are the facts in this case? • A NJ law prohibited the importation of waste that originated, or was collected, outside of New Jersey • Note that we have a regulation of private conduct • Does it matter that the law regulated waste rather than goods with economic value? • No. If there is interstate commerce involving waste, it is subject to Commerce Clause protection. • To put it another way, wastes may not have value, but there is money to be made in providing the service of waste disposal

City of Philadephia • What does the Court say about the ability of states to regulate interstate commerce at the outset of Section III (pages 239-240)? • Congress does not regulate all aspects of interstate commerce—some aspects are local in character, and there are too many aspects of interstate commerce for Congress to attend to • States have interests in the health and safety of their residents to safeguard; protecting those interests may require regulation of interstate commerce • But states may not engage in economic protectionism • This takes us to the Court’s two-part test

City of Philadephia • Is NJ’s law an unconstitutional exercise of economic protectionism, or is it a legitimate effort to lower waste disposal costs and protect the environment for residents of NJ? • It’s unconstitutional economic protectionism • Why? Is NJ not allowed to worry about its residents’ pocketbooks and environment? • NJ’s goals were legitimate, but its means of achieving those goals were not—NJ may not discriminate against out-of-state commerce just because it is from out of state

City of Philadephia • On what basis could NJ have discriminated against out-of-state waste? (Think Maine fishbait case, page 243) • It could have banned waste that had too high a level of toxic metals, or waste that had too high a level of radioactivity • How else could NJ have addressed the problem of too much waste coming into its waste disposal sites? • Placed a cap on the total amount of trash that could come in during a year’s time, or imposed a tax on trash disposal in the state—as long as the cap or tax applied equally to in-state and out-of-state disposers of waste

City of Philadephia • Why are quarantine laws for diseased livestock permissible when they are directed against out-of-state commerce (page 241)? • The laws target the livestock because they are diseased, not because they are from other states • What is the representation-reinforcement argument for the Court’s decision? • NJ voters were trying to enjoy the benefits of reducing waste disposal while placing the costs of the reduction on people in other states, who have no say in the NJ legislature • But NJ landfill operators brought the suit • Still, most of the burdens fell on out-of-staters

C & A Carbone • What are the facts in this case? • This was another effort to deal with the problems of waste disposal • The city of Clarkstown, NY required all waste to be deposited at a private “waste transfer station,” which would then pull out the recyclable items before disposing of the waste • The station’s fees were higher than its competitors that did not sort recyclable waste (there were higher fees to cover the costs of building the station, page 245) • Carbone did his own sorting of recyclable items and wanted to send his remaining waste out of state • Clarkstown is close to the NY-NJ border

C & A Carbone • Why was the Clarkstown ordinance a discrimination against out-of-state disposers of waste? Carbone was based in Clarkstown. • All out-of-state waste that was processed by Carbone had to go to the waste station; also, none of the locally-generated wastes could be sent for processing to out-of-state waste stations • You can’t justify your discrimination against out-of-staters by also discriminating against some in-staters • There still is an in-state/out-of-state imbalance. The favored company is in-state; all out-of-state companies are disfavored (note how strict the Court was being)

C & A Carbone • Once we’re in disparate treatment of out-of-staters, we have a virtual per se rule of invalidity; the government must show it has no other way to promote its legitimate state interest (pages 244-5) • Were there other ways for Clarkstown to ensure that its waste station was financially viable without discriminating against out-of-state commerce? • It could have given the station a subsidy from general taxes or issued municipal bonds to raise funds • As Souter’s dissent observes, however, these policies also allow the in-state company to squelch out-of-state competition because its costs are lower (page 247) • In addition, there are good economic reasons to place the burden of waste disposal on the generators of the waste rather than on all taxpayers (page 247)

C & A Carbone • Why from a representation-reinforcement perspective, should we not worry about the Clarkstown ordinance? • Local competitors of the waste recycling facility are harmed just as much as out-of-state competitors, so they are going to speak up in the debate. • Also, the residents of Clarkstown bear most of the costs of the facility since they will have to send their garbage there. • These points are made in O’Connor’s concurrence (pages 245-246) and Souter’s dissent (page 247). • As the dissenters pointed out, this was really a discrimination in favor of a monopolist not a discrimination against out-of-staters

C & A Carbone • What if Clarkstown had owned the waste station rather than favored a private waste station? • That would have been acceptable, as the Court held in United Haulers, page 248 • There’s no protection of local companies at the expense of out-of-state companies • To put it another way, there’s no economic protectionism at work when the state is spending its own money • The Court also found that there was no excessive burden on out-of-state interests under the disparate impact standard

Granholm v. Heald • Dormant commerce clause cases not only come up over garbage disposal; they also come up with respect to the selling of wine. • What are the facts in Heald? • In-state wineries could obtain a license to sell their wines directly to customers; out-of-state wineries could not • In MI, out-of-state wineries had to sell through a state-licensed wholesaler, who in turn had to sell through a state-licensed retailer • In NY, out-of-state wineries could obtain a license to sell directly to consumers, but they had to establish a branch office in NY

Granholm v. Heald • Could MI or NY save its statute by citing a legitimate state interest that “cannot be adequately served by reasonable nondiscriminatory” alternatives? • The states were worried about underage drinking and the ease with which teenagers can buy wine over the Internet • What’s wrong with this argument? • No problem with teenage wine purchases in the 26 states that allowed direct sale to consumers • Minors prefer beer and other alcoholic beverages • Minors have easier and quicker ways to buy their alcohol • Minors can purchase from in-state wineries—states should be adopting regulations that apply to both in-state and out-of-state wineries

Granholm v. Heald • Could MI or NY save its statute by citing a legitimate state interest that “cannot be adequately served by reasonable nondiscriminatory” alternatives? • The states also were worried about collecting taxes for the direct shipments to consumers • What’s wrong with this argument? • MI collected its taxes from the wineries even when they sold wine through local wholesalers • NY could collect taxes from out-of-state wineries for direct shipment the same way it collected them from in-state wineries—indeed, other states have not had problems collecting taxes from out-of-state wineries • Out-of-state wineries are subject to federal sanctions if they evade their state tax obligations

Dormant Commerce Clause today • If a state disfavors out-of-state interests simply because they are from out of state, we have pure economic protectionism • NJ prohibiting the disposal in NJ landfills of waste from out of state • MI/NY allowing in-state wineries but not out-of-state wineries to ship directly to state residents • States may disfavor out-of-state interests not because of geography but because of a meaningful difference • ME may prohibit importation of live fishbait from other states because of parasites, non-native species

West Lynn Creamery • States cannot discriminate against out-of-state companies by imposing higher taxes on them • West Lynn Creamery illustrates the implications of the no-taxing-differential principle • What are the facts in West Lynn Creamery? • Instead of imposing a tax on out-of-state milk producers, MA imposed a tax on all milk producers and sent a rebate to in-state milk producers • Is that permissible? • No. It’s functionally equivalent to a tax only on out-of-state milk producers

West Lynn Creamery • But wait. MA could impose a tax on all milk producers, and it also could give subsidies only to in-state milk producers (page 251). • Why can’t it combine two policies that would be valid separately? Don’t two rights make a right? • No. We have a representation-reinforcement problem. Ordinarily, in-state milk producers would have lobbied against the tax, but they were bought off by the subsidy (page 251)

Discriminatory taxation • No higher taxes on out-of-state businesses • No subsidies to in-state businesses from an even-handed tax on in-state and out-of-state businesses (West Lynn Creamery) • No exemption for in-state businesses from an even-handed tax on in-state and out-of-state businesses • May give special subsidies to in-state businesses from general revenues (more to come on this principle)

Discriminatory taxation • May give special subsidies to in-state businesses from general revenues • Why is this different from the West Lynn Creamery law? • With special subsidies, voters have an interest in resisting the law to save the money for other uses • With subsidies from a tax on the industry, voters know the subsidies wouldn’t be available for other uses • Why is this different from a tax exemption for in-state businesses? • Subsidies are more visible to the voter than tax breaks so we can rely more comfortably on the political process (page 253)

Market participant doctrine • When the state runs a business venture, it can favor state residents over out-of-state residents. • NJ cannot deny out-of-staters access to privately-owned landfills in NJ, but it can reserve state-owned landfills for state residents • The Court draws a distinction between state as market participant and state as market regulator • Thus, the state cannot use its market participant authority to regulate the market in favor of in-state companies beyond the benefits it bestows as a participant • In Wunnicke, Alaska could favor in-staters when it sold state-owned timber, but it could not require the purchasers to process the timber in state

Market participant doctrine • More on the principle that the state cannot use its market participant authority to regulate the market in favor of in-state companies beyond the benefits it bestows as a participant • Recall that in United Waste Haulers (page 248), the Court upheld a government-owned version of the waste station in Carbone. • Why didn’t the Court invoke the market participant doctrine in that case? • It would have been a market participant case if the city had given in-staters preferential access to the facility • But the city went further and required everyone to use the facility, thereby disfavoring out-of-state waste facilities even more • Consider the distinction between a state university that charges lower tuition to in-staters, and a requirement that in-state students attend the state university

Privileges and Immunities Clause of Article IV The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States • (Art. IV, § 2, cl. 1)

Privileges and Immunities Clause of Article IV • Does the law burden an Art. IV privilege or immunity (i.e., is the out-of-state resident’s interest in the state’s privilege sufficiently fundamental to the promotion of interstate harmony)? • Can deny access to public services but not to the private market • Does the state (or municipality) have a substantial reason for its discrimination, and is there a close relationship between the reason and the degree of discrimination?

Combining the doctrines • Dormant Commerce Clause • Market participant exception • Privileges and Immunities Clause limitation (for individuals only) • Equal Protection Clause limitation (for corporations and individuals) • Dormant Commerce Clause • Congressional Consent • Privileges and Immunities Clause limitation (for individuals only) • Equal Protection Clause limitation (for corporations and individuals

Why can credit card companies evade IN law by locating in SD?