DORMANT COMMERCE CLAUSE

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The dormant commerce clause of its own force nullifies certain types of State laws even though
Congress has not spoken on the subject ( in its dormant state).

Importance of Determining Whether a Law Is Discriminatory

Strict or heightened scrutiny is triggered upon a showing that a state law or local ordinance
discriminates against interstate commerce on its face (1) in its effects, or (2) was passed with a
discriminatory purpose. Discriminatory or protectionist legislation is presumed invalid, subjected to
strict scrutiny, and nearly always invalidated. In such cases, the state bears the burden of proving (1) a
legitimate (i.e., nondiscriminatory or nonprotectionist) end and (2) the lack of any less discriminatory
alternatives to effectuate that end.

In contrast to strict scrutiny, a balancing test is employed when the law is facially neutral and the
purpose and effects are equally untainted by protectionism or discrimination. Here the challenger must
prove that the burden on interstate commerce clearly exceeds the local benefits claimed for the law.

The key initial question is whether the state law discriminates against
out-of-staters or whether it treats in-staters and out-of-staters alike.
This makes sense in light of the purposes of the dormant commerce clause.

 The framers were most concerned about stopping protectionist state legislation where a state
would discriminate against out-of-staters to benefit its citizens at the expense of out-of-staters.
 Also, it is thought that protectionist laws are most likely to interfere with the economy.
 Besides, if a law applies to in-staters and out-of-staters equally, then at least some of those
affected are represented in the political process that produced and can review the law.

Determining If a State Law Is Discriminatory: Facially Discriminatory

Laws
 Facially discriminatory laws are those that explicitly subject out-of-state commerce to less
favorable treatment than in-state or local commerce because of its geographic origins.
 The Supreme Court treats facially discriminatory laws as ‘‘virtually per se illegitimate,’’ and
permits them only where the state or local government can demonstrate (1) that their end is
legitimate, that is, not motivated by economic protectionism, and (2) that there are no less
discriminatory means to effectuate that legitimate end.
 Facial discrimination take many forms: express distinction, attempt by states to preserve
resources, reciprocity. These are not the only ways in which a state or local law can facially
discriminate against out-of-staters but, rather, are illustrative of the many forms that such laws
can take. The crucial point is that a law will be regarded as facially discriminatory if its terms
draw a distinction between in-staters and out-of-staters.

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 Sometimes it is obvious that a state or local law is discriminatory because the statute expressly
draws a distinction between in-staters and out-of-staters. In Baldwin v. G.A.F. Seelig, Inc., the
Court reviewed a state law that restricted prices of milk produced out of the state and
prevented it from being sold at a price lower than in-state milk.
 Sometimes states attempt to keep their natural resources and thus limit their accessibility to
out-of-staters. In Philadelphia v. New Jersey, the Court reviewed a New Jersey law that
effectively kept landfills in the state exclusively for New Jersey's use by preventing the
importation of any wastes from out of state.
Philadelphia v. New Jersey, 437 U.S. 617 (1978), featured the paradigmatic example of a facially
discriminatory law: New Jersey law banned the import of out-of-state solid waste. The Court
held that the actual purpose of New Jersey’s law excluding out-of-state waste (i.e., its ‘‘end’’)
was irrelevant, because the means used by New Jersey (erecting a barrier excluding out-of-state
products) was equally impermissible. In other words, assuming that, as it claimed, New Jersey
was merely trying to conserve its landfill space (as opposed to enriching in-state economic
actors at the expense of out-of-state actors), it could not do so by, in the Court’s words,
‘‘isolating the State from the national economy’’ and attempting to ‘‘saddle those outside the
State with the entire burden of slowing the flow of refuse into New Jersey’s remaining landfill
sites.’’ Thus, although New Jersey’s law might not be ‘‘protectionist’’ in the sense of protecting
an industry from out-of-state competition, it was inconsistent with the vision of the Framers,
who wished to demolish the barriers states had erected against one another’s commerce and
thus to avoid the political friction often spawned by those barriers.
 The Court has held that reciprocity requirements— where a state allows out-of-staters to have
access to markets or resources only if they are from states that grant similar benefits to their
citizens— are facially discriminatory. For instance, in Great Atl. & Pac. Tea Co. v. Cottrell, the
Court unanimously invalidated a Mississippi law that provided that milk could be shipped into
Mississippi from another state only if it had a public health certificate and only if the other state
would accept milk from Mississippi on a reciprocal basis. Likewise, in Sporhase v. Nebraska, the
Court found that a state law was discriminatory when it denied a permit to draw water for use
in another state unless that state granted reciprocal rights to draw water for use in Nebraska.
 The Court also has made it clear that local regulations that treat out-of-staters in a disparate
manner will be treated as discriminatory even though they also discriminate against those in
other parts of that state. In Dean’s Milk Co. v. Madison, the Court considered a city's ordinance
that required that all milk sold in the city had to be pasteurized within five miles of the city. 59
The law prevented milk that was pasteurized in other states from being sold in the city, but it
also precluded milk that was pasteurized in other parts of that state from being sold in the city.
Nonetheless, the Court concluded that the law was discriminatory against out-of-staters. The
Court said: “In thus erecting an economic barrier protecting a major local industry against
competition from without the State, Madison plainly discriminates against interstate
commerce.” In a footnote, the Court said that it was irrelevant that the law also discriminated
against in-staters: “It is immaterial that Wisconsin milk from outside the Madison area is
subjected to the same proscription as that moving in interstate commerce.”

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Determining If State Laws Are Discriminatory: Facially Neutral Laws

Facially neutral laws discriminate covertly against interstate commerce, either by the law’s actual
operation (‘‘effects’’) or because it was intended to apply only to out-of-state commerce (‘‘purpose’’).

A court will assess each situation and decide whether there is sufficient evidence of discriminatory
purpose and/ or effect

a. Facially neutral statutes motivated by a discriminatory purpose.

 United haulers
 Minnesota creamery
 In United Haulers Assn. v. Oneida-Herkimer Solid Waste Management Authority, the ordinance
required that the trash be brought to a state-created public benefit corporation.The court held
that the flow control ordinances do not facially discriminate against interstate commerce, and
therefore the laws are not per se invalid. Carbone v. Clarkstown, (1994), held that laws passed
to channel all waste to a private processing plant were invalid. The United haulers case is
distinguishable from Carbone because the waste is channeled to a public benefit corporation,
not a private plant. This difference is significant because the government is benefiting from any
burden placed on interstate commerce. Laws favoring local government cannot be based on
economic protectionism in the same way as laws favoring local businesses. Local governments
have the right to make decisions and enact laws to better provide for the health, safety, and
general welfare of their citizens, whereas private businesses are generally solely concerned with
economic profits. Additionally, because waste disposal is both typically and traditionally a
government function, interference with these local government actions based on the Commerce
Clause should be avoided. Under the standard articulated in Pike v. Bruce Church, Inc., (1970), a
nondiscriminatory statute should be upheld “unless the burden imposed on interstate
commerce is clearly excessive in relation to the putative local benefits.” The benefit of
increasing the local government’s ability to provide for the waste disposal needs of its citizens
outweighs the burdens placed on out-of-state waste disposal plants.
 In Minnesota v. Clover Leaf Creamery Co a Minnesota law prohibited the sale of milk in plastic
disposable containers, but allowed its sale in paper disposable containers. The law had a
substantial discriminatory effect in favor of in-state businesses and against out-of-state
businesses because Minnesota had a substantial paper industry but no plastics industry. The law
thus created a demand for paper products traditionally produced in state and prevented the
out-of-state plastics industry from having access to this Minnesota market. Moreover, the state
trial court found that the “actual basis” of the statute “was to promote the economic interests
of certain segments of the local dairy and pulpwood industries at the expense of the economic
interests of other segments of the dairy industry and the plastics industry.” Yet the Court found
that the law was nondiscriminatory. The Court said: “Minnesota's statute does not effect ‘simple
protectionism,’ but ‘regulates evenhandedly’ by prohibiting all milk retailers from selling their

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products in plastic, nonreturnable milk containers, without regard to whether the milk, the
containers, or the sellers are from outside the State. This statute is therefore unlike statutes
discriminating against interstate commerce, which we have consistently struck down.”
 In United Haulers, Exxon and Minnesota v. Clover Leaf Creamery Co the Court has found that
proof of discriminatory impact is not sufficient, even where there was strong evidence of a
discriminatory purpose.

b. Facially neutral statutes with discriminatory effects.

A statute might be facially neutral, but nevertheless violate dormant clause because of the way in which
the statute operates in fact—its effects can discriminate against out-of-state commerce or commercial
actors.

 Hunt v. Washington State Apple Advertisers Commission,

 Exxon Corp. v. Governor of Maryland

.Hunt clearly established that a facially neutral law can be found discriminatory if there is proof of a
discriminatory impact.

In Hunt v. Washington State Apple Advertising Commission, the Court found discrimination based on
the disparate impact of a law against out-of-staters. A North Carolina law required that all closed
containers of apples sold or shipped into the state bear “no grade other than the applicable U.S. grade
or standard.” The law was facially neutral in that all apples sold in the state— whether produced in state
or out of state— had to comply with this rule. Nonetheless, the Court found that the law should be
treated as discriminatory because of its effect on the sale of Washington apples. Washington had a
system for grading apples that was different from and more stringent than the federal standard. The
Court explained: The challenged statute has the practical effect of not only burdening interstate sales of
Washington apples, but also discriminating against them. This discrimination takes various forms. The
first, and most obvious, is the state's consequence of raising the costs of doing business in the North
Carolina market for Washington apple growers and dealers, while leaving those of North Carolina
counterparts unaffected.… Second, the statute has the effect of stripping away from the Washington
apple industry the competitive and economic advantages it has earned for itself through its expensive
inspection and grading system.… Third, by prohibiting Washington growers and dealers from marketing
apples under their State's grades, the statute has a leveling effect which insidiously operates to the
advantage of local apple producers.

For example, in Exxon Corp. v. Governor of Maryland, the Court found that a state law was not
discriminatory even though it greatly harmed out-of-state oil companies and favored local businesses. A
Maryland law prohibited a producer or refiner of petroleum products from operating a retail service

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station within the state. Because virtually all petroleum products sold in Maryland were produced and
refined out of state, the law meant that these out-of-state oil companies could not own service stations
in Maryland. The obvious beneficiary was local businesses.

Justice Blackmun explained the discriminatory impact of the Maryland law: “[ G] iven the structure of
the retail gasoline market in Maryland, the effect … is to exclude a class of predominately out-of-state
gasoline retailers while providing protection from competition to a class of nonintegrated retailers that
is overwhelmingly comprised of local businessmen.” The statistical disparity was enormous: “Of the
class of stations statutorily insulated from the competition of the out-of-state integrated firms … more
than 99 percent were operated by local business interests. Of the class of enterprises excluded entirely
from participation in the retail gasoline market, percent were out-of-state firms, operating 98 percent
of the stations in the class.” Nonetheless, the majority found that the law was not discriminatory. The
majority declared: “[ T] he Act creates no barriers whatsoever against interstate independent dealers; it
does not prohibit the flow of interstate goods, place added costs upon them, or distinguish between in-
state and out-of-state companies in the retail market. The absence of any of these factors fully
distinguishes this case from those in which a State has been found to have discriminated against
interstate commerce.”

The Analysis When a State Is Not Discriminating: Apply Balancing Test

 If the court decides that a particular law is NOT discriminatory against out-of-staters, then a
simple balancing test is used: The court balances the law's burdens on interstate commerce
against its benefits. The law will be found unconstitutional if the court decides that the burdens
from the law exceed its benefits. The inquiry is very much fact dependent, and the outcome
obviously turns on how the Court appraises the burdens and the benefits and how the Court
weighs them. The Court articulated this in Pike v. Bruce Church, Inc “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.”
 The test has been criticized for being unpredictable and arbitrary. Indeed, Justices Scalia and
Thomas have urged the abandonment of the balancing test. Justice Scalia contends that the
balancing test “is ill suited to the judicial function and should be undertaken rarely if at all.”
However, the majority of the Court has shown no indication of taking this position and
abandoning dormant commerce clause analysis of nondiscriminatory laws.

The law will be found unconstitutional if the court decides that the burdens from the law exceed its
benefits.

In Minnesota v. Clover Leaf Creamery Co., the Court upheld a state law prohibiting the use of
nonrecyclable plastic containers for milk after finding that it was not discriminatory. 85 The Court said
that the law did not greatly burden interstate commerce because it helped out-of-state paper

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companies. Moreover, the Court said that the environmental benefits of the law outweighed any harms
to interstate commerce. The Court said: “Even granting that the out-of-state plastics industry is
burdened relatively more heavily than the Minnesota pulpwood industry, we find that this burden is
not clearly excessive in light of the substantial state interest in promoting conservation of energy and
other natural resources and easing solid waste disposal problems.”

In Kassel v. Consolidated Freightways Corp., the Court declared unconstitutional an Iowa law banning
65-foot double trailers. The Court again weighed the “asserted safety purpose against the degree of
interference with interstate commerce.” The Court said that the “State failed to present any persuasive
evidence that 65-foot doubles are less safe than 55-foot singles.… Statistical studies supported the view
that 65-foot doubles are at least as safe overall as 55-foot singles and 60-foot doubles.” Moreover, the
Court found that the Iowa law “substantially burdens interstate commerce” by forcing these trucks to
avoid Iowa or to detach the trailers and ship them separately.

Must the State Use the Least Restrictive Alternative?

In weighing the burdens on interstate commerce against the benefits of the law, will a court consider
whether the state could achieve the benefits in a manner that places less of a burden on interstate
commerce? In stating the test to be used in evaluating nondiscriminatory laws, the Court generally
includes a “least restrictive alternative” component. In Pike v. Bruce Church, Inc., the Court, after stating
the balancing test quoted above, said: “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.” Similarly, in Minnesota v. Clover Leaf Creamery Co., after finding
that the Minnesota law preventing nonrecyclable plastic milk containers was not discriminatory and that
it served important environmental interests, the Court said that the law was constitutional because “no
approach with ‘a lesser impact on interstate activities' is available.”

The Analysis When a State Is Discriminating: Presumption Against

Constitutionality
There is a strong presumption against discriminatory laws that burden interstate commerce. A state or
local law that discriminates against out-of-staters will be upheld only if it is proved that the law is
necessary to achieve an important government purpose. The Court has declared that a discriminatory
law “invokes the strictest scrutiny of any purported legitimate local purpose and of the absence of
nondiscriminatory alternatives.” The Court has observed that “State laws that discriminate against
interstate commerce face ‘a virtually per se rule of invalidity.”

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Thus, judicial review of discriminatory laws involves scrutiny of both the ends served by the law and the
means used. As to the ends, in many cases, the Court has said that a law that discriminates will be
upheld if it is necessary to achieve a “legitimate purpose.” At the very least, a state law that
discriminates against interstate commerce must be justified by a purpose that is “unrelated to economic
protectionism.”

In considering how the Court evaluates various types of laws that discriminate against out-of-staters,
several categories of laws can be identified: laws that limit the access by out-of-staters to in-state
resources; laws that limit access to local markets by out-of-state businesses; and laws that require use of
local businesses (reciprocity).

laws that limit the access by out-of-staters to in-state resources

Philadelphia v. New Jersey, 437 U.S. 617 (1978), featured the paradigmatic example of a facially
discriminatory law: New Jersey law banned the import of out-of-state solid waste. The Court held that
the actual purpose of New Jersey’s law excluding out-of-state waste (i.e., its ‘‘end’’) was irrelevant,
because the means used by New Jersey (erecting a barrier excluding out-of-state products) was equally
impermissible. In other words, assuming that, as it claimed, New Jersey was merely trying to conserve
its landfill space (as opposed to enriching in-state economic actors at the expense of out-of-state
actors), it could not do so by, in the Court’s words, ‘‘isolating the State from the national economy’’ and
attempting to ‘‘saddle those outside the State with the entire burden of slowing the flow of refuse into
New Jersey’s remaining landfill sites.’’ Thus, although New Jersey’s law might not be ‘‘protectionist’’ in
the sense of protecting an industry from out-of-state competition, it was inconsistent with the vision of
the Framers, who wished to demolish the barriers states had erected against one another’s commerce
and thus to avoid the political friction often spawned by those barriers..

Laws That Limit Access to Local Markets by Out-of-Staters

In Granholm v. Heald, the Supreme Court invalidated state laws that allowed in-state wineries to ship
wine directly to consumers through the mail, but prevented out-of-state wineries from doing so. Justice
Kennedy, writing for the Court, described this as the type of protectionist legislation that clearly violates
the dormant commerce clause. Justice Kennedy's majority opinion concluded by declaring: “States have
broad power to regulate liquor under § 2 of the Twenty-First Amendment. This power, however, does
not allow States to ban, or severely limit, the direct shipment of out-of-state wine while simultaneously
authorizing direct shipment by in-state producers. If a State chooses to allow direct shipment of wine, it
must do so on evenhanded terms. Without demonstrating the need for discrimination, New York and
Michigan have enacted regulations that disadvantage out-of-state wine producers. Under our
Commerce Clause jurisprudence, these regulations cannot stand.”

Laws That Require Use of Local Businesses

Another example, also discussed above, was Dean Milk Co. v. City of Madison, where the Court
declared unconstitutional a law requiring that all milk sold in the city be pasteurized within five miles of

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it. 160 The law obviously advantaged businesses in or near the city, at the expense of those farther
away.

Another example of a law requiring use of local businesses was Pike v. Bruce Church, Inc., where the
Court invalidated an Arizona regulation that required cantaloupes grown there to be packed in the state
rather than in another state. The Court said that it “has viewed with particular suspicion state statutes
requiring business operations to be performed in the home State that could more efficiently be
performed elsewhere.”

Exception to Dormant commerce clause:

“market participant exception”: A state may favor its own citizens in receiving benefits from
government programs or in dealing with government-owned businesses.

The market participant exception provides that a state may favor its own citizens in dealing with
government-owned business and in receiving benefits from government programs. In other words, if the
state is literally a participant in the market, such as with a state-owned business, and not a regulator,
the dormant commerce clause does not apply. Discrimination against out-of-staters is allowed that
otherwise would be impermissible. However, it must be emphasized that even though the laws will be
permissible under the dormant commerce clause, the laws might be vulnerable to other constitutional
challenges such as those based on the privileges and immunities clause of Article IV or equal protection.

The Court initially articulated the market participant exception in Hughes v. Alexandria Scrap Corp. In
Hughes, the Court upheld a Maryland law designed to rid the state of abandoned automobiles by having
the state pay for inoperable cars. The state required minimal documentation of ownership from in-
staters, but required more elaborate proof from out-of-staters through either a certificate of title, a
police certificate vesting title, or a bill of sale from a police auction. The Court said that the state was a
market participant by purchasing the cars and that therefore its discriminatory actions against out-of-
staters did not violate the dormant commerce clause. The Court declared: “Nothing in the purposes
animating the Commerce Clause forbids a State, in the absence of congressional action, from
participating in the market and exercising the right to favor its own citizens over others.” The Court
applied Hughes in Reeves, Inc. v. Stake, where the Court upheld a cement company owned by South
Dakota charging less to in-state purchasers and more to out-of-state purchasers. The Court said the
“basic distinction … between States as market participants and States as market regulators makes good
sense and sound law.” The Court said there is no indication of a constitutional plan to limit the ability of
the States themselves to operate freely in the free market.” The Court said that South Dakota, as the
seller of cement, was clearly a market participant and thus was able to favor in-state purchasers over
those from out of the state.“Alexandria Scrap and Reeves … stand for the proposition that when a state
or local government enters the market as a participant it is not subject to the restraints of the
Commerce Clause.”

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To take advantage of the MPE, the state must actually be mimicking a private market participant. The
state may not, for example, participate in a particular market by offering discriminatory tax credits to in-
state businesses, even where the tax credits are economically identical to a cash subsidy. Using the tax
code in this way, the Court has held, is a ‘‘primeval government activity’’ and is not available to private
market participants. New Energy Co. v. Limbach, 486 U.S. 269, 277 (1988).

Pros and Cons of market participation: The market participant exception can be criticized on several
grounds. First, the dormant commerce clause is meant to stop protectionist actions by state
governments; protectionism should not be allowed regardless of whether the state is acting in a
proprietary or a regulatory capacity. Second, there is not a clear distinction between situations where
the government is acting as a regulator and when it is a market participant. But if a state can prefer its
own citizens with regard to state-owned resources, it is not clear why this distinction should matter.

On the other hand, the market participant exception can be defended as allowing citizens in a state to
recoup the benefits of the taxes that they pay. Further this exception is justified by the sense of fairness
in allowing a community to retain the public benefits created by its own public investment.