Fundamentals_Fernholz_1329
Introduction
The dormant commerce clause doctrine, while not explicitly mentioned in the
Constitution, stands for the proposition that, in the absence of federal regulation, state law
may stand unless the state legislation in question benefits that state and burdens another state.
This can either occur through (i) a statute that is facially discriminatory (for example, in
Granholm v Heald, the relevant legislation prohibited direct sales by out-of-state wineries into
the state, while permitting direct sales by in-state wineries), or (ii) a statute that prima facie
does not appear to differentiate between two states, but that nevertheless has disparate
effects on interstate commerce (Hunt v Washington).
Textual arguments
The answer has many headings, which I like.
However, it is not necessary for students to write
their essay in the form of a numerical list or an
outline.
The organization falls apart a bit toward the end –
but I expect that to happen, given the time
limitations the writer had.
Comment [whdf2]: This is a very good
introduction. It is a bit long, and would have
received full points even if it had been shorter.
Against constitutionality
On a purely textual reading of the Constitution, it is arguable that the dormant
commerce clause doctrine should not even exist. Article I, Section 8 of the Constitution sets out
the enumerated powers of the federal government, and one of these is to “regulate
commerce”. However, in the absence of Congressional regulation, states should be able to
make their own laws governing commerce, and this should arguably be one of the
unenumerated powers reserved to the states (namely, allowing state governments to legislate
where there is no federal legislation on the subject). This is in line with the principles of
federalism, which resolves the problem of dual sovereignty between the federal and the state
governments. Tellingly, it was argued by the state government in Granholm that the states have
the power to make their own regulations concerning alcohol based on the 18
Amendments to the Constitution, but this was not accepted by the Court.
Comment [whdf1]: This is an annotated version
of the best answer to a Fundamentals of U.S. Law
Essay question administered in the Summer of
2013. It is exceptionally good. Aspire to this level.
Don’t blame yourself if you think you won’t write an
answer this good. In my time at Berkeley Law, I
never wrote an essay answer this good. And now I
teach here.
th
Comment [whdf3]: The following two
paragraphs are accurate and well-written, but
completely unnecessary to answer the question.
The student received no points for this.
st
and 21
A historical argument against constitutionality of the dormant commerce clause
doctrine could be made based on the Federalist Papers. In Federalist 45 and 46, Madison wrote
that there were hard limits on the power of the federal government to act, and that the powers
of the federal government were “few” and “defined” and would be used in relation to external
objects such as foreign affairs. In contrast, state power was much greater and would be used to
protect the liberties and prosperities of the people. However, as demonstrated by McCulloch v
Maryland, this argument is likely to have little force in modern times.
For constitutionality
A potential counterargument to the arguments above is that the necessary and proper
clause of the Constitution (Article I, Section 8, Clause 18) allows Congress to execute any such
laws as may be “necessary and proper” to give effect to the powers listed in Article I, Section 8.
It is arguable that, in order to effectively regulate interstate commerce, the application of the
dormant commerce clause doctrine is necessary (meaning merely convenient, useful,
appropriate or essential – McCulloch v Maryland) for a unitary centralized government,
especially in light of its foreign affairs. Secondly, it could also be argued that the dormant
Comment [whdf4]: Similarly, the paragraph
below is unnecessary, and did not receive any
points.
commerce clause doctrine is necessary in order to avoid economic “Balkanization” and to
prevent ongoing low-level trade wars from being waged against each other by the states. In
other words, this doctrine is necessary as a measure to prevent injustice between the states
themselves and to avoid negotiations based on reciprocity.
Case Law – Application of balancing test in Hunt and Pike v Bruce Church
In the present case, the proposed statute would require all potential consumers within
North Carolina to make all in-person purchases of automobiles through dealerships, and they
would not be able to purchase automobiles directly from the car manufacturer itself. Since the
law would apply to all car manufacturers in the US, it appears to be a statute of general
applicability.
Similarly, in Hunt, the relevant statute mandated labeling of all containers of apples shipped
into or within the state, and applied to both in-state and out-of-state apple growers. Despite
the universal applicability of the statute to all apple growers within the US, the statute in Hunt
was nevertheless held to be unconstitutional. The Pike v Bruce Church test which was applied in
Hunt, which reflects the modern approach, should therefore presumably apply in this case as
well since the proposed statute is not facially discriminatory.
A balancing test from Pike and Hunt is applied in this context. Specifically, the three
requirements that must first be met in order for the balancing test to apply include: (i) the
statute is not facially discriminatory, (ii) there is a legitimate local purpose and (iii) the impact
on interstate commerce is merely incidental. If these three conditions are fulfilled, then these
will be balanced against (i) the nature of the local interest, and (ii) whether that local interest
could be promoted in alternative ways that would have a lesser impact on interstate
commerce.
1. Is the statute not facially discriminatory? a. Yes, as mentioned above, the statute
applies to all car manufacturers, regardless of where they are based.
2. Is there a legitimate local purpose? a. According to Senator Tom Apodaca, the
proposed law is intended to prevent unfair competition between manufacturers
and dealers, as car manufacturers could undercut the competition of
independent dealers by refusing to sell to them or selling at an inflated price.
Further, it is mentioned that car manufacturers have no ties to North Carolina
and are unlikely to support local communities, whereas dealerships are often
beneficial for local businesses.
It could potentially be argued that the latter reasoning is slightly more tenuous
and weaker than the rationale that was argued in Hunt (namely, the avoidance
of confusion arising from a multiplicity of labeling standards), as there are surely
many entities within a state that do not contribute to local charities, and this
should not be considered good cause to ban such entities from the state entirely.
Comment [whdf5]: I award points for this. The
test for facially discriminatory legislation does not
apply to this case.
Comment [whdf6]: I award points for
analogizing to a similar case that we studied in class.
Comment [whdf7]: Not a perfect rule
statement – it doesn’t specify what we balance the
local interests against – but very, very close.
Comment [whdf8]: Very good that the author
did not spend much time on this easy point.
Nevertheless, the threshold does not seem unduly difficult to satisfy, and it is
likely that a court would find that legitimate local purposes do exist here.
3. Is the impact on interstate commerce merely incidental? a. Since North Carolina
does not have any automobile manufacturing facilities, and no automobile
manufacturer is based in North Carolina, it would seem that the impact on
interstate commerce would, prima facie, be merely incidental. However, since
Tesla has planned to open a showroom in North Carolina, the impact may be
more far-reaching than was apparent. As Tesla has only sold 80 cars in North
Carolina through online orders thus far, it would also be helpful to know whether
other car manufacturers are facing a similar problem as that faced by Tesla in
this situation.
Comment [whdf9]: Note that the writer
analyzes both sides of the issue, and then provides
her own opinion. I agree with her. These are
legitimate local purposes, though the writer should
and does argue below that the legislation probably
doesn’t well serve those legitimate local purposes.
Comment [whdf10]: Again, the writer argues
both sides, and then indicates where additional
information would be useful.
If these three requirements are fulfilled, a court would then apply the balancing test to
determine whether the statute is constitutional.
4. What is the nature of the local interest?
a. The local interest, as mentioned in (2) above, involves preventing unfair
competition between manufacturers and dealers within the state, and
protecting local communities and charities through donations from dealerships.
5. Could the local interest be promoted in alternative ways that would have a lesser impact on
interstate commerce? a. The fact that this law is modeled after laws in many other states in
the United States, including Texas, is a strong indication that there may be no equally
effective alternatives that would have a lesser impact on interstate commerce, as other
states have adopted a similar approach. However, in contrast, North Carolina and all other
states permit direct manufacturer sales of other goods – for example, Apple sells computers
directly to consumers online and through its own showrooms. A court is likely to question
why this should not be the position in relation to automobiles as well. The disparity in
treatment of these goods may be evidence of a protective economic motive in this case.
It should also be noted that in Hunt, Justice Scalia criticizes the balancing test based on
the idea that weighing such considerations involves weighing totally incommensurate items.
Therefore, the possibility of similar criticism by the court does exist.
Which is the stronger argument?
In my opinion, the genuine local interest arguably seems to be aimed towards protecting
independent dealerships in the state, despite the purported reasons given by the Senator in (2)
Comment [whdf11]: No need to repeat. The
writer could have cut this. Instead, the writer
should have focused on why the local interests are
so weak. The writer does so two paragraphs below,
and thus gets credit.
Comment [whdf12]: Not needed.
above. This could be construed as quite similar to the Hunt case, where the court mentioned
the possibility that the statute was merely intended to have a protective economic effect on
the state’s apples. Here, it could similarly be argued that North Carolina is merely attempting to
protect its own independent dealerships and stifle competition from out-of-state
manufacturers such as Tesla. This possibility is enhanced by the fact that dealers make much of
their money on maintenance and repair that occurs for months or years after the sale of the
car, whereas electric cars such as those made by Tesla are more reliable and would rarely
require maintenance and repair.
Comment [whdf13]: Points for this. Note the
use of the facts provided in the essay question.
However, also as mentioned in Hunt, the application of the balancing test is useful
because it avoids the necessity of having to find such economic motives behind state action. In
the present case, while the statute is not facially discriminatory, does seem to have a
“legitimate” local purpose, and would (possibly) have only an incidental impact on interstate
commerce, I would argue that the other two factors would outweigh these three
considerations.
In relation to the Senator’s first argument that the statute is intended to prevent unfair
competition between manufacturers and dealers, there are surely other alternatives that do
not create such a “blanket” ban on automobile manufacturers owning dealerships in North
Carolina. A state statute could instead seek to address and regulate the specific practices
between manufacturers and dealers in relation to unfair competition laws. This would be much
more tailored and limited in scope and application, in contrast with the far-reaching impact of
the current statute.
The second argument regarding the fact that car manufacturers are unlikely to support
local communities and businesses, unlike car dealerships, seems to be quite a weak argument.
As there are no existing automobile manufacturers in North Carolina, an automobile
manufacturer setting up business and selling cars in the state would not change the status quo
if it fails to contribute money to local causes. In any case, there are alternatives to the current
statute that would have a lesser impact on interstate commerce. For example, allowing
manufacturers to sell cars in North Carolina and providing tax breaks and incentives for
charitable donations to local causes would ensure that local communities are benefited by the
presence of such manufacturers.
Comment [whdf14]: Here the writer discusses
alternatives, another aspect of the rule. Points
given for this, even though the alternative
suggested is rather abstract.
Comment [whdf15]: The writer
misunderstands the issue a bit, but I give credit for
the attempt to apply the balancing test.
Comment [whdf16]: Here’s a good alternative!
Points.
Consequently, despite the fact that other states have similar laws, I am of the opinion
that the balancing test would not be satisfied by the arguments of the Senator and the dealers,
and would prefer a finding that the statute is unconstitutional.
If statute is held unconstitutional
If the statute is held unconstitutional, North Carolina dealers may be able to seek recourse
through the legislative system by virtue of the fact that automobile dealers are generous
contributors to the election campaigns of state officials. By choosing to spend or withhold their
contributions, the North Carolina dealers would be able to influence legislators in Congress to
legislate in their favor. Because of the semi-constitutional status of state laws in the specific
Comment [whdf17]: A nice description of the
semi-constitutional nature of Dormant Commerce
Clause Doctrine.
context of the dormant commerce clause doctrine, Congress may be able to “override” state
authority on the subject – however, this would also impact all other similar state statutes in
relation to this matter.
Comment [whdf18]: This is correct, but a bit off
the point. The writer may have intended to say
“federal court authority.”