Judging federal regulations that preempt state law: the role of the presumption against preemption.

• Date: 22 March 2003
• Author: Cole, Charles G.
• Published date: 22 March 2003
• Author: Cole, Charles G.

In dealing with questions of federal preemption, appellate lawyers often find themselves addressing the presumption against preemption--the principle that a federal statute will not be held to have preempted state law unless that is the clear and manifest intent of Congress. But suppose the preemption question arises in the administrative context, when a federal agency adopts a role that expands its jurisdiction far enough to preempt state power over a field traditionally regulated by the states. Should the appellate specialist look to that presumption in deciding whether the agency's role fell within its statutory power? Or would the courts use other tools of statutory interpretation, including the Chevron doctrine, (1) in deciding whether the rule was permissible?

The Supreme Court shed significant light on this question during the last term. In New York v. FERC, (2) it held that the presumption against preemption would not determine whether an agency had authority to adopt a regulation asserting greater jurisdiction, even if the rule's effect would be to displace the historic power of states to regulate in a particular area. This decision represented the latest of several refusals to extend the presumption to the administrative context, and effectively frees federal agencies from its constraints in interpreting their organic statutes.

The presumption against preemption has a revered pedigree. For at least a century, courts analyzing whether state law has been displaced pursuant to the Supremacy Clause have "start[ed] with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." (3) Though many more courts quote this principle than actually apply it, (4) the cases citing it are legion. It has often been applied in cases of implied preemption, particularly in determining whether a field has been preempted by federal law. (5) It has also been applied-over some vigorous dissents--in cases of express preemption, as a principle limiting the construction of congressional directions about preemption. (6)

Thus, the presumption appeared to be a weapon of some power when, in New York v. FERC, (7) New York and the other petitioning states invoked it to challenge a FERC rule asserting jurisdiction over a substantial segment of retail electrical transmission service. The petitioners pointed out that, after the passage of the Federal Power Act in 1935, (8) local utilities had provided transmission service to retail customers as part of their sales of electricity, and that states had therefore historically regulated all aspects of such retail sales. When, in the last decade, a growing number of states began to permit or require utilities to unbundle their transmission services, FERC had stepped in to claim jurisdiction over the unbundled transmission services associated with retail sales, inserting federal regulators into a field that had until then traditionally been the province of the states. The petitioning states claimed that FERC's 1996 rule (9) about unbundled retail transmission had gone too far--that FERC had exceeded its statutory authority under the Federal Power Act by invading this area. (10) To the surprise of many in the industry, the Supreme Court granted their petition, as well as a competing petition from Enron asking for even greater FERC jurisdiction.

The petitioning States made the presumption against preemption one of the centerpieces of their brief. They presented what seemed to be a simple syllogism: They began with the general proposition that the presumption permits preemption only where it can be shown that it was the "clear and manifest purpose" (11) of Congress to displace state law. Then, they pointed out that retail transmission, as a service distinct from a sale, did not exist when the Federal Power Act was enacted. Thus, they concluded, no showing of a clear and manifest congressional purpose to preempt could be made in this case, and any assertion of federal jurisdiction over this type of service would be inconsistent with the presumption against preemption. (12)

The Supreme Court unanimously rejected this theory. Drawing on briefs filed by the Solicitor General and the Edison Electric Institute, Justice Stevens's opinion for the Court contained a separate section entitled "The Presumption against Pre-emption." (13) He explained there that federal preemption of state law can raise two quite different types of legal questions. The first is "whether a given state authority conflicts with, and thus has been displaced by, the existence of Federal Government authority." (14) In that situation, he observed, the Court starts with the well-established presumption against preemption. (15)

The second type of question, however, arises "when a controversy concerned ... the scope of the Federal Government's authority to displace state action." (16) Such a situation, the Court reasoned, does not involve the presumption against preemption, "but rather requires us to be certain that Congress has conferred authority on the agency." (17) Looking to its earlier decision in Louisiana Public Service Commission v. FCC, (18) the Court concluded that

a federal agency may preempt state law only when and if it is acting within the scope of its congressionally delegated authority [,] ... [for] an agency literally has no power to act, let alone pre-empt the validly enacted legislation of a sovereign State, unless and until Congress confers power upon it. (19) Moreover, "the best way to answer such a question--i.e., whether federal power may be exercised in an area of preexisting state regulation--'is to examine the nature and scope of the authority granted by Congress to the agency.'" (20) Thus, "we must interpret the statute to determine whether Congress has given FERC the power to act as it has, and we do so without any presumption one way or the other." (21)

While the Court cited only Louisiana Public Service as authority for this conclusion, it was in fact foreshadowed by other decisions. In the relatively early United States v. Shimer, (22) the Court upheld a federal regulation that displaced state law, observing that, as long as the agency's choice

represents a reasonable accommodation of...