The Market Participant Doctrine and the Clear Statement Rule

• Jurisdiction: United States,Federal
• Citation: Vol. 29 No. 03
• Publication year: 2006

SEATTLE UNIVERSITY LAW REVIEWVolume 29, No. 3SPRING 2006

The Market Participant Doctrine and the Clear Statement Rule

David S. Bogen(fn*)

I. Introduction

One of the most interesting developments in Commerce Clause jurisprudence is the market participant exception to the dormant Commerce Clause.(fn1) The dormant Commerce Clause invalidates state regulations that discriminate against or impose an undue burden on interstate commerce. Unless Congress approves of such regulations, they conflict with the policies behind the grant of power to Congress to regulate commerce among the several states.(fn2) According to the market participant doctrine, however, the state does not violate the dormant Commerce Clause by favoring its own citizens and companies when it buys or sells goods or services.(fn3)

Four Supreme Court decisions, each written by a different justice, focus on the market participant doctrine. The authors of each of the first three opinions dissented in the next case,(fn4) and although the Court failed to muster a majority in the fourth case, the author of the plurality opinion had dissented from each of the three previous decisions.(fn5) Because the Court lacks any clear agreement on the rationale for the doctrine, its limits remain uncertain.(fn6)

The state achieves market discrimination by regulations binding on its employees-so why is the regulation of state employees engaged in state business permissible while regulation of private companies to the same effect would be fatally flawed? The dissenters in Reeves argue that the state should be judged by the same standards and under the same restrictions when it regulates its employees and when it regulates others.(fn7 ) After all, when the state is the sole or primary participant in a market, its decision to discriminate in favor of its residents operates as effectively as a regulation of the market.(fn8)

On the other hand, the Court has refused to find that the state was a market participant when it conditioned sales on the subsequent behavior of the purchaser.(fn9) The plurality in South-Central Timber said such "downstream regulation" was not exempt from the Commerce Clause.(fn10) Dissenters this time pointed out that private market participants can condition their sales on the subsequent behavior of their buyers-so conditions on sales are just as much a part of market behavior as is the choice of the buyer.(fn11)

The Court distinguishes between regulation and market participation, but the exception to the market participant doctrine for "downstream regulation" has not been well explained. For example, when a mayor issued an executive order that required firms contracting with the city to use city residents for work on city projects, the executive order applied to contracts to which the city was not a party, i.e., those between the contractor and its employees.(fn12) Nevertheless, the Court held that the city acted as a market participant.(fn13) On the other hand, the Court invalidated as a "downstream regulation" a provision in a contract between the state and purchasers of timber from the state that required the purchaser to process the timber in the state: "Unless the 'market' is relatively narrowly defined, the doctrine has the potential of swallowing up the rule that States may not impose substantial burdens on interstate commerce even if they act with the permissible state purpose of fostering local industry."(fn14) But if the definition of the market is tied to the burden on interstate commerce, the analysis may turn on fact-specific economic determinations of how large the impact on interstate commerce might be. Such an analysis could become very difficult to manage. A different explanation focuses less on the effect on interstate commerce, and more on the federal government regulating the state.

The market participant doctrine is best understood as an analogue to the clear statement rule, which asserts that Congressional enactments should not be construed to apply to state government operations unless Congress has clearly stated that it intends such an application.(fn15) Unless the state violates constitutionally or congressionally imposed restrictions on its power, it can determine with whom it will contract. There is no relevant express constitutional limit on the state's power, and "if Congress intends to alter the 'usual constitutional balance between the States and the Federal Government,' it must make its intention to do so 'unmis- takably clear in the language of the statute.'"(fn16) Respect for state sovereignty requires that Congress make a deliberate and considered decision before a federal statute will be interpreted to impose a duty on state officials. Congressional silence cannot be the clear statement required to provoke such a confrontation. If Congress must be clear for its enactments to apply to the state, then, likewise, the dormant Commerce Clause should not be relevant to purchase and sale decisions of the state.

When the state acts as a market regulator, the dormant Commerce Clause invalidates discriminatory regulation without the need for an order against the state. The courts simply refuse to enforce the state law on the ground that it is unconstitutional. When the state acts as a market participant, however, the court would have to direct its order against the state or its officials to negate the discrimination. This produces a direct confrontation with the state, the same kind of confrontation the clear statement rule was designed to avoid.

Part II of this article examines the theory of the dormant Commerce Clause, and concludes that it is a presumption of congressional intent based on a substantive policy choice to limit discrimination against interstate commerce. Part III looks at the justifications offered for the market participant exception, which permits states to discriminate in favor of their own people in state purchases and sales, and suggests that justifications offered by the Court and commentators are conclusory or inadequately explained. Part IV explains the clear statement rule, which is concerned with intrusions into state sovereignty, and shows how that rule applies to the dormant Commerce Clause when the government participates in the market. Part V discusses the exception for downstream regulation of interstate commerce, in which the concern for intrusion into state sovereignty does not apply. Part VI examines other constitutional clauses that may prohibit states from using their power to purchase or sell goods or services in order to discriminate against commerce from other states. This Part concludes that the market participant doctrine, which prevents the federal government from ordering states to make specific purchases or sales without a congressional determination that such regulation is necessary, is a sound application of the clear statement rule that poses no threat to interstate commerce in the light of other safeguards.

II. The Theory of the Dormant Commerce Clause

Article I of the United States Constitution confers power on Congress to regulate commerce among the several states.(fn17) Federal regulation pursuant to this Article preempts any conflicting state regulation.(fn18) Where there is no express preemption, the Court must determine whether the state law conflicts with the Congressional purpose in enacting a federal law.(fn19) If Congress has not specifically addressed the issue, the Court will impute intention to preempt or not to preempt. Although the Court has stated that there is a presumption against preemption,(fn20) it has still often found state law preempted by implications from federal action.(fn21) As in contract interpretation, a term may be a divination of implicit intent or imposed for policy reasons where no actual intent exists.(fn22)

But what if there is no relevant federal regulation? The Supreme Court has taken a variety of positions-beginning with the view of Justice William Johnson, concurring in Gibbons v. Ogden,(fn23) that state regulation of interstate commerce is inconsistent with the grant of regulatory power to the federal government. This theory proved difficult to reconcile with the acknowledged power of the states to regulate interstate commerce to protect the health and safety of their citizens.(fn24) Furthermore, it would invalidate state laws that facilitated interstate commerce-a result hard to square with the purpose of the Clause or a practical approach to the Constitution.

In The License Cases, Justice Roger Taney countered with the view that the power to regulate interstate commerce was concurrent, and that states were free to regulate unless specifically overridden by federal legislation.(fn25) But eliminating discriminatory state laws was one of the main reasons for granting Congress the power.(fn26) Finding such laws constitutional could encourage the kind of interstate warfare that led the Court to invalidate the steamboat licenses in Gibbons v. Ogden(fn27) Thus, like the exclusive power theory, a concurrent power interpretation frustrated the purpose of the Clause and created an impractical rule.

In Cooley v. Board of Wardens (fn28) Justice Benjamin Curtis argued that interstate commerce was of two types, and that the grant of power to Congress affected them differently: states lacked power to regulate commerce that required uniformity, but other commerce was subject to...