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Does the Market Participation Exception Make Sense?

-- By AndrewCascini - 24 Feb 2010

BACKGROUND

The Commerce Clause and the Dormant Commerce Clause

GOALS:

The Commerce Clause. The Dormant Commerce Clause. Why we infer a DCC. What the DCC is designed to prevent.

TEXT:

Article I of the Constitution delegates many different powers to Congress. One of these powers is to "regulate Commerce... among the several states." This is referred to as the commerce clause, and this clause has been interpreted to authorize Congress to enact an extremely broad range of legislation.

While the Constitution never explicitly bars individual states from interfering with Congress' commerce power, the Supreme Court has inferred the presence of a "dormant commerce clause" from the text of Article I. This dormant commerce clause allows state and municipal legislation resulting in interference with interstate commerce to be evaluated and limited by the Supreme Court, even where Congress has passed no conflicting law. Legislation is often found to violate the dormant commerce clause on the grounds that the legislation is economically “discriminatory” to other states.

The Market Participation Exception

The dormant commerce clause does not bar all state and local legislation that may in any way affect the interstate economy, however. The Court has carved an exception from dormant commerce clause doctrine in instances where states, through legislation, are deemed to be merely “participating” in the market.

Origin

In Hughes v. Alexandria Scrap Corp., the Court upheld a state program that aimed to reduce the number of junked cars. The state would purchase the cars, paying a disproportionate amount for cars with in-state plates and imposing less stringent documentation requirements from in-state scrap processors. “Nothing in the purposes of the Commerce Clause prohibits a state from participating in the market,” wrote Justice Powell for the majority.

Limitation

Yet market participation was held to have its limits. Eight years later in Central Timber Development v. Wunnicke, the Court ruled that states, while enacting legislation to enable market participation, must not “impose conditions having a substantial regulatory effect outside the particular market.” This restriction marked the “limit of the market-participant doctrine.”

"Downstream" and "upstream" effects

GOALS:

Describe the downstream and upstream effects.

MARKET PARTICIPATION VERSUS MARKET REGULATION

All Participation Creates Market Changes

GOALS:

Dictating behavior with your dollar.

The Individual Model

GOALS:

Talk about how an individual, through his participation, creates changes in the market

The State Model

GOALS:

Talk about how a state, through its market participation, creates widespread industry changes

Regulation as a Label

GOALS:

Just a label for a category of changes in a market, instead of a discrete action.

FINAL THOUGHTS

GOALS:

This definitely needs a conclusion, and you might want to distinguish some of the external reasons that might force the court to distinguish "regulation" from participation in states. Either way we need to expand this.

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