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Does the Market Participation Exception Make Sense? (I hate this title, it must change)

-- By AndrewCascini - 24 Feb 2010

A Folksy Anecdote

My mother bought a Honda coupe in 1975. With some hesitation, she drove it home to see her parents one Christmas. When she brought her luggage out to her car the next morning she noticed the “BUY AMERICAN” bumper sticker my grandfather had applied to the back-end of the car during the night. Granddad had worked on the line at GM for thirty-six years up to that point. “What an asshole Dad was,” my mom says.

Granddad was an asshole, but he had a point. My mother’s participation in the car market had, in the aggregate with thousands of other like-minded decisions, regulated the American automobile market.

A Distinction is Made...

The Commerce Power and the Dormant Commerce Power

Article I of the Constitution delegates many different powers to Congress. One of these powers is to "regulate Commerce... among the several states." The Supreme Court has inferred the presence of a "dormant commerce clause" from this text. The 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 abandoned cars littered on the sides of the roads by choosing to buy in-state junked cars and in-state junk processing services at higher prices and with more lenient documentation standards. “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, whether by statute, regulation, or contract that have a substantial regulatory effect outside the particular market.” This restriction marked the “limit of the market-participant doctrine.”

The Takeaway

The dormant commerce power and the market participation exception, working together, flesh out a tidy doctrine. When states pass legislation that affects interstate commerce, that legislation is subject to Constitutional review. If the legislation merely enables the state to “participate” in the market, it is acceptable. If, however, it “regulates” the market, it is to be treated entirely differently and struck down.

...but What Does It Signify?

THE DISCRETE LABELS, WHAT THEY SIGNIFY BUT WHAT THEY REALLY DO

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

PARTICIPATION as a Label

GOALS:

Just a label for a category of changes in a market, instead of a discrete action. THIS HAS BEEN CHANGED FROM REGULATION - the idea here is that all market participation creates market changes, so the court has just labeled consideration of certain factors "participation" and contrasted them, perhaps arbitrarily.

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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