Second Circuit Addresses Commerce Clause/Dormant Commerce Clause

by Pillsbury - Gravel2Gavel Construction & Real Estate Law

Legal arguments that the laws a state enacts which take into consideration the interests of its own citizens unfairly impede the free flow of interstate commerce are difficult to win, as demonstrated by two recent U.S. Court of Appeals for the Second Circuit rulings. On March 29, the Second Circuit issued two Commerce Clause/Dormant Commerce Clause decisions:

In American Trucking Assoc., the Court of Appeals affirmed the District Court’s dismissal of the plaintiffs’ claim that the New York State Thruway Authority’s use of surplus revenue from highway tolls to fund the State of New York’s canal system violated the Dormant Commerce Clause. The District Court had concluded that Congress “authorized the Thruway Authority to allocate highway tolls to canal uses.”

The Thruway Authority was created by the New York State Legislature in 1950 as a “public benefit corporation.” Over the years, Congress enacted a number of laws designed to provide conditional federal support for “toll highways” such as the Thruway and, in 1991, the Intermodal Surface Transportation Efficiency Act (ISTEA) essentially granted these highways the flexibility to use their toll revenues for a variety of specific transportation projects, specifically including the maintenance of historic railroad facilities and canals. Indeed, following the enactment of ISTEA, the Thruway Authority was directed by the state legislature to manage the New York Canal System; today, as much as 14% of annual highway tolls are used to support the Canal System.

The plaintiffs argued that this use of highway tolls violates the Dormant Commerce Clause, but the U.S. Supreme Court, in its 1983 decision in White v. Mass.  Council of Constr. Employees, held that when a state or local action is specifically authorized by Congress, it is not subject to restrictions of the Dormant Commerce Clause, even if it interferes with interstate commerce. While the defendants’ statutory argument was raised late in the litigation cycle, this did not cause the Court of Appeals ignore the consequences of the application of ISTEA in this case.

In VIZIO, Inc., the Court of Appeals affirmed the District Court’s ruling that a Connecticut state law imposing a recycling fee on an electronics manufacturer (of television appliances) competing on a nationwide basis did not violate the Commerce Clause. In 2007, the Connecticut Legislature enacted a law under which certain electronics manufacturers doing business in Connecticut would be required to register with the Connecticut Department of Energy and Environmental Protection (DEEP) and pay a fee associated with the cost of recycling the products they manufacture.

VIZIO’s lawsuit alleged that the means by which DEEP calculated the recycling fee, based as it is on the agency’s calculation of the manufacturer’s “national market share data” resulted in VIZIO paying an “outsized recycling bill” because its national market share was higher than its actual share of the Connecticut market. In fact, it was paying for the recycling of products (cathode ray television sets) it does not make. Since its out-of-sate pricing decisions are affected by the increased cost of doing business in Connecticut and elsewhere, VIZIO argued that it has a claim under the extraterritoriality theory of Dormant Commerce Clause jurisprudence.

However, the Court of Appeals rejects this argument and affirms the District Court’s dismissal of VIZIO’s claim:

“VIZIO has only argued that Connecticut’s E-Waste Law merely affects pricing decisions, not that it ‘directly controls commerce occurring wholly outside the boundaries of a State… More is required to make out an extraterritoriality claim. Because VIZIO’s alleged ‘practical effect’ is insufficient and it has failed to identify an alternative recognized basis under which its extraterritoriality claim can survive.”


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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