1 Market Participant Doctrine Exception to the Dormant Commerce Clause

2 Exemption from DCC South-Central Timber v. Wunnicke –“if a state is acting as a market participant rather than market regulator, the DCC places no limitation on its activities.” If state is immune from DCC, can it: –regulate commerce qua commerce (Pike 1)? –discriminate against IC (Pike 2)? –burden IC (Pike 3)?

3 Basis for Exemption State is not “regulating” –The DCC operates as a “negative” preemption on state laws, but when the state is not regu- lating, there is nothing to preempt [formalism] No historical basis for applying DCC –As historical matter, parochialism by states was manifested in laws, not by market activity; latter did not precipitate retaliation [no participation in 1787] State sovereign interest is greater –when acting as proprietor than as sovereign ? State proprietary activity implicates treasury No need for judicial intervention

4 Need for Judicial Intervention When states participate in, rather than regulate the market: –they are subject to the same market forces as private traders cannot distort commerce to favor in-state business since market corrects itself (punishes favoritism) there is no need for judicial intervention unless State as proprietor has such market power (e.g., monopoly) as to regulate the market –exception to MPD for state monopolists –if court applied DCC, it would put States at competitive disadvantage wrt private actors

5 Sovereign vs. Proprietary Interests When states regulate, they act in their “sovereign” capacity –i.e., as parens patriae of their citizenry –DCC designed to keep states from prefering own residents over others When states are market “participants,” they are not acting in a sovereign capacity –any more than any private trader is When states are market “participants,” they are acting at the height of their sovereignty –because they are protecting economic self-interest –which implicates their treasury –which they hold in trust as parens patriae :-)

6 Federalism Basis for MPD Two different sovereign interests at stake: –sovereign power over own citizens –sovereign power over its own conduct Note parallels to 10th amendment –the 1st sovereign interest gives way to dominant federal interests (in DCC and in fed regulation) –the 2nd sovereign interest gives rise to a form of immunity (reflected in MPD and 10th amend.) State activity still subject to federal regulation –if valid per 10th amd

7 Testing for Distinction Is state participating in the market? –acting in contractual capacity buying, selling goods acting as employer –in much the same manner as a private bus- iness would (ie. protecting economic interests) MPD may be unavailable if state is promot- ing regulatory interests (parens patriae) –i.e., acting to benefit its residents –promoting non-economic interests Apartheid divestiture statutes Crosby v. NFTC

8 Exceptions State as monopolist –monopolist exercises regulatory (vs market) power option: allow state to assert MPD immunity, but then subject it to federal antitrust laws Natural resources –states exercise ownership over natural resources in their fiduciary capacity over public trust Foreign commerce –foreign commerce clause is stronger than interstate –subtleties of federalism lost on foreign partners –states have no rights viz foreign affairs

9 Down-Stream Regulating South Central Timer v. Wunnicke –state participating in the timber sale market –but not in the timber processing market Privity of contract not dispositive –when state as contractor imposes conditions outside of the immediate market in which it is participating, it is promoting its parens patriae interests rather than self-economic interest Down-stream regulations can be seen as –exception to MPD –application of MPD - state is not participating

10 Taxation as Market Activity Camps Newfound/Owatonna v. Harrison –tax exemption for camps serving residents Taxing is a sovereign function, not a function of market participants –tax exemption viewed as a subsidy is still not a proprietary function This exception would swallow the rule (against discriminatory taxes) –a prime target of the DCC

11 Criticism of MPD States never act in non-sovereign capacity –even when promoting economic self-interest, it is for benefit of taxpayers as shareholders –confusing federalism basis for doctrine Skews marketplace –encourages states to buy previously regulated enterprises so as to be exempt from DCC landfills airports Manifestation of judicial balancing –discarded in Garcia –SCt hasn’t found MPD since Garcia