Amicus Curiae Brief — Cory v. Western Oil & Gas Ass'n

vf Office - Supreme Court, U.S. |

FILED

9 NOV 14 1984

No. 84-16

ALEXANUCR L. STEVAS.

In the Supreme Court a

United States

OCTOBER TERM, 1984

KENNETH CORY, LEO T. MCCARTHY, and JESSE R.

HUFF, members of the California State Lands

Commission,

Appellants,

v.

WESTERN OIL & GAS ASSOCIATION, et al.,

Appellees.

ON APPEAL FROM THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF OF AMICI CURIAE

FOR THE CITIES OF SANTA MONICA,

CULVER CITY, TORRANCE AND

HUNTINGTON BEACH

=E=E~_"™__—>=———>—===_=_=_=__=_=_=

IN SUPPORT OF REVERSAT

BERT GLENNON, JR. ROBERT M. MYERS

City Attorney City Attorney

Culver City, California Counsel of Record

STANLEY E. REMELMEYER STEPHEN S. STARK

City Attorney Assistant City Attorney

Torrance, California KARL M. MANHEIM

GAIL HUTTON Deputy City Attorney

City Attorney 1685 Main Street

Huntington Beach, California Santa Monica, California 90401

Telephone: (213) 458-8336

Attorneys for Amici Curiae

Westside Law Publishers Los Angeles, Celifornia (213) 477-0491 of?

g \X\

TABLE OF CONTENTS

Page

ES eee ay ae ao ae |

I EE ns sacuaeuss caveat cau cosewas 3

NEE ree eos hig de Sut onus tncacs> sada 4

I.

The Commerce Clause Does Not Restrain The

Exercise Of State Proprietary Powers............. 5

A. The Market Participant Doctrine.................... 5

B. The State Is A Participant In The Market For

Suitable Land........ aT To pees Whee On ee 8

1. The State Does Not Have A Monopoly... 10

2. The State Is Not Regulating.................. 13

3. The State Is Not Taxing Commerce........ 16

II.

The Commerce Clause Does Not Mandate Affirma-

sin). (.cduks eovuhs tua tested lend: 19

LE Ee Aa PRR RE Reais Meh Ca or Ee 20

ii

TABLE OF AUTHORITIES

Cases - Page

Burbank v. Lockheed Air Terminal, Inc., 411 U.S.

I Ee is ec a SE caine. 7

Cafeteria and Restaurant Workers Union v. McElroy,

FE res a ii ciceccaess. 7

Case of The State Freight Tax, 15 Wall. 232

(Ree cos ix ic have eae ee aa 16, 17

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274

4 3 BR Rpetore renege: 4°" a 17

Cooley v. Board of Wardens, 12 How. 299(1852)..... 19

Crandall v. Nevada, 6 Wall.35 (1867)............. . 16

Detroit v. Detroit United Railway Co., 172 Mich.

136, 137 N.W. 645 (1912) affd 229 U.S. 39

(PRE SR uo cick ee ee hoaies: 13

Evans v. Abney, 396 U.S. 435 (1970)....0.0000000.... 20

Evansville-Vanderburgh Airport Authority v. Delta

Airlines, 405 U.S. 707 (1972)................ 17, 18

Exxon Corp. v. Governor of Maryland, 437 U.S.

bE? SE9VEL... si ccccck ae ees 11

Fidelity Guarantee Mortgage Corp. v. Connecticut,

532 F.Supp. 81 (D.Conn. 1982) .....00.00.00....... 7

Forster Shipbuilding Co. v. County of Los Angeles,

54 Cal.2d 450, 353 P.2d 736, 6 Cal.Rptr.

BM CST oa 5 ino occu eussvcalcuae eee ene aaahs 17

Foster-Fountain Packing Co. v. Haydel, 278 U.S. 1

TIO, «vcs ccsstikgy Gos chcena) cee eee eel 11

Galveston, H. & S.A.R. Co. v. Texas, 210 U.S. 217

oi 3 reno rr nN es Sea 16

Gibbons v. Ogden, 9 Wheat. 1 (1824)...00000000000..... 8

Gulf Oil Corp. v. City of Huntington Beach, Case

No. CV 80-5709-RMT (C.D. Cal) ................. 2

H. P. Hood & Sons, Inc. v. DuMond, 336 U.S. 525

) | pee LP rc NE 20

Haskell v. Cowham, i87 F. 403 (8th Cir. 1911)... 14

Hendrick v. Maryland, 235 U.S. 610 (1915)......... 18

Hughes v. Alexandria Scrap Corp., 426 U.S. 794

EOD: CAE oc i. \c. cana dartecdcts ce veces 5, 6,8

Hughes v. Oklahoma, 441 U.S. 322 (1979)... 8

Huron Portland Cement Co. v. Detroit, 362 U.S.

Nr eT sansetnaseesae 14

Jefferson County Pharmaceutical Ass’n Inc. v.

Abbott Labs _____ U.S. 74 L.Ed.2d 882

A oo os ee ee. 9

Northern Pacific Ry. v. United States, 356 U.S. 1

SSRN reap caer en 10

Perkins v. Lukens Steel Co., 310 U.S. 113 (1940)... 7

Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). 11

Procter & Gamble Co. v. City of Chicago, 509 F.2d

69 (7th Cir. 1975) cert. denied, 421 U.S.978 .... 12

Reeves, Inc. v. Stake, 447 U.S. 429 (1980)... 5, 6, 8

Santa Monica Airport Ass’n v. City of Santa Monica,

479 F.Supp. 927, (C.D. Cal. 1979), affirmed

659 F.2d 100 (9th Cir. 1981)........0.0........ 7, 20

Shell Oil Company v. City of Santa Monica, Case

No. 82-2362-RJK (C.D. Cal.)...000000.0....... 2, 19

South Carolina v. Barnwell Bros., 303 U.S. 177

ne A gh hE en 7

South-Central Timber Development, Inc. v. Wun-

nicke,____ U.S. , 81 L.Ed.2d 71 (1984)

2 Ee ee ee ee 7, 10, 11, 14, 19

Sporhase v. Nebraska, 458 U.S. 941 (1982)......... 16

Texas Company v. County of Los Angeles, 52

Cal.2d 55, 338 P.2d 440 (1959)... 17

West v. Kansas Natural Gas Co., 221 U.S. 229

ENS ha a ao ui ashi idsabedboihs 14, 15

Western Livestock v. Bureau of Revenue, 303 U.S.

ES a a a OO RD eee 16

White v. Massachusetts Council of Construction

Employees, __.. U.S. ___, 75 L.Ed.2d 1

iV

Statutes

California Revenue & Taxation Code Section401.__.. 17

IE a re el ep 4

Miscellaneous

SEAL oi Gs sc neadecbeiedinced: 19

3 McQuillin, The Law of Municipal Corporations

es we dacasavanaenes 18

Tribe, American Constitutional Law(1977).... 11, 16,20

No. 84-16

In the Supreme Court of the

United States

OCTOBER TERM, 1984

KENNETH CORY, LEO T. MCCARTHY, and JESSE R.

HUFF, members of the California State Lands

Commission,

Appellants,

Vv.

WESTERN OIL & GAS ASSOCIATION, et al.,

Appellees.

BRIEF OF AMICI CURIAE

FOR THE CITIES OF SANTA MONICA,

CULVER CITY, TORRANCE AND

HUNTINGTON BEACH

This brief is filed pursuant to Rule 36.4 of the Rules of

the Supreme Court.

INTEREST OF AMICI

Amicus curiae City of Santa Monica (‘“‘City’’) is a

political subdivision of the State of California. The City,

under a charter authorized by the California Constitution,

is a body corporate and politic, exercising governmental

powers over matters within its jurisdiction and proprietary

powers over property which it holds.

There is now pending in the United States District

Court for the Central District of California an action

entitled Shell Oil Company v. City of Santa Monica,

Case No. CV 82-2362-RJK. This action would compel

the City to grant a franchise to Shell to operate a crude oil

pipeline beneath City streets on terms favored by Shell.'

Shell claims a right of action directly under the Commierce

Clause to compel the franchise on economic and safety

terms that the City has determined to be inimical to the

public health and welfare. The decision in the case at bar

could directly affect the decision in Shell v. City, indeed, a

tentative decision in the City’s favor on its motion for

judgment on the pleadings on Commerce Clause issues

was reversed by the District Court in light of the Ninth

Circuit opinion below.

This brief addresses two related issues of fundamental

concern to the City and to municipalities generally.’ First

is the principle that the State in leasing land for marine

terminal locations is acting as a “market participant” and

not as a market regulator subject to Commerce Clause

scrutiny. Second is the concept that the negative impli-

cations of the Commerce Claus should not be interpreted

to compel affirmative action by a State in furtherance of

commerce.

The California cities of Culver City, Torrance, and

Huntington Beach, each of which grants subsurface

pipeline rights to oil companies, join Santa Monica in this

amicus brief in support of appellants.

'A previous 40-year franchise agreement between the City and

Shell expired in 1981.

2Appellees have obtained oil pipeline franchises from scores of

California cities which are similarly situated to Santa Monica. See.

Gulf Oil Corp. v. City of Huntington Beach, Case No. CV 80-5709-

RMT (C.D. Cal) (settled and dismissed). Many of those franchises

are up for or nearing renewal.

SUMMARY OF ARGUMENT

1. The State, in leasing land for marine terminals, is a

market participant and not a regulator. It does not enjoy a

monopoly over suitable sites; the opinion below reached

its conclusion of monopoly status by defining the relevant

market conveniently to the result reached. Further, even if

the State has a monopoly of the relevant market, its

activites are distinct from regulatory and taxing functions

subject to the Commerce Clause, although other constitu-

tional and legislative constraints may apply. The opinion

below contradicts recent decisions of this Court regarding

the market participant doctrine and ignores their salutary

principles.

2. The negative implications of the Commerce Clause

have been taken to preclude states from interfering with

interstate market forces by burdensome taxation or regul-

ation. They have not heretofore been construed to require

a State to enter into a contract with a private party on terms

said to promote commerce. A state has no obligation to

convey an interest in its property whenever an entity

invokes the Commerce Clause to facilitate its interstate or

foreign operations. The reach of the “great silences”’ of the

Commerce Clause should not be extended to require

judicial supervision over the terms of contracts regarding

government property; the concept is a radical break from

precedent and portends far-ranging pernicious effects on

the States and the courts.

ARGUMENT

Appellees, several oil companies involved in interstate

and foreign commerce and their trade association (‘‘oil

companies”), lease land from appellant, State Lands

Commission (“*State’’), for marine terminal sites adjacent

to their refinery facilities. The relationship between the oil

companies and the state is of a traditional contractual

nature. The oil companies object to the State’s rental

regulation authorizing a volumetric form of rent. They

claim that several constitutional provisions prohibit this

rental formula and that they are entitled to enter into and

renew leases using a rental mode more favorable to them.

In essence, the oil companies invoke the Commerce

Clause and related constitutional provisions as super

bargaining tools to (1) ensure lease renewal and (2) set

lease terms. This perverts the meaning and purpose of the

Commerce Clause.

The issue would be entirely different were Congress to

assume the plenary authority granted it by the Constitution

to legislate in this area, as by prescribing locations for

marine terminals and pipeline routes, or setting rents. Yet,

no such le, lation is invoked.’ Rather, it is only the

“negative implications” of the Commerce Clause which

the oil companies invoke to require the State to enter and

renew their leases for a fee equivalent to the State’s cost.

‘Indeed, Congress has already considered and rejected federa!

authority regarding pipeline routing. See 49 U.S.C. §2001(4)

(Hazardous Liquid Pipeline Safety Act) (“this chapter does not

authorize the Secretary | of Transportation] to prescribe the location

or the routing of eny pipeline facility’).

I

THE COMMERCE CLAUSE DOES NOT

RESTRAIN THE EXERCISE OF STATE

PKOPRIETARY POWERS

The touchstone of Commerce Clause scrutiny is sovereign

behavior by the State. If the State acts to impede foreign or

interstate commerce, the Clause prohibits discriminatory

or impermissible burdens. The principle is rooted in basic

tenets of federalism and separation of powers with two

major qualifiers: (1) There must be state action to

warrant judicial intervention directly under the Commerce

Clause; (2) The state action must be sovereign in nature,

and not the simple disposition of the state’s property.

A. The Market Participant Doctrine.

In Hughes v. Alexandria Scrap Corp., 426 U.S. 794

(1976), and Reeves, Inc. v. Stake, 447 U.S. 429 (1980),

this Court established the proposition that when a state or

local government enters the market as a participant it is

not subject to the restraints of the Commerce Clause. As

said in Reeves and re-affirmed in White v. Massachusetts

Council of Construction Employees, US. 75

L.Ed.2d 1 (1983),

The basic distinction drawn in Alexandria

Scrap between States as market participants

and States as market regulators makes good

sense and sound law. As that case explains, the

Commerce Clause responds principally to state

taxes and regulatory measures impeding free

private trade in the nation marketplace. [citation

omitted] There is no indication of a constitu-

tional plan to limit the ability of the States

themselves to operate freely in the free market.

Reeves v. Stake, 447 U.S. at 436-437; quoted in

White v. Massachusetts Council of Construction

Employees, 75 L.Ed.2d 1 at 5-6.

The market participant doctrine recognizes that, in

various contexts, states may be indistinguishable from

private parties competing for the offering or purchase of

goods, rights and services. Thus, in Hughes v. Alexandria

Scrap Corporation, 426 U.S. 794 (1976), this Court

reversed a three-judge District Court’s use of the traditional

Commerce Clause balancing test in analyzing. a state

scheme to subsidize the purchase of abandoned automobiles.

This line of reasoning is not without force if its

basic premise is accepted. That premise is that

every action by a State that has the effect of

reducing in some manner the flow of goods in

interstate commerce is potenially an impermis-

sible burden. But we are not persuaded that

Maryland’s action in amending its statute was

the kind of action with which the Commerce

Clause is concerned. Jd. at 805.

In Reeves, this Court also noted that considerations of

state sovereignty cautioned that the Commerce Clause

should be applied with restraint.

[W]hen acting as proprietors, States should

similarly share existing freedoms from federal

constraints, including the inherent limits of the \

Commerce Clause. Finally, as this case illustrates,

the competing considerations in cases involving

state proprietary action often will be subtle,

complex, politically charged, and difficult to

assess under traditional Commerce Clause ana-

lysis. Given these factors, . . . the adjustment of

interests in this context is a task better suited for

Congress than this Court. 447 U.S. at 439

(citations omitted).

See also Cafeteria and Restaurant Workers Union vy.

McElroy, 367 U.S. 886, 896 (1961) (a governmental

entity enjoys greater authority as a proprietor than it does

simply as a law maker); Perkins v. Lukens Steel Co., 310

U.S. 113, 127 (1940) (‘‘like private individuals and

businesses, the Government enjoys the unrestricted power

to produce its own supplies, to determine those with whom

it will deal, and to fix the terms and conditions upon which

it will make needed purchases’’); Fidelity Guarantee

Mortgage Corp. v. Connecticut, 532 F. Supp. 81, 84-85

(D.Conn. 1982) (Commerce Clause analysis is not necessary

because “‘the activity challenged . . . is not state regulation

of interstate commerce, but rather state participation in

the market place . . . . State proprietary activities . . . are

subject to the same, governmental restrictions as private

parties’).

This Court has also recognized proprietary-regulatory

distinctions in the operation of municipal transportation

facilities. Thus, in Burbank v. Lockheed Air Terminal,

Inc., 411 U.S. 624, 635 n.14(1973), the Court noted that

while a municipality might not regulate air traffic pursuant

to its police power, as proprietor of an airport, it was not

subject to the same limitations. See also South Carolina

v. Barnwell Bros., 303 U.S. 177, 185 (1938) (“notwith-

standing the commerce clause. . . regulation [of matters of

local concern] in the absence of Congressional action has

for the most part been left to the states”); Santa Monica

Airport Ass’n v. City of Santa Monica, 659 F.2d 100,

104 (9th Cir. 1981) (the “power of a municipal proprietor

to regulate the use of its airport is not preernpted by federal

legislation’).

Most recently, in South-Central Timber Development,

Inc. v. Wunnicke, U.S. , 81 L. Ed. 2d 71

(1984), this Court, while holding that a “downstream

regulation” requiring timber from state lands to be

processed within the state prior to export violated the

Commerce Clause, reaffirmed the basic principle of the

market participant doctrine developed .in Alexandria

Scrap, Reeves, and White. “If a State is acting as a market

participant, rather than as a market regulator, the dormant

Commerce Clause places no limit on its activities’. Jd. at

80.

Thus, the market participant doctrine as developed over

recent years is an articulation of a basic ‘constitutional

tenet — proprietary activities of state and local government

do not have the potential for disrupting national commerce

or “Balkanizing”’ the economy. Cf Hughes v. Oklahoma,

441 U.S. 322, 325 (1979)

The genius and character of the whole govern-

ment seem to be, that its action is to be applied to

all the external concerns of the nation, and to

those internal concerns, which affect the States

generally; but not to those which are completely

within a particular State, which do not affect

other States, and with which it is not necessary

to interfere, for the purpose of executing some of

the general powers of the government. Gibbons

v. Ogden, 9 Wheat. 1, 195 (1824).

B. The State Is A Participant In The Market For

Suitable Land.

As abasic proposition, rent for the use of land is neither

a tax nor a downstream regulation. The State is not

requiring payment from anyone with whom it does not

directly contract. Leases of government property seems to

fit squarely within the concept of the State’s “own

economic action’”’ found exempt from Commerce Clause

scrutiny in White v. Massachusetts Council of Construction

Employees, ___ U.S. ____, 75 L. Ed. 2d 1 (1983).

[T]he distinction between participation and reg-

ulation rests on core notions of state sovereignty,

coupled with the traditional rights of private

traders to determine the identities of their bargain-

ing partners free from governmental interference.

The legitimacy of a claim to the market participant

exemption thus should turn primarily on whether

a particular state action more closely resembles

an attempt to impede trade among private

parties, or an attempt, analogous to the accust-

omed right of merchants in the private sector, to

govern the State’s own economic conduct and to

determine the parties with whom it will deal. Id.

at 13 (Blackmun, J., dissenting) (citations omitted,

emphasis added).

The court below rejected market participant exemption

because of the State’s perceived “‘monopolistic position

over the sites used by the oil companies.” Jurisdictional

Statement Appendix, p. A-6. This holding is premised on

both factual and analytical errors. First, with respect to

coastal land available for marine terminal sites, the State

does not have a monopoly. Second, even if a monopoly as

to particular tracts of land is assumed, the State is

promoting its own economic interests and not regulating

downstream markets subject to Commerce Clause scru-

tiny. The character of the state action should dictate

whether the State is participant or regulator; in this case

the State action is proprietary in nature, concerning only

contracts for the use of State land by particular private

companies.

4There are constraints such as the antitrust laws on monopoly

excesses. As this court recognized in Jefferson County Pharm-

aceutical Ass'n Inc. v. Abbott Labs, __ U.S. 74 L.Ed 2d 882,

888 (1983), if the State is a monopolist in a proprietary capacity, it too

may be subject to antitrust limitations. Thus the Court of Appeals’

latent concern that the State might abuse a monopoly position without

safeguards is illusory.

10

1. The State Does Not Have A Monopoly.

Implicit in the lower court’s conclusion of monopoly

status is the premise that the State is exercising the sort of

regulatory powers requiring Commerce Clause scrutiny.

But the court fails to distinguish between a market

participant who may enjoy monopoly status in a narrowly

defined market and true governmental regulation that

affects all traders within the jurisdiction. Acceptance of

the court’s reasoning, coupled with a view “that the

particular tract involved in each purchase or lease itself

constitutes the relevant market” (Northern Pacific Ry. v.

U.S. 356 U.S. 1, 18 (1958) (Harlan, J. dissenting)), could

lead to untoward results. Thus, each landowner becomes a

mini-monopolist subject to Commerce Clause: scrutiny

even without Congressional action. This Court should be

wary of adopting a rule defining markets so narrowly as to

convert every property holder into a monopolist and every

contract condition into a ““downstream regulation.”’ The

relevant market in this case is land suitable for marine

terminals, not the particular parcels in question.

Market definition is critical to monopoly determination.

In South-Central Timber Development, Inc. v. Wunnicke,

_ US. 81 L. Ed. 2d 71 (1984), this Court.

cautioned against defining a market so broadly that it

embraced both a market in which the state participated

(raw timber) and a market in which the state was not

participating (processed timber). The Court agreed with

the timber company that although Alaska is a participant

in the raw timber market, it was using its leverage in that

market to exert a regulatory effect in the timber processing

market, in which it is not a participant. Jd. at 83. Alaska’s

‘‘primary manufacture” regulation was motivated by its

concerns as parens pétriae over the general welfare and

not by the business interests of the State as an economic

11

entity. Thus, the conditions placed on timber buyers were

held to be “downstream regulations” on timber processing

not exempt from Commerce Clause scrutiny. This key

factor is not present here. California participates only in

the leasing of its land; it is not imposing any conditions on

the recovery, transportation or refining of petroleum

products. The State is acting in a classic business

capacity, attempting only to obtain a fair rental value for

its Own property.

The oil companies seem to believe that interstate

commerce in crude oil is absolutely dependent upon use of

their existing refineries, terminals and pipelines. Thus,

they see expedient access to those facilities as the sine qua

non for commerce. They fail to appreciate, however, that

the notion of commerce embodied in the Commerce

Clause is not defined in terms of particular firms, facilities,

or even marketing systems. See Exxon Corp. v. Governor

of Maryland, 437 U.S. 117, 127-128 (1978), (the Com-

merce Clause protects the interstate market, not particular

interstate firms, from prohibitive or burdensome regula-

tions).

While the oil companies may desire to use State lands to

reach these particular refineries, they do not have to do so

in order to engage in commerce in California. Since the oil

companies may obtain property rights from other public

‘Moreover, the character of the restraint in Wunnicke is significant.

The Court referred to the “protectionist nature of Alaska’s local-

processing requirement” and cited a line of cases “‘view|ing] with

suspicion state statutes requiring business operations to be performed

in the home State that could more efficiently be performed elsewhere.”

81 L.Ed.2d 71, 84-85 citing Pike v. Bruce Church, Inc., 397 U.S.

137, 145 (1970); Foster-Fountain Packing Co. v. Haydel, 278 U.S.

1 (1928). Thus, the cases and commentators place emphasis on the

“reasons for which the regulations were imposed.” Tribe, American

Constitutional Law, 328 (1977).

12

and private land holders without disrupting interstate

commerce, the State is no more of a monopolist than is any

landlord to its tenant. The relevant market for transportation

facilities and corridors is the entire coastal strip, because

access to California and its markets may be gained from

any number of “competitors.”© The issue is one of

commercial convenience rather than practical necessity.

It may be an economic burden on the oil companies to

obtain new access to existing refineries (should they not

renew their ground leases for marine terminal sites), but

that is not a burden on “commerce’’.

[W]e are not confronted with a situation in

which legislation has reduced the effectiveness

of a means of transportation itself. In this

context the ordinance is not a burden on interstate

commerce, but is merely a ‘burden’ on a company

which happens to have interstate distribution

facilities. The effect of the ordinance is that the

particular interstate systems of Procter and

Gamble and other detergent companies before

the passage of the ordinance can no longer be

used . . . While this factor might necessitate a

change in certain production facilities, it does

not rise to the level of an unconstitutional burden

on interstate commerce. Procter & Gamble Co.

v. City of Chicago, 509 F.2d 69, 77 (7th Cir.

1975) cert. denied, 421 U.S. 978.

6Pipeline access to refineries may be had through land owned by

others including upland property. The Shell pipeline running through

Santa Monica is an example of available alternatives. Offshore crude

oil enters California at Ventura, some 80 miles north of Shell's

Wilmington refinery, and then travels south via pipeline through

coastal and inland cities. The precise route chosen may be dependent

upon a number of factors. But clearly no single landowner (public or

private) monopolizes access to California markets or this particular

refinery.

13

The potential relocation of marine terminal facilities is

part of the financial calculus that went into the oil

companies’ initial siting decisions’ and one that will enter

their decision to renew or seek reissuance of their State

leases (as it would in the case of a private lease). If the

State has become a monopolist simply by virtue of having

granted the leases in the first place, then the market

participant doctrine is unavailable after its first use in

every context.

If the oil companies are correct that the present location

of their facilities conferes monopoly power on the State

and requires lease renewal, then their initial leases can

never legally terminate. Accordingly, whether the State

knew it or aot, it conferred perpetual (fee) interests in

public property despite the contractual terms. This propo-

sition is untenable, seemingly resulting in a gift of public

property for private purposes. Even a public utility has no

legal right to maintain its utility lines after expiration of its

leases. Detroit v. Detroit United Railway Co., 172 Mich.

136, 137 N.W. 645, (1912), affd 229 U.S. 39 (1913).

The oil companies’ argument is facile and insidious:

once they obtain rights in public property, the lease terms

become irrelevant. By the force of the Commerce Clause

the leases must be renewed with a rental set at the

government's actual cost. Fortunately, nothing in the

Constitution requires state and local government to

so cede public property to private companies.

2. The State Is Not Regulating.

The State’s rental formula is set out by adminstrative

regulation. But that denomination does not mean that the

?The duration of the lease must surely have been negotiated so as to

enable amortization of capital in the event no new lease was issued at

the expiration of the current term. It is the same concern that every

commercial tenant has in bargaining for lease terms long enough to

amortize investment and moving costs.

14

state activity constitutes “regulation” for Commerce

Clause purposes.® A critical factor in determining appli-

cation of the market participant doctrine is whether

interstate traders must subject themselves to state authority

as an incident to engaging in commerce. Thus, if the oil

companies were unable to bring crude oil into California

unless they submitted to State requirements, the State’s

impact would go beyond an immediate contractual relation-

ship with the oil companies. In that case the State’s

influence would be more far reaching; it would inhibit the

oil companies’ engagement in commerce entirely. Then,

traditional Commerce Clause analysis would be appro-

priate. South-Centre! Timber Development, Inc. v.

Wunnicke ___. U.S. ___, 81 L.Ed. 2d 71 (1984).

What makes a particular exercise of authority regulatory

in nature is its pervasive effect on interstate traders. Only

when the state acts in its sovereign capacity is it able to

affect all traders in a particular commodity. Thus, whether

a state is regulating or participating may not turn on

traditional concepts of fee ownership in land. Rather, it is

the way the state uses its ownership interest vis a vis

commerce that prompts Commerce Clause analysis.

The distinction between participating in and regulating

the market is well illustrated by comparing the instant case

to Haskell v. Cowham, 187 F. 403 (8th Cir. 1911), and

West v. Kansas Natural Gas Co., 221 U.S. 229 (1911).

Those cases involved Oklahoma statutes which prevented

the exportation of all natural gas. The vehicle Oklahoma

chose for its economic protectionism was legislation

which prohibited construction of pipelines under or across

8*T egislation, in a great variety of ways, may affect commerce and

persons engaged in it without constituting a regulation of it, within the

meaning of the Constitution.” Huron Portland Cement Co. v.

Detroit, 362 U.S. 440, 444 (1960) (citations omitted).

15

state highways. Since such highways formed a perimeter

boundary, and pipeline was the only means of transpor-

tation available to the industry, local producers were

effectively prohibited from marketing their product in

other states. The Oklahoma statute made interstate

commerce “‘impossible.”

Interstate commerce in natural gas is absolutely

prevented, — prohibited . . . and to prohibit

interstate commerce is more than to indirectly

affect it. Every provision of the statute is di-

rected to such result....

The statute presents no embarassing questions

of interpretation. It was manifestly enacted in

the confident belief that the state had the power

to confine commerce in natural gas between

points within the state, and all of the rights

conferred on domestic corporations, all of the

rights denied to foreign corporations, were means

to such ends. West v. Kansas Natural Gas Co.,

221 U.S. 229, 249-50 (1911).

The facts in the instant case are a far cry from the

economic protectionism cases which have merited strict

application of Commerce Clause safeguards. Instead here

the State is acting precisely as one would expect of a

market participant—seeking fair rental value for its prop-

erty. Its challenged rental mode is neither designed to

discriminate against interstate commerce, nor does it have

that effect. Most importantly for this analysis, the State’s

actions go no further than the immediate lease arrange-

ments with the oil companies. They have no “regulatory”

impact on downstream relationships, nor do they affect

the oil companies’ other lease arrangements with land-

holders within California. The rental charged is a direct

incident of the property interest obtained by the oil

companies.

16

In the instant case no discrimination in favor of local oil

companies (or similar enterprises) appears. “Economic

protectionism” is simply not an issue here.

Especially when such measures do not discrimi-

nate on their face between in-state and out-of-

state enterprises, not even a heavy burden on

out-of-state enterprises is likely to result in their

invalidation. . . . Tribe, American Constitu-

tional Law, 329.

See also Sporhase v. Nebraska, 458 U.S. 941, 956

(1982) (“for Commerce Clause purposes, we have long

recognized a difference between economic protectionism,

on the one hand, and health and safety regulations on the

other’).

3. The State Is Not Taxing Commerce

Taxes are analogous to regulations in their impact on

commerce. Consequently, this Court has employed the

same standards and terminology in determining Com-

merce Clause challenges to state taxes. See, e.g., Galves-

ton, H. & S.A.R. Co. v. Texas, 210 U.S. 217 (1908). An

important common thread is that taxation, like regulation,

is an act of the state as sovereign. Case of the State Freight

Tax, 15 Wall. 232, 278 (1873).

This Court has long been concerned with taxes which

interfere with the right to interstate travel and commerce.

Crandall v. Nevada, 6 Wall. 35 (1867). The basic

concern is that, unless the taxed activity is discretely local,

the interstate activity could be subject to multiple taxa-

tion, possibly destroying it. Jd. at 46. Without the

protection of the Commerce Clause in such cases, inter-

State commerce “would bear cumulative burdens not

imposed on local commerce.” Western Live Stock v.

Bureau of Revenue, 303 U.S. 250, 256 (1938). It is the

extraterritorial effect of taxes and regulations which

17

violates the Commerce Clause. Taxes attributable to local

aspects of interstate commerce, however, are constitu-

tional. Complete Auto Transit, Inc. v. Brady, 430 U.S.

274 (1977).

Despite these principles, the oil companies argue that

rent for the use of State land is a tax. By doing so, the oil

companies hope to limit the “tax” to merely offset the

State’s cost of providing land. They are wrong on two

accounts. First, a charge for the use of land is not a tax. It is

a rental for the private exclusive use of State land.’ The

Commerce Clause does not prohibit the State from

generating revenue through the leasing of its own property.

Second, even construed as a tax, such fees are directly

attributable to exclusively local aspects of commerce. No

other governmental entity will “‘tax”’ the oil companies for

their leases of State lands. The State does not “tax” the oil

companies for their leases with other parties.

Rent for an exclusive right for the permanent private use

of public property is neither a tax nor a toll. This principle

is best understood by those authorities which hold that a

lessee with a possessory interest in State property must pay

both a rental therefor and a property tax for the possessory

interest. See California Revenue & Taxation Code Sec-

tion 401; Forster Shipbuilding Co. v. County of Los

Angeles, 54 Cal.2d 450, 353 P.2d 736, 6 Cal.Rptr. 24

(1960); Texas Company v. County of Los Angeles, 52

Cal.2d 55, 338 P.2d 440 (1959).

Since the rental is not a tax, cases such as Evansville-

Vanderburgh Airport Authority v. Delta Airlines, 405

U.S. 707 (1972), are not authority for limiting the amount

*Not all charges imposed by government constitute a tax. For

instance, a charge paid by a franchisee is part of the consideration it

undertakes to pay for the privilege of using public property. Case of

the State Freight Tax, 15 Wall. 232, 278 (1873).

18

of rental charged. In Evansville, this Court upheld fair

non-discriminatcry taxes on passengers using interstate

transportation facilities. The Court reaffirmed Hendrick

v. Maryland, 235 U.S. 610 (1915), holding:

Where a State at its own expense furnishes

special facilities for the use of those engaged in

commerce, interstate as well as domestic, it may

exact compensation therefor. The amount of the

charges and the method of collection are primar-

ily for determination by the State itself; and so

long as they are reasonable and are fixed

according to some uniform, fair and practical

standard they constitute no burden on interstate

commerce. Evansville at 405 U.S. 624.

Further, there is a material distinction between the

passengers embarking on interstate travel in Evansville

and the oil companies’ use of public lands. In the former

case, the charge is levied directly on the act of interstate

commerce — flying out of State. While in this case, the oil

companies are obtaining possessory interests in property,

the rental for which is measured in a customary volumetric

formula. Accordingly, there is no suggestion in Evansville

that the airlines or other airport tenants were entitled to

lease their business sites from the municipal proprietor at

less than fair market rental.'° Similarly, there is nothing in

other taxation cases which limits rentals for the lease of

State property to an amount that merely compensates the

governmental entity for costs incurred.

'**In determining the . . . rent it will charge for the use of its

properties, a municipal airport authority is acting as the proprietor of

the property, and not as a regulatory agency. In making such

determinations, the authority is subject only to limitations imposed

upon it by statute: or by contractual obligations assumed by it.” 3

McQuillin, The Law of Municipal Corporations Section 11.03a, p.

6.

19

II

THE COMMERCE CLAUSE DOES NOT MAN-

DATE AFFIRMATIVE STATE ACTION

Where the State sees no public interest in engaging in an

activity, there is no reason for it to yield an interest in its

land when all it can do is recoup its costs. Thus, the oil

companies’ argument that the leases cannot constitution-

ally generate revenue for the State necessarily carries the

corollary claim that the State must renew or reissue the

expired leases even if it chooses not to.'' This takes the

Commerce Clause in a direction never envisioned by the

framers.

Starting with Cooley v. Board of Wardens, 12 How.

299 (1852), this Court has consistently interpreted the

Commerce Clause as a “‘self-executing limitation on the

power of the States to enact laws imposing substantial

burdens on... . commerce.” South-Central Timber

Development, Inc. v. Wunnicke, ____ U.S. , 81 L.Ed

71, 76 (1984) (emphasis added). This “negative impli-

cation” stems directly from the framers purpose. See

Federalist No. 22 (the grant of power to Congress was to

suppress the “interfering and unneighborly regulations of

some States’).

However, nowhere is there any indication that the

Commerce Clause, by its own force, was intended to

compel a state to take affirmative action in support of

commerce. Thus, in the absence of any Congressional

expression in this matter, it is only by interpreting in a

radically new manner the “great silences of the Consti-

'! Although the State has manifested no interest not to reissue the

leases, amicus Santa Monica has determined that renewal of the

expired Shell franchise (on the terms Shell claims are constitutionally

required) is not in the public interest and is not warranted. Thus,

whether Santa Monica must renew the franchise at all is a threshold

issue in Shell v. City of Santa Monica.

20

tution,” H.P. Hood & Sons, Inc. v. DuMond, 336 U.S

525, 535 (1949), that the oil companies can force lease

renewal and terms on the State.!?

As with Fourteenth Amendment analyses, state in-

action is not state action. See, e.g., Evans v. Abney, 396

U.S. 435 (1970). For the most part, the courts do not hold

governments accountable for their “failure to act.” Tribe,

American Constitutional Law, at 1150.

[T]he state action requirement reinforces the

two chief principles of division which organize

the governmental structure that the Constitution

creates: federalism and the separation of powers.

Id. at 1149.

If state inaction is sufficient to trigger court-supervised

lease terms, the oil companies will have employed the

judiciary to reach public utility status without legislative

authorization. Extension of the analysis employed below

portends great mischief for governmental entities seeking

to derive reasonable value from proprietary assets and

enterprises. The historic allocation of powers between

governments and among governmental branches would, in

the view of amici cities, be altered at the very roots of our

federal system.

The oil companies intend to use the Commerce Clause

as a sword to compel affirmative state action, rather than

as a shield against burdensome and discriminatory regula-

tion. Such a course, tantamount to giving private parties

the right of eminent domain in public properties, stands the

Constitution on its head.

'2Of course, once a state opens an avenue of commerce, it may not

discriminate against or impermissibly burden commerce. Santa

Monica Airport Ass'n v. City of Sania Monica, 479 F.Supp. 927.

(C.D. Cal. 1979), affirmed 659 F.2d 100 (9th Cir. 1981). However,

nothing in the Commerce Clause requires a state to provide a

transportation facility or other instrument of commerce in the first

place.

21

CONCLUSION

The Constitution was never intended to compel a State

to rent its land at cost to private parties pursuing business

gain. Congress has never directed or authorized this sort of

“reverse eminent domain.” This Court should repair the

fabric of the Commerce Clause and restore to the State its

basic power to use its own property economically for the

general public good. The decision below should be

reversed.

November 14, 1984

Respectfully submitted,

ROBERT H. MYERS

City Attorney

Counsel of Record

STEPHEN S. STARK

Assistant City Attorney

KARL M. MANHEIM

Deputy City Attorney

Attorneys for Amici Curiae

PROOF OF SERVICE BY MAIL

State of California

SS.

County of Los Angeles

I, the undersigned, say: I am and was at all times herein

mentioned, a citizen of the United States and a resident of

the County of Los Angeles, over the age of eighteen (18)

years and not a party to the within action or proceeding;

that my business addrezs is 11333 Iowa Avenue, Los

Angeles, California 90025; that on November 13, 1984,

I served the within Brief of Amici Curiae in said action or

proceeding by depositing true copies thereof, enclosed in a

sealed envelope with postage thereon fully prepaid, in the

United States mail at Los Angeles, California, addressed

as follows:

Gail Hutton

Clerk, United States | City Attorney

Supreme Court William S. Amsbary

One First Street, N.W. Assistant City Attorney

Washington, D.C. 20543 Arthur De La Loza

(Original and 40 copies) Deputy City Attorney

Philip Verleger — “gs “ere

McCutchen, Black, Verleger Huntington Beach

& Shea

600 Wilshire Boulevard California 92648

Los Angeles, California 90017

Stanley E. Remelmeyer

John K. Van de Kamp City Attorney

Attorney General of the 3031 Torrance Boulevard

State of California Third Floor

N. Gregory Taylor Torrance, California 90503

Assistant Attorney General

Dennis M. Eagan Bert Glennon, Jr.

Deputy Attorney General City Attorney

6000 State Building 9770 Culver Boulevard

San Francisco, California 94102 Culver City, California 90230

I declare under penalty of perjury that the foregoing is

true and correct. Executed on November 13, 1984, at Los

Angeles, California.

Joy Rivelli Miller

(Original signed)