Amicus Curiae Brief — Crosby v. National Foreign Trade Council

( \4/) Supreme Court, U.S

Jan (3 dV No. 99-474 FILED

= = +

aa

JAN TS 2000

In The

OFFICE OF THE CLERK

Supreme Court of the U

¢

ANDREW S. NATSIOS, SECRETARY OF

ADMINISTRATION AND FINANCE OF THE

COMMONWEALTH OF MASSACHUSETTS, AND

PHILMORE ANDERSON, III, STATE

PURCHASING AGENT,

Petitioners,

Vv.

NATIONAL FOREIGN TRADE COUNCIL,

Respondent.

¢

On Writ Of Certiorari To The

United States Court Of Appeals For The First Circuit

e

BRIEF OF AMICI CURIAE STATES OF ARKANSAS,

CALIFORNIA, COLORADO, CONNECTICUT,

HAWAII, LOUISIANA, MAINE, MARYLAND,

MINNESOTA, MISSOURI, NEW HAMPSHIRE, NEW

JERSEY, NEW MEXICO, NORTH DAKOTA,

OKLAHOMA, OREGON, PENNSYLVANIA, RHODE

ISLAND, TEXAS, UTAH, VERMONT, AND

WASHINGTON IN SUPPORT OF PETITIONER

¢

Heri Herrkamp

Attorney General of North Dakota

Douctas A. BAHR

Solicitor General

BetH ANGus BAUMSTARK

Assistant Attorney General

Counsel of Record

600 East Boulevard Avenue

Bismarck, North Dakota

58505-0040

(701) 328-2210

Counsel for Amici States

[State Attorneys General Listed On Inside Cover]

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

33e v)

Mark Pryor

Attorney General

of Arkansas

200 Tower Building

323 Center Street

Little Rock AR 72201-2610

Bit. Lockyer

Attorney General of

California

1300 I Street

Sacramento CA 95814

Ken SALAZAR

Attorney General of

Colorado

1525 Sherman St. 7th Fl

Denver CO 80203

RicHARD BLUMENTHAL

Attorney General of

Connecticut

55 Elm Street

Hartford CT 06106-1774

Ear I. ANZAI

Attorney General of

Hawaii

425 Queen Street

Honolulu HI 96813

RicHarp P. levous

Attorney General of

Louisiana

Dept Of Justice

PO Box 94005

ANDREW KETTERER

Attorney General of

Maine

6 State House Station

Augusta ME 04333-0006

J. JosepH Curran, Jr.

Attorney General of

Maryland

200 St. Paul Place

Baltimore MD 21202

Mixe HatcH

Attorney General of

Minnesota

445 Minnesota Street

St. Paul MN 55101-2128

JeReEMIAH W. (Jay) Nixon

Attorney General of

Missouri

207 West High Street

Jefferson City MO 65101

PuHiuie T. McLAuGHLIN

Attorney General of

New Hampshire

33 Capitol Street

Concord NH 03301

JOHN J. FARMER, Jr.

Attorney General of

New Jersey

Richard J. Hughes Justice

Complex

PO Box 117

Baton Rouge LA 70804-9095 Trenton NJ 08625-0117

Patricia A. Maprip

Attorney General of

New Mexico

PO Drawer 1508

Santa Fe NM 87504-1508

Hew Herrkamp

Attorney General of

North Dakota

600 E Boulevard Ave

Bismarck ND 58505-0040

W. A. Drew EDMONDSON

Attorney General of

Oklahoma

2300 N Lincoln Boulevard

Oklahoma City OK

73105-4894

Harpy Myers

Attorney General of

Oregon

1162 Court Street NE

Salem OR 97310-0506

D. Micnaet FisHer

Attorney General of

Pennsylvania

16th Fl, Strawberry Square

Harrisburg PA 17120

SHELDON WHITEHOUSE

Attorney General of

Rhode Island

150 South Main Street

Providence RI 02903

JoHN CorNYN

Attorney General of

Texas

PO Box 12548

Austin TX 78711-2548

JAN GRAHAM

Attorney General of

Utah

236 State Capitol

Salt Lake City UT 84114

WituiamM H. Sorree

Attorney General of

Vermont

109 State Street

Montpelier VT 05609-1001

Curistine O. Grecoire

Attorney General of

Washington

PO Box 40100

Olympia WA 98504-0100

.

TABLE OF CONTENTS

Page

Se Oe EDD ca ehucivesucceenséeccedecediess i

ee ee EE cn ncincadcdsiecccdvdatvtansecéess ii

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Sy Ce GUID ndddvcdtindunceseuececesencés 3

CET oo. oc cc cccececcccccvecsesenesbevesencecess 6

I. THIS COURT SHOULD ADOPT A BRIGHT

LINE TEST IN DETERMINING WHEN TO

APPLY THE MARKET PARTICIPANT EXCEP-

TION TO THE COMMERCE CLAUSE......... 6

Il. THE MARKET PARTICIPANT EXCEPTION TO

THE DORMANT COMMERCE CLAUSE

APPLIES EQUALLY TO INTERSTATE COM-

MERCE AND FOREIGN COMMERCE......... 16

Ill. THE MARKET PARTICIPANT EXCEPTION TO

THE DORMANT COMMERCE CLAUSE IS APPLI-

CABLE EQUALLY TO THE FEDERAL GOVERN-

MENT’S FOREIGN AFFAIRS POWER........... 19

RE ERS EE Ta MEI pe yy a Re ne 23

ii

TABLE OF AUTHORITIES

Page

Cases

American Yearbook Co. v. Askew, 339 F. Supp. 719

(M.D. Fla.), summarily aff'd, 409 U.S. 904 (1972) .... 18

Atkin v. Kansas, 191 U.S. 207 (1903) .......... 7, 8, 9, 13

Board of County Comm'rs, Wabaunsee County, Kan-

sas v. Umbehr, 518 U.S. 68 (1996)...............4.4. 16

Ellis v. United States, 206 U.S. 246 (1907)........... 7,8

Heim v. McCall, 239 U.S. 175 (1915) ......... 8, 9, 11, 12

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

SIDED ceccndcbecncnsscedsvecssseseusécasneeccoess 6, 17

Knight v. Barnes, 75 N.W. 904 (N.D. 1898) ......... 7, 11

National Foreign Trade Council v. Natsios, 181 F.3d

Tree eee 12

New Energy Co. of Indiana v. Limbach, 486 U.S. 269

GRD hc nccecccddcdssececsusceccnessesteusessteees 18

Perkins v. Lukens Steel Co., 310 U.S. 113 (1940)....... 10

Reeves, Inc. v. Stake, 447 U.S. 429 (1980).. 10, 11, 12, 18

South-Central Timber Dev., Inc. v. Wunnicke, 467

i, i ce ctu cevetebanbevesusiesesiecn 12, 13

State ex rel. Collins v. Senatobia Blank Book & Sta-

tionery Co., 76 So. 258 (Miss. 1917).............. 9, 11

United Bldg. & Constr. Trades Council v. Mayor of

CE, Ge Gs Ge GE 6 ce bce Sededcctscdcces 18

TABLE OF AUTHORITIES —- Continued

Page

United States v. Colgate & Co., 250 U.S. 300

SEP Aa ncdosscnocentacducacennsecedsssesua 11, 15, 16

White v. Massachusetts Council of Const. Employers,

an GP We Ee GE c cccccccccevicesconceccces 12

Wisconsin Dep't of Indus., Labor and Human Rela-

tions v. Gould, Inc., 475 U.S. 282 (1986)............ 12

Zschernig v. Miller, 389 U.S. 429 (1968) .............. 19

FEDERAL AND STATE CONSTITUTIONS

ee Gas GI, Be ccc cccnssdeccceccccosssceneas 7, 16

Tex. Const. art. XVI, § 70(r) (repealed by election

OS ee add ncadsocneededhsbsseecdeeseses 3

STATUTES

BP DBA. © TCR CIGD ccc cccccccccccccvccccses 21

BP is We ee UKs cc ccecedescevacnccensoces 21

Ark. Code Ann. § 24-3-416 (repealed 1994)........... 2

Cal. Gov’t Code § 16641.5 (repealed 1994)............ 2

Conn. Gen. Stat. Ann. § 3-13f (repealed 1993)........ 2

Conn. Gen. Stat. Ann. § 3-13h (West 1999)........... 2

Fla. Stat. Ann. § 121.153 (West 1999)...............4.. 2

Fla. Stat. Ann. § 215.471 (West 1999)..............44. 2

40 Ill. Comp. Stat. Ann. 5/1-110(4)(b)(4) (repealed

Ph bos Edcdccccetdvdscccdccnsseadsecctcevedsess. 2

iv

TABLE OF AUTHORITIES - Continued

lowa Code Ann. § 18.3 (

West Supp. 1999).......

La. Rev. Stat. Ann. § 49:308.2 (repealed 1994)

Me. Rev. Stat. Ann. tit. 5, § 1951 (repealed 1993)

Me. Rev. Stat. Ann. tit. 5, § 1952 (repealed 1993)

Me. Rev. Stat. Ann. tit. 5, § 1953 (repealed 1993)

Me. Rev. Stat. Ann. tit. 5, § 1954 (repealed 1993)

Md. Code Ann., State

Fin. & Proc. § 6-208

*“* ee

PRPGENG TES s occ ccccsvcsevsscecessssessosecocess

Md. Code Ann., State

Fin. & Proc. § 14-501

SNE TO oct cc vcccenscrcdecnedssvdsvasécceess

Md. Code Ann., State

Fin. & Proc. § 14-502

CGS TU sone bec cccénccodndadesecvestdncceces

Md. Code Ann., State

(repealed 1994)........... PORE! A: AN Oe

Md. Code Ann., State

(repealed 1994)........... Se Hicioastabaatudincs s)

Md. Code Ann., State

(repealed 1994)........... TERNS 497 TD

Md. Code Ann., State

(repealed 1994)........... fet Foee ie tas: peace

Md. Code Ann., State

(repealed 1994)........... cag Ne.»

Md. Code Ann., State Fin

Md. Code Ann., State Fin

Md. Code Ann., State Fin

Md. Code Ann., State Fin

. & Proc. § 17-301 (1995)

. & Proc. § 17-302 (1995)

. & Proc. § 17-303 (1995)

. & Proc. § 17-304 (1995)

3

3

3

TABLE OF AUTHORITIES —- Continued

v

Md. Code Ann., State Fin. & Proc. § 17-305 (1995) ..... 3

Md. Code Ann., State Fin. & Proc. § 17-306 (1995) ..... 3

Mass. Gen. Laws Ann. ch. 7, § 22C (West 1996)

Mass. Gen. Laws Ann. ch. 7, § 22D (West 1996)

Mass. Gen. Laws Ann. ch. 32, § 23 (West Supp.

TITLITILILLILIT ETE LE LL ELLE TTL ili Peer 2

Pn ddbvedéiende 65060605040800 600 0Kenntie nested

Mich. Comp. Laws Ann. § 38.1133a (West 1997)

Minn. Stat. Ann. § 11A.241 (West 1997)

Mo. Ann. Stat. § 105.686 (repealed 1994)

Neb. Rev. Stat

Neb. Rev. Stat

Neb. Rev. Stat

N.H. Rev

N.J. Stat.

N.J. Stat.

N.J. Stat.

N.J. Stat.

N.J. Stat.

N.J. Stat.

. Stat

Ann.

Ann.

Ann.

Ann.

Ann.

Ann.

. § 72-1246.06 (1996)

. § 72-1246.07 (1996) ...........-.

. § 72-1246.08 (1996)

. Ann. § 6:32 (Supp. 1999).......

N.H. Rev. Stat. Ann. § 6:33 (Supp. 1999)

N.H. Rev. Stat. Ann. § 6:34 (Supp. 1999)

§ 52:18A-89.1 (repealed 1994)...

§ 52:18A-89.2 (repealed 1994)...

§ 52:18A-89.3 (repealed 1994)...

§ 52:18A-89.4 (West Supp. 1999)

§ 52:18A-89.5 (West Supp. 1999)

§ 52:18A-89.6 (West Supp. 1999)

“ee eevee

“ese ee ee

vi

TABLE OF AUTHORITIES - Continued

Page

N.J. Stat. Ann. § 52:34-12.2 (West Supp. 1999)........ 1

N.M. Stat. Ann. § 13-1-188 (Michie 1997)............. 3

N.Y. Retire. & Soc. Sec. Law § 423-a (McKinney

RODD). wn rccccccvcccncvcncesscncseccveseesesecenenes 2

N.Y. State Fin. Law § 165(5) (McKinney 1997)........ 1

N.C. Gen. Stat. § 147-69.2(c) (repealed 1995).......... 2

Ohio Rev. Code Ann. § 125.09 (Banks-Baldwin

DUD. WOUED onc ccvcnccccvccncccvsccasssépecoccoscss 3

Ohio Rev. Code Ann. § 125.11 (Banks-Baldwin

DUD. WIP) oc ncccnccccreccecesesccevccessseucteces 3

Ohio Rev. Code Ann. § 306.43(G) (Banks-Baldwin

SU. TOGED 0 ccc ccccsnesvcseecesesctoetsesocseeces 3

Ohio Rev. Code Ann. § 5513.07 (Banks-Baldwin

DED. TEGSD cc vvcccccndncestecontesesctsvccsesosess 3

Okla. Stat. tit. 61, § 51 (West 1997)................... 3

Okla. Stat. tit. 62, § 71(E) (repealed 1994)............ 2

Okla. Stat. tit. 62, § 89.2(E) (repealed 1994)........... 2

Oregon Anti-Apartheid Act of 1987, Or. Rev. Stat.

Sy ORD OD BT CUSED Wan wenceccecncevenssace 2

24 Pa. Cons. Stat. Ann. § 8527 (West 1992)........... 2

71 Pa. Cons. Stat. Ann. § 5940 (West Supp. 1999)..... 2

72 Pa. Cons. Stat. Ann. § 3773.1 (West 1995) ......... 2

R.I. Gen. Laws § 35-10-12 (1997) ............... 00 eee 2

R.I. Gen. Laws § 35-10-14 (1997) .................005. 2

R.I. Gen. Laws § 37-2-57 (repealed 1999)............. 1

Vii

TABLE OF AUTHORITIES —- Continued

Page

Tenn. Code Ann. § 54-5-135 (1998)................4.. 3

Tex. Gov’t Code Ann. § 404.024(h) (West 2000)....... 2

Tex. Nat. Res. Code Ann. § 161.173(b), (c)(2), (c)(5)

GEE BOOED Sere cvesewesecevctsevecscssesecsees 2

Se Ok See Ge SD BP onc ccccccdcwesneccesvecse 2

OTHER AUTHORITIES

H.R. Doc. No. 103-316 (1994), reprinted in 1994

I ED nn ON ng ae Use Wes dee ke beeee 21, 22

Barton B. Clark, Comment, Give ‘Em Enough Rope:

States, Subdivisions and the Market Participant

Exception to the Dormant Commerce Clause, 60 U.

a a so heen cu vishsedet be dhsese 15

INTEREST OF AMICI

The 22 Amici States submit this brief in support of

Massachusetts. The States have a strong interest in state

sovereignty and in protecting the right of States to pass

laws governing state procurement and investment of

state funds. Through these laws, elected State Legisla-

tures legitimately exercise the citizens’ sovereign right to

decide how to spend and invest public money. Further,

the Amici States have an interest in the Supreme Court's

establishing a clear test that will limit the challenges to

actions the States take in their proprietary roles.

New Jersey, New York, and Massachusetts have stat-

utes that restrict the State’s purchasing goods from speci-

fic countries or from companies that do business in those

countries.'! Currently, at least fourteen States have

statutes that govern the State’s investment of state funds

in certain other countries or in businesses that do busi-

ness with those countries.2 The countries in which

1 New Jersey and New York restrict state purchasing from

Northern Ireland. N.J. Stat. Ann. § 52:34-12.2 (West Supp. 1999);

N.Y. State Fin. Law § 165(5) (McKinney 1997). Massachusetts, in

addition to its Burma Law, also restricts state purchasing from

companies that have links with Northern Ireland. Mass. Gen.

Laws Ann. ch. 7, §§ 22C, 22D (West 1996). Maryland and Rhode

Island have repealed statutes limiting state purchases of goods

produced in South Africa. See Md. Code Ann., State Fin. & Proc.

§§ 14-501 to 507 (repealed 1994); R.I. Gen. Laws § 37-2-57

(repealed 1999).

2 States having restrictions on investment of state funds in

companies doing business with Northern Ireland include:

Connecticut, Florida, Massachusetts, Michigan, Minnesota,

Nebraska, New Hampshire, New Jersey, New York,

Pennsylvania, Rhode Island, Texas, and Vermont. See Conn.

investments are limited or restricted include Cuba,

Northern Ireland, and South Africa. Since the end of

apartheid, many States have repealed their laws restrict-

ing investments in South Africa.* In addition to these

Gen. Stat. Ann. § 3-13h (West 1999); Fla. Stat. Ann. § 121.153

(West 1999); Mass. Gen. Laws Ann. ch. 32, § 23 (West Supp.

1999); Mich. Comp. Laws Ann. § 38.1133a (West 1997); Minn.

Stat. Ann. § 11A.241 (West 1997); Neb. Rev. Stat. §§ 72-1246.06 to

.08 (1996); N.H. Rev. Stat. Ann. §§ 6:32 to :34 (Supp. 1999); NJ.

Stat. Ann. §§ 52:18A-89.4 to 89.6 (West Supp. 1999); N.Y. Retire.

& Soc. Sec. Law § 423-a (McKinney 1999); 24 Pa. Cons. Stat. Ann.

§ 8527 (West 1992), 71 Pa. Cons. Stat. Ann. § 5940 (West Supp.

1999), and 72 Pa. Cons. Stat. Ann. § 3773.1 (West 1995); R.I. Gen.

Laws § 35-10-14 (1997); Tex. Gov’t Code Ann. § 404.024(h) (West

2000); 1989 Vt. Acts & Resolves 50. Florida restricts investments

of state funds in companies doing business with Cuba. Fla. Stat.

Ann. § 215.471 (West 1999). The following States restrict the

investment of state funds in South Africa: Massachusetts,

Oregon, and Rhode Island. See Mass. Gen. Laws Ann. ch. 32,

§ 23 (West Supp. 1999); Oregon Anti-Apartheid Act of 1987, Or.

Rev. Stat. §§ 293.830 to 293.870 (1997); R.I. Gen. Laws § 35-10-12

(1997).

3 Arkansas, California, Connecticut, Illinois, lowa,

Louisiana, Maine, Maryland, Michigan, Missouri, New Jersey,

North Carolina, Oklahoma, and Texas all have repealed statutes

restricting investment of state funds in South Africa. See Ark.

Code Ann. § 24-3-416 (repealed 1994); Cal. Gov’t Code § 16641.5

(repealed 1994); Conn. Gen. Stat. Ann. § 3-13f (repealed 1993);

40 Ill. Comp. Stat. Ann. 5/1-110(4)(b)(4) (repealed 1994); Iowa

Code Ann. ch. 12A (repealed 1994); La. Rev. Stat. Ann. § 49:308.2

(repealed 1994); Me. Rev. Stat. Ann. tit. 5, §§ 1951-1954 (repealed

1993); Md. Code Ann., State Fin. & Proc. § 6-208 (repealed 1994);

Mich. Comp. Laws Ann. § 37.2402(f) (repealed 1993); Mo. Ann.

Stat. § 105.686 (repealed 1994); N.J. Stat. Ann. §§ 52:18A-89.1 to

89.3 (repealed 1994); N.C. Gen. Stat. § 147-69.2(c) (repealed

1995); Okla. Stat. tit. 62 §§ 71(E), 89.2(E) (repealed 1994); Tex.

Nat. Res. Code Ann. § 161.173(b), (c)(2), (c)(5) (repealed 1995);

types of statutes, many States have “Buy American”

laws.

Although the instant case involves a state selective

purchasing law, the market participant exception to the

dormant Commerce Clause - both interstate and foreign -

would apply equally to state laws limiting investment of

state funds. Any expansion by this Court of the federal

government’s dormant foreign affairs power to strike

down state laws governing state proprietary actions

would threaten state decisions regarding investments as

well as decisions regarding procurement.

o

SUMMARY OF ARGUMENT

The Amici States urge this Court to adopt a bright

line test in determining when to apply the market partici-

pant exception to the Commerce Clause. States are

engaged in the marketplace as participants when they

make procurement and investment decisions. Conse-

quently, the market participant exception to the Com-

merce Clause applies. The Commerce Clause analysis,

and Tex. Const. art. XVI, § 70(r) (repealed by election held Nov.

2, 1999).

4 For example, Iowa, Maryland, New Mexico, Ohio,

Oklahoma, and Tennessee have some variety of a “Buy

American” law. See lowa Code Ann. § 18.3 (West Supp. 1999);

Md. Code Ann., State Fin. & Proc. §§ 17-301 to 306 (1995); N.M.

Stat. Ann. § 13-1-188 (Michie 1997); Ohio Rev. Code Ann.

§§ 125.09, 125.11, 306.43(G), 5513.07 (Banks-Baldwin Supp.

1999); Okla. Stat. tit. 61, § 51 (West 1997); Tenn. Code Ann.

§ 54-5-135 (1998).

therefore, is complete. A bright line test provides clear

direction to both the States and the courts in evaluating

controls the States place on their own procurement and

investment decisions.

The roots of the market participant exception to the

Commerce Clause support the bright line test. The nega-

tive implication of the Commerce Clause, both its inter-

state and foreign aspects, is directed at limiting the

States’ authority to regulate commerce, not participate in

it. The right of States as guardians and trustees for their

people and the public fisc requires that the States have

freedom in deciding what restrictions to place on the

spending and investing of their money. Applying the

market participant exception to the Commerce Clause

any time the State is purchasing goods or services or

investing its money preserves the right of States when

acting in their proprietary role to be free from restrictions

that do not affect private parties.

Federal statutes that regulate private entities in max-

ing procurement or investment decisions also may regu-

late a State’s decisions in these areas. If so, the statutes

apply directly to the States. It is not necessary to try to

judge each State decision by whether a pzvate party

could or would make the same decision or consider the

same factors in reaching a decision.

If this Court does not adopt the bright line test urged

by the Amici States, an alterna test is proposed. Cur-

rently courts frequently look to whether a private busi-

ness would be likely to actin the way the State is acting

in making proprietary decisions. Instead the question

should be rephrased: Could a private party legally act as

the State is acting? Stated in this way, the test more

accurately reflects the underpinnings of the market par-

ticipant exception to the Commerce Clause.

The philosophical bases for the market participant

exception to the Commerce Clause apply with equal force

to both the interstate and foreign aspects of the Com-

merce Clause. A State's decisions governing its procure-

ment of goods and services or investment of its money

constitute participation in the marketplace and not regu-

lation. This does not change because it is foreign markets

rather than interstate markets that may be affected. A

State’s interest in determining its own trading partners is

not lessened because foreign commerce may be involved.

A State’s role as guardian and trustee for its people and

of the public fisc is no less when decisions affect foreign

commerce. The States’ right to be free from restrictions

which do not apply to private parties in making propri-

etary decisions is just as strong regardless of whether

interstate or foreign commerce is involved. This case

offers the Court the opportunity to clearly hold that the

market participant exception applies to both the foreign

and interstate aspects of the Commerce Clause.

The market participant exception also should prevent

a State’s proprietary actions in procuring goods or ser-

vices or in investing its money from being invalidated

under the federal government's foreign affairs power.

Decisions that a State makes in these areas are not deci-

sions that could prevent the federal government from

exercising its foreign affairs power. The decisions may

have an indirect effect on businesses of other countries,

but they do not have a direct effect on the federal govern-

ment’s foreign affairs policy.

Further, Congress and the Executive Branch have

exercised their foreign affairs power to provide a mecha-

nism for addressing complaints that state laws violate

international trade agreements. A process has been estab-

lished within the trade agreements themselves to handle

such complaints. Congress in the Uruguay Round Agree-

ments Act specifically determined that private court

action on any basis was inappropriate for complaints

under or connected with the trade agreements. The Exec-

utive Branch in its Statement of Administrative Action,

approved in the Uruguay Round Agreements Act, stated

that such lawsuits themselves could interfere with the

President's exercise of his foreign affairs power.

e

ARGUMENT

I. THIS COURT SHOULD ADOPT A BRIGHT LINE

TEST IN DETERMINING WHEN TO APPLY THE

MARKET PARTICIPANT EXCEPTION TO THE

COMMERCE CLAUSE.

The history and public policy foundations of the

market participant exception to the Commerce Clause

support the application of a bright line test: applying the

market participant exception any time a State is acting in

its proprietary role making decisions regarding its pro-

curement of goods or services or investment of its money.

The market participant exception to the dormant

Commerce Clause, first expressed by this Court in Hughes

v. Alexandria Scrap Corp., 426 U.S. 794 (1976), has a long

history. In 1898, the North Dakota Supreme Court

addressed whether a state statute requiring that all

county printing be done within the State violated Article

1, Section 8 of the United States Constitution. Knight v.

Barnes, 75 N.W. 904 (N.D. 1898). The court held that the

statute did not violate the interstate Commerce Clause. It

stated: “[A]s a question of principle, we are unable to see

why the state is forbidden to do what an individual

certainly may do with impunity, viz. elect from whom it

will purchase supplies needed in the discharge of its

corporate functions.” Id. at 906.

Then, in Atkin v. Kansas, 191 U.S. 207 (1903), this

Court held that the State, acting as guardian and trustee

for its people in the control of the State’s affairs, had the

power to place conditions upon public work to be done

on its behalf, or on behalf of its municipalities. Id. at

222-23. Writing for the Court’s majority, Justice Harlan

stated that the courts have no authority to review the

conditions a State places on contracts for public works.

“Regulations on this subject suggest only considerations

of public policy. And with such considerations the courts

have no concern.” Id. at 223. The Court further deter-

mined that the motives behind enactment of the statute

were irrelevant and did not affect the State’s authority. Id.

at 222. Cf. Ellis v. United States, 206 U.S. 246 (1907) (spec-

ulation over Congress’ motive in passing an act regulat-

ing the conditions under which the government would

contract cannot be used to limit Congress’ authority over

government contracts). Summing up the majority deci-

sion in Atkin, the Court stated:

We rest our decision upon the broad ground that

the work being of a public character, absolutely

under the control of the state and its municipal

agents acting by its authority, it is for the state

to prescribe the conditions under which it will

permit work of that kind to be done.

191 U.S. at 224.

The principle proclaimed by this Court in Atkin — that

a State, acting as guardian and trustee for its people, has

the power to place conditions on contracts it enters -

applies in the case of selective purchasing laws and any

time a State acts in its proprietary role. Such application

is in accord with the idea that a State, when acting as a

contractor, has the same rights as any private contractor.

Justice Holmes, writing for the majority in Ellis, 206 U.S.

at 256, stated that the “government, purely as contractor,

in the absence of special laws, may stand like a private

person.”

This Court’s decision in Heim v. McCall, 239 U.S. 175

(1915), lends additional support to application of a bright

line test. In Heim, this Court held that the State of New

York had the authority to determine that only United

States citizens may be employed in the construction of

public works by the State, a municipality, or any person

contracting with the State or municipality, and further

that preference for such employment must be given to

New York citizens. The Court relied upon the principle

set forth in Atkin that “it belongs to the state, as the

guardian and trustee for its people, and having control of

its affairs, to prescribe the « onditions upon which it will

permit public work to be done on its behalf, or on behalf

of its municipalities.” Id. at 192-93. The Court also upheld

the limitation on the construction of a treaty with Italy

regarding the rights of Italian citizens within the United

States. The Court of Appeals had concluded that the

—

treaty “does not limit the power of the state, as a propri-

etor, to control the construction of its own works and the

distribution of its own moneys.” Id. at 193. This Court

determined that such a conclusion was inevitable based

on the principles it had announced. Id.

Although Atkin and Heim addressed state action via

public works, the Court in each case based its opinion on

the State acting in its proprietary role and as a participant

in the marketplace. Therefore, whether the State is enter-

ing a service contract, purchasing goods, or investing its

money, the same principles apply. In each situation, the

State acts in its proprietary role and as guardian and

trustee of the public fisc.

In 1917 the Mississippi Supreme Court analyzed a

state law restricting county officials from purchasing

records and books from companies not engaged in the

printing business in the State. State ex rel. Collins v. Sen-

atobia Blank Book & Stationery Co., 76 So. 258 (Miss. 1917).

In its Commerce Clause analysis, the court determined

the statute did not attempt to regulate any contracts other

than the State’s own contracts. Id. at 260. After pointing

out that a private entity has the right to enter a contract

with whomever it chooses, the court determined that

there is no specific provision of the Constitution requir-

ing the State to enter into a contract with any person or

corporation without the State’s consent. Consequently, it

held that the State cannot be forced to do so. Id. Further,

the court noted that the statute expressly provided how

both resident and nonresident citizens and corporations

could qualify to sell to the State, become amenable to

process in the State, and do the work within the State. Id.

NE Ee eee

10

The right of the government to act as any other

business when it enters the marketplace was again

addressed in Perkins v. Lukens “teel Co., 310 U.S. 113

(1940). In Perkins this Court state. . “Like private individ-

uals and businesses, the Government enjoys the unre-

stricted 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.”

Id. at 127.

Although Perkins involved an act by the federal gov-

ernment, the principles involved apply equally to state

governments when acting as market participants. The

Court stated that the purpose of the federal act in Perkins

was “to obviate the possibility that any part of our tre-

mendous national expenditures would go to forces tend-

ing to depress wages and purchasing power and

offending fair social standards. of employment.” Id. at

128. The Court emphasized that the act did not purport to

regulate private businesses but only instructed the gov-

ernment agents with authority to fix the terms and condi-

tions under which the government would purchase

goods. Id. at 128-29.

This Court in Reeves, Inc. v. Stake, 447 U.S. 429 (1980),

identified several policy considerations underlying the

market participant exception. The most important consid-

eration was the absence of any “constitutional plan to

limit the ability of the States themselves to operate freely

in the free market.” Id. at 437. Quoting from constitu-

tional scholar Lawrence Tribe, this Court noted that “the

commerce clause was directed, as an historical matter,

only at regulatory and taxing actions taken by states in

their sovereign capacity.” Id. This Court also identified

11

the following considerations as supporting the market

participant exception to the Commerce Clause:

¢ Considerations of state sovereignty when the

State is acting as guardian and trustee for the

State’s residents (citing Heim, 239 U.S. at

191);

¢ Considerations of fairness that dictate

because state proprietary actions are bur-

dened with the same restrictions as actions

by private market participants, state propri-

etary actions also should receive the same

freedom from federal constraints (citing Sen-

atobia, 76 So. at 260, and Tribune Printing &

Binding Co. v. Barnes, 75 N.W. 904, 906 (N.D.

1898) (cited supra as Knight v. Barnes));

¢ The right of a private business to choose its

trading partners (citing United States v. Col-

gate & Co., 250 U.S. 300, 307 (1919));

¢ The practical difficulty in evaluating state

proprietary activities under the traditional

Commerce Clause analysis (as shown by the

case before the Court in Reeves).

Reeves, 447 U.S. at 438-39. Each of these underpinnings of

the market participant exception would be followed by

the application of a bright line test.

Bright Line Test

The market participant exception to the dormant

Commerce Clause protects the activities of a State acting

in a proprietary manner. Because it is uncertain how a

court will determine whether a State is acting purely in

its proprietary role, it is important that this Court adopt a

12

bright line test. An appropriate test would apply the

market participant exception to the dormant interstate

and foreign Commerce Clause any time the State is

involved in purchasing goods or services or investing its

money. In these instances, the State acts in its proprietary

role and as guardian and trustee of the State’s assets, thus

satisfying the Heim rationale. The effect on interstate or

foreign commerce is indirect and does not amount to

regulation of the private sector. Therefore, the purposes

behind the Commerce Clause do not come into play.

This Court has already stated that when the market

participant exception is involved, there is only one ques-

tion: Is the State involved in the market as a participant?

Reeves, 447 U.S. at 435 n.7. If it is, the action is exempt

from Commerce Clause restrictions, and the degree of the

effect of the State’s proprietary decisions on interstate or

foreign commerce is irrelevant. Reeves, 447 U.S. at 435-36.

See also White v. Massachusetts Council of Const. Employers,

Inc., 460 U.S. 204, 208 (1983) (reaffirming principle of

single inquiry in market participant cases). This indeed

sounds like a bright line test. The cases, however, show

that the courts sometimes remain focused on questions of

the motives of the State in enacting its laws, the degree of

the effect of the laws on interstate or foreign commerce,

or whether the State’s actions go beyond participation in

the marketplace to regulation. See National Foreign Trade

Council v. Natsios, 181 F.3d 38, 63-65 (1st Cir. 1999); South-

Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 96-99

(1984); Wisconsin Dep't of Indus., Labor and Human Rela-

tions v. Gould, Inc., 475 U.S. 282, 289 (1986) (Discussion of

13

the market participant exception is largely dicta, how-

ever, because the Court found Wisconsin’s law was pre-

empted by the National Labor Relations Act).

Under the true bright line test recommended by the

Amici States, the State’s motives in enacting its statutes

governing state procurement or investments are irrele-

vant. This is consistent with the principle followed in

Atkin. Likewise, whether a private party would or could

take the actions taken by the State in its procurement or

investment decisions would not be the deciding factor in

determining whether the market participant exception to

the Commerce Clause applies. Although this would

appear to vary from the rationale that States should be

burdened only to the same extent as private parties, the

end result, as discussed below, would be the same. In

short, if the State is governing only its own procurement

or investment decisions and practices, the market partici-

pant exception would apply.

The application of the Commerce Clause market par-

ticipant exception to the States’ actions completes the

Commerce Clause analysis. It does not, however, elimi-

nate other possible challenges to a State’s action in pro-

prietary matters. Other federal laws like the anti-trust

laws, which apply to the States only when they are acting

as market participants, would still apply. See Wunnicke,

467 U.S. at 101-02 (Rehnquist, J., dissenting). In most

cases, if a private business were prohibited from taking

certain actions by federal law, the same law could pro-

hibit the State from taking those same actions. To the

extent that Congress has exempted the States from

restrictions that a federal statute places on private busi-

nesses, such Congressional determination should be

14

upheld. The courts, under those circumstances, should

not rely upon a private party’s inability to act in a certain

manner as the basis for rejecting a State’s proprietary

action under the Commerce Clause. If federal statutes

apply to the States, then those laws should be applied

directly to the States. If the statutes do not apply to the

States’ actions by their terms, then the Commerce Clause

should not be used to apply the statutes.

The Massachusetts Burma Law limits the State’s pro-

curement of goods and services from companies that do

business with Burma. It does not regulate purchasing by

private parties within the State. It does not prohibit pri-

vate parties within the State from doing business with

Burma. The statute governs only the State’s spending of

public funds to purchase goods and services. Therefore,

under the bright line test recommended by the Amici

States, the market participant exception to the Commerce

Clause applies to Massachusetts’ Burma Law. No further

analysis is necessary under the Commerce Clause.

Alternate Test

If the Court chooses not to adopt the bright line test

proposed by the Amici States, an alternative test exists.

The alternate test still would provide an appropriate

analysis for use by lower courts in applying the market

participant exception to the Commerce Clause. Under the

market participant exception, the courts have sometimes

questioned whether the State is acting in the same way

that a private party would act in contracting. One com-

mentator has suggested that the more appropriate ques-

tion would be whether a private party could act as the

9p ——-—t—~™t

15

State has acted. See Barton B. Clark, Comment, Give ‘Em

Enough Rope: States, Subdivisions and the Market Participant

Exception to the Dormant Commerce Clause, 60 U. Chi. L.

Rev. 615, 627 (1993).

Although this test is not the bright line advocated by

the Amici States, it still retains the advantage of placing

the States in the same position as private parties when it

comes to contract matters. Additionally, the courts would

not need to decide if or how often a private party would

make the same contracting decisions - an area that has

caused much debate. Any decision that a private party

legally could make or any factor that a private party

legally could take into consideration in making procure-

ment or investment decisions also should be available to

a State in making its procurements or investments. For

instance, just as a company’s motivation or purpose in

making procurement or investment decisions or the effect

of those decisions on foreign or interstate commerce

would not be reviewable by a court, so too should such

proprietary actions taken by a State be free from court

review.

In Colgate, 250 U.S. 300, this Court evaluated, under

the Sherman Act, the conduct of a manufacturer in limit-

ing the persons to whom it would sell to those who resell

only according to the manufacturer’s guidelines. This

Court recognized:

[In the absence of any purpose to create or

maintain a monopoly, the act does not restrict

the long recognized right of trader or manufac-

turer engaged in an entirely private business,

freely to exercise his own independent discre-

tion as to parties with whom he will deal; and,

16

of course, he may announce in advance the cir-

cumstances under which he will refuse to sell.

Id. at 307.

Using the test set forth in Colgate, Massachusetts’

announcement in advance of the circumstances under

which it will purchase goods or services from a business

- that the entity does not engage in business with Burma

- is an action a private company lawfully could take.

Consequently, under the alternate test, Massachusetts is

not prohibited by the Commerce Clause from taking such

action because its action is covered by the market partici-

pant exception.

As Justice Scalia, joined by Justice Thomas, pointed

out in his dissent in Board of County Commissioners, Wab-

aunsee County, Kansas v. Umbehr, 518 U.S. 668 (1996), state

decisions about with whom to contract frequently will

take into account the moral and political views of the

government and the type of organizations it wishes to

subsidize through its purchases. The Amici States

strongly believe that the moral integrity of a potential

trading partner is a legitimate concern to be considered

by a State when acting as guardian of the public fisc.

Il. THE MARKET PARTICIPANT EXCEPTION TO

THE DORMANT COMMERCE CLAUSE APPLIES

EQUALLY TO INTERSTATE COMMERCE AND

FOREIGN COMMERCE.

The Commerce Clause grants Congress the power

“[tlo regulate commerce with foreign nations, and among

the several states.” U.S. Const. art. 1, § 8. Consequently,

the negative implication of this language relates only to

a

~~ -~ 8 ey ~~ -

17

the regulation by States of commerce with foreign nations

and among the several States. Nothing in the Commerce

Clause, either expressly or by implication, denies the

States the authority to conduct their own affairs, even if

the conduct of those affairs has an effect on interstate or

foreign commerce.

In Hughes, 426 U.S. at 805, 810, this Court stated:

[W]e are not persuaded that Maryland’s action

in amending its statute was the kind of action

with which the Commerce Clause is concerned.

... Nothing in the purposes animating the Com-

merce Clause prohibits a State, in the absence of

congressional action, from participating in the

market and exercising the right to favor its own

citizens over others.

Maryland amended its statute regarding the documenta-

tion needed by out-of-state processors to participate in a

bounty program whereby the State paid for the aban-

doned vehicles delivered to scrap processors. Maryland

did not interfere with the functioning of the interstate

market by burdensome regulation or by prohibiting pri-

vate activities. Rather, Maryland conditioned the State’s

purchase of automobile hulks on the receipt of certain

documentation. This Court stated:

Until today the Court has not been asxed to

hold that the entry by the State itself into the

market as a purchaser, in effect, of a potential

article of interstate commerce creates a burden

upon that commerce if the State restricts its

trade to its own citizens or businesses within the

State.

426 U.S. 808.

18

In today’s world of vast global markets, there are

very few actions a State could take that would not some-

how have an effect on foreign commerce. Only direct

interference with foreign commerce, accomplished by

state regulation of private industry, however, is prohib-

ited by the dormant foreign Commerce Clause. As

pointed out by the court in American Yearbook Co. v.

Askew, 339 F. Supp. 719 (M.D. Fla.), summarily aff'd, 409

U.S. 904 (1972), no company has a vested right to sell to

the State. “Trade regulations are clearly subject to Com-

merce Clause restrictions, but statutes that merely specify

the conditions of state purchases are not.” 339 F. Supp. at

725.

Likewise, this Court explained in New Energy Co. of

Indiana v. Limbach, 486 U.S. 269, 277 (1988), that it is only

the actions which a State takes in its distinctive govern-

mental capacity that are subject to the limitations of the

negative Commerce Clause, not the actions a State takes

in its more general role as a market participant. As Justice

Rehnquist, writing for this Court in United Building &

Construction Trades Council v. Mayor of Camden, 465 U.S.

208, 220 (1984), stated: “When the State acts solely as a

market participant, no conflict between state regulation

and federal regulatory authority can arise.” (Emphasis in

original.)

This Court's dicta in Reeves is the only indication that

the market participant exception to the Commerce Clause

might not apply to actions of States, in their proprietary

role, that affect foreign commerce. In Reeves the Court

stated it had no need to explore the application of the

foreign Commerce Clause to state proprietary actions. 447

U.S. at 437 n.9. There is no constitutional or philosophical

A tl

19

reason why the market participant exception to the Com-

merce Clause should not apply equally regardless of

whether it is interstate or foreign commerce that is

affected.

This Court has never used the negative implication of

the foreign Commerce Clause to strike down a state stat-

ute that controlled only procurement or investment deci-

sions of a State or its political subdivisions. A State's

proprietary decisions and its actions as a participant in

the marketplace always have been respected as decisions

that were the State’s alone to make. Whether they affect

interstate or foreign commerce, the procurement and

investment decisions of a State are proprietary -— not

regulatory — actions. The Amici States call upon this Court

to pronounce what always has been the unstated under-

standing of the States: When the States are acting as

market participants, neither the foreign nor the interstate

aspect of the Commerce Clause applies.

Ill. THE MARKET PARTICIPANT EXCEPTION TO

THE DORMANT COMMERCE CLAUSE IS

APPLICABLE EQUALLY TO THE FEDERAL GOV-

ERNMENT’S FOREIGN AFFAIRS POWER.

The Federal Government's Foreign Affairs Power

The dormant foreign affairs power of the federal

government as set forth by this Court in Zschernig v.

Miller, 389 U.S. 429, 432 (1968), stems from the foreign

affairs powers the United States Constitution entrusts to

Congress and the President. Zschernig is the only case in

which this Court has used the federal government's “for-

eign affairs power” to strike down a state law. That case

20

involved a state statute that regulated who could inherit

property within the State.

Applying the market participant exception to the fed-

eral government's “foreign affairs power”, thus, does not

mark a change in this Court’s practice. Rather, until the

instant case, the proper mix of facts and lower court

holdings had not appeared before this Court to require a

determination on the applicability of the market partici-

pant exception to the foreign affairs power of the federal

government. Here, however, the Respondent is asking

this Court to hold a State’s procurement decisions are an

interference with the federal government's foreign affairs

power simply because they may have an effect on foreign

commerce. This proposition is meritless.

As pointed out in Argument II above, in today’s world

of vast global markets, there are very few procurement

decisions a State could make that would not somehow

have an effect on foreign commerce. A decision preventing

the States from determining their own trading partners

because some companies or other governments do not like

the decisions made would rewrite the entire history of

state sovereignty and the principles of federalism.

The fact that the Massachusetts law in question

applies equally to foreign and domestic companies that

do business with Burma demonstrates that this is indeed

a statute governing the State’s own purchasing and is not

a regulation of foreign commerce. Further, even if it were,

it would not interfere with the federal government's

power to regulate foreign affairs. Congress arguably

could enact a law prohibiting any State, political subdivi-

sion, or private business from restricting purchases from,

+ >=

=

21

or investments in, other countries or from companies that

do business with specific countries. No state law can

prohibit Congress or the Executive Branch from exercis-

ing its foreign affairs power.

Congress’ And The Executive Branch’s Exercise Of Their

Foreign Affairs Power

Congress and the Executive Branch have exercised

their foreign affairs power to establish a manner for

addressing complaints that a State’s actions violate inter-

national commitments. The international trade agree-

ments entered into by the United States establish

procedures for handling alleged violations by States and

local governments. The Uruguay Round Agreements are

an example. The Executive Branch and Congress have

acted pursuant to their constitutional authority to estab-

lish a comprehensive system under the World Trade

Organization for addressing complaints by member

nations that the laws of the United States or her political

subdivisions violate the Uruguay Round Agreements.

The Implementation Bill and the Statement of Adminis-

trative Action, in fact, specifically prohibit a private cause

of action, either directly or indirectly, attacking a State’s

law under, or in connection with, the Uruguay Round

Agreements on any basis, including under Congress’

Commerce Clause authority. 19 U.S.C. § 3512(c) (1994);

H.R. Doc. No. 103-316, at 676 (1994), reprinted in 1994

U.S.C.C.A.N. 3773, 4055.

The Statement of Administrative Action for the

Uruguay Round Agreements Act, adopted by Congress in

19 U.S.C. § 3511(a)(2) (1994), further emphasizes:

22

With respect to the states, section 102(c) repre-

sents a determination by the Congress and the

Administration that private lawsuits are not an

appropriate means for ensuring state compli-

ance with the Uruguay Round Agreements.

Suits of this nature may interfere with the Presi-

dent’s conduct of trade and foreign relations

and with suitable resolution of disagreements or

disputes under those agreements.

H.R. Doc. No. 103-316, at 676 (1994), reprinted in 1994

U.S.C.C.A.N. 3773, 4055.

Actions by States that may violate the international

trade agreements the United States has entered do not

interfere with the federal government's foreign affairs

power. Rather, the federal government, through the Exec-

utive Branch and Congress, has considered the possibility

that state laws may do so and has established a system to

address any such problems. In addition, Congress and the

Executive Branch have stated that involvement by the

judiciary, by itself, could interfere with the exercise of

their constitutional foreign affairs powers.

o

23

CONCLUSION

For the foregoing reasons, the 22 Amici States respect-

fully request the Court to reverse the judgment of the

United States Court of Appeals for the First Circuit.

Respectfully submitted,

Heri Herrkamp

Attorney General

State of North Dakota

Douctas A. BAHR

Solicitor General

BerH ANGuUs BAUMSTARK

Assistant Attorney General

Counsel of Record

600 East Boulevard Avenue

Bismarck, North Dakota

58505-0040

(701) 328-2210