Constitutional Law Class Notes 2/12/04

This is the latest word out of the Supreme Court! It’s relatively short. It’s a narrow decision. It’s almost unanimous except for a dissent in part by Thomas. It’s an example of where the Court looks at an act of Congress and says that it makes certain state laws permissible (milk content and labeling), but they won’t construe that act of Congress to immunize discriminatory state pricing laws from a Dormant Commerce Clause challenge. The Court will immunize some state rules, but not others.

This is an example of Congress would draft language to protect a state law. They cut out an exemption that is just for the state of California. The Ninth Circuit blew it when they said that the laws allow discrimination in terms of pricing. The Supreme Court says that we don’t construe the statute as protecting state law that far. Congress is in control, and the Supreme Court just has to figure out what Congress wants.

But, there’s a separate Privileges and Immunities Clause claim in the case. Congress does not have the last word on this Clause. That claim goes forward on its merits regardless of what Congress says or wants. There’s a holding about whether it matters that the state law isn’t written explicitly in terms of discriminating against out-of-state citizens. The Court says no matter what has been said in the past, “the absence of an express statement in the California laws and regulations identifying out-of-state citizenship as a basis for disparate treatment is not a sufficient basis for rejecting this claim.” 123 S.Ct. 2142 at 2147 (2003).

There are a couple of general points to be made. Discrimination, when you’re talking out in-state versus out-of-state citizens, involves three different constitutional provisions:

1. Dormant Commerce Clause – discrimination against out-of-state citizens is presumed as a violation.

2. Privileges and Immunities Clause

3. Equal Protection Clause of the Fourteenth Amendment

You do all three analyses whenever you’re confronted with a question of cross-state discrimination. You can’t answer the question until you’ve thought about all three provisions.

The Equal Protection Clause, like the Privileges and Immunities Clause, is a right that belongs to individual people. Congress can’t override it. The only one they can override is the Dormant Commerce Clause; they can’t override the other two.

There is more than one Privileges and Immunities Clause. There is a Privileges and Immunities Clause of the Fourteenth Amendment as opposed to the Privileges and Immunities Clause of Article 4, Section 2. They function differently!

Can Ohio say that only Ohio citizens are eligible to be governor of the state of Ohio? Yes, of course! We don’t need to read the Constitution to discover that. But if we just read the text of the Privileges and Immunities Clause of Article 4, Section 2 we wouldn’t necessarily know that. That’s because being governor is not a privilege or immunity under the meaning of this clause. Some forms of discrimination are okay, and some are not okay. Common sense, as much as anything, will help us determine what’s okay and what’s not.

For example, Ohio cannot say that only Ohio citizens can practice law in Ohio. These distinctions don’t come out of the text of the Constitution itself. Next week, we’ll talk about the difference between discriminatory benefits and discriminatory penalties. For example, isn’t it discrimination to offer lower law school tuition to in-state students than out-of-state students? Just because you have discrimination doesn’t mean its invalid under any of these three clauses.

The Privileges and Immunities Clause of the Fourteenth Amendment is not primarily designed to stop discrimination, unlike the Privileges and Immunities Clause of Article 4, Section 2.

More on Maine Rx and Pharmaceutical Research and Mfrs. of America v. Walsh

Congress has not specifically passed a law authorizing Maine Rx. How can we tell whether we have a Dormant Commerce Clause problem? What claims are the drug companies making? The companies suggest that Maine’s regulations go outside of the state and regulate the behavior outside the state of Maine.

What behavior does the drug companies claim is being regulated outside of the state? They make an extraterritoriality claim. They claim that Maine is setting the price of drugs in, for example, Ohio. They claim that the Maine law is just like the statement: “The price to buy Celebrex at in New Jersey shall be $1 a pill.” The companies claim that they’re trying to set prices outside of their own state. Maine is not entitled to set prices for transactions that occur outside of Maine. It’s none of Maine’s business what the price of a commercial transaction is in any other state.

If the companies were right, they would win. But the Court unanimously rejects this idea. They say that Maine is not dictating the price of drugs in other states. Why are the drug companies incorrect?

A syllogism is a proposition of logic consisting of two premises: a major premise and a minor premise. The major premise is more general, while the minor premise is more specific. For example, major premise: “All persons are mammals.” Minor premise: “Socrates is a person.” Conclusion: “Socrates is a mammal.” If both premises are valid, then the conclusion necessarily follows as a matter of logical reasoning. It’s very good to be able to walk into a courtroom and be able to say: “This is true, that is true, put them together and we win.” Identify syllogistic reasoning when you see it. The way to destroy syllogistic reasoning is to show that one of the premises is invalid. When you see a syllogism, ask which premise you can attack. You can’t attack the deductive conclusion given the two premises given that they’re structured in that form. You can also string syllogisms together. Your conclusion to one syllogism could be either the major or minor premise of yet another syllogism.

What’s going on here is the drug companies say: “No state can control prices outside a state. Maine is controlling out-of-state prices in this case. Therefore, Maine can’t do it.” The Court says: “We accept the major premise, but not the minor premise, therefore we reject your conclusion.” But how do we figure out why the minor premise is no good? It ends up as a matter of economic analysis.

Major premises tend to be more doctrinal, while minor premises tend to be more facts of reality.

In almost all Dormant Commerce Clause cases, you should hire an economist because you’re not going to understand everything (or will you?). Sometimes the key point in a case isn’t in a major premise but rather a minor premise (a point of fact).

What’s the economic truth that’s going on here?

The drug companies say that the in-state price is being controlled. If pharmacies can only charge a certain amount from the consumer, they won’t be willing to pay as much to the wholesaler, and thus there will be a limit to what the wholesaler is willing to pay to the manufacturer. And there is no drug manufacturer in the state of Maine. The transaction between the drug manufacturer and the wholesaler is necessarily out-of-state. That’s the extraterritorial dictation under the drug companies’ theory.

Why doesn’t the Court say that the squeeze don’t matter because it’s not a legal insistence that the drug be a certain price? It puts a squeeze on you as a manufacturer, but the idea is that you can eat some of the cost out of your profit. There is no necessarily one-to-one correlation between the retail discounted price and the wholesale discounted price. Maybe the manufacturer can squeeze the wholesalers!

The Court therefore says that they don’t think the state of Maine is dictating out-of-state prices at the wholesale level.

The burden of the program goes onto out-of-state business. It is designed to benefit in-state consumers at the expense of out-of-state businesses. Why isn’t that discrimination even if it isn’t necessarily extraterritorial control? The law would operate exactly the same way if every drug manufacturer moved to the state of Maine. That shows that this is not a protectionist measure per se. It’s not discrimination against out-of-staters, but rather discrimination arguably against businesses.

Let’s compare this to the West Lynn Creamery situation:

In Exxon v. Maryland, if you don’t own a refinery in Maryland, you wouldn’t be allowed to own a gas station in Maryland. No refinery can own a gas station. If there happened to be refineries in Maryland, then it couldn’t own a gas station. But there weren’t refineries in Maryland. That’s why Maryland’s law doesn’t fail under the Dormant Commerce Clause. But Walmart, Kroger, K-Mart, or anyone else could come in and perform the same function as the oil companies, so the benefit of living in one big happy national economy was not cut off.

To what extent should bad motive on the part of the state legislature that enacts the law cause the state law to flunk the Dormant Commerce Clause analysis?

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