Friday, June 14, 2013
What Are "Unstatutory Conditions"? SCOTUS Punts on Defining the "Market Participant' Exception
The SCOTUS unanimously punted on an important question of federalism in American Trucking Ass'n v Port of Los Angeles, handed down yesterday. The case involved the Port of Los Angeles' policy of requiring trucking companies seeking to haul goods out of the port to sign concession agreements requiring them to display a placard and observe the Port's off-street parking policies. The Port also enacted a "tariff" -- basically, a local ordinance -- imposing a $500 fine or a six-month jail term on terminal operators (shipping lines, stevedoring companies, and the like) for using truckers that did not enter into a concession agreement.
The Court assumed that the Port's "market participation" would not be preempted by a federal statute barring states from regulating the prices, routes, and services of truckers shipping goods. But the Court declined to say anything about whether exclusion of truckers from the port constituted permissible "market participation" (because, after all, private property owners can exclude concessionaires from their real estate) or forbidden "market regulation" (because the Port is no ordinary owner of property but rather the manager of the largest port facility in the nation). Instead, the SCOTUS relied on the relatively trivial "criminal" sanctions in the tariff to find preemption, declaring that "by implementing a criminal prohibition punishable by time in prison," the Port crossed into obviously "governmental" territory.
It is understandable but unfortunate that SCOTUS chose the better part of valor to duck the central question presented by the Port's program: viz., When can a governmental actor condition a private firm's access to a government-owned facility on compliance with the government's rules? After the jump, I will say a bit about why this "market participant" question is really just a species of a more general problem that I call "unstatutory conditions" and how, like its "unconstitutional conditions" cousin, the problem of unstatutory conditions constitutes an intractable dilemma at the heart of federalism that the Court naturally wanted to dodge.
1. First, what is the problem of "unstatutory conditions"? Unstatutory conditions arise whenever a state or local government has the right under federal law to withhold from a private party some license, permit, property, or contract unconditionally but waives this right on condition that the private party obey some rule that would be preempted by a federal statute if imposed unconditionally. The problem can arise from so-called "market participation," as when the state conditions its purchase of vehicles on their meeting emissions standards that would be preempted if imposed as an unconditional rule. But the problem can also arise in purely regulatory contexts, as when a city requires employers to provide healthcare benefits to their employees but waives the requirement for employers who provide employees with health insurance as part of an employment benefits plan, a benefits plan that the city cannot directly regulate under ERISA.
2. Second, why do unstatutory conditions pose an intractable dilemma? The problem is that either preemption and lack of preemption seem to lead to absurdities.
If one preempts the conditions on the theory that the government should not be able to do indirectly what it is forbidden to do directly, then one might undermine the purpose of the very federal statute that one is trying to implement. The point of preemption, after all, is to provide some private actor with the benefit of uniform national rules that reduce the costs of interstate commerce in different jurisdictions. But if the private beneficiary of preemption would prefer that the subnational government enforce the preempted policy as a way to escape from another subnational policy that is not preempted, then what sense does it make to force that beneficiary to suffer the latter by preempting the former? If truckers, stevedoring, and shipping firms want to be subject to $500 fines for using placard-less trucks in order to obtain access to a larger port facility, then what sense does it make to bar the Port of Los Angeles from giving them this extra option? Community groups had shut down the enlargement of the L.A. port facility for a decade: The trucking rules were needed to win community support for such enlargement. If barring such conditions on access to larger port facilities means smaller facilities and less trucking business, then how have truckers been made better off?
On the other hand, if one embraces the lemma of allowing all such conditions on the theory that compliance is "voluntary," then preemption disappears as a practical matter. By threatening to withhold building permits, contracts, access to ports, business licenses, etc., state and local governments could extract obedience to all sorts of policies that they could never demand unconditionally, such as requiring developers to enter into collective bargaining agreements as a condition for getting a zoning amendment.
Small wonder, then, that SCOTUS ducked the question of whether the Port of Los Angeles could require compliance with its trucking rules as a condition for obtaining access to its facilities. The presence of those "criminal sanctions" made it easy to reverse the Ninth Circuit without saying anything substantial about what sort of "coercive" power or purpose transforms a condition into an unstatutory condition.
Unfortunately, by ducking the issue, SCOTUS has not really provided any substantial guidance for lower courts or subnational governments. By resting its decision on the formal quality of the tariff as a criminal sanction, the Court has left open the possibility that the Port of Los Angeles could achieve precisely the same end that this decision ostensibly forbids by formally "de-criminalizing" its rules for access to their facilities. Suppose that the Port required (for instance) that shippers and stevedores post bonds from which a $500 "penalty" will be deducted (rather than a $500 "criminal fine") whenever the terminal operators use a placard-less truck. In such a case, would the Port be (in American Trucking Ass'n v. Port of LA's words) "act[ing] as a private party, contracting in a way that the owner of an ordinary commercial enterprise could mimic"? In one sense, obviously yes: Any owner of private property can always refuse to do business with a lessee or franchisee who refuses to abide by the former's rules. In another sense, obviously not, because private parties typically do not own ports as large as the port of Los Angeles.
Resting the decision on the fortuitous presence of a formal criminal sanction, in short, did nothing to provide anyone with any guidance. The opinion could be construed as inviting the circumvention described above or instead hinting at limits on the bargaining flexibility of port authorities that, in the end, could injure private port users seeking concessions. One almost wonders why they bothered to grant cert.
Posted by Rick Hills on June 14, 2013 at 03:34 AM | Permalink
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Rick, you've clearly thought this interesting question through more than I have, but my initial reaction is that the first horn of the dilemma you posit isn't so intractable. In the static case, I agree, Congress' preemption goal might be better served by allowing a regulated party to opt for disuniformity. But consider the dynamic case. Now local regulators have incentives to create hold-up opportunities for these private actors. Since it is unlikely Congress intends that, it should often be acceptable to read the preempting statute as not encompassing private opt-outs.
Also, there might be some cases in which there are externalities from private opt-outs, so that again Congress would more likely prefer to preempt.
Posted by: BDG | Jun 14, 2013 10:57:28 AM
Hi Brian! Yes, it is always possible to argue that, by barring the subnational government from offering to waive permissible rules in return for otherwise impermissible conditions, the law will diminish the subnational government's incentives to impose those permissible rules in the first place. Such a justification for barring "unstatutory conditions" requires some inquiry into whether the subnational government has independent incentives to impose those permissible rules, apart from the desire to use them as leverage to extract the conditions. For instance, one might want to know whether the Port of Los Angeles really might not expand the port facilities absent some limits on the pollution an parking problems caused by trucks.
The SCOTUS ignored any such inquiry in favor of its formalistic focus on a trivial criminal sanction. In this particular case, however, the evidence is overwhelming that the Port would not -- indeed, could not -- expand without such conditions. Neighbors' CEQRA lawsuits had shut expansion plans down for a decade. Barring the conditions, therefore, did not facilitate interstate commerce but stymied it: To avoid a minor burden of carrying a placard and parking off-street to spare neighbors' parking spaces, the truckers threatened the conditions necessary to generate public support for a port.
There is much to be said about how courts might police such unstatutory conditions (and, of course, I plan to say it this summer). But my brief point here is that SCOTUS entirely ignored these pressing and difficult issues in favor of an argument of overwhelming triviality about the formally "governmental" character of a minor fine. I understand that court watchers regard this sort of narrow holding thing as statesmanlike and prudent. I confess that it strikes me as dishonest and confusing -- the result of the sorry political economy of assembling a unanimous opinion.
Posted by: Rick Hills | Jun 14, 2013 12:04:55 PM