Regulation of commerce and the Supreme Court

Description: Control, through laws, licenses, and other means, of the buying and selling of goods and services of all kinds, the related transportation of goods, and business and employment practices.

Significance: The commerce clause, Article I, section 8, gives Congress plenary power to regulate commerce with foreign nations, among the states, and with the Indian tribes. The Supreme Court, in defining the boundaries of authority between the national and state governments, authorized Congress to regulate almost every aspect of business and the economy and to enact laws protecting the civil rights of citizens.

In the early 1800s, New York granted a monopoly to a steamboat operating in New York waters, which conflicted with a congressional coastal license given to another person operating in waters between New York and New Jersey. In Gibbons v. Ogden (1824), Chief Justice John Marshall, writing the majority opinion for the Supreme Court, enunciated the fundamental principles of the power of Congress to regulate commerce in the face of contrary state action. He held that commerce is intercourse between nations and parts of nations in all its branches and that Congress has plenary power to prescribe rules to carry out that intercourse. Navigation is part of commerce and the power of Congress to regulate such activity cannot stop at the state boundaries because the power to regulate “among the states” means intermingled with traffic in the interior of states. Nonetheless, Marshall ruled that commerce that is completely within a state is reserved for state regulation.

Absence of Federal Regulation

In Cooley v. Board of Wardens of the Port of Philadelphia(1852), the Court held that if Congress manifests a clear intent to leave the matter of commerce regulation to the states, it may do so. In subsequent decisions, the Court found that states might regulate commerce in the absence of congressional regulation if the regulation is wholly local and does not create uniform national standards. The rule in Cooley was supplemented with a balancing of interests test designed to ascertain whether litigated state regulation creates an undue burden on interstate commerce. Therefore, for example, in South Carolina State Highway Department v. Barnwell (1938), the Court found that a width and weight limitation on trucks driving through South Carolina was a reasonable safety limitation when balanced against the national interest in the free flow of interstate commerce. Interest balancing, however, does not automatically result in upholding the state regulation, as was the case for Arizona’s attempt to limit the length of freight trains traveling through that state in Southern Pacific Co. v. Arizona (1945).

The Court’s decision in Philadelphia v. New Jersey (1978) illustrates how the Court adjudicates a classic federalism issue caused by a modern problem. To protect the quality of the state environment, the New Jersey state legislature enacted a law prohibiting the importation of most solid or liquid wastes that originated or were collected outside the state. Though waste by definition seems valueless, the Court ruled that it is, nonetheless, commerce. It then determined that New Jersey was trying to burden out-of-state companies by slowing the filling of its landfills. The basic principle of federalism is that one state in its dealings with another may not place itself in a position of economic isolation. Earlier the Court had occasion in Edwards v. California (1941) to emphatically assert this same principle when California attempted to keep poor residents of other states from migrating to that state.

Penetration of Federal Regulation

The question of how far within the confines of state boundaries federal legislation may penetrate to regulate commerce is answered by two Court decisions during the first quarter of the twentieth century. In the first instance, the Interstate Commerce Commission responded to the discriminatory practices of a railway company in charging lower rates for intrastate shipments among east Texas locations than for interstate shipments over similar distances. The Court, in the Shreveport Rate Cases (1914), held that although the rate fixing was completely intrastate, Congress may regulate intrastate carriers in all matters that have a “close and substantial relation” to interstate commerce. In Stafford v. Wallace (1922), the Court decided that Congress could authorize the secretary of agriculture to regulate the business conducted in stockyards although cattle in stockyards are not in transit. Chief Justice William H. Taft concluded that “the stockyards are but a throat through which the current flows, and the transactions which occur therein are only incident to this current from the West to the East, and from one state to another.”

Although matters affecting transportation were found to be firmly within the regulatory power of Congress, the Court limited the power of Congress under the commerce clause by creating a sharp distinction between commerce and manufacturing. Chief Justice Melville W. Fuller, writing for a 8-1 majority in United States v. E. C. Knight Co. (1895), held that the Sherman Antitrust Act (1890) is not applicable to monopolies in manufacturing or production because they have only an incidental or indirect relationship to commerce. Consequently, as applied in this case, the Sherman Antitrust Act represents an intrusion into the reserve power of the states under the Tenth Amendment. The Court used similar reasoning to strike down congressional attempts to regulate child labor (Hammer v. Dagenhart, 1918), codes of fair competition (Schechter Poultry Corp. v. United States, 1935), wages and hours of workers in mining (Carter v. Carter Coal Co., 1936), and even agricultural subsidies, although not as a violation of the commerce clause (United States v. Butler, 1936). These and other Court decisions represented a serious threat to President Franklin D. Roosevelt’s New Deal. Consequently, the Court was subjected to considerable pressure that no doubt led to the alteration in the Court’s commerce clause interpretation.

By 1937, the Court changed its anti-federal government interpretations. The transition to a cooperative view of federalism as opposed to the dualistic and antagonist view of federal-state relations occurs with the 5-4 decision in National Labor Relations Board v. Jones and Laughlin Steel Corp. (1937). The Court found the act establishing the right of organized labor to bargain collectively was a valid regulation of commerce. Although labor-management relations are intrastate in character when they are considered separately, these relationships have a “close and substantial relation” to interstate commerce as part of the “stream of commerce.” Therefore, the Court discarded its previous direct-indirect decision rule. In subsequent decisions pertaining to maximum-hour and minimum-wage laws (United States v. Darby Lumber Co., 1941) and the regulation of farm acreage allotments (Wickard v. Filburn, 1942), the Court upheld the power of Congress to regulate commerce. Virtually any amount of economic activity in one place affects activity elsewhere, and consequently there seemed no limit to the power of the national government.

Civil Rights and Commerce

The Court opted to base its interpretation of the 1964 Civil Rights Act on the commerce clause alone and not on the more obvious equal protection clause and its enforcement provision found in the Fourteenth Amendment. The Court found an interstate commerce link in cases involving hotels because of their role in interstate travel (Heart of Atlanta Motel v. United States, 1964), service at restaurants because foodstuffs are shipped via interstate carriers (Katzenbach v. McClung, 1964), and a resort located many miles from an interstate highway because the private park leased equipment from an out-of-state supplier (Daniel v. Paul, 1969). Conceding that when Congress enacted the 1964 Civil Rights Act it may have been addressing a moral wrong, Justice Tom C. Clark in Heart of Atlanta concluded that the act is nonetheless constitutional. The congressional power extends to local activity in the states of both origin and destination when the activity in question has a substantial and harmful effect upon commerce. The only restriction of congressional power is that it must be “reasonably adapted to the end permitted by the Constitution.”

States’ Rights Reaction

Although a temporary setback for national power, Justice William H. Rehnquist’s majority opinion in National League of Cities v. Usery (1976) represented a stunning victory for state power. He held that when dealing with their own employees, cities need not abide by the minimum-wage and maximum-hour provisions of federal law. Rehnquist argued that the law impaired the integrity and ability of the states to perform their traditional government functions, thereby invading the Tenth Amendment power reserved to the states. Rehnquist effectively reversed the logic of a long line of cases beginning with Gibbons that held that if a federal law is within the congressional commerce power, then by definition there can be no violation of the Tenth Amendment. Ten years later, however, the Court specifically overruled its earlier 6-3 decision with a 5-4 majority in Garcia v. San Antonio Metropolitan Transit Authority (1985). Writing for the majority, Harry A. Blackmun expressed frustration with the Court’s inability to draw a workable line defining what is and what is not a traditional governmental function. He found that wage and working conditions have an impact on interstate commerce and therefore may be regulated by Congress.

In United States v. Lopez (1995), the conservative majority of the Rehnquist Court concluded that the Gun Free School Zones Act of 1990 violated the reserved power of the states because the statute was a criminal statute that had little to do with “commerce” or any type of economic activity. In his opinion, Rehnquist wrote that Congress may regulate the channels of interstate commerce; regulate and protect the instrumentalities of interstate commerce, even though the threat may come only from intrastate activities; and regulate those activities that substantially affect interstate commerce. He found that the law in question did not involve the channels or instrumentalities of interstate commerce and that the activity involved did not substantially affect interstate commerce. He rejected the view of the Justice Department and the four-member Court minority that a violent atmosphere in schools adversely affects the learning environment, which in turn ultimately substantially affects the economy. If the federal law against the carrying of weapons near and on school grounds was constitutionally permissible, then, Rehnquist stated, the Court could find no reason why Congress could not, for example, enact laws prescribing curriculum for local elementary and secondary schools.

Preemption, Native Americans, and Foreign Commerce

Much of contemporary commerce clause litigation involves the federal preemption doctrine. If a state law conflicts with a federal law, the national law supersedes it. The Court must determine whether Congress intended, either explicitly or implicitly, by its extensive regulation to take over a field such as nuclear power (Pacific Gas and Electric Co. v. State Energy Resources Conservation and Development Commission, 1983). The commerce clause is also the primary constitutional tool that Congress possesses when legislating in the field of Indian affairs. This is especially the case after 1871 when Congress declared that there would be no more treaties with Native Americans. Finally, the Court consistently held that the congressional right to regulate commerce with foreign nations is quite extensive (especially in the light of state attempts to tax foreign products) because it is important for the nation to speak with one voice. However, that voice is Congress and not the president (Barclays Bank v. Franchise Tax Board of California, 1994).

In the Twenty-First Century

In NFIB v. Sebelius (2012), the Supreme Court heard a Commerce Clause argument concerning the Affordable Care Act, which required individuals to purchase healthcare or pay a monthly fee. The court determined this was impermissible under the Commerce clause, but the mandate remained because the fee was classified as a tax.

Bibliography

Coenen, Dan. An up-to-date and comprehensive account of the topic. Constitutional Law: The Commerce Clause. Foundation Press, 2004.

"Commerce Clause." July 2022, Cornell Law School, www.law.cornell.edu/wex/commerce‗clause. Accessed 10 Apr. 2023.

Baxter, Maurice G. The Steamboat Monopoly: “Gibbons v. Ogden,” 1824. Alfred A. Knopf, 1972. Another excellent place to start. A good case study of Marshall’s seminal opinion and a useful history of the commerce clause in the pre-Civil War years.

Frankfurter, Felix. The Commerce Power Under Marshall, Taney, and Waite. University of North Carolina, 1937.

Corwin, Edward S. The Commerce Power Versus States Rights. Oxford UP, 1936. Competing Court interpretations of the commerce clause that preceded the conflict with the New Deal

Cortner, Richard C. The “Jones and Laughlin” Case. Alfred A. Knopf, 1970. Essential reading to understanding the history of the commerce clause.

Benson, Paul R. The Supreme Court and the Commerce Clause, 1937-70. Dunellen, 1970. Provides a good historical account for the period covered.

Merrill, Thomas W. “Toward a Principled Interpretation of the Commerce Clause,” Harvard Journal of Law and Public Policy, vol. 22, 1998, pp. 31-43. A modern conservative and restrictive view of the commerce clause.

Lauricella, Peter A. “The Real ‘Contract with America’: The Original Intent of the Tenth Amendment and the Commerce Clause,” Albany Law Review, vol. 60, 1997, pp. 1377-1408. A searching analysis of the modern conservative agenda with respect to federalism.