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"This Constitution, and the Laws of the United States which shall be made in Pursuance thereof ... shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." Art. VI, Par. 2
There, in a nutshell, is preemption. State laws are "Contrary" to federal law when in conflict either with the constitution (preclusion) or with federal law (preemption).
State laws can conflict with federal law in several ways:
Express Preemption: Congress explicitly states its intent to foreclose state regulation
Implied Preemption: Congress is silent on the face of a law, as to preemption, but the nature of the law is such as to foreclose state regulation. Implied preemption comes in two flavors:
Conflict: 1) it is physically or logically impossible for the object of regulation to comply with both federal and state law simulteneously; 2) state law stands as an obstacle to the full accomplishment of congress' purpose.
Field: federal regulation has so dominanted a field as to "occupy it," leaving no room for supplemental state regulation.
But, finding either express or implied preemption doesn't end the analysis. The challenged state law must be within the scope of that preemption. Determining the preemptive scope of a federal law is often harder than answering the abstract question of whether congress has explicitly or implicitly preempted state law.
The framers crafted the privileges and immunities clause of article IV to help forge a single nation from quasi-autonomous states. It accomplishes this mission by prohibiting discrimination based on state citizenship in "the privileges of trade and commerce" and other "advantages resulting from citizenship." In this regard, it performs a similar function to that of the dormant commerce clause. The privileges and immunities clause might have been the principal vehicle for fusing a national economy were it not for its inapplicability to corporations and other business entities.
Despite its limited reach, the privileges and immunities clause often overlaps the dormant commerce clause. It is not uncommon for suits challenging economic protectionism to claim violation of both clauses. Still, the scope of review under the clauses is different. First, despite early efforts to ingrain substantive rights into the privileges and immunities clause, it is modernly understood to proclaim but a single principle: non-discrimination. Thus, unlike the commerce clause, the privileges and immunities clause does not provide normative protection for free trade or any other substantive right. A state may impose whatever burdens it likes under the clause, so long as it does so equally. Second, the clause's interdiction against discrimination is not absolute. A state can justify discrimination against nonresidents by establishing both "a 'substantial reason' for the difference in treatment" and a "substantial relationship" between the discrimination practiced and the state's objective. While the state's burden under this means-ends scrutiny is still heavy, it is less than the nearly per se invalidity of discriminatory statutes under the commerce clause.
In recent years, the privileges and immunities clause has emerged as an important tool for reviewing protectionist legislation that might be insulated from commerce clause scrutiny by the market participant doctrine. For instance, "local hire" requirements do not violate the commerce clause when the state is acting asemployer. Yet, they can, and often do, violate the privileges and immunities clause. In United Building & Construction Trades Council v. Mayor of Camden, Justice Rehnquist "declined to transfer mechanically" the market participant doctrine into the privileges and immunities clause. He stated that the clause's "concern with comity" and "interstate harmony" is compromised whether the state discriminates as market regulator or as market participant.
Perhaps one way to reconcile the dormant commerce clause with the P&I clause, is to abandon the "negative" side of the DCC entirely and to transfer its salient functions to the privileges and immunities clause. This would prevent states from discriminating against nonresidents, whether they undertook such action in a governmental or proprietary fashion, unless they could show a significant justification for differential treatment. Judicial enforcement of anti-discrimination principles, wherever they reside in the Constitution, should raise fewer federalism concerns. Indeed, if a single purpose could be ascribed to the evolution from Articles of Confederation to Constitution, it would be that of prohibiting unneighborly state relations. At the same time, balancing competing national and local interests would be left to Congress, the exact body endowed with the responsibility
[This entry is a synopsis of that excellent article, New-Age Federalism And The Market Participant Doctrine (Karl Manheim, 22 Ariz. St. L.J. 559 (1990)). Click here to read the full article.]
The Supreme Court announced the "market participant doctrine" on the same day as National League of Cities. The doctrine exempts from the commerce clause both discriminatory and burdensome state activity if the effect on commerce is the result of proprietary conduct. It "differentiates between a State's acting in its distinctive governmental capacity, and a State's acting in the more general capacity of a market participant; only the former is subject to the limitations of the negative Commerce Clause."
From an originalist perspective, declining to extend dormant commerce clause scrutiny to state proprietary functions might make sense. Few such market entries by states were known at the time the framers drafted the Constitution. It was state regulatory and taxing abuses that prompted the clause. Indeed, until recently, only interferences of this sort had been challenged under the clause. Thus, the Court has declared that state proprietary functions are not "the kind of action with which the Commerce Clause is concerned."
Yet, the principled basis for exemption must lie in the relationship of proprietary state activity to the Constitution and not in the quality of its interference with commerce. Once market participant immunity attaches, courts will allow even blatant state protectionism. Where a state functions in the market in the manner of a private trader, it is no more subject to the commerce clause's negative preemption than is the private party
Four related theories support proprietary immunity: (1) the supremacy clause only displaces inconsistent state laws, not other actions the state may undertake; (2) state proprietary activities are unlikely to impede commerce because they are subject to the same market forces as those of private parties; (3) states have a special interest in their own resources and the tax dollars used to generate and procure goods and services; and (4) considerations of federalism permit states greater latitude when spending public funds or structuring their business relationships. Although certain state choices should be entitled to deference, none of these theories fully supports immunity.
The sovereign/proprietary distinction that underlies the market participant doctrine is ill-suited to resolving the tensions of federalism. Although it helps to identify state interests, it does not provide a doctrinal basis for immunity. Nor does it justify blatant protectionism in most instances. The doctrine's absolutism was an effort to counter judicial insensitivity to valid state interests without threatening the legitimacy of judicial balancing. The Supreme Court's rejection of the sovereign/proprietary distinction in Garcia, in the context of interpreting tenth amendment limits on congressional power, strongly suggests that the distinction is not viable for other federalism purposes.
[For further commentary, see New-Age Federalism And The Market Participant Doctrine (Karl Manheim, 22 Ariz. St. L.J. 559 (1990))]