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[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))]
Posted by The Professor at April 10, 2006 10:44 AM | TrackBack