Using the Commerce Clause as a Defense to Suits Filed by the Government

Id. at 571-572 (citations omitted).

The Court reasoned that “Alabama does not have the power … to punish BMW for conduct that was lawful where it occurred and that had no impact on Alabama or its residents. Nor may Alabama impose sanctions on BMW in order to deter conduct that is lawful in other jurisdictions.” Id. at 572-573.

Similarly, several other seminal decisions have indicated that states (or local jurisdictions) cannot attempt to regulate conduct occurring outside their borders without violating the Commerce Clause.

For example, in Healy v. The Beer Institute, 491 U.S. 324 (1989), the Supreme Court struck down a Connecticut statute that had the effect of controlling liquor prices outside the state. Among other things, the Court in Healyrecognized that a long line of precedent has held that the “Commerce Clause … precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders, whether or not the commerce has effects within the State.” Id. at 336 (emphasis added). “[A] statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State’s authority and is invalid regardless of whether the statute’s extraterritorial reach was intended by the legislature,” wrote the Court. Id. By limiting each state to regulation of conduct solely within its borders, the “Commerce Clause protects against inconsistent legislation arising from the projection of one state regulatory regime into the jurisdiction of another State.” Id.at 337.

In Southern Pac. Co. v. State of Arizona, 325 U.S. 761 (1945), the Supreme Court struck down an Arizona regulation, adopted as a safety measure, that attempted to regulate conduct outside its boundaries. The Arizona regulation restricted the length of railroad trains and had the practical effect of establishing a maximum limitation on train lengths throughout the entire southwestern United States. As the Court observed:

If one state may regulate train lengths, so may all the others, and they need not prescribe the same maximum limitation. The practical effect of such regulation is to control train operations beyond the boundaries of the state.

Id. at 775.

These decisions and other precedents lay down a solid rule that a state may not attempt to control the activities of industries outside the state’s borders, even if this extraterritorial conduct has clear and direct effects within the state. See also Brown-Forman, 476 U.S. 573 (invalidating a state liquor law that affected liquor prices in other states); Edgar v. Mite Corp., 457 U.S. 624 (1982) (holding that a state anti-takeover statute was invalid as conflicting with the Commerce Clause).

This precedent has, for the most part, not been applied to the recent wave of multigovernmental suits discussed above. Yet, there is no apparent reason why these suits should not be evaluated in light of the dormant Commerce Clause. When one state, or a group of states banding together, bring litigation and a major objective of the litigation is the alteration or punishment of defendants’ practices throughout the nation, then arguably the plaintiff governments are violating the Commerce Clause by impermissibly interfering with interstate commerce.

Coordinated multigovernmental lawsuits against unpopular industries, such as tobacco, lead paint, and firearms, are just some examples of lawsuits which may exceed the limitations of the Commerce Clause by attempting to affect standards nationwide.

In the future, if this trend of state and local governmental lawsuits against target industries continues to grow, we should begin to see more of these cases analyzed under the Commerce Clause. As long as a few states or local governments attempt to establish, through litigation, standards of conduct applicable throughout the country, it will remain an issue to be addressed by the courts as to whether plaintiffs’ lawsuits are, in fact, proper exercises of state power.

Gregg A. Farley is a partner in the Los Angeles office of Brobeck Phleger & Harrison LLP, specializing in product liability and complex litigation. Telephone: (213) 489-4060.