Covering the Front and Back Pages of the Newspaper
December 2, 2003
LAW: Gunning For Interstate Commerce
As I noted two weeks ago, the United States Court of Appeals for the Ninth Circuit ruled in Ileto v. Glock, Inc., No. 01-09762 (9th Cir. Nov. 20, 2003), an opinion written by Judge Richard Paez with a dissent from Judge Cynthia Holcomb Hall, that the alleged "oversupply" of guns by Glock and other gun makers -- including legal sales of guns in states with lax gun laws, allegedly with the knowledge that they would make their way to states with more restrictive gun laws, such as California -- could subject the gun manufacturers and distributors to liability under the common law of negligence and public nuisance in California. Now, I'm not a huge gun-rights guy, but this decision strikes me as an obvious affront to the limits of state power laid down by the Commerce Clause.
The case arises from the notorious shootings of several children and the murder of a postal worker in California as part of a shooting rampage by neo-Nazi Buford Furrow; the plaintiffs are the shooting victims and the mother of the postal worker. The plaintiffs allege, among other things, that by selling "more firearms than the legitimate market demands," the gun companies facilitate the creation of a secondary market in guns that enables purchases by people like Furrow, who should not have been able to buy guns due to a pending felony indictment and a prior commitment to a mental hospital. The Ninth Circuit stated that the complaint alleges that
Glock knows that by over-saturating the market with guns, the guns will go to the secondary markets that serve illegal gun purchasers.
(Slip opinion at 16444). Note that it is not alleged that any of Glock's sales are themselves illegal (as Eugene Volokh notes, the ATF "warnings" cited in the opinion refer to gun dealers whose licenses ATF had made no moves to revoke), nor that the secondary markets are illegal (see footnote 9 of the decision, at page 16449); only that the secondary market for guns has fewer safeguards, and that in the absence of those safeguards, sellers in the secondary markets have been known to sell guns to people like Furrow.
Significantly, the guns sold to Furrow had been sold by Glock and the other defendants in Washington state, leading to the most problematic part of the plaintiffs' theory:
Glock allegedly targets states like Washington, where the gun laws are less strict than in California, in order to increase sales to all buyers, including illegal purchasers, who will take their guns into neighboring California.
(Slip opinion, at 16458).
Under these circumstances -- sales of a non-defective product, legal where made, with at least an element of liability premised upon the tendency of the sales to lead to resales in a legal secondary market -- extending state common law liability to Glock's sales made outside California seems to me to transgress as many as three distinct constitutional limitations on state power:
1. The prohibition, arising principally from the Commerce Clause, on states enacting extraterritorial legislation that exports their own domestic public policy to legal commercial activities in other states;
2. The prohibition, also arising under the Commerce Clause, on state regulation on the means and instrumentalities of interstate commerce itself; and, possibly,
3. Washington State's right, under the Second Amendment, to regulate the rights of its citizens to bear arms so as to constitute a well-regulated militia.
Let's examine each of these in a bit of detail:
The Commerce Clause grants Congress the power "to regulate Commerce with foreign Nations, and among the several states, and with the Indian Tribes." Since Chief Justice John Marshall's 1824 opinion in Gibbons v. Ogden, 9 Wheat 1 (1824), the Supreme Court has generally recognized that the regulatory power granted to Congress carries with it implicit restrictions on the power of the states to enact regulations (including, as recognized in subsequent cases, common law causes of action that impose civil liability under state law) that would interfere with Congress' authority to regulate commerce on a uniform basis nationwide. In fact, as Justice Johnson noted in his concurring opinion in that case, the need to federalize regulation of interstate commerce was the immediate cause for the calling of the constitutional convention in 1787. While the idea of a "negative" or "dormant" Commerce Clause limitation on state power is controversial in some quarters -- Justice Thomas, in particular, has generally refused to recognize it, and other Justices have expressed misgivings about its application -- it remains well-settled constitutional law backed by centuries of precedent.
The extraterritoriality principle is one of the necessary corollaries of federalism, and applies specifically to interstate commerce: the Commerce Clause precludes a state from enacting legislation that has the practical effect of exporting that state's domestic policies by enacting legislation that compels companies doing interstate business to comply with a single state's law in all jurisdictions (although there is a generally recognized exception for corporation law that governs the internal governance of a corporation). As the Court held in last term's decision in State Farm Mut. Auto. Ins. Co. v. Campbell, "A State cannot punish a defendant for conduct that may have been lawful where it occurred." (I discuss this aspect of the State Farm decision at much greater length in my post on the opinion and its relationship to the broader theory of Federalism's Edge).
The history of the extraterritoriality principle in action can be traced back at least to Justice Cardozo's opinion in Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935), striking down a New York statute that barred sales in New York of milk purchased from producers in Vermont at prices below those required to be paid to milk producers in New York; Justice Cardozo observed that, as a basic proposition, "New York has no power to project its legislation into Vermont by regulating the price to be paid in that state for milk acquired there." Id. at 521.
The principle was expressly adopted in a series of cases in the 1980s, starting with the plurality in Edgar v. MITE Corp., 457 U.S. 624 (1982), dealing with the application of state anti-takeover statutes to corporations incorporated in other states, and culminating with Healy v. The Beer Institute, 491 U.S. 324 (1989), dealing with a Connecticut statute -- echoing the milk price support statute in Baldwin -- requiring that prices charged for beer in Connecticut be no higher than the prices charged by the same beer shippers in certain neighborning states. (The best description of the various theories of the dormant Commerce Clause cases on this and other points can actually be found in a district court opinion by Judge Loretta Preska, American Libraries Ass'n v. Pataki, 969 F. Supp. 160 (SDNY 1997)).
In recent years, the extraterritoriality principle has been applied to punitive damages as well, in BMW, Inc. v. Gore, 517 U.S. 559 (1996), and in State Farm. As the Court held in BMW, regarding an Alabama common law claim for fraud based on nondisclosure that BMW was selling cars that had been repainted:
[W]hile we do not doubt that Congress has ample authority to enact such a policy for the entire Nation, it is clear that no single State could do so, or even impose its own policy choice on neighboring States. . . . one State's power to impose burdens on the interstate market for automobiles is not only subordinate to the federal power over interstate commerce, . . .but is also constrained by the need to respect the interests of other States. . . . We think it follows from these principles of state sovereignty and comity that a State may not impose economic sanctions on violators of its laws with the intent of changing the tortfeasors' lawful conduct in other States. . . by attempting to alter BMW's nationwide policy, Alabama would be infringing on the policy choices of other States. . . . 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.
The Court in State Farm added,
A basic principle of federalism is that each State may make its own reasoned judgment about what conduct is permitted or proscribed within its borders, and each State alone can determine what measure of punishment, if any, to impose on a defendant who acts within its jurisdiction.
(emphasis added). In Ileto, the violation of the extraterritoriality principle is fairly straightforward; California seeks to impose civil liability on companies that make lawful sales of non-defective guns in Washington State, simply because those sales conflict with the public policy of California (as announced by two federal judges). It is apparent that this "oversupply" theory -- in which the effect on the Washington market is not incidental but is the entire point of the suit -- is intended to have, and will have, the effect of exporting California law to govern sales in other states. The Commerce Clause does not permit this.
Unfortunately, the Ileto court gave short shrift to this argument. First, the court disregarded BMW by noting that the plaintiffs in Ileto were not seeking punitive damages. Then, effectively ignoring the entire thrust of the claim, the majority asserted that
[T]he economic "regulation" that defendants allege is most accurately construed as a form of regulation that has only indirect effects on interstate commerce and regulates evenhandedly . . . [Accordingly,] we must examine whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits.
(Slip op. at 16481) (quotation omitted). This statement of the law is plainly incomplete; it is true that the Commerce Clause cases have often spoken of undue burdens, but Ileto seeks to read out of the cases the prohibition on extraterritorial legislation, which is often treated as a separate, per se violation of the Commerce Clause. Having stacked the deck, the majority then dismisses out of hand the idea that Washington could have any interests worthy of being offset against California's interest in projecting its own policies beyond its borders:
Here, the state's interest in protecting the health and safety of its residents is clearly legitimate, and whatever indirect burden an award of damages might have on defendants, it does not approximate the public's interest in protecting the health and safety of California's citizens.
(Id. at 16482)(emphasis added).
2. Direct Regulation of Interstate Commerce
A second strain of jurisdprudence under the Commerce Clause -- also entirely ignored by the majority in Ileto -- is the longstanding ban on state regulation of the instrumentalities of interstate commerce themselves. This rule has generally been applied to state regulation of such things as railroads, truck lengths, and the Internet. Here, what we have is regulation of an interstate secondary market for guns -- but more than that, because what California seeks to regulate is not simply sales within an interstate market but the interstate movement of firearms itself. Moreover, gun manufacturers would be subject to inconsistent regulation -- the sales at issue occur outside of California, and thus would be subject to the law of the state where the sale is plus the law of any state adopting a theory such as the one adopted. This places companies operating in multiple jurisdictions in the impossible position of having to ascertain their compliance with California law no matter where they be, and possibly with numerous different or conflicting laws regardless of what state they do business in. This is, again, precisely the type of crazy quilt of battling state rules that the Commerce Clause was designed to avoid by placing the authority for national legislation with Congress.
3. The Second Amendment
My third objection to the Ileto decision is somewhat more novel, and as I will freely admit to not being an expert on the Second Amendment or schooled in the caselaw and history of that amendment, I invite comments. But here it goes:
The Second Amendment provides:
"A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed."
The term "Militia," in turn, has a fixed historical meaning, and one that resonates today in an era when the greatest military threats come not from armies but from terrorists against whom the only line of defense may be ordinary citizens:
[T]he Militia comprised all males physically capable of acting in concert for the common defense. 'A body of citizens enrolled for military discipline.' And further, . . . ordinarily when called for service these men were expected to appear bearing arms supplied by themselves and of the kind in common use at the time.
United States v. Miller, 307 U.S. 174, 179 (1939). Now, there remains intense controversy over whether the Second Amendment protects an individual's right to bear arms, or only a collective right of the individual States to have a well-regulated militia. That debate is mostly irrelevant here (although I will leave aside the question of whether a gun manufacturer would have standing to challenge the Ileto decision on the Second Amendment grounds I propose), because it would seem obvious that, at a minimum, the Second Amendment protects the rights of individual states to ensure that their citizens can bear arms. In other words, if Washington has gun laws that permit legal gun purchases in certain circumstances, that permission isn't just an ordinary part of the state's economic regulations; it's a decision that at least implicitly (and in some states, I am sure, explicitly) touches on the state's policy regarding the role of individual citizens in the common defense. As such, the decision of a California court to render legal sales in Washington unlawful under California law is an infringement on Washington's ability to set its own policy with regard to its own citizens' right to bear arms.
While I'm not aware of any cases that deal with this question, the Supreme Court has recognized a similar argument in reconciling the dormant Commerce Clause with the Twenty-First Amendment, which repealed Prohibition but left intact the authority of states to regulate the sale of alcohol within their borders. In Brown-Forman Distillers v. N. Y. Liquor Authority, 476 U.S. 573 (1986), the Court struck down a New York statute that effectively provided that companies selling liquor in New York could not charge higher prices than they charges for the same beverages in other states. The Court first found that this regulation violated the Commerce Clause by violating its extraterritoriality principle (by its effect on prices in other states) as well as by preferring New York consumers over consumers in other states. The Court also rejected the argument that New York's conduct was immunized from Commerce Clause scrutiny by the unique state role in regulating alcohol under the Twenty-First Amendment, but it then went further to find additional support in that Amendment for limits on New York's regulatory power in the area of booze:
New York's affirmation law may interfere with the ability of other States to exercise their own authority under the Twenty-first Amendment. Once a distiller has posted prices in New York, it is not free to lower them in another State, even in response to a regulatory directive by that State, without risking forfeiture of its license in New York. New York law, therefore, may force other States either to abandon regulatory goals or to deprive their citizens of the opportunity to purchase brands of liquor that are sold in New York.
Here, similarly, the Ileto panel majority's rule interferes with other states' ability to exercise their own authority over sales of firearms within their borders, even to their own citizens. That provides additional support for finding the decision to violate the federal Constitution.
Finally, a jurisdictional oddity in the Ileto decision. As any lawyer knows, federal courts have, in general, only two sources of jurisdiction: jurisdiction over cases that arise under federal law (such as claims brought under a federal statute), and jurisdiction premised on the citizenship of the parties (generally between citizens of one state and citizens of other states). Ileto doesn't seem to fit either one: the claims were brought under state law, and several plaintiffs and at least one corporate defendant are citizens of California. So why is this case in federal court? Well, according to the opinion, one of the defendants, China North Industries Group (Norinco), is a state-owned enterprise of the Chinese government, and as such is entitled to have all claims against it (or all claims against anyone else in the same lawsuit) heard in federal court under the Foreign Sovereign Immunities Act. Thus, the irony: a radical departure in state law is issued by two federal judges who have the case solely due to a statute designed to protect the interests of America's relations with foreign countries. (Whether Norinco is now expected to comply with California law in all its worldwide operations was left unanswered).