National Pork Producers Does Not Sound Death Knell for Dormant Commerce Clause

Appearing to have turned its back on its own precedent and a developing body of lower-court case law, the U.S. Supreme Court, in National Pork Producers Council v. Ross, No. 21-468, 2023 WL 3356528, 598 U.S. —- (May 11, 2023), seems to have curtailed the scope and application of the dormant Commerce Clause.

Holding that a state law that has the practical effect of regulating commerce wholly outside of that state is not per se unconstitutional, the Court appears to have made it harder for businesses – including ones that rely on telephone calls and text messages for marketing purposes – to safely do business across the United States.

Upon closer review, however, the Court’s “fractured” opinion in National Pork Producers does not actually sound the death knell for dormant Commerce Clause challenges to such state laws. Indeed, concurring in part and dissenting in part, Chief Justice Roberts, writing for the majority of the Court on the relevant point, seems to have offered a roadmap forward for businesses wanting to challenge state laws with wholly extraterritorial effects.

The Dormant Commerce Clause

Article I, Section VIII of the U.S. Constitution, i.e., the Commerce Clause, provides that “Congress shall have Power … To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”

“‘Although the Clause is framed as a positive grant of power to Congress,’” Justice Alito explained in Tennessee Wine & Spirits Retailers Association v. Thomas, 139 S. Ct. 2449 (2019), the Supreme Court has “long held that this Clause also prohibits state laws that unduly restrict interstate commerce” (citations omitted).

Justice Alito continued: “This negative aspect of the Commerce Clause prevents the States from adopting protectionist measures and thus preserves a national market for goods and services. This interpretation, generally known as ‘the dormant Commerce Clause,’ has a long and complicated history” (internal quotations omitted) (citation omitted).

There are a number of ways that a state law may violate the dormant Commerce Clause. For example, as the Court explained in Healy v. Beer Institute, 491 U.S. 324 (1989), “a state law that has the ‘practical effect’ of regulating commerce occurring wholly outside that State’s borders is invalid under the Commerce Clause.”

State Laws Regulating Commerce Occurring Wholly Outside of the State’s Borders

Since the Court decided Healy in 1989, a number of lower courts have invalidated state laws that regulated commerce occurring wholly outside of the state’s borders. Indeed, the U.S. District Court for the Middle District of Tennessee, in McLemore v. Gumucio, 593 F. Supp. 3d 764 (M.D. Tenn. 2022), unequivocally stated that “[a] statute is a per se violation of the Dormant Commerce Clause … if it constitutes a direct regulation of interstate conduct (i.e., controls extraterritorial conduct).” That court, quoting Healy, continued: “This is because ‘a statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State’s authority.’”

Recently, for example, federal district courts have struck down certain state “anti-spoofing” laws. “Spoofing,” according to the U.S. Federal Communications Commission, “is when a caller deliberately falsifies the information transmitted to [a] caller ID display to disguise their identity.”

Last year, in United Resource Systems, Inc. v. Wilson, 614 F. Supp.3d 243 (D.S.C. 2022), for instance, the U.S. District Court for the District of South Carolina found that “despite any intention from the [South Carolina] legislature, the [South Carolina] Anti-Spoofing Statute effectively prohibits any manipulation of caller ID information on interstate calls. Accordingly, the [state’s] Anti-Spoofing statute is in violation of the Commerce Clause via prohibited extraterritorial legislation because it may regulate commerce located entirely out of state.”

Finding that North Dakota’s anti-spooking law violated the dormant Commerce Clause, the U.S. District Court for the District of North Dakota, in SpoofCard, LLC v. Burgum, 499 F. Supp.3d 647 (N.D. 2020), focused on certain issues created by the use of modern communications technology:

Plaintiffs correctly maintain determining the location of a spoofed call recipient is impossible due to call forwarding and portability of phone numbers. Calls to a landline may be forwarded to a mobile phone located anywhere in the United States. Mobile phones also pose a problem. A North Dakota resident may move to another state and bring their mobile phone with a 701-area code with them to their new state of residence. As such, at any given moment, it is impossible for the Plaintiffs to determine whether a 701-phone number is actually in North Dakota (footnote omitted) (citations omitted).

That court ultimately continued: “This places businesses like [the plaintiff] in a predicament. They either conduct their business for all calls (not just those to North Dakota area code numbers) to comply with North Dakota’s regulation or they cease spoofing altogether. Either way, these two scenarios are simply not permissible under the Commerce Clause.”

Similarly, finding that Mississippi’s anti-spoofing statute violated the dormant Commerce Clause, the U.S. District Court for the Southern District of Mississippi, in TelTech Systems, Inc. v. Barbour, 866 F. Supp.2d 571 (S.D. Miss. 2011), also focused on the unique challenges created by technological advancements in communications:

Plaintiffs herein submit that Mississippi’s Caller ID Anti–Spoofing Act violates the dormant Commerce Clause because it has the practical effect of regulating commerce that occurs wholly outside Mississippi. In this regard, plaintiffs note that whereas it was once easy to determine where telephone calls began and ended, that is no longer the case. Due to the tremendous growth of mobile phone usage and the fact that many cell customers have mobile numbers that are associated with an area code other than the one where they live, to the Federal Communication Commission’s imposition of mobile number portability (which permits a mobile customer which switches carriers to keep his existing phone number), to the introduction of IP-based services, including voice over internet protocol (VoIP) (which enables the delivery of voice communications over the Internet), and to the growth of call forwarding, it is impossible for a user or provider of caller ID spoofing service to know whether the recipient of their caller ID spoofing is in Mississippi. Consequently, to ensure they do not risk criminal liability for violating the Mississippi Act, they must refrain from all caller ID spoofing.

That court concluded: “The Mississippi statute indisputably and inevitably has a significant wholly extraterritorial effect and thus … violates the Commerce Clause.”

The Risk to National Marketing Efforts

Certain states have enacted laws that address in some way phone calls made and/or text messages sent to market a company’s products or goods (or for other purposes). At least certain of these statutes are written ostensibly to apply to recipients of the calls/messages who are physically present in the state, to that state’s residents, or at least to individuals with an area code associated with that state.

But, as both the U.S. District Court for the District of North Dakota and the U.S. District Court for the Southern District of Mississippi observed, it is no longer simple for anyone to discern – from a phone number or otherwise – where someone else is located. For example, someone who obtained their mobile phone number while attending college in Pittsburgh, may have a phone number with a 412-area code – even though that person moved home to New York after graduating years ago and has never set foot in Pennsylvania again.

Conversely, that individual with the 412-phone number may have grown up in Pittsburgh but moved to South Carolina years ago, someone who calls that person at that number, however, does not necessarily know that that individual now lives in the Palmetto State.

This type of uncertainty may create numerous challenges for an entity seeking to do business nationally. It is not necessarily possible to know what law applies to a particular call, message, or action. Therefore, to ensure that the caller/sender does not run afoul of any one state’s laws, it arguably must comply with the most demanding state’s laws, even if it does not intend to do any business in that state. Of course, state laws may not even be consistent.

National Pork Producers

National Pork Producers involved a dormant Commerce Clause “challenge to a California law known as Proposition 12[,]” which, in addition to imposing other requirements, “announced new standards for the in-state sale of pork and veal products.” In relevant part, “Proposition 12 forbid[] the in-state sale of whole pork meat that comes from breeding pigs (or their immediate offspring) that are ‘confined in a cruel manner.’”

Two organizations challenged Proposition 12 in court, arguing “that Proposition 12 violates the U.S. Constitution by impermissibly burdening interstate commerce.” They essentially argued that California’s new law operated extraterritorially, forcing out-of-state actors to comply with California law.

Affirming the U.S. Court of Appeals for the Ninth Circuit’s decision, the Supreme Court held that there was no violation of the dormant Commerce Clause.

Specifically, the Supreme Court rejected any suggestion that there was an “‘almost per se’ rule forbidding enforcement of state laws that have the ‘practical effect of controlling commerce outside the State,’ even when those laws do not purposely discriminate against out-of-state economic interests.”

While the outcome of National Pork Producers was, according to Justices Kavanaugh and Sotomayor, “fractured,” the Court did – according to Justice Gorsuch, who “announced the judgment of the Court and delivered the opinion of the Court, except as to Parts IV–B, IV–C, and IV–D” – “unanimously disavow[] petitioners’ ‘almost per se’ rule against laws with extraterritorial effects.”

The analysis does not end there, however.

Pike Balancing

While the Court, in National Pork Producers, did hold that there was no per se rule against state laws that have the practical effect of regulating commerce wholly outside of that state, it does not follow that any state law with wholly extraterritorial effect is constitutionally sound.

In Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), the Supreme Court held years ago that “[w]here [a] statute regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.”

Although Justice Gorsuch’s opinion in National Pork Producers can be read to gut Pike, his opinion in that regard is not the opinion of the Court. Justice Kavanaugh, concurring in part and dissenting in part in the decision, explained:

In today’s fractured decision, six Justices of this Court affirmatively retain the longstanding Pike balancing test for analyzing dormant Commerce Clause challenges to state economic regulations. Although Parts IV-B and IV-D of Justice GORSUCH’s opinion would essentially overrule the Pike balancing test, those subsections are not controlling precedent, as I understand it.

Justice Kavanaugh also wrote: “[O]n the question of whether to retain the Pike balancing test in cases like this one, THE CHIEF JUSTICE’s opinion reflects the majority view because six Justices agree to retain the Pike balancing test: THE CHIEF JUSTICE and Justices ALITO, SOTOMAYOR, KAGAN, KAVANAUGH, and JACKSON. On that legal issue, Justice GORSUCH’s opinion advances a minority view.”

Extraterritorial laws are still subject to Constitutional challenge. Indeed, Chief Justice Roberts explained in National Pork Producers that the Court has “found such sweeping extraterritorial effects, even if not considered a per se invalidation, to be pertinent in applying Pike.”

Chief Justice Roberts continued:

Justice GORSUCH asks what separates my approach from the per se extraterritoriality rule that I reject. It is the difference between mere cross-border effects and broad impact requiring, in this case, compliance even by producers who do not wish to sell in the regulated market. And even then, we only invalidate a regulation if that burden proves “clearly excessive in relation to the putative local benefits.” Adhering to that established approach in this case would not convert the inquiry into a per se rule against extraterritorial regulations (citations omitted).

As such, even though, in National Pork Producers, the Court has jettisoned the per se rule it first announced in Healy, state laws that regulate wholly extraterritorial conduct may still be challenged – and still found to be unconstitutional – under Pike and its progeny.

For assistance with potential dormant Commerce Clause challenges, or for more information about the dormant Commerce Clause, please contact Michael H. Sampson.

Michael H. Sampson is a Partner at Leech Tishman and a member of the firm’s Litigation Practice Group as well as the Data Privacy and Cybersecurity and Emerging Cyber Technologies Groups. Mike can be reached msampson@leechtishman.com or at 412.261.1600.

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