Opinion ID: 212854
Heading Depth: 2
Heading Rank: 2

Heading: Dormant Commerce Clause Review

Text: The dormant Commerce Clause prohibits the states from imposing restrictions that benefit in-state economic interests at out-of-state interests' expense, thus reinforcing `the principle of the unitary national market.' Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd., 298 F.3d 201, 210 (3d Cir.2002) ( Cloverland I ) (quoting West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 192-93, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994)). [27] States cannot impede free market forces to shield in-state businesses from out-of-state competition, and, notably, state laws that discriminate against out-of-state businesses by forcing them to `surrender whatever competitive advantages they may possess' are especially suspect. Cloverland I, 298 F.3d at 210 (quoting Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 580, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986)). To decide that Delaware's permanent place of business requirement violates the dormant Commerce Clause, we must first assess whether the state regulation at issue discriminates against interstate commerce `either on its face or in practical effect.' Id. (quoting Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986)); see also Am. Trucking Ass'n, Inc. v. Whitman, 437 F.3d 313, 319 (3d Cir.2006) ([T]he level of scrutiny to be applied . . . is contingent upon whether the court finds that the statute or regulation is discriminatory). [28] Where a regulation discriminates against interstate commerce in favor of local business, such protectionism is per se invalid, save in a narrow class of cases in which the [State] can demonstrate, under rigorous scrutiny, that it has no other means to advance a legitimate local interest. Cloverland I, 298 F.3d at 211; see also Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd., 462 F.3d 249, 262 (3d Cir.2006) ( Cloverland II ) (Any statute that discriminates against interstate commerce on its face or in effect is thus subject to heightened scrutiny) (quotations and citation omitted). If, however, the state regulation is not discriminatory and regulates even-handedly with merely incidental burdens upon interstate commerce, it is subject to a balancing test whereby the statute must be upheld unless the burden imposed on interstate commerce is `clearly excessive in relation to the putative local benefits.' Cloverland I, 298 F.3d at 211 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970)); Davis, 553 U.S. at 339, 128 S.Ct. 1801 (same). Here, the District Court found Delaware's statutory scheme to be discriminatory on its face, and we are not persuaded otherwise. DDOL contends repeatedly throughout its briefing that the regulatory regime is not discriminatory since it applies to all program sponsors regardless of state residency. Yet the District Court correctly observed that the ATRR contain an express in-state presence requirement: a `registrant' sponsor must `regularly maintain[] a place of business in Delaware' that is not a site trailer, temporary structure, or post office box. Tri-M Group, 705 F.Supp.2d at 344 (quoting XX-XXXX-XXXX DEL. ADMIN. CODE § 3.1). Without establishing this in-state presence, an out-of-state contractor cannot become a registered sponsor of Delaware-registered apprentices, and is required to reimburse all employed apprentices at the higher mechanic's rate. See XX-XXXX-XXXX DEL. ADMIN. CODE §§ 6.2.6 & 6.2.7. As such, the regulations on their face restrict sponsor registrationand the concomitant lower wages pertaining theretoto in-state contractors or those possessing a permanent place of business in Delaware. This statutory scheme forces out-of-state contractors such as Tri-M to surrender whatever competitive advantages they may possess by burdening them with expenditures for a new local operation, or with the payment of increased wages on their contracts, thereby increasing their costs and decreasing their ability to submit competitive bids for projects. Our conclusion here is informed by the Supreme Court's reasoning in Granholm, which rejected a New York state law requiring out-of-state wineries to establish a branch factory, office, or storeroom in the state in order to ship wine directly to New York consumers. 544 U.S. at 470, 125 S.Ct. 1885. At the same time, in-state wineries received the same shipping privileges simply by applying for a license. Id. Finding that the extra step of establishing an office for out-of-state wineries [drove] up the cost of their wine, the Supreme Court found New York's in-state presence requirement discriminatory and applied heightened scrutiny, noting that such discrimination runs contrary to our admonition that States cannot require an out-of-state firm `to become a resident in order to compete on equal terms.' Id. at 474-75, 125 S.Ct. 1885 (quoting Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 72, 83 S.Ct. 1201, 10 L.Ed.2d 202 (1963)). Echoing this holding, we subsequently noted that statutes that increase out-of-state competitors' costs are subject to heightened scrutiny under the Commerce Clause. Am. Trucking, 437 F.3d at 322. The instant regulations explicitly treat in-state and out-of-state economic interests differently by compelling out-of-state contractors to become [] resident[s] in order to compete on equal terms. Granholm, 544 U.S. at 474-75, 125 S.Ct. 1885. Contrary to DDOL's misleading assertion that Tri-M voluntarily chose not to subject its apprenticeship program to DDOL oversight and regulation, Tri-M's purported choice in the matter would entail an assumption of costs not imposed upon in-state contractors. Accordingly, the regulations effectuate a protectionist bias against out-of-state contractors and are subject to heightened scrutiny. [29] Once the party challenging the statute meets its burden of showing discriminatory design or effect, the burden shifts to the State to demonstrate `1) that the statute serves a legitimate local interest, and 2) that this purpose could not be served as well by available non-discriminatory means.' Freeman v. Corzine, 629 F.3d 146, 158 (3d Cir.2010) (quoting Am. Trucking, 437 F.3d at 319). Moreover, the absence of evidence is dispositive, because `[t]he burden is on the State to show that the discrimination is demonstrably justified,' and we may `[u]phold state regulations that discriminate against interstate commerce only after finding, based on concrete record evidence, that a state's nondiscriminatory alternatives will prove unworkable.' Id. at 161 (quoting Granholm, 544 U.S. at 492-93, 125 S.Ct. 1885) (emphasis and alterations in original). DDOL contends that it has a legitimate interest in safeguarding the safety and welfare of all apprentices by requiring a permanent place of business in Delaware, and that it lacks the resources to effectively monitor out-of-state apprenticeship programs for compliance with the Delaware standards. Its position is belied, however, by the State's conduct in this case, as well as the evidentiary history of the regulations at issue. The evidence and testimony adduced by the parties demonstrated the retaliatory motivations underlying the amendment of the Delaware regulations in 1999 to include the permanent place of business requirement. Prior to that time, the disputed regulations contained no such residency condition, and Tri-M was a registered apprentice sponsor in Delaware. (App'x at A493-494.) As the District Court discussed, the State added the discriminatory residency requirement to the regulatory regime in response to similar legislative enactments by Pennsylvania and Maryland. Tri-M Group, 705 F.Supp.2d at 346. Rather than advancing the legitimate state interest in improving apprentice labor and wage conditions, this amendment primarily reflected an intransigent contest of wills over apprentice recognition between neighboring states. Id. Moreover, as the District Court concluded, the demonstrated existence of non-discriminatory alternatives for ensuring the safety and training of apprentices did not overcome the per se invalidity presumption applicable to discriminatory regulations. Tri-M's lack of a permanent place of business in Delaware did not prevent DDOL from conducting a thorough investigation to ensure Tri-M's compliance with the PWL and ATRR. See id. (In essence, defendant argues that the DDOL cannot take out-of-state companies at their word, but did exactly that with respect to its investigation of plaintiff.). Indeed, other than a few conclusory statements to that effect, DDOL advanced no evidence to support its contention that monitoring out-of-state contractors working on in-state public projects is any more difficult than for in-state contractors, much less that such oversight is unworkable, as Granholm requires. See 544 U.S. at 493, 125 S.Ct. 1885. Indeed, we find the record devoid of evidence to substantiate DDOL's assertion that it could not verify out-of-state work standards through postal or electronic transmission of certified payrolls, tax records, or other documentation as compared to a personal inspection of the apprentice's out-of-state work job site. See Tri-M Group, 705 F.Supp.2d at 346. The Commerce Clause cases demand more than mere speculation to support discrimination against out-of-state [interests]. Granholm, 544 U.S. at 492, 125 S.Ct. 1885. DDOL's vague and unsubstantiated justifications for the discriminatory regulations failed to clear this hurdle, and we can discern no evidence confirming that the permanent place of business requirement actually advances legitimate interests or that nondiscriminatory alternatives will prove unworkable. [30] See Freeman, 629 F.3d at 161. Accordingly, we conclude that the disputed regulations do not withstand heightened scrutiny and violate the dormant Commerce Clause.