Opinion ID: 1129782
Heading Depth: 2
Heading Rank: 2

Heading: The Negative Commerce Clause

Text: By virtue of the Constitution's having vested the Congress of the United States with the power to regulate commerce among the states, U.S. Const., art. I, § 8, cl. 3, Transco argues via Assignment of Error No. 3 that the State of Mississippi is without authority to enforce Rule 48 as interpreted in Order No. 409-82 because it creates an impermissible burden on interstate commerce. Grammatically speaking, the Commerce Clause is an affirmative grant of power to the Congress. A century and a half of constitutional decisional jurisprudence, traceable to a dictum by Chief Justice Marshall in Gibbons v. Ogden, 22 U.S. (9 Wheat) 1, 209, 6 L.Ed. 23, 73 (1824), have established the legitimacy and reality of the negative Commerce Clause. Even in the absence of exercise by the Congress of its power to regulate commerce, the clause stands as a barrier to the enforcement by the states of laws, statutes or regulations which unreasonably discriminate in favor of in-state interests. The values undergirding the negative Commerce Clause were articulated by Justice Robert H. Jackson on H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 69 S.Ct. 657, 93 L.Ed. 865 (1949). Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation, that no home embargoes will withhold his export, and no foreign state will by customs duties or regulations exclude them. Likewise, every consumer may look to the free competition from every producing area in the Nation to protect him from exploitation by any.  336 U.S. at 539, 69 S.Ct. at 665, 93 L.Ed. at 875. The Commerce Clause is said to create a national common market. Individual business entities are free to operate commercially in any state where such operations are legal and may not be denied access to markets or resources based upon that choice. Conversely, a buyer's state of origin generally should not affect his access to goods produced anywhere in the country. The states are without authority to enforce laws imposing substantial burdens on such consumer. South-Central Timber and Development, Inc. v. Wunnicke, ___ U.S. ___, ___, 104 S.Ct. 2237, 2247, 81 L.Ed.2d 71, 76 (1984); Hughes v. Oklahoma, 441 U.S. 322, 326, 99 S.Ct. 1727, 1731, 60 L.Ed.2d 250, 255-56 (1979); H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 534-538, 69 S.Ct. 657, 663-64, 93 L.Ed. 865, 872-74 (1949); Cooley v. Board of Wardens, 53 U.S. (12 How.) 299, 319, 13 L.Ed. 996, 1004-05 (1851). Any regulation of a business enterprise engaged in interstate commerce has some effect on commerce among the states. This is undoubtedly so in the case of Rule 48 and Order No. 409-82. The question is not whether the state's regulations impose a burden on interstate commerce but whether the burden which is imposed is a constitutionally impermissible one. Just how much of a burden upon interstate commerce must be found before a state runs afoul of the negative Commerce Clause has been a subject of long debate and varying answers by the Supreme Court. This has particularly been so in the past decade or so as the Supreme Court has muddled its way along through the quagmire of a conceptually pleasing but practicably nightmarish (at least from the point of view of achieving rationally consistent results from case to case and thus affording the needed tools to states and citizens concerned with predictability) balancing of interests test first announced in Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970). In Pike the Supreme Court articulated what has become the contemporary formulation of the negative Commerce Clause as applied to a state's attempt to regulate interstate commerce. Although the criteria for determining the validity of state statutes [regulations, rules or orders] affecting interstate commerce have variously stated, the general rule that emerges can be phrased as follows: where the statute [regulation, rule or order] 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. [citation ommitted] If a legitimate local purpose is found, then the question becomes one of degree. And the extent of the burden that will be tolerated will of course depend on the nature of the local interest involved, and on whether it could be promoted as well with a lesser impact on interstate commerce.  397 U.S. at 142, 90 S.Ct. at 847, 25 L.Ed.2d at 178-79. We have been authoritatively instructed in this formulation of the negative Commerce Clause in Great Atlantic and Pacific Tea Co. v. Cottrell, 424 U.S. 366, 371-372, 96 S.Ct. 923, 928, 47 L.Ed.2d 55, 61 (1976). In that case the Supreme Court, reversing a decision of this Court, applied the balancing of interests test and invalidated a Mississippi restriction on the sale of milk as this state had sought to enforce it against a Louisiana milk producer. A review of the dozens of decisions since Pike v. Bruce Church , wherein the established formulation has been rotely recited, produces little in the way of doctrinal consistency or easily rationalized results. Just what is a legitimate public purpose and how much of one need exist before a state regulation will be sustained seems almost to depend on who is doing the looking and what that justice had for breakfast on the day of decision; the same with whether the inevitable burden on interstate commerce is only incidental or is clearly excessive. In the first years of litigation under the new balancing test, the Supreme Court seemed relatively easily satisfied that a burden was excessive and relatively hard to convince that the state did not have a nondiscriminatory alternative adequate to protect local interests. See Hughes v. Oklahoma, 441 U.S. 322, 339, 99 S.Ct. 1727, 1737-38, 60 L.Ed.2d 250, 263 (1979) (statute invalid that forbid export of minnows); Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 353, 97 S.Ct. 2434, 2446-47, 53 L.Ed.2d 383, 400-01 (1977) (statute invalid that mandated apples be ungraded); Great Atlantic and Pacific Tea Co. v. Cottrell, 424 U.S. at 377, 96 S.Ct. at 931-31, 47 L.Ed.2d at 64 (1976) (Mississippi statute invalid that prohibits importing milk from another state unless that state allows Mississippi milk to be imported). More recent cases give the states wider berth. See, e.g., Arkansas Electric Cooperative Corp. v. Arkansas Public Service Commission, 461 U.S. 375, 393-396, 103 S.Ct. 1905, 1917-18, 76 L.Ed.2d 1, 16-18 (1983) (state commission could govern wholesale electric rates); Minnesota v. Clover Leaf Creamery Co., 449 U.S. 456, 471-73, 101 S.Ct. 715, 727-29, 66 L.Ed.2d 659, 673-75 (1981) (state could ban sale of milk in plastic containers); Reeves, Inc. v. Stake, 447 U.S. 429, 443-47, 100 S.Ct. 2271, 2281-82, 65 L.Ed.2d 244, 255-57 (1980) (state could limit sale of state-owned cement to residents); Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 127-29, 98 S.Ct. 2207, 2214-15, 57 L.Ed.2d 91, 101-02 (1978) (state could mandate that oil producers not own retail outlets). The same permissive trend is also discernible in recent state taxation of interstate commerce cases, arguably decided via a different doctrinal formulation. See, e.g., Commonwealth Edison v. Montana, 453 U.S. 609, 624-29, 101 S.Ct. 2946, 2957-59, 69 L.Ed.2d 884, 898-902 (1981) (state could place exorbitant severance tax on coal); Complete Auto Transit Co. v. Brady, 430 U.S. 274, 288-89, 97 S.Ct. 1076, 1083-84, 51 L.Ed.2d 326, 336-37 (1977) (upholding a tax imposed by this state against an interstate trucking company for the privilege of doing business within this state). One concern arising from the ad hoc interpretation of the negative Commerce Clause is the authoritative effect of pre- Pike decisions. We express this concern in the context of Transco's insistence that one of the burdens upon interstate commerce created by the rule and order here in issue is increased prices to the consumer. Pre- Pike decisions, however, establish that increased prices or decreased supplies to consumers in other states do not necessarily render a state's regulation unconstitutional. Cities Service Gas Co. v. Peerless Oil and Gas Co., 340 U.S. 179, 186-87, 71 S.Ct. 215, 219-20, 95 L.Ed. 190, 202-03 (1950) (state could order pipeline to ratably take sellers gas at fixed price); Parker v. Brown, 317 U.S. 341, 368, 63 S.Ct. 307, 322, 87 L.Ed. 315, 335-36 (1943) (state could control raisin marketing); and Milk Control Board v. Eisenberg Farm Products, 306 U.S. 346, 352-353, 59 S.Ct. 528, 530-31, 83 L.Ed. 752, 756-57 (1939) (state could set minimum price paid to milk producers). With some temerity, we assume that the premise derived from these cases is still good law. In this context, Pike v. Bruce Church, Inc . directs that we proceed to a consideration of what legitimate local interests may be said to undergird and be promoted by Rule 48 and Order No. 409-82. Coastal, Getty and the other producers argue that conservation of an important natural resource and the prevention of waste are implicated. Without doubt, if this were so, such would be a legitimate local interest entitled to great weight and consideration in the Commerce Clause balancing test. It is difficult, however, for us to see how there is waste of natural resources when an interstate pipe line company refuses to take ratably or otherwise. Waste would seem to follow from taking too much, not too little. We are aware of the statutory definition of waste. Miss. Code Ann. § 53-1-3(k) (Supp. 1983). How our Legislature defines waste for purposes of the Mississippi Conservation Act, of course, is its prerogative. Compare Stong, Administratrix v. Freeman Truck Line, Inc., 456 So.2d 698, 709 (Miss. 1984); McLaurin v. Mississippi Employment Security Commission, 435 So.2d 1170, 1171-1172 (Miss. 1983). Its definition, of course, is in no way controlling for purposes of analysis under the Commerce Clause of the Constitution of the United States. The true and entirely legitimate local interest here implicated is fairness. Rule 48 is a rule of equity. The drainage phenomenon is a fact of life of natural gas production. Shell Oil Company v. James, 257 So.2d 488, 494-495 (Miss. 1971). The state through its Oil and Gas Board has acted in this and other ways to assure equity and fairness between and among the varying interests in a common source of supply. See Phillips Petroleum Co. v. Millette, 221 Miss. 1, 15-17, 72 So.2d 176, 179 (1954) (protection against loss through drainage required by fundamental notions of equity and justice). We regard fairness as among the more noble purposes of the state. It is a fundamental component of the idea of justice. Rawls, A Theory of Justice (1971). That we are concerned here with the distribution of material and highly valuable resources does not denigrate or render less noble the state's duty to assure fairness between all persons affected. A laudable feature of Rule 48 in the present context is that it applies to owners of interests in the common source of supply without reference to whether they be Mississippians. Getty is entitled to the same fair treatment as is Coastal as are the Fairchilds as is Tomlinson and as is Inexco and so forth. Transco argues that the principal burden upon interstate commerce resulting from Rule 48 and Order No. 409-82 is higher prices to the ultimate purchasers and consumers of natural gas. The argument is not persuasive. First, as indicated above, we believe the proposition well-established that higher prices to consumers in another state do not render a state's regulation of commerce impermissible per se under the negative Commerce Clause. Cities Service Company v. Peerless Oil and Gas Co., 340 U.S. 179, 186-87, 71 S.Ct. 215, 219-20, 95 L.Ed. 190, 202-03 (1950); Parker v. Brown, 317 U.S. 341, 368, 63 S.Ct. 307, 322, 87 L.Ed. 315, 335-36 (1943); Milk Control Board v. Eisenberg, 306 U.S. 346, 352-353, 59 S.Ct. 528, 530-31, 83 L.Ed. 752, 756-57 (1939). Second, the Congress has declared that all reasonable costs of production of natural gas shall be borne ultimately by the consumer. This is one of the fundamental policy determinations underlying the Natural Gas Policy Act of 1978. Indeed, it was assumed by Congress that prices to the consumer would increase. This was found preferable to the pre-existing price controls and regulatory policies of FERC under the pre-1978 Natural Gas Act. Thus, whether increased prices to consumers may be fairly characterized as an incidental burden upon interstate commerce, we find it persuasive that Congress within the scope of its power under the affirmative Commerce Clause has expressly authorized such increases. Transco further argues that there is a burden on interstate commerce emanating from Rule 48 in that compliance with Order No. 409-82 will require that more natural gas be taken from Mississippi and less from Louisiana and Texas. The quick answer is that Louisiana and Texas also have ratable take regulations in effect. [11] Furthermore, no evidence has been adduced which would lend credence to Transco's argument that Rule 48 impermissibly discriminates against natural gas production in Louisiana and Texas. The fundamental flaw in Transco's reasoning on the burden point is that it seems to be talking much more about a burden upon Transco than a burden upon interstate commerce. The burden upon Transco appears traceable to its contract with Getty, not to Rule 48. That contract is one Transco freely and voluntarily entered with Getty. It is hard to see how a ratable take rule or order could be said to generate an unreasonable burden on interstate commerce when the only thing requiring Transco (or any other interstate pipeline) to take at all, ratably or otherwise, is its own contract. Many important provisions of that contract reflect that the parties carefully considered future eventualities. The so-called take-or-pay provision obligating Transco to pay whether it takes the production made available by Getty is one such clause. Transco's problem is that it failed to protect itself against the market glut and declining prices consumers are willing to pay for natural gas. It is not now and never has been the function of this Court to relieve a party to a freely negotiated contract of the burdens of a provision which becomes more onerous than had originally been anticipated. Bunting v. Orendorf, 152 Miss. 327, 332, 120 So. 182, 183 (1929); Jemison v. McDaniel, 25 Miss. 83, 86 (1852); Gulf Oil Corp. v. Federal Power Commission, 563 F.2d 588, 598-600 (3d Cir.1977). Not only did Transco freely and voluntarily  and no doubt in anticipation of accomplishing its own advantage  enter into the contract with Getty in 1980, it did so against the backdrop of Rule 48. One Transco official admitted actual knowledge of Rule 48. In any event, an interstate pipeline such as Transco is chargeable with full knowledge of Rule 48 and any other applicable state regulations (or statutes, laws, etc.) existing at the time of contracting. The parties contract against the backdrop of regulation and ought generally be held to an implied incorporation of applicable regulations into the contract. Transco's argument that Rule 48 had never been enforced is lame indeed. Transco knew of the existence of the rule or was certainly charged with knowledge of its existence; the rule has been on the books since 1952. Despite the arguments made here, Transco was chargeable with knowledge that the states became entitled to play a greater role in regulation of the production of deregulated natural gas following enactment of the Natural Gas Policy Act in 1978. More fundamentally, Transco was certainly aware of the drainage problem inherent in natural gas production when there are two or more wells producing from a common source of supply, thus necessitating a rule something like Rule 48 to assure equity and fairness amongst the owners of the various interests in the common pool. Transco has the right to pass the costs it incurs in purchasing natural gas through to the consumer. 15 U.S.C., § 3431(c). In this sense, it is not Transco who experiences a burden, it is the consumer. If higher purchasing prices at the wellhead lead to higher prices to the consumer and a loss of markets, this is simply one inevitable consequence of the free market policies of the era of deregulation with respect to which Transco is vested by the negative Commerce Clause with no right to complain. A final point by Transco here is that the state had a less discriminatory alternative adequate to protect local interest, i.e., a ratable production order as distinguished from a ratable take order. To be sure, one inquiry under the Pike v. Bruce Church balancing test is whether there are available to a state less discriminatory alternatives adequate to protect the local interests implicated, and the Supreme Court has made it clear that this inquiry must be taken seriously. Hughes v. Oklahoma, 441 U.S. at 339, 99 S.Ct. at 1737, 60 L.Ed.2d at 263; Hunt v. Washington State Apple Advertising Commission, 432 U.S. at 353, 97 S.Ct. at 2446-47, 53 L.Ed.2d at 400-01; Great Atlantic and Pacific Tea Co. v. Cottrell, 424 U.S. at 377, 96 S.Ct. at 930-31, 47 L.Ed.2d at 64. The search for such alternatives, however, need not be made in connection with our Commerce Clause inquiry until it first be established that the regulation in question creates an unreasonable burden on commerce. This Transco has failed to do  for as explained above, the burdens are on Transco, not interstate pipe lines generally, because only Transco has, wittingly or unwittingly, bound itself to a long term, fixed price gas purchase contract. When that contract is taken out of the case, it is seen that the so-called burdens of Rule 48 disappear. The point is made crystal clear by Transco's present policy of insisting upon market-out provisions in its contract  provisions which allow the price Transco pays to the producer to fluctuate with market price to the consumer. If Transco had negotiated a market-out clause in its contract with Getty, these proceedings no doubt would not be before this Court today. In summary, we hold that the State of Mississippi via its Oil and Gas Board had the authority to promulgate and has the authority to enforce Statewide Rule 48. Nothing in Rule 48 or its interpretation in Order No. 409-82 contravenes the authority remaining vested in the State of Mississippi once its authority to regulate commerce has been effectively restricted by the negative Commerce Clause. Transco's Assignment of Error No. 3 is rejected.