Opinion ID: 24822
Heading Depth: 3
Heading Rank: 1

Heading: The Cardinal Towing Decision

Text: 29 In Cardinal Towing, this court applied the municipal- proprietor exemption (also known as the market-participant exemption) to the preemptive language of 49 U.S.C. § 14501(c)(1). See 180 F.3d at 694-95. We need not reiterate the careful analysis of this doctrine set forth by the Cardinal Towing court, see id. at 691-95, except insofar as to emphasize the primary legal conclusions necessary to our decision. 30 First, the Cardinal Towing court recognized that preemption policies apply only to state regulation and not to actions that the state takes in its proprietary capacity. See id. at 691 (The law has traditionally recognized a distinction between regulation and actions a state takes in a proprietary capacity - that is to say, actions taken to serve the government's own needs rather than those of society as a whole.); see also Bldg. & Constr. Trades Council v. Assoc. Builders & Contractors of Mass./R.I., Inc., 507 U.S. 218, 227 (1993) (recognizing, in National Labor Relations Act cases, that [o]ur decisions . . . support the distinction between government as regulator and government as proprietor); cf. Wis. Dep't of Indus. Labor & Human Relations v. Gould, Inc., 475 U.S. 282, 289 (1986) (holding, in the Commerce Clause arena, that attempt to use spending power in a manner tantamount to regulation is subject to federal preemption); Petrey, 246 F.3d at 558; Tocher, 219 F.3d at 1049-50. 31 Second, the Cardinal Towing court determined that this distinction between a state acting in its regulatory capacity in contrast to its proprietary capacity is most readily apparent when the government purchases the goods and services that its operations require in the open market. See Cardinal Towing, 180 F.3d at 691, 692 (Most government contracting decisions do not constitute concealed attempts to regulate . . . [because i]n order to function, government entities must have some dealings with the market.). The court cautioned that while the government can exert substantial leverage through its spending power and while this power may create a temptation to take advantage of these interactions to pursue policy goals, id. at 692, that at the same time, the fact of government involvement cannot be assumed to be motivated by a regulatory impulse. Id. 32 Third, the court applied a two-part analysis to aid in distinguishing between proprietary action that is immune from preemption and impermissible attempts to regulate through the spending power. Id. at 693. The court suggested asking two questions to evaluate the government action: 33 First, does the challenged action essentially reflect the entity's own interest in its efficient procurement of needed goods and services, as measured by comparison with the typical behavior of private parties in similar circumstances? Second, does the narrow scope of the challenged action defeat an inference that its primary goal was to encourage a general policy rather than address a specific proprietary problem? 34 Id. The court explained that [b]oth questions seek to isolate a class of government interactions with the market that are so narrowly focused, and so in keeping with the ordinary behavior of private parties, that a regulatory impulse can be safely ruled out. Id. 35 Finally, the court applied this two-part analysis to the nonconsent towing ordinance at issue, and held that Bedford's action of contracting with a single towing service for nonconsent tows was a proprietary action and, therefore, not preempted by federal law. See id. at 697 ([T]he City's actions here did not constitute regulation or have the force and effect of law. Accordingly, they are not preempted by section 14501(c).). 36 As to the first question, whether Bedford acted in its own interest in obtaining services comparable to a private entity in similar circumstances, the Cardinal Towing court recognized that because the ordinance involved only true nonconsent tows where the owner of the vehicle was unwilling or unable to specify a towing company, id. at 694, Bedford was purchasing services from the market in place of the consumer. In this situation, the owner of the vehicle will by necessity be unable to choose a towing company and the only party that can make the type of merit selection inherent in market transactions is the party ordering the tow, namely the City of Bedford. See id. at 695. Because Bedford was purchasing towing services for an incapacitated or unwilling individual, it was in no different position than any other private actor. Thus, the court recognized that the need to purchase towing services in the nonconsent situation was not motivated by a regulatory impulse, but instead was motivated by the need for a service to be performed: 37 [N]onconsensual tows do not involve any opportunity for market interaction on the part of the owner of the vehicle. The real decision is made by the party who ordered the tow, who chooses both to remove the vehicle and the party to perform the service. And whether the ordering party is the City or a private property owner, it seeks out this service in the pursuit of its own interests. 38 Id. at 696. 39 Regarding the second question, the Cardinal Towing court recognized that because the scope of the ordinance was narrow, focused on a single contract covering only a portion of the towing services market, the primary goal of the ordinance was to address a specific problem and not to encourage a general policy. The court distinguished situations involving licensing schemes and ordinances that affect industries as a whole, see id. at 693 n.2. (citing Harris County Wrecker Owners for Equal Opportunity v. City of Houston, 943 F. Supp. 711, 726 (S.D. Tex. 1996)), and held that the limited scope here decisively forecloses an inference that the City sought to change the tow truck industry as a whole, let alone influence society at large. Id. at 694. 40