Opinion ID: 1796043
Heading Depth: 3
Heading Rank: 1

Heading: The Impact of Citizens Bank

Text: As noted in Citizens Bank, our decision in Sisters of the Visitation erred primarily in that it applied the substantial effect on interstate commerce test from United States v. Lopez, 514 U.S. 549, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995), to individual transactions to require that each transaction, regardless of its nature, would have to be shown to substantially affect interstate commerce before the FAA would be triggered. See Citizens Bank, 539 U.S. at 54-58, 123 S.Ct. at 2039-41. In Lopez, the Supreme Court declared that Congress's enactment of the Gun-Free School Zones Act of 1990, 18 U.S.C. § 922(q), exceeded Congress's power under the Commerce Clause of the United States Constitution. [1] The Gun-Free School Zones Act made it a federal offense for any individual knowingly to possess a firearm ... at a place that the individual knows, or has reasonable cause to believe, is a school zone. 18 U.S.C. § 922(q)(2)(A). In reaching its holding, the Court described the three broad categories of activity that Congress may regulate under the Commerce Clause: First, Congress may regulate the use of the channels of interstate commerce.... Second, Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the threat may come only from intrastate activities.... Finally, Congress' commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce, i.e., those activities that substantially affect interstate commerce.  Lopez, 514 U.S. at 558-59, 115 S.Ct. 1624 (emphasis added). Each of these categories relates to the power of Congress ... to enact statutes. Id. at 559, 115 S.Ct. 1624. With respect to the third category (i.e., the substantially affect test), the Lopez Court specifically identified two types of laws that it had upheld as regulations of activities that substantially affect interstate commerce: (1) `regulations of activities that arise out of or are connected with a commercial transaction, which viewed in the aggregate, substantially affects interstate commerce,' Lopez, 514 U.S. at 561, 115 S.Ct. 1624 (majority), and (2) regulations that include a jurisdictional element to ensure, `through case-by-case inquiry,' that each specific application of the regulation involves activity that in fact affects interstate commerce, id.  Brzonkala v. Virginia Polytechnic Inst. & State Univ., 169 F.3d 820, 831 (4th Cir. 1999), aff'd, United States v. Morrison, 529 U.S. 598, 120 S.Ct. 1740, 146 L.Ed.2d 658 (2000). The Lopez Court held that the Gun-Free School Zones Act was unconstitutional because (1) the Act was a criminal statute that had nothing to do with `commerce' or any sort of economic enterprise, and (2) the Act contain[ed] no jurisdictional element which would ensure, through case-by-case inquiry, that the firearm possession in question affects interstate commerce. [2] Lopez, 514 U.S. at 561, 115 S.Ct. 1624 (emphasis added). [3] Furthermore, the Lopez Court held that the aggregation principle first announced in Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942), could not be used to uphold the Gun-Free School Zones Act. The Court noted that the aggregation principle had not been applied to uphold statutes that did not regulate a commercial or economic transactions: [W]e have upheld a wide variety of congressional Acts regulating intrastate economic activity where we have concluded that the activity substantially affected interstate commerce. Examples include the regulation of intrastate coal mining[,] intrastate extortionate credit transactions, restaurants utilizing substantial interstate supplies, inns and hotels catering to interstate guests, and production and consumption of homegrown wheat. These examples are by no means exhaustive, but the pattern is clear. Where economic activity substantially affects interstate commerce, legislation regulating that activity will be sustained. Even Wickard [v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942)], which is perhaps the most far reaching example of Commerce Clause authority over intrastate activity, involved economic activity in a way that the possession of a gun in a school zone does not. Roscoe Filburn operated a small farm in Ohio, on which, in the year involved, he raised 23 acres of wheat. It was his practice to sow winter wheat in the fall, and after harvesting it in July to sell a portion of the crop, to feed part of it to poultry and livestock on the farm, to use some in making flour for home consumption, and to keep the remainder for seeding future crops. The Secretary of Agriculture assessed a penalty against him under the Agricultural Adjustment Act of 1938 because he harvested about 12 acres more wheat than his allotment under the Act permitted. The Act was designed to regulate the volume of wheat moving in interstate and foreign commerce in order to avoid surpluses and shortages, and concomitant fluctuation in wheat prices, which had previously obtained. The Court said, in an opinion sustaining the application of the Act to Filburn's activity: `One of the primary purposes of the Act in question was to increase the market price of wheat and to that end to limit the volume thereof that could affect the market. It can hardly be denied that a factor of such volume and variability as home-consumed wheat would have a substantial influence on price and market conditions. This may arise because being in marketable condition such wheat overhangs the market and, if induced by rising prices, tends to flow into the market and check price increases. But if we assume that it is never marketed, it supplies a need of the man who grew it which would otherwise be reflected by purchases in the open market. Home-grown wheat in this sense competes with wheat in commerce.' 317 U.S., at 128, 63 S.Ct., at 90-91. Section 922(q) [the Gun-Free School Zones Act] is a criminal statute that by its terms has nothing to do with `commerce' or any sort of economic enterprise, however broadly one might define those terms. Section 922(q) is not an essential part of a larger regulation of economic activity, in which the regulatory scheme could be undercut unless the intrastate activity were regulated. It cannot, therefore, be sustained under our cases upholding regulations of activities that arise out of or are connected with a commercial transaction, which viewed in the aggregate, substantially affects interstate commerce.  Lopez, 514 U.S. at 559-61, 115 S.Ct. 1624 (emphasis added; citations and footnote omitted). While the Court has not adopt[ed] a categorical rule against aggregating the effects of any noneconomic activity, the Court's opinion in Lopez strongly suggests that such a rule should be presumed, because thus far in our Nation's history our cases have upheld Commerce Clause regulation of intrastate activity only where that activity is economic in nature. Morrison, 529 U.S. at 613, 120 S.Ct. 1740. [4] See also id. at 611 n. 4, 120 S.Ct. 1740 ([I]n every case where we have sustained federal regulation under the aggregation principle in Wickard v. Filburn, 317 U.S. 111, 63 S.Ct. 82, 87 L.Ed. 122 (1942), the regulated activity was of an apparent commercial character.); id at 617, 120 S.Ct. 1740 (We ... reject the argument that Congress may regulate noneconomic, violent criminal conduct based solely on that conduct's aggregate effect on interstate commerce.); United States v. Ballinger, 312 F.3d 1264, 1270 (11th Cir.2002) (No aggregation of local effects is permissible to elevate a non-economic activity's insubstantial effect on interstate commerce into a substantial one in order to support federal jurisdiction.). But see United States v. Dascenzo, 152 F.3d 1300, 1303 (11th Cir.1998) (against constitutional challenge, criminal arson statute, 18 U.S.C. § 844(i), upheld using aggregation principle because the target property was used for commercial purposes). However, the Court in Lopez made it clear that where a statute regulates commercial or economic activity, broadly defined, the statute will be upheld against a constitutional challenge if the aggregate effect of such activity  viewed on a nationwide scale  substantially affects interstate commerce. Id. In situations `where a general regulatory statute bears a substantial relation to commerce,' it is crucial to note that `the de minimis character of individual instances arising under that statute is of no consequence.' Lopez, 514 U.S. at 558, 115 S.Ct. 1624 (emphasis omitted; quoting Maryland v. Wirtz, 392 U.S. 183, 197 n. 27, 88 S.Ct. 2017, 20 L.Ed.2d 1020 (1968)); see also Lopez, 514 U.S. at 556, 115 S.Ct. 1624 (The Wickard Court emphasized that although Filburn's own contribution to the demand for wheat may have been trivial by itself, that was not `enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial.' (quoting Wickard, 317 U.S. at 127-28, 63 S.Ct. 82)). It is with this point that Sisters of the Visitation primarily conflicts; under Lopez, an individual transaction need not substantially affect interstate commerce to come within the reach of a federal regulatory statute (except, perhaps, when that transaction is a noneconomic transaction [5] ). In fact, purely intrastate economic or commercial transactions can be within the reach of Congress if the `general practice' those transactions represent has, in the aggregate, a substantial effect on interstate commerce. Citizens Bank, 539 U.S. at 58, 123 S.Ct. at 2041. The Supreme Court has acknowledged that the FAA is a constitutional exercise of Congress's Commerce Clause power. See Southland Corp. v. Keating, 465 U.S. 1, 11, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (stating that the FAA rests on the authority of Congress to enact substantive rules under the Commerce Clause); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 405, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967) (stating that the FAA is based upon and confined to the incontestable federal foundations of `control over interstate commerce and over admiralty'). The FAA contains a jurisdictional element which would ensure, through case-by-case inquiry, Lopez, 514 U.S. at 561, 115 S.Ct. 1624, that whatever transaction is at issue affects interstate commerce: A written provision in any maritime transaction or a contract evidencing a transaction involving commerce [ [6] ] to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2 (emphasis added). [7] As stated above, economic or commercial transactions (such as, for example, the buying and selling of goods or services, contracting for employment, etc.), even one that is purely intrastate, is within the reach of the FAA if the `general practice' those transactions represent has, in the aggregate, a substantial effect on interstate commerce. Citizens Bank, 539 U.S. at 58, 123 S.Ct. at 2041. The impact of Citizens Bank is, therefore, to reorient our understanding of what manner of interstate commerce involvement is required to bring a contract within the reach of the FAA. In a very real sense, an argument that a transaction does not involve commerce under the FAA is actually an argument that Congress does not have the constitutional power under the Commerce Clause to reach and regulate that type of transaction. As the decisions of the United States Supreme Court have made clear, there are few, if any, economic or commercial transactions that are beyond the reach of Congress's commerce power. Furthermore, virtually every kind of industry, small or large, is currently regulated by some sort of federal statute enacted pursuant to Congress's commerce power. See, e.g., 29 U.S.C. §§ 201-19 (Fair Labor Standards Act of 1938); 29 U.S.C. §§ 651-78 (Occupational Safety and Health Act of 1970); 29 U.S.C. §§ 2601-2654 (Family Medical Leave Act of 2000); 42 U.S.C. §§ 2000e to 2000e-17 (Title VII of the Civil Rights Act of 1964, as amended). We recognize that the mere fact that Congress does claim regulatory power over a particular industry or type of transaction does not mean that Congress in fact has the authority to do so under the Commerce Clause. The Supreme Court has stated as much: [T]he existence of congressional findings is not sufficient, by itself, to sustain the constitutionality of Commerce Clause legislation. As we stated in Lopez, `[S]imply because Congress may conclude that a particular activity substantially affects interstate commerce does not necessarily make it so.' Rather, `[w]hether particular operations affect interstate commerce sufficiently to come under the constitutional power of Congress to regulate them is ultimately a judicial rather than a legislative question, and can be settled finally only by this Court.' Morrison, 529 U.S. at 614, 120 S.Ct. 1740. However, we also note that, since the establishment of what could be considered the modern (post-1936) interpretation of Congress's power under the Commerce Clause, the Supreme Court has not declared unconstitutional a single federal statute that regulated economic or commercial activity. [8] Given this background, and in light of the continued vitality of Wickard (which represents the outer limits of Congress's commerce power, see Lopez, 514 U.S. at 560, 115 S.Ct. 1624), it would be difficult indeed to give an example of an economic or commercial activity that one could, with any confidence, declare beyond the reach of Congress's power under the Commerce Clause, and, by extension, under the FAA. While there can be no per se rule that would preclude a trial court's role in evaluating whether a contract evidenc[es] a transaction involving commerce, [9] see Morrison, 529 U.S. at 614, 120 S.Ct. 1740, given the above, a trial court evaluating a contract connected to some economic or commercial activity would rarely, if ever, refuse to compel arbitration on the ground that the transactions lacked involvement in interstate commerce.