Opinion ID: 1058217
Heading Depth: 2
Heading Rank: 2

Heading: commerce clause challenge

Text: Having concluded that the Statute is not impermissibly vague as applied, I now turn to Volkswagen's remaining assignment of error: that the Court of Appeals erred by failing to hold that Code § 46.2-1569(7) violates the dormant Commerce Clause of the United States Constitution. The power vested in the Congress of the United States to regulate interstate commerce, see U.S. Const. art. I, § 8, cl. 3, has long been understood to restrict, but not entirely remove, the States' power to make laws governing matters of local concern which nevertheless in some measure affect interstate commerce or even, to some extent, regulate it. Southern Pac. Co. v. Arizona, 325 U.S. 761, 767, 65 S.Ct. 1515, 89 L.Ed. 1915 (1945) (citing Cooley v. Board of Wardens, 53 U.S. (12 How.) 299, 13 L.Ed. 996 (1851); Willson v. Black Bird Creek Marsh Co., 27 U.S. (2 Pet.) 245, 7 L.Ed. 412 (1829)); see also Healy v. Beer Inst., 491 U.S. 324, 335-36, 109 S.Ct. 2491, 105 L.Ed.2d 275 (1989) (noting the Constitution's special concern both with the maintenance of a national economic union unfettered by state-imposed limitations on interstate commerce and with the autonomy of the individual States within their respective spheres). However, under [t]he doctrine of the dormant Commerce Clause, [8] the States are prohibited from engaging in economic protectionism, Appalachian Voices v. State Corp. Comm'n, 277 Va. 509, 517, 675 S.E.2d 458, 461 (2009), i.e., `regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors.' Wyoming v. Oklahoma, 502 U.S. 437, 454, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992) (citation omitted). The dormant Commerce Clause thus prevents state taxes and regulatory measures impeding free private trade in the national marketplace, Reeves, Inc. v. Stake, 447 U.S. 429, 437, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1980), and protects markets and participants in markets. General Motors Corp. v. Tracy, 519 U.S. 278, 300, 117 S.Ct. 811, 136 L.Ed.2d 761 (1997). The United States Supreme Court has constructed a two-tiered approach for evaluating whether a state economic regulation conforms to the Commerce Clause's negative command. Healy, 491 U.S. at 337 n. 14, 109 S.Ct. 2491. The first tier is known as the discrimination tier, and the second tier is generally referred to as the undue burden tier. Yamaha Motor Corp. v. Jim's Motorcycle, Inc., 401 F.3d 560, 567 (4th Cir.2005). Because there is no clear line separating the category of state regulation subject to the discrimination test and the category subject to the undue burden test, Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476 U.S. 573, 579, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986), a state statute must satisfy the conditions of both tiers of analysis to withstand scrutiny. See C & A Carbone v. Town of Clarkstown, 511 U.S. 383, 390, 114 S.Ct. 1677, 128 L.Ed.2d 399 (1994); Tracy, 519 U.S. at 300 n. 12, 117 S.Ct. 811. Under either tier, or test, the burden to show a violation of the dormant Commerce Clause rests on the party challenging the validity of a state statute. See Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979); Baude v. Heath, 538 F.3d 608, 613 (7th Cir.2008). Under the discrimination test, a state statute is generally struck down without further inquiry, when the statute directly regulates or discriminates against interstate commerce,[] when its effect is to favor in-state economic interests over out-of-state interests, Brown-Forman, 476 U.S. at 579, 106 S.Ct. 2080, or when the practical effect of the regulation is to control conduct beyond the boundaries of the State, Healy, 491 U.S. at 336, 109 S.Ct. 2491. The discrimination test, therefore, applies a virtually per se rule of invalidity. Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978). However, a state statute that clearly discriminates against interstate commerce will not be struck down if the discrimination is `demonstrably justified by a valid factor unrelated to economic protectionism.' Wyoming, 502 U.S. at 454, 112 S.Ct. 789. In other words, once a state law is shown to discriminate against interstate commerce either on its face or in practical effect, the burden falls on the State to demonstrate both that the statute serves a legitimate local purpose, and that this purpose could not be served as well by available nondiscriminatory means. Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986) (quoting Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979)); accord Department of Revenue of Kentucky v. Davis, 553 U.S. 328, ___, 128 S.Ct. 1801, 1808, 170 L.Ed.2d 685 (2008). And, the practical effect of the challenged statute must not be considered in isolation but in conjunction with the legitimate regulatory regimes of other States and what effect would arise if not one, but many or every, State adopted similar legislation. Healy, 491 U.S. at 336, 109 S.Ct. 2491. [T]he Commerce Clause protects against inconsistent legislation arising from the projection of one state regulatory regime into the jurisdiction of another State. Id. at 336-37, 109 S.Ct. 2491. The prohibition against discrimination applies even where only a minimal portion of interstate commerce is discriminated against: The volume of commerce affected measures only the extent of the discrimination; it is of no relevance to the determination whether a State has discriminated against interstate commerce. Wyoming, 502 U.S. at 455, 112 S.Ct. 789. If a statute is found not to discriminate either on its face or in its practical effect, it must then be examined under the second tier, the undue burden test of Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970): Where the 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. If a legitimate local purpose is found, then the question becomes one of degree[;] 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 activities. Id. at 142, 90 S.Ct. 844 (internal citation omitted). A court must defer to the state legislative body when evaluating whether a statute has `a legitimate local purpose' and `putative local benefits,' but must more closely examine the statute's burdens. Yamaha, 401 F.3d at 569 (quoting Pike, 397 U.S. at 142, 90 S.Ct. 844). State laws frequently survive this Pike scrutiny. Davis, 553 U.S. at ___, 128 S.Ct. at 1808. Volkswagen does not contend that the Statute either facially discriminates against interstate commerce or favors in-state economic interests over out-of-state interests. Instead, Volkswagen asserts that the Statute is per se invalid because it has the practical effect of controlling commercial conduct outside the Commonwealth, and if other States adopted similar legislation, commercial gridlock would result. Alternatively, Volkswagen contends the Statute unduly burdens interstate commerce under the Pike test. Volkswagen argues that the Statute requires an automobile manufacturer or distributor to compare the number of vehicles shipped into Virginia with the number of vehicles imported nationally and that a distributor would violate the Statute if it decreased the number of vehicles shipped to Virginia without making similar changes nationally. In Volkswagen's words: [I]f the distributor desires to decrease the number of vehicles that it ships to its Virginia dealers, then it must decrease the number of vehicles that it imports nationally and, correspondingly, the number of vehicles that it ships to dealers located both in Virginia and in other states. Volkswagen maintains that, because the number of vehicles it imports into the United States annually is a fixed resource, complying with the Statute has the practical effect of forcing Volkswagen to alter its conduct in other states . . . to comply with the [Statute] by shipping vehicles to Virginia dealers that otherwise would have gone to dealers in other states. Contrary to Volkswagen's argument, the Statute does not require that Virginia dealers collectively receive a percentage of new vehicles equitably related to the total new vehicle[s] imported nationally. Instead, the Statute only requires that each individual dealer be allocated sufficient new vehicles of each make, series and model needed by the dealer to receive a percentage of total new vehicle sales . . . equitably related to the total new vehicles of such make, series and model imported nationally. Therefore, Volkswagen's claim that there must necessarily be a redistribution of vehicles across state lines to satisfy Code § 46.2-1569(7) does not follow. As the majority explains, Miller Auto, like the approximately 600 Volkswagen franchise dealers in the United States during the relevant period, obtained its stock of 1998 Passat and New Beetle vehicles, which were manufactured abroad, on the basis of Volkswagen's national allocation system. That system used a mathematical algorithm designed to determine where particular vehicles were most needed and most likely to be sold to the public. Miller Auto was located in a sales area that included Volkswagen dealers in Northern Virginia, Maryland, and the District of Columbia. [9] Seventeen Volkswagen dealers operated throughout Virginia during the period in question. Volkswagen of America, Inc. v. Smit, 266 Va. 444, 447, 587 S.E.2d 526, 528 (2003). At that time, a dealer could not place an order for a particular vehicle but received new vehicles solely pursuant to the allocation system. An area executive had discretion to adjust the algorithm's results for each dealer located within his/her particular geographic sales area depending on several factors, including local market conditions, the reported inventories of all dealers within the area, and the minimum stocking requirements of a dealer's franchise agreement. While the foregoing evidence suggests that allocations conceivably could be made across state lines, the evidence does not demonstrate, however, that Virginia's equitable relation requirement did or will require Volkswagen to adjust either its nationwide allocation of new vehicles to the regional sales area that includes Virginia dealers, or its area-wide allocation of automobiles within that sales area to the detriment of dealers in Maryland and the District of Columbia. The requirements of Code § 46.2-1569(7) do not direct the particulars of any manufacturer or distributor's vehicle allocation methodology. As the Court of Appeals noted, [n]othing in the [S]tatute . . . ties the number of vehicles allocated to dealers in Virginia to the number of vehicles allocated to dealers in other states[; n]or does the [S]tatute otherwise regulate the number of vehicles a distributor may allocate in any other state. Volkswagen of America, Inc. v. Smit, 52 Va.App. 751, 791, 667 S.E.2d 817, 837 (2008). Instead, the Statute only prohibits the failure to allocate sufficient vehicles needed by the dealer to receive a percentage of total new vehicle sales . . . equitably related to the total new vehicles imported nationally. Code § 46.2-1569(7). Volkswagen presented no evidence to support its assertion that the Statute mandat[es] that Volkswagen, and all other manufacturers design their systems of allocating vehicles among their dealers nationwide . . . to accommodate Virginia law. Moreover, Volkswagen did not prove that it and/or other distributors could not reallocate vehicles among Virginia dealers to comply with the Statute instead of reallocating across state lines, in this case, among Volkswagen dealers in Virginia, whether located in Miller Auto's sales area or another sales area in Virginia. Based on the record before the Court in this appeal, these two alternatives, intrastate or interstate reallocation, are equally probable, meaning Volkswagen failed to carry its burden to demonstrate that the Statute discriminates against interstate commerce. See Cherry Hill Vineyard, LLC v. Baldacci, 505 F.3d 28, 37 (1st Cir.2007) ([T]he mere fact that a statutory regime [may have] discriminatory potential is not enough to trigger strict scrutiny under the dormant commerce clause.); Kleinsmith v. Shurtleff, 571 F.3d 1033, 1040 (10th Cir.2009) ([T]he party claiming discrimination has the burden to put on evidence of a discriminatory effect on commerce that is `significantly probative, not merely colorable.') (quoting Alliance of Auto. Mfrs. v. Gwadosky, 430 F.3d 30, 40 (1st Cir.2005)). Without sufficient evidence to establish that the Statute necessarily requires interstate reallocation of vehicles to Virginia dealers, I am compelled to conclude that Code § 46.2-1569(7) does not have the practical effect of . . . control[ling commercial] conduct beyond the boundaries of the State. Healy, 491 U.S. at 336, 109 S.Ct. 2491. Furthermore, any regulation of intrastate allocation of vehicles that benefits and burdens solely intrastate dealers does not violate the dormant Commerce Clause. [10] See Grant's Dairy-Maine, LLC v. Commissioner of Maine Dep't of Agric., Food & Rural Res., 232 F.3d 8, 22 (1st Cir.2000) (The dormant Commerce Clause does not protect intrastate competition, but . . . safeguards interstate markets from discriminatory regulation.). Likewise, without evidence that the Statute has the practical effect of controlling interstate commerce, I cannot guess as to what effect would arise if not one, but many or every, State adopted similar legislation. Healy, 491 U.S. at 336, 109 S.Ct. 2491. Therefore, because Volkswagen had the burden to demonstrate that the Statute has the practical effect of controlling commercial conduct beyond the boundaries of Virginia and has not carried that burden, I reject Volkswagen's claim that the Statute violates the dormant Commerce Clause under the discrimination test. Cf. American Trucking Ass'ns v. Michigan Pub. Serv. Comm'n, 545 U.S. 429, 434-37, 125 S.Ct. 2419, 162 L.Ed.2d 407 (2005) (refusing to invalidate a tax challenged under the dormant Commerce Clause in part because the challenger failed to provide convincing evidence showing that the tax deters, or for that matter discriminates against, interstate activities); Kleinsmith, 571 F.3d at 1040-43 (rejecting a claim that a state statute has the practical effect of discriminating against interstate commerce because the party claiming discrimination failed to carry his burden of put[ting] on evidence of a discriminatory effect . . . that is `significantly probative, not merely colorable' and how the [statute had] alter[ed] the competitive balance between [in-state and out-of-state competitors]) (citation omitted); Cherry Hill Vineyard, 505 F.3d at 36 ([A] plaintiff bringing a dormant commerce clause challenge based exclusively on the allegedly discriminatory effect of a statutory scheme is required to submit some probative evidence of adverse impact.); Yamaha, 401 F.3d at 563, 568-69 (holding that a Virginia statute allowing any existing franchised dealer [of motorcycles] to protest the establishment of a new dealership for the same brand anywhere in the Commonwealth did not have the effect of discriminat[ing] against interstate commerce because the challenging franchisor did not produce any evidence that the statute's probable effect would be the reallocation of motorcycles to Virginia dealers to the detriment of out-of-state dealers). I now turn to the undue burden tier of analysis. However, the noted failure of Volkswagen to demonstrate that the Statute actually burdens interstate commerce, as opposed to intrastate commerce, prevents me from concluding that the burden imposed on such commerce is clearly excessive in relation to the putative local benefits. Pike, 397 U.S. at 142, 90 S.Ct. 844. It is impossible to tell whether a burden on interstate commerce is clearly excessive in relation to the putative local benefits without understanding the magnitude of both burdens and benefits. Exact figures are not essential (no more than estimates may be possible) and the evidence need not be in the record if it is subject to judicial notice, but it takes more than lawyers' talk to condemn a statute under Pike. . . . [W]hoever wants to upset the law bears the[] burden[]. Baude, 538 F.3d at 612-13 (internal citations omitted). My refusal to find an undue burden on interstate commerce is buttressed by the significance of the unchallenged, putative local benefits: the promot[ion of] the interest of the retail buyers of motor vehicles and [the] prevent[ion of] unfair methods of competition and unfair or deceptive acts or practices. Code § 46.2-1501. Thus, I cannot conclude that the Statute unduly burdens interstate commerce. See Kleinsmith, 571 F.3d at 1043-44 (having concluded in the prior section of this opinion that the challenger has failed to carry his burden of proving that the. . . statute is discriminatory in practical effect, we must reject the dormant Commerce Clause challenge, as the challenger has not produced evidence of any burden that the challenged law imposes on interstate commerce).