commerce clause

We Need Regulators, Not Interveners

by Ryan Young on June 22, 2011

in Deregulate to Stimulate, Regulation

The Constitution’s Commerce Clause gives Congress the power to regulate commerce. What does that mean, exactly? Over at the Daily Caller, my colleague Jacque Otto explain that regulation is about making commerce regular: no barriers to entry or trade, clear, understandable, and consistent rules, and so on.

Most of what people call regulation doesn’t have anything to with regular commerce. These kinds of rules are more accurately called interventions.

These interventions didn’t appear out of thin air, either:

One important reason regulators intervene is that many businesses want them to — businesses spend considerable effort and resources lobbying Washington to that end. For the most part, American companies compete on quality, price, or other consumer preferences. But on too many occasions, some companies try to use regulatory interventions to dispatch the competition. Sprint’s efforts to squander AT&T’s proposed purchase of T-Mobile are emblematic of this troubling trend.

Lessons abound for antitrust regulators — sorry, interveners.

Ruling Striking Down Health Care Law Was Not “Judicial Activism”

by Hans Bader on February 3, 2011 · 2 comments

in Economy, Healthcare, Legal, Regulation

On Monday, a federal judge in Florida struck down Obamacare as unconstitutional. Judge Vinson concluded that the law’s cornerstone — a requirement that individuals buy health insurance — exceeded Congress’s power under the Interstate Commerce Clause, and Supreme Court rulings such as United States v. Morrison that limit that power to the regulation of “economic activities,” not inactivity like refusals to buy a product. He struck down the entire law, not just the individual mandate. He did this for two reasons. First, the law lacked a severability clause (a clause declaring that any unconstitutional provision should be severed from the law rather than striking down the law as a whole), even though such clauses are typically found in federal laws. Second, the individual mandate couldn’t logically be severed from the rest of the law, since Congress deemed it essential to the law’s overarching goals, and it was intertwined with the law’s other provisions.

Liberal commentators are up in arms about the decision in Florida v. HHS, to the point of hurling angry falsehoods about it. Writing in the Washington Post, Ezra Klein even claimed that the judge admitted his own ruling was wrong: “Vinson concedes that his position is activist in the extreme and a break from the court’s usual preference for limited rulings. . .”

The judge admitted nothing of the kind. As as a prominent lawyer notes, “Klein just made that up.”

There is nothing unprecedented about striking down an entire law that contains an unconstitutional provision, even when the law — unlike Obamacare — contains a severability clause designed to prevent that from happening.  (Here are some rulings in which courts, including the Supreme Court, did just that: See, e.g., Thornburgh v. American College of Obstetricians & Gynecologists, 476 U.S. 747, 764–65 (1986); Carter v. Carter Coal Co., 298 U.S. 238 (1936); American Booksellers v. Hudnut, 771 F.2d 323, 332 (7th Cir. 1985), aff’d, 475 U.S. 1001 (1986); EEOC v. CBS, 743 F.2d 969, 973 (2d Cir. 1984); and Hotel Employees v. Davis, 981 P.2d 990, 1010 (Cal. 1999).)

And Obamacare lacked a severability clause, which was an additional reason to strike down the whole law. Klein ignored the fact that “the Democrats omitted a severability clause from the health care reform statute” for a reason. Judge Vinson pointed out the importance of the absence of such a provision:

The lack of a severability clause in this case is significant because one had been included in an earlier version of the Act, but it was removed in the bill that subsequently became law.  . . . the severability clause was intentionally left out of the Act. The absence of a severability clause is further significant because the individual mandate was controversial all during the progress of the legislation and Congress was undoubtedly well aware that legal challenges were coming. . . even before the Act became law, several states had passed statutes declaring the individual mandate unconstitutional and purporting to exempt their residents from it; and Congress’ own attorneys in the CRS had basically advised that the challenges might well have legal merit as it was “unclear” if the individual mandate had “solid constitutional foundation.” . . . In light of the foregoing, Congress’ failure to include a severability clause in the Act (or, more accurately, its decision to not include one that had been included earlier) can be viewed as strong evidence that Congress recognized the Act could not operate as intended without the individual mandate.

As Judge Vinson observed, the government’s own lawyers admitted that the statute’s entire scheme of insurance regulation would fall without the individual mandate, cutting against severability:

Moreover, the defendants have conceded that the Act’s health insurance reforms cannot survive without the individual mandate, which is extremely significant because the various insurance provisions, in turn, are the very heart of the Act itself.

Earlier, a judge in Virginia declared Obamacare’s individual mandate unconstitutional, but declined to strike down the rest of the law, in Virginia v. Sebelius.

As I noted in discussing the Virginia ruling in The Washington Examiner: “To justify preserving the rest of the law, the judge” in the Virginia case “cited a 2010 Supreme Court ruling,”Free Enterprise Fund v. PCAOB, “that invalidated part of a law — but kept the rest of it in force. But that case involved a law passed almost unanimously by Congress, which would have passed it even without the challenged provision. Obamacare is totally different. It was barely passed by a divided Congress, but only as a package. Supporters admitted that the unconstitutional part of it — the insurance mandate — was the law’s heart. . .” In short, Obamacare’s individual mandate is not “volitionally severable,” as case law requires.

Moreover, the individual mandate is not the only provision in Obamacare that violates the Constitution (although it was the only violation found by Judge Vinson). In my amicus brief in the Florida case for Governors Tim Pawlenty and Donald L. Carcieri, I explained how Obamacare’s Medicaid impositions violate the Tenth Amendment by ignoring constraints on Congress’s power under the Spending Clause (a so-called Pennhurst argument.)

Regardless of whether it is constitutional, Obamacare is also harmful to the economy, medical innovation, and the healthcare system. Earlier, I discussed some of the bad effects of Obamacare on patients, employers, consumers, and the insurance market.

Food Safety Modernization Act Passes; Unconstitutional Provision Supposedly Removed

by Hans Bader on December 20, 2010 · 1 comment

in Health and Illness, Legal, Nanny State, Personal Liberty, Precaution & Risk, Regulation

The Food Safety Modernization Act was passed again by Congress on Sunday, apparently without a provision that earlier drew criticism for violating the Constitution by having a tax increase contained in it originate in the Senate rather than the House (something forbidden by the Constitution’s Origination Clause). The Washington Post story about this cites only the alleged benefits of the bill, not its potential costs to innovation, small business, and the availability of unconventional foods, which we previously discussed at this link.

Greg Conko, an expert on food safety regulation, has explained how the bill’s expensive and cumbersome red tape might thwart “firms from developing innovative new processes and practices that could deliver real food safety improvements.”

From the Post story, it sounds like the Senate version of the bill, not the House version, became law, although it’s not clear.  The House version of the bill would have driven “out of business local farmers and artisanal, small-scale producers of berries, herbs, cheese, and countless other wares, even when there is in fact nothing unsafe in their methods of production,” warned legal commentator Walter Olson at Overlawyered. The Senate version of the bill is less extreme, but even it “would leave tens of thousands of small and mid-sized farms and food stands to be crushed under the weight of rules designed for some of the world’s largest food processors,” Conko says.

The tax increases contained in an earlier Senate version of the bill violated the Constitution, argued Conko (who is a lawyer) and law professor Jonathan Adler.

I earlier discussed false claims made by the law’s sponsors about its reach over farms and activity that doesn’t cross state lines.

Should Obamacare Be Struck Down In Its Entirety Rather Than Just Having Its Unconstitutional Parts Severed?

by Hans Bader on December 16, 2010 · 1 comment

in Healthcare, Legal, Nanny State, Personal Liberty, Regulation

In his ruling striking down Obamacare’s individual mandate (requirement that people buy health insurance), Judge Hudson in Richmond declined to strike down the rest of the law, believing that the unconstitutional part of Obamacare, which violated constitutional federalism constraints, could be severed from the rest of the law. But the health care law lacks a severability clause, and lawyer Ken Klukowski filed a brief in Florida’s challenge to Obamacare explaining why the entire law should logically be struck down. In Reason, Peter Suderman explains why even if Obamacare is not struck down in its entirety, the courts should at least strike down some other provisions that are related to the individual mandate, such as Obamacare’s ban on insurers taking into account pre-existing conditions.

As I noted earlier in The Washington Examiner, “To justify preserving the rest of the law, the judge cited a 2010 Supreme Court ruling that invalidated part of a law — but kept the rest of it in force. But that case involved a law passed almost unanimously by Congress, which would have passed it even without the challenged provision. Obamacare is totally different. It was barely passed by a divided Congress, but only as a package. Supporters admitted that the unconstitutional part of it — the insurance mandate — was the law’s heart. Obamacare’s legion of special-interest giveaways that are ‘extraneous to health care’ does not alter that.” In short, Obamacare’s individual mandate is not “volitionally severable,” as case law requires.

Moreover, even if a single unconstitutional provision could be severed from Obamacare to preserve the remainder, that would not fix its other constitutional violations. The individual mandate, which exceeds Congress’ power under the Interstate Commerce Clause, is not the only unconstitutional provision in the health care law. Obamacare also violates the Tenth Amendment through Medicaid expansion provisions that transgress spending-clause limits applicable to federal-state programs, as I explain in an amicus brief for two governors in Florida v. HHS.

Law Professor James Blumstein, a constitutional and healthcare expert and advisor to Gov. Phil Bredesen (D-Tenn.), makes a different, but powerful, constitutional argument here that is also based on the Constitution’s spending clause.

Earlier, I discussed some of the bad effects of Obamacare on patients, employers, consumers, and the insurance market.

Is Obamacare’s Government Healthcare Takeover a “Civil Right”?

by Hans Bader on December 14, 2010

in Healthcare, Legal, Nanny State, Personal Liberty, Regulation

Doug Powers takes aim at the silly argument by the Obama administration that opposing Obamacare is analogous to opposing basic civil rights. As he and Michelle Malkin note, if Obamacare is such a civil right, why are employers — and even labor unions that backed the law — seeking waivers from its onerous requirements?

Yesterday, a federal judge in Richmond struck down Obamacare’s requirement that individuals buy health insurance in this ruling in Virginia v. Sebelius.  CEI joined that brief.  The judge’s ruling found that the requirement exceeded Congress’s power under the Interstate Commerce Clause, as I earlier explained.  As we previously noted, Obamacare harms medical advances, private employers, insurance-policyholders and health-insurance markets.

Ed Morrissey takes issue with another argument made by Attorney General Holder and HHS Secretary Sebelius.

An End to Out-of-State Beer?

by Michelle Minton on November 8, 2010 · 1 comment

in Nanny State, Personal Liberty, Regulation

Would you be steamed if you couldn’t buy Anchor Steam (of San Francisco, CA), or go into a flying rage without Flying Dog (of Maryland)? Would you go bonkers without Brooklyn beer (of NY)? Well, if you care about craft beer, you should be worried about the CARE Act, currently under consideration by the U.S. Congress. The proposal could put your favorite out-of-state brew off the menu.

Over the last 20 or 30 years, the United States has seen a massive increase in the number of microbreweries in the last decade. Your choices at a bar are no longer between the four or five most popular brews in the country (Bud, Busch, or Miller); many bars pride themselves on offering a wide variety of on-tap beers from smaller producers and stocking bottles from around the country.

That could soon come to a grinding halt.

Dogfish, Bells, Daschutes, Full Sail, Clipper City, Brooklyn Brewery, Stone, and Rogue are some of the brews that might have a harder time turning a profit and getting widespread distribution for their products if Congress passes a bill giving states the authority to discriminate against out-of-state producers of liquor, wine, and beer. The current iteration of such a proposal is the “CARE” Act of 2010, currently under consideration in the U.S. House of Representatives.  As described here, H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness Act of 2010 would:

Allow states to ignore the Commerce Clause of the United States Constitution, as well as a number of other federal laws — including anti-trust laws.  States could then impose a host of protectionist regulations that impede interstate commerce to serve special interests within their states.  These regulations could impede direct shipping of wine to consumers, create a patchwork of labeling and product formulation mandates, impose discriminatory tax policies, and more.

The CARE Act is a response to a Supreme Court decision, Granholm v. Heald, in which the Court ruled that states could not pass laws that discriminate between in-state and out-of-state wineries in violation of the Commerce Clause of the Constitution. While the ruling was specifically about wine, it should apply to all types of alcohol.

If the CARE Act or a similar bill passes, allowing state regulators to discriminate between in and out-of-state producers, it could potentially bar out-of-state beers, ensuring a captive market for home-state breweries. Not only would this eliminate certain beers from the market, but also it would likely increase the price of those out-of-state brews that could make it in as they’d likely pay a fee (aka a tax) for the privilege of competing with in-state breweries, vineyards, or distilleries. It would also mean an end to online sales of alcohol.

As noted by Rick Gideon over at Mutineer Magazine, it isn’t just beer that’s at stake. Wine and liquor have just as much to lose.

Small wineries are especially susceptible to this legislation, which could potentially take away their ability to offer wine clubs and other direct-to-consumer services. These channels allow them to service their patrons better than they might be able to through the traditional distribution system.

This bill also has liquor producers campaigning against passage. Some allege that states might alter definitions of certain spirits, such as Kentucky Bourbon, and even dilute some styles. They’re also concerned about states requiring particular labeling standards, and regulating how brands are allowed to advertise.

So, who is backing this push? The biggest push has come, unsurprisingly, from beer distributors — those folks who act as middlemen between producers of alcohol, like breweries, vineyards, and distilleries and retailers, such as your corner liquor or grocery store. As Gideon notes:

The National Beer Wholesalers Association is lobbying heavily in favor of the bill and has already contributed to the coffers of bill cosponsors. The NBWA claims they’re only trying to ensure states have better control in defending their alcohol laws, but bill critics claim that the NBWA is only trying to limit competition. Jonathan Yarowsky, lobbyist for the Beer Institute, states that brewers believe the bill “would lead to a protectionist and anti-competitive system that would hurt consumers.”

While the bill is still in committee and has no companion legislation in Senate, lover of beer, wine, spirits, and liberty ought to keep a close eye on this one.

Judge Rejects Obama Administration’s Motion to Dismiss Challenge to Obamacare

by Hans Bader on October 15, 2010 · 1 comment

in Healthcare, Insurance, Legal, Regulation

A judge in Florida has rejected the Obama administration’s motion to dismiss challenges to Obamacare brought by 20 state attorneys general and the National Federation of Independent Business. U.S. District Judge Roger Vinson found that the attorneys general had made a plausible argument that Obamacare is in excess of Congress’s power under the Commerce Clause and in violation of the Tenth Amendment — indeed, he said it wasn’t even “a close call.”

The judge gave a green light to a challenge to Obamacare’s requirement that all citizens buy federally-regulated health insurance — the so-called “individual mandate.”  “While the novel and unprecedented nature of the individual mandate does not automatically render it unconstitutional,” Judge Vinson observed, “there is perhaps a presumption that it is.”  This means at the very least that “the plaintiffs have most definitely stated a plausible claim with respect to this cause of action.”

The judge also allowed the state attorney generals to challenge Obamacare’s Medicaid expansion provisions under the Tenth Amendment.

We earlier explained why the individual mandate contained in Obamacare is unconstitutional because it exceeds Congress’s power under the Commerce Clause. We joined an amicus brief filed by the Cato Institute supporting Virginia’s challenge in a case pending in Richmond, which you can find here. The judge in the Virginia case also rejected the federal government’s motion to dismiss the lawsuit.  Three former U.S. attorneys general, William Barr, Ed Meese, and Dick Thornburgh, also filed a brief challenging Obamacare in that case.

Briefs in many constitutional challenges to Obamacare can be found at this website.

At the ACA Litigation Blog, Brad Joondeph summarizes the Florida judge’s ruling, noting:

After laying out the competing arguments as to whether [the individual mandate, contained in Section 1501(b) of Obamacare,] is within Congress’s commerce power, he states as follows: ‘At this stage in the litigation, this is not even a close call.’ Judge Vinson goes on to explain that the individual mandate is ‘simply without prior precedent’ (p.61), and that, unlike statutes upheld by the Supreme Court in prior Commerce Clause decisions cited by the federal government (such as Heart of Atlanta Motel and Wickard), this regulation ‘is not based on an activity that [people] make the choice to undertake’ (p.63). In other words, Judge Vinson sees this as a regulation of inactivity, and thus one that is qualitatively different from prior uses of the commerce power (as augmented by the Necessary and Proper Clause). Moreover, he finds it highly salient that those regulated by 1501 (that is, all legal residents) have not taken some sort of voluntary action (such as entering the motel business, or growing wheat, for example) before being subjected to the provision’s requirement. Seeing the minimum coverage requirement in these terms, I think, is probably going about 75 percent of the way towards finding it unconstitutional. Mind you, Judge Vinson concludes by stating that he is holding only that the states have ‘stated a plausible claim.’ (p. 64). But the reasoning behind his conclusion–not to mention the modifier ‘most definitely’ that precedes it–gives one the sense that, following the coming motions for summary judgment, the odds are in favor of the court declaring the minimum coverage provision unconstitutional.

Missouri Voters Overwhelmingly Reject ObamaCare’s Individual Mandate in Referendum

by Hans Bader on August 4, 2010 · 2 comments

in Economy, Health and Illness, Healthcare, Insurance, International, Legal, Nanny State, Personal Liberty, Politics as Usual, Regulation, Sanctimony, Zeitgeist

“Missouri voters on Tuesday overwhelmingly rejected a federal mandate to purchase health insurance, rebuking President Barack Obama’s administration and giving Republicans their first political victory in a national campaign to overturn the controversial health care law passed by Congress in March.”  The referendum passed easily by a 3-to-1 margin, with nearly 73 percent of the vote.

On Monday, a federal judge let Virginia’s attorney general challenge ObamaCare as unconstitutional, refusing to dismiss a lawsuit challenging its mandate to buy health insurance. The Obama Administration says it can force people to buy insurance or other products under the federal government’s power to regulate interstate commerce, and punish them with tax and other penalties if they do not. Under Obama’s logic, every American could be forced to buy a car in order to spur interstate commerce in automobiles. The judge was skeptical of this logic, noting that “never before has the Commerce Clause . . . been extended this far,” and “no reported case” has ever “extended the Commerce Clause or Tax Clause” to punish “a person’s decision not to purchase a product.”

Obama’s health care law will reduce lifesaving medical innovation, raise taxes, drive up insurance premiums, break many campaign promises, and increase state budget deficits.  It  will jeopardize the quality of medical care, while imposing restrictions that failed when tried at the state level.  It ignores advice from doctors and federal experts, and lessons from countries with universal health care, about how to keep costs down.

It imposes many middle-class tax increases, such as taxes on uninsured individuals, on cosmetic surgery, on medical devices, and on certain health care plans.  It also increases taxes on many investors and imposes marriage penalties.

It also contains many penny-wise, pound-foolish provisions.  It spends money on frills like “cultural competency,” while cutting spending on crucial things like anesthesia.

The health care legislation also contains potentially unconstitutional racial preferences for minority applicants, and lower standards for treatment of patients in predominantly-minority institutions.  These drew criticism from the Civil Rights Commission.

Judge Lets Virginia Challenge ObamaCare’s Individual Mandate, Refusing to Dismiss Lawsuit

by Hans Bader on August 2, 2010

in Economy, Health and Illness, Healthcare, Insurance, Legal, Nanny State, Personal Liberty, Regulation

A federal judge in Virginia has allowed the state’s lawsuit challenging the federal individual health care mandate to proceed: “A judge on Monday refused to dismiss the state of Virginia’s challenge to President Barack Obama’s landmark healthcare law, a setback that will force his administration to mount a lengthy legal defense of the overhaul effort.” The judge’s ruling is here.

Ilya Shapiro of the Cato Institute, who filed a brief in support of Virginia that was joined by constitutional law professor Randy Barnett and the Competitive Enterprise Institute, issued the following statement:

Today’s ruling should finally silence those who maintain that the legal challenges to Obamacare are frivolous political ploys or sour grapes. The constitutional defects in the healthcare “reform” are very real and quite serious. Never before has the government claimed the authority to force every man, woman, and child to buy a particular product – and indeed such authority, whether claimed under the Commerce Clause or the taxing power, does not exist (as Cato’s amicus brief in the Virginia case argues). I look forward to further favorable rulings as these lawsuits progress.

I discussed Virginia’s lawsuit here, and the constitutional problems with the health care bill’s “individual mandate” here.

The so-called “individual mandate” is unprecedented and exceeds Congress’s power under the Commerce Clause of the Constitution.  As the Congressional Budget Office noted in 1994, “A mandate requiring all individuals to purchase health insurance would be an unprecedented form of federal action. The government has never required people to buy any good or service as a condition of lawful residence in the United States.”

In Supreme Court rulings issued in 1995 and 2000, “the high court said the commerce clause is limited to economic activities that substantially affect interstate trade.”  (I was an attorney in the latter ruling, United States v. Morrison (2000).)  The health care law reaches beyond that to regulate pure inactivity, namely the refusal to buy health insurance even if you don’t need it (when I was young, I went for a decade without ever going to the doctor or dentist).  As UPI once noted, “the weight of Supreme Court jurisprudence seems to favor a Commerce Clause challenge” to the healthcare legislation.

Virginia’s lawsuit only raises federalism-based objections to ObamaCare.  There are other constitutional problems not raised in its suit.

The healthcare legislation also contains potentially unconstitutional racial preferences for minority applicants, and lower standards for treatment of patients in predominantly-minority institutions.  These drew criticism from the Civil Rights Commission.

Law professor Rob Natelson has raised additional constitutional objections to ObamaCare’s individual mandate.

Here’s an additional constitutional issue that occurred to me. Would requiring people to buy health insurance — and thus disclose private medical information to insurers — under government compulsion violate the Constitution by infringing their privacy rights, under rulings like Roe v. Wade and Robinson v. Reed, 566 F.2d 911 (5th Cir. 1978), which allowed a public employee to sue over invasive questions she was compelled to answer in a race-relations seminar? In one respect, it’s a stronger case than in Robinson v. Reed, because that case involved the government acting in its proprietary capacity, where civil liberties are subject to greater restrictions (see Waters v. Churchill, 511 U.S. 661, 673 (1994)), whereas the individual mandate involves the government acting in its regulatory capacity, where its actions and restrictions on civil liberties are subject to tighter limits. (See Carepartners LLC v. Lashway, 545 F.3d 867, 880 (9th Cir. 2008)(“regulated entities” enjoy more protection than government employees).) The fact that private insurers rather than the government would be collecting the information would not automatically obviate a constitutional claim, since the government effectively compels people to provide such information through the government penalties associated with the “individual mandate.” (See Truax v. Raich, 239 U.S. 33 (1916) (although private discrimination does not constitute state action or violate the Constitution, when state law requires the private employer to discriminate, the discrimination by the private employer then does become state action and does violate the Constitution).)

States fold/double down on gambling in light of new regs

by Michelle Minton on June 3, 2010

in Odds & Ends

Many in the Internet gambling industry are skeptical about the impact that the new gambling laws, which went into full effect this Tuesday, will have on the industry. However, the compliance deadline seems to have prompted many states into taking major leaps on the issue of Internet gambling; some good, some bad, most mixed.

Internet gambling is still not illegal. It is perhaps the most ubiquitous myth about online play, that it was ever illegal or that the new UIGEA regulations make online gambling a crime. As I explained in my research paper The Truth About Online Gambling, Online gambling is not a criminal offense. That is, unless states explicitly make it a criminal offense. So far, only one state has gone to that extreme: Washington.

Washington State:

Last week, the Poker Players Alliance staged a rally outside of the Washington State Supreme Court which was hearing arguments to strike down a state law that makes Internet poker a class c felony. That could get a player up to five years behind bars and a $10,000 fine. Lee Rousso, the Poker Players Alliance Washington director filed a suit declaring the law unconstitutional under the commerce clause.

“This law is not about the legislature protecting the state’s citizens, but rather about protecting special interests and tribal casinos from competition.” The state has legal card rooms and casinos.” said PPA Chairman Alfonse D’Amato.

In a random poll of 400 Washington state voters, they found 79% oppose the law making criminals of online poker players. It could take 6-9 months for the court to issue a ruling.

Massachusetts:

Lawmakers in Massachusetts made an attempt in April to criminalize online poker in a bill that, not surprisingly, simultaneously licensed 2 new casinos in the state. Luckily the language in the bill criminalizing online poker was taken out.

California:

Meanwhile, California lawmakers voted this week for a bill that legalizes online gambling in a very limited parameters, by allowing the state DOJ to award three licenses to California operators for 5 years each.

The effects of UIGEA have yet to be seen, but it is certainly forcing discussion of the issue. As always, players should be very careful not to jump at the first prospect of legalization on such a limited basis. Like the ugly girl at the prom who’ll dance with the first guy who asks, overly-eager online gamblers might end up getting their toes stepped on.

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