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Supreme Court to Determine if States May Regulate Extraterritorial Business Operations

on Friday, 14 October 2022 in Environmental Pulse: Vanessa A. Silke, Editor

A case involving California’s regulation of pork could imperil states’ ability to regulate other industries, including energy.

On October 11, 2022, the U.S. Supreme Court heard oral arguments in National Pork Producers Council v. Ross. At issue is the constitutionality of California’s Proposition 12, which prohibits the sale in California of pork produced by a sow that was confined “in a cruel manner.” Among other things, sows must have at least 24 square feet of living space.

An association of pork producers challenged the law, claiming that because California imports nearly all of its pork from other states, the burden of Proposition 12 will principally fall on pork producers in other states in violation of the Dormant Commerce Clause. The lower courts dismissed this challenge, and the pork producers appealed.

The Dormant Commerce Clause prohibits states from discriminating against or unduly burdening interstate commerce. This prohibition stems from the Commerce Clause, article I, section 8 of the U.S. Constitution, which gives Congress the power “[t]o regulate commerce … among the several States ….” Implicit in that language is that only Congress, and not states, may regulate interstate commerce. South Dakota v. Wayfair, Inc., 138 S. Ct. 2080, 2090 (2018).

The test for whether a state law violates the Dormant Commerce Clause is (1) whether the law discriminate against out-of-state actors and (2) if not, whether the law has an undue burden on extraterritorial commerce. Undue burden means that the law’s negative effects outside of the state clearly exceed its benefits in state. Pike v. Bruce Church, Inc., 397 U.S. 137, 143 (1970).

The pork producers asked the Supreme Court to adopt a broad per se rule that a state cannot condition in-state sales on out-of-state businesses operating in a certain way. Such a rule would threaten other state laws. Some states like Colorado, for instance, have adopted renewable portfolio standards, requiring a certain portion of the electricity that utilities sell to come from renewable sources. See e.g. Colo. Rev. Stat. § 40-2-124. Other states have low-carbon fuel standards that require producers to incorporate alternative fuels in gasoline and diesel sold within the state. See e.g. Or. Rev. Stat. § 468A.266. Under the proposed rule, these laws would be vulnerable to similar Dormant Commerce Clause challenges.

Importantly, the pork producers could prevail even without the court adopting their proposed per se rule. The justices’ questions at oral arguments searched for a narrow decision. We anticipate that the court will decline the proposed rule but still reverse and remand the case for fact finding by the lower court to determine if Proposition 12 unduly burdens interstate commerce. We will continue to monitor this case and provide updates.

Attorneys at Baird Holm LLP specialize in agriculture, energy, and litigation. Please do not hesitate to contact us if you have questions about this case or any related matter.

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