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A bigger and better market-participant exception? Examining Justice Souter's revison of the market-participant exception to the dormant commerce clause in Department of Revenue of Kentucky v. Davis.

In Part III-B of the United States Supreme Court's opinion in Department of Revenue of Kentucky v. Davis, Justice Souter found that the market-participant exception to the dormant Commerce Clause allows for market regulation when such regulation "goes hand in hand" with the government's participation in the market. Although Justice Souter 's interpretation of the market-participant exception did not command a majority vote, his opinion could nonetheless have a substantial effect on dormant Commerce Clause analysis if it were later adopted by the Court. As this article demonstrates, Justice Souter's revised market-participant exception contradicts Supreme Court precedent and expands the market-participant exception .)Car beyond its traditional reach.

I. INTRODUCTION

In United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Management Authority, (1) the Court found that laws "benefit[ing] a clearly public facility, while treating all private companies exactly the same ... do not discriminate against interstate commerce for purposes of the dormant Commerce Clause." (2) The Court later applied this "state-self-promotion" (3) exception in Department of Revenue of Kentucky v. Davis (4) to uphold a Kentucky tax scheme that exempted state municipal bonds from taxation but did not afford the same exemption to out of state municipal bonds. (5) Justice Souter wrote the controlling opinion in Davis, finding that Kentucky's tax scheme did not violate the Dormant Commerce Clause. (6) In a part of his opinion that did not command a majority, Justice Souter also proposed that United Haulers could have been decided under the market-participant exception to the dormant Commerce Clause. (7) He reasoned that, under the market-participant exception, a regulation is permissible when it "goes hand in hand" with the government's participation in the market. (8) Justice Souter then concluded that, like United Haulers, Davis could be decided as a market-participant case because the regulation at issue was closely linked to the government's participation in the market. (9)

This article will offer an examination of Justice Souter's revised market-participant exception. To begin, a brief overview of the history and development of the dormant Commerce Clause and the market-participant exception will be provided. (10) Next, Part III will address the facts of United Haulers and review the Court's decision in that case. (11) Part IV will then examine the Court's decision in Davis, focusing on the Court's application of the analysis from United Haulers. (12) Part V will examine Justice Souter's interpretation of the market participant exception in Davis and will address the impact the judicial adoption of Justice Souter's revised market-participant exception would have on dormant Commerce Clause analysis. (13) This article concludes that Justice Souter's analysis in Davis misrepresents the Court's rulings in previous market-participant cases and represents an unjustified expansion of the market-participant exception. (14)

II. BACKGROUND

A. A BRIEF OVERVIEW OF THE DORMANT COMMERCE CLAUSE

The Commerce Clause of the United States Constitution provides that "It]he Congress shall have Power ... [t]o regulate Commerce ... among the several States[.]" (15) Although it does not specifically provide as such, the Supreme Court has long interpreted the Commerce Clause as an implied limitation on the ability of the states to regulate interstate commerce. (16) It is from this implied limitation inherent in the Constitution that the dormant Commerce Clause doctrine has emerged. (17)

Modern dormant Commerce Clause analysis is based on a two-tiered model that requires the Court to first determine whether the judicially scrutinized law discriminates against interstate commerce or whether it "regulates evenhandedly with only 'incidental' effects on interstate commerce." (18) If the court finds that state legislation facially discriminates against interstate commerce, or effects economic protectionism, the regulation will trigger a "virtually per se rule of invalidity." (19) This "virtually per se rule of invalidity" has been deemed by the Court to require that the discriminatory regulation be invalidated unless it advances a legitimate local purpose unrelated to economic protectionism that cannot be adequately served by reasonable nondiscriminatory alternatives. (20)

If the statute is facially nondiscriminatory and in furtherance of a legitimate non-protectionist governmental interest, the court must proceed to the second tier of the analysis and apply a balancing test commonly referred to as the "undue burden" standard or the "Pike balancing test." (21) Under the undue burden standard, a law will be found valid unless "the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." (22)

B. THE MARKET-PARTICIPANT EXCEPTION

Over the years, the Court has carved out an exception to the two-tiered dormant Commerce Clause analytical model for instances in which a state enters the market to trade its own resources. (23) This "market-participant exception has emerged, in part, out of the recognition that states should be afforded the same discretion as private business entities in electing with whom to engage in business.(24) The Court has also acknowledged that states entering into the market face similar challenges as private market-participants. (25) Thus, "States should similarly share existing freedoms from federal constraints, including the inherent limits of the Commerce Clause." (26) Finally, the Court has repeatedly emphasized that the market-participant exception is appropriate because states are sovereign entities that bear the responsibility of acting "as guardian and trustee for its people." (27)

The market-participant exception first emerged in Hughes v. Alexandria Scrap Corp., (28) in which the Court upheld a Maryland program offering subsidies to scrap processors in an effort to clear abandoned cars from Maryland streets. (29) The subsidy scheme effectively favored in-state processors over out-of-state processors and led to a decline in the number of abandoned cars that were delivered to out-of-state processors. (30) In upholding the subsidy scheme, the Court explained that Maryland was merely attaching conditions to its expenditure of state funds. (31) Thus, the state was not "regulating" the market but was acting as a purchaser that "restrict[ed] its trade to its own citizens." (32) The Court went on to declare, "Nothing in the purposes animating the Commerce Clause prohibits a State, in the absence of congressional action, from participating in the market and exercising the right to favor its own citizens over others." (33)

In Reeves, Inc. v. Stake, (34) the Court again applied the market-participant exception to evaluate the constitutionality of discriminatory sale practices undertaken by a cement plant owned and operated by the state of South Dakota. (35) In response to a cement shortage in 1974, the plant restricted the sale of cement to residents of the state. (36) A former out-of-state buyer challenged the cement plant's preferential treatment of South Dakota residents on dormant Commerce Clause grounds. (37) The Court upheld the resident preference under the market-participant exception, noting that the cement plant was acting as a private business and thus had the right to choose its own trading partners. (38) Reeves solidified the rule that the dormant Commerce Clause is not implicated when a state acts as a market-participant, as opposed to a market regulator. (39)

The development of the market-participant exception continued in White v. Massachusetts Council of Construction Employers, Inc. (40) in which the Court sustained an executive order of the Mayor of Boston requiring all private construction companies working on public construction projects to hire Boston residents for at least half of their workforce. (41) The Court found that, "insofar as the city expended only its own funds in entering into construction contracts for public projects, it was a market-participant and entitled to be treated as such[.]" (42) In upholding the executive order under the market-participant exception, the Court emphasized that a vital consideration in the Court's analysis was the fact that all of the employees covered by the mandate were "in a substantial if informal sense, 'working for the city.'" (43)

The following year, the Court placed an important limitation on the market-participant exception to the Dormant Commerce Clause in South-Central Timber Dev., Inc. v. Wunnicke. (44) The issue in South-Central Timber involved an Alaska statute that required all timber taken from state lands to be partially processed in Alaska before being shipped outside of the state. (45) In striking down the statute, the Court found that it amounted to a "downstream" regulation because the purchaser was not free to remove the timber from the state prior to processing. (46) The Court reasoned:
   The limit of the market-participant doctrine must be that it allows
   a State to impose burdens on commerce within the market in which it
   is a participant, but allows it to go no further. The State may not
   impose conditions ... that have a substantial regulatory effect
   outside of that particular market. (47)


Four years later, the Court placed an additional restraint on the applicability of the market-participant exception in New Energy Co. v. Limbach. (48) Limbach involved an Ohio statute that awarded a tax credit for the sale of ethanol produced in Ohio or in states that afforded a similar tax credit for Ohio-produced ethanol. (49) The same tax credit, however, was not available to ethanol produced in states that did not afford a similar tax credit for Ohio-produced ethanol. (50) The Court struck down the statute as a violation of the dormant Commerce Clause, stating that the market participant doctrine "differentiates between a State's acting in its distinctive governmental capacity, and a State's acting in more general capacity of market-participant; only the former is subject to the limitations of the negative commerce clause." (51) The Court found that Ohio was acting in "its distinctive governmental capacity" and, thus, the market-participant exception was inapplicable. (52)

III. UNITED HAULERS ASS'N V. ONEIDA-HERKIMER SOLID WASTE MANAGEMENT AUTHORITY

A. STATEMENT OF THE FACTS AND PROCEDURAL HISTORY

In September of 1988, the New York State Legislature created the Oneida-Herkimer Solid Waste Management Authority ("the Authority") in an effort to remedy solid waste problems suffered by Oneida and Herkimer Counties ("the Counties"), which are located in central New York. (53) Before the Authority was created, each county was responsible for disposing of its own waste. (54) In the Counties, however, many local landfills were operating without permits and in violation of state regulations, resulting in serious environmental concerns. (55) In addition, local waste management companies frequently engaged in price fixing and overcharged for waste management services. (56)

In response to these growing concerns, New York's Legislature and Governor created the Authority, a publicly owned corporation. (57) The Authority was "empowered to collect, process, and dispose of solid waste generated in the Counties." (58) The Counties also were given statutory authority to adopt a "flow control ordinance" to mandate the delivery of all waste to a designated waste disposal facility. (59)

The Counties entered into a contract with the Authority providing that the Authority would receive and process all solid waste generated in the Counties. (60) Although private waste haulers were allowed to pick up trash, they were required to deliver it to the Authority's disposal site. (61) The Authority collected "tipping fees" to compensate for the operating and maintenance costs of its facilities. (62) However, under the Counties' contract with the Authority, citizens could elect to have their waste hauled to facilities with lower tipping fees. (63) The tipping fees of the Authority greatly exceeded those charged for waste removal on the open market. (64) Hence, the Counties became concerned that citizens would choose not to utilize the Authority's facilities. (65) In response to this concern, the Counties enacted "flow control" ordinances requiring that all solid waste generated within the Counties be directed to the Authority's processing sites. (66) The flow control ordinances required private haulers to obtain a permit from the Authority to collect waste in the Counties. (67) Noncompliance with the ordinances could result in penalties, including permit revocation, fines, and imprisonment. (68)

United Haulers Association, a trade association, and six private waste haulers filed suit in federal district court, alleging that the flow control laws violated the Commerce Clause by discriminating against interstate commerce. (69) To support the discrimination claim, the plaintiffs introduced evidence that the Authority's disposal fees ranged from $86 to $172 per ton. (70) Comparatively, the same waste could be disposed of at out-of-state waste disposal sites for $37 to $55 per ton. (71)

The district court enjoined enforcement of the flow control ordinances, finding the flow control laws to be virtually indistinguishable from the law examined and struck down in C & A Carbone, Inc. v. City of Clarkstown. (72) In Carbone, the Court found that a flow control ordinance enacted in Clarkstown, New York requiring all local solid waste to be deposited at a particular solid waste transfer station was discriminatory and unconstitutional under the dormant Commerce Clause. (73) Following the logic of Carbone, the district court concluded that the flow control laws in the Counties were invalid under the dormant Commerce Clause. (74) Having found the flow-control laws unconstitutional, the district court enjoined their enforcement and referred the matter to the magistrate judge for determination of damages. (75)

The Second Circuit reversed, reasoning that Carbone allows for a distinction between laws that benefit public facilities as opposed to private facilities. (76) Accordingly, the court held that "a municipal flow control law does not discriminate against out-of-state interests in violation of the Commerce Clause when it directs all waste to publicly owned facilities." (77) The court remanded to let the District Court decide whether the Counties' ordinances nevertheless placed an incidental burden on interstate commerce, and if so, whether the ordinances' benefits outweighed that burden. (78)

The district court, on remand, found that the flow control ordinances imposed no burden on interstate commerce and entered judgment for the Authority. (79) The Second Circuit affirmed, finding any possible burden on interstate commerce to be "modest" in comparison to the "clear and substantial" benefits of the ordinances. (80) The petitioners appealed the ruling to the United States Supreme Court, which granted certiorari. (81)

B. U.S. SUPREME COURT'S OPINION

Writing for the majority, Chief Justice Roberts upheld the constitutionality of the Counties' ordinances, finding that the Oneida and Herkimer county ordinances did not discriminate against interstate commerce. (82) In so holding, the Court distinguished United Haulers from C & A Carbone, Inc. v. Clarkstown, (83) wherein the Court found a similar ordinance requiring trash to be delivered to a privately-operated processing facility to be discriminatory. (84) The Court based this distinction on the fact that the Oneida and Herkimer county ordinances required haulers to bring waste to "facilities owned and operated by a state-created public benefit corporation" as opposed to a private facility. (85) Declaring the distinction between private and publicly operated facilities to be "constitutionally significant," the Court reasoned:
   It does not make sense to regard laws favoring local government and
   laws favoring private industry with equal skepticism.... [W]hen the
   law favors in-state business over out-of-state competition,
   rigorous scrutiny is appropriate because the law is often the
   product of "simple economic protectionism." ... Laws favoring local
   government, by contrast, may be directed toward any number of
   legitimate goals unrelated to protectionism. (86)


The Court also noted its hesitancy to interfere with a state's method of waste disposal "under the guise of the Commerce Clause," finding that waste disposal is "traditionally a local government function." (87) The Court emphasized that "the most palpable harm imposed by the ordinances at issue--more expensive trash removal--is likely to fall upon the very people who voted for the laws." (88) Thus, the Court saw "no reason to step in and hand local businesses a victory they could not obtain through the political process." (89)

After finding that the Counties' ordinances were not discriminatory, the Court proceeded to analyze the ordinances under the balancing test set forth in Pike v. Bruce Church. (90) Under the Pike balancing test, the Court will uphold a nondiscriminatory statute "unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits." (91) In conducting the Pike balancing test, the Court listed two major benefits that resulted from the adoption of the ordinances. (92) First, the ordinances provide revenue generation for the state and "give the Counties a convenient and effective way to finance their integrated package of waste-disposal services." (93) Second, the ordinances increase recycling and confer "significant health and environmental benefits upon the citizens." (94) In light of these benefits, the Court found it "unnecessary to decide whether the ordinances impose any incidental burden because any arguable burden on interstate commerce does not exceed the public benefits of the ordinances." (95) Accordingly, the Counties' ordinances survived the Pike test and were held to be non-discriminatory against interstate commerce for purposes of the dormant Commerce Clause. (96)

IV. DEPARTMENT OF REVENUE OF KENTUCKY V. DAVIS

A. STATEMENT OF THE FACTS AND PROCEDURAL HISTORY

Kentucky enacted an income tax scheme that exempted from taxation interest income derived from municipal bonds issued by the Commonwealth or its political subdivisions. (97) However, this exemption was not extended to interest income received from municipal bonds issued by other states. (98) The purpose of this differential treatment was to encourage Kentucky residents to invest in bonds issued by Kentucky. (99) The proceeds from these bonds would then be used to pay for various public works projects in the Commonwealth. (100)

George and Catherine Davis were Kentucky residents who paid Kentucky's income tax on interest received from various out-of-state municipal bonds. (101) The Davises filed a class action suit in state court alleging that the differential tax system impermissibly discriminated against interstate commerce in violation of the Commerce Clause of the United States Constitution. (102) The trial court granted the Commonwealth's motion for summary judgment, finding that Kentucky was participating in the bond market and, thus, under the market-participant exception to the dormant Commerce Clause, was able to give preferential treatment to residents of the Commonwealth. (103)

The Court of Appeals of Kentucky reversed, finding that Kentucky was not acting as a market-participant when it taxed income received from bonds issued by the Commonwealth or its subdivisions at a deferential rate. (104) Thus, the trial court determined that Kentucky could offer no satisfactory justification for its facially discriminatory law, and the court had "no choice but to find that Kentucky's system of taxing only extraterritorial bonds runs afoul of the Commerce Clause." (105)

Recognizing that the decision reached by the Court of Appeals of Kentucky "raised an important question of constitutional law," the Supreme Court of the United States granted certiorari to consider whether Kentucky's tax scheme violated the dormant Commerce Clause. (106)

B. U.S. SUPREME COURT'S OPINION

Justice Souter wrote the controlling opinion in Davis, finding that Kentucky's tax scheme did not violate the dormant Commerce Clause. (107) However, only part of his opinion commanded a majority vote. (108) The controlling opinion was set forth in Part III-A, which was joined in full by Chief Justice Roberts and Justices Stevens, Scalia, Ginsburg, and Breyer. (109) Justice Souter began his analysis in Part III-A by declaring, "It follows a fortiori from United Haulers that Kentucky must prevail." (110) He went on to explain that United Haulers stands for the proposition that standard dormant Commerce Clause scrutiny is not applicable when a regulation favors a traditional government function because such regulations are likely to be motivated by legitimate state interests and not by economic protectionism. (111) Justice Souter then applied this principle to the Kentucky tax scheme, noting that the facts of Davis were analogous to United Haulers. (112) He concluded, "Kentucky's tax exemption favors a traditional government function without any differential treatment favoring local entities over substantially similar out-of-state interests," and that such a law was nondiscriminatory under the dormant Commerce Clause. (113)

It is important to note that, under the standard dormant Commerce Clause analytical model, the Kentucky tax scheme would also be subject to the Pike balancing test. (114) However, Justice Souter declined to apply Pike, finding the judicial branch to be ill-suited to make judgments required under Pike. (115) Instead, Justice Souter proceeded to Part III-B of his opinion in which he advanced an alternative rationale for upholding the Kentucky tax scheme: the market-participant exception. (116) In finding that the Kentucky tax scheme fell under the market-participant exception, Justice Souter did not view Kentucky's sale of municipal bonds as separate and distinct from its municipal bond tax exemption. (117) He noted several earlier market-participant decisions that he determined involved both market participation and market regulation. (118) In these cases, Justice Souter observed that the regulation complimented the government's participation in commercial activities and "[gave] the regulation a civic objective different from the discrimination traditionally held to be unlawful[.]" (119) One of the cases Justice Souter cited was United Haulers. (120) Although Justice Souter recognized that United Haulers was "not placed under the market participant umbrella," he nonetheless concluded that the case was an example of government acting as a market-participant as well as a market regulator. (121) He noted, "Not only did the public authority acting in that case process trash, but its governmental superiors forbade trash haulers to deal with any other processors." (122) Justice Souter then went on to declare that cases involving government participation in interstate commerce joined with governmental regulation for the public's benefit should not be evaluated under standard dormant Commerce Clause analysis. (123)

V. ANALYSIS

Justice Souter began Part III-B of the Davis opinion by declaring: "This case, like United Haulers, may also be seen under the broader rubric of the market participation doctrine." (124) This statement is surprising considering the fact that United Haulers was not decided under the market-participant exception. (125) In fact, the defendants in United Haulers conceded that the market-participant doctrine had no application to the facts of that case. (126) Further, the majority opinion in United Haulers upheld the Counties' ordinances after applying the Pike balancing test. (127) If the case had been decided under the market-participant exception, the Pike balancing test would have been inapplicable. (128)

This section will address Justice Souter's application of the market-participant exception to United Haulers. First, this section will focus on Justice Souter's determination that market regulation is permissible when it goes "hand in hand" with market participation. (129) Next, an analysis of the Court's failure to distinguish between upstream and downstream regulations will be provided. (130) Finally, this section will address the impact that the judicial adoption of Justice Souter's revised market-participant exception would have on the majority's opinion in Davis. (131)

A. JUSTICE SOUTER'S DETERMINATION THAT MARKET PARTICIPATION JOINED WITH MARKET REGULATION IS PERMITTED UNDER THE MARKET-PARTICIPANT EXCEPTION

In defining the limits of the market-participant doctrine, the Court has distinguished between States acting as market participants and States acting as market regulators. (132) In so doing, the Court has held that states may engage in discriminatory practices provided that the State is "acting as a market-participant, rather than as a market regulator." (133)

In United Haulers, the government was acting as a market-participant by establishing a government owned transfer station. (134) However, it was also acting as a market regulator by compelling trash producers and haulers to deal exclusively with the government's transfer station or face criminal fines and imprisonment. (135) In light of these facts, Oneida and Herkimer Counties conceded that the market-participant doctrine had no application in United Haulers. (136) Justice Souter nonetheless declared that United Haulers "may... be seen under the broader rubric of the market participation doctrine" (137) because the regulation at issue in United Haulers went "hand in hand with market participation." (138) To find otherwise, Justice Souter reasoned, "would require overruling most, if not all, of the cases on point decided since Alexandria Scrap." (139)

Justice Souter focused on White and Alexandria Scrap as examples of cases supporting the proposition that market regulation exercised in conjunction with a government's participation in the market must be viewed as a unitary whole for purposes of the market-participant exception. (140) Justice Souter interpreted White as follows:
   White ... scrutinized a government acting in dual roles. The mayor
   of Boston promulgated an executive order that bore the hallmarks of
   regulation: it applied to every construction project funded wholly
   or partially by city funds (or funds administered by the city), and
   it imposed general restrictions on the hiring practices of private

   contractors, mandating that 50% of their work forces be bona fide
   Boston residents and setting thresholds for minorities (25%) and
   women (10%) as well.... After speaking of [t]he basic distinction
   ... between States as market-participants and States as market
   regulators.... White did not dissect Boston's conduct and ignore
   the former. Instead, the Court treated the regulatory activity in
   favor of local and minority labor as terms or conditions of the
   government's efforts in its market role, which was treated as
   dispositive. (141)


A close reading of White, however, does not lend support to Justice Souter's analysis. (142) The executive order at issue in White provided that Boston would engage in business only with private contractors that hired a work force consisting of at least half residents of Boston. (143) An essential aspect of the Court's analysis in White was whether the executive order constituted market regulation because it affected private contractors and employees. (144) Ultimately, the Court concluded that the program in White did not involve market regulation because all project workers were "in a substantial if informal sense, 'working for the city.'" (145) The Court went on to reason that the employment of city workers involved market participation, and not market regulation. (146) The White Court's holding that Boston was acting exclusively as a market-participant, and not a market regulator, discredits Justice Souter's analysis in Davis. (147)

Questions can also be raised as to Justice Souter's interpretation of Alexandria Scrap. (148) Justice Souter described Alexandria Scrap as follows:
   [I]n Alexandria Scrap, Maryland employed the tools of regulation to
   invigorate its participation in the market for automobile hulks.
   The specific controversy there was over documentation requirements
   included in a "comprehensive statute designed to speed up the scrap
   cycle."... Superficially, the scheme was regulatory in nature; but
   the Court's decision was premised on its view that, in practical
   terms, Maryland had not only regulated but had also "entered into
   the market itself to bid up [the] price" of automobile hulks. (149)


Justice Souter's assertion that, "Maryland had not only regulated but had also 'entered into the market'" in Alexandria Scrap is an inaccurate characterization of the Court's holding in that case. (150) The Court in Alexandria Scrap clearly stated, "Maryland has not sought ... to regulate the conditions under which [the interstate flow of junk cars] may occur. Instead, it has entered into the market [] to bid up their price." (151) Thus, the Court determined that, by spending its money in a way that favored in-state residents, Maryland was acting as a market-participant, not as a market regulator. (152)

A close reading of White and Alexandria Scrap reveals that Justice Souter's interpretation of the market-participant exception is not supported by prior case law. (153) The judicial adoption of Part III-B of Davis would considerably broaden the scope of the market-participant exception by allowing market regulation when it goes "hand in hand with market participation." (154)

B. JUSTICE SOUTER'S VALIDATION OF DOWNSTREAM REGULATIONS UNDER HIS REVISED MARKET-PARTICIPANT EXCEPTION

As discussed in Part II.B, the determination of whether a government law regulates upstream or downstream will depend on the effect the government regulation has on the stream of commerce relative to the government entity's position in the market. (155) The flow control ordinance at issue in United Haulers regulated upstream from where the government was participating in the market. (156) Comparatively, the Kentucky tax scheme at issue in Davis regulated downstream from where the government was participating in the market. (157)

The Court held in South-Central Timber that downstream regulations are not permissible under the market-participant exception. (158) However, in Part III-B of the Davis opinion, Justice Souter drew the broad conclusion that market regulation is permissible when it "goes hand in hand" with market participation. (159) In reaching this conclusion, Justice Souter made no attempt to qualify the regulations allowed under his revised market-participant exception. (160) It follows that Justice Souter may have stood ready to overrule South-Central Timber, which involved a regulation that was closely linked to the government's participation in the market. (161) Hence, the judicial adoption of Justice Souter's opinion in Davis could result in the elimination of any "downstream restraint" limitation on the market-participant exception. (162)

C. THE IMPACT OF THE JUDICIAL ADOPTION OF JUSTICE SOUTER'S REVISED MARKET-PARTICIPANT EXCEPTION ON THE MAJORITY OPINION IN DAVIS

In United Haulers, the Court announced that laws "benefit[ing] a clearly public facility, while treating all private companies exactly the same[] ... do not discriminate against interstate commerce for purposes of the dormant Commerce Clause." (163) Before United Haulers, the Court had never before recognized this state-self-promotion exception to dormant Commerce Clause analysis. (164) Thus, the effect of the Court's holding is to except from the "virtually per se rule of invalidity" laws that would formerly have been considered discriminatory. (165)

The Court in Davis could have confined the operation of the public benefit rule to cases that strongly resembled United Haulers. (166) The Court instead applied the state-self-promotion exception to the facts of Davis, thus extending the reach of the exception. (167) When considering the constitutionality of a state or local regulation under the dormant Commerce Clause, courts must now determine whether the law favors a government entity before considering whether the law discriminates against interstate commerce. (168)

However, there are important limitations on the applicability of the state-self-promotion exception that can be derived from the Court's rulings in United Haulers and Davis. (169) This section will address two of these limitations. First, in Davis, the Court implied that a regulation must carry out a traditional governmental function in order to be excepted from scrutiny. (170) Second, by applying an abbreviated version of the Pike balancing test, the Court in United Haulers indicated that the state-self-promotion exception will not apply to a regulation when the burden imposed on interstate commerce clearly outweighs the local benefit of the regulation. (171) The Court's rulings in United Haulers and Davis indicate that the state-self-promotion exception will only apply to a regulation that comports with both of these limitations. (172)

Unlike the state-self-promotion exception, Justice Souter's revised market-participant exception would apply to any regulation that goes "hand in hand" with the government's participation in the market. (173) Indeed, Justice Souter cited no additional restraint on the applicability of his revised market-participant exception. (174) Because regulations decided under the state-self-promotion exception must "benefit a clearly public facility," (175) a regulation that qualifies under the state-self-promotion exception would necessarily "go hand in hand" with the government's participation in the market. (176) As such, Justice Souter's revised market-participant exception would apply to nearly every regulation that could be decided under the state-self-promotion exception. (177) This section will examine the impact Justice Souter's revised market-participant exception would have on the state-self-promotion exception, focusing on the above referenced limitations on the applicability of the state-self-promotion exception. (178) This section concludes that the judicial adoption of Justice Souter's revised market-participant exception would ultimately render the state-self-promotion exception obsolete. (179)

1. The Traditional Governmental Function Limitation on the State-Self-Promotion Exception

In United Haulers, the Court declared that the judiciary should be "particularly hesitant" to interfere with governmental regulations that are "typically and traditionally" public functions. (180) The Court suggested that the application of standard dormant Commerce Clause review to such regulations would unduly interfere with the regulations' traditional governmental function. (181) The Court then quoted the Second Circuit Court of Appeals to assert "[w]aste disposal is both typically and traditionally a local governmental function." (182)

Although the United Haulers Court seemed to treat the "typical and traditional" function of the government regulation as one factor to be considered in determining the applicability of the state-self-promotion exception, the Court in Davis treated the presence of a traditional governmental function as a requirement under the state-self-promotion exception. (183) The Davis Court explicitly held, "Kentucky's tax exemption favors a traditional government function without any differential treatment favoring local entities over substantially similar out-of-state interests." (184) The Court then determined that such a law was nondiscriminatory under the dormant Commerce Clause. (185)

Requiring a traditional governmental function under the state-self-promotion exception effectively narrows the scope of the exception. (186) However, under Justice Souter's revised market-participant exception, there would be no requirement that the regulation advance a traditional governmental function. (187) Thus, the judicial adoption of Justice Souter's revised market-participant exception would effectively remove any requirement of a traditional government function in cases in which both the state-self-promotion exception and the market-participant exception applied. (188)

It could be argued that the removal of the traditional government function limitation on the state-self-promotion exception is appropriate considering the lack of any analytically sound method for the Court to determine what government activities are traditional in nature. (189) Indeed, the Court in United Haulers and Davis failed to identify any method of discerning what state activities would qualify as "traditional government functions." (190)

In 1976, the Court employed a similar test in National League of Cities v. Usery (191) in order to strike down amendments to the Fair Labor Standards Act. (192) The amendments extended the Act's minimum wage and maximum hour provisions to the majority of state employees. (193) In National League of Cities, the Court struck down the statute because it violated "traditional aspects of state sovereignty" (194) and "impermissibly interfere[d] with the integral governmental functions" of the states. (195) However, nine years later, in Garcia v. San Antonio Metropolitan Transit Authority, (196) the Court overruled National League of Cities, declaring the integral governmental functions test to be "unsound in principle and unworkable in practice." (197) In so holding, the Court emphasized that there was no analytical method of distinguishing between traditional and non-traditional governmental functions. (198) Writing for the majority, Justice Blackmun explained that the line of demarcation between traditional and nontraditional governmental functions was "elusive at best." (199)

Those same concerns apply with equal force to the Court's incorporation of the traditional government functions test under the state-self-promotion exception to the dormant Commerce Clause. (200) The judicial adoption of Justice Souter's revised market-participant exception would free the Court from the cumbersome task of determining what government activities are "typical and traditional." (201) However, by expanding the types of regulations excepted from scrutiny under the dormant Commerce Clause, Justice Souter's revised market-participant exception would simultaneously weaken the Court's ability to guard against economic protectionism. (202)

2. The Pike Balancing Test Limitation on the State-Self-Promotion Exception

After determining that the Counties' ordinances were non-discriminatory under the state-self-promotion exception, the United Haulers Court proceeded to the second tier of dormant Commerce Clause analysis: the Pike balancing test. (203) Under the Pike test, even a nondiscriminatory statute will be stuck down if "the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits." (204) In applying the Pike test to the facts of United Haulers, the Court determined that the burden the Counties' ordinances imposed on interstate commerce did not exceed the substantial public benefit residents of Oneida and Herkimer Counties would receive from the ordinances. (205) Accordingly, the Counties' ordinances survived the Pike test and were upheld. (206)

By applying the Pike-balancing test, the United Haulers Court made it clear that government activities that are excepted from strict scrutiny under the public benefit principle will nonetheless remain subject to the Pike-balancing test. (207) Hence, even if a government regulation falls under the state-self-promotion exception, the law will be struck down if it imposes a burden on interstate commerce that is clearly excessive when weighed against the law's putative local benefits. (208) The Pike balancing test thus serves as a limitation on the applicability of the state-self-promotion exception. (209)

By contrast, laws that qualify under the market-participant exception are not subject to the Pike balancing test. (210) Because Justice Souter's revised market-participant exception would apply in nearly every case that could be decided under the state-self-promotion exception, it follows that the judicial adoption Justice Souter's revised market-participant exception would eliminate any need to conduct a Pike balancing test under the state-self-promotion exception. (211) Hence, the judicial adoption of Justice Souter's revised market-participant exception would, for practical purposes, supersede the state-self-promotion exception and vastly expand the types of governmental activities sheltered under the market participation exception. (212)

VI. CONCLUSION

The judicial adoption of Justice Souter's revised market-participant exception would represent a significant change in dormant Commerce Clause analysis that would greatly restrict the Court's ability to protect against discriminatory state action. In recasting United Haulers as a market-participant case, Justice Souter ignored the Court's ruling in that case and mischaracterized the Court's previous findings in both White and Alexandria Scrap. Justice Souter's innovative notion that market regulation may be sheltered from dormant Commerce Clause scrutiny under the market-participant exception if such regulation goes "hand in hand" with the government's participation flies in the face of Supreme Court precedent and threatens to uproot well settled dormant Commerce Clause doctrine.

For over a century, the United States economy has enjoyed unprecedented "material success" (213) due, in part, to the protection the dormant Commerce Clause offers against state action that "discriminates against or unduly burdens interstate commerce." As Justice Frankfurter recognized:
   It is easy to mock or minimize the significance of 'free trade
   among the states', ... which is the significance given to the
   Commerce Clause by a century and a half of adjudication in this
   Court. With all doubts as to what lessons history teaches, few seem
   clearer than the beneficial consequences which have flowed from
   this conception of the Commerce Clause. It is true of this
   principle, as of others, that the principle is not to be reduced to
   the appeal of the particular instance in which it is invoked. (214)


Given the significance of the dormant Commerce Clause doctrine, any exceptions carved out by the Court should be narrowly tailored so as to ensure the vital role of the doctrine is not compromised. The effect of the judicial adoption of Justice Souter's revised market-participant exception would be to vastly extend the reach of the market participation exception without any limiting principles to guide its application.

In the context of the market-participant exception to the dormant Commerce Clause, bigger is not necessarily better.

(1.) 550 U.S. 330 (2007).

(2.) Id. at 342.

(3.) Scholars have posed various names for the principal developed by the Court in United Haulers and Davis. See, e.g., Dan T. Coenen, Where United Haulers Might Take Us." The Furore o['the State-Self-Promotion Exception to the Dormant Commerce Clause Rule, 95 IOWA L. REV. (forthcoming 2010) [hereinafter Coenen, Where United Haulers Might Take Us], available at http://works.bepress.com/cgi/viewcontent.cgi?article-1021&context=dan_coenen (referring to the principle of United Haulers & Davis as the "state-self-promotion exception"); Sean Carey, Post-Davis Conduit Bonds." At the Intersection of the Dormant Commerce Clause and Municipal Debt. 78 FORDHAM L. REV. 121 (2009) (referring to the principle of United Haulers & Davis as the "government entity exemption"); Norman R. Williams & Brannon P. Denning, The "New Protectionism" and the American Common Market, 85 NOTRE DAME L. REV. 247 (2009) (referring to the principle of United Haulers & Davis as the "public-entities exception"); Leading Cases, Dormant Commerce Clause--State Taxation of Municipal Bonds, 122 HARV. L. REV. 276 (2008) (referring to the principle of United Haulers & Davis as the "government entity exemption"). This article adopts Professor Coenen's terminology and will refer to the exception developed in United Haulers and Davis" as the state-self-promotion exception. See Coenen, Where United Haulers Might Take Us', supra.

(4.) 128 S. Ct. 1801 (2008).

(5.) Id.

(6.) Id. at 1811.

(7.) Id. at 1811-12.

(8.) Id. at 1812.

(9.) Id.

(10.) See infra Part II.

(11.) See infra Part III.

(12.) See infra Part IV.

(13.) See infra Part V.

(14.) See infra Part VI.

(15.) U.S. CONST. art. 1, [section] 8, cl. 3.

(16.) See Julie Muething, An Analysis of the Disparate Tax Treatment of Municipal Bond. Department of Revenue of Kentucky v. Davis, 75 U. CIN. L. REV. 1711, 1715 (2007) (noting that the Commerce Clause has been recognized as an implied limitation on state power); Peter C. Felmly, Beyond the Reach of States: The Dormant Commerce Clause, Extraterritorial State Regulation, and the Concerns of Federalism, 55 ME. L. REV. 467, 468 (2003) (recognizing that, under the dormant Commerce Clause, federal courts have "scrutinized state legislation for well over one hundred years"); Dan T. Coenen, Untangling the Market-Participant Exemption to the Dormant Commerce Clause, 88 MICH. L. REV. 395, 436 (1989) [hereinafter Coenen, Untangling the Market-Participant Exemption] (noting that the Commerce Clause has "negative implication[s]" for states). In recognizing the implied limitation of state power inherent in the commerce clause, the Court has emphasized the importance of promoting national unity. See West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 193 (1994) (acknowledging that tariffs "violate[] the principle of the unitary national market"); Wyoming v. Oklahoma, 502 U.S. 437, 453-54 (1992) (stating that statutes must not be reviewed only in light of the effect on the state enacting the statute, but also in light of the effect on other states). More specifically, the Court has acknowledged the importance of protecting against "the evils of 'economic isolation' and protectionism[.]" City of Philadelphia v. N.J., 437 U.S. 617, 623 (1978). As stated by the Court in Baldwin v. G.A.F. Seelig, Inc., "[the Constitution] was framed upon the theory that the peoples of the several states must sink or swim together, and that in the long run prosperity and salvation are in union and not division." 294 U.S. 511, 523 (1935).

A second rationale used by the Court in dormant Commerce Clause jurisprudence is the protection of economic liberties. Richard A. Epstein, The "Necessary" History of Property and Liberty, 6 CHAP. L. REV. 1, 20-26 (2003) (discussing the constitutional protection of economic liberties provided under the dormant Commerce Clause); David S. Day, The Rehnquist Court and the Dormant Commerce Clause Doctrine: The Potential Unsettling of the "Well-Settled Principles ", 22 U. TOL. L. REV. 675, 704-05 (1991) [hereinafter Day, The Rehnquist Court and the Dormant Commerce Clause Doctrine]. This rationale is founded on the principle that "individual economic decision-making deserve[s] heightened judicial protection." David S. Day, Revisiting Pike. The Origins of the Nondiscrimination Tier of the Dormant Commerce Clause Doctrine, 27 HAMLINE L. REV. 45, 55 (2004) (observing that the Court in Pike v. Bruce Church Inc., 397 U.S. 137 (1970) was protecting individual economic liberty).

A third rationale for providing dormant Commerce Clause protection concerns the political powerlessness of out-of-state interests. Michael E. Smith, State Discriminations Against Interstate Commerce. 74 CAL. L. REV. 1203, 1206-09 (1986). "[T]he Supreme Court strongly disfavor[s] state discriminations against interstate commerce.... The main reasons are adherence to the intentions of the Framers, fear of the economic and political consequences of interstate hostility, and concern about biased local political processes." Id. at 1206. See Day, The Rehnquist Court and the Dormant Commerce Clause Doctrine, supra at 713 (stating the most important rationale underlying dormant Commerce Clause jurisprudence is the "political process rationale"); Smith, supra at 1209 (stating that one of the reasons the Supreme Court disfavors discriminatory state regulations is because of "the concern that such regulations are the product of political processes in which those mainly burdened are inadequately represented").

(17.) See supra note 16; Daniel R. Ray, Cash, Trash, and Tradition. A New Dormant Commerce Clause Exception Emerges from United Haulers and Davis, 6 l TAX LAW. 1021,1034 [hereinafter Ray, Cash, Trash, and Tradition] (describing the basic dormant Commerce Clause analytical model).

(18.) Day, The Rehnquist Court and the Dormant Commerce Clause Doctrine, supra note 16, at 67879. Professor Day summarized the two-tier approach to dormant Commerce Clause analysis as follows:

(1) when a state engages in discriminatory regulatory conduct with respect to interstate commerce, such state laws are subjected to stringent scrutiny approaching per se invalidity; (2) even where the state has a legitimate non-protectionist governmental interest and proceeds in a facially neutral fashion, the Court will employ a "'balancing" test and will weigh the putative local benefits of the regulation against the burden it places on interstate commerce.

Id. See Hughes v. Oklahoma, 441 U.S. 322, 336 (1979); Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 100-01 (1994). See also Carey, supra note 3, at 156-59 (providing a review of standard dormant Commerce Clause analysis).

(19.) See Hughes, 441 U.S. at 344; Philadelphia, 437 U.S. at 624 (employing the "virtually per se rule of invalidity" to strike down a New Jersey statute prohibiting the treatment and disposal of waste that originated outside of the state).

The Court has recognized three types of discrimination for the purposes of dormant Commerce Clause analysis. David S. Day, The "Mature" Rehnquist Court and the Dormant Commerce Clause Doctrine: The Expanded Discrimination Tier, 52 S.D.L. REV. 1, 2 (2009). "First, a state regulation can be facially discriminatory. Second, a facially-neutral regulation may be discriminatory in purpose. Third, a state regulation may be discriminatory in effect even if it would be facially neutral and there is no showing of discriminatory purpose." Id.

(20.) Oregon Waste, 511 U.S. at 100-01.

(21.) See David S. Day, Revisiting Pike: The Origins of the Non-Discrimination Tier of the Dormant Commerce Clause Doctrine, 27 HAMLINE L. REV. 45, 46 (2004). "Before the 1970 Pike decision, there had been Supreme Court decisions relating to nondiscriminatory state regulations. The Pike decision, however, was a conscious effort to synthesize this amorphous body of case law" Id. See also Pike, 397 U.S. at 142. In Pike, the Court invalidated an Arizona law prohibiting Bruce Church from shipping uncrated cantaloupes outside the State. Id. at 146. Compliance with the law would require Bruce Church to build packing facilities in Arizona at a cost of about $200,000. Id. at 140. The Arizona law was stuck down on the grounds that the burden on Bruce Church was substantial when weighed against the state interest in enhancing the reputation of Arizona growers through product labeling. Id. at 146.

(22.) Pike,, 397 U.S. at 142 (citing Huron Portland Cement Co. v. City of Detroit, 362 U.S. 440, 443 (1960)); Hughes, 441 U.S. at 336. See Oregon Waste. 511 U.S. at 100-01. This two-tiered analysis has been applied by the Court to strike down several state and local regulations. See, e.g., South-Central Timber Dev. Inc. v. Wunnicke, 467 U.S. 82 (1984) (invalidating an Alaska regulation that required timber to be processed in Alaska before it was transported to another state); Toomer v. Witsell, 334 U.S. 385 (1948) (invalidating a South Carolina statute requiring shrimp fishermen to unload, pack, and stamp their catch before exporting it out of state); Foster-Fountain Packing Co. v. Haydel, 278 U.S. 1 (1928) (invalidating a Louisiana statute prohibiting the exportation of shrimp unless the heads and hulls had first been removed in Louisiana).

One of the cases struck down under the two-tiered analysis was Carbone v. City of Clarkstown, 511 U.S. 383 (1994). Carbone would later be a seminal case in the Court's analysis in United Haulers. United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 339 (2007). In Carbone, the Court evaluated the constitutionality of a "flow control ordinance" enacted in Clarkstown, New York that required all local solid waste to be deposited at a particular solid waste transfer station owned by a private contractor. See generally Carbone, 511 U.S. 383. In effect, the ordinance granted a private monopoly on local garbage processing, Id. at 402. In conducting its analysis, the Court found that the State's interest in protecting private industry was significantly lower than the State's interest in protecting and promoting its citizens' health, welfare, and safety. Id. at 393-94. The Court also noted that there were viable alternatives to the flow control ordinance enacted in Clarkstown and, thus, the ordinance was per se invalid. Id. at 393.

(23.) See Hughes, 426 U.S. 794; Reeves, Inc. v. Stake, 447 U.S. 429 (1980); White v. Mass. Council of Constr. Employers, Inc., 460 U.S. 204 (1983). For a detailed examination of the justification behind the development of the market-participant exception in dormant Commerce Clause Doctrine, see Norman R. Williams, Taking Care of Ourselves. State Citizenship, the Market. and the State, 69 OHIO ST. L.J. 469,482 (2008)[hereinafter Williams, Taking Care of Ourselves].

(24.) U.S.v. Colgate & Co., 250 U.S. 300, 307 (1919) (recognizing that a trader or manufacturer has the freedom to engage in business with whomever he pleases).

(25.) Reeves, 447 U.S. at 439. See Dan T. Coenen, The Impact of the Garcia Decision on the Market-Participant Exception to the Dormant Commerce Clause, 1995 U. ILL. L. REV. 727,744 (1995). Coenen aptly summarizes the Court's justification for the market-participant exception as follows:
   First, as a general matter, it is fair and consistent with broadly
   shared conceptions of property to let state governments favor state
   residents when selecting the recipients of the state's own largess.
   Second, the values of federalism suggest a special need to avoid
   interference with state autonomy in this area. Third, marketplace
   preferences for local concerns in general pose less of a danger to
   commerce clause values than do those discriminatory regulations and
   taxes that engendered recognition of the dormant commerce clause
   principle. Fourth, formal considerations emanating from
   constitutional text and history suggest that states should have a
   freer hand when dealing in the market than when regulating others'
   efforts at free trade. And fifth, institutional considerations
   counsel heightened caution in applying the donnant commerce clause
   to market-participant cases.


Id. at 744 (internal citations omitted).

(26.) Reeves, 447 U.S. at 438 (internal citations omitted).

(27.) Atkin v. Kansas, 191 U.S. 207, 222-223 (1903). See Heim v. McCall, 239 U.S. 175, 191 (1915). There exists extensive secondary literature addressing the market-participant exception. See, e.g., Williams, Taking Care of Ourselves, supra note 23;Treg A. Julander, State Resident Preference Statutes" and the Market-Participant Exception to the Dormant Commerce Clause, 24 WHITTIER L. REV. 541 (2002); Mark P. Gergen, The Selfish State and the Market, 66 TEX. L. REV. 1097 (1988); Coenen, Untangling the Market-Participant Exemption, supra note 16.

(28.) 426 U.S. 794 (1976).

(29.) Id.

(30.) Id. at 799. The Court observed,
   The statute extends its burdens of fines, and its benefits in the
   form of a share in bounties, only to wreckers that maintain
   junkyards located in Maryland, and requires a license only of those
   wreckers. There is no similar residency requirement for scrap
   processors that wish to obtain a license and participate in the
   bounty program[.]


Id.

(31.) Id. at 805-06.

(32.) Id. at 808.

(33.) Id. at 810 (internal citations omitted). See Karl Manheim, New-Age Federalism and the Market-Participant Doctrine, 22 ARIZ. ST. L.J. 559, 583-86 (1990) (providing a historical review of the Court's distinction between market regulation and market participation).

(34.) 447 U.S. 429 (1980).

(35.) Id. The cement plant was constructed in 1919 in response to "regional cement shortages that 'interfered with and delayed both public and private enterprises,' and that were 'threatening the people of [South Dakota].'" Id. at 430-31 (citing Eakin v. S.D. State Cement Comm'n, 183 N.W. 651 (S.D. 1921)). Although the plant was established to provide cement exclusively to South Dakotans, the plant's production of cement soon exceeded demand within the state, Id. Consequently, the plant began producing cement for buyers in neighboring states. Id. at 432. From 1970 to 1977, roughly 40% of the plant's output was produced for out-of-state buyers. Id.

(36.) Id. at 432-33. The most significant factor contributing to the cement shortage was "a booming construction industry" that "spurred demand for cement both regionally and nationally." Id. at 432.

(37.) Id. at 433. The petitioner was Reeves, Inc., a ready-mix concrete distributor organized under Wyoming law. Id. From 1958 to 1978, "Reeves purchased about 95% of its cement from the South Dakota plant," amounting to $1,172,000 in sales. Id. at 432.

(38.) Id. at 445-48.

(39.) See generally id.

(40.) 460 U.S. 204 (1983).

(41.) Id.

(42.) Id. at 214.

(43.) Id. at 223 (internal citation omitted). The Supreme Court affirmed White in United Bldg. and Constr. Trades v. City of Camden, in which the Court considered the validity of a Camden municipal ordinance that required contractors and subcontractors working on public works projects to employ at least forty percent Camden residents. 465 U.S. 208 (1984). The Court analyzed the ordinance under the Privileges and immunities Clause and did not consider the applicability of the market-participant exception. Id. at 210. However, the majority considered the Privileges and Immunities Clause challenge by contrasting it with the Commerce Clause and concluded that the city could "without fear of violating the Commerce Clause, pressure private employers engaged in public works projects ... to hire city residents." Id. at 221.

(44.) 467 U.S. 82 (1984). See Williams, Taking Care of Ourselves, supra note 23, at 475-76. The author notes that White, in effect, extended the market-participant exception by validating a Boston program requiring city contractors to hire a set percentage of local residents. Id. "The City was not itself favoring local businesses; it was requiring the businesses with which it dealt to favor local residents. Stated differently, the required favoritism was 'downstream.'" Id. at 475. South-Central Timber signaled the Court's retreat from its "broad endorsement of the validity of downstream restraints." Id. at 476.

(45.) South-Central Timber, 467 U.S. at 84-85.

(46.) Id. at 97.

(47.) Id.

(48.) 486 U.S. 269 (1988).

(49.) Id. at 271-72.

(50.) Id.

(51.) Id. at 277 (citing Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 806-10 (1976)).

(52.) Id. at 277-78.

(53.) United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 334-35 (2007). "Oneida and Herkimer Counties span over 2,600 square miles and are home to about 306,000 residents." Id. at 334.

(54.) Id. at 335.

(55.) Id. at 334-35. A 1969 planning study identified 44 operating dumping sites in Oneida and Herkimer Counties. Brief for Respondents at 3, United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007) (No. 05-1345) [hereinafter Brief for Respondents]. In the 1980s, several drinking water wells located near these dumping sites were ordered to close. Id. State and Federal authorities later identified twelve of these sites as "inactive hazardous waste disposal sites." Id. at 4.

(56.) United Haulers, 550 U.S. at 334-35. "Dramatic price hikes were not uncommon: In 1986, for example, a county contractor doubled its waste disposal rate on six weeks' notice." Id. at 335.

(57.) Id.

(58.) Id. See Brief for Respondents at 1-2 (providing a detailed explanation of the Authority's operations).

(59.) United Haulers, 550 U.S. at 336.

(60.) Id. at 335. The contracts were entered into in May and December of 1989. Brief for Petitioners at 3, United Haulers, 550 U.S. 330 (2007) (No. 05-1345) [hereinafter Brief for Petitioners]. Under the Contracts, the Authority was required to "purchase, operate, construct, and develop facilities for the processing and/or disposal of solid waste and recyclables generated in the Counties." Id. As consideration, the Counties were to deliver all locally generated solid waste to facilities designated by the Authority. Id.

(61.) United Haulers, 550 U.S. at 335.

(62.) Id. at 336. The term "tipping fees" refers to charges waste collectors must pay to unload waste at a processing facility. Id. at 336 n. 1. "As of 1995, haulers in the Counties had to pay tipping fees of at least $86 per ton, a price that ballooned to as much as $172 per ton if a particular load contained more than 25% recyclables." Id.

(63.) Id.

(64.) Id.

(65.) Id.

(66.) Id. at 337. Oneida's flow control ordinance provides in part:
   From the time of placement of solid waste and of recyclables at the
   roadside or other designated area approved by the County or by the
   Authority pursuant to contract with the County, or by a person for
   collection in accordance herewith, such solid waste and recyclables
   shall be delivered to the appropriate facility, entity or person
   responsible for disposition designated by the County or by the
   Authority pursuant to contract with the Authority.


Id. at 337 n.2 (internal citations omitted). The relevant portion of Herkimer's flow control ordinance provides:
   After placement of garbage and of recyclable materials at the
   roadside or other designated area approved by the Legislature by a
   person for collection in accordance herewith, such garbage and
   recyclable material shall be delivered to the appropriate facility
   designated by the Legislature, or by the Authority pursuant to
   contract with the County.


Id.

(67.) Id. at 336.

(68.) Id. at 337.

(69.) Id.

(70.) Id.

(71.) Id.

(72.) United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Management Authority, NO. CIV.A. 95-CV-516, 2000 WL 33955170, at *6 (N.D.N.Y., 2000). See Carbone v. City of Clarkstown, 511 U.S. 383 (1994).

(73.) See Carbone, 511 U.S. at 393-94

(74.) United Haulers, 2000 WL 33955170, at *3-6. The defendants attempted to distinguish the challenged ordinances by asserting that they constituted "an inextricable part of a public waste management system for the local management of local waste." Id. at 5. The Court rejected this argument, noting that, "the relevant case law consistently has extracted flow control laws as an improper element of general waste management schemes." Id. The Court went on to conclude that "Although defendants contend repeatedly that their system treats all parties alike with respect to disposal services, what they actually are doing is hoarding all local solid waste for the benefit of a preferred local disposal facility." Id.

(75.) Id. at 7. See United Haulers, 550 U.S. at 337.

(76.) 261 F.3d 245, 263 (2d Cir. 2001). The appellate court reasoned:
   A careful reading of the separate opinions in Carbone does not
   support United Haulers' theory. Indeed, if we were to divine direct
   guidance from those opinions, we would reach the opposite
   conclusion; namely, that in Carbone the Justices were divided over
   the fact of whether the favored facility was public or private,
   rather than on the import of that distinction.


Id. at 259.

(77.) United Haulers, 261 F.3d at 257.

(78.) Id. at 264.

(79.) United Haulers, 550 U.S. at 337.

(80.) United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 438 F.3d 150, 160 (2d Cir. 2006). The appellate court acknowledged that the ordinances may place some burden on interstate commerce by prohibiting the export of solid waste and recyclables. Id. However, the court had previously held a municipality may impose a public monopoly encompassing the activities of waste collection, processing and disposal. Id. at 160-61 (citing USA Recycling, Inc. v. Town of Babylon, 66 F.3d 1272, 1293-94 (2d Cir.1995)). Thus, the court reasoned:
   If a municipal government may eliminate the local private market
   for waste disposal services, we think it necessarily follows that a
   local government imposes no more than a limited burden on
   interstate commerce when it creates a partial monopoly with respect
   to solid waste management-here, at the processing stage-that has
   the ancillary effect of diminishing interstate commerce in that
   same market.


Id. at 161.

(81.) United Haulers, 550 U.S. at 338.

(82.) Id. at 347. The Court recognized that the determinative question under the "'dormant' aspect of the Commerce Clause" is whether the government action facially discriminates against interstate commerce. Id. at 338-39. If a law is discriminatory and its purpose is "simple economic protectionism," it will be subject to a "virtually per se rule of invalidity." Id. (quoting Philadelphia v. N.J., 437 U.S. 617, 624 (1978)). A law which is found to be non-discriminatory will be upheld "unless the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits." Id. at 346 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)).

(83.) 511 U.S. 383 (1994).

(84.) Id.

(85.) United Haulers, 550 U.S. at 334.

(86.) Id. at 343.

(87.) Id. at 344 (quoting United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 261 F.3d 245, 264 (2d Cir. 2001) (Calabresi, J., concurring)). To support its determination that waste disposal is a traditional government function, the Court cited USA Recycling, Inc. v. Town of Babylon, 66 F.3d 1272, 1275 (2d Cir. 1995) in which the Second Circuit Court of Appeals declared, "For ninety years, it has been settled law that garbage collection and disposal is a core function of local government in the United States." Id. at 344. The Court also noted, "Congress itself has recognized local government's vital role in waste management, making clear that 'collection and disposal of solid wastes should continue to be primarily the function of State, regional, and local agencies.'" Id. (internal citations omitted).

The Court's hesitancy to interfere with a state's traditional governmental function was also apparent in National League of Cities v. Usery. 426 U.S. 833 (1976). In National League of Cities, the Court held the Commerce Clause does not empower Congress to enforce the minimum wage and overtime provisions of the Fair Labor Standards Act ("FLSA") against the States "in areas of traditional governmental functions." Id. at 852. In 1985, however, the Court in Garcia v. San Antonio Metropolitan Transit Authority, overruled National League of Cities because "[a]lthough National League of Cities supplied some examples of 'traditional governmental functions,' it did not offer a general explanation of how a 'traditional' function is to be distinguished from a 'nontraditional' one. Since then, federal and state courts have struggled with the task[.]" 469 U.S. 528, 530, 538-57 (1985) (internal citation omitted).

(88.) United Haulers, 550 U.S. at 332. The Court stated:
   Our dormant Commerce Clause cases often find discrimination when a
   State shifts the costs of regulation to other States, because when
   "the burden of state regulation falls on interests outside the
   state, it is unlikely to be alleviated by the operation of those
   political restraints normally exerted when interests within the
   state are affected." Here, the citizens and businesses of the
   Counties bear the costs of the ordinances.


Id. at 345 (quoting Southern Pacific Co. v. Arizona ex rel. Sullivan, 325 U.S. 761, 767-68 n. 2 (1945)).

(89.) United Haulers, 550 U.S. at 345.

(90.) Id. at 346 (citing Pike v. Bruce Church, 397 U.S. 137, 142 (1970)).

(91.) Pike, 397 U.S. at 142.

(92.) United Haulers, 550 U.S. at 346.

(93.) Id. The Court noted that revenue generation was not an interest that could '"justify discrimination against interstate commerce"' but found that it was, nevertheless, "a cognizable benefit for purposes of the Pike test." Id. (quoting C & A Carbone Inc. v. Clarkstown, 511 U.S. 383, 393 (1994)).

(94.) Id.

(95.) Id. In finding it unnecessary to determine whether the Counties' ordinances imposed an incidental burden on interstate commerce, the Court noted, "After years of discovery, both the Magistrate Judge and the District Court could not detect any disparate impact on out-of-state as opposed to in-state businesses." Id.

(96.) Id.

(97.) Dep't of Revenue of Ky. v. Davis, 128 S.Ct. 1801, 1804-05 (2008).

(98.) Id. The Kentucky method for calculating state income tax was modeled after the federal income tax assessment method which assesses net income by excluding any interest received from state or local bonds. Id. However, in calculating net income, Kentucky adds back any interest received from bonds of foreign states or political subdivisions. Id. at 1805.

(99.) Id.

(100.) Id. at 1806. The Court emphasized that both municipal bonds and deferential tax schemes have been used throughout history as a means for states to generate revenue. Id. The Court then noted that "Differential tax schemes like Kentucky's have a long pedigree, too.... Today, 41 States have laws like the [Kentucky tax scheme]." Id. at 1806-07 (internal citations omitted).

(101.) Id. at 1807.

(102.) Id.

(103.) Davis v. Revenue Cabinet, No. 03C103282, 2004 WL 5358776 (Ky. Cir. Ct. 2004). The Kentucky Trial Court reasoned, "Whether the state is viewed as a market-participant or as using its proprietary powers, or both, it clearly may pay a higher rate of interest to resident purchasers based upon the theories of distributing state created benefits and market participation." Id. at *1.

(104.) Davis v. Department of Revenue of the Finance and Administration Cabinet, 197 S.W.3d 557, 564 (Ky. Ct. App. 2006). The court reasoned:
   No one could seriously argue against the principle that Kentucky
   acts as a market-participant when it issues bonds. But Kentucky's
   issuance of bonds is not the issue. Rather, the sole issue is
   Kentucky's decision to tax only extraterritorial bonds. Thus, the
   market participant theory is inapplicable as a State's "assessment
   and computation of taxes" is, clearly, "a primeval governmental
   activity." Accordingly, "when a state chooses to tax its citizens,
   it is acting as a market regulator[,]" not as a market participant.
   Therefore, the Department's market-participant argument is without
   merit.


Id. (quoting Shaper v. Tracy, 647 N.E.2d 550, 552 (Ohio 1994)).

(105.) Id.

(106.) Department of Revenue of Ky. v. Davis, 128 S.Ct. 1801, 1808 (2008).

(107.) Id. at 1804.

(108.) See id. at 1810.

(109.) Id.

(110.) Id.

(111.) Id. at 1810 (citing United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 343 (2007) (noting that "laws favoring local government ... may be directed toward any number of legitimate goals unrelated to protectionism")).

(112.) Id.
   [The logic of United Haulers] applies with even greater force to
   laws favoring a State's municipal bonds, given that the issuance of
   debt securities to pay for public projects is a quintessentially
   public function.... Bonds place the cost of a project on the
   citizens who benefit from it over the years ... and they allow for
   public work beyond what current revenues could support.... Bond
   proceeds are thus the way to shoulder the cardinal civic
   responsibilities listed in United Haulers: protecting the health,
   safety, and welfare of citizens. Id. 1810-11.


(113.) Id. (citing United Haulers, 550 U.S. at 337).

(114.) Day, The Rehnquist Court and the Dormant Commerce Clause Doctrine, supra note 16, at 678-79 (providing a review of the two-tiered approach to modern dormant Commerce Clause analysis). See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).

(115.) Davis, 128 S.Ct. at 1817. The Court determined that Congress "is the preferable institution for incurring the economic risks of any alteration in the way things have traditionally been done." Id. at 1819.

(116.) Id. at 1811-15. Part III-B was joined only by Justices Stevens and Breyer. Id. Chief Justice Roberts, Justice Scalia and Justice Ginsburg, who had joined Part III-A, declined to proceed beyond the analysis conducted in Part III-A. Id. at 1819 (Stevens, J., concurring); id. at 1821 (Roberts, C.J., concurring in part); id. (Scalia, J., concurring in part).

(117.) Id. at 1812-13.

(118.) Id. Justice Sourer cited three cases as examples of the government acting as a market-participant as well as a market regulator. Id. The first of these cases was White v. Massachusetts Council of Constr. Employers, Inc., in which the Court sustained an executive order of the Mayor of Boston requiring all private construction companies hire Boston residents for 50% of their workforce. 460 U.S. 204 (1983). Justice Souter concluded that the Boston executive order at issue in White was a regulation in that it "imposed general restrictions on the hiring practices of private contractors[.]" Davis, 128 S.Ct. at 1813. In addition, Justice Souter determined that Boston was participating in the market "by 'expend[ing] its own funds in entering into construction contracts for public projects.'" Id. (quoting White, 460 U.S. at 214-215).

The second case cited by Justice Souter was Hughes v. Alexandria Scrap Corp., in which the Court upheld a Maryland program offering subsidies to scrap processors that effectively favored in-state processors over out-of-state processors. 426 U.S. 794 (1976). In considering the Maryland program at issue in Hughes, Justice Souter observed, "Superficially, the scheme was regulatory in nature; but the Court's decision was premised on its view that, in practical terms, Maryland had not only regulated but had also 'entered into the market itself to bid up [the] price' of automobile hulks." Davis, 128 S.Ct. 1813 (quoting Hughes, 425 U.S. at 806).

The final case cited by Justice Souter was United Haulers. Id. at 1813. See generally United Haulers, 550 U.S. 330. Although not decided under the market-participant exception, Justice Souter cited United Haulers as an example of government regulation complementing the government's participation in the market. Davis, 128 S.Ct. at 1813.

(119.) Id. at 1813-14.

(120.) Id.

(121.) Id. 1813-14 (2008). In considering United Haulers, Justice Souter observed:
   We upheld the government's decision to shut down the old market for
   trash processing only because it created a new one all by itself,
   and thereby became a participant in a market with just one supplier
   of a necessary service. If instead the government had created a
   monopoly in favor of a private hauler, we would have struck down
   the law.... United Haulers accordingly turned on our decision to
   give paramount consideration to the public function in actively
   dealing in the trash market[.]


Id. at 1813.

(122.) Id.

(123.) Id. at 1814.

(124.) Id. at 1811.

(125.) See United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330 (2007). Justice Souter himself acknowledged in his opinion that United Haulers was "decided independently of the market participant exception[.]" Davis, 128 S.Ct. at 1802.

(126.) See United Haulers, 550 U.S. at 363 (2007) (Alito, J., dissenting) (noting the government's concession that the market-participant doctrine was inapplicable to that case).

(127.) Id. at 346. "The Counties' flow control ordinances are properly analyzed under the test set forth in Pike v. Bruce Church, Inc., which is reserved for laws 'directed to legitimate local concerns, with effects upon interstate commerce that are only incidental.'" Id. (internal citation omitted) (quoting Philadelphia v. N.J., 437 U.S. 617, 624 (1978)).

(128.) Id. See Part II.B.

(129.) See infra Part V.A.. See also Davis, 128 S.Ct. at 1812.

(130.) See infra Part V.B.

(131.) See infra Part V.C.

(132.) See, e.g., South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 93 (1984); White v. Mass. Council of Constr. Employers, Inc., 460 U.S. 204, 206-08 (1983); Reeves, Inc. v. Stake, 447 U.S. 429, 436-37 (1980); Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810 (1976).

(133.) South-Central Timber, 467 U.S. at 93 (emphasis added).

(134.) United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 335 (2007).

(135.) Id. at 335-36.

(136.) See id. at 363 (Alito, J., dissenting) (noting that petitioners conceded that they were "not asserting a defense under the market-participant doctrine").

(137.) Davis, 128 S.Ct. at 1811.

(138.) Id. at 1812.

(139.) Id. at 1813.

(140.) Id. See Dan T. Coenen, The Supreme Court's Municipal Bond Decision and the Market-Participant Exception to the Dormant Commerce Clause (2009) (unpublished manuscript), available at http://works.bepress.com/dan_coenen/21 [hereinafter Coenen, The Supreme Court's Municipal Bond Decision]. Professor Coenen observes:
   In the view of both of th[e] majorities [in White and Alexandria
   Scrap], the state had not engaged in regulatory action, but
   "solely" in marketplace behavior. Thus, it is inaccurate in the
   extreme to say that the market-participant doctrine applied in
   either instance because the Court had concluded that the
   government's "commercial activities ... and ... regulatory efforts
   complemented each other."


Id. at 15 (quoting Davis, 128 U.S. at 1813). But see Timothy J. Slattery, The Dormant Commerce Clause, Adopting a New Standard and a Return to Principle, 17 WM. & MARY BILL RTS. J. 1243, 1256-57 (2009) (arguing in support of Justice Souter's position that a government's market regulation and market participation should be viewed as a unitary whole).

(141.) Davis, 128 S.Ct. at 1813 (internal citations and quotations omitted).

(142.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 10-13.

(143.) White, 460 U.S. at 205-06; Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 12-15.

(144.) White 460 U.S. at 205-06.

(145.) Id. at 211 n.7. The Court explained:
   In this case, the mayor's executive order covers a discrete,
   identifiable class of economic activity in which the city is a
   major participant. Everyone affected by the order is, in a
   substantial if informal sense, "working for the city." Wherever the
   limits of the market participation exception may lie, we conclude
   that the executive order in this case falls well within the scope
   of Alexandria Scrap and Reeves.


Id.

(146.) See id. at 214. See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 11. As Professor Coenen observes:
   The whole point of the Court's analysis in White was that market
   participation and market regulation are mutually exclusive
   categories, so that the market-participant exception by definition
   becomes inapplicable once it is determined that market regulation
   is present. Any doubt in this regard was removed by the Court's
   follow-up decision in United Building & Construction Trades Council
   v. Mayor of Camden, in which the Court declared that the
   controlling consideration in White was that Boston had acted
   "solely as a market-participant."


Id. (footnotes omitted) (quoting United Bldg. and Constr. Trades Council of Camden County v. City of Camden, 465 U.S. 208, 220 (1984)).

(147.) See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 12. But see Ray, Cash, Trash, and Tradition, supra note 17, at 1072 (arguing for the adoption of Justice Souter's methodology in Part III-B of Davis).

(148.) See Hughes v. Alexandria Scrap Corp., 426 U.S. 794 (1976); Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 13-14.

(149.) Davis, 128 S. Ct. at 1813 (internal citations omitted).

(150.) Id. See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 13-15 (discussing the mischaracterization of Alexandria Scrap in Davis); Alexandria Scrap, 426 U.S. 794.

(151.) Alexandria Scrap, 426 U.S. at 806.

(152.) Id. at 806-09.

(153.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 13-15. See Davis, 128 S. Ct. 1801; White v. Mass. Council of Const. Employers, Inc., 460 U.S. 204, 207 (1982); Alexandria Scrap Corp., 426 U.S. 794.

(154.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 13-15; see Davis, 128 S.Ct. at 1812.

(155.) Daniel R. Ray, Extending United Haulers to Fit Davis: Tax Exemptions as a Downstream "How Control" Device, 2 n.10. (Aug. 8, 2007) (unpublished manuscript), available at, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1005762. "The terms 'upstream' and 'downstream' are used to denote that point in the flow of commerce relative to a state's market participation where a government regulation operates." Id.

(156.) Id. "In United Haulers, the government participated in the waste disposal market by owning and operating a waste disposal site. The flow control ordinances were upstream regulations because they operated upstream, or in advance of, the market in which the government participated." Id.

(157.) Ray, Cash, Trash, and Tradition, supra note 17, at 1032. In addressing the Court's holding in Davis, the author observes:
   The Kentucky Court of Appeals found that the market participant
   doctrine would protect Kentucky's activities when the state was
   acting as a participant in the bond market, but would be of no use
   regarding the taxation of interest on out-of-state municipal bonds.
   Though the Kentucky appeals court's analysis did not say so, such
   tax regulations are an example of downstream regulation, and their
   constitutional status most likely would have been controlled by
   analogy to South Central Timber Development, Inc. v. Wunnicke.


Id.

(158.) South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82 (1984).

(159.) Dep't of Revenue of Ky. v. Davis, 128 S. Ct. 1801, 1812 (2008).

(160.) Id.

(161.) See South Central Timber, 467 U.S. 82 (1984); Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 22-23. Professor Coenen stated:
   Part IIIB indicates ... that Justice Souter stood ready to validate
   under the market-participant doctrine even the fully coercive state
   regulation at issue in United Haulers due to its linkage to state
   sales of waste services. Thus, it is hard to see why he would not
   even more readily validate the non-coercive form of state
   regulation imposed by way of a mere contractual condition in a case
   like South-Central Timber.


Id.

(162.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 22-23.

(163.) United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 342 (2007).

(164.) Id. at 360 (Alito J., dissenting) (recognizing that the majority's distinction between public and private entities is unsupported by Supreme Court precedent and stating, "we have never treated discriminatory legislation with greater deference simply because the entity favored by that legislation was a government-owned enterprise").

(165.) See supra Part II.B. In conducting the two-tiered analysis for dormant Commerce Clause issues, the Court must first determine whether the law is facially discriminatory and, thus, subject to a "virtually per se rule of invalidity." Philadelphia v. N.J., 437 U.S. 617, 624 (1978). The Court has defined "discrimination" as "differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter." Or. Waste Sys., Inc. v. Dep't of Envtl. Quality, 511 U.S. 93, 99 (1994). The ordinance at issue in United Haulers fit under the Court's definition of discrimination because it benefitted in-state interests at the expense of out-of-state trash processors. See United Haulers, 550 U.S. 330. By excepting from standard dormant Commerce Clause analysis laws that benefit local governments, the Court has freed government regulations such as the Counties' ordinances in United Haulers from strict scrutiny. Id.

(166.) See Brannon P. Denning, Reconstructing the Dormant Commerce Clause, 50 WM. & MARY L. REV. 417, 512-13 (2008) [hereinafter Denning, Reconstructing the Dormant Commerce Clause] (arguing that extension of United Haulers in Davis was inappropriate and that "Davis was a hard case that the Court decided as if it were an easy one"); Coenen, Where United Haulers Might Take Us, supra note 3, at 22. Professor Coenen observes:
   The bottom line is that the Court could have decided Davis in ways
   that would have confined the operation of the state-self-promotion
   rule to cases that closely resembled United Haulers itself. The
   Court, however, eschewed this course of action, thus affording to
   its recently created dormant Commerce Clause immunity an extended
   reach.


Id. The Court could have distinguished United Haulers from Davis on the grounds that the individuals harmed by the regulation in Davis were out-of-state political entities. See Brief for Respondents at 33, Dep't of Revenue of Ky. v. Davis, 128 S. Ct. 1801 (2008) (No. 06-666) (noting that "out-of-state issuers and sellers bear the most palpable harm" and "have no voice in the Kentucky legislature"). Thus, local voters had little incentive to lobby for removal of the government regulation. Id. Indeed, local voters often held in-state bonds that received a tax advantage from the government regulation. Id.; Coenen, Where United Haulers Might Take Us, supra note 3, at 21. For additional grounds on which Davis could be distinguished from United Haulers, see Coenen, Where United Haulers Might Take Us, supra note 3, at 21-23.

(167.) Denning, Reconstructing the Dormant Commerce Clause, supra note 166, at 512-13.

(168.) See United Haulers, 550 U.S. at 342; Davis, 128 S.Ct. at 1813.

(169.) See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 25 (examining how Justice Souter's revised market participation exception would interact with the state-self-promotion exception). There are several limitations to the applicability of the state-self-promotion exception that can be derived from the Court's rulings in United Haulers and Davis. Id. First, the regulation in question must be "public" as opposed to "private" in nature. United Haulers, 550 U.S. at 334 (noting that the Oneida and Herkimer county ordinances required haulers to bring waste to "facilities owned and operated by a state-created public benefit corporation" as opposed to a private facility). Second, the regulation must treat all private entities equally. Davis, 128 S.Ct. at 1811; United Haulers, 550 U.S. at 342 (holding that laws "benefit[ing] a clearly public facility, while treating all private companies exactly the same ... do not discriminate against interstate commerce for purposes of the dormant Commerce Clause[.]" (emphasis added)). Third, the regulation must carry out a traditional government function. Davis, 128 S.Ct. at 1811 (emphasizing the traditional government function of municipal bonds). Fourth, the regulation must meet the second tier of the dormant Commerce Clause analytical model: the Pike balancing test. United Haulers, 550 U.S. at 346 (applying an abbreviated version of the Pike balancing test to the facts of the case); Davis, 128 S.Ct. at 1817-18 (declining to apply the Pike balancing test but upholding United Haulers). This

analysis focuses on the effect of Justice Souter's revised market-participant exception on the later two requirements of the state-self-promotion exception.

(170.) Davis, 128 S.Ct. at 1811. See Edward A. Zelinsky, The False Modesty of Department of Revenue v. Davis: Disrupting the Dormant Commerce Clause Through the Traditional Public Function Doctrine, 41 (Mar. 2009) (unpublished manuscript), available at http:// ssrn.com/abstract=1352687. Zelinsky concludes that "Davis ... confirms that the 'traditional public function' category is now ensconced in the dormant Commerce Clause doctrine of the Roberts Court." Id.

(171.) See generally United Haulers, 550 U.S. 330; Davis, 128 S.Ct. 1801.

(172.) See generally Coenen, Where United Haulers Might Take Us, supra note 3 (offering a detailed examination of the state-self-promotion exception and its limitations). See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 25 (noting that the judicial acceptance of Justice Souter's revised market-participant exception would "as practical matter, untether the United Haulers doctrine from any limit based on either (1) the nontraditional character of the government's action and (2) the continuing applicability of Pike balancing analysis").

(173.) Davis, 128 S.Ct. 1812. See United Haulers, 550 U.S. at 342.

(174.) See Davis, 128 S.Ct. at 1811-15.

(175.) United Haulers, 550 U.S. at 342.

(176.) See Davis, 128 S.Ct. at 1812.

(177.) Id. See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 25. "[T]he market-participant exception as reformulated in Part IIIB [of Davis] would essentially cover all the ground now occupied by the state-self-promotion principle and cover much additional ground as well." Id.

(178.) See infra Part V.C. 1-2.

(179.) Id.

(180.) United Haulers, 550 U.S. at 344 (internal quotation omitted). Justice Souter explained the purpose of considering whether a regulation supports a traditional governmental function as follows:
   The point [in United Haulers] of asking whether the challenged
   governmental preference operated to support a traditional public
   function was not to draw fine distinctions among governmental
   functions, but to find out whether the preference was for the
   benefit of a government fulfilling governmental obligations or for
   the benefit of private interests, favored because they were
   local.... Because this is the distinction at which the enquiry
   about traditional governmental activity is aimed, it entails
   neither tautology nor the hopeless effort to pick and choose among
   legitimate governmental activity that led to Garcia v. San Antonio
   Metropolitan Transit Authority[.]


Davis, 128 S. Ct. at 1811 n.9 (citing Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528 (1985)). Hence, the Court introduced the traditional governmental function consideration as a method for distinguishing public preference from private preference. Ray, Cash, Trash, and Tradition, supra note 17, at 1043-44 (stating, "Conceptually, the traditional government functions rule is intended to distinguish those market activities that can be coupled with preferential regulatory treatment from those that cannot.").

(181.) United Haulers, 550 U.S. at 344. The Court noted that"[t]he policy of the State of New York favors 'displac[ing] competition with regulation or monopoly public control' in this area. We may or may not agree with that approach, but nothing in the Commerce Clause vests the responsibility for that policy judgment with the Federal Judiciary." Id. (internal quotation omitted).

(182.) United Haulers, 550 U.S. at 344 (quoting United Haulers Ass'n, Inc. v. Oneida-Herkimer Solid Waste Mgmt. Auth., 261 F.3d 245 (2d Cir. 2001)). The Court also cited USA Recycling, Inc. v. Town of Babylon, 66 F.3d 1272, 1275 (2d Cir. 1995) in which the Court held, "For ninety years, it has been settled law that garbage collection and disposal is a core function of local government in the United States." Id. See generally Zelinsky, supra note 170 (analyzing the Court's focus on traditional governmental functions in Untied Haulers and Davis). Absent from the United Haulers opinion, however, was any explanation as to how dormant Commerce Clause review unduly interferes with traditional government functions. See generally United Haulers, 550 U.S. 330. Indeed, the dormant Commerce Clause in no way prevents states from engaging in traditional governmental functions such as waste disposal. Norman R. Williams, The Foundations of the American Common Market, 84 NOTRE DAME L. REV. 409, 462 (2008). The doctrine simply prevents state and local governments from shielding their own operations from out-of-state competition. Id. "Hence, so long as state and local governments do not enact discriminatory measures for protectionist reasons, they remain free to discharge their 'traditional governmental functions' in whatever manner they wish." Id.

(183.) Compare United Haulers, 550 U.S at 344, with Davis, 128 S.Ct. at 1811. See Zelinsky, supra note 170, at 41. Zelisky concludes that "Davis ... confirms that the 'traditional public function' category is now ensconced in the dormant Commerce Clause doctrine of the Roberts Court." Id.

(184.) Davis, 128 S.Ct at 1811 (emphasis added).

(185.) Id.

(186.) See Coenen, Where United Haulers Might Take Us, supra note 3, at 19.
   By suggesting that the Court might confine the state-self-promotion
   exception to "traditional" state activities, the Court moved to
   allay concerns that its ruling would encourage deeply problematic
   state takeovers of historically private businesses. In other words,
   the Court signaled that an important limitation might well keep the
   newly minted state-self-promotion doctrine from spinning out of
   control.


Id.

(187.) Davis, 128 S.Ct. at 1811. See Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 25-26.

(188.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 26. Coenen noted that "the market-participant exception applies equally to traditional and nontraditional undertakings." Id.

(189.) See Ray, Cash, Trash, and Tradition, supra note 17, at 1041(examining the traditional governmental function test in United Haulers and Davis and concluding that "the introduction of traditional government functions is the Court's attempt to fix this perceived problem by creating a subset of market activity where states can regulate free from dormant Commerce Clause restraint"). See Zelinsky, supra note 170, at 24. Zelinsky observed that,"[i]n the dormant Commerce Clause context, there are no convincing criteria for deciding when governmental activities are old enough to be 'traditional' or public enough to be 'public.'" Id.

(190.) Ray, Cash, Trash, and Tradition, supra note 17, at 1043. "Nothing in Justice Souter's opinion helps to distinguish the traditional government function from all others. The same is true of United Haulers." Id.

(191.) 426 U.S. 833 (1976).

(192.) Id.

(193.) Id. at 836-37.

(194.) Id. at 849.

(195.) Id. 851.

(196.) 469 U.S. 528 (1985).

(197.) Id. at 546.
   We therefore now reject, as unsound in principle and unworkable in
   practice, a rule of state immunity from federal regulation that
   turns on a judicial appraisal of whether a particular governmental
   function is "integral" or "traditional." Any such rule leads to
   inconsistent results at the same time that it disserves principles
   of democratic self-governance, and it breeds inconsistency
   precisely because it is divorced from those principles.


Id. at 546-47. See Zelinski, The False Modesty of Davis, supra note 170, at 3-5 (stating that, in Garcia, the Court "rejected for Commerce Clause purposes the 'traditional public function' doctrine as unworkable"); Coenen, Where United Haulers Might Take Us, supra note 3, at 90 (noting that the Court in Garcia "overruled National League of Cities based on the notion that efforts to distinguish between traditional and nontraditional state activities were unworkable and unwise").

(198.) Garcia, 469 U.S. at 546. The Court noted, "Thus far, this Court itself has made little headway in defining the scope of the governmental functions deemed protected under National League of Cities." Id. at 539. The Court went on to explain, "Any rule of state immunity that looks to the 'traditional,' 'integral,' or 'necessary' nature of governmental functions inevitably invites an unelected federal judiciary to make decisions about which state policies it favors and which ones it dislikes." Id. at 546. See John J. Greffet, Factoring in Tradition. The Proper Role of the Traditional Governmental Function Test, 53 ST. LOUIS U. L.J. 875, 897 (2009). Greffet observes that "[t]he one consensus that can be gleaned from the confusing precedent that followed National League of Cities is that application of the traditional governmental function test requires far too much balancing to truly be considered a bright line rule." Id.

(199.) Garcia, 426 U.S. at 539.

(200.) See Denning, Reconstructing the Dormant Commerce Clause, supra note 166, at 512 (viewing it as "strange that the Court would suggest ... a wish to resurrect the 'traditional government function' test it abandoned as unworkable in Garcia" and predicting that "the Court does not really intend to commit itself to [the traditional government function] doctrine's exhumation either"); Ray, Cash, Trash, and Tradition, supra note 17, at 1041. "Despite the Court's assurances to the contrary, there is little reason to think that the traditional government functions rule in this context will not fall victim to the same problems it had time and again in the past." Id.

(201.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 26-27.

(202.) Id. Professor Coenen notes,
   At least as of today, the rule of United Haulers goes no further
   than to shelter challenged regulatory measures when they are tied
   to traditional forms of state action in transferring valuable
   property or services. The market-participant doctrine, in contrast,
   applies without regard to the traditional or nontraditional nature
   of the state's activities. Part IIIB of the Davis opinion thus
   invites a significant de facto expansion of the United Haulers
   principle. By dressing that principle in new market-participant
   attire, Justice Souter would strip away any nontraditional-activity
   limitation on its operation.


Id. at 27.

(203.) United Haulers, 550 U.S at 346-47. See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). In Pike, the Court invalidated an Arizona law prohibiting Bruce Church from shipping uncrated cantaloupes outside the State. See generally id. Compliance with the law would require Bruce Church to build packing facilities in Arizona at a cost of about $200,000. Id. at 140. The Arizona law was stuck down on the grounds that the burden on Bruce Church was substantial when weighed against the state interest in enhancing the reputation of Arizona growers through product labeling. Id. at 146.

(204.) Id. at 142 (citing Huron Portland Cement Co. v. City of Detroit, 362 U.S. 440, 443 (1960)).

(205.) See United Haulers, 550 U.S. at 346-47. In finding it unnecessary to determine whether the Counties' ordinances imposed an incidental burden on interstate commerce, the Court noted, "After years of discovery, both the Magistrate Judge and the District Court could not detect any disparate impact on out-of-state as opposed to in-state businesses." Id. at 346.

(206.) Id. at 347.

(207.) See id.

(208.) See Pike, 397 U.S. at 142.

(209.) Id. See United Haulers, 550 U.S. 330; Department of Revenue of Ky. v. Davis, 128 S.Ct. 1801 (2008).

(210.) See supra Part II.B.; South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82 (1984) (applying the market-participant exception in lieu of the Pike balancing test). See also White v. Massachusetts Council of Constr. Employers, Inc., 460 U.S. 204 (1983); Reeves, Inc. v. Stake, 447 U.S. 429 (1980); Hughes v. Alexandria Scrap Corp., 426 U.S. 794 (1976).

(211.) Coenen, The Supreme Court's Municipal Bond Decision, supra note 140, at 28-29.

(212.) Id.

(213.) H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 538 (1949).

(214.) Panhandle E. Pipeline Co. v. Mich. Pub. Serv. Comm'n, 341 U.S. 329, 340 (1951) (Frankfurter, J., dissenting) (internal citation omitted).

LISA M. SLEPNIKOFF, J.D. Candidate, 2010, University of South Dakota School of Law; M.B.A., 2007, University of South Dakota; B.S., 2006, University of South Dakota. The author wishes to express her appreciation to Professor David S. Day for his guidance and support. The author also wishes to express her appreciation to her parents, David and Barbara Slepnikoff, for their love and encouragement.
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