Dormant Commerce Clause - Extraterritoriality Doctrine - Sixth Circuit Invalidates Michigan Statute Requiring Bottle Manufacturers to Use Unique Mark on All Bottles Sold within Michigan

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The Commerce Clause provides Congress with the power "[t]o regulate Commerce with foreign Nations, and among the several States." (1) The federal courts have long interpreted this positive grant of authority to Congress to include a restrictive element known as the dormant commerce clause, which is "a self-executing limitation on the power of the States to enact laws imposing substantial burdens on [interstate] commerce." (2) Under the extraterritoriality doctrine of the dormant commerce clause, state laws that directly regulate "commerce that takes place wholly outside of the State's borders" are invalid per se, "whether or not the commerce has effects within the State." (3) Recently, in American Beverage Ass'n v. Snyder, (4) the Sixth Circuit held that a Michigan law requiring bottle manufacturers to place a unique mark on containers sold within Michigan and making it illegal to sell bottles with that mark in other states was unconstitutional under the extraterritoriality doctrine because it directly regulated commerce occurring outside of Michigan. (5) This decision, which struck down a state law without considering its local benefit or extraterritorial burden, illustrates that the federal judiciary should abandon its formalistic extraterritoriality doctrine in favor of a more flexible approach. Thus, extraterritoriality's per se rule of invalidity should be replaced with the balancing test that the Supreme Court established in Pike v. Bruce Church, Inc. (6) This test is already used to evaluate state laws that affect interstate commerce, and would ensure that harmful extraterritorial laws are struck down, without unnecessarily invalidating beneficial, unburdensome laws.

In 1976, Michigan passed the Michigan Container Act, (7) which requires consumers to pay a ten-cent deposit on any beverage container purchased within Michigan. The Act also allows consumers to redeem their deposit by returning the empty containers to a retailer who sells that type of container or to a reverse vending machine. (8) After this system was in place for several years, Michigan realized that it had an overredemption problem: individuals were redeeming out-of-state bottles on which no deposit had been paid to Michigan, costing the state between $15.6 and $30.0 million annually. (9)

In December 2008, the Michigan legislature addressed this problem by passing the Unique-Mark Amendment, (10) which required manufacturers who sold their containers in Michigan to place a "symbol, mark, or other distinguishing characteristic" on the container that demonstrates it is "unique to [Michigan], or used only in [Michigan] and 1 or more other states that have laws substantially similar to this act." (11) Violation of this requirement was a misdemeanor, punishable by imprisonment of up to 180 days and/or a fine of up to $2000. (12)

On February 25, 2011, the American Beverage Association (13) brought suit in federal court, claiming that the unique-mark requirement violated the Commerce Clause of the U.S. Constitution by discriminating against interstate commerce, regulating extraterritorially, and unduly burdening interstate commerce. (14) The federal district court in Michigan granted partial summary judgment in favor of the state. (15) Judge Quist concluded that the unique-mark requirement did not discriminate against interstate commerce (16) and did not violate the extraterritoriality doctrine because it was too unlike the statutes that the Supreme Court had invalidated under that doctrine. (17) However, applying the balance test established by the Supreme Court in Pike, he refused to grant summary judgment on the plaintiff's third claim, concluding that there were still factual disputes concerning the regulation's burden on interstate commerce and the magnitude of its local benefit. (18)

The Sixth Circuit affirmed much of the district court's ruling but reversed the extraterritoriality determination. Writing for a unanimous panel, Judge Clay (19) agreed that the unique-mark requirement did not discriminate against interstate commerce, but held that the regulation had an impermissible extraterritorial impact. …