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Federalism and the 2015 Supreme Court Term

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    The NAGTRI Journal is a new publication dedicated solely to the legal analysis and research of matters relevant to the attorney general community. The October issue marks the first of a quarterly publication circulated for free.
     
  • Federalism and the 2015 Supreme Court Term
    The Court is scheduled to hear at least six cases in the upcoming term that will undoubtedly shape the scope of federal and state relations and power. Dan Schweitzer, director and chief counsel of the NAAG Center for Supreme Court Advocacy, provides an overview of past decisions and key factors that could determine the outcome of these cases.
     
  • Decisions Affecting the Powers and Duties of Attorneys General
    This article reports on recent decisions across the country affecting the powers and duties of state attorneys general.
     
  • International Fellows Author Papers on Innovative Prosecutorial and Crime Fighting Strategies
    NAGTRI held its annual International Fellows Program this summer hosting 23 attorneys from around the world. This year's theme of Innovative Prosecutorial and Crime Fighting Strategies allowed the participants to share ideas and experiences as they wrote joint papers addressing crime reduction. Their papers are now available.
     
  • Dan Schweitzer, Director and Chief Counsel, NAAG Center for Supreme Court Advocacy

    With the 2015 Supreme Court Term just beginning, most of the focus has been on the affirmative action, “one-person, one-vote,” and compelled union fees cases. Few commentators are discussing federalism and, perhaps, for good reason. At the height of the Rehnquist “Federalism Revolution,” the Court heard cases involving the Tenth Amendment; the scope of Congress’s power under Section 5 of the Fourteenth Amendment; claims that federal statutes exceeded Congress’s Commerce Clause power; and the meaning of the Eleventh Amendment. This Term does not yet have any cases presenting any of those issues—at least not directly.

    But the Court is scheduled to hear at least six cases that address the scope of state and federal power. Their contexts vary greatly, from a federal criminal prosecution to an Alaskan who wants to hunt moose on a hovercraft to Nebraska residents selling alcohol in a town that is within the original boundaries of an Indian reservation. Their outcomes will matter greatly to the individual states and litigants involved; and, more importantly to us, will further shape the contours of federal and state relations and power. 

    Congress’s Commerce Clause Power: Taylor v. United States

    One of the last major federalism decisions of the Rehnquist Court was Gonzales v. Raich (2005), where the Court held that Congress has the power under the Commerce Clause to prohibit two elderly women from growing marijuana and using it themselves for medical purposes in compliance with state law. The Court stated that it has “no difficulty concluding that Congress had a rational basis for believing that failure to regulate the intrastate manufacture and possession of marijuana would leave a gaping hole in the [Controlled Substances Act],” which comprehensively regulates the interstate illicit drug market.

    Fast forward to 2009. David Anthony Taylor participates in two robberies of drug dealers, who are perfect targets because they rarely run to the police to report crimes. He and his cohorts recover one marijuana cigarette, some jewelry, $40 in cash, and three cell phones. The federal government prosecutes Taylor under the Hobbs Act, which makes it a federal crime to commit a robbery that “in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce.” 18 U.S.C. §1951(a). The Supreme Court has held that the phrase “affects commerce” in the Act reflects Congress’s intent to exercise “the fullest jurisdictional breadth constitutionally permissible under the Commerce Clause”—which means that every Hobbs Act prosecution raises a constitutional question. The question here is whether Taylor’s robberies “affect commerce” such that Congress has the constitutional power to make the robberies a federal crime.

    The Fourth Circuit held that they do, relying in part on Raich and its recognition that Congress can regulate conduct that, “in the aggregate, impacts interstate commerce.” The United States, defending that decision, asserts that the Hobbs Act authorizes prosecutions of robberies that target “businesses that trade in out-of-state goods” “where the robbery depleted [the businesses’] assets.” As Taylor argues in his petition, “if allowed to stand, the Fourth Circuit’s decision will turn the Hobbs Act from a narrowly tailored criminal statute targeted at punishing interstate robbery to an expansive federal regime that criminalizes at the national level all robberies involving illegal drugs.” Indeed, under the federal government and Fourth Circuit’s logic, robbery of any commercial enterprise would likely be a federal crime. 

    The States’ Sovereign Immunity: Franchise Tax Board of California v. Hyatt

    State sovereign immunity was one of the major battlegrounds of the Rehnquist Federalism Revolution. Most of the cases addressed Congress’s efforts to make states liable when they (or their agents or officers) violated federal laws. The Rehnquist Court held that Congress cannot take away the states’ sovereign immunity and force them to appear before federal courts when they allegedly violated federal laws; and that the same is true when Congress tries to force states to appear before state courts and federal administrative tribunals when they allegedly violate federal laws. Yet the Rehnquist Court left untouched Nevada v. Hall(1979), which held that a state may be haled into the courts of another state, on a state-law claim, without its consent. In December, the Roberts Court will address the scope and continuing vitality of Nevada v. Hall.

    Gilbert Hyatt, a onetime California resident, has earned hundreds of millions of dollars in licensing fees on certain technology patents. The California tax authorities audited Hyatt after he reported that he lived in California for three-quarters of 1991, but reported only 3.5 percent of his total taxable income on his California return. Several years later, Hyatt turned around and filed suit in Nevada state court against the California Franchise Tax Board asserting that it committed a variety of torts against him during the audits, including intentional torts. Among other defenses, the Tax Board argued that the Full Faith and Credit Clause requires Nevada courts to apply a California law under which a public entity or employee is absolutely immune from liability for acts performed during tax assessments. The Nevada courts refused to apply the California law, and U.S. Supreme Court affirmed. On remand, the Tax Board asked that the Nevada courts at least treat it the same way a Nevada state agency would be treated. And Nevada law imposes a $50,000 cap on tort damages against a Nevada state agency (for actions accruing before 2007). The trial court declined to do that, a full trial was held, and a jury awarded Hyatt more than $490 million. The Nevada Supreme Court cut back on that to an extent, finding that some of Hyatt’s tort claims failed as a matter of law. But it upheld the more than $1 million in damages for fraud, remanded for retrial on emotional distress damages, and—most relevant for current purposes—concluded that Nevada’s “policy interest in providing adequate redress to Nevada citizens” overrides “providing [the Tax Board] a statutory cap on damages.”

    The U.S. Supreme Court agreed to review two questions presented by the Tax Board. The first is whether principles of comity mandate that Nevada treat California’s Tax Board the same way it would treat Nevada’s Tax Board (or any other state agency). If the Court rules for the Tax Board on that ground, while leaving Nevada v. Hall otherwise untouched, it would take some of the sting out of Hall. But the larger action is in the second question, which asks the Court to overrule Nevada v. Hall. In the Tax Board’s view, Nevada v. Hall “runs contrary to the intent of the Framers, the constitutional structure, pre-Hall sovereign immunity decisions, and the subsequent better reasoned sovereign immunity jurisprudence” of the Rehnquist Court. Among other things, Hall “refused to ‘infer[ ]’ sovereign immunity ‘from the structure of our Constitution,’” but later “decisions, by contrast, have repeatedly recognized sovereign immunity as a ‘fundamental postulate[ ]implicit in the constitutional design.’” Forty-four states joined an amicus brief supporting the Tax Board’s contention that Hall should be overruled. 

    Who Controls Alaskan Land?: Sturgeon v. Masica

    One might not think that a case addressing the interaction of the Alaska National Interest Lands Conservation Act (ANILCA) and National Park Service Organic Act regulations implicates important federalism interests. Nor would one think that the desire of a moose hunter (John Sturgeon) to track moose via a hovercraft would produce an important federalism case. Yet Sturgeon v. Masica involves both and, yes, addresses a core federalism issue: whether the federal government or a state possesses regulatory power over wide swaths of land.

    As a general matter, the National Park Service regulates activities in national parks. But Alaska has a unique history and is governed pursuant to a unique body of law. As Alaska and Sturgeon tell the story, Congress enacted ANILCA in 1980 to obtain a balance between “scenic, natural, cultural, and environmental values” of Alaska’s lands and those lands’ role in serving “the economic and social needs of the State of Alaska and its people.” Toward that end, the statute added more than 43 million acres to the national park system in Alaska by creating new national parks and expanding existing parks. This new national park land was designated as the “conservation system unit” or CSU. Critically, “millions of acres of land previously set aside for the economic and social needs of the Alaskan people” are in land “located within the physical boundaries of CSUs." “Essential to ANILCA’s compromise was Congress’s assurance that” that land “would not be subject to federal regulatory control and management.” ANILCA addressed that concern in §103(c), which provides that only federal land “shall be deemed to be included as a portion of” a CSU, and no lands owned by the state, a Native Corporation, or a private party “shall be subject to the regulations applicable solely to public [i.e., federal] lands within such units.”

    To Alaska and Sturgeon, §103(c)’s meaning is clear: state, Native Corporation, and private lands “within the boundaries of the ANILCA conservation system units are not part of those units and may not be managed as though they are” — such as by imposing the National Park Service’s ban on the use of hovercrafts on rivers. However, the Ninth Circuit agreed with the National Park Service that the phrase “no lands . . . shall be subject to the regulations applicable solely to public lands within such units” means that only Park Service regulations that apply solely to CSUs are covered. Park Service regulations that “appl[y] to all federal-owned lands and waters administered by the NPS nationwide” are outside the provision’s scope.

    Sturgeon notes that “the regulatory disposition of more than 19 million acres of Alaskan land” will be resolved by this case. In the words of Alaska’s amicus brief, the Ninth Circuit’s decision “diminishes Alaska’s sovereignty and thwarts its ability to address the needs of its citizens.” That court’s “reasoning scorns Alaska’s constitutional and statutory right to control its resources” and “perversely transform[s] a provision designed to respect and promote Alaska’s sovereignty into a tool for undermining it.” Suffice to say, the Park Service’s brief in opposition strongly disagrees with those assertions. It states that the Ninth Circuit “correctly rejected petitioner’s remarkable assertion that the NPS cannot enforce any park regulations on the navigable waters within national parks in Alaska, by virtue of ANILCA Section 103(c).” It adds that this provision, supposedly so important, is “‘buried’ in the ‘maps’ section of ANILCA”; and that its interpretation of the provision is entitled to Chevron deference. 

    State Power on (Former) Indian Reservation Lands: Nebraska v. Parker

    The fundamental division of governmental power in our country is between the federal government and the states. But a third sovereign sometimes comes into play: Indian tribes. States possess diminished regulatory power within Indian reservations. And so the question sometimes arises: What are the boundaries of a reservation? More particularly, did a federal law opening up reservation lands for sale to non-Indians diminish the boundaries of the reservation? The Court will take that issue up in Nebraska v. Parker, which addresses “[w]hether the original boundaries of the Omaha Indian Reservation was diminished following passage of the Act of August 7, 1882,” a surplus land act.

    As one might expect, the Court has developed a framework for assessing when surplus land acts diminish reservations. In Solem v. Bartlett (1984), the Court held that courts should look at the statutory language, “events surrounding the passage of” the act, and “events that occurred after the passage of” the act. As to the first factor, the Court has held that, when an act explicitly says a tribe will “cede” lands for a “fixed-sum payment,” a nearly “insurmountable” presumption of diminishment arises. But what happens when a surplus land act does not contain that language? In this case, Nebraska acknowledges that the first two Solem factors are ambiguous, but maintains that it should prevail under the third factor (post-enactment events). It asserts that the land in question (the western part of the Omaha Indian Reservation) “never possessed any Indian character”; has had a non-Indian population of more than 98 percent since at least 1900; and has been subject to state, not tribal, jurisdiction during all that time. This could prove an important case on the division of state and tribal authority on lands that were part of original reservations but are now populated almost exclusively by non-Indians. 

    Preemption: Gobeille v. Liberty Mutual Insurance Co.

    As a practical matter, preemption may be the most important federalism issue for state attorney general offices. The one preemption case on the Court’s docket so far—Gobeille v. Liberty Mutual Ins. Co.—involves Employee Retirement Income Security Act (ERISA) preemption, which is a distinct body of preemption law. Still, the case raises this key federalism question: whether a federal statute displaces a state law enacted by a state legislature to address a pressing social problem.

    Vermont law requires healthcare payers to provide claims data and related information to a state healthcare database, which collects information to assist the state’s health care policy. At least 10 other states have similar databases in place and five more states are creating them. Liberty Mutual provides health care for about 80,000 employees, retirees, and their families—including 137 Vermont residents—through a self-funded plan administered by Blue Cross Blue Shield of Massachusetts. Liberty Mutual ordered Blue Cross not to report information on its beneficiaries and, instead, filed suit in federal district court alleging that ERISA preempts Vermont’s law as applied to its third-party administrator. The Second Circuit agreed with Liberty Mutual, holding that ERISA preempts state laws dealing with the core statutory concerns of “reporting, disclosure, [and] fiduciary responsibility.”

    ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Finding that statutory text “unhelpful,” the Supreme Court has held that ERISA preemption must be guided by ERISA’s underlying objectives and purposes. Vermont argues that its law does not have the necessary “connection with” ERISA plans because the law does not “interfere[ ] with any of ERISA’s core objectives.” ERISA’s reporting requirements are designed to “protect plan beneficiaries” “by preventing mismanagement of funds and failure to pay benefits.” Vermont maintains that its “collection of after-the-fact health care claims information from all payers, including third party administrators of self-insured ERISA plans, in no way intrudes on these areas of federal concern and regulation.” Vermont adds that ERISA plans are subject to myriad state reporting requirements: Can it be that ERISA “Plan-run hospitals would not have to report infections, mortality, or other public health data” required by state law? Or that “[d]ay care centers run by ERISA plans could not be required to report on attendance, safety measures, or teacher qualifications”? 

    The Division of Power in the Energy Markets: FERC v. Electric Power Supply Association

    Federal law divides responsibility over the electricity and gas markets by giving the federal government responsibility over the wholesale market and the states responsibility over the retail market. While the line between wholesale and retail may appear simple in the abstract, it is sometimes blurry in practice. As the Court stated last year in a case involving the gas market, the notion that “there is, or should be, a clear division between areas of state and federal authority” is no more than a “Platonic ideal.” That sometimes leaves state and federal regulators, and the entities they regulate, fighting over whether one sovereign or the other is overstepping its bounds. Which brings us to FERC v. Electric Power Supply Association (consolidated with EnerNOC, Inc. v. Electric Power Supply Association).

    Because the retail demand for electricity typically does not respond to price increases in the wholesale market, the Federal Energy Regulatory Commission (FERC) has encouraged the development of “demand response”—“a reduction in the consumption of electric energy by consumers from their expected consumption in response to an increase in the price of electric energy.” Demand response is generally accomplished by “an aggregator that automates demand-side flexibility for business and consumers and bids their aggregated reductions as a block into wholesale markets.” To eliminate barriers to potential demand-response providers, FERC issued the rule at issue, which requires FERC-created Regional Transmission Organizations and Independent System Operators to compensate such providers using the same methodology they use to compensate generators.

    The D.C. Circuit struck down the rule, holding (among other things) that “[d]emand response… is part of the retail market” and thus is beyond FERC’s regulatory authority. FERC counters that “the practices at issue here—payments by wholesale-market operators for demand-response commitments—affect wholesale rates” in a “substantial and direct” way. And “if a practice directly affects wholesale rates, FERC has the authority—and duty—to ensure that the practice is just and reasonable.” In the challengers’ view, however, “FERC cannot expand its own jurisdiction at the expense of the States’ exclusive jurisdiction by asserting a need to regulate a ‘direct effect’ on wholesale rates that FERC has created by inviting retail customers into the wholesale markets.”

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