Exceptions to the DCC
Courts apply the DCC to curtail the exercise of state governmental authority. The DCC does not constrain states, however, when that activity is not governmental in nature but is akin to a private party’s conduct in the marketplace (see, e.g., Reeves, Inc. v. Stake, 447 U.S. 429, 438–39 (1980)). Under this Market Participant Doctrine, states and local governments have been allowed to conduct activities that would otherwise have violated the DCC when they choose their contract partners, operate publicly owned businesses, and favor in-state entities when they engage in proprietary conduct within a specific market.
The State of Indiana used this doctrine to monetize its toll road to raise money for its general budgetary needs by increasing tolls on trucks traveling the Indiana Toll Road. In September 2018, Indiana Governor Eric Holcomb announced that, to fund his “Next Level Connections” program (an infrastructure initiative consisting of projects that bore no functional relationship to the toll road), the concessionaire that leased the Indiana Toll Road would pay the state another $1 billion in exchange for the right to impose a 35 percent toll increase only on heavy trucks using the toll road.
Most of the heavy truck traffic on the Indiana Toll Road is interstate, and the tolling increase was designed to, and does, fall most heavily on truckers engaged in interstate commerce. When announcing the increased truck tolls, Governor Holcomb declared, “The majority of traffic is from out-of-state. We’re capturing other people’s money” (Dan Carden, State to Receive $1 Billion in Exchange for Allowing Higher Truck Tolls on Indiana Toll Road, Nw. Ind. Times (Sept. 4, 2018)).
Truck drivers challenged the toll increase in federal court on DCC grounds. The plaintiff truck drivers argued that, even though the increased tolls did not discriminate on their face, they were unconstitutional because they far exceeded the cost of providing the toll road. In its defense, the state argued that it was acting as a marketplace participant in selling access to the toll road to truckers who were free to use it or not. Therefore, they could charge any price the market would bear (Reeves, 447 U.S. at 438–39). The truckers responded by arguing that applying this exception to this state conduct would greatly expand the limits of this doctrine: “[T]he doctrine is not carte blanche to impose any conditions that the State has the economic power to dictate, and does not validate any requirement merely because the State imposes it upon someone with whom it is in contractual privity” (South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 98–98 (1984)).
When deciding whether a state is truly a mere “market participant,” courts often look beyond the apparent marketplace activity to determine whether the state has brought to bear any of its unique governmental powers or authority—authority not otherwise available to private entities in the defined marketplace. If so, it engages in governmental conduct subject to DCC scrutiny, not mere market participation. The courts have found the imposition of excessive user fees as evidence that the state was exercising authority not available to regular marketplace participants (New Orleans Steamship Ass’n v. Plaquemines Port, Harbor & Terminal Dist., 874 F.2d 1018, 1021, 1022 (5th Cir. 1989)).
Courts have also declined to apply the doctrine when “recognized transportation corridors for commerce” are at issue; the Second Circuit held in the context of highway and bridge tolls that the maintenance of roads is a governmental function, rejecting an argument that state actors compete “with other entities that are also seeking to build and maintain highway systems” (Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 93 (2d Cir. 2009); see also Cohen v. R.I. Tpk. Bridge Auth., 775 F. Supp. 2d 439, 443, 445 (D.R.I. 2011) (“[T]he mere fact that private property owners may charge fees for the use of their property does not transform [the] operation of Rhode Island State bridges and tollways into private market activity. . . . [B]uilding and maintaining roads is a core government function”)).
The plaintiff truckers in the Indiana case brought to the court’s attention that in three sections of the statutory authority for the operation of the Indiana Toll Road, the Indiana legislature declared it to be “the performance of essential governmental functions.” The plaintiffs also demonstrated the excessiveness of the 35 percent toll increase—one that could only be imposed by the government’s approval—evidenced by the fact that the proceeds were to be used for the governor’s non–toll road projects throughout the state. Finally, the truckers described how the Indiana law provided for state patrol policing of its economic activity (toll payment), governmental activity that the courts have found to disqualify the use of the Market Participant Defense. Nevertheless, the trial court held that Indiana’s conduct was shielded from constitutional scrutiny (see Owner-Operator Indep. Drivers Ass’n v. Holcomb, No. 1:19-cv-00086-RLY-MJD, 2020 U.S. Dist. LEXIS 41138 (S.D. Ind. Mar. 10, 2020)).
Ultimately, in an opinion by Judge Frank Easterbrook, the Seventh Circuit found that Indiana’s tolls were simply economic activity and that “[a] state, like, any private proprietor, can turn a profit from its activities” (Owner-Operator Indep. Drivers Ass’n v. Holcomb, 990 F.3d 565, 567 (7th Cir. 2021)). Judge Easterbrook further stated that “[t]he idea that transportation necessarily is a state function is untenable” (id.). The upshot of this holding based on the Market Participant Doctrine is that the Commerce Clause does not constrain the tolls on the Indiana Toll Road—whether in terms of burden or discrimination. This version of the Market Participant Doctrine would also allow states to discriminate in ways that the DCC would otherwise not permit.
By dismissing the law and evidence of how the functioning of the Indiana Toll Road would not exist but for the exercise of the state’s unique authority not available to private market participants, the Seventh Circuit greatly expanded the scope of the Market Participant Doctrine and narrowed the application of the DCC.
Congressional Approval
When Congress authorizes states to impose what would otherwise be unconstitutional burdens on interstate commerce, “all segments of the country are represented, and there is significantly less danger that one State will be in a position to exploit others. Furthermore, if a State is in such a position, [Congress’s] decision to allow it is a collective one” (South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 92 (1984)). When it authorizes this state conduct, Congress must “affirmatively contemplate otherwise invalid state legislation” and express an unmistakably clear, unambiguous intent to approve such legislation in the text of a federal statute (id. at 91; see also S. Pac. Co. v. Ariz. ex rel. Sullivan, 325 U.S. 761, 769 (1945)).
This was the defense Pennsylvania gave when several motorists, truckers, and their associations challenged the constitutionality of Pennsylvania Turnpike tolls. In Owner Operator Independent Drivers Ass’n, Inc. v. Pennsylvania Turnpike Commission, 934 F.3d 283 (3d Cir. 2019), the plaintiffs challenged Pennsylvania’s excessive tolls on the Pennsylvania Turnpike. By statute, the Pennsylvania Turnpike Commission was directed to monetize the turnpike by imposing tolls that ranged from 250 to 300 percent of the annual cost of maintaining and operating the Pennsylvania Turnpike and transferring $450 million annually in excess toll revenues to the Pennsylvania Department of Transportation to support infrastructure projects throughout the state. The plaintiffs, citing the user fee standard in Evansville, contended that the state was imposing an undue burden on interstate commerce in violation of the Commerce Clause.
Part of Pennsylvania’s defense was that Congress had authorized the state to impose the toll amount in question. The statute cited by the state allowing it to impose excessive tolls is a section of the federal highway authorization statute, 23 U.S.C. § 129(a), which authorizes federal contributions to be made on highways, bridges, and ferries that are tolled, provided that many specific conditions are satisfied. This is a narrowly drawn exception to the general prohibition on the tolling of federally funded roads found in 23 U.S.C. § 301: “Freedom from tolls—Except as provided in section 129 of this title with respect to certain toll bridges and toll tunnels, all highways constructed under the provisions of this title shall be free from tolls of all kinds.”
Of the many conditions provided in the highway law, Section 129(a)(3)(A) limits the use of toll receipts to five categories of spending: debt service, paying a reasonable return of investment to any private person who helped finance the project, paying costs related to the operation and maintenance of the tolled facility, payments to any private party if the tolled facility falls under a public/private partnership, and lastly, “if the public authority certifies annually that the tolled facility is being adequately maintained, any other purpose for which Federal funds may be obligated by a State under this title.” The Pennsylvania defendants argued, and the U.S. Court of Appeals for the Third Circuit agreed, that the last provision (“any other purpose for which Federal funds may be obligated”) authorized Pennsylvania’s tolls at issue in the case.
The plaintiffs argued that this provision was far from an unambiguous statement by Congress authorizing Pennsylvania to impose turnpike tolls that exceeded the cost of operating the road by 250 percent to 300 percent, netting $450 million annually for Pennsylvania’s use on projects other than the Pennsylvania Turnpike. By providing for the disposition of excess tolls, this provision simply acknowledged that the amount of user fees may be a fair approximation of the cost of providing the service while still exceeding exactly what is necessary to provide the road, and Congress wanted those excess funds to go to federally supported programs. Congress has never made an unambiguous collective decision to allow Pennsylvania to actively monetize its federal highway projects to collect tolls for the purpose of funding other projects.
The decision by the Third Circuit in favor of the defendants lowers the standard for discerning congressional intent from one that formerly required an unmistakably clear, unambiguous statement from Congress to approve state action to one that permits a court to interpret the wording of a federal statute to find congressional approval for state action not contemplated by the statute, no matter how attenuated the statutory language. The Third Circuit decision is an invitation for other states to monetize their tolled federal highway projects. Courts (at least in the Third Circuit) now have more leeway in discerning congressional authority for state laws impacting interstate commerce—thereby narrowing the application of the DCC.
The Shrinking DCC Rule
In a case still pending, the American Trucking Associations (ATA) has squared off against the State of Rhode Island, challenging RhodeWorks, the state’s scheme to toll only large commercial trucks at various bridge locations along the state’s major interstate corridors. The district court in Rhode Island observed, “[t]his plan had the obvious appeal of raising tens of millions of needed dollars from tractor trailers while leaving locals largely unaffected” (Am. Trucking Ass’ns, Inc. v. Alviti, 630 F. Supp. 3d 357, 363 (D.R.I. 2022)).
The Rhode Island bridge tolls were set at a level necessary to collect the revenue needed to maintain those bridges. Therefore, these tolls appear to fit appropriately within the 23 U.S.C. § 129 exception to the federal prohibition of tolls on federally funded highways. The DCC issues considered by the court included whether Rhode Island’s tolling scheme discriminated against interstate commerce and whether the toll amounts fairly approximated the users’ use of the tolled bridges. The district court held that RhodeWorks failed both tests, violating the DCC (Am. Trucking Ass’ns, 630 F. Supp. 3d at 699).
Rhode Island has appealed this decision to the U.S. Court of Appeals for the First Circuit (the court’s decision is pending). Rhode Island argued for a dramatically narrower interpretation of the DCC than precedent would suggest—that just because a state toll may fall disproportionately on out-of-state truckers rather than in-state truckers does not mean that the tolls are discriminatory.
The crux of this argument is the state’s theory that the interstate truckers using the type of large trucks subject to Rhode Island’s tolls are not in competition with companies using smaller trucks used by local drivers who are not tolled. And the point of the DCC was to eliminate state laws that unfairly benefit in-state interests to the competitive detriment of out-of-state entities. Thus, while the state’s tolls may fall disproportionately on out-of-state truckers, because the state’s tolls do not give unfair competitive advantage to its own citizens to the detriment of out-of-state truckers, Rhode Island argues its tolls are not discriminatory and do not violate the DCC.
The district court noted this argument but did not discuss it in length. On appeal, however, the state continues to make this argument, perhaps anticipating a further appeal. In a decision in spring 2023, the U.S. Supreme Court ruled on a challenge by pork producers to a California law requiring that all pork sold in the state be raised humanely (Nat’l Pork Producers Council v. Ross, 598 U.S. 356 (2023)). In a fractured opinion, with multiple concurrences and dissents, the court wrestled with the question of whether discrimination was a threshold question before the court analyzes the burden of state law, or whether a claim of undue burden could be brought independent of a discrimination finding.
Justice Neil Gorsuch and several other justices opined, in parts of the opinion that did not have majority support, that state discrimination is the primary interest of the DCC and that perhaps an unreasonable burden argument could not stand alone to support a DCC claim. This decision is similar to Judge Easterbrook’s opinion in the Indiana Toll Road case, in which he opined that (if the Market Participant Doctrine had not applied) without a demonstration that the tolls were facially discriminatory against interstate commerce, the tolls would not violate the Constitution.
Conclusion
The Dormant Commerce Clause has long been the subject of shifting formulations and emphases on different issues and facts since it was first identified by the Supreme Court. Although instances of its application can denote individual judge’s hostility to the doctrine, there is not a body of case law that articulates a unified controlling ideological philosophy behind that hostility. The recent National Pork Producers Council fractured opinion, concurrences, and dissents at the Supreme Court are a good example of the state of this doctrine. When it comes to transportation and states’ efforts to rely on interstate commerce to fund their budgetary needs, the doctrine has been routinely discarded. The Rhode Island bridge tolls case has been submitted to the First Circuit, and a decision may be published at any time. Perhaps that decision will be the next piece of evidence as to whether the shrinking of the DCC is a trend or just the continuation of the DCC’s unpredictable application.
