Supreme Court Affirms in Rowe v. New Hampshire Motor Transport Association

February 20, 2008. The Supreme Court issued its unanimous opinion [17 pages in PDF] in Rowe v. New Hampshire Motor Transport Association affirming the judgment of the Court of Appeals. This opinion will have the effect of limiting state regulation of electronic commerce.

Introduction. This case involves whether certain sections of the Federal Aviation Administration Authorization Act of 1994 (FAAAA), which is sometimes pronounced as "F quad A", preempt sections of a statute of the state of Maine that regulates the activities of air carriers and motor carriers.

Consumers purchase items over the internet by using desktop computers, laptops and other internet connected devices to visit and make purchases at e-commerce web sites. Regulating consumers, and distant web site operators, can be difficult for states.

However, the online purchase of physical items still requires delivery by intermediaries. The Maine statute attempts to regulate e-commerce by regulating these delivery intermediaries. The problem for the state of Maine, and other states that would regulate e-commerce by compelling air and motor carriers to implement their regulations, is that the FAAA preempts state regulation of air and motor carriers.

The New Hampshire Motor Transport Association (NHMTA) and other trade groups that deliver packages challenged the Maine statute. They filed a complaint in U.S. District Court (DMaine) against Steven Rowe, the Attorney General of Maine, seeking declaratory and injunctive relief that the Maine statute is preempted by the FAAAA. The District Court granted summary judgment to the NHMTA.

Maine appealed. The U.S. Court of Appeals (1stCir) issued its opinion on May 19, 2006, 2006, affirming in part the judgment of the District Court. See, story titled "1st Circuit Rules Federal Aviation Statute Preempts Part of Maine's Internet Tobacco Sales Statute" in TLJ Daily E-Mail Alert No. 1,381, May 31, 2006. That opinion is also reported at 448 F.3d 66.

Maine petitioned the Supreme Court for writ of certiorari. The Supreme Court granted certiorari on June 25, 2007. See also, story titled "Supreme Court Grants Cert in Case Regarding State Regulation of E-Commerce" in TLJ Daily E-Mail Alert No. 1,601, June 26, 2007. And now, the Supreme Court has affirmed.

This present case involves Maine's attempt to compel air and motor carriers to enforce its bans on sales of tobacco products to minors. However, the holding in this case will limit a wide range of state attempts to regulate and tax e-commerce.

This opinion is a victory for free and open internet based commerce.

Of course, this opinion does nothing to limit federal regulation of e-commerce. Moreover, one possible consequence is that it might be a causal factor leading the Congress to enact legislation authorizing states to tax and regulate certain e-commerce activities.

Federal Statute. The FAAAA contains sections that preempt state laws and regulations that attempt to regulate prices or services of air carriers and motor carriers, including delivery companies, such as United Parcel Service (UPS). The relevant sections of the FAAAA are codified in 49 U.S.C. § 14501 and 49 U.S.C. § 41713.

These provide that states cannot regulate "service of any motor carrier ... with respect to the transportation of property" or "service of an air carrier".

Subsection 14501(c)(1) provides that "a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier (other than a carrier affiliated with a direct air carrier covered by section 41713(b)(4)) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property." (Parentheses in original.)

Subsection 4173(b)(4)(A) provides that "a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier or carrier affiliated with a direct air carrier through common controlling ownership when such carrier is transporting property by aircraft or by motor vehicle (whether or not such property has had or will have a prior or subsequent air movement)." (Parentheses in original.)

Maine Statute. Maine enacted a statute that is codified at 22 M.R.S.A. §§ 1551, 1555-C & 1555-D, that regulates the sale of tobacco products, including internet sales. It contains a ban on the sale of tobacco products to minors. It also provides for the licensing of tobacco retailers. However, these provisions are not at issue in this case. This case involves those portions of the Maine statute that impose burdens upon air carriers and motor carriers for the purpose of enforcing a ban on sales to minors.

The relevant sections of the statute have the effect of requiring these companies to ascertain the content of packages, the age of the addressee of packages, and whether the addressee is of legal age to receive the package (27 years old in the case of tobacco products). It further requires them to ascertain whether the retailer was licensed by the state of Maine to sell tobacco products.

The two statutory sections held by the District Court, Court of Appeals, and Supreme Court to be preempted are 1555–C(3)(C) and 1555-D.

Section 1555–C(3)(C) requires that delivery services follow a recipient verification procedure. The Supreme Court described it as follows: "The delivery service must make certain that (1) the person who bought the tobacco is the person to whom the package is addressed; (2) the person to whom the package is addressed is of legal age to purchase tobacco; (3) the person to whom the package is addressed has himself or herself signed for the package; and (4) the person to whom the package is addressed, if under the age of 27, has produced a valid government-issued photo identification with proof of age."

The overturned part of Section 1555-D provides that the delivery service is "deemed to know" that a package contains a tobacco product if it receives a package from someone whose name appears on a list of unlicensed tobacco retailers compiled by the Maine Attorney General.

The statute imposes burdens and costs upon carriers, and requires that they change their national business practices to enforce a ban that only reaches transactions with buyers in the state of Maine.

Supreme Court Opinion. Justice Stephen Breyer, writing for the Supreme Court, wrote that "We here consider whether a federal statute that prohibits States from enacting any law ``related to´´ a motor carrier ``price, route, or service´´ pre-empts two provisions of a Maine tobacco law, which regulate the delivery of tobacco to customers within the State. ... We hold that the federal law pre-empts both provisions."

That is, federal Sections 14501(c)(1) and 41713(b)(4)(A) preempt Maine Sections 1555–C(3)(C) and 1555–D.

The Supreme Court wrote that "the carrier associations claim (and Maine does not deny) that the law will require carriers to offer a system of services that the market does not now provide (and which the carriers would prefer not to offer). And even were that not so, the law would freeze into place services that carriers might prefer to discontinue in the future. The Maine law thereby produces the very effect that the federal law sought to avoid, namely, a State's direct substitution of its own governmental commands for ``competitive market forces´´ in determining (to a significant degree) the services that motor carriers will provide." (Parentheses in original.)

The opinion continues that the "deemed to know" language of 1555-D "means that the Maine law imposes civil liability upon the carrier, not simply for its knowing transport of (unlicensed) tobacco, but for the carrier’s failure sufficiently to examine every package. The provision thus requires the carrier to check each shipment for certain markings and to compare it against the Maine attorney general’s list of proscribed shippers. And it thereby directly regulates a significant aspect of the motor carrier’s package pick-up and delivery service. In this way it creates the kind of state-mandated regulation that the federal Act pre-empts." (Parentheses and emphasis in original.)

Maine argued that there is a public health exception from preemption in this case because its laws help it prevent minors from obtaining cigarettes. However, the Supreme Court wrote that "The Act says nothing about a public health exception. To the contrary, it explicitly lists a set of exceptions (governing motor vehicle safety, certain local route controls, and the like), but the list says nothing about public health." (Parentheses in original.)

Finally, the Court's opinion states that states are free to "seek appropriate federal regulation", and identified two pending bills, HR 4081 [LOC | WW], the "Prevent All Cigarette Trafficking Act of 2007" or "PACT Act", and HR 4128 [LOC | WW], the "Criminal Code Modernization and Simplification Act of 2007".

HR 4081 provides that states may regulate tobacco sales, and that this includes regulation of delivery companies. See also, S 1027 [LOC | WW], also titled the "PACT Act". The House Judiciary Committee (HJC) has taken no action on HR 4081. However, the Senate Judiciary Committee (SJC) has approved S 1027.

HR 4128 is a massive bill with a wide range of changes to the criminal code. Sections 1411-1416 pertain to cigarettes. Section 1416 provides for state enforcement of federal law.

Justice Ruth Ginsburg wrote in a short concurring opinion that "State measures to prevent youth access to tobacco, however, are increasingly thwarted by the ease with which tobacco products can be purchased through the Internet."

"While I join the Court’s opinion, I doubt that the drafters of the FAAAA, a statute designed to deregulate the carriage of goods, anticipated the measure's facilitation of minors' access to tobacco. Now alerted to the problem, Congress has the capacity to act with care and dispatch to provide an effective solution."

Justice Stephen Breyer wrote the opinion of the Supreme Court. Justices Antonin Scalia and Ruth Ginsburg wrote concurring opinions. See also, Supreme Court docket.