Percolating in Washington State: Export-Terminal Permit-Denial Suit Implicates Federalism and Foreign Commerce

Environmental Law & Property Rights Practice Group and Regulatory Transparency Project Teleforum

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When state regulators block approval of construction projects, disappointed businesses routinely challenge the decision in court. A lawsuit currently pending in the Western District of Washington, Lighthouse Resources v. Inslee, however, is not your average permit dispute. The plaintiff, Lighthouse Resources, wants to build an export terminal on the Columbia River that can accept and ship coal to Asian customers mined at Lighthouse-owned sites in Montana and Wyoming. The terminal will generate billions in taxable revenue and create thousands of jobs. The defendants, whose opposition to coal as an energy source is well documented, have denied a federally required water-quality certification. Lighthouse’s constitutional claims (also asserted by intervenor BNSF Railway) include federal preemption and violation of the Commerce Clause. Early motions have attracted state amici supporting each side as well as briefs from business associations and environmental groups. The suit has reached a critical stage, with the plaintiffs moving for summary judgment on the Foreign Commerce Clause claim, arguing that the defendants’ actions “implicate” foreign policy issues in a way that prevents the federal government from speaking with “one voice” about international trade.

Featuring: 

Glenn G. Lammi, Chief Counsel, Legal Studies Division and Director, Communications, Washington Legal Foundation

Prof. Donald J. Kochan, Parker S. Kennedy Professor in Law and Associate Dean for Research & Faculty Development, Chapman University, Dale E. Fowler School of Law

 

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Event Transcript

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Environmental Law & Property Rights Practice Group and Regulatory Transparency Project, was recorded on Tuesday, April 2, 2019, during a live teleforum conference call held exclusively for Federalist Society members.       

 

Wesley Hodges:  Welcome to The Federalist Society's teleforum conference call. This afternoon’s subject is “Percolating in Washington State: Export-Terminal Permit-Denial Suit Implicates Federalism and Foreign Commerce.” My name is Wesley Hodges, and I'm the Associate Director of Practice Groups at The Federalist Society.

 

As always, please note that all expressions of opinion are those of the experts on today's call.

 

Today we are very fortunate to have with us Mr. Glenn G. Lammi, who is Chief Counsel and Legal Studies Division and Director of Communications at the Washington Legal Foundation. Also with us is Professor Donald J. Kochan, who is the Parker S. Kennedy Professor in Law and Associate Dean for Research & Faculty Development at Chapman University, Dale E. Fowler School of Law. After our speakers give their remarks today, we will move to an audience Q&A, so please keep in mind what questions you have for this case or for one of our speakers in particular. Thank you very much for sharing with us today. Glenn, I believe the floor is yours to begin.

 

Glenn G. Lammi:  Thank you, Wesley. I want to make clear from the beginning that Washington Legal Foundation’s not directly involved in this case but it’s one that we flagged last January when it was filed because it’s very much in line with a larger trend that we’ve been following where local and state regulatory activism that actually can potentially conflict with federal law or powers reserved by the U.S. Constitution to the federal government.

 

This suit has an abundance of interesting subplots. It involves a disfavored energy resource: coal. It involves the state governor, who’s being accused of steering state officials towards rejection of a coal export terminal that is incompatible with his climate-change-focused agenda, an agenda that will be the focus on his campaign for his party’s nomination 2020 presidential race. It involves foreign export of that particular disfavored resource, which is a foreign policy and foreign commerce priority for the Trump administration. It features a battle of coastal versus landlocked states as amici who are supporting one side or the other. And it also involves a tension between foreign and interstate commerce and state regulation, especially when it comes to the use of permit-approval authority involving larger infrastructure projects.

 

Now, the plaintiff here is Lighthouse Resources, which is a privately-owned coal supply chain operator. It owns or leases coal mining rights in Wyoming and Montana. It contracts with rail companies for coal transport, and it also constructs coal export terminals. Lighthouse Resources has coal-purchasing contracts with businesses and governmental entities in South Korea, Taiwan, and Japan. They're currently transporting that coal through Vancouver in a port up in Vancouver, Canada. But the new contracts they have exceed that port’s capacity, so they're looking to build, or have been looking to build for the last ten years or so, a new export terminal on the West Coast. They’ve been unsuccessful up to this point in trying to do so.

 

Back in the beginning of this decade, they identified the port of Longview, Washington, which is on the Columbia River, as kind of their best-to-last hope to get an export terminal built. It would be built on an underutilized section of the port on a brownfield site. Lighthouse Resources had good reason for optimism that their 24 permits that they would need for the project would be approved. Regulators had previously approved 8 new daily roundtrip passenger train trips on the rails near the port. That’s important because the coal would be delivered from the Montana and Wyoming coal depositories to the port by rail. A grain export terminal had been approved in 2011, and the State had sought expedited approval for devolvement of a nearby terminal for export of such commodities as biodiesel, crude oil, and methanol.

 

What changed was in 2012, Washington voters elected Jay Inslee as Governor on a platform hostile to non-renewable resources, especially coal. During the election, Inslee was very vocally opposed to the concept of exporting U.S. coal to foreign customers during his campaign. So after 2012, Lighthouse Resources’s efforts to secure the necessary permits hit significant roadblocks. The state environmental impact statement concluded that environmental impacts were unavoidable and significant. And the water quality certification that they needed in order to go forward with seeking order permits under Section [401] of the Clean Water Act was denied, and it was denied with prejudice, which means that they weren’t able to refile for a new permit.

 

They challenged those permit decisions in administrative and state court proceedings. And then in 2018 on January 3rd, it filed suit against Governor Inslee, Department of Ecology Secretary Maia Bellon, and Commissioner of Public Lands Hilary Franz in the Western District of Washington, alleging violations of the Dormant Interstate and Foreign Commerce Clauses of the U.S. Constitution, and also they argued that the federal rail operation’s laws preempted Washington officials’ actions. The court approved the intervention of railway operator, BNSF, as a plaintiff, and as defendants, the judge approved several environmental public interest groups as defendants, including the Sierra Club.

 

Now, some of the facts they alleged, the BNSF and LHR—Lighthouse Resources—in their complaint I think are very interesting and we’ll definitely bear upon how the case is ultimately decided. So two years into evaluating the coal terminal’s environmental impact and doing so in conjunction with the U.S. Army Corps of Engineers, the Washington Ecology Department decided that it would include the environmental impact of rail transportation outside of the state of Washington and the coal’s use overseas as an energy resource. The Army Corps objected to this broadened scope.

 

The final state EIS as I mentioned before found that the environmental impacts were unavoidable. It focused almost entirely on air emissions and rail transport impacts and made scant note of water quality concerns. Despite that, the Department of Ecology relied, in part, on EIS to deny a water quality certification under Section 401, as I mentioned before, of the Clean Water Act, which they were doing from delegated authority from the federal government.

 

Without that 401 certification and the fact that it was denied for the first time ever by the Department with prejudice means that they would never be able to reapply. Lighthouse Resources did note in their complaint that when the State was evaluating the previously approved expansion of passenger train trips and the grain export terminal, they found some of the same environmental impacts as they did for the coal terminal, but they went ahead and approved those and they didn’t approve the Lighthouse Resources’s terminal, called the Millennium Bulk Terminal is the name of the terminal.

 

There’s been some activity since 2018 in case. Last spring, the defendants moved to dismiss the federal preemption claims and asked the court to abstain from accepting jurisdiction over the entire suit because of the pending state administrative and judicial proceedings over the permit denials. Now, for that, the response to that, the plaintiffs—Lighthouse Resources and BNSF, had the support of six states as amici: Wyoming, Kansas, South Dakota, Montana, Nebraska, and Utah. As I noted before, all of those states have, as a common characteristic that they're landlocked, so they rely on export terminals such as the one that Lighthouse Resources wanted to buy. They also had the support of numerous trade associations.

 

Judge Bryan of the Western District of Washington refused to dismiss the preemption claims, and he denied the defendants abstention requests. In 2018, still in September, the plaintiffs moved for summary judgment on the preemption claims. In their response to that, the Washington officials had the support of six states as amici: California, Maryland, New Jersey, New York, Oregon, and Massachusetts – all coastal states as I mentioned before. Judge Bryan denied the plaintiff’s motion for summary judgment on the preemption claims, so those are currently being considered in the ongoing proceedings.

 

Earlier this year, Lighthouse Resources moved for summary judgment on the Dormant Foreign Commerce Clause claim with the support of the trade associations and the states that I had mentioned before. BNSF moved for summary judgment on its claim that the Foreign Affairs Doctrine preempted the defendants’ decisions. And then the defendants moved for summary judgment on the Dormant Interstate Commerce Clause claim, the Dormant Foreign Commerce Clause claim, and the foreign affairs preemption claim.

 

Last week, Judge Bryan heard oral arguments on the motion, and then just yesterday, Judge Bryan granted the defendants’ motion to dismiss the foreign affairs preemption claim that BNSF had brought. And he also, kind of surprisingly, asked for further briefing on the Pullman abstention arguments that had been made in the first motion back in May of last year and also on the preclusive effects of administrative decisions on LHR’s challenges to Section 401 water quality certification denials.

 

So those are going to be re-briefed. Those briefs will be due in a couple of weeks, I think, and then the court will go on with its decisions on that. The court also did not make a decision from the bench or yesterday on the Foreign Commerce Clause claim and also the Interstate Commerce Clause claim. So those claims are still very much alive, and it’ll be interesting to see how things go from there. And with that, I’ll hand it over to Donald to talk about some of the substantive claims that have been made.

 

Prof. Donald J. Kochan:  Thank you very much. I’d like to thank The Federalist Society for inviting me to offer some comments on this case and to discuss the constitutional issues at play more broadly. And I’d like to thank Glenn Lammi for participating in this discussion with me, and especially for setting up my remarks with such a great introduction and summary of the case. And so, clearly, really identifying what’s at stake in this litigation and others like it.

 

We’re dealing with big and important concepts here. One, in a constitutional system grounded in principles of federalism, what are some inherent limits on states? And two, what are the grand purposes of the combined Commerce Clauses, or what may be deemed the free trade clauses? This latter question can only be answered by understanding the deep commercial infirmities identified at the founding in the Articles of Confederation given the human nature, if you will, of states versus states and by understanding the deep concerns for developing constitutional rules that protected and facilitated markets and counteracted the natural tendencies of states to act unselfish, petty, greedy in discriminatory ways that impeded both the interests of other states and the interests of the nation as a whole. It cannot be overstated that the commerce clauses were seen as a vital feature of the new Constitution that were necessary to combat grave infirmities seen in the Articles of Confederation. Their market facilitating and free-trade purposes were evident to the Framers and should guide out understanding of them today.

 

As Joseph Story exclaimed in his Familiar Exposition of the Constitution of the United States in Section 172[164] of that text, quote, “The power to regulate commerce ‘among the several states,’ in like manner, annihilated the causes of domestic feuds and rivalries. It compelled every state to regard the interests of each as the interests of all; and thus diffused over all the blessings of a free, active, and rapid exchange of commodities upon the footing of perfect equality.” State interference with these Commerce Clause goals is subject to high levels of scrutiny because, as Alexander Hamilton expressed in Federalist 11, “There are rights of great moment to the trade of America which are rights of the Union.” There, Hamilton also stressed that the Constitution was adopted to create a, quote, an “unrestrained intercourse between the states,” advancing “the trade of each by an interchange of their respective productions.” Otherwise, interstate and foreign trade would be, quote, “fettered, interrupted, and narrowed by a multiplicity of causes.”

 

So turning here to the interference at hand. As a starting point, it should be noted that the stakes here go well beyond the Millennium Bulk Terminal. States are increasingly retesting the waters of their authority to act as guardians of high-order principles, attempting to use their internal, domestic lawmaking authority in ways intended to produce external effects. States increasingly want to change the world, not just make their states better. As arbitrators of what is best, many state politicians see openings to legislate in ways that force changes in behavior, even in other states or in other nations. They also seek to shift national policy by doing things themselves that they perceive the federal government not doing or not doing well, and even seek to find ways to do things that directly frustrate contrary national policies. There may be avenues for states to advance these interests, but they cannot use interference with interstate or foreign commerce as the mechanism by which they advance their political goals. That’s the principle issue involved in this case and others like it, whether or not, in fact, the states are using an inappropriate mechanism for achieving policy ends.

 

In this case, we have Governor Inslee and his administration’s strong preference for alternative energy, protections against climate change and a zeal to prevent coal exports. We already see how some food or agricultural standards in states like California necessarily result in controls on behaviors in other states. Goose feeding is constrained by foie gras regulations and cage sizes for chickens are impacted in egg-producing states when California banned the sale of eggs not produced in what it believes are minimally humane conditions. In Oregon and California, fuel-standards legislation has the extraterritorial effect of regulating how companies produce fuel in other states, targeting out-of-state action rather than grounding the regulations in a justification of controlling in-state harm. The states are finding ways to pretextually advance an in-state hook to control out-of-state behavior that it finds inconsistent with its policy, moral, or other preferences.

 

As explained in a recent brief challenging the Oregon fuel standards, we can speculate that states will begin to learn how to use this technique with increasing frequency if it is legitimized in cases like the Lighthouse case here. We could speculate how Wisconsin’s preference for the right-to-work laws might lead it to forbid the sale of products made by companies with strong union protections. California could forbid the sale of products made by companies lacking gender-diverse board membership. Washington State might find ways to deny the transportation of timber through its state, consequently denying sales of Colorado timber to Canada. These and other examples abound.

 

As noted in the plaintiff’s motion for summary judgment in this case that we’re discussing, we might predict that other states would try to start denying port access as a means of advancing myriad policy goals, far outside the space where some interference with commerce might have been excused to achieve legitimate in-state ends. The main point here is that states will respond to the precedent set. And states increasingly seem interested in testing the limits of their authority, especially the bigger states that have the ability to flex some muscle, given their size and market power. And states that have power because they control vital passages of commerce like sea ports, such as Washington State here, they can exercise power over landlocked states and the ability for the interests within those states to actually access the channels of commerce.

 

Yet, it was precisely to prevent bully by big states, or manipulation of markets by any state, that motivated the Framers to include the Commerce Clauses in the first place. On many of these issues, I may very well agree with the policy a state prefers over the policy that the existing federal administration prefers. That’s not the point of this discussion today. And nothing I say about these policies should be seen as stating a personal preference for one position or another. This is a discussion on the appropriate means of achieving policy in a federal system and a Constitution which attempts to coordinate conflicts and often expressly allocate powers in a way that the Founders believed would best achieve some really, super important policy ends, with the ends we are discussing today being protecting markets from unnecessary interference or the chaos of a multitude of regulatory voices.

 

Looking at the issues here, if the allegations are true, Washington State has taken regulatory action that interferes with commerce from other states, hence interfering with interstate commerce while also preventing out-of-state interests non-discriminatory access to engage in foreign commerce. Plus, interfering with foreign commerce in a matter that potentially prejudices the interests of the federal government in speaking with one voice on foreign affairs and foreign trade issues.

 

If coal experts are to be banned, for example, that should be a federal decision. Part of the reason for giving the federal government control over foreign commerce decisions was to allow the federal government to use the power and restraint of power in conjunction with negotiating with foreign nations and incentivizing behavior. Justice Story has an excellent passage in that Familiar Exposition quoted earlier that captures this idea. In Section 171 of that text, Story states that, quote,

 

“Many of the like powers have been applied in the regulation of foreign commerce. The commercial system of the United States has also been employed sometimes for the purpose of revenue; sometimes for the purpose of prohibition; sometimes for the purpose of retaliation in commercial reciprocity; sometimes delay embargos; sometimes to encourage domestic navigation and the shipping and mercantile interests by bounties, by discriminating duties, and by special preferences and privileges; and sometimes to regulate intercourse with a view to mere political objects, such as to repel aggressions, increase the pressure of war, or vindicate the rights of neutral sovereignty. In all these cases, the right and duty have been conceded to the national government by the unequivocal of the people.”

 

In other words, even for mere political objects, the decision should rest, and the discretion should rest, with the federal government to determine how they want to use the foreign commerce power, how they want to choose whether to regulate or not regulate, and that can be interfered with when you have rogue state taking over in that space.

 

One state with access to the ports of commerce should not be able to have a veto power over the landlocked states’ ability to access these ports, which necessarily are part of the market system left within the exclusive regulation of the federal government under both Commerce Clauses and their dormant components. The State of Washington’s actions seem to fall into the scope of the type of evils against which the Commerce Clauses were designed to provide protection. A state cannot be charged with unconstitutionally discriminating against the interests of another state, even if not directly to benefit -- or, excuse me, can be charged with unconstitutionally discriminating against the interests in another state, even if it’s not to directly benefit an in-state industry.

 

All kinds of reasons, including raw, political differences, can lead to Dormant Commerce Clause violations. Market interferences also about though protection those preferred industries, including the so-called “clean energy” or “green energy” industries in Washington State and giving them a competitive edge over disfavored resources like coal from out of state. Ultimately harming the competitive, politically or literally, traditional energy producers is beneficial to Washington State’s preferred interest groups.

 

So I want to spend a couple moments talking about what the purpose of the trade clauses are so that that purpose can be seen in context of these cases. We can only understand the disputes like the Lighthouse case if we understand the situation of commerce at the Founding and the work that the Framers intended the Commerce Clauses to do, some of which has already been referred to. The facilitation of trade was a primary motivating purpose for replacing the Articles of Confederation with the Constitution. And the Commerce Clauses were the vehicle for accomplishing those ends.

 

Joseph Story explains in that Familiar Exposition just how bad the situation was for the free-flow of commerce under the Articles.

 

“The want of this power to regulate commerce was, as has already been suggested, a leading defect of the confederation. In different states, the most opposite and conflicting regulations existed; each pursued its own real or supposed local interest; each was jealous of the rivalry of its neighbors, and each was successfully driven to retaliatory measure in order to satisfy public clamor, or to alleviate private distress. In the end, however, all their measures became utterly nugatory or mischievous in generating mutual hostilities and prostrating all of their commerce at the feet of the foreign nations. It is hardly possible to exaggerate the oppressed and degraded state of domestic commerce, manufacturers, and agriculture at the time of the adoption of the Constitution.”

 

Thus, one purpose of the Commerce Clauses is to prevent any single state’s interference with the ability of other states to engage in commerce, to overcome those grave consequences discussed by Story. In other words, it was designed to preclude discriminatory or protectionist behavior that disadvantages other states because the offending state is seeking a competitive edge or seeking to further their idiosyncratic policy preferences at the expense of another state’s ability to engage in free trade. Here, Washington State seeks to advance its own preferences at the expense of other states, including giving a competitive advantage to energy producers other than coal.

 

Furthermore, the clauses also operate to ensure that one state is not able to block the ability of other states and their citizens to engage in foreign commerce. The very definition of, quote, an “unrestrained intercourse between the states”, Hamilton says in Federalist 11, includes protecting the ability of every state to interchange—or in other words coordinate with other states—to facilitate the, quote, “exportation to foreign markets.” As stated by Hamilton, quote, “an unrestrained intercourse between the states themselves will advance the trade of each by an interchange of their respective productions, not only for the supply of reciprocal wants at home, but for exportation to foreign markets. The veins of commerce in every part will be replenished and will require additional motion and vigor from a free circulation of the commodities of every part.” Again, it is this interdependence and mutual benefit of the full effects of the Commerce Clauses.

 

Indeed, Madison saw fit in Federalist 42 to elaborate further on this particular point. Forgive me for quoting a little bit more at length, one of the last ones here, but this is a very important passage that is too often missed in evaluating the purposes of the commerce clauses and the interplay between the Interstate Commerce Clause and the Foreign Commerce Clause which work together to achieve a certain end of state and state interest autonomy to access those foreign markets. Here are Madison’s observations:

 

“The defect of power in the existing Confederacy to regulate the commerce between its several members, is in the number of those which have been clearly pointed out by experience.

 

To the proofs and remarks which former papers have brought into view on this subject, it may be added that without this supplemental provision, the great and essential power of regulating foreign commerce would have been incomplete and ineffectual. A very material object of this power was the relief of the States which import and export through other States, from the improper contributions levied on them by the latter. Were these at liberty to regulate the trade between State and State, it must be foreseen that ways would be found out to load the articles of import and export, during the passage through their jurisdiction, with duties which would fall on the makers of the latter and the consumers of the former. We may be assured by past experience, that such a practice would be introduced by future contrivances; and both by that and a common knowledge of human affairs, that it would nourish unceasing animosities, and not improbably terminate in serious interruptions of the public tranquility.

 

To those who do not view the question through the medium of passion or of interest, the desire of the commercial States to collect, in any form, an indirect revenue from their uncommercial neighbors, must appear not less impolitic than it is unfair; since it would stimulate the injured party, by resentment as well as interest, to resort to less convenient channels for their foreign trade. But the mild voice of reason, pleading the cause of an enlarged and permanent interest, is but too often drowned, before public bodies as well as individuals, by the clamors of an impatient avidity for immediate and immoderate gain.”

 

Thus, the clause includes not only a non-interference principle between states but also ultimately casts a regulatory authority over commerce, including if, when, and how to use it in a single source—the federal government—to overcome these risks.

 

As Hamilton further explained in Federalist 11, the commerce clauses are designed to overcome the dangers of a, quote, “multiplicity of causes” and to prevent interference with national interests such as, one, the promotion of a uniform energy policy—here as reflected by Executive Order 13783—the U.S. national security strategy and other policy pronouncements. Two, the ability to speak with one voice on matters of energy policy and uniformity of federal trade policy. Three, the ability of the federal government to itself impose regulations or to grant favors and prevent opportunities in a way that seeks to motivate or incentivize behavior on the part of foreign nations, among other things.

 

Glenn has already described these national polices well and the Dormant Foreign Commerce Clause in particular. The Dormant Foreign Commerce Clause is designed to prohibit states from displacing the federal government’s policymaking role in matters of foreign trade. James Madison summed it up well in Federalist 42 that, quote, “This class of powers”—including to regulate foreign commerce—“forms an obvious and essential branch of the federal administration. If we are to be one nation in any respect, it clearly ought to be in respect to other nations.” Allowing one state, such as in this case, to interfere with that one voice is dangerous.

 

It’s also worth noting that if any one state can interfere with foreign trade, it will act as a serious disincentive for foreign nations and their businesses to trade. Again, the Framers looked at historical evidence of such effects in other nations where segments of those nations were able to go rogue and saw this reality play out. In Federalist 22 Hamilton opined that, quote, “It is indeed evident, on the most superficial view, that there is no object, either as it respects the interest of trade or finance, that more strongly demands a federal superintendence. . . No nation equated with the nature of our political association would be unwise enough to enter into stipulations with the United States, by which they conceded privileges of any importance to them, while they were apprised that the engagements on the part of the Union might at any moment be violated by its members.”

 

Strong individual state powers over commerce send a poor signal to foreign nations that might want to cooperate but fear making those commitments against the backdrop of the possibility of these rogue states. The Framers understood that disunitedness under the Articles of Confederation and dispersion of regulatory authority over interstate and foreign commerce opened the door for states to act selfishly, like we are seeing here. They also understood that disunitedness and dispersion opened the door to foreign capture, influence, lobbying, and control. Again, in Federalist 11 Hamilton described how European nations might be motivated to combine if they sensed weakness from disunion that would make it possible to overcome individual states. Quote, “In a state of disunion, these combinations might exist and might operate with success. It would be in the power of the maritime nations, availing themselves of our universal impotence, to prescribe the conditions of our political existence; . . . including to “combine to embarrass our navigation in such a manner as would in effect destroy it, and confine us to a PASSIVE COMMERCE.”

 

But by uniting under the Constitution, it’s no small part because of its architectural features in the Commerce Clauses that makes states interdependent. Many of the silliness in these unfortunate risks could be overcome. Quoting Hamilton 11 once again, quote, “And the state will be interdependent, including by helping all other states get access to foreign markets. They will take advantage of the diversity of production.” So this help and this aiding and helping of other states is the goal here, not the impeding of the interests from some states reaching the foreign markets in the first place.

 

Against this backdrop of the importance of limits on state authority to interfere with commerce, potential basis for denying permits for the purpose of preventing disfavored commerce are illegitimate. The free market provisions in the Interstate Commerce Clause and the Foreign Commerce Clause are designed to disempower states from erecting barriers to commerce. And states cannot circumvent their limits on power by hiding behind other policy goals.

 

As Glenn aptly described, there are many things highly questionable here with the Washington State Department of Ecology’s actions, not the least of which is the fact that the permit denial was apparently the first use by the Washington State of substantive rather than procedural authority under SEPA to deny a proposal. Furthermore, the state cannot hide behind the Clean Water Act or claim that the Clean Water Act is somehow an authorization by Congress to the state that allows it to interfere with interstate or foreign commerce. The CWA was not designed to be a vehicle for cloaking market discriminatory, non-water quality policy preferences with legitimacy.

 

The CWA makes no clear statement that it’s trying to give states power to escape their limitations under the Dormant Commerce Clause. And the Supreme Court has made clear in a variety of cases that such as clear statement is required if legislation is to have such a dramatic effect on the presumptive exclusivity of federal control in these areas of commerce.

 

If, as alleged, the decision is not actually based on the State of Washington’s state water quality standards, then the permitting denial claim of the CWA authority is outside the legitimate use of the CWA. In conclusion, the state simply cannot shroud a market manipulative regulation and environmental protection to make it legitimate. The state is reverting back to those days in which we gave the state too much authority in the space of commerce that led to many of the problems that we saw in the Articles of Confederation. In other words, the state cannot cloak the decision and public regarding regulatory justifications that are actually about impeding lawful interstate and foreign activity. Indeed, it is activity favored by the federal government and the priorities the federal government has set in its energy policy. Thanks for letting me offer those remarks.

 

Wesley Hodges:  Well, thank you so much, Professor. And Glenn, thank you so much for your remarks. While we wait for any audience questions, Glenn, I do want to turn the mic back to you. Do you have any thoughts on Donald’s remarks?

 

Glenn G. Lummi:  I just wanted to put an exclamation point on the statement that he made that this case is about much more than just one port in one state. I’ll read a quote from one of the amicus briefs from the landlocked states on the question of interstate commerce -- Dormant Commerce Clause issue. It says, “A vocal representative of one of the coastal states involved in this litigation has already called for, among other things, one, a nationwide transition to 100 percent renewable energy by 2030; two, a move away from non-organic farming; and three, an end to air travel. How long will it be until a coastal state or coalition of coastal states, like the one in this case, form an economic blockade based on another cause célèbre, like banning genetically modified grain.” So certainly, there’s a lot of things going on right now that lend itself to the possibility of these sorts of things happening. And, again, that’s one of the reasons why WLS is paying close attention to this case, and I think a lot of other people in organizations should be as well.

 

Wesley Hodges:  Wonderful. Thank you so much for the comment, Glenn.

 

Glenn G. Lammi:  Can I ask Donald’s opinion on something as a sort of beginning question?

 

Wesley Hodges:  Yes, please.

 

Glenn G. Lammi:  So Donald, in one of the motions by the defendants they had made the argument that because the State of Washington does not produce coal, there’s no way that it could possibly discriminate under the Dormant Interstate Commerce Clause against other states that do produce coal. Did you think that’s a good argument, one that might have some success with the judge, or one that really takes the whole concept of commerce beyond what it really is?

 

Prof. Donald J. Kochan:  I don't think it’s a persuasive argument. And one of the reasons why is because we’re talking about the protection of in-state interests, but it doesn’t have to be a one-for-one relationship. It doesn’t have to be coal versus coal. There are competitive interests inside the state that will be benefited, whether they be economic interests or otherwise, if, in fact, coal is disfavored. And so one argument is—I made a couple remarks about this—is the disfavoring of coal, or at least making it expensive to transport, favors alternatives to coal, alternative energy sources, which Washington does herald itself as a leader in. And so even though it’s not benefiting its coal companies over out-of-state coal companies, it’s still benefiting in-state interests over out-of-state.

 

In addition, I think there are a variety of cases, as well as historic evidence, that really we can get to -- we’re concerned about rivalries generally in which a state may be trying to prop itself up or prop its preferred policies up against other states by using economic discrimination, or commercial discrimination, as the means for doing so. So when Story, for example, talks about its own or supposed local interests and its jealously and rivalry of its neighbors, I don't think they ever thought that it would be necessarily about exact substitutes for particular products. But, instead, it’s a competing landscape for preferred products and preferred policy outcomes.

 

So I think you can certainly discriminate against out-of-state interests, even if you are not talking about a one-to-one relationship or an equal type of industry. There are a number of cases in which there are attempts just to impose discriminatory taxes, for example, on out-of-state interests that sometimes fall into Dormant Interstate Commerce Clause jurisprudence, in which the taxes themselves are not necessarily meant to -- are not targeted at a particular type of industry in order to protect that same type of industry in the state; but, instead, just to make certain industries in the state more attractive to consumers.

 

Wesley Hodges:  Wonderful. --

 

Prof. Donald J. Kochan:  If the queue is still empty, I have a question for Glenn.

 

Wesley Hodges:  Please go ahead, Professor.

 

Prof. Donald J. Kochan:  You are often -- you're dealing with a number of these cases and tasked with the explanatory responsibility of helping people understand why the area of commerce is uniquely reserved to the federal government, and that it’s distinct from what we might otherwise consider traditional federalism principles that respect broad space for state authority. So how do you when people -- because the initial reaction on the part of some individuals when they see this is, “Well, I didn’t think that you were for a large, national authority.” In the end, it’s a distinction about this market facilitating aspect I think of the Commerce Clause. But how do you persuade individuals, especially in the litigative context, across a multitude of -- a large portfolio of cases of the distinction between these types of state authorities – state authority in the interstate and foreign commerce realm versus state authority over, say, internal affairs?

 

Glenn G. Lammi:  Well, I think what we always try to stress is that -- and this has become, I think, somewhat easier over the years when things like the internet is inherently across state lines, interstate commerce sort of business model, that if you allow for the regulation of these sorts of things that have implications beyond just that one particular state, then you're going to raise the cost of doing business. You're going to create standards that are different for certain individuals and states, and the individuals in those states versus in other states. So we’ve always been an organization that tries to promote the concept of a free-flowing national marketplace for goods and services, ideas, etc. while recognizing that some things should be regulated by those closest to them when it comes to goods that are hold in interstate commerce or things like ports where there’s no way to engage in commerce unless you have an access to something like that. Then that does not fit within the realms of those authorities and powers that the states should exercise, absent federal action.

 

Prof. Donald J. Kochan:  I just want to make one quick remark about the underlying desire to stop these exports by Governor Inslee and others in Washington is environmental protection. What’s kind of perverse about all of this is that the coal that is mined in Wyoming and in Montana is of a higher quality in terms of meeting lower emissions. So if the interests in South Korea and Taiwan and Japan were to use this coal, they would be emitting fewer carbon emissions than they would if they were buying cheaper, dirtier coal from China or other countries. And that’s one thing that Lighthouse Resources and BNSF have discussed in some of their filings; that you may have noble goals in trying to protect the environment, but ultimately, these countries are going to buy coal from some place, and it would be far better both for the interests of the United States as an entity and also for the environment that they buy it from Montana and Wyoming rather than from China or other places.

 

Wesley Hodges:  Wonderful. Looks like we do have one question from the audience. Thank you so much, caller. Let’s go ahead and turn to the audience question.

 

Caller 1:  Well, I don’t have a question, but I would like to just thank both of the speakers for their rendition, their summary of the issues at hand, and to remind us non-lawyers who are members of the Society, of the robustness, and intellectual rigor, and common sense of The Federalist. I think I’ll have to get if off my shelf this afternoon and remind myself directly. So thank you very much.

 

Glenn G. Lammi:  Thank you for that comment.

 

Wesley Hodges:  Yes, thank you so much, caller. Here’s a comment or question from the audience. Caller, you are up.

 

Andy Urko (sp):  This is Andy Urko in Southern California. It appears to me that the case involves interstate commerce, foreign commerce, and it’s also a battle amongst the states. Why are they fooling around in this particular federal district rather than seeking original jurisdiction from the Supreme Court in a matter of this nature?

 

Prof. Donald J. Kochan:  Well, I think even with major cases, there’s a necessity to go through a process of lower courts first before -- and the Supreme Court’s original jurisdiction is very limited. There are very few cases that they even have discretion to take. And then practice has shown that even where they have discretion, it is very conservatively employed. So I think it’s the normal course of a case to allow for the facts to be developed in the lower courts, come up process, be tested, -- have principles tested with similar facts in other jurisdictions as well, and then eventually, after percolating over time, the Supreme Court intervenes and gives us a greater sense of the constraints that will exist on the states in these spaces.

 

Glenn G. Lammi:  Donald gets bonus points for using one of the terms from the title in his answer. I would also add that in this particular case Lighthouse Resources sued the State officials in their official capacity to avoid the -- that the argument being made that the states are immune from suit in their sovereign authority. So that’s one more factor as to why they aren’t going directly to the Supreme Court.

 

Certainly, the extension arguments that these -- a lot of the issues in this case are being dealt with at the state level, either administratively or in the states. That’s still up in the air so I think that’s another interesting aspect to watch.

 

Andy Urko:  Yes. It just seemed to me that it fit the criteria for original jurisdiction and was wondering why they didn’t try to go there.

 

Prof. Donald J. Kochan:  Well, you may be talking about the fact that -- we’ve been phrasing this somewhat in terms of an interstate conflict, but we don’t have the presence of another state as an actual party suing Washington State.

 

Andy Urko:  That’s right. They’re amicus.

 

Prof. Donald J. Kochan:  Right. They’ve only submitted friends of the court briefs at this stage, and probably would not, given the fact that it would be difficult to get to that point, I think. The one thing I will say, though, is as Glenn pointed out at the beginning of this call, Washington Legal Foundation and others are handling a variety of cases that are raising these kinds of issues. And to the extent that states continue to experiment with their authority and continue to push the envelope, I would expect that a number of decisions will come out over the next few years that may, in fact, generate enough variety of lower court opinions that it could percolate to the level at which the Supreme Court might find it necessary or useful to take one of the cases to better articulate the standards for appropriate state authority.

 

Glenn G. Lammi:  I might say one thing while we’re waiting to see if other folks come on, and that is, there are a lot of big principles in this case, but there are also a lot of very specific facts upon which those principles will be tested. One of the reasons why we need to have these hearing at the trial court level, district court level is, in fact, that a number of facts have to be determined to find out whether or not the state is exercising a legitimate in-state concern that fits within its regulatory authority and does not offend the Interstate or Foreign Commerce Clause principles. We’ve been talking about some of the allegations in the case, but some of those allegations are critical to be proven as true before we get to a finding of interference. And what was the basis of the denial of the water quality certification? Was that pretextual? What’s the record evidence for that? The court’s going to have to wrestle with all of those issues in order to determine whether or not and how it will decide the Commerce Clause and other issues.

 

Wesley Hodges:  Well, very good. Looks like we do have another question from the audience. Let’s go ahead and go to that caller.

 

Caller 3:  Good afternoon, gentlemen. Thank you so much. I just would like to say I’m a 1L in law school right now and in Civil Procedure, so this is incredibly enlightening to me right now. This may not be an appropriate question but when you have -- you were framing it as competing states’ rights. Is there an option for an in-state corporation, i.e. in a landlocked situation, to bring this to the forefront to show the harms that it may be doing to, instead of the state itself, but to individual corporations? Could they potentially bring it as a suit against the policy of Washington State?

 

Prof. Donald J. Kochan:  Glenn, do you want to field that one?

 

Glenn G. Lammi:  Sure. That is, in fact, what’s happening here. The plaintiff is Lighthouse Resources, which is a private company based in Utah. [There’s] certainly going to be, if this does to go trial, a further discussion about how their economic interests are being affected. There’s already been an expert report introduced in terms of the economic impact on the states themselves. But of course, plaintiffs have to show an injury that’s personal to them in order for the case to continue to go forward. So BNSF also intervened because they would suffer a loss of rail transport from the mines in the two landlocked states to the port if it’s not approved.

 

Prof. Donald J. Kochan:  We also have intervention at certain stages in this case. There’s been intervention on the part of the internal interests of Washington State as well from an environmental context, right? So you have a variety of channels by which both out-of-state and in-state interests can begin to battle to explain whether or not this is truly an interference with the intercourse of commerce, or whether or not this is something internal and critical to the policy of Washington State.

 

Caller 3:  All right. Thank you, gentlemen. Knowing that it was Lighthouse that is the one involved, I was just looking at the position from there’s got to be more with potential harm than just Lighthouse itself because of the magnitude of Washington State is not allowing. It seems as though there would be many industries and many companies, more than just Lighthouse. So I was wondering if there would be a bigger, broader issue, which we have discussed, but only Lighthouse being named. Are there other corporations potentially jumping on this to say it’s a long-term formidable harm versus a political ideology within one state? Thank you.

 

Prof. Donald J. Kochan:  I don't think those avenues are entirely foreclosed. But in addition to that there are the amici opportunities. And we see a number of industry trade associations representing some of those interests, both in the immediate states effected, but also in states for which these precedents might -- industries and states that are not immediately effected by this particular decision but where the precedent could be used to impeded their ability to have access to markets and other states and channels and other states.

 

Glenn G. Lammi:  Right. There’s the National Mining Association, National Association of Manufacturers, which are both national groups; Farm Bureau Federation, American Fuel and Petrochemical Manufacturers, I think it’s Western States [Petroleum] Association filed an amicus brief in one of the earlier iterations. But I can see if this goes to trial if there are appeals and everything else that more local interests get involved. I have read that there is many interests in Cowlitz County which is where Millennium Bulk Terminal would be located that are very upset about this because of the potential loss of tax revenue and other related jobs that would arise if the terminal is successfully built and used.

 

Wesley Hodges:  Thank you, caller. Looks like we do have another question from the audience. Let’s go ahead and go to that caller.

 

Fronda Woods:  Good afternoon. This is Fronda Woods. I’m from Olympia, Washington. I was wondering if you had any comments on the implications of this litigation for Indian treaty fishing rights. Most of the Indian tribes in the state of Washington are parties to treaties with the United States that secure rights of taking fish. A couple of years ago the Ninth Circuit held that the United States promised a moderate living from fishing in those treaties and held that treaties imposed certain duties on the state of Washington as a result. And I was wondering whether that would have any implications in this case, or if you perceive that it might?

 

Prof. Donald J. Kochan:  This is Donald. I don't know that I have any direct response to that. And I can’t claim expertise on those issues. The one thing I can say is that for many of the same reasons why we protect commerce between states and we protect Foreign Commerce Clause and allow the national government to have the principal regulatory authority in that area, many of those same reasons apply to the Indian Commerce Clause, although that’s not at issue here and wasn’t discussed. The idea of protecting the ability of tribes to, in fact, engage in commerce and the federal government’s responsibilities in that space are part of what’s going on in the drafting of that portion of the Constitution as well.

 

Glenn G. Lammi:  Yeah, I similarly do not have sufficient background in that area to give an answer that I would feel too confident with. So I will defer to what Donald said on that one. Sorry.

 

Wesley Hodges:  Thank you very much, caller. We do appreciate your question. Looking at the time, we’re about five minutes to the top of the hour. I think this is an appropriate time to turn the mic back to Donald and Glenn. Do either of you have any closing thoughts for us today on this case?

 

Prof. Donald J. Kochan:  I think it’s an interesting one to watch, and no matter how it’s decided, including if the court decides to either abstain or otherwise dismiss these claims, it will have implications for not just what is the authority of the states, but also how effective are the courts going to be at policing this kind of behavior on the part of the states. So there are some policy reasons, independent of the constitutional reasons, for discouraging states from trying to have these market interfering regulatory postures. And so no matter how the court comes down on these various claims, there are a number of concerns that will transcend the opinion that need to be watched.

 

Glenn G. Lammi:  I would also add it’s somewhat of a more granular level and I sort of pivoted this in the beginning that states have increasingly used this Section 401 water quality certification authority to delay and deter and extract conditions from those that want to use permits. And the law is that the states must make their decision within a year. Certainly, the Department of Ecology didn’t do that. And then in this instance most -- the EPA and others have not imposed any strict limitations on that. So there’s nothing preventing them from continuing to delay. But I think that how this plays out will have an impact on that going forward as well, and it’s potentially one less weapon that the environmental community can use to block infrastructure projects and things like ports.

 

Prof. Donald J. Kochan:  And it have implications for whether or not the federal government should look at the approvals of delegated authority down to the state and what solutions they might want to place on that if the states are actually abusing their delegated authority. Then there is room for the federal government to claw back some of what they’ve granted to the states under the Clean Water Act.

 

Wesley Hodges:  Well, very good. We appreciate your remarks, Donald and Glenn. Well, on behalf of The Federalist Society, I'd like to thank you both for the benefit of your very valuable time and expertise today. We welcome all listener feedback by email at info@fedsoc.org. Thank you all for joining us for the call. The call is now adjourned.

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