Eggs and Extra-Territorial Seizures: California’s Bad Habit of Imposing Interstate Burdens

Olds habits are hard to break. Left unchecked, bad tendencies can quickly grow and fester until they become routine seemingly without notice. California has developed an unfortunate habit of its own: the state’s lawmakers have enacted laws that have become the source of costs and consequences for out-of-state citizens across the country.

These laws have covered a wide array of policy areas, but find common ground in placing burdens  on Americans residing in other states. Individuals and private businesses have spent hundreds of millions of dollars in order to comply with the regulatory requirements set forth by these laws in order to maintain crucial business ties with California’s massive economy.

Several states have initiated legal action against California for the hardships being placed on their residents in order to conform to these laws. Understandably, these states are seeing their local producers and business owners being subjected to compliance costs without a viable method of recourse and deciding to take action on their behalf.

A prime example of such challenges occurred in late-2017, when over a dozen states sought relief from an onerous Californian law requiring all eggs imported into the state to be produced by chickens living in the same cage requirements as in-state producers. These mandates, which were once only applicable to Californian egg producers, are so unprecedented that over 92 percent of egg-laying hens in the United States in 2011 failed to satisfy the requirements.

Now, compelled to account for the new costs, farmers and producers across the country dependent upon the Californian market are forced to pass the expense down to their own local customers. Under reasonable assumptions, California’s extended regulation imposes a welfare loss of $350.7 million on consumers across the country per year, with nearly $100 million of this cost being inflicted upon the lowest-income quintile of Americans.

The Supreme Court declined to take up the case brought forth by the dozen states without citing its reasoning, although noting that Justice Thomas would have granted the motions. However, lower courts denying the states’ plea for relief offered suspect logic. The Ninth Circuit, in affirming the Eastern District of California’s decision to dismiss the action, claimed the regulation did not discriminate against out-of-state producers because it equally regulated them with in-state producers.

Under this logic, a single state could impose any regulatory expense upon an article of interstate commerce so long as it is also imposed upon their own producers. Out-of-state businesses are then compelled to pass these compliance costs off to their local consumers, who have no means of representation for the imposition of the extra-territorial regulation. Suddenly, an individual state with a large market share of any good can determine its price across the country without fear of it being labeled an excessive burden.

California’s habit of imposing interstate burdens aren’t stopping at the country’s poultry producers. The Supreme Court is currently awaiting a brief from the Solicitor General in the case of Arizona v. California, which challenges California’s extraterritorial assessment and enforcement of a “doing business” tax assessed to any business entity purported to be engaged in the state’s commerce. This $800 tax is also being assessed to entities that aren’t even conducting any actual business in the state, as it even extends to those merely holding a purely passive investment in an entity doing business in California.

If an out-of-state business being assessed this tax refuses to pay, California locates the company’s money in an out-of-state bank account and sends the bank an ultimatum: transfer the funds or the state will extract the money through a seizure order ex parte. This action includes no warrant, involvement of judicial officers, and a preclusion for the banks to seek judicial review. Therefore, an out-of-state business subjected to this treatment lacks any recourse unless they submit themselves to the jurisdiction of California’s courts as plaintiffs. The National Taxpayers Union Foundation’s amicus curiae brief on the case can be read here.

Eggs and extra-territorial seizures have little in common, but they illustrate California’s developed habit of extrajudicial means to prejudiced ends. Left unchecked, the state is finding an assortment of ways to subject out-of-state citizens to its mandates. Other states recognizing these abuses are entrusting the federal judiciary to recognize this maltreatment and provide relief to Americans being regulated without representation or adequate resources to petition California’s laws. Through cases such as Arizona, the Court can signify that such actions are unacceptable, extrajudicial impositions by a single state.