Burma Case II: Court Brief in National Foreign Trade Council v. Baker
UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
|NATIONAL FOREIGN TRADE COUNCIL,
CHARLES D. BAKER, in his official capacity as Secretary of Administration and Finance of the Commonwealth of Massachusetts, and PHILMORE ANDERSON, III, in his official capacity as State Purchasing Agent for the Commonwealth of Massachusetts,
DEFENDANTS' MEMORANDUM IN SUPPORT OF THEIR MOTION FOR SUMMARY JUDGMENT
STATEMENT OF THE CASE
Introduction and Summary of Argument
Plaintiff National Foreign Trade Council (NFTC) challenges Mass. Gen. Laws Ann. Ch. 7, §§ 22G-22M (West 1998 Supp.) (the "Burma Law"). The Burma Law restricts the authority of the Commonwealth to buy goods and services from companies that do business with Burma. According to the NFTC, the "reported human rights abuses that have plagued [Burma], and the regime's failure to recognize the results of the democratic election held [there] in 1990, are condemnable." Complaint ¶ 23. The Massachusetts Burma Law expresses the Commonwealth's own disapproval of the violations of human rights committed by the Burmese government. The Law contributes to the growing effort -- joined by Congress and the President -- to apply indirect economic pressure against the Burma regime for reform. The Burma Law echoes the historic concerns of the citizens of Massachusetts who, for more than two hundred years, have supported the "natural, essential, and unalienable rights" of people around the world. See Mass. Const. Pt. 1, art. 1.
The Burma Law effectively requires state agencies to increase by 10% the price of offers to sell goods and services to the Commonwealth submitted by companies that do business with Burma. M.G.L.A. ch. 7, §§ 22H (d). The Law applies equally to the Commonwealth's purchases of goods and services from companies domiciled in Massachusetts, other States, and foreign countries. The Burma Law does not prohibit or otherwise regulate purchases of goods or services by private persons or regulate contact between private persons and the Government of Burma. In these respects, the Burma Law closely resembles laws enacted in the 1980's concerning South Africa -- laws ruled constitutional by Maryland's highest Court and the United States Department of Justice.
Nothing in the Constitution denies to the States the right to apply a moral standard to the exercise of their spending powers. Nor does the Constitution deny to the States the right to use such a standard to address -- or even attempt to influence -- the conduct of foreign governments or firms. As explained below, the Burma Law does not violate the Supremacy Clause because (1) neither Congress nor the President has clearly stated an intent to preempt selective purchasing laws concerning Burma, and (2) the Burma Law is broadly consistent with federal sanctions against Burma. The Burma Law also does not violate the Foreign Commerce Clause because it represents the action of the Commonwealth as a "market participant" and does not prevent the federal government from "speaking with one voice" in federal regulation of commerce with Burma. Finally, the Burma Law does not interfere with the federal government's conduct of foreign policy because (1) the Constitution permits state actions that indirectly affect foreign affairs, even where the actions are intended to influence a foreign government; (2) the Burma Law does not establish contact between Massachusetts and the Government of Burma and the effects of the Law on foreign affairs are indirect; (3) any effect of the Burma Law on foreign affairs is justified by the importance of the interests promoted by the law -- interests embodied in the First and Tenth Amendments; and (4) the vagueness of the dormant foreign affairs power invoked by the NFTC suggests that the Court should leave the nullification of state procurement laws to the political branches, or apply a "market participation" exception to that power. In short, where Congress and the President have not expressly preempted the States from enacting their own selective purchasing laws, the Court should decline to hold that the Constitution implicitly nullifies the same laws. The fact that the Constitution may give the federal government the last word on foreign affairs does not mean that it has the only word.
Conditions in Burma
According to the United States Department of State, the "people of Burma continue to live under a highly authoritarian military regime that is widely condemned for its serious human rights abuses." U.S. State Department Report to Congress (June 13, 1997), Joint Stipulation (J.S.) Ex. 23 at 105. The military regime -- known as the State Law and Order Restoration Council (the SLORC) -- "continues to dominate the political, economic, and social life of the country in the same arbitrary, heavy-handed way that it has since seizing power in September 1988 after harshly suppressing massive pro-democracy demonstrations." Id.
The State Department has reported to Congress that "the SLORC's severe violations of human rights have continued." Id. at 106. "There continue to be credible reports, particularly from ethnic minority-dominated areas along the Thai border, that soldiers have committed serious human rights abuses, including extrajudicial killing and rape." Id. "Disappearances continue, and members of the security forces beat and otherwise abuse detainees. Arbitrary arrests and detentions continue for expression of dissenting political views. Several hundred, if not more, political prisoners remain in detention, including 29 Members of Parliament elected in 1990." Id.
The SLORC "sharply restricts basic rights to free speech, press, assembly and association." Id. at 106. Prior to the 1990 national parliamentary election reluctantly held by the SLORC, the SLORC arrested Daw Aun-San Suu Kyi, the leader of the most popular opposition party, the National League for Democracy (NLD). Wall Street Journal, March 25, 1997 at A18, J.S. Ex. 25. From July 1989 until July 1995, the SLORC detained Ms. Suu Kyi in her home and prohibited her from seeing her two young children or her husband for much of this six year period. Id. Despite Ms. Suu Kyi's imprisonment, her party (the NLD) received 81% of the vote and won 392 of the 485 available parliamentary seats in the 1990 election. Id. However, SLORC invalidated the election results and placed Ms. Suu Kyi under house arrest. Id.
Since 1990, the SLORC has repeatedly employed its military might to stifle the NLD. Id. at 104. Since its removal of the NLD, the SLORC has closed several of NLD's provincial offices. Id. To prevent the NLD from holding its national party congress, the SLORC placed barricades in front of the event site (Ms. Suu Kyi's residence) and arrested numerous party members on two separate occasions in 1996. Id.
The SLORC's assaults on ethnic minorities have been equally pervasive and destructive. SLORC has launched its most severe and prolonged attacks against the Karen and the Rohingya Muslims. Id. at 106. Beginning in 1994, SLORC utilized its army to attack the Karen and Mon enclaves located along the Thai border. Id. According to the State Department, "[i]n February [of 1997], the Burmese Army launched a full-scale assault on the forces of the Karen National Union," resulting in the relocation of approximately 12,000 Karen refugees in nearby Thailand. Id. Similarly, as a result of sustained army offensives dating back to 1991, about 24,000 Rohingya Muslims, who formerly inhabited the Arakan state in Burma, now live in camps in Bangladesh. Id. Because of these and other actions by the SLORC against minority groups, the U.S. State Department has estimated that as many as 100,000 Burmese have fled to nearby countries. Id. Members of the targeted communities who were unable to escape were forcibly conscripted into the Burmese army. Id.
The most recent reports by the State Department and the President on Burma confirm the serious conditions there. See 62 Fed. Reg. 65005 (December 10, 1997); 63 Fed. Reg. 27659-27661 (May 19, 1998); 63 Fed. Reg. 34255 (June 24, 1998). These conditions -- now borne by the people of Burma for many years -- prompted the actions of Massachusetts, the United States, and foreign countries described below.
The Massachusetts Burma Law
In July, 1996, the Massachusetts Legislature enacted Chapter 130 of the Acts of 1996, "An Act Regulating State Contracts with Companies Doing Business with or in Burma (Myanmar)," codified at M.G.L.A. c. 7, §§ 22G-M. Subject to certain exceptions, the Burma Law provides that "a state agency, a state authority, the house of representatives or the state senate may not procure goods or services from any person listed on the restricted purchase list [described below] maintained by the secretary [of administration and finance], or who is determined through affidavit or other reliable methods to meet the criteria for so being listed." M.G.L.A. ch. 7, § 22H(a). By its terms, the statute imposes "preference requirements" (§ 22I) rather than an absolute prohibition on state contracting with companies doing business in Burma. Thus, exceptions are authorized when the procurement is "essential" and enforcement of the restriction would "eliminate the only bid or offer, or would result in inadequate competition[,]"
§ 22H(b)(1) and (2); when the State is purchasing certain kinds of medical supplies, § 22I; or when there is "no comparable low bid or offer" by a bidder who is not on the list. § 22H(d). A "comparable low bid or offer" is defined as "a responsive and responsible bid or offer which is no more than ten percent greater than the lowest bid or offer submitted for goods or a service."
Section 22G. In practice, the "comparable low bid or offer" provision is applied by adding 10% to offers made by persons on the restricted purchase list. J.S. ¶ 29.
Section 22J provides that the "secretary shall establish and maintain a restricted purchase list . . . [which] shall contain the names of all persons currently doing business with Burma (Myanmar)." "Doing business with Burma" is defined by § 22G as:
(a) having a principal place of business, place of incorporation or its corporate headquarters in Burma (Myanmar) or having any operations, leases, franchises, majority-owned subsidiaries, distribution agreements, or any other similar agreements in Burma (Myanmar), or being the majority-owned subsidiary licensee or franchise[e] of such a person;
(b) providing financial services to the government of Burma (Myanmar), including providing direct loans, underwriting government securities, providing any consulting advice or assistance, providing brokerage services, acting as a trustee or escrow agent, or otherwise acting as an agent pursuant to a contractual agreement;
(c) promoting the importation or sale of gems, timber, oil, gas or other related products, commerce in which is largely controlled by the government of Burma (Myanmar), from Burma (Myanmar).
(d) providing any goods or services to the government of Burma (Myanmar).
Under Sections 22H(e) and 22I, persons with operations in Burma limited to the "reporting the news" or providing goods or services "for the provision of international telecommunications," or "providing only medical supplies" are exempt from the restrictions of the Act.
The Act directs the Secretary of Administration and Finance (the Secretary), "[i]n establishing the restricted purchase list," "to consult United Nations reports, resources of the Investor Responsibility Research Center and the Associates to Develop Democratic Burma, and other reliable sources." Section 22J(b). "The Secretary shall also place the name of any person who, in the statement [submitted to state agencies under Section 22H], declared that he meets the criteria for being so listed." Id. "The restricted purchase list shall be updated every three months." Section 22J(c). The Act applies to new contracts and renewals, but not contracts existing at its effective date in September, 1996. Chapter 130 of the Acts of 1996, § 3.
Implementation of the Burma Law
The Operational Services Division (OSD) is the agency within the Executive Office of Administration and Finance that administers the Burma Law. See Affidavit of Harold Fisher (submitted herewith) ¶ 1. Defendant Anderson is the State Purchasing Agent and head of OSD. See Compl. ¶ 25. After its review of relevant information, OSD determines whether a company is doing business with Burma. See Fisher Aff. ¶¶ 3-6. If OSD preliminarily determines that a company is doing business in Burma, it sends a letter to the person informing him of that fact. See id. ¶ 7 & Ex. A. The letter states that the company may "submit" a "sworn affidavit" and other documents stating the "reasons" for its view that it is not doing business with Burma. Id.
Companies informed of a preliminary determination by OSD have responded in writing and requested that they not be placed on the list. These responses have often included letters and affidavits. See id., Ex. B. In some cases, representatives of a company have met with OSD personnel to discuss their placement on the restricted purchase list. Id. ¶ 7.
In some cases, after receiving information from such a companies, OSD has determined not to include certain of the companies on the list. Id. ¶ 8 & Ex. C. In its compilation of the initial list in 1996, OSD excluded 20 companies that had received preliminary determinations and submitted evidence that they were not doing business with Burma within the meaning of the Burma Law. Id. ¶ 8. In other cases, OSD has maintained its initial determination that the company is doing business with Burma under the Burma Law. To date, no company has sought judicial review of a determination by OSD that it is doing business with Burma. Id. ¶ 9.
Federal Legislation Concerning Burma
Three months after Massachusetts enacted its Burma Law, Congress authorized federal sanctions against Burma. The Omnibus Consolidated Appropriations Act of 1997 (OCAA), Pub. L. No. 104-208, § 570, 110 Stat. 3009-166 through 3009-167 (Section 570), approved September 30, 1996, imposed conditional sanctions on Burma "[u]ntil such time as the President determines and certifies to Congress that Burma has made measurable and substantial progress in improving human rights practices and implementing democratic government . . . ." Section 570 (a). The sanctions include an end to most bilateral assistance (§ 570 (a)(1)) and the opposition by the United States to most multilateral aid. Id. at § 570 (a)(2).
Section 570 also authorizes and directs the President "to prohibit . . . United States persons from new investment in Burma, if [he] determines and certifies to Congress that, after the date of th[e] Act, the Government of Burma has physically harmed, rearrested for political acts, or exiled Daw Aung San Suu Kyi or has committed large-scale repression of or violence against the Democratic opposition." Id. at § 570 (b). "New investment" is defined by the Act to include "the economical development of resources located in Burma," but does "not include the entry into, performance of, or financing of a contract to sell or purchase goods, services or technology." Id. at § 570 (f)(2).
The Act further directs the President to "seek to develop, in coordination with members of the Association of Southeast Asian Nations (ASEAN) and other countries having major trading and investment interests in Burma, a comprehensive, multilateral strategy to bring democracy to and improve human rights practices and the quality of life in Burma, including the development of a dialogue between the State Law and Order Restoration Council (SLORC) and democratic opposition groups within Burma." Id. at § 570 (c).
Finally, the Act requires the President to submit reports every six months to certain Congressional committees on: "(1) progress toward democraticization in Burma; (2) progress on improving the quality of life of the Burmese people . . .; and (3) progress made in developing the [multilateral] strategy referred to in subsection (c)[ 'to bring democracy to and improve human rights practices . . . in Burma']." Id. at § 570(d).
Federal Executive Action Concerning Burma
On October 3, 1996, the President issued a proclamation entitled "Suspension of Entry as Immigrants and Nonimmigrants of Persons Who Formulate or Implement Policies That Are Impeding the Transition to Democracy in Burma or Who Benefit from Such Policies." Proclamation No. 6925 (October 3, 1996), 61 Fed. Reg. 52233, 1996 U.S.C.C.A.N. at A83. The President stated that the "current regime in Burma continues to detain a significant number of duly elected members of parliament, National League of Democracy activists, and other persons attempting to promote democratic change in Burma." Id. The President further stated that the "regime has failed to enter into serious dialogue with the democratic opposition and representatives of the country's ethnic minorities, . . . and has failed to meet internationally recognized standards of human rights." Id.
Seven months later, the President issued an Executive Order implementing Section 570. Exec. Ord. 13047, 62 Fed. Reg. 28,301 (1997). In the Order the President "determine[d] and certif[ied] that, for purposes of [Section 570(b)], the Government of Burma has committed large-scale repression of the democratic opposition in Burma after September 30, 1996, and further determine[d] that the actions and policies of the Government of Burma constitute an unusual and extraordinary threat to the national security and foreign policy of the United States and declare[d] a national emergency to deal with that threat." Id. Accordingly, the President "prohibit[ed] new investment in Burma by United States persons . . . ," subject to certain exceptions. Id.(1)
Sanctions Imposed on Burma by Other Countries
Other countries have likewise imposed sanctions on Burma. According to the Massachusetts Congressional delegation, concerns about Burma's forced labor practices have prompted the European Commission (EC) to revoke Burma's tariff preferences. J.S. Ex. 26. In 1997 and 1998, the European Parliament passed resolutions concerning Burma. J.S. Ex. 26 and 27. The 1998 resolution expresses "deep concern at the continuing and extremely serious human rights abuses committed by the military authorities in Burma." J.S. Ex. 27. The 1998 resolution notes that the Communities "common position" has included a "ban on entry visas," an "embargo on sales of arms, munitions, and military equipment, and the suspension of non-humanitarian aid or development programmes." Id. The 1997 resolution urged the EC to refrain from pursuing a challenge to the Massachusetts Burma law with the World Trade Organization (WTO). J.S. Ex. 26; see generally Brief Amicus Curiae of European Communities (July 6, 1998), App. 1 (summarizing adverse actions of EU toward Burma).
Canada, Australia and Japan have joined the EU in enacting sanctions against Burma. Each has enacted an arms embargo and Japan has limited itself to humanitarian aid. J.S. Ex. 23 at 107.
I. THE NFTC MAY NOT MAINTAIN THIS ACTION ON BEHALF OF ITS MEMBERS BECAUSE IT HAS NOT SHOWN THAT PARTICULAR MEMBERS HAVE SUFFERED LEGAL HARM FROM THE APPLICATION OF THE BURMA LAW.
The Court should dismiss the complaint because the NFTC lacks standing to maintain this action. The NFTC may not maintain an action on behalf of its members because no member has shown that it has suffered legal injury from the operation of the Burma Law.
The question of standing is one of jurisdiction: if the plaintiff lacks standing the Court lacks a "case or controversy" necessary for jurisdiction under Article III of the Constitution. Jurisdictional issues should be decided before the merits, and a court may not simply "assume" that it has jurisdiction in order to resolve a more easily decided claim on the merits. Steel Company v. Citizens for a Better Environment, 118 S.Ct. 1012-16 (1998). Thus, "before addressing the merits of a constitutional challenge, a court must decide whether the party has standing to assert the constitutional rights in question." Washington Legal Foundation v. Massachusetts Bar Foundation, 795 F. Supp. 50, 52 n.3 (D. Mass. 1992) (quotation omitted), aff'd, 993 F.2d 962 (1st Cir. 1993).
The requirement of standing is a legal question properly raised by the defendants' motion for summary judgment. See Lujan v. National Wildlife Federation, 497 U.S. 871, 884-85 (1990). Upon a motion for summary judgment, plaintiff's standing may not "be inferred argumentatively from averments in the pleadings, . . . but rather must affirmatively appear in the record." FW/BS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990)(quotation omitted). A plaintiff is required to furnish "particularized allegations of fact deemed supportive of its standing." Warth v. Seldin, 422 U.S. 490, 501 (1975) (emphasis added). Further, "the allegations must be true and capable of proof at trial." United States v. Students Challenging Regulatory Agency Procedures (SCRAP), 412 U.S. 669, 689 (1973).
In a case challenging a state statute, a plaintiff must show more than an ideological interest in the case. "[S]tanding is not measured by the intensity of the litigant's interest or the fervency of his advocacy." Valley Forge College v. Americans United for Separation of Church and State, 454 U.S. 464, 486 (1982). Thus, the NFTC may not establish standing simply by asserting that it "oppos[es] state and local restrictions upon foreign trade" (Kittredge Declar. at ¶ 5 (April 29, 1998) or resolving to challenge such restrictions in court. See id. Ex. A.
The complaint, affidavits, and Joint Stipulations demonstrate that the NFTC claims no legal injury to itself as an organization but only harm to unnamed(2) member companies. An association may sue on behalf of its members if "(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the individual members to participate in the lawsuit." Hunt v. Washington Apple Advertising Comm'n, 432 U.S. 333, 343 (1977). The NFTC broadly claims that its "members . . . would unquestionably have standing to bring the suit on their own behalf." NFTC Mem. in Supp. of Mot. for Prelim. Inj. (NFTC Mem.) (April 29, 1998) at 14. It alleges that the "consequences" of the Burma Law are that certain unnamed members are restricted from receiving certain contracts and must sign a sworn statement testifying to their activities in Burma. Kittredge Declar. ¶¶ 5-7. The NFTC claims that unnamed members appear on the current restricted purchase list and that others have suffered an "impact on business planning" and "business operations." Id. ¶¶ 9-10. The NFTC admits that it "is not able to quantify th[e]] amount of economic loss" allegedly suffered by its members (NFTC Local Rule 26.1 Disclosure Statement filed July 2, 1998). Most important, the NFTC has stipulated that no company while a member of the NFTC (1) attempted to bid on a contract in Massachusetts after September, 30, 1996 (the effective date of the Burma Law), or (2) was denied a contract because of the Burma Law. J.S. ¶¶ 33-34.
The parties have stipulated to certain other facts which bear on the issue of standing. For example, the parties have stipulated that (1) more than thirty members of the NFTC are on the restricted purchase list; (2) some members of the NFTC ceased doing business with Burma after enactment of the Burma Law; (3) one member of the NFTC has received Massachusetts contracts in the past, but has determined not to bid again; and (4) one non-member of the NFTC who bid on a contract and had its bid increased by 10% is now a member of the NFTC. See J.S. ¶¶ 30-34, 36, 38.
None of the stipulations of the parties establishes the standing of the NFTC. None shows that a company while a member of the NFTC has (1) attempted to bid on a contract in Massachusetts after the effective date of the act, (2) has had its offer increased by 10%, or (3) has been denied a contract because of the Burma Law. See J. S. ¶¶ 33-34; Fisher Aff. ¶ 13 ("not aware of any situation in which the application of the Burma Law to any specific procurement has resulted in the denial of a contract award to a person on the restricted purchase list who would have otherwise won the award"). These crucial yet absent facts are necessary to establish that the plaintiff has suffered injury in fact from the operation of the challenged law. See Warth v Seldin, 422 U.S. at 498-99, 504 (person challenging a zoning ordinance did not establish sufficient "facts from which it reasonably could be inferred that, absent the respondent's restrictive zoning practices, there is a substantial probability that they would have been able to purchase or lease" a home); Animal Legal Defense Fund, Inc. v. Fisheries & Wildlife Board, 416 Mass. 635, 638-640, 624 N.E.2d 556, 558-560 (1993) (members of association lacked standing to challenge qualifications for membership on state board, where members could be appointed to at least some seats on the Board).
Northeastern Florida Chapter of the Associated Gen. Contractors of America v. City of Jacksonville, 508 U.S. 656 (1993), does not support the standing of the NFTC. In Jacksonville, the plaintiff association, composed primarily of non-minority contractors, challenged an ordinance requiring that 10% of municipal contracts be reserved for minority firms. The contractors did not allege that they had applied for contracts and been denied them pursuant to the ordinance. However, they did allege that they had applied for contracts from the city in the past and would bid for the contracts covered by the statutory set aside in the absence of the ordinance. The Supreme Court held that the plaintiffs had standing because they averred that they were "able and ready to bid on contracts" and that the challenged "discriminatory policy [prevented them] from [bidding on contracts] on an equal basis." Id. at 666. The Court explained that "[w]hen the government erects a barrier that makes it more difficult for members of one group to obtain a benefit than it is for members of another group, a member of the former group seeking to challenge the barrier need not allege that he would have otherwise obtained the benefit but for the barrier in order to establish standing. The 'injury in fact' in an equal protection case of this variety is the denial of equal treatment resulting from imposition of the barrier, not the ultimate inability to obtain the benefit." Id. The Court stated (id. at 665) that its closest precedent was the Bakke case, where the "injury" to the white applicant was the decision of the school "not to permit Bakke to compete for all 100 places in the class, simply because of his race." Regents of Univ. of Cal. v. Bakke, 438 U.S. 265, 281 n.14 (1978).
Jacksonville is distinguishable from this case for two reasons. First, the set-aside challenged in Jacksonville was a complete prohibition. No non-minority contractor could receive certain contracts. By contrast, the Burma Law is not a complete prohibition but rather a 10% preference that members of NFTC may overcome in a particular bid process or avoid by qualifying under one of the exceptions to the Burma Law. These opportunities to avoid injury entirely -- without any relief from this Court -- distinguish this case from Jacksonville and Bakke and show that the members of the NFTC have not suffered any harm, let alone sufficient legal harm to establish standing to maintain this case. See Foster v. Center Township of LaPorte County, 798 F.2d 237, 242-44 (7th Cir. 1986) (plaintiff eligible for governmental benefits lacks standing to challenge guidelines for eligibility, even if she may "someday" be ineligible). Second, the NFTC makes no Equal Protection claim, or any other claim based on race. The lower bar for standing applied in Jacksonville must be limited to cases involving an immutable characteristic such as race. See Jacksonville, 508 U.S. at 658-659 (describing set-aside program and claims of plaintiffs). Absent such a limitation, anyone wishing to apply for a governmental benefit would have standing to challenge any criterion for eligibility. The Court should reject this rule as inconsistent with Article III and dismiss the complaint for lack of standing.
II. NEITHER CONGRESS NOR THE PRESIDENT HAS PREEMPTED THE STATES FROM IMPOSING A PRICE PREFERENCE IN THEIR PROCUREMENT OF GOODS AND SERVICES FROM COMPANIES DOING BUSINESS WITH BURMA.
The NFTC claims that the Burma Law is preempted because it "conflicts with the sanctions enacted by Congress and the President to implement a federal strategy for encouraging political change in Myanmar." NFTC Mem. at 36. The Court should decide this statute-based claim before deciding plaintiff's constitutional claims. See Zschernig v. Miller, 389 U.S. 429, 444-45 (1968) (Harlan, J., concurring). The Court should hold that the Burma Law is not preempted because it promotes the same goal as federal law -- human rights for the people of Burma -- and, far from posing an obstacle to the means chosen by the federal government to reach that goal, the Burma Law furthers the federal efforts.
State law can be preempted under the Supremacy Clause, U.S. Const. Art. VI, cl. 2, in three circumstances. First, Congress may expressly define the extent to which its enactments have preemptive effect. See, e.g., Shaw v. Delta Airlines, Inc., 463 U.S. 85, 95-96 (1983); Philip Morris, Inc. v. Harshbarger, 122 F.3d 58, 67, 69-78 (1st Cir. 1997). Second, in the absence of explicit preempting language, state law may be preempted where it operates in a "field" that Congress has intended to "occupy" exclusively. "Occupation" of a field may be inferred from a "scheme of federal regulation . . . so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it," or where an Act of Congress "touch[es] a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). Third, state law may be preempted if it "actually conflicts" with federal law. Philip Morris, 122 F.2d at 68. Actual conflict occurs where compliance with both state and federal law "is a physical impossibility," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 143 (1963), or where state law "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hines v. Davidowitz, 312 U.S. 52, 67 (1941).
In any preemption analysis, "[t]he purpose of Congress is the ultimate touchstone," and the "crucial inquiry [is]: Did Congress, in enacting the Federal Statute, intend to exercise its constitutionally delegated authority to set aside the laws of a State?" Philip Morris, Inc., 122 F.3d at 67 (quoting Barnett Bank v. Nelson, 116 S. Ct. 1103, 1107 (1996)). The burden assumed by one claiming preemption is "heavy in those cases that rely on implied preemption, which relies . . . on inference." Id. at 79 (quotation omitted). The presumption against preemption applies fully in this case, involving as it does state procurement, which represents the fundamental power to expend public resources reserved to the States by the Tenth Amendment. See Reeves v. Stake, 447 U.S. 429, 441 (1980) ("market participant" exception to Commerce Clause rests on principles of federalism).
The NFTC makes a very narrow preemption argument in this case. The NFTC does not claim that either Congress or the President has expressly exercised federal authority to set aside laws of the States concerning Burma. Nor could the NFTC make such a claim. Congress knows how to preempt state action that affects foreign affairs. See Export Administration Act of 1979, 50 U.S.C. § 2407(c) (stating expressly that Anti-Arab boycott provisions "preempt[ed] any law, rule or regulation that the several states or the District of Columbia, or any governmental subdivision thereof . . . ."). Similarly, in 1986, Congress enacted the Comprehensive Anti-Apartheid Act (CAAA) of 1986, P.L. 99-349, 100 Stat. 1086, which included a limited preemption provision addressing federally-funded contracts awarded by state and local governments. P.L. 99-349, § 606. In 1989, the Maryland Court of Appeals held that the CAAA did not preempt a Baltimore ordinance that required city pension funds to divest their holdings in companies doing business in South Africa. See Board of Trustees v. Mayor and City Council of Baltimore, 562 A.2d 720, 740-744 (Md. 1989) (hereafter "Board of Trustees"), cert. denied, 493 U.S. 1093 (1990). Thus, Section 606 of the CAAA and its legislative history, as explained in Board of Trustees, rebut the NFTC's claim that there is "no evidence" that Congress in enacting the CAAA in 1986 "had even considered . . . sanctions of the sort imposed by localities." See NFTC Mem. at 38 n.18. Since Congress in 1996 was aware that Board of Trustees had found no preemption in the 1986 CAAA, it would have expressed its intent clearly in its 1996 law on Burma if it had intended to preempt state selective purchasing laws concerning Burma. Similarly, Congress knew in 1996 that the President may nullify state law by executive order only if Congress clearly authorizes him to do so. See California State Board of Optometry v. Federal Trade Comm'n, 910 F.2d 976, 982 (D.C. Cir. 1990). However, nothing in the OCAA authorizes the President to nullify state law on Burma by executive order. For all of these reasons, the NFTC understandably does not argue express preemption in this case.
Nor does the NFTC claim that Congress has occupied the relevant field. The mere existence of a federal scheme -- even one that is "in some respects comprehensive" -- does not establish that "Congress left no room for the States to supplement it." Philip Morris, Inc., 122 F.3d at 86 (quotations omitted). Instead, the NFTC argues solely that the Massachusetts Burma Law "conflicts" with actions of Congress and the President, as follows.
First, the NFTC argues that the Massachusetts Burma Law conflicts with federal law because it includes a measure -- selective purchasing -- not imposed by the United States. NFTC Mem. at 37-38. According to the NFTC, the federal government's selection of sanctions represents its "judgment" about the proper scope of "continuing United States economic ties" with Burma and the Massachusetts law "contradicts and impedes" this judgment. Id. Second, the NFTC argues that "the Massachusetts Burma Law conflicts with "federal law because the federal law calls for a multilateral strategy to foster democracy[,]" while the state law is "unilateral." Id. at 38-39.
Both of these arguments rest solely on the 1996 federal law on Burma and its legislative history; the Executive Order on Burma; and later statements by State Department officials in testimony before the Maryland and California state legislatures. Nothing in these laws or statements supports an inference that Congress intended to preempt the Burma Law. The OCAA and the Executive Order set forth certain sanctions imposed by the United States in an effort to improve human rights in Burma. Each was enacted or issued after Massachusetts enacted its Burma Law in July, 1996, and the Court must therefore infer that Congress and the President were aware of the Massachusetts law when they imposed federal sanctions on Burma. See Beal v. Doe, 432 U.S. 438, 447 (1977). The federal sanctions include an end to most bilateral assistance (P.L. 104-208, § 570 (a)(1)) and the objection by the United States to must multilateral assistance. Id. at § 570 (a)(2). Pursuant to the OCAA, the President has "prohibit[ed] new investment in Burma by United States persons," subject to certain exceptions. 61 Fed. Reg. 28,301. The President has not prohibited "entry into, performance of, or financing of a contract to sell or purchase goods, services, or technology," except in certain limited circumstances. Id.
Federal law does not establish conflict preemption in this case for two reasons. First, neither the OCAA nor the Executive Order creates a private right of action on behalf of affected companies. The members of the NFTC are not the "member[s] of the class for whose especial benefit the [federal laws were] enacted," and there is no "indication of legislative intent to create" a remedy for the protection of a right to do business with Burma. See Furtick v. Medford Housing Authority, 963 F. Supp. 64, 70 (D. Mass. 1997) (citing Cort v. Ash, 422 66, 78 (1975)). Indeed, the Executive Order provides that "[n]othing contained in [it] shall create any right or benefit, substantive or procedural, enforceable by any party against the United States, its agencies or instrumentalities, its officers or employees, or any other person." 62 Fed. Reg. at 28,302. Thus, the Court should reject the preemption claim here because the federal law on Burma and the Executive Order do not establish a private right of action.(3)
Second, the Massachusetts Burma Law does not conflict with these federal measures because both state and federal laws promote the same goal -- human rights for the people of Burma. Each of the federal sanctions is intended by Congress and the President "to bring democracy to and improve human rights practices and the quality of life in Burma, including the development of a dialogue between the State Law and Order Restoration Council (SLORC) and democratic opposition groups within Burma." P.L. 104-208, § 570(c); see also J.S. Ex. 28 at NF082 (State Department official describes "shared goal" of federal and state action); J.S. Ex. 32 at 5 (Secretary of State opines that "it is only right that Burma is subject to international sanctions and consumer boycotts"). The Massachusetts Burma Law promotes several purposes, each of which is broadly consistent with the purposes of federal law. The Burma Law discourages companies from doing business with Burma; encourages companies to lobby for change in Burma; highlights the conditions in Burma and thereby invites action by Congress and other interested bodies; and expresses the disapproval of the people of Massachusetts of the conditions in Burma. Where, as here, state and federal laws further the same purpose, a claim of "actual conflict" fails. See CTS Corp. v. Dynamics Corp. of America, 481 U.S. 69, 82-83 (1987) (no preemption where state "furthers the federal policy"); Associated Gen. Contractors of Mass., Inc. v. Altshuler, 490 F.2d 9, 14-15 (1st Cir. 1973), cert. denied, 416 U.S. 957 (1974) (no preemption of state law by Executive Order where "broad purposes" of the two are "congruent").
Nor does the Massachusetts law stand as an obstacle to the means chosen by the United States to reach the shared goal of human rights in Burma. Nothing in the Burma Law impedes enforcement of the federal ban on "new investment" by United States persons; the Burma Law does not, for example, authorize investments prohibited by federal law. Rather, United States companies may easily comply with both state and federal restrictions. Nor does the state law interfere with federal policy toward foreign companies, because the federal sanctions do not apply to foreign companies at all. See Philip Morris, Inc., 122 F.3d at 83 (no conflict because prohibitions in federal law apply only to federal officials). Indeed, while some people opposed federal sanctions on the ground that they would impose a relative disadvantage on the United States in both diplomacy and trade, the Massachusetts Burma Law applies equally to United States and foreign firms. The state law also generally permits United States firms to continue to conduct foreign trade in goods and services permitted by federal law, because the price preference imposed by the Burma Law applies only to procurement by state agencies in Massachusetts. Thus, nothing in the Massachusetts Burma Law even affects -- let alone impedes -- the implementation of the federal sanctions.
Nor may the NFTC establish a conflict by its claim that the federal actions embody a "judgment" about the proper balance between sanctions and economic ties. The NFTC argues, in effect, that Congress and the President -- without bothering even to mention the preemption of state law -- have struck a balance between sanctions and trade that is unconstitutionally disturbed by state and local procurement laws that differ from the federal sanctions.
The First Circuit recently rejected a similar argument in Philip Morris, Inc. v. Harshbarger, 122 F.3d at 78-85. There the tobacco industry argued that federal law embodied a congressional "judgment" about the proper balance between public health education and trade secrets in tobacco products, and that the Massachusetts Tobacco Disclosure Law -- which requires submission of information not required by federal law, and authorizes its release upon certain findings by the state public health agency and attorney general -- upset the balance struck by Congress.
The First Circuit noted that "[t]opics that warrant congressional legislation necessarily entail issues of national concern." Id. at 80. "That cannot mean, however, that every federal statute ousts every related state law." Id. "Moreover, the mere fact that a subject of federal legislation requires an intricate and complex response from the Congress does not necessarily indicate that Congress intended its response to be the exclusive means of addressing the issue." Id. (quotation marks and citations omitted). The court identified the central purpose of the federal law as not promoting trade in tobacco products but rather preempting nonuniform advertising regulations and increasing health education about tobacco ingredients. Even the federal statute's express statement of general concern "for protecting commerce and the national economy" did not preempt the state disclosure law, but merely "create[d] some general tension with a federal law's abstract objectives." Id. at 82 (citations omitted). The First Circuit stated that "even assuming that state law somehow alter[s a] purported balance, . . . the question is not whether a congressionally calibrated system is altered by state law, but if altered, whether the change obstructs the purpose of Congress." Philip Morris, Inc., 122 F.2d at 85 (emphasis in original; quotation omitted).
Here, the controlling purpose of the federal law is to promote human rights for the people of Burma. As the defendants show above, the Massachusetts Burma Law furthers this purpose. Conditions in Burma may improve if companies that withdraw from Burma decrease economic support for the current regime, or if companies that remain press the regime for reform. Any effects of the Massachusetts Burma Law on the purported federal "balance" between trade and sanctions would not frustrate the controlling purpose of the federal law, which is to promote the human rights of the people of Burma.(4)
There likewise is no merit to the claim that the Burma Law "conflicts with federal law because federal law calls for a multilateral strategy to foster democracy" in Burma. NFTC Mem. at 38. According to the NFTC, the federal law on Burma and its legislative history show that Congress and the President "prefer" to act toward Burma with the "support and participation" of other countries. Id. at 38-39 & nn. 17-18. This point does not establish preemption for three reasons. First, the federal act and related State Department reports demonstrate that the United States has imposed unilateral sanctions on Burma. See 142 Cong. Rec. S8752-8753 (U.S. already "maintain[ed] a range of unilateral sanctions and d[id] not promote U.S. commercial investment ties with Burma"); J.S. Ex. 23 at 107 and n.1, supra (describing unilateral sanctions). Second, the NFTC's point is further undermined by its own statement that the federal law on Burma "does not make the new investment ban contingent on multilateral agreement." J.S. Ex.28 at NF 531. NFTC's affiliate, USA-Engage, has similarly cited the unilateral nature of recent United States foreign policy, stating that "[i]n just four years the United States has imposed 61 unilateral economic sanctions on 35 countries . . . ." J.S. Ex. 28 at NF 320; see also J.S. Ex. 28 at NF 296, 298, 302, 303, 306 (describing specific United States policies toward countries including Burma as "unilateral sanctions"). These statements discredit the NFTC's more recent view that the federal Burma policy is exclusively multilateral. To the contrary, the most reasonable reading of the record is that the United States has chosen to use both unilateral and multilateral tools to achieve reform in Burma. Third, even if the federal policy might be properly termed "multilateral," the mere fact that a state law differs from a federal law, or even imposes additional requirements, does not by itself establish unconstitutional conflict, so long as the state law is broadly consistent with the goals of the federal law. See English v. General Electric Co., 496 U.S. 72, 89 (1990).
Nor may an actual conflict between state and federal policy be established on the thin reed of statements made by a deputy assistant secretary of state to state legislatures after enactment of the federal sanctions. See NFTC Mem. at 38-39. This testimony has no binding legal effect; it is less persuasive than event the hearing testimony discounted by the First Circuit in Philip Morris, Inc., 122 F.3d at 84 n. 39, and the Supreme Court in Wisconsin Public Intervenor, 501 U.S. at 614-15 (finding no actual conflict where frustration of purported federal purpose relied on "little more than snippets of legislative history and policy speculations"). Even if, as these officials suggest, the President "prefers" multilateral sanctions, that fact does not establish that he or Congress has codified such a preference by nullifying state and local laws. In similar circumstances, the Comprehensive Anti-Apartheid Act and Board of Trustees, 592 A.2d at 740-44, showed that even when Congress is aware of state and local restrictions, it does not view them as inconsistent with a multilateral strategy to improve human rights. In both 1980's and 1990's, the selective purchasing laws enacted by state governments show how multilateral action is often sparked by the courageous act of a single State which acts not knowing what course others may take.
Finally, even if the Burma Law had the potential to complicate the administration of federal policy toward Burma, the First Circuit has made clear that there is no preemption even if the state law is a "perceivable source of irritation," or even where "the potential for serious differences" may "generally complicate unduly" a federal agency's "administration" of its "program." Kargman v. Sullivan, 552 F.2d 1, 10 (1st Cir. 1977). For the reasons stated above, the Massachusetts Burma Law neither irritates nor complicates, but rather complements, the efforts of the federal government. Nothing in the record of this case establishes the type of "hard evidence" of conflict necessary to support preemption. Id.; see Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 131 (1978) (courts will not infer preemption based on speculation; conflict must be real).
In summary, nothing in the text, structure, or history of federal law or executive action shows an intent to deny to States a freedom of choice of purchase that they have previously enjoyed and that private companies continue to enjoy.(5) While the federal law may have balanced human rights and trade, there is no evidence that Congress intended to establish national uniformity of action toward companies that do business with Burma. "Had Congress desired [such] uniformity . . . it plainly knew how to accomplish that end. The fact remains, however, that it did not." Philip Morris, Inc., 122 F.3d at 85. In the face of the federal silence and the complete absence of any evidence of actual conflict, "[t]he courts should not assume the role which our system assigns to Congress." Pacific Gas & Electric v. Energy Resources Comm'n, 461 U.S. 190, 223 (1983); see De Canas v. Bica, 424 U.S. 351, 363 (1976)(finding no preemption, even in the predominantly federal area of immigration regulation).(6)
III. THE BURMA LAW DOES NOT VIOLATE THE FOREIGN COMMERCE CLAUSE BECAUSE STATE PROCUREMENT IS "MARKET PARTICIPATION," NOT "REGULATION," AND, IN ANY EVENT, THE LAW DOES NOT DISCRIMINATE AGAINST OR CONFLICT WITH FEDERAL REGULATION OF FOREIGN COMMERCE.
The NFTC also claims that even if federal law does not preempt the Burma Law, the Law is invalid under the Foreign Commerce Clause. NFTC Mem. at 27-36. The Foreign Commerce Clause provides that "[t]he Congress shall have Power [t]o regulate Commerce with foreign Nations." U. S. Const. Art. I, § 8, cl. 3. Like the domestic Commerce Clause, "[t]hough phrased as a grant of regulatory power to Congress, the Clause has long been understood to have a 'negative' aspect that denies to the States the power unjustifiably to discriminate against or burden the [international] flow of articles of commerce." Oregon Waste Systems v. Dept. of Environmental Quality, 511 U.S. 93, 98 (1994).
In this case, the Court should enter judgment for the defendants on the NFTC's claim under the Foreign Commerce Clause, because: (1) state procurement of goods and services is "market participation" not subject to the limits on state regulatory action imposed by the Clause; and (2) the Burma Law does not discriminate against or conflict with federal regulation of foreign commerce, and (3) in any event, Congress has passively accepted state and local action such as the Burma Law.
A. A State's Decision to Prefer Certain Companies in Its Procurement of Goods and Services is Not Subject to Review under the Foreign Commerce Clause.
The Supreme Court has held that "when a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause." White v. Massachusetts Council of Construction Employers, Inc., 460 U.S. 204, 208 (1983) (rejecting Commerce Clause challenge to City of Boston requirement that at least 50% of the private workforce on all construction projects funded wholly by the city must be Boston residents); see Reeves, Inc. v. Stake, 447 U.S. at 436-37 (upholding state law restricting sale of state-produced cement to state residents); Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810 (1976) (upholding state "bounties" for scrap cars where law favored state residents seeking bounties). The "market participant" doctrine stems from the fact that "[t]here is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market." Reeves, Inc. v. Stake, 447 U.S. at 437. Indeed, in light of the "long recognized right of trader or manufacturer, engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal,'" id. at 438-439 (quoting United States v. Colgate & Co., 250 U.S. 300, 307 (1919)), the Court has reasoned that "when acting as proprietors, States should similarly share existing freedoms from federal constraints, including the inherent limits of the Commerce Clause." Reeves, Inc. v. Stake, 447 U.S. at 439. The doctrine rests on a "healthy regard for federalism and good government" rooted in the powers reserved to the States by the 10th Amendment. Id. at 441. The market participation principle operates at the very threshold of a commerce clause challenge: if the principle applies, both the challenged law's impact on commerce and its justifications are irrelevant; the law is simply immune from judicial veto under the Commerce Clause. See White, 461 U.S. at 210.
Applying these principles, federal and state courts have determined that state and local selective purchasing laws that affect foreign commerce are not subject to review under the Foreign Commerce Clause. See Trojan Technologies, Inc. v. Commonwealth of Pennsylvania, 916 F.2d 903, 909-13 (3d Cir. 1990), cert. denied, 501 U.S. 1212 (1991); Board of Trustees, 562 A.2d at 752; K.S.B. Technical Sales Corp. v. New Jersey District Water Supply Comm'n, 381 A.2d 774, 784-89 (N.J. 1977), app. dismissed, 435 U.S. 982 (1978). Professor Tribe has summarized the point as follows:
A distinction must be drawn between state regulations of foreign commerce, and state participation in foreign commerce. The former activity is tightly proscribed by the negative implications of what might be called the foreign commerce clause. Thus, a state or local government that opposed the regime of apartheid in the Union of South Africa could not, absent congressional authorization, enact a measure denying South African companies the privilege of doing business within its jurisdiction; nor could a state or locality forbid its citizens and resident corporations from investing or trading with multinational corporations which have affiliates or subsidiaries in South Africa. But under the Supreme Court's market participant exception to the Commerce Clause, a state would be free to pass laws forbidding investment of the state's pension funds in companies that do business with South Africa, or rules requiring that purchases of goods and services by and for the state government be made only from companies that have divested themselves of South African commercial involvement.
L. Tribe, Constitutional Law (1988 ed.) § 6-22, p. 469 (emphasis added).
In imposing a price preference for firms that do not do business with Burma, the Commonwealth of Massachusetts is acting as a market participant. It is exercising the power and discretion that any private actor would enjoy as a matter of contract and property rights -- the power to decide "with whom it will deal." The Burma Law does not exercise the sovereign power that the Commonwealth uniquely enjoys to compel or prohibit private action under the threat of punishment. Under the Law, companies from both the United States and foreign countries remain free to do business with Burma, and citizens of Massachusetts remain free to buy goods and services from such firms. But the Commonwealth of Massachusetts -- in creating new markets for certain goods and services -- will only spend taxpayer dollars under a preference for companies that do no business with Burma. As the Maryland Court of Appeals noted, "just as a private merchant may elect not to deal with companies doing business in [a foreign country] . . . [state and local governments] too may make the same choice unhindered by the constraints of the Commerce Clause." Board of Trustees, 562 A.2d at 750.
The NFTC's attempt to avoid the market participant doctrine relies on two points. First, the NFTC argues that the market participant doctrine applies only to claims under the domestic Commerce Clause, not the Foreign Commerce Clause. NFTC Mem. at 31-32. The Supreme Court has not decided this question. See Reeves v. Stake, 447 U.S. at 438 n.9 ("no occasion to explore the limits imposed on state proprietary actions by the foreign commerce Clause"). State and federal appellate courts have nonetheless applied the market participant doctrine to claims under the Foreign Commerce Clause. See Trojan Technologies, Inc., 916 F.2d at 910; Board of Trustees, 562 A.2d at 752 (citations omitted); K.S.B Technical Sales Corp., 381 A.2d at 788. Further, in 1991, in Trojan Technologies, Inc., the United States Department of Justice advised the Third Circuit that the doctrine "does apply to the Foreign Commerce Clause, as well as the Interstate Commerce Clause" because the "rationale for its application is identical -- there is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market." Brief for the United States as Amicus Curiae in No. 90-5057 at 17-18. The United States further stated that whatever the scope of review of the constitutional issue, the Pennsylvania "Buy American" statute was protected by the market participant doctrine. Id. (7) These statements are consistent with the 1986 opinion of the United State Department of Justice, Office of Legal Counsel, which concluded that the market participant doctrine shielded state and local divestment laws concerning South Africa from claims that they violated the Foreign Commerce Clause and the foreign affairs power. See 10 Op. Office of Legal Counsel (O.L.C.) 65, 67-79, 1986 WL 213238 (citing opinion as 10 O.L.C 49). In light of these judicial decisions and prior statements of the United States, the Court should hold that the market participant doctrine applies to a claim under the Foreign Commerce Clause.
Second, the NFTC argues that even if the market participant doctrine applies to the Foreign Commerce Clause, it does not save the Burma Law because "in the . . . Law, the Commonwealth is acting to regulate, not simply to participate, in a market." NFTC Mem. at 31, 32-36 (citing Gould, 475 U.S. at 283, 289). The NFTC asserts that "while the law employs the Commonwealth's purchasing power to effectuate its ends, [it] is quite evidently an effort to regulate not only the relationship between Myanmar and certain companies, but also the domestic policies of Myanmar itself." NFTC Mem. at 32.
This argument is factually and legally incorrect, and the Court should reject it. The nature of the Burma Law -- a price preference applied to state procurement of goods and services -- demonstrates that it is the act of a market participant, not a market regulator. In its purchases of goods and services, the Commonwealth not only enters a market -- it creates one. Immunity for such purchases follows directly from the immunity granted by the Supreme Court to the state purchases of auto hulks in Hughes and the choice of state's choice of potential buyers of state cement in Reeves; in each case, the state government does not regulate private conduct but simply decides "with whom it will deal." Reeves, 447 U.S. at 438-39