Michigan’s Balkanizing Bottle Redemption Law Treads on Commerce Clause

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Cross-posted by Forbes.com on WLF’s Contributor Page

For those who, like me, spent much of the 1990s watching Thursday night’s “must see TV,” much of what happens in our lives can be related to an episode of “Seinfeld.”  Sometimes, the same can even be said about legal policy disputes. The U.S. Court of Appeals for the Sixth Circuit will soon hear oral arguments on a case that evokes memories of the 1996 two-part Seinfeld episode “The Bottle Deposit.”

In that episode, Newman hatches a scheme along with Kramer to collect bottles and cans and drive them in a truck to Michigan, which offered 10 cents for each returned container, compared to New York’s 5 cents. In states such as Michigan and New York, consumers pay 5 or 10 cents more than retail price for each container, but can get that money back by returning the bottles. In Michigan, the amount of bottle fees which remain unredeemed by consumers at the end of the year “escheats” to the state (i.e. they seize it as “unclaimed” property). The state keeps 75% and gives 25% to beverage retailers. 

Newman’s scheme is one which is quite familiar to Michigan legislators, whose escheat revenue is threatened whenever people try to redeem containers not purchased in Michigan. In 2008, Michigan passed a law requiring that high-volume beverage manufacturers affix a Michigan-unique mark to their containers and dictating that those containers can only be sold in Michigan. Businesses that sell products in Michigan not containing the unique mark, as well as sales of products with the unique mark in any other state, face criminal charges punishable by up to six months in prison and a $2,000 fine per beverage sold in violation of the statute.

In order to avoid criminal punishment, America’s beverage manufacturers and retailers must spend millions to set up an entirely separate production, warehousing, and distribution system for Michigan, which must insure Michigan-unique product are sold only in Michigan. The Michigan law thus not only polices what happens within its own borders, but also purports to regulate commercial conduct in the other 49 states.

A national beverage company trade association sued Michigan earlier this year, arguing that the law violates that part of the U.S. Constitution’s Commerce Clause, which prohibits states from passing laws which discriminate against interstate trade. A federal district court judge rejected the association’s motion for summary judgment, and the Sixth Circuit accepted American Beverage Association v. Snyder on interlocutory appeal.

Washington Legal Foundation filed an amicus brief Friday supporting the association’s appeal. Although this is an issue of first impression in the Sixth Circuit, this case isn’t a close call. The circuit court should follow the lead of a district court in New York which, in 2009, struck down a law similar to Michigan’s that New York had adopted as a Commerce Clause violation.

As we argue in our brief, Michigan’s bottle bill is exactly the kind of law the Constitution’s framers had in mind when it wrote the Commerce Clause. The Supreme Court has held that “a state statute the directly regulates or discriminates against interstate commerce” is “virtually per se invalid.” Michigan’s impermissibly law walls off its market from the rest of the country to advance its interest in taking as much unclaimed deposit revenue as possible. It also criminalizes beverage sales occurring outside of Michigan. Imagine what would happen if each state passed a law similar to Michigan’s – interstate sales of soda, beer, bottled water, etc., would virtually cease to exist.

A mechanism to stop real-life perpetrators of Newman and Kramer bottle redemption schemes in Michigan was already in place: civil fines and criminal punishment of those who turn in non-Michigan drink containers. Instead of treading on the rights of businesses trying to sell their products in a national market, individual fraudsters should be the ones to pay for their pursuit of Michigan citizens’ dimes.

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