Since the 1970s, the courts have turned a blind eye to agreements between some states that extract wealth from other states. One example is the tobacco Master Settlement Agreement, a perpetual interstate agreement that redistributes billions of dollars in wealth to the 46 states that joined it, from the four states that didn’t, and also gave wealthy trial lawyers more than $15 billion. Another example is the Multistate Tax Commission, which made it easier for states to impose taxes on out-of-state businesses in other states, siphoning wealth from domiciliary states to non-domiciliary states. In its decision in U.S. Steel v. Multistate Tax Commission (1978), the Supreme Court ruled that the Constitution’s compacts clause, which requires Congressional consent to interstate agreements, doesn’t really mean what it says, and instead only requires Congressional consent when an agreement potentially encroaches on federal supremacy.
But the Supreme Court justices’ thinking seems to be changing, and there is language in recent Supreme Court decisions that interstate agreements always require Congressional consent, or at least require its consent when an agreement might injure the interests of some states. That could result in courts striking down interstate agreements that transfer billions of dollars in wealth from some states’ economies to other states’ coffers.
Writing at the Election Law Blog, law professor Derek Muller notes:
Recent Supreme Court cases seem to lean into views of the Compact Clause that would require congressional consent. In 2018 in Texas v. New Mexico, for instance, Justice Gorsuch’s opinion for a unanimous court pointed out, “Congress’s approval serves to ‘prevent any compact or agreement between any two States, which might affect injuriously the interests of the others.’ Florida v. Georgia, 17 How. 478, 494 (1855).” That is, he opened with the requirement of approval for compacts that could affect the interests of other states, not just the more recent emphasize on those contracts that could alter the power against the federal government. (The Court went to an 1855 case for that proposition, too.)
And today, Justice Kavanaugh’s unanimous opinion in New York v. New Jersey opens, “Under Article I, §10, of the Constitution, each State possesses the sovereign authority to enter into a compact with another State, subject to Congress’s approval.” There is no caveat about which kinds of compacts require approval or not–all do.
Justice Kavanaugh’s general language does not mention the Supreme Court’s very cramped interpretation of the Compacts Clause in its decision in U.S. Steel v. Multistate Tax Commission (1978), so it perhaps does not overrule its holding that not all interstate agreements require Congressional consent.
But Justice Gorsuch’s more specific language that Congress must approve agreements that could injure the interests of other states appears more weighty and controlling. That’s because the decision in U.S. Steel v. Multistate Tax Commission (1978) did not address, much less explicitly rule out, a challenge to interstate agreements for injuring non-party states. Because it did not even address such arguments, it did not foreclose such arguments from being successfully made in future cases.
Thus, people harmed by an interstate agreement (such as smokers who pay higher prices due to the multistate Master Settlement Agreement, or non-participating states who fund payments to the participating states in perpetuity through fees imposed on tobacco sales even in nonparticipating states) could challenge such agreements under the Compacts Clause, even though a federal appeals court years ago rejected a challenge to the Master Settlement Agreement under the Compacts Clause over a decade ago.
The fact that the Supreme Court failed to address whether the Multistate Tax Commission it upheld in 1978 also harmed non-party states would not foreclose a challenge under its decisions in Texas v. New Mexico (2018) and Florida v. Georgia (1855). That is because the Supreme Court itself has said that “cases cannot be read as foreclosing an argument that they never dealt with.” Waters v. Churchill, 511 US 661, 678 (1994) (plurality opinion); see also, e.g., Texas v. Cobb, 532 U.S. 162, 169 (2001) (“constitutional rights are not defined by inferences from opinions which did not address the question at issue”); Plaut v. Spendthrift Farm, 511 U.S. 211, 232 n.6 (1994) (“the unexplained silences of our decisions are not entitled to precedential weight”).
In short, if the Supreme Court ignores an argument in the case before it, that does not foreclose the argument from being made in future case, either in the Supreme Court, or in lower courts.
