Chamber of Commerce v. Brown

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Authorship: Micah Block of Stanford Law School contributed to this page.

Contents

[edit] Briefs and Documents

Docket: 06-939

Argument Transcript

Issue: Whether the National Labor Relations Act preempts a California law barring private employers from using state grant or program funds to influence union organizing campaigns.

[edit] Certiorari stage

[edit] Merits stage

Amicus briefs

[edit] Pre-Argument Articles

[edit] Conference Call

The following article by Ben Winograd appeared in the "Conference Call" column of the Legal Times on 11/19/07.

Conference Call: Supreme Court Asked to Take California Labor Case

Chamber of Commerce is challenging law barring use of certain state funds to influence union elections

On labor issues, the U.S. Chamber of Commerce and the National Labor Relations Board haven’t always seen eye to eye. But both bodies are hoping the Supreme Court will decide this week to review a California law that bars employers from using certain state funds to influence the outcome of a union election campaign — a prohibition opponents fear will infringe management’s speech rights and give organized labor the type of upper hand Congress never intended.

Letting the law stand could have wide national implications, as legislatures have introduced similar laws in 15 other states. With the solicitor general’s recent recommendation that the Court grant the petition, however, the odds are high that the justices will docket the case when it comes up for consideration at their pre-Thanksgiving conference on Nov. 20. (The petition is No. 06-939, Chamber of Commerce v. Brown.) The Court could issue its decision as soon as that afternoon.

California enacted the law at issue in late 2000. Passed with strong union backing, the measure prohibits employers receiving state grants or more than $10,000 in state program funds from using any portion of the money to “assist, promote, or deter” union organizing campaigns. In addition to potential treble damage awards, violators can face suits by private taxpayers and the state attorney general and must pay attorney fees to prevailing parties.

California called the bill a necessary measure to prevent taxpayer money from influencing workers’ decisions on whether to unionize. In practice, employer groups say, the bill would effectively prevent many companies from opposing unions at all.

Led by the Chamber of Commerce, a host of employer groups sought to enjoin the law in 2002. On a motion for summary judgment, the district court found that federal law pre-empted the California statute under the Supreme Court’s 1976 decision in Lodge 76, International Association of Machinists v. Wisconsin Employment Relations Commission, which forbids states from regulating activity Congress meant to leave “to the free play of economic forces.”

A panel of the U.S. Court of Appeals for the 9th Circuit later found the law also pre-empted under the high court’s 1959 ruling in San Diego Building Trades v. Garmon and later cases, which bar states from regulating activity even arguably covered by the National Labor Relations Act.

An en banc panel later upheld the law by a 12-3 margin, noting that employers remained free to express views on unionizing with their own funds. Rejecting Machinists’ pre-emption argument, Judge Raymond Fisher wrote for the majority that state spending decisions “are by definition not controlled by the free play of economic forces.” As to Garmon, Fisher wrote that, although the National Labor Relations Act bars the use of most employer speech “as evidence of an unfair labor practice,” it does not explicitly give employers the right to participate in organizing campaigns.

In its petition for certiorari, filed by Willis Goldsmith of Jones Day in New York, the Chamber calls the distinction “semantic gamesmanship.” By enacting the Taft-Hartley amendments of 1947, Goldsmith argues, Congress intended to let employers freely make their case for or against unionization — so long as they refrain from promising to reward or retaliate against workers for their choice.

In holding otherwise, the petition contends, the 9th Circuit broke with recent rulings of two other circuits. In a 2005 case, according to Goldsmith, the 7th Circuit found that federal law pre-empted any state measure that substantially affects the collective bargaining process, even a regulation coming “in the form of a restriction on the use of state funds.” In addition, the 2nd Circuit last year pre-empted a similar New York statute insofar as it applied to money employers earned through state contracts, as opposed to mere grants, the petition says.

Far from trying to stay neutral, California enacted the law as a “concerted effort to spur union organizing,” the Chamber argues. To speak out against unionization, Goldsmith argues, employers that receive a sufficient amount of state money must comply with burdensome record-keeping requirements and ensure that all employees who work on union matters are paid with separate funds. And the petitioners assert that the law, as a practical matter, entirely muffles employers that rely exclusively on state money — such as health care providers wholly dependent on reimbursements from California’s Medicaid program.

Opposing certiorari, California argues that the Chamber’s facial challenge offers a poor procedural vehicle for review, and that the 9th Circuit decision creates no significant split with either circuit ruling cited in the petition. Angela Sierra, a California deputy attorney general, argues further that lower courts should first have an opportunity to interpret the terms of the statute, including whether the restrictions in fact apply to funds received from state contracts or profits earned from participation in state programs.

The brief in opposition contends that the Wisconsin law struck down by the 7th Circuit went much further than the California law, and, while conceding that the 2nd Circuit found that the National Labor Relations Act protects employer speech, argues the difference in reasoning could eventually be rendered “merely academic.” Rather than grant certiorari now, California argues, the Court should wait for more states to enact similar laws and see if a deeper split emerges in the circuit courts. — Ben Winograd

© 2007 ALM Properties Inc.

[edit] Argument Preview

[NOTE: The following draws heavily on Ben Winograd’s piece, previously published in the Legal Times and posted on ScotusWiki.]

On labor issues, the U.S. Chamber of Commerce and the National Labor Relations Board haven’t always seen eye to eye. But the two bodies are united in opposition to AB 1889, a California law that bars employers from using certain state funds to influence the outcome of a union election campaign—a prohibition opponents fear will infringe management’s speech rights and give organized labor the type of upper hand Congress never intended. Letting the law stand could have wide national implications, as legislatures have introduced similar laws in 15 other states.

The Chamber of Commerce filed a petition for certiorari on January 5, 2007, seeking review of a Ninth Circuit en banc decision that upheld AB 1889 against preemption challenge. Certiorari was granted on November 20, 2007.

California enacted AB 1889 in late 2000. Passed with strong union backing, the measure prohibits employers receiving state grants or more than $10,000 in state program funds from using any portion of the money to “assist, promote, or deter” union organizing campaigns. In addition to potential treble damage awards, violators can face suits by private taxpayers and the state attorney general and must pay attorney fees to prevailing parties.

California called the bill a necessary measure to prevent taxpayer money from influencing workers’ decisions on whether to unionize. In practice, employer groups say, the bill would effectively prevent many companies from opposing unions at all.

Led by the Chamber of Commerce, a host of employer groups sought to enjoin AB 1889 in 2002. On a motion for summary judgment, the district court found that federal law pre-empted the California statute under the Supreme Court’s 1976 decision in Lodge 76, International Association of Machinists v. Wisconsin Employment Relations Commission (“Machinists”), which prohibits states from regulating activity Congress meant to leave “to the free play of economic forces.”

A panel of the U.S. Court of Appeals for the 9th Circuit later found the law also pre-empted under the high court’s 1959 ruling in San Diego Building Trades v. Garmon (“Garmon”) and later cases, which bar states from regulating activity even arguably covered by the National Labor Relations Act.

An en banc panel later upheld the law by a 12-3 margin, noting that employers remained free to express views on unionizing with their own funds. Rejecting the Machinists preemption argument, Judge Raymond Fisher wrote for the majority that state spending decisions “are by definition not controlled by the free play of economic forces.” As to Garmon, Fisher wrote that, although the National Labor Relations Act (NLRA) bars the use of most employer speech “as evidence of an unfair labor practice,” it does not explicitly give employers the right to participate in organizing campaigns.


[edit] Petition for Certiorari

[Note: The first few paragraphs of the following draw heavily on Ben Winograd’s piece, previously published in the Legal Times and posted on ScotusWiki.]

In its petition for certiorari, filed by Willis Goldsmith of Jones Day in New York, the Chamber argues that Judge Fisher’s reading of the NLRA rests on “semantic gamesmanship.” By enacting the Taft-Hartley amendments of 1947, Goldsmith argues, Congress intended to let employers freely make their case for or against unionization — so long as they refrain from promising to reward or retaliate against workers for their choice.

In holding otherwise, the petition contends, the Ninth Circuit broke with recent rulings of two other circuits. In a 2005 case, according to Goldsmith, the Seventh Circuit held that federal law pre-empted any state measure which substantially affects the collective bargaining process, even a regulation coming “in the form of a restriction on the use of state funds.” In addition, the Second Circuit last year held that a similar New York statute was pre-empted insofar as it applied to money employers earned through state contracts, as opposed to mere grants, the petition says.

Far from trying to stay neutral, California enacted the law as a “concerted effort to spur union organizing,” the Chamber argues. To speak out against unionization, Goldsmith argues, employers that receive a sufficient amount of state money must comply with burdensome record-keeping requirements and ensure that all employees who work on union matters are paid with separate funds. And the petitioners assert that the law, as a practical matter, entirely muffles employers that rely exclusively on state money — such as health care providers wholly dependent on reimbursements from California’s Medicaid program.

Opposing certiorari, California (represented by Deputy Attorney General Angela Sierra) argues that the Chamber’s facial challenge offers a poor procedural vehicle for review, and that the Ninth Circuit decision does not significantly conflict with the decisions of either the Seventh or Second Circuits. Rather, the brief in opposition contends, the Wisconsin law struck down by the Seventh Circuit went much further than the California law. And although the state concedes that the Second Circuit held that the National Labor Relations Act protects employer speech, it argues the difference in reasoning could eventually be rendered “merely academic.” Rather than grant certiorari now, California argues, the Court should wait for more states to enact similar laws and see if a deeper split emerges in the circuit courts. The state argues further that lower courts should first have an opportunity to interpret the terms of the statute, including whether the restrictions in fact apply to funds received from state contracts or profits earned from participation in state programs.

In its reply brief at the certiorari stage, the petitioners disputed the respondents’ characterization of the en banc court’s decision as review of a “facial challenge,” asserting that “absent reversal, there is no possibility that any court in the [Ninth] Circuit could hold AB 1889 preempted” as it applies to any set of facts. Therefore, the Chamber argued, there was no vehicle problem to prevent the Supreme Court from resolving a square conflict between the Ninth Circuit and both the Seventh and Second Circuits.

At the Court’s invitation, the United States filed a brief as amicus curiae recommending that the petition be granted, and siding with the Chamber of Commerce on the merits. Specifically, the Solicitor General argued that AB 1889 was preempted under both Garmon and Machinists, and that this case presents both a question on which there exists a clear conflict among the circuits, and an adequate vehicle for resolving the conflict.

The petition for certiorari was granted on November 20, 2007. The case was set for oral argument on Wednesday, March 20, 2008.


[edit] Merits Briefing

[edit] Petitioner's Opening Brief

In its brief on the merits, the Chamber of Commerce leads with its Machinists preemption argument, asserting that AB 1889 regulates employer speech that Congress intended “to be left for the free play of contending economic forces.” Specifically, the Chamber argues that AB 1889 restricts employer speech about unionization, and therefore unfairly denies to one party in labor fights, namely employers, the use of an economic “weapon that Congress meant [them] to have available.” It further argues that Congress’s intent to leave noncoercive speech unregulated is evident from Section 8(c) of Taft-Hartley Act of 1947, which provides that it is not an unfair labor practice for an employer to “express[] any views, argument, or opinion, … if such expression contains no threat of reprisal or force or promise of benefit.”

Second, the Chamber briefly reiterates its Garmon preemption argument, whereby it asserts that AB 1889 is impermissible because it regulates conduct “arguably protected or arguably prohibited” by the NLRA. That is, it would require California courts considering suits under AB 1889 to “intrude on the NLRB’s primary jurisdiction to determine whether an employer’s speech is noncoercive (and thus ‘arguably protected’) or coercive (and thus ‘arguably prohibited’), by prophylactically prohibiting all such speech.” The Chamber acknowledges some overlap between the Garmon and Machinists arguments because, as the Second Circuit noted in the case that formed the basis for the circuit conflict alleged in the petition for certiorari, “the protection afforded by section 8(c) is to leave employer speech largely unregulated, [so] in a case involving section 8(c), the Garmon doctrine and the Machinists doctrine actually tend toward the same point.”

Third, the Chamber seeks to anticipate and rebut an argument that AB 1889 might evade preemption via the market participant exception laid down in Boston Harbor. That exception cannot apply, the Chamber argues, when “a state seeks to advance a regulatory interest in labor policy, rather than a ‘purely proprietary interest’ of a private ‘market participant.’” Accordingly, the Chamber argues that AB 1889 furthers California’s labor policy, not any proprietary or fiscal interest. In this regard, the Chamber relies heavily on the preamble to AB 1889, which states that when employers act to deter unionization they “interfere with an employee’s choice about whether to join or be represented by a labor union,” and that AB 1889 imposes its limit on the use of state funds because this interference is contrary “to the policy of the state.” The Chamber reinforces this argument by asserting that AB 1889’s refusal to fund certain employer speech is not a “neutral” position, but rather an effort to favor labor in the debate over unionization, noting in particular that the bill allows the use of public funds by employers for some pro-union speech and conduct, such as expenditures to allow a union access to the workplace to discuss the benefits of organized labor, or expenditures to voluntarily recognize a union.

Fourth, the Chamber urges the Court to find that AB 1889 impermissibly burdens speech that is affirmatively protected by section 8(c) of the NLRA, and by the First Amendment. This argument relies heavily on AB 1889’s accounting requirements, which oblige an employer who receives state funds and wishes to engage in speech intended to assist, promote or deter union organizing to organize its accounts so as to demonstrate that no affected funds are being used in a prohibited manner. Although the case arises on summary judgment and thus does not have a well-developed factual record, here the Chamber relies on several affidavits from employers (submitted in the district court) averring that the bill would cause them to “fundamentally and substantially alter” their accounting procedures.

Finally, the Chamber of Commerce points to the risk that labor law and policy will become balkanized if individual states are allowed to exercise their spending power through bills like AB 1889. According to the Chamber, these bills upset and complicate the uniform national balance struck by the NLRA between labor and management interests and threaten multi-state employers with the prospect of myriad burdensome requirements that differ from state to state.


[edit] Respondents' Briefs

Two merits briefs were filed on the respondents’ side, one by the State of California, and a second by intervenors the AFL-CIO and the California Labor Federation.

The State respondents organize their brief in opposition to the Machinists and Garmon preemption claims in turn. Beginning with Machinists, the State argues that AB 1889 does not regulate something intended by Congress to be left unregulated because it does not regulate the use of employers’ own funds, nor does it place any requirements on employers as a condition for the receipt of state funds. By its terms, AB 1889 applies only to how certain funds received from the state can be used by employers.

Next, the State seeks to establish its sovereign interest in the funds that AB 1889 regulates, with respect to both grants and programs. In particular, it seeks to rebut an argument made by both the Chamber of Commerce and the United States in its brief as amicus curiae in support of petitioners that the state lacks any sovereign and/or proprietary interest in grant and program funds after it has transferred them to private employers in exchange for goods or services rendered, and therefore that AB 1889 cannot be considered a legitimate exercise of a proprietary interest. California first counters that even if AB 1889 would be preempted with respect to some funds to which it otherwise might be applied, that argument cannot support the “facial” challenge in this case. Second, according to California, the State does retain a legitimate interest in both grant and program funds because they are disbursed to achieve specific public interest goals, so California retains an interest after disbursement in seeing that disbursed funds are directed to their intended uses.

Next, California counters the Garmon preemption claim with three arguments. First, the State asserts that AB 1889 does not regulate speech actually or arguably protected by the NLRA, because section 8(c) does not provide affirmative protections for employer speech. Instead, according to California, section 8(c) merely ensures that certain conduct protected by the First Amendment cannot constitute an unfair labor practice. Hence any “protections” are found in the First Amendment, and not in the NLRA, and, regardless, AB 1889 offends neither. Second, it argues that AB 1889 does not regulate speech actually or arguably prohibited by the NLRA, because it does not impose penalties for the same types of conduct that are prohibited by section 8 of the NLRA as unfair labor practices. Specifically, AB 1889’s restriction on the use of state grant or program funds for conduct that would assist, promote or deter unionization is indifferent to whether the affected speech is coercive, which is the main concern of the NLRA. Finally, California argues that even if it would otherwise be preempted under Garmon, AB 1889 falls within the exception recognized for matters “deeply rooted in local feeling and responsibility.” This exception has historically been applied to allow state courts to assert jurisdiction over common law torts that may arise in the context of labor disputes, such as trespass or defamation, but California argues that it applies equally to a state’s sovereign interest in maintaining local control over its own fisc through measures like AB 1889.

The labor respondents make many of the same points as California, but weight their arguments differently, focusing on three key points. The first is the state’s legitimate interest in avoiding the subsidization of private lobbying activity. The labor respondents argue that AB 1889 is union neutral because a decision not to subsidize is not hostile to the activity it chooses not to fund, and because AB 1889 furthers a legitimate fiscal interest in the funds it affects, wholly unconnected to any effect it may have on labor policy.

Second, the labor respondents base their core preemption arguments on the assertion that Congress did not intend the NLRA to force states to subsidize employers’ efforts to assist or deter union organizing. With respect to Garmon preemption, the labor respondents argue that AB 1889 cannot be preempted because it does not regulate anything arguably protected or arguably prohibited by the NLRA. To support this argument, they assert that NLRA “protects employees, not employers,” so section 8 of the NLRA cannot be read to create employer rights with which AB 1889 might interfere. Moreover, according to the labor respondents, AB 1889 does not interfere with the jurisdiction of the NLRB in any way, primarily because choosing not to subsidize a given activity is not a regulation of it.

Turning to Machinists preemption, the labor respondents further assert that AB 1889 is a permissible state action because “Congress could not have intended the permissible uses of government funds” to be a “free zone from which all regulation is excluded.” They not only argue that states simply must be able to regulate the use of public funds, but also that employer efforts to assist or deter union organizing are regulated by the NLRB, and therefore the subject of AB 1889 cannot be deemed a “free zone.”

Third, the labor respondents reiterate California’s argument that even if it were otherwise preempted, AB 1889 should fit within the exception for matters “deeply rooted in local feeling and responsibility” because a state’s control of its own funds is among the most important interests of state governments.

Finally, the labor respondents argue that the record does not support the Chamber of Commerce’s assertion that the accounting requirements in AB 1889 are burdensome. They point to Regan v. Taxation With Representation, in which the Court rejected an argument that requiring an organization which receives tax-deductible contributions to maintain a separately incorporated entity if it wishes to engage in lobbying, in order to ensure that tax deductible contributions are not misused, does not place an undue burden on protected speech.


[edit] Petitioner's Reply Brief

In its reply brief, the Chamber of Commerce portrays the respondents as having conceded that AB 1889 does not serve a proprietary interest. The Chamber acknowledges that states have an interest in controlling costs and ensuring that state funds are used for intended purposes, but it argues that respondents cannot meaningfully invoke such an interest because AB 1889 by its own terms is directed at “refusing to subsidize” an activity that the State views as an undesirable interference with employee choice on unionization, which the Chamber says is straightforwardly a “labor policy purpose.”

The Chamber also reads the respondents’ merits briefs to concede that AB 1889 “burdens” employer speech. According to the Chamber, respondents’ attempts to “minimize” the burdens are of no moment, because Congress intended the affected speech to be completely unburdened, such that any burden at all brings AB 1889 under Machinists preemption. Finally, the Chamber of Commerce seeks to counter the labor respondents’ argument that the NLRA did not evince a Congressional intent to leave noncoercive employer speech unregulated, returning to its position that such a claim relies on “semantic gamesmanship.”

NOTE ON AMICI

The following parties filed briefs as amici curiae in support of both sides, at the merits stage:


Amici in support of petitioners:

The United States (see above)

The Cato Institute

The American Hospital Association

Associated Builders and Contractors et al.

Healthcare Association of New York et al.

Amici in support of respondents:

AARP et al.

18 States

[edit] Oral Argument Recap

Arguing on behalf of the Chamber of Commerce, Jones Day’s Willis Goldsmith sought to distill the argument in favor of preemption to a basic syllogism establishing that AB 1889 is contrary to federal labor policy. He argued that (1) federal labor policy says that employer speech about unionization enhances employee free choice; (2) California seeks to discourage employer speech about unionization; and therefore (3) “California’s labor policy is designed to discourage exactly what the NLRA promotes.”


Goldsmith met immediate resistance from Justice Scalia to the notion that federal policy “promotes” employer speech about unionization, rather than just permitting it, and Justice Ginsburg chimed in on the same point with reference to federal statutes imposing similar restrictions with respect to certain federal grants. Goldsmith came close to a concession by saying that the federal statutes (using language that AB 1889 borrowed verbatim) did not evince a Congressional intent to inhibit employer speech, but distinguished the federal statutes from AB 1889 based on AB 1889’s administrative requirements and damages provisions.


After several further questions, Justice Breyer posed the hypothetical of a hot dog stand in a state park, completely funded by a state grant that did not allow for money to be spent on unionization activities, and asked if it was the Chamber’s position that the state would be required to add a special grant enabling the hot dog vendor to talk about unionization. Goldsmith used this opportunity to distinguish restrictions on specific grants, as in this hypo and in the federal statutes Justice Ginsburg had previously referred to, from AB 1889’s across-the-board restriction on state grant and program funds.


But Goldsmith ran into some trouble by implying that, because AB 1889 reaches so broadly, the state must show a fiscal purpose, which (he argued) it has failed to do. This prompted Justice Ginsburg to reenter the fray with a line of hostile questions, characterizing the Chamber’s suit as a facial challenge and therefore suggesting that the state need only make the “simple argument” that it chooses to pay for certain things, and wants to get what it pays for. Goldsmith sought to parry Ginsburg’s pointed question by pointing out that although such an argument might be advanced, in this case the court below “unanimously concluded that this was not anything that had anything to do with facial issues; it had solely to do with making labor policy.” Pressed on the accuracy of this assertion, Goldsmith reframed slightly to say that the Ninth Circuit had held that AB 1889 was enacted “solely for labor purposes.”

After several more questions from Justice Ginsburg, Justice Alito changed the focus, essentially offering Goldsmith a friendly invitation to discuss potential problems raised by the question of how or whether money that originates with the state can become purely private “profits” no longer subject to AB 1889’s restrictions. Goldsmith obliged, and used the confusion about profits as an entrée to a broader discussion of AB 1889’s administrative requirements, which Goldsmith sought to characterize as both burdensome and unfairly ambiguous.

Following Goldsmith was Thomas Hungar, Deputy Solicitor General, arguing on behalf of the United States as amicus curiae supporting the petitioners. After a brief opening, Chief Justice Roberts launched into a line of questions he would return to throughout the argument on what he called “the spending clause question.” In particular, the Chief Justice seemed interested in finding a way to distinguish in the abstract between state “regulation” on the one hand, which might be preempted by contrary federal regulation, and mere spending conditions attached to state funds on the other, which would likely be permitted. Hungar pointed to the factors that the Boston Harbor court used “to distinguish regulatory from proprietary conduct” but was unable to propose a distinguishing rule.

Justice Breyer sought to crystallize the colloquy between Hungar and the Chief Justice by removing the question of administrative burdens altogether and asking if a “magic administrative scheme” that had the same effect as AB 1889 but without any of its administrative problems would still be preempted. Hungar replied simply that that would be a different case, walking into Justice Breyer’s riposte observing that if the objections to AB 1889 turn on the administrative requirements and the penalties, then remand is appropriate to develop a record on these things. In response, Hungar referred back to the Boston Harbor factors and suggested that even without remand it would be easy to conclude that all of the factors that established the action in Boston Harbor as “proprietary” suggest by contrast that AB 1889 is “regulation.” Hungar followed up with what appeared to be a stronger argument, asserting that even without the administrative requirements and penalty provisions Justice Breyer’s hypothetical scheme would be preempted as impermissible regulation of labor relations by a state. Before concluding, however, he deftly refocused the court on the burdens imposed by AB 1889, pointing out that even if a hypothetical nonburdensome scheme could “achieve some of the effects of this statute in a nonpreempted way,” AB 1889 would still be facially preempted because it clearly expresses a regulatory purpose and includes the burdensome measures.

After several more questions from Justice Breyer, Justice Ginsburg again compared AB 1889 to similar federal statutes specifying that grant funds not be spent to “assist, promote or deter” unionization. Seeking to distinguish those statutes, Hungar pointed out that none of them contained the burdensome measures that AB 1889 contains, and argued that although “it’s not clear” why Congress passed those measures, at most these statutes create exceptions to the general policy with which AB 1889 conflicts and none of them evince a Congressional intent to change the general policy of leaving noncoercive employer speech about unionization unregulated.

As Hungar’s time ran out, Justice Scalia sought a concession that the similar federal statutes expressed “labor policy.” Hungar parried, explaining that at most those statutes expressed labor policy within specific programs, but that expression cannot be relevant to the preemption of AB 1889, which “applies to state spending across the board.”

As Georgetown University Law Center’s Michael Gottesman rose to argue for the State of California, he might have been heartened by the tough questions his opponents had faced from a wide array of Justices. But it soon became clear that the bench was at least as troubled by Gottesman’s side of the argument.

In his opening, Gottesman sought to frame AB 1889 as withdrawing a subsidy to rectify the “anomalous” state of affairs in which California was financing speech on one side of the labor relations debates but not the other. He immediately met resistance from the Chief Justice, who pointed out that the same might be said of anyone who hires any employer to do anything. Gottesman had to agree, but pointed out that a private entity would be just as entitled as the state to withdraw such a subsidy.

Justice Souter took this opportunity to focus Gottesman on the problem previously raised by Justice Alito regarding the distinction between state money, which is restricted by AB 1889, and unrestricted profits or private money. In particular, Justice Souter pressed Gottesman on the interaction between the State’s position with respect to what funds are restricted, and its claim that AB 1889 is nonregulatory. Gottesman responded generally that the bill does not reach profits, and in any case that it would be inappropriate to address that problem because it did not play into the summary judgment decision before the court. (During this colloquy, Gottesman faced a second testy exchange with the Chief Justice, who interrupted to accuse Gottesman of characterizing the summary judgment issue in a way that was “not accurate.” Gottesman backpedaled, agreeing with the Chief Justice and clarifying his earlier statement.)

Pressed by Justice Souter, Gottesman sought to distinguish between funds paid to employers in advance of the provision of goods and services, which would be restricted by AB 1889, and funds paid to employers to reimburse or compensate after goods or services had been rendered, which would not be restricted.

This enabled Souter to offer perhaps his most incisive question. Since Gottesman had been unable to point to a case in which the State did not get the goods or services it desired because its funds were diverted to unionization-related activities, and since AB 1889 concededly does not apply to state funds after the desired goods or services are delivered, Justice Souter wondered aloud, how AB 1889 could be anything other than a regulatory expression of California’s labor policy? In response, Gottesman argued that there was a fiscal policy, because prior to the enactment of AB 1889 unionization-related expenses were a permissible subset of the overhead expenses to which grant funds could be devoted, so AB 1889 actually addressed the problem of grant money being diverted from the state’s intended purpose, in parallel to Rust v. Sullivan.

Justice Scalia jumped on the Rust analogy, seeking to distinguish the permissible federal interest in that case (not supporting abortions) from California’s interest in this case, which Justice Scalia characterized as “not want[ing] the employer to … disrupt … labor management relations.” Gottesman disputed that characterization of California’s interest, asserting instead an interest in neutrality, but Justice Souter immediately jumped in, attempting to catch Gottesman in a contradiction. Justice Souter pointed out that previously Gottesman had said that California’s concern was that it would not get the vital services it was providing grants for in the first place, and now Gottesman was saying that California’s concern was in maintaining “neutrality,” effectively accusing Gottesman of trying to have it both ways. Gottesman finessed his response, essentially saying that California could have it both ways: a state has a fiscal interest in ensuring that state funds go to their intended uses, and declining to subsidize disfavored activity is a legitimate exercise of that fiscal interest. As hostile questions continued, it appeared unlikely that any of the Justices who participated in this exchange were satisfied with Gottesman’s resolution of the problem.

A wide-ranging series of questions followed from the Chief Justice and Justices Souter, Stevens, Scalia, Alito, Kennedy and Breyer. The questions mainly revisited inquiries about the difference between regulation and merely conditioning spending, about what would constitute “state funds” that are restricted by AB 1889. Gottesman was pressed especially hard by the Chief Justice and Justice Scalia on his assertion that AB 1889 is neutral to unions—both Justices made the practical point that even if AB 1889 is facially neutral it seems certain to have a pro-union effect.

Towards the end of the argument, the Chief Justice and Justice Kennedy returned Gottesman to the possibility of a remand. The Chief Justice suggested in a line of questions that the extent of the burdens imposed by AB 1889 does not matter at all to the question of preemption if the Court concludes that AB 1889 is regulation, because a state labor regulation of this kind would be preempted whether burdensome or not. Gottesman reiterated the State’s argument that AB 1889 is not regulation but he conceded that, “if this is regulation, then there is a serious prospect of its being preempted.” As the clock wound down, Justice Kennedy pointed out that the State’s position differed with the reasoning of the en banc decision below that AB 1889 was “regulation.” Gottesman agreed, but clarified that he shared the en banc decision’s view that AB 1889 does not violate First Amendment rights.

With four minutes remaining in rebuttal, Goldsmith returned to the lectern, and the Justices gave him room to make several prepared points. First, Goldsmith sought to clarify the Chamber of Commerce’s view of the preamble of AB 1889 as staking out a labor policy purpose for the bill. Second, he refuted California’s characterization of the Chamber’s reading of the NLRA, explaining that in the Chamber’s view the NLRA requires states to stay away from regulation of noncoercive employer speech about unionization, but that no one is arguing that it affirmatively requires states to fund unionization activities and the Court need not read it that way to decide for the Chamber. Finally, he rebutted California’s characterization of AB 1889 as neutral, arguing that it reflects the non-neutral policy determination that noncoercive employer speech interferes with employee choice, and that withdrawal of funds is not “neutral,” just as the Hyde Amendment, which withdrew federal funds for abortion, was not “neutral” toward abortions.

In closing, the Chief Justice asked Goldsmith to distinguish AB 1889 from Lyng, in which the Court upheld against First Amendment challenge a law that withheld food stamps from the families of striking workers. Goldsmith first noted that Lyng involved a federal statute that was not subject to preemption, and then sought to distinguish the statute in that case because it involved none of the burdensome measures in AB 1889.


After a bruising argument for both sides, no clear outcome is apparent. It seems unlikely that the respondents will be able to cobble together a majority to affirm in their favor, but they will be heartened by the interest several justices showed in the possibility of a remand to consider whether in fact AB 1889 is so burdensome as to demand preemption. The Chief Justice, however, seems clearly opposed to this result, having suggested in several of his questions that the outcome will rest on the purely legal “spending clause question” of whether AB 1889 is a permissible condition on spending, or whether instead it is impermissible labor regulation, regardless of how burdensome. If the Court concludes that remand is unnecessary it seems likely that it will resolve the merits in favor of the Chamber of Commerce, deeming AB 1889 regulatory, and preempted.

[edit] Opinion Analysis

In an opinion that brings labor laws in a dozen states into question, the Supreme Court ruled on June 19 in Chamber of Commerce v. Brown (06-939) that federal labor law preempts a California law which prevented employers from using state funds “to assist, promote, or deter union organizing,” because the state law regulated conduct that Congress intended to leave unregulated. Justice Stevens delivered the opinion of the Court for seven justices; Justices Breyer and Ginsburg dissented.

Fundamentally, the majority’s holding is based on the conclusion that AB 1889 represents a policy judgment by the state of California that directly contradicts the federal labor policy laid out by Congress in the National Labor Relations Act. The majority relied heavily on AB 1889’s preamble, which opines that even noncoercive employer speech “interfere[s] with an employee’s choice about whether to join or to be represented by a labor union.” According to Justice Stevens, Congress preempted states from acting on this view by adding Section 8(c) - which provides that noncoercive speech by either unions or employers cannot be subject to NLRB regulation as an unfair labor practice - to the NLRA, thereby establishing precisely the opposite judgment as the labor policy of the United States.

Having laid out its basic perception of the conflict between AB 1889 and the NLRA, the majority considered and rejected several arguments that nonetheless sought to avoid preemption.

First, the majority declined to distinguish AB 1889’s restrictions on the use of state funds from impermissible restrictions on who may receive state funds. The Ninth Circuit below had recognized that California could not withhold state funds from a party exercising its right to engage in labor-related speech that is not barred by the NLRA, but nonetheless concluded that the state could legitimately restrict the use of state funds for those purposes. Justice Stevens did not reject the premise that use and receipt could be legally different, but concluded that AB 1889’s restrictions are impermissibly onerous, even if drafted as use restrictions, because they are accompanied by “compliance costs and litigation risks that are calculated to make union-related advocacy prohibitively expensive for employers that receive state funds.”

Second, the majority rejected the Ninth Circuit’s reliance on special NLRA provisions allowing the NLRB to regulate noncoercive employer speech immediately before a union election. The Ninth Circuit took these provisions as an indication that Congress did not intend to leave noncoercive speech completely unregulated, and therefore did not intend to preempt state laws like AB 1889. The majority rejected this argument out of hand, noting that AB 1889 reaches far beyond the narrow context of election time to regulate speech that is clearly left unregulated by the NLRA.

Third, the majority concluded that three federal statutes forbidding the use of particular grant and program funds “to assist, promote or deter union organizing,” using the exact same language as AB 1889, did not suggest that Congress intended to leave noncoercive employer speech open to state regulation. The Ninth Circuit reasoned below that Congress was unlikely to have intended to preempt California from doing something it freely did itself in other contexts. Justice Stevens was not persuaded, characterizing the federal statutes as “tailored exceptions to otherwise applicable federal policies” that did not represent Congressional intent to “tolerate a substantial measure of diversity” in the regulation of employer speech. (He noted also that the federal statutes had not been accompanied by enforcement provisions and pro-union carveouts like the ones present in AB 1889, which further reduced the tension between them and the NLRA.)

The Chamber of Commerce had also challenged AB 1889 under an alternative preemption theory, arguing that the bill impermissibly interfered with the NLRA’s affirmative sphere of regulation (so-called Garmon preemption), but the majority declined to reach these arguments.

Two justices in dissent concluded that states have broad authority to determine how to spend their own money, and that AB 1889’s spending restrictions were within this power.

First, the dissent rejected the characterization of AB 1889’s spending restrictions as “regulation” that might be subject to preemption in the first place, pointing out that the restrictions left employers free to engage in noncoercive speech with their own money. The dissent would have held that a provision preventing the use of state funds for a particular private activity is no more a “regulation” or an interference with free conduct than a provision allowing state funds to be used in such a way, and that neither provision would be preempted by the NLRA.

This narrower definition dovetailed with the dissent’s recognition of broad state authority to act as an “appropriator.” In this part of its opinion, the dissent entered an interesting and potentially far-reaching rejection of the regulator/market-participant divide as a “false dichotomy.” Justice Breyer explained that “[a] State may appropriate funds without either participating in or regulating the labor market,” and concluded that California’s actions as an appropriator under AB 1889 did not amount to “regulation” that could interfere with federal labor law’s regulatory scheme.

Finally, the dissent faulted the majority for basing its holding in part on factual conclusions about the burden created by AB 1889’s compliance provisions. Justices Breyer and Ginsburg agreed with the majority that “should the compliance provisions, as a practical matter, unreasonably discourage expenditure of nonstate funds, the NLRA may well preempt California’s statute,” but they concluded that there was insufficient evidence in the record to evaluate the extent of the burden. This conclusion was reinforced by the fact that no lower court had decided the question, and that the supporters of AB 1889 had introduced uncontroverted expert evidence below opining that the provisions were not unduly burdensome.

Interestingly, the dissent referred several times to “the operative sections” or “the operative provisions” of AB 1889, focusing its attention on the simple language preventing certain classes of employers from using state funds “to assist, promote, or deter union organizing.” This characterization obviously fits well with their conclusion that the record lacked the necessary facts for a holding based on the onus created by the compliance provisions, but it also suggests an attempt to deflect attention from the bill’s preamble, which the majority relied on heavily to find a conflict with the NLRA, and which the dissent did not feel compelled to address.

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