On Monday, January 30, 2017, the Seventh Circuit held unconstitutional certain parts of an Indiana law which regulated the manufacture of e-liquids sold in the State. Of the law, the court noted "[w]hat is remarkable, however, is the Act’s extensive regulation beyond the manufacture and sale of e-liquid solutions in Indiana." Consequently, because the reach of the law went so far as to regulate out-of-state commerce, the was deemed unconstitutional under dormant commerce clause analysis--something many lawyers and law students would prefer to never think of again.
Before the court were three provisions of the Indiana law: the security system requirements, the clean room specifications, and audit requirements. These provisions, found in Indiana Code 7.1-7, include highly specific requirements, particularly for security--which, on separate note, resulted in a singular security firm qualifying to meet the standards set forth by the law. The court makes reference to this fact, noting that these provisions of the law "look[ ] very much like a legislative grant of a monopoly to one favored in-state company in the security business. We can decide this case without pursuing all of those questions, however." In fact, the FBI has interviewed those involved with the legislation, though details of the investigation have yet to be released.
Ultimately, the Seventh Circuit held the three provisions of the law were unconstitutional as they impermissibly regulated out-of-state commercial activity. The dismissal of the case by the District Court was reversed and the matter was remanded back to the District Court for an order declaring the provisions unenforceable against out-of-state manufacturers (in addition to the plaintiffs).
The Indiana Act directly regulates the production facilities and processes of out-of-state manufacturers and thus wholly out-of-state commercial transactions. It poses the clear risk of multiple and inconsistent regulations that would unduly burden interstate commerce. As applied to out-of-state manufacturers, the challenged extraterritorial laws violate the Commerce Clause.
To read the opinion, follow this link.
*Another case on this same legislation will be in front of the Seventh Circuit for oral argument later this month.