A defense of the Nebraska & Oklahoma v. Colorado marijuana lawsuit

|The Volokh Conspiracy |

Matt Hart, a sales clerk at 3D Dispensary in Denver, uses a pair of chopsticks on Friday to hold a bud of Lemon Skunk, the strain of highest potency available at the store. While polls show more voters favoring the legalization of marijuana, law enforcement officials in Nebraska and Oklahoma have asked the U.S. Supreme court to end Colorado's legalized pot experiment. (David Zalubowski/AP)

Ilya, Jonathan, Randy and I are skeptical about the Nebraska & Oklahoma v. Colorado lawsuit—the one filed directly to the Supreme Court, claiming that Colorado's marijuana legalization regime essentially creates a "public nuisance" that causes harm in neighboring states.

But I thought it would be worthwhile to link to a draft of "Fear and Loathing in Colorado: Invoking the Supreme Court's State-Controversy Jurisdiction to Challenge the Marijuana-Legalization Experiment," by professors Chad DeVeaux and Anne Mostad-Jensen (Concordia Univ. School of Law), which defends a version of the Nebraska and Oklahoma position, at least as to payment of damages rather than an injunction. I remain skeptical about the case; I think such matters should be resolved through the legislative and executive branches of the federal government, not the judicial branch, and I don't think that Congress's earlier judgment categorically prohibiting commerce in marijuana is sufficient to justify this particular remedy. Still, I thought the contrary argument worth noting. Here is the introduction to the article; you can read the whole thing by downloading it from the SSRN site. (Note also that the article thanks law student "Bryan V. Norton, who first proposed the theory that a sister State could invoke the Supreme Court's state-controversy jurisdiction to challenge Colorado's marijuana-legalization experiment.")

[Epigraph:] "One cardinal rule, underlying all the relations of the States to each other, is that of equality of right. Each State stands on the same level with all the rest…. Yet, whenever … the action of one State reaches … into the territory of another State, the question of the extent and the limitations of the rights of the two States becomes a matter of justiciable dispute between them, and [the Supreme Court] is called upon to settle that dispute in such a way as will recognize the equal rights of both and at the same time establish justice between them." [Kansas v. Colorado, 206 U.S. 46, 97-98 (1907).]

Louis Brandeis famously observed that "[i]t is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country." In the wake of Colorado's decriminalization of recreational marijuana, Justice Brandeis's adage has become a shibboleth frequently wielded by pot-legalization advocates.

But the popular culture's exuberant embrace of the marijuana-legalization experiment, undoubtedly fueled by the immense wealth the industry—"Big Cannabis"—promises to generate, ignores a crucial caveat to this oft-quoted metaphor: The Constitution permits States to "try novel social and economic experiments" only when such measures come "without risk to the rest of the country." Accordingly, a century ago when Tennessee permitted her copper smelters to release noxious gases into the atmosphere causing the "wholesale destruction of forests, orchards, and crops" in neighboring Georgia, Justice Brandeis's adage provided the Volunteer State no comfort.

The decision in that case, Georgia v. Tennessee Copper, stands as a bulwark of the Supreme Court's horizontal-federalism jurisprudence—the body of law protecting State polities from incursions by sister States. The Court unanimously recognized that while ultimate judgment whether a State's regulatory choices are "doing more harm than good to her citizens" is ordinarily reserved "for her to determine," the Constitution bars States from undertaking endeavors that conscript the citizens or property of their neighbors as guinea pigs in their experiments. Thus, Tennessee's ability to embrace novel commercial endeavors was curbed by Georgia's right to be free from harmful externalities—"side-effect[s] of … economic activity, [that] caus[e] [neighbors] to suffer without compensation."

When it comes to cross-border externalities, the Constitution dictates that States are "not compelled to lower [themselves] to the more degrading standards of a neighbor." This limitation on State power derives from the ancient maxim that embodies the law of nuisance—"sic utere tuo ut alienum non laedas, that is, so use your own as not to injure another's property."

It is also inherent in the Constitution's commitment to a republican form of government. While Tennesseans are empowered to determine for themselves whether the benefits of risky in-state innovations outweigh their costs, Georgians are "deprived of the opportunity to exert political pressure upon the [Tennessee] legislature in order to obtain a change in policy." Georgians are also denied any share in the revenue that might justify the costs of the endeavor. For these reasons, the Court declared Tennessee's smelting an interstate nuisance that violated the Constitution's federalist covenant and ordered its abatement.

Tennessee Copper is just one of more than a dozen Supreme Court decisions standing in judgment of State experiments alleged to produce cross-border nuisances, or deplete resources shared by multiple States. The Constitution expressly endows the Supreme Court with "original jurisdiction" over such "Controversies between two or more States." This "state-controversy jurisdiction" serves "as a substitute for the diplomatic settlement of controversies between sovereigns and a possible resort to force."

The "cardinal rule, underlying all the relations of the States to each other, is that of equality of right"—each "stands on the same level with all the rest." Nonetheless, when "the action of one State reaches … into the territory of another, … the question of the extent and the limitations of the rights of the two States becomes a matter of justiciable dispute between them." The Constitution entrusts the Supreme Court "to settle" these disputes "in such a way as will recognize the equal rights of both and at the same time establish justice between them."

Supreme Court intervention is necessary because "[t]he states of this Union cannot make war upon each other…. They cannot make reprisal on each other by embargo. They cannot enter upon diplomatic relations and make treaties." The Constitution likewise prohibits States from conducting customs inspections of containers, vehicles, and persons entering their territory.

Federal common law provides the rule of decision in original actions for nuisance. "The elements of a claim based on the federal common law of nuisance are simply that the defendant is carrying on an activity that is causing an injury or significant threat of injury to some cognizable interest of the complainant." Such claims "are founded on a theory of public nuisance" and essentially mirror the traditional common law of public nuisance familiar to property attorneys around the country.

Historically, the bulk of the original nuisance actions heard by the Court involved pollution. Congress's passage of the Clean Air and Water Acts in 1960s and 70s, which established uniform national air and water-quality standards and invested the Environmental Protection Agency (EPA) with jurisdiction to administer them, put an end to virtually all such disputes. Consequently, two generations of attorneys—and Justices—have matriculated without any experience with this once-common species of Supreme Court litigation. Colorado's embrace of the recreational-marijuana industry has created a new form of cross-border pollution, re-awakening this long-dormant field of constitutional law.

Unlike other state vice-legalization experiments such as gambling, prostitution, and prize-fighting—which involve actions undertaken at a fixed location—Colorado's initiative authorizes the trafficking of goods—federal contraband—that can easily cross state lines inside luggage, through the mail, or in the trunks of cars. In this way, marijuana legalization produces regional externalities that closely resemble pollution.

Just as contaminants released into rivers flow across state lines, marijuana introduced into the stream of commerce from Colorado dispensaries will predictably flow into neighboring States through the simple expediency of placing lawfully purchased cannabis in vehicles which are then driven across state lines. And just as interstate watercourses are guided by the laws of gravity and hydrology, the movement of Colorado pot is driven by greed. Marijuana is the most lucrative cash crop in the United States. The resulting "high demand in the interstate market will draw" Colorado weed "into that market" thereby having a "substantial effect on the supply and demand" of the drug in the black markets of neighboring States.

The available data suggests that large quantities of Colorado cannabis are now being diverted into these markets. The Court should employ the same principles it once applied in cases involving interstate environmental nuisances to resolve this problem.

The burden faced by the Court in an original action challenging Colorado's marijuana-legalization experiment is less onerous than that presented by the environmental-nuisance cases of the past. The Court is not comprised of scientists, and is ill-equipped to resolve controversies such as what concentration of a given pollutant in air or water is acceptable. As such, in the days before the EPA, it was forced to rely on "often vague and indeterminate nuisance concepts and maxims of equity jurisprudence" to resolve such disputes.

But it is well settled that "when Congress addresses a question previously governed by a decision rested on federal common law the need for such an unusual lawmaking by federal courts disappears." Congress has not delegated adjudication of interstate nuisance actions involving marijuana to an administrative agency as it did with air and water-quality disputes. But it also has not left the question whether the introduction of marijuana into interstate commerce constitutes a nuisance to the "often vague and indeterminate … maxims of equity jurisprudence." An activity constitutes a public nuisance when it creates "significant interference with the public health, the public safety, the public peace, the public comfort or the public convenience."

Congress has conclusively determined that the "importation, manufacture, distribution, and possession" of marijuana has "a substantial and detrimental effect on the health and general welfare of the American people" and that the intrastate "distribution and possession of [marijuana] contribute[s] to swelling the interstate traffic in such substances." These findings rest on solid science. As a recent study published in the New England Journal of Medicine concluded, marijuana use causes "long-lasting changes in brain function that can jeopardize educational, professional and social achievements."

The Supreme Court held that Congress's findings rest comfortably within its enumerated powers and that they must be accepted by reviewing courts. Thus, the Supremacy Clause dictates that the introduction of marijuana into the stream of commerce—even intrastate—constitutes an interstate public nuisance as that term is used in the Court's original-action jurisprudence.

While Congress has determined that the introduction of marijuana into commerce constitutes a public nuisance it remains the Court's duty to determine what remedy, if any, is available to Colorado's neighbors. Rather than issuing injunctive relief—the traditional remedy in original nuisance actions—we posit that the Court should award damages to prevailing sister States compensating them for the injuries inflicted by the incursion of Colorado marijuana into their territory.

In making this contention, we draw inspiration from Nobel laureate Ronald Coase's Theorem for Externalities. The Coase Theorem—"one of the most influential works on the law"—posits that if transaction costs are eliminated, "parties will negotiate the efficient solution to … private nuisance problem[s]." This is so because in the absence of such costs, an enterprise that can exploit its property rights more efficiently than its neighbors will be able to contract with them to buy their interests, in effect, "shar[ing] … the profits associated with the nuisance … in exchange for allowing the nuisance to continue."

Because transaction costs plague modern life, real-world application of the Coase theorem is attained through the application of legal rules that best approximate the way disputes would be resolved in the absence of such costs.

In the present case, such an outcome is best effectuated by a rule "charg[ing] the nuisance with the damages it cause[s]." As Coase observed, "when [a] damaging business has to pay for all damage caused" market forces will determine which of the competing enterprises should prevail, coercing the partisans to allocate their resources in the most economically efficient manner.

If compelling a polluter to internalize the cost of his pollution drives him out of business, then his enterprise was not the most economically efficient use of the property and his interests should yield to that of his neighbors. This is so because his prior success was premised upon his ability to force others to assume the costs of his business. He was a free-rider. In contrast, if the polluter assumes responsibility for all the costs of his venture and still realizes a sufficient profit to stay in business, then his use of the land is most efficient, and his neighbors should yield to his interest.

If Colorado's venture generates sufficient revenue to compensate her neighbors for the damage caused and remains profitable her enterprise will have proven efficient and she will prevail by "shar[ing] … the profits associated with the nuisance" with her neighbors "in exchange for allowing the nuisance to continue." Conversely, if internalizing the extraterritorial damage her program causes results in a net loss, her neighbors' interests will ultimately prevail. In either case, the viability of Colorado's program will turn on whether the profits it generates exceed the harm it creates—exactly the metric that would govern in a transaction-cost-free environment.

From a policy standpoint, we do not express an opinion whether marijuana legalization (or prohibition) is objectively "good" or "bad." We remain agnostic. We simply posit that along with the wealth it generates, Colorado's marijuana-legalization experiment produces harmful externalities that transcend her borders. A judgment forcing Colorado to compensate her neighbors for these injuries is consistent with Coase's thesis that maximum utility is achieved by forcing "the damaging business to pay for all damaged caused."

This Article consists of three Parts. Part I explores the history and purposes underlying the Supreme Court's state-controversy jurisdiction—particularly cases involving interstate nuisances. We contend that sister State challenges to Colorado's marijuana-legalization experiment—like interstate environmental nuisances of the past—fall squarely within the jurisdiction conferred upon the Court by the Constitution.

Part II examines the federal common law of nuisance. While Congress has left the common law governing original nuisance actions not premised on air or water pollution largely unmolested, it has partially preempted the question presented here. Congress's finding that the commercial exploitation of marijuana has "a substantial and detrimental effect on the health and general welfare of the American people" renders Colorado's regime a nuisance per se.

Finally, Part III analyzes the remedies available to a State prevailing in such an action. Inspired by the Coase Theorem, we contend that the Court should award a prevailing State damages compensating her—as well as can be done by a monetary award—for the injuries inflicted by Colorado's experiment.