Immigration, preemption and regulatory coordination

Larry Ribstein —  27 May 2011

The Supreme Court has issued yet another preemption opinion in Chamber of Commerce v. Whiting.  The federal Immigration Reform and Control Act makes it unlawful to employ a known unauthorized alien and preempts state sanctions “other than through licensing and similar laws.”

The majority held this didn’t preempt Arizona’s broad definition of license to include such documents as articles of incorporation, certificates of partnership and foreign firms’ authority to transact business in the state. Five conservative justices rejected express preemption, four (excluding Thomas) rejected implied preemption, and there were two separate dissents joined by a total of three liberal justices (Kagan was recused).

I’m interested in this partly because of my work in progress with Erin O’Hara O’Connor on Preemption and Regulatory Coordination (preliminary draft summarized here, and applied to the Court’s recent arbitration decision here).  

It’s hard to disagree with the dissenters that Arizona’s additional sanctions are inconsistent with the milder and more tentative approach of the federal law.   The question is whether the Arizona law is saved by the licensing exception.

Erin’s and my regulatory coordination theory arguably helps justify if not explain the result.  Employment rules generally vary from state to state. Adding immigration variations doesn’t necessarily make them much more onerous, especially given Arizona’s use of federal standards.  Thus, there’s arguably a greater need for interstate coordination for arbitration cases that might find themselves in courts all over the country than for employment practices that are necessarily based in specific states and turn on state-specific factors. This policy could drive the result if preemption is ambiguous. 

Another aspect of the immigration case particularly interested me.  The majority held that the “licensing and similar laws” savings clause allowed Arizona to suspend or revoke articles of incorporation, certificates of partnership and grants of authority to foreign firms for companies that employed illegal workers.  The court said:

A license is “a right or permission granted in accordance with law . . . to engage in some business or occupation, to do some act, or to engage in some transaction which but for such license would be unlawful.” Webster’s Third New International Dictionary 1304 (2002). Articles of incorporation and certificates of partnership allow the formation of legal entities and permit them as such to engage in business and transactions “which but for such” authorization “would be unlawful.”

The Court based this interpretation on the Administrative Procedure Act.  It’s not clear this definition should be controlling. In any event, it involves a fundamental misunderstanding of the nature of a corporation.  Business associations are contracts or sets of contracts among the participants.  See, e.g., Butler and Ribstein, Opting Out of Fiduciary Duties:  A Response to the Anti-Contractarians, 65 Washington Law Review 1 (1990).  Articles of incorporation or certificates of partnership don’t allow people to engage in transactions that otherwise would be illegal, they just make it easier to enter into these governance arrangements.  (However, grants of authority to foreign business associations might be a different matter.)

The main exception to this generalization is limited tort liability.  I don’t think this takes limited liability out of the contractual realm (see my Limited Liability and Theories of the Corporation, 50 Md. L. Rev. 80 (1991)).  But even if it does it still leaves business association formations a long way from the type of license that IRCA must have been referring to that allows firms to engage in certain types of business.

In any event, asssuming preemption was unclear here, our coordination policy would not tip the scale toward preemption.

Larry Ribstein

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Professor of Law, University of Illinois College of Law

3 responses to Immigration, preemption and regulatory coordination

  1. 

    Eric — What the state gives you with incorporation that you can’t contract for is entity treatment regarding tort creditors. But this is similar to the law’s determination of the consequences of other types of contracts. And there’s basically no state discretion involved in stamping the certificate “filed,” which creates the business association. This is pretty far removed from the conventional meaning of license.

  2. 
    Eric Rasmusen 27 May 2011 at 12:02 pm

    The topic of whether articles of incorporation and certificates of partnership are like licenses is interesting. As you say, most of what they do can be replicated by purely private contract, which is not a license. Moreover, licenses ordinarily aren’t documents written by private parties to suit their particular situation. On the other hand, incorporation, at least, is a license to call your business a corporation, so it isn’t the same as if you just write up your own replicating contract. I don’t know what partnership certificates are (partnerships can even be unwritten, unspoken, common law situations,right?), but if they are a form of state-organized boilerplate, they too could be considered a special grant of the state which is optional to achieve most of teh results but is nonetheless something the state could “sell” in exchange for complying with state regulations.

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