No Roads Lead to Stehekin

Lake Chelan is a narrow, 55-mile-long lake in Chelan County, Wash. It is nestled in the northern Cascade mountains amid beautiful scenery and idyllic surroundings. The unincorporated community of Stehekin, home to about 75 year-round residents, is located on the northern end of the lake within the Lake Chelan National Recreation Area. For more than 100 years, it has been a popular summer resort for Washington residents and visitors from outside the state. The state’s official tourism website describes Stehekin as a “wilderness hideaway”—a “favorite among locals and tourists” that boasts “plentiful trails, camps and special places waiting to be discovered.”[1]

But contrary to the claim made by many tourist destinations, not all roads lead to Stehekin. In fact, no roads lead to Stehekin. If you want to get there, you must make the trek by chartered plane or by a ferry that departs from Chelan, on the lake’s south end. For the past century, the state of Washington has severely limited the latter option, artificially restricting ferry service on the lake in a way that hurts entrepreneurs and travelers alike.

The “Public Convenience and Necessity” Requirement: Neither Convenient Nor Necessary

Regulation of ferry service on Lake Chelan began in 1911, when the Washington legislature enacted a law addressing ferry safety issues and requiring that fares be reasonable.[2] Initially, the law did not impose significant barriers to entry, and by the early 1920s, there were at least four competing ferry companies operating on Lake Chelan.[3]

In 1927, however, the legislature effectively eliminated competition when it passed a law prohibiting anyone from operating a ferry without first obtaining a government-issued certificate declaring that the “public convenience and necessity” required the ferry.[4] In the century since that law was enacted, Washington has issued only two certificates to operate on Lake Chelan.

Applying for a certificate is not simply a matter of filling out a few forms. Even before asking the government to consider the possibility of allowing it to go into business, a prospective ferry provider has to assemble substantial assets and be able to guarantee at least 12 months of ferry service.[5]

Then, after spending months or even years on business development without knowing whether the government will actually let its business proceed, the would-be ferry provider has to disclose its private business plans to the government and to any existing ferry providers. This includes revealing financial data, ridership forecasts, revenue projections and proposed ticket prices.[6]

After the application materials are submitted, the Washington Utilities and Transportation Commission (WUTC) provides notice of the application, and of the time and place of a hearing on the application, to the would-be ferry provider’s competition—namely, “all persons presently certificated to provide service” and “any common carrier which might be adversely affected.”[7] These existing ferry providers then have 30 days to file a “protest” with the WUTC.[8]

The WUTC then holds an “adjudicative proceeding” on the application, and any protesting ferry provider may participate as a party. The adjudicative proceeding is like a mini lawsuit, with motions, depositions, briefs, arguments and a hearing, among other things.[9] If the territory in which the applicant would like to provide ferry service is already served by a ferry, then the applicant must prove that the existing certificate holder “has not objected to the issuance of the certificate,” has failed or refused to furnish “reasonable and adequate service” (a term that is not even defined), or “has failed to provide the service described in its certificate.”[10] The applicant effectively needs a team of attorneys to endure the proceeding, and, even then, a certificate is very likely to be denied.

In effect, the public convenience and necessity requirement allows existing businesses and government bureaucrats—rather than consumers and entrepreneurs—to decide when a new business is warranted. This turns the principles of free enterprise on their head.  It allows existing businesses—using the power of government—to veto new competition.

The Courtney Brothers’ Plan for a Stehekin-Based Service

Jim and Cliff Courtney are brothers who have long suffered the government’s arbitrary restriction of ferry service on Lake Chelan. They are fourth-generation residents of Stehekin, which their great-grandparents helped settle. They and their family members have several businesses in and around the community, including a pastry shop, the Stehekin Valley Ranch (a rustic ranch with cabins and a lodge house), and Stehekin Outfitters, a recreation company that offers white water river outings and horseback riding.

For years, Jim and Cliff listened as their customers complained about the inconvenience and less-than-satisfactory ferry service on Lake Chelan. They began exploring the possibility of offering Stehekin’s visitors and residents another alternative. But there was one problem: the public convenience and necessity requirement.

In 1997, Jim applied for a certificate to provide a Stehekin-based ferry service between points on Lake Chelan. Not surprisingly, an incumbent ferry operator, Lake Chelan Boat Company, protested Jim’s application. In August 1998, after a hearing that saw 18 witnesses testify, the WUTC denied a certificate, finding a lack of evidence that Lake Chelan Boat Company failed to provide “reasonable and adequate service.” Revealing the protectionist nature of the public convenience and necessity requirement, the WUTC found it particularly problematic that Jim’s proposed service would “tak[e] business from Lake Chelan Boat Company.”[11]

Several years later, in November 2006, Jim sought to provide another boat service on the lake: a Stehekin-based, year-round, on-call boat, which Jim believed fell within a “charter service” exemption to the public convenience and necessity requirement.[12] Because many of the docks on the lake are federally owned, he applied to the U.S. Forest Service for a special-use permit to use the docks in conjunction with the business. Before it could issue the permit, the Forest Service had to confirm with the WUTC that Jim’s proposed service was, in fact, exempt from the certificate requirement.[13] At first, WUTC staff opined that Jim did not need a certificate.[14] But soon thereafter, Lake Chelan Boat Company contacted the WUTC and Forest Service to express concern about Jim’s plan.[15] WUTC staff abruptly “changed its opinion” and informed Jim that he would need a certificate of public convenience and necessity.[16] After some further equivocating by the WUTC staff, the Forest Service’s district ranger wrote to the WUTC’s executive director requesting his opinion as to whether Jim needed a certificate. The executive director, however, never provided the opinion, and Jim was therefore unable to obtain a special use permit from the Forest Service.

In September 2008, while Jim was trying unsuccessfully to launch the on-call boat service, Cliff contacted the WUTC’s executive director by letter to describe certain types of boat services that he might offer and determine whether such services would require a certificate. First, Cliff described a scenario in which he would charter a boat for patrons of Courtney family businesses—for example, guests who want to stay at Stehekin Valley Ranch and go river rafting with Stehekin Outfitters—and offer a package with transportation on the chartered boat as one of the guests’ options. The second scenario Cliff proposed was one in which he would buy the boat and carry his own patrons.[17]

In a November 2008 response, the WUTC’s executive director opined that even these services would require a certificate. He added that “the Commission would provide you a certificate to operate a commercial ferry service on Lake Chelan (assuming you provide appropriate financial and other information) only if it determined that Lake Chelan Boat Company was not providing reasonable or adequate service, or if Lake Chelan Boat Company did not object to you operating a competing service.”[18] Cliff sent a follow-up letter seeking further guidance and clarification. In February 2009, however, the executive director reiterated his earlier conclusion that the services Cliff described would require a certificate.[19]

Frustrated that he and Jim had been repeatedly thwarted by the anticompetitive ferry regulations, Cliff sent a letter in February 2009 to the governor and state legislators describing the need for competition on Lake Chelan, explaining the problems created by the public convenience and necessity requirement, and urging them to eliminate or relax the requirement. That spring, the Legislature directed the WUTC to conduct a study and report on the regulatory scheme governing ferry service on Lake Chelan.[20]

Not surprisingly, the WUTC’s January 2010 report recommended that there be no “changes to the state laws dealing with commercial ferry regulation as it pertains to Lake Chelan.”[21] The report suggested that there might be ways under the existing regulatory framework that the WUTC could “allow some limited competition” on the lake—for example, by “conclud[ing] that a boat service offered on Lake Chelan . . . in conjunction with lodging at a particular hotel or resort, and which is not otherwise open to the public, does not require a certificate”—but it added that any such interpretation would have to be “supported by expert testimony in an adjudicative hearing” and would have to be shown not to “significantly threaten the regulated carrier’s ridership, revenue and ability to provide reliable and affordable service.”[22] The report concluded that it is “unlikely” that such an interpretation “could be relied upon to authorize competing services on Lake Chelan.”

The WUTC’s self-serving report amounted to little more than a fox’s report on how to guard a hen house.

Realizing that the state is more concerned with protecting established interests than fostering economic freedom and opportunity, Jim and Cliff decided to pull anchor and navigate the federal courts to protect their right—and the right of every American—to pursue an honest calling free from protectionist interference by the government. They teamed with the Institute for Justice to challenge Washington’s public convenience and necessity requirement under the Privileges or Immunities Clause of the 14th Amendment.

Restoring Economic Liberty through Judicial Engagement

Although there is little doubt that the Constitution protects economic liberty, rights have no meaning unless the courts are willing to enforce them. Unfortunately, for generations, the courts have refused to enforce the constitutional right to earn an honest living, and the rise of government-created and government-protected monopolies and cartels in hundreds of fields across the country is a direct result of this widespread failure.

The demise of economic liberty began almost as soon as it achieved its most important recognition. After the Civil War, emancipated slaves counted economic liberty as among the most significant of their new civil rights. To protect entrenched white businessmen from competition, however, Southern governments soon suppressed economic opportunities for their newest citizens by heavily regulating entry into trades and business. The national government tried to curtail these abuses through the 14th Amendment to the U.S. Constitution, which sought to protect the economic liberty of all Americans by forbidding states from abridging the “privileges or immunities” of citizenship (better-known today as “rights”), including the right to earn an honest living in the lawful occupation of one’s choice.

But in the 1873 Slaughter-House Cases,[23] a sharply divided U.S. Supreme Court substantially narrowed the scope of the Privileges or Immunities Clause by a 5-4 vote. In upholding a Louisiana law that created a private monopoly on the slaughtering of livestock in New Orleans, the Court held that the Privileges or Immunities Clause was meant to protect only a handful of rights of national citizenship, which did not include the right to earn a living in a marketplace free of state-chartered monopolies.[24]

That decision gave states carte blanche to enact shameful Jim Crow-era laws that restricted economic opportunities for black Americans. In addition to oppressing their black citizens, the states also used their now-unchecked regulatory power to protect all sorts of entrenched interests.

Today, nearly every legal analyst and commentator agrees that the Slaughter-House Cases were wrongly decided.[25] Nevertheless, the Supreme Court’s decision remains the law of the land, and courts ever since have refused to apply the Privileges or Immunities Clause to protect economic liberty. Instead, emboldened by Slaughter-House and equally troublesome precedent from the New Deal era, states have enjoyed free rein to erect arbitrary barriers to entry in countless trades and professions, including the so-called “public convenience and necessity” regulations that have prevented Jim and Cliff Courtney from providing boat transportation on Lake Chelan.

Although the Slaughter-House Cases were incorrectly decided, the Supreme Court did get one thing right in that ruling. Among the handful of rights the Court deemed to be protected by the Privileges or Immunities Clause is the “right to use the navigable waters of the United States.”[26] By restricting the right to use Lake Chelan, which the federal government has designated a navigable water of the United States,[27] Washington’s public convenience and necessity requirement is effecting precisely the type of unconstitutional infringement that even the Slaughter-House Cases prohibit.

Jim and Cliff’s challenge to the public convenience and necessity requirement thus puts the Slaughter-House Cases squarely in play. And by illustrating how access to Lake Chelan is inextricably linked to the success of the Courtney family’s and other Stehekin-based businesses, the case will help restore the Privileges or Immunities Clause to serve not only as a guarantor of the seemingly arcane right to use navigable waters of the United States, but also as the primary constitutional bulwark of economic liberty.

Institute for Justice Team

The lead attorney in this case is Institute for Justice Senior Attorney Michael Bindas. He is assisted by IJ Senior Attorney Robert E. Johnson.

Founded in 1991, the Institute for Justice (IJ) is the nation’s only libertarian public interest law firm. It advances a rule of law under which individuals can control their destinies as free and responsible members of society. To that end, IJ litigates to secure economic liberty, educational choice, private property rights, freedom of speech and other vital individual liberties, and to restore constitutional limits on the power of government. IJ has successfully represented entrepreneurs nationwide in fighting arbitrary and anticompetitive government regulation.

For more information, contact:

John E. Kramer
Vice President for Communications
Institute for justice
901 N. Glebe Road, Suite 900
Arlington, VA 22203
(703) 682-9320, ext. 205
[email protected]

[1] Wash. State Tourism & Wash. Dep’t of Agriculture, Hands-On Family Farming Experience: Chelan Manson, p. 4 (2010). Accessed October 7, 2011: http://www.experiencewa.com/industry/marketing/Documents /Intineraries/I_SW_ChelanManson.pdf).

[2] 1911 Wash. Sess. Laws ch. 117, § 9 (requiring all charges for ferry service to be “just, fair, reasonable and sufficient” and requiring ferries to maintain and provide “safe, adequate and sufficient service facilities”); see also Wash. Utilities & Transp. Comm’n, Appropriateness of Rate and Service Regulation of Commercial Ferries Operating on Lake Chelan, p. 4 (Jan. 14, 2010)

[3] Appropriateness of Rate and Service Regulation, p. 4-5.

[4] Today, the certificate requirement is codified at Wash. Rev. Code § 81.84.010.

[5] See Wash. Rev. Code § 81.84.020(2).

[6] Wash. Admin. Code § 480-51-030(1).

[7] Wash. Rev. Code § 81.84.020(1); Wash. Admin. Code § 480-51-040(1).

[8] Wash. Admin. Code § 480-51-040(1); Wash. Admin. Code § 480-07-370(1)(f).

[9] See Wash Admin. Code §§ 480-07-375 to -498.

[10] Wash. Rev. Code § 81.84.020(1).

[11] In the Matter of the Application of James Courtney d/b/a/ Stehekin Boat Service, Commission Decision and Order Denying Review; Affirming and Adopting Initial Order, S.B.C. Order No. 549, Hearing No. B-78659, p. 1 (Aug. 1998).

[12] See Wash. Admin Code § 480-51-022(1).

[13] Letter from Robert J. Sheehan, District Ranger, U.S. Forest Service, to Jim Courtney (Sept. 5, 2007) (on file with Institute for Justice).

[14] Email from Penny Ingram, Regulatory Analyst, WUTC, to Jim Courtney (Oct. 10, 2007) (on file with Institute for Justice).

[15] Letter from Robert J. Sheehan, District Ranger, U.S. Forest Service, to Penny Ingram, Regulatory Analyst, WUTC (Mar. 19, 2008) (on file with Institute for Justice); see also Letter from Robert J. Sheehan, District Ranger, U.S. Forest Service, to Dave Danner, Executive Director, WUTC (Aug. 25, 2009) (on file with Institute for Justice).

[16] Email from Penny Ingram, Regulatory Analyst, WUTC, to Jim Courtney (March 31, 2008) (on file with Institute for Justice).

[17] Letter from Cliff Courtney to David W. Danner, Exec. Director, WUTC (Sept. 9, 2008) (on file with Institute for Justice).

[18] Letter from David W. Danner, Exec. Director, WUTC, to Clifford Courtney (Nov. 7, 2008) (on file with Institute for Justice).

[19] Letter from David W. Danner, Exec. Director, WUTC, to Clifford Courtney (Feb. 2, 2009) (on file with Institute for Justice).

[20] 2009 Wash. Legis. Serv. Ch. 557, § 6 (West).

[21] Appropriateness of Rate and Service Regulation, p. 31.

[22] Id. at 11-12, 15.

[23] 83 U.S. 36 (1873).

[24] 83 U.S. at 78-79.

[25] See, e.g., Laurence H. Tribe, Taking Text and Structure Seriously: Reflections on Free-Form Method in Constitutional Interpretation, 108 Harv. L. Rev. 1121, 1297 n.247 (1995); Richard L. Aynes, Constricting the Law of Freedom: Justice Miller, the Fourteenth Amendment, and the Slaughter-House Cases, 70 Chi.-Kent L. Rev. 627, 627 (1994); Akhil Reed Amar, The Bill of Rights and the Fourteenth Amendment, 101Yale L.J. 1193, 1258-59 (1992); Thomas McAffee, Constitutional Interpretation—the Uses and Limitations of Original Intent, 12 U. Dayton L. Rev. 275, 282 (1986).

[26] 83 U.S. at 79.

[27] The U.S. Army Corps of Engineers designated the lake a navigable water of the United States on November 14, 1974. See Memorandum from Col. Leon K. Moraski, District Engineer, Seattle District, to Division Engineer, North Pacific Attach. 1 (Feb. 27, 1980) (on file with Institute for Justice).