Federal Appeals Court Approves Naked Economic Protectionism

J. Justin Wilson
J. Justin Wilson · August 24, 2004

Washington, D.C.—In a sweeping decision with dangerous consequences for entrepreneurs nationwide, a federal appellate court late yesterday upheld Oklahoma’s state-enforced cartel on casket sales. The ruling from a three-judge panel of the 10th U.S. Circuit Court of Appeals not only bucked a recent trend of federal court decisions striking down government-imposed casket cartels, it went a devastating step further, declaring for the first time ever that naked economic protectionism—without even the veneer of advancing the public interest—is a “legitimate state interest.”

In a 33-page decision authored by Chief Judge Deanell Reece Tacha and joined by Senior Judge Monroe G. McKay, the court rejected the state’s consumer protection rationale, instead finding that states have a right to enact legislation solely to favor special interests. The court wrote, “[W]hile baseball may be the national pastime of the citizenry, dishing out special economic benefits to certain in-state interests remains the favored pastime of state and local governments.” The court concluded by approving such government actions: “[W]e hold that intrastate economic protectionism … is a legitimate state interest and that [Oklahoma’s casket sales statute] is rationally related to this legitimate end.”

Clark Neily, lead attorney on the case for the Institute for Justice, which filed suit on behalf of two retail-casket entrepreneurs, said, “This is a truly radical decision. It says politicians may enact protectionist licensing laws for no other reason than to benefitspecial interest groups like funeral directors. The court recognizes that ‘dishing out special economic benefits’ to interest groupsis a favorite pastime of government officials. Most people would call that corruption, not a legitimate government interest.”

That point was echoed by Judge Timothy M. Tymkovich, who voted to uphold the casket cartel, but argued that the majority went too far in declaring what he called “unvarnished economic protectionism” to be a legitimate state interest. He wrote in a separate opinion, “The end result of the majority’s reasoning is an almost per se rule upholding intrastate protectionist legislation…. No case holds that the bare preference of one economic actor while furthering no greater public interest advances a ‘legitimate state interest.’”

The casket entrepreneurs are challenging an Oklahoma law that prohibits them from selling caskets to Oklahoma residents because they are not licensed funeral directors in Oklahoma, a prohibition that blocks competition and thereby enables funeral directors to raise prices to consumers. The Institute for Justice and its clients are weighing their legal options, but vowed to continue fighting Oklahoma’s protectionist scheme.

“The core of the American Dream—the right to earn an honest living without arbitrary government interference—took a serious blow with this decision,” added Chip Mellor, president of the Institute for Justice. “Entrepreneurs nationwide would be shocked to learn they pursue their dreams only at the whim of state legislators and bureaucrats. From casket sellers to flower arrangers, African hairbraiders to limo drivers, no entrepreneur is safe from the overreaching hand of government acting in concert with entrenched special interests.”

IJ clients Kim Powers, of Ponca City, Okla., and Dennis Bridges, of Knoxville, Tenn., launched Memorial Concepts Online (www.memorialconceptsonline.com), a company that provides high-quality caskets to consumers across the nation at a discount price. But Oklahoma is one of about a half-dozen states that shut out potential competitors by requiring anyone who sells caskets and other funeral-related merchandise to be a licensed funeral director even if the retailer, like Powers and Bridges, performs no funeral services of any kind. Obtaining an Oklahoma funeral director’s license requires several years of full-time college course work, a one-year apprenticeship including the embalming of 25 bodies, and two exams.

“This is a very sad day for Oklahoma consumers, barred from enjoying the same choices as consumers in other states when it comes to buying caskets,” said Powers. “Just last week the retail giant Costco began selling caskets in Chicago. So while other Americans are enjoying the fruits of competition in the form of lower prices, better selection and greater convenience, the court’s decision means Oklahomans will continue being victimized by a state-enforced casket cartel that marks up the prices of caskets by as much as five to six hundred percent above wholesale cost.”

Today’s decision, which upholds a lower court ruling from 2002, is in sharp contrast to a recent decision by the 6th U.S. Circuit Court of Appeals striking down a nearly identical Tennessee law as blatant and unconstitutional economic protectionism. Courts have also struck down casket licensing schemes in Georgia and Mississippi.

Strangely, the decision by the 10th Circuit is in line with federal rulings in similar cases in one respect: it was unwilling to accept the state’s consumer protection rationale. Every other federal court that has considered laws like Oklahoma’s has rejected public health, safety and consumer protection rationales as unrelated to these protectionist schemes.

“Because it is so clear that laws like Oklahoma’s have nothing whatsoever to do with protecting consumers and everything to do with protecting licensed funeral directors from fair competition, the court apparently felt it had to come up with a justification that was not even argued by the state of Oklahoma, and it settled on economic protectionism as a legitimate state interest,” said Neily. “This court’s vision of the right to earn a living—namely, that there is no such thing—would have horrified the Framers of the Constitution.”

The Institute for Justice litigates in support of fundamental individual liberties, including economic liberty—the right to earn a living free from arbitrary or excessive government regulation. IJ has scored significant victories on behalf of entrepreneurs and in the process has opened up long-closed markets. These important victories include:

  • Craigmiles v. Giles—In 2002, a federal appeals court upheld a lower court ruling that found Tennessee’s government-imposed cartel on casket sales was unconstitutional. This is the highest pro-economic liberty court decision since the New Deal.
  • Uqdah v. D.C. Board of Cosmetology—Although they lost in court, Taalib-Din Uqdah and his wife Pamela Ferrell prevailed in the court of public opinion in 1993 against the District of Columbia, which eliminated a 1938 Jim Crow-era licensing law for African hairbraiders when the District deregulated cosmetology after their lawsuit.
  • Cornwell v. California Board of Barbering and Cosmetology—IJ represented JoAnne Cornwell, creator of the Sisterlocks technique of hair locking, in defeating California’s cosmetology licensing requirement for African braiders in 1999.
  • Farmer v. Arizona Board of CosmetologyIn 2003, the Institute for Justice Arizona Chapter (IJ-AZ) filed a lawsuit on behalf of African braider Essence Farmer seeking to dismantle Arizona’s onerous cosmetology regime, which required braiders to attend 1,600 hours of courses that taught nothing about braiding. Inspired by IJ-AZ’s advocacy, a new law in Arizona now exempts hairbraiders from the State’s outdated cosmetology scheme and Essence will soon be operating Rare Essence Braiding Studio.
  • Jones, et. al. v. Temmer, et. al.—Leroy Jones, Ani Ebong and Girma Molalegne opened Freedom Cabs, Inc., in Denver in 1995 after IJ helped them overcome Colorado’s protectionist taxicab monopoly. Stemming from pressure in the court of public opinion created by their lawsuit, the state legislature enabled Freedom Cabs to become the first new cab company in Denver in nearly 50 years. Jones’ testimony also contributed to the breakdown of government-sanctioned taxicab monopolies in Indianapolis and Cincinnati.
  • Ricketts v. City of New York—IJ helped commuter vans fight a public bus monopoly that would not allow the vans to put people to work and take people to work in underserved metropolitan neighborhoods in New York City. As a result, hundreds of new independent vans are operating in New York.
  • Clutter v. Transportation Services Authority—IJ represented independent limousine drivers who defeated Nevada’s Transportation Services Authority and entrenched limousine companies that had stifled competition. Through IJ’s litigation, the once-closed market was opened in 2001.
  • Swedenburg v. Kelly—In 2002, a federal judge declared unconstitutional New York State’s laws that barred the interstate direct shipment of wine into New York. That decision was overturned by the 2nd U.S. Circuit Court of Appeals. The case will be heard by the U.S. Supreme Court in the fall of 2004.