Immigration Litigation: Supreme Court upholds “business death penalty”

June 1, 2011

Immigration Law

(Editor’s note: Because of the of the current significance of the topic, we’ll be looking at different cases in immigration law throughout the month of June.)

Last week, the U.S. Supreme Court upheld an Arizona statute that imposed heavy sanctions on businesses that employ illegal immigrants.

The Arizona law provides some relatively minor sanctions against a first-time offender, but levels the “business death penalty” against repeat offenders.

What is the “business death penalty?”

Under the law, the Arizona court that found the violation is to order any and all appropriate agencies to revoke or dissolve all business licenses held by the offending business.

By itself, that doesn’t really amount to a death penalty, but with the extremely broad definition the Arizona law gives “license,” it does.

Under the law, a license can be articles of incorporation, a certificate of partnership, or articles of organization.

So the law will literally kill any business entity that violates the law more than once.

While many of you are thinking that there must be some constitutional violations here, the case didn’t look at any of those issues.

Instead, the argument revolved around federal preemption, the doctrine that holds individual states may not regulate areas already staked out by federal law.

According to the primary plaintiff, the U.S. Chamber of Commerce, 1986’s Immigration Reform and Control Act preempts the Arizona law.

It also does so specifically by stating that “provisions of this section preempt any State…law imposing civil or criminal sanctions (other than through licensing and similar laws).”

In upholding the law, of course, the majority seized onto the parenthetical text.

The majority stated that the Arizona sanction was only a licensing law, and thus it is not preempted.

It countered the assertion of an overly broad Arizona definition of “license” by citing to the Administrative Procedure Act’s definition of “license,” which is a bit broader than only “license.”

The Supreme Court in WashingtonThe majority’s argument is unconvincing, though.

Aside from the APA licenses applying only to agency decisions, the APA’s definition of “license” has never been interpreted to apply to anything except a permit to engage in certain regulated activities (foresting, manufacturing of automobiles, etc).

An APA license is never used to create a distinct legal entity such as a corporation or LLC.

It also flies in the face of the entire preemption section of the IRCA that a state would be allowed to sanction a business by killing it where the federal law only levies monetary penalties.

It is highly unlikely that Congress would be perfectly fine with Arizona killing a violating business, but wouldn’t be okay with Arizona fining it instead.

Sotomayor’s dissent brings this important point up briefly, but both hers and Breyer’s dissents focused more on other issues.

That’s unfortunate, because the “license” definition issue illuminates the Arizona legislature’s tactics in drafting the bill.

The drafters must have been familiar with the preemption clause of the IRCA.

They knew that the bill could only penalize businesses through licensing to survive a preemption challenge.

So they made the penalty a permanent license revocation, and defined “license” broadly enough for the law’s penalty to seriously affect those businesses that aren’t reliant on specific business licenses.

Whether the majority actually believed Arizona’s argument or simply gave in to their ideological impulses, we’ll probably never know.

Regardless, there’s some irony in the fact that the so-called “pro-business” Supreme Court handed down one of the most business-unfriendly rulings in years.