Untitled California Attorney General Opinion

TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
DANIEL E. LUNGREN
Attorney General
______________________________________
OPINION :
: No. 93-302
of :
: September 10, 1993
DANIEL E. LUNGREN :
Attorney General :
:
ANTHONY S. Da VIGO :
Deputy Attorney General :
:
______________________________________________________________________________
THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC
EMPLOYEES' RETIREMENT SYSTEM has requested an opinion on the following question:
Is the California legislation precluding investment of state trust moneys in business
firms or financial institutions which participate in or comply with the Arab League's economic
boycott against Israel preempted by the United States Export Administration Act?
CONCLUSION
The California legislation precluding investment of state trust moneys in business
firms or financial institutions which participate in or comply with the Arab League's economic
boycott against Israel is preempted by the United States Export Administration Act.
ANALYSIS
Government Code sections 16649.80-16649.951 were enacted in 1992 (Stats. 1992,
ch. 1351, § 2) to prohibit the investment of certain funds in companies complying with the economic
boycott of Israel by the Arab League. Specifically, on and after January 1, 1994, "state trust
moneys"2 may not be used to make investments in business firms or financial institutions that engage
in discriminatory business practices in furtherance of or in compliance with the Arab League's
1
All undesignated statutory references are to the Government Code.
2
"State trust moneys" are defined as "funds administered by the Public Employees' Retirement
Fund, the Legislators' Retirement Fund, the State Teachers' Retirement Fund, the Judges' Retirement
Fund, the Volunteer Firefighter Fund . . . ." (§ 16649.80, subd. (f).)
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economic boycott. (§§ 16649.81, 16649.83.)3 The prohibitions do not apply to any business firm
or financial institution which adopts a policy not to expand existing or engage in new discriminatory
practices in furtherance of or in compliance with4 the boycott. (§§ 16649.82, 16649.84, 16649.86.)
For purposes of the foregoing, the term "discriminatory business practices" refers to arrangements
3
Section 16649.81 states:
"On or after January 1, 1994, state trust moneys shall not be used to make
additional or new investments or to renew existing investments in business firms that
engage in discriminatory business practices in furtherance of or in compliance with
the Arab League's economic boycott of Israel."
Section 16649.83 states:
"On or after January 1, 1994, state trust moneys shall not be used to make
additional or new investments in financial institutions that engage in discriminatory
business practices in furtherance of or in compliance with the Arab League's
economic boycott of Israel."
4
"``Compliance with the Arab League's economic boycott of Israel' means taking any action, with
respect to the boycott of Israel by Arab countries, which is prohibited by the United States Export
Administration Act of 1979 . . . ." (§ 16649.80, subd. (i).)
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prohibited by sections 167215 and 16721.56 of the Business and Professions Code. (§ 16649.80,
subd. (e).)
The present inquiry is whether the state statutes described above are preempted by federal
law. On March 27, 1993, the President of the United States signed into law House Bill No. 750,
reviving and extending through June 30, 1994, the Export Administration Act of 1979 (50 U.S.C.
Appx §§ 2401-2420; hereafter "Act"). The Act prohibits any "United States person"7 from taking
the following actions with the intent to comply with, further, or support any boycott fostered or
5
Business and Professions Code section 16721 provides in part:
"(a) No person within the jurisdiction of this state shall be excluded from a
business transaction on the basis of a policy expressed in any document or writing
and imposed by a third party where such policy requires discrimination against that
person on the basis of the person's sex, race, color, religion, ancestry, or national
origin, or on the basis that the person conducts or has conducted business in a
particular location.
"(b) No person within the jurisdiction of this state shall require another
person to be excluded, or be required to exclude another person, from a business
transaction on the basis of a policy expressed in any document or writing which
requires discrimination against such other person on the basis of that person's sex,
race, color, religion, ancestry, or national origin, or on the basis that the person
conducts or has conducted business in a particular location."
6
Business and Professions Code section 16721.5 provides in part:
"It is an unlawful trust and unlawful restraint of trade for any person to do the
following:
"(a) Grant or accept any letter of credit, or other document which evidences
the transfer of funds or credit, or enter into any contract for the exchange of goods
or services, where the letter of credit, contract, or other document contains any
provision which requires any person to discriminate against or to certify that he, she,
or it has not dealt with any other person on the basis of sex, race, color, religion,
ancestry, or national origin, or on the basis of a person's lawful business associations.
"(b) To refuse to grant or accept any letter of credit, or other document which
evidences the transfer of funds or credit, or to refuse to enter into any contract for the
exchange of goods or services, on the ground that it does not contain such a
discriminatory provision or certification."
7
"United States person" is defined in the Act as follows:
"``United States person' means any United States resident or national (other
than an individual resident outside the United States and employed by other than a
United States person), any domestic concern (including any permanent domestic
establishment of any foreign concern) and any foreign subsidiary or affiliate
(including any permanent foreign establishment) of any domestic concern which is
controlled in fact by such domestic concern, as determined under regulations of the
President." (50 U.S.C. Appx § 2415 (2).)
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imposed by a foreign country against a country which is friendly to the United States and which is
not itself the object of any form of boycott pursuant to United States law or regulation:
"(A) Refusing, or requiring any other person to refuse, to do business with
or in the boycotted country, with any business concern organized under the laws of
the boycotted country, with any national or resident of the boycotted country, or with
any other person, pursuant to an agreement with, a requirement of, or a request from
or on behalf of the boycotting country. The mere absence of a business relationship
with or in the boycotted country with any business concern organized under the laws
of the boycotted country, with any national or resident of the boycotted country, or
with any person, does not indicate the existence of the intent required to establish a
violation of regulations issued to carry out this subparagraph.
"(B) Refusing, or requiring any other person to refuse, to employ or
otherwise discriminating against any United States person on the basis of race,
religion, sex, or national origin of that person or of any owner, officer, director, or
employee of such person.
"(C) Furnishing information with respect to the race, religion, sex, or
national origin of any United States person or of any owner, officer, director, or
employee of such person.
"(D) Furnishing information about whether any person has, has had, or
proposes to have any business relationship (including a relationship by way of sale,
purchase, legal or commercial representation, shipping or other transport, insurance,
investment, or supply) with or in the boycotted country, with any business concern
organized under the laws of the boycotted country, with any national or resident of
the boycotted country, or with any other person which is known or believed to be
restricted from having any business relationship with or in the boycotting country.
Nothing in this paragraph shall prohibit the furnishing of normal business
information in a commercial context as defined by the Secretary.
"(E) Furnishing information about whether any person is a member of, has
made contributions to, or is otherwise associated with or involved in the activities
of any charitable or fraternal organization which supports the boycotted country.
"(F) Paying, honoring, confirming, or otherwise implementing a letter of
credit which contains any condition or requirement compliance with which is
prohibited by regulations issued pursuant to this paragraph, and no United States
person shall, as a result of the application of this paragraph, be obligated to pay or
otherwise honor or implement such letter of credit." (50 U.S.C. Appx § 2407 (a).)8
Federal law may preempt state or local law in various ways. Most directly, state law may
be preempted by an express statement to that effect by Congress. (California v. ARC America Corp.
(1989) 490 U.S. 93, 100; Hillsborough County, Fla. v. Auto. Med. Labs. (1985) 471 U.S. 707, 713.)
Here, the Act contains such an express preemption provision:
"The provisions of this section and the regulations issued pursuant thereto
shall preempt any law, rule, or regulation of any of the several States or the District
8
This would, of course, encompass the Arab League's economic boycott against Israel.
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of Columbia, or any of the territories or possessions of the United States, or of any
governmental subdivision thereof, which law, rule, or regulation pertains to
participation in, compliance with, implementation of, or the furnishing of
information regarding restrictive trade practices or boycotts fostered or imposed by
foreign countries against other countries." (50 U.S.C. Appx § 2407 (c).)9
Does the California legislation in question pertain "to participation in, compliance
with, implementation of, or the furnishing of information regarding restrictive trade practices or
boycotts fostered or imposed by" the Arab League against Israel? In our view, the state statutes
plainly do so pertain, in that they specifically identify such conduct as the basis for the withholding
of investment funds.
However, not every action taken by a state in a federally protected area is
"regulatory" in nature and thus subject to federal preemption. In Building Trades v. Associated
Builders (1993) __ U.S. __ [122 L.Ed. 2d 565], the question was whether the enforcement of a
privately negotiated collective bargaining agreement by a state agency, acting as the owner of a
construction project, was preempted by the National Labor Relations Act. The court analyzed the
issue as follows:
"When we say that the NLRA pre-empts state law, we mean that the NLRA
prevents a state from regulating within a protected zone . . . . A State does not
regulate, however, simply by acting within one of these protected areas. When a
State owns and manages property, for example, it must interact with private
participants in the marketplace. In so doing, the State is not subject to pre-emption
by the NLRA, because pre-emption doctrines apply only to state regulation.
". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
"There is no reason to expect these defining features of the construction
industry to depend upon the public or private nature of the entity purchasing
contracting services. To the extent that a private purchaser may choose a contractor
based upon that contractor's willingness to enter into a prehire agreement, a public
entity as purchaser should be permitted to do the same. Confronted with such a
purchaser, those contractors who do not normally enter such agreements are faced
with a choice. They may alter their usual mode of operation to secure the business
opportunity at hand, or seek business from purchasers whose perceived needs do not
include a project labor agreement. In the absence of any express or implied
indication by Congress that a State may not manage its own property when it pursues
its purely proprietary interests, and where analogous private conduct would be
permitted, this Court will not infer such a restriction. See, e.g., Maryland v.
Louisiana [(1981) 451 U.S. 725, 746] (``Consideration under the Supremacy Clause
starts with the basic assumption that Congress did not intend to displace state Law')."
(Id., at pp. 575-579.)
9
When the federal legislation does not contain an express preemption provision, federal
preemption is not lightly presumed (California Federal Sav. & Loan Ass'n v. Guerra (1987) 479
U.S. 272, 281; Maryland v. Louisiana (1981) 451 U.S. 725, 746; Exxon Corp. v. Governor of
Maryland (1978) 437 U.S. 117, 132), particularly in areas traditionally regulated by the states and
their political subdivisions (San Diego Building Trades Council v. Garmon (1959) 359 U.S. 236,
244; Board of Trustees v. City of Baltimore (Md. 1989) 562 A.2d 720, 741).
5. 93-302
The court noted that whether a state may act as a proprietor without restriction of the preemption
doctrine was left undecided in the case of Wisconsin Department of Industry v. Gould, Inc. (1986)
475 U.S. 282. (Id., at p. 577.)10 The court commented on the Gould decision as follows:
"The conduct at issue in Gould was a state agency's attempt to compel
conformity with the NLRA. Because the statute at issue in Gould addressed
employer conduct unrelated to the employer's performance of contractual obligations
to the State, and because the State's reason for such conduct was to deter NLRA
violations, we concluded: ``Wisconsin "simply is not functioning as a private
purchaser of services," . . . [and therefore] for all practical purposes, Wisconsin's
debarment scheme is tantamount to regulation.' [Citation.]" (Ibid.)
Similarly here the suggestion that California is acting as a proprietor in enacting
sections 16649.80-16649.95 may not be sustained. The state statutes are clearly "tantamount to
regulation" and policy-making. Specifically, the proscribed conduct in question, i.e., a company's
participation in or compliance with the Arab League's boycott, is unrelated to the company's safety
or performance potential for the investment of funds, and no purpose other than the deterrence of
such unlawful participation or compliance could credibly be ascribed to the statutory scheme.
Indeed, the Legislature has expressed its objectives in enacting the legislation as follows:
"(a) Since 1948, the Arab League has maintained a primary boycott against
the State of Israel, requiring member Arab states to refrain from doing business with
Israel.
"(b) Since the early 1950's, the members of the Arab League have committed
discriminatory business practices by maintaining both a secondary and tertiary
embargo against Israel, preventing members Arab states from doing business with
third parties that trade with or invest in Israel.
"(c) The boycott seeks to coerce American firms by blacklisting those that
do business with Israel.
"(d) The discriminatory business practices embodied in the Arab League's
economic boycott of Israel were made illegal in California with the enactment of
Section 16721 and 16721.5 of the Business and Professions Code by Chapter 1247
of the Statutes of 1976.
"(e) The United States has a longstanding policy opposing the Arab League
boycott and United States law prohibits American companies from providing
information to the Arab League or its member states to demonstrate compliance with
the boycott.
10
In Gould, the court rejected the argument that Wisconsin was acting as a proprietor when it
refused to do business with persons who had violated the NLRA, stating:
". . . the debarment statute serves plainly as a means of enforcing the NLRA.
The state concedes, as we think it must, that the point of the statute is to deter labor
law violations . . . . No other purpose could credibly be ascribed. . . ." (Wisconsin
Department of Industry v. Gould, Inc., supra, 475 U.S. at 287.)
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"(f) The Arab League's Central Boycott Office has been located in
Damascus, Syria since 1951.
"(g) As part of their boycott against Israel, Arab League countries refuse to
accept passports from United States diplomats and citizens if they have an Israeli
entrance stamp.
"(h) The Arab League embargo against Israel greatly hinders the Middle East
peace process and regional stability, to which the United States is committed.
"(i) The lifting of the Arab League embargo against Israel would provide a
gesture of good faith and build confidence between the Arab states and Israel, greatly
enhancing the prospects for an Arab-Israeli peace." (Stats. 1992, ch. 1351, § 1.)
It is readily perceived from the Legislature's goals and objectives that sections
16649.80-16649.95 pertain to participation in or compliance with a foreign boycott and are patently
regulatory. The principles of federal preemption prevent states not only from setting forth standards
of conduct inconsistent with the substantive requirements of federal law, but also from providing
their own regulatory or judicial remedies for conduct prohibited by federal law. (Wisconsin
Department of Industry v. Gould, Inc., supra, 475 U.S. at 286-287.) Here, the Act expressly and
specifically prescribes the remedies for violations of its terms. (50 U.S.C. Appx § 2410.)
It is concluded that the California legislation precluding investment of state trust
moneys in business firms or financial institutions which participate in or comply with the Arab
League's economic boycott against Israel is preempted by the United States Export Administration
Act.
*****
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