This case raised the issue whether a Puerto Rican licensing regime for new retail pharmacies violated the U.S. Constitution. Under the regime, regulatory review was effectively triggered when existing pharmacies objected to a new pharmacy’s application to locate in a competitive area. The record established that Puerto Rico had denied applications only when existing pharmacies opposed them. Thus, the statute was selectively invoked to shield existing pharmacies from competition. Walgreen brought an action under 42 U.S.C. § 1983 against Puerto Rico’s Secretary of Health, alleging that, inter alia, the licensing regime violated the Commerce Clause. The lower court held that the regulatory regime was constitutional because it was rationally related to the legitimate purpose of encouraging new pharmacies to locate in remote, “underserved” areas, even though the legislation did not provide pharmacies with any financial incentive or any other reason to locate in these economically undesirable areas. Walgreen appealed this ruling to the First Circuit.
NELF filed a brief in support of Walgreen, arguing, as an alternative to the Commerce Clause objection, the licensing regime also violated substantive due process under the Fourteenth Amendment. Although substantive due process challenges to economic legislation have been disfavored since the late 1930s, when the Supreme Court became highly deferential to the states’ exercise of their police powers and allowed them to control their own economic affairs with minimal judicial oversight, NELF argued that, even so, substantive due process review should not be “toothless.” Where, as here, a statute insulates a special interest group from economic competition without serving any discernible public purpose, a court should be on its guard to determine whether or not the government’s articulated purposes are a mere pretext. NELF asserted that the selective enforcement of the law, triggered exclusively by the members of the interest group protected by its provisions, exposes the law’s articulated purposes as a pretext for economic protectionism. The law puts the fox in charge of the hen house. NELF also argued that lower federal courts in recent decisions have invalidated similar protectionist laws that serve no discernible public purpose. NELF asserted that the framers of the Constitution contemplated that the judiciary would serve as the necessary check on legislative action that serves only the narrow interests of the few. Judicial deference to protectionist, special-interest legislation such as the Puerto Rico statute is inconsistent with the role of the courts that the framers envisioned.
On April 22, 2005, the First Circuit held that Puerto Rico’s licensing regime was unconstitutional because it impermissibly discriminated against interstate commerce in violation of the dormant Commerce Clause. Having decided the case on that basis, the Court did deal with the alternative, substantive due process argument advanced by NELF.