Pelican Chapter, Associated Builders & Contractors, Inc. v. Edwards

• Decision Date: 25 November 1997
• Docket Number: No. 95-31239,95-31239
• Citation: 128 F.3d 910
• Parties: PELICAN CHAPTER, ASSOCIATED BUILDERS & CONTRACTORS, INC.; et al., Plaintiffs, Pelican Chapter, Associated Builders & Contractors, Inc.; Harmony Corporation; Cajun Contractors, Inc.; Austin Industrial, Inc., Plaintiffs-Appellees, v. Honorable Edwin W. EDWARDS; K. Don Pilgreen; Kevin Reilly, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 910

128 F.3d 910

PELICAN CHAPTER, ASSOCIATED BUILDERS & CONTRACTORS, INC.; et al., Plaintiffs Pelican Chapter, Associated Builders & Contractors, Inc. Harmony Corporation; Cajun Contractors, Inc. Austin Industrial, Inc., Plaintiffs-Appellees, v. Honorable Edwin W. EDWARDS; K. Don Pilgreen; Kevin Reilly Defendants-Appellants.

No. 95-31239.

United States Court of Appeals, Fifth Circuit.

Nov. 25, 1997.

Murphy J. Foster, III, Victor A. Sachse, III, Matthew M. Courtman, Breazeale, Sachse & Wilson, Baton Rouge, LA, for Plaintiffs-Appellees.

Daryl Keith Manning, Susan Louise Dunham, Louisiana Department of Economic Development, Baton Rouge, LA, for Defendants-Appellants.

Appeal from the United States District Court for the Middle District of Louisiana.

Before KING, JOLLY and DENNIS, Circuit Judges.

DENNIS, Circuit Judge:

The Louisiana State Board of Commerce and Industry (Board) is authorized by the state constitution to "enter into contracts for the exemption from ad valorem taxes of a new manufacturing establishment or an addition to an existing manufacturing establishment, on such terms and conditions as the board, with the approval of the governor, deems in the best interest of the state." La. Const.1974, Art. 7, § 21(F); See also La. Const.1921, Art. 10, § 4(10)(substantially identical predecessor provision). Pursuant thereto, the Board incorporates in each such tax exemption its Rule One (Rule One), which requires that, inter alia, the manufacturer and its contractors in acquiring goods and services for the new or additional construction must give preference and priority to Louisiana manufacturers, suppliers, contractors and labor "except where not reasonably possible to do so without added expense or substantial inconvenience or sacrifice in operating efficiency." ¹ In an action brought by the Pelican Chapter, Associated Builders and Contractors, Inc., (Pelican Chapter), and three of its members, the federal district court prospectively invalidated Rule One and enjoined the Chairman of the Board, the Governor, and the Secretary of the state Department of Economic Development from using it as a requirement of any future state ad valorem tax exemption.

The specific questions presented on appeal are (a) whether the Pelican Chapter and its members had standing to bring this action; and (b) whether the Board's challenged Rule One constitutes an unconstitutional burden on interstate commerce.

I.

Plaintiffs-appellees are Pelican Chapter, an association of construction contractors, and three of its members, Harmony Corporation, Cajun Contractors, Incorporated, and Austin Industrial, Incorporated. ² The member contractors are engaged in the business of constructing industrial plants in interstate commerce. The defendants-appellants are the Chairman of the Board, the Governor, and the Secretary of the state Department of Economic Development.

Prior to trial, the parties entered the following stipulation of established facts:

1. Rule One of the Louisiana Board of Commerce and Industry ("the Board") has long required favoring employment of Louisiana residents by contractors and subcontractors on industrial construction and improvement projects affected by the Industrial Tax Exemption Program administered by the Board.

2. In 1983, the Board, without adopting a formal rule, implemented a[sic] 80% policy relative to employment of Louisiana law [sic][labor]. The 80% Policy has been used as a benchmark or a "trigger" whereby if the Board or the Department of Economic Development conducted a background investigation and there was 80% or more labor from Louisiana, the Board would generally assume that the company did the best job it could in hiring Louisiana workers. If it was below 80%, the Board asks the company to explain what efforts were made to hire Louisiana workers.

3. The Associated Builders and Contractors and several of its members challenged Rule One, particularly its residency hiring restrictions in a rule making hearing and later before the entire Board. The Board refused to alter its policies regarding either Rule One or any part of its residency hiring restriction.

4. The 80% benchmark residency hiring restrictions of Rule One was a policy adopted by the Board in 1983. It has never been formally adopted as a rule pursuant to Louisiana Administrative Procedures Act and the rule making powers of the Board or the Department of Economic Development.

5. From the standpoint of the Board and the Department of Economic Development, there is no practical difference from the way it applies a policy as opposed to a formal rule.

6. Rule One contains restrictions for the hiring of Louisiana labor, as well as use of Louisiana contractors and engineers and other Louisiana resources as well. If Louisiana resources are available at the best price, all other factors being equal, then Rule One requires that recipients of the tax exemption use the Louisiana contractor, engineer, labor or other resources and that the recipient contractors do the same.

7. The residency hiring restrictions of Rule One have been used in the past to limit or restrict the industrial tax exemption otherwise available.

8. Typically, complaints concerning Rule One involving the failure to use Louisiana labor are received and investigated after most of the construction on the subject project has concluded.

9. There has never been a study or analysis of the benefits to the State of Louisiana of the administration and enforcement of Rule One or of its residency hiring restrictions.

10. There has never been a study or an analysis which has shown that by having and enforcing Rule One and its residency hiring restrictions, there is less unemployment in Louisiana.

11. There is no empirical data whatsoever to show that the imposition, administration and enforcement of Rule One and its residency hiring restrictions have served to increase employment and decrease unemployment in Louisiana among Louisiana workers or Louisiana contractors.

12. There exist [sic] no evidence or empirical data to show that more Louisiana workers are hired by the imposition or the residency hiring restrictions of Rule One or that the unemployment rate has in any way been effected [sic] positively or negatively by the administration and enforcement of the residency hiring restrictions of Rule One.

13. Rule One has been applied by the Department of Economic Development and the Board in a manner so as to require applicants to prefer or show preference to Louisiana suppliers, Louisiana contractors and Louisiana labor over non-residents [sic] suppliers, contractors and laborers.

14. No where [sic] in the documentation provided to any applicant for industrial tax exemption is the applicant informed that there is an 80% benchmark or trigger for residency hiring. It is not until and unless an investigation is commenced or inquiry is made that an applicant would learn that it was its obligation to ensure that at least 80% of the labor working on its construction project were [sic] from Louisiana.

15. In the investigations conducted by the Louisiana Department of Economic Development pursuant to Rule One and its residency hiring restriction, investigators inquire as to whether the recipient or their contractors are making a reasonable effort to hire Louisiana workers.

16. If the Board concludes that an applicant for an industrial tax exemption has not made a reasonable effort to retain Louisiana contractors or that it or its contractors have not made a reasonable effort to hire Louisiana labor, then the Board will consider a restriction or limitation of all or a portion of the industrial tax exemption applied for.

17. It is the policy of the Department of Economic Development and the Board that it is the responsibility of the applicant seeking the industrial tax exemption to abide by Rule One and that such applicants should pass the word down through their contractors and through their subcontractors that the Board and the Department of Economic Development expects [sic] Louisiana resources to be given an opportunity either to bid or to work.

18. According to the Board and the Department of Economic Development, it is the responsibility of the applicant seeking the exemption to abide by Rule One and, in most cases, the applicant advises contractors, subcontractors, etc., to do likewise because obviously, it could cost them money if they don't.

19. The Board and the Department of Economic Development consider the residency hiring restrictions of Rule One an obligation of the contractor of the recipient and not just an obligation of the recipient.

20. If a contractor of a recipient of an industrial tax exemption is found to be in violation of the residency hiring restrictions of Rule One because that contractor is perceived to have not made a reasonable effort to use Louisiana labor, such would be reflected in the exemption or the limitation of exemption for the applicant.

21. Because Rule One requires manufacturers "and their contractors" to give preference to Louisiana contractors and labor, it is the policy of the Board that Rule One also applies to contractors of the applicants. Thus, if a contractor violates Rule One, then it is going to reflect on the applicant's status and whether or not the applicant receives the full tax exemption or has such limited.

22. The Board and the Department of Economic Development have continued to investigate complaints alleging violation of the residency hiring restrictions of Rule One for the purpose of reporting any perceived violations to the Board.

At trial, Pelican Chapter and its members presented evidence of the burdens and costs that compliance with Rule One imposes upon them and other contractors in connection with industrial construction in Louisiana. They introduced numerous exhibits, the testimony of three representatives of construction contractors, and the testimony of the Director of the Financial Division of the Office...