Smith Setzer & Sons, Inc. v. South Carolina Procurement Review Panel
| Decision Date | 11 April 1994 |
| Docket Number | No. 93-1111,93-1111 |
| Citation | 20 F.3d 1311 |
| Parties | SMITH SETZER & SONS, INCORPORATED; Neil Setzer, individually and as President and shareholder of Smith Setzer & Sons, Incorporated, Plaintiffs-Appellants, v. SOUTH CAROLINA PROCUREMENT REVIEW PANEL; Hugh Leatherman; Grady L. Patterson, Jr.; Glenn F. McConnell; Luther L. Taylor, Jr.; Jules J. Hesse; Roy E. Moss; Kiffen R. Nanney; Gus J. Roberts; Carol Baughman, as officers and members of the South Carolina Procurement Review Panel; Carroll A. Campbell, Jr., Governor; Grady L. Patterson, Jr.; Earle E. Morris, Jr.; James W. Waddell, Jr.; Robert N. McLellan; Jesse A. Coles, Jr., as officersand members of the South Carolina Budget and Control Board, division of General Services; South Carolina Budget and Control Board, a division of General Services; James J. Forth, Chief Procurement Officer for the South Carolina Budget and Control Board, a division of General Services, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Fourth Circuit |
ARGUED: David Clifford Eckstrom, Nexsen, Pruet, Jacobs & Pollard, Columbia, SC, for appellants. Arthur Camden Lewis, Lewis, Babcock & Hawkins, Columbia, SC, for appellees.
ON BRIEF: Martin Pannell, Martin & Monroe Pannell, P.A., Conover, NC, for appellants. Cameron B. Littlejohn, Jr., Pete Kulmala, Lewis, Babcock & Hawkins, Columbia, SC, Suann White, South Carolina Procurement Review Panel, Columbia, SC, for appellee Members of Procurement Review Board; James W. Rion, Division of General Services, Columbia, SC, for appellee Members of Budget and Control Board.
Before ERVIN, Chief Judge, PHILLIPS, Circuit Judge, and SMITH, United States District Judge for the Eastern District of Virginia, sitting by designation.
Affirmed by published opinion. Chief Judge ERVIN wrote the opinion, in which Judge PHILLIPS and Judge SMITH joined.
This case challenges the constitutionality of South Carolina's legislatively-enacted program under which certain South Carolina products and South Carolina vendors are given slight preferences in the bidding process for certain types of state procurement. For the reasons set forth below, we affirm the judgment of the district court and sustain the statutes.
The South Carolina Code and implementing regulations establish two separate preference schemes, one covering local products and the other local vendors, both of which are challenged here. Section 1-11-35 states a general preference that the State and its constituent administrative and educational bodies should purchase South Carolina goods over those of other states or countries if such goods are available; otherwise, it should purchase United States goods before purchasing those of other countries. 1 The statute directs the State Budget and Control Board to implement this policy preference, which it has done in S.C.Code Regs. 19-446.1000 (Supp.1992). That regulation states:
Competitive procurements made by governmental bodies, including the General Assembly, shall be of end-products made, manufactured or grown in South Carolina if available, and if not available, of the same or similar end-products made, manufactured or grown in other states of the United States, before the same or similar foreign-made, manufactured or grown end-products are procured, provided that ... (3) the cost of the end-product is not unreasonable.
Id. 19-446.1000(C) (emphasis supplied). Under the regulation's definition of "unreasonable," a South Carolina good will be purchased so long as its price is no more than five percent higher than the price of a non-South Carolina product, while a United States product will be purchased so long as its price is no more than two percent higher than the price of a foreign good. 2
In addition, Sec. 11-35-1520 of the Code establishes a modest preference for local vendors. Under this section, a "resident vendor" is to be awarded any procurement contract 3 of less than $2,500,000 in value so long as that vendor's bid "does not exceed the lowest qualified bid from a nonresident vendor by more than two percent of the latter bid." S.C.Code Ann. Sec. 11-35-1520(9)(e) (Law.Co-op.Supp.1992). For contracts greater than $2,500,000, resident vendors are accorded a one percent preference over nonresident vendors. Id. The term "resident vendor" is expansively defined to include:
an individual, partnership, association, or corporation that is authorized to transact business within the State, maintains an office in the State, maintains a representative inventory of commodities on which the bid is submitted or is a manufacturer which is headquartered and has a ten million dollar payroll in South Carolina and the product is made or processed from raw materials into a finished end product by such manufacturer or an affiliate (as defined in Section 1563 of the Internal Revenue Code) of such manufacturer, and has paid all assessed taxes.
Id.
The resident vendor and local product schemes have been interpreted by the procurement agencies to apply cumulatively. Thus, on certain bids the 5% local product preference can be cumulated with the 2% maximum resident vendor preference to arrive at a 7% preference over bids from nonresident vendors offering goods from outside South Carolina.
Smith Setzer & Sons, Incorporated ("Smith Setzer") is a North Carolina corporation that maintains its headquarters in Catawba North Carolina. It manufactures reinforced concrete pipe at plants in North Carolina, Virginia, and Georgia. While it sells its product to purchasers within South Carolina, it does not maintain offices or representative inventory there. It is thus not able to claim either South Carolina's local product preference or its resident vendor preference.
On August 13, 1989, the South Carolina Division of General Services issued an invitation to bid on a one-year contract to supply concrete culvert pipe to various state agencies and local political subdivisions within South Carolina. Local political subdivisions had the option to purchase concrete culvert pipe under the contract, and some local governments did so as a matter of administrative convenience to avoid conducting their own competitive solicitations. The invitation to bid disclosed that the contract would be awarded on a per lot basis, there being one lot for each of South Carolina's 46 counties. Smith Setzer submitted bids on this contract and claimed the United States product preference, although it could not claim the local product or resident vendor preferences. 4 Despite being the low bidder on at least 14 lots, Smith Setzer was awarded only two lots.
On December 18, 1989, the South Carolina Department of Highways and Public Transportation issued an invitation for bids on a contract to supply reinforced concrete culvert pipe to various locations. Award again would be on a per lot basis. Although Smith Setzer was the low bidder on one lot of the contract, it was not awarded the contract because of the application of the state's preference system.
Smith Setzer exhausted its administrative appeals in both instances, to no avail. Smith Setzer and Neil Setzer, the president of Smith Setzer as well as a shareholder, then brought two suits in district court challenging the local product and resident vendor preferences as violative of the Due Process and Equal Protection Clauses of the Fourteenth Amendment and their counterpart South Carolina provisions, the Privileges and Immunities Clause of Article IV and its South Carolina counterpart, and the Commerce Clause. The suits were consolidated, and the matter proceeded to trial, at which time the district court reaffirmed a prior ruling dismissing the Privileges and Immunities Clause claim, and also dismissed Neil Setzer as a party to the case for lack of standing. Following trial, the district court issued a written order ruling in favor of the defendants on all remaining grounds and sustaining the statutes and regulations.
On appeal, Neil Setzer challenges the district court's ruling dismissing his claim based on the Privileges and Immunities Clause of Article IV for lack of standing. Smith Setzer renews its challenge based on the Commerce Clause and the Equal Protection Clause of the Fourteenth Amendment. We address these issues in turn.
Neil Setzer contends that the district court erred in dismissing, for lack of standing, his claim that the operation of the State's preference schemes in this instance violated the Privileges and Immunities Clause of Article IV. 5 He brings this claim not on behalf of the corporation, for he concedes, as he must, that it is settled law that "the Privileges and Immunities Clause is inapplicable to corporations." Western & Southern Life Ins. Co. v. State Bd. of Equalization, 451 U.S. 648, 656, 101 S.Ct. 2070, 2077, 68 L.Ed.2d 514 (1981) (citing Hemphill v. Orloff, 277 U.S. 537, 548-50, 48 S.Ct. 577, 579-80, 72 L.Ed. 978 (1928)). 6 Instead, he claims that, as a shareholder of the corporation, the corporation's loss of revenue and earnings resulting from the operation of the preference scheme was a loss of income to him as well, and that this injury gives him standing to assert this claim.
Neil Setzer relies heavily on W.C.M. Window Co. v. Bernardi, 730 F.2d 486 (7th Cir.1984), for support of his position. But that case does not speak to the question here. In Bernardi, the Seventh Circuit addressed the constitutionality of an Illinois statute requiring that contractors working on state public works projects employ only Illinois residents on such projects. The parties to the case included Custom Contracting Company, an unincorporated association of Missouri residents hired by W.C.M. Window to perform part of a contract it held with the Decatur public school board, as well as several individual members of Custom Contracting. While the court stated that an unincorporated association lacked standing to bring a Privileges and...
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