South-Central Timber Development, Inc. v. LeResche, Civ. No. A80-311.
| Decision Date | 05 January 1981 |
| Docket Number | Civ. No. A80-311. |
| Parties | SOUTH-CENTRAL TIMBER DEVELOPMENT, INC., Plaintiff, v. Robert LeRESCHE, Commissioner of Department of Natural Resources of the State of Alaska; Geoffrey Haynes, Director, Division of Natural Resources, and Deputy Commissioner of Department of Natural Resources of the State of Alaska; and Theodore G. Smith, Director of Division of Forest, Land and Water Management, of Department of Natural Resources of the State of Alaska, Defendants, Kenai Lumber Company, Intervenor. |
| Court | U.S. District Court — District of Alaska |
LeRoy E. DeVeaux, Wanamaker, DeVeaux & Crabtree, Anchorage, Alaska, for plaintiff.
Shelley J. Higgins, Asst. Atty. Gen., State of Alaska Dept. of Law, Mark L. Figura, Burr, Pease & Kurtz, Anchorage, Alaska, for defendants.
THIS CAUSE comes before the court on cross motions by plaintiff and defendant for summary judgment, and defendant-intervenor's motion to dismiss. The parties agree that the sole issue to be decided is whether the State's requirement of primary manufacture violates the Commerce Clause of the United States Constitution.1 As the matter in controversy exceeds the sum of $10,000, this court has jurisdiction pursuant to 28 U.S.C. § 1331(a).
In September, 1980, the State of Alaska gave notice that it would sell approximately 49,185,000 board feet of timber in the area of Icy Cape, Alaska, on October 23, 1980. The notice of the sale provided, pursuant to 11 A.A.C. § 76.130,2 that "primary manufacture within the State of Alaska will be required as a special provision of the contract." The inclusion of the primary manufacture requirement in the timber sales contract requires a successful bidder to pre-cut the sale timber in Alaska prior to export.
Plaintiff South-Central Timber Development, Inc. (South-Central) is an Alaskan corporation engaged in the business of purchasing Alaska standing timber, logging such timber, and shipping the resulting logs into foreign commerce. Although South-Central desires to bid on the Icy Cape No. 2 timber sale, it is hampered by its lack of a working mill in Alaska. South-Central must take into account the added costs of having primary manufacture performed instate. This added cost effectively precludes South-Central from bidding on the timber.
The State and intervenor contend that the primary manufacture requirement is permissible under the commerce clause for two reasons: 1) Alaska's policy of requiring primary manufacture as a term of a state timber contract is consistent with federal policy as expressed by Congress; and, 2) by including primary manufacture as a term in the state timber contract, the state is not regulating interstate commerce; rather it is acting in a proprietary capacity as a market participant and is therefore exempt from commerce clause requirements.
It is clear that if Congress had consented to the State's primary manufacture requirement, any commerce clause restrictions would be waived. E. g. Southern Pacific Co. v. Arizona, 325 U.S. 761, 769, 65 S.Ct. 1515, 1520, 89 L.Ed. 1915 (1945). To determine whether Congress has consented to the requirement, the court must examine the relevant Congressional provisions in this area.
The State points out that the federal government historically has placed restrictions on the export of unprocessed logs from federal lands in the western states, including federal lands in Alaska. Since 1928, the United States Forest Service has restricted the export of unprocessed timber from national forest timber sales in Alaska under the general authority granted by Congress. 16 U.S.C. § 471 et seq. (1976) (National Forests).
Section 475 provides in part that one of the purposes for establishing a national forest is "to furnish a continuous supply of timber for use and necessities of the citizens of the United States...." Section 551 allows the Secretary of Agriculture, under the provisions of § 471, to make necessary "rules and regulations and establish such service ... to regulate ... and to preserve the forests...." Regulations currently in effect restrict the export, in unprocessed form, of timber harvested from sales in national forest land in Alaska. 36 C.F.R. § 223.10(i).3
An examination of the relevant statutory provisions shows that Congress has not consented to any primary manufacture requirements imposed by the states. When Congress has exempted state laws from commerce clause restrictions, it has used language specifically directing that certain interstate commerce may be regulated as though it were purely local. See the Wilson Act, 27 U.S.C. § 121 (1976); see also the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. (1976) ().
Although Congress has authorized the Secretary of Agriculture to make necessary rules to regulate the national forests, and has imposed export quotas on unprocessed timber from federal lands, it has in no way expressly exempted state timber laws from commerce clause restrictions. Given Congress' silence, a negative is presumed to bar state action inimical to the national commerce, and in such cases the Supreme Court is "the final arbiter of the competing demands of state and national interests." South Pacific Co. v. Arizona, 325 U.S. at 769, 65 S.Ct. at 1520.
The State maintains that it is acting in a proprietary capacity (as the timber subject to the primary manufacture requirement is state owned) and is therefore unrestricted by the commerce clause. Reeves v. Stake, 477 U.S. 429, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1980); Hughes v. Alexandria Scrap, 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976). The Supreme Court has made clear, however, that "all objects of interstate trade merit Commerce Clause protection; none is excluded by definition at the outset." Philadelphia v. New Jersey, 437 U.S. 617, 622, 98 S.Ct. 2531, 2534, 57 L.Ed.2d 475 (1978). The court must determine whether Alexandria Scrap and Reeves allow the State to require primary manufacture of state-owned timber within Alaska as a condition of sale.
In Alexandria Scrap, the Court upheld a Maryland statute which promoted the disposal of abandoned automobiles through cash payments to scrap processors. Even though the payments favored in-state processors, the Court found no commerce clause problems. Relying on the fact that Maryland was acting in a proprietary capacity, The Court held that "nothing in the purposes animating the Commerce Clause prohibits a State, in the absence of congressional action, from participating in the market and exercising the right to favor its own citizens over others." 426 U.S. at 810, 96 S.Ct. at 2498.
In Reeves, the Court ruled that the commerce clause did not prohibit South Dakota from refusing to sell cement from a state owned and operated cement plant to out-of-state customers, pursuant to its policy of supplying South Dakota customers first. The Court noted that "the basic distinction drawn in Alexandria Scrap between States as market participants and States as market regulators makes good sense and sound law." 477 U.S. at 436, 100 S.Ct. at 2277, 65 L.Ed.2d 244.
The Reeves Court termed the holding in Alexandria Scrap the "general rule" as to states acting in a proprietary manner. 477 U.S. at 440, 100 S.Ct. at 2279, 65 L.Ed.2d 244. The Court went on to concede the possibility of an exception, but reasoned: "in this case there is no sufficient reason to depart from the general rule." Id. Later, the Court addressed the possible limits to the Alexandria Scrap exemption when it considered the argument that if a state were allowed to hoard its resources "Pennsylvania might keep its coal, the northwest its timber, and the mining States their minerals." West v. Kansas Nat. Gas Co., 221 U.S. 229, 255, 31 S.Ct. 564, 571, 55 L.Ed. 716 (1911). The Court distinguished cement from natural resources such as coal, timber, wild game, and minerals, and noted that "South Dakota has not sought to limit access to the State's limestone or other materials used to make cement." 447 U.S. at 444, 100 S.Ct. at 2281, 65 L.Ed.2d 244.
Here the State is restricting the flow of a state-owned natural resource rather than a state-owned man-made commodity. Timber is not a commodity which, when needed, is capable of being readily produced by any state at any time. Conversely, a state may enter the cement business, with little problem, in order to supply its region with needed cement. The uniqueness of a natural resource, the happenstance of its location, and the resulting national need for its unrestricted flow prevent a state from economically discriminating in favor of its residents simply because a resource lies on state-owned land.
The court finds that the State's primary manufacture requirement goes beyond the Alexandria Scrap exemption, as a natural resource is involved. The Alexandria Scrap general rule is not a magic talisman which allows a state to place unconstitutional restrictions on a resource if it is state-owned. While the fact that a state owns a natural resource may allow it to favor its residents in the distribution of the resource in certain ways, a state may not "attach conditions to the use or disposition of the resource that might independently burden interstate commerce. ..." Hellerstein, Hughes v. Oklahoma: The Court, The Commerce Clause, And State Control Of Natural Resources, 1979 Sup.Ct.Rev. 51, 71 (1980).
Since the court has determined that the primary manufacture requirement goes beyond the Alexandria Scrap exemption, it must determine whether this requirement unconstitutionally burdens commerce.
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