Reeves, Inc v. Stake

• Decision Date: 19 June 1980
• Docket Number: No. 79-677,79-677
• Citation: 447 U.S. 429,100 S.Ct. 2271,65 L.Ed.2d 244
• Parties: REEVES, INC., Petitioner, v. William STAKE et al
• Court: U.S. Supreme Court

447 U.S. 429

100 S.Ct. 2271

65 L.Ed.2d 244

REEVES, INC., Petitioner,

v William STAKE et al.

No. 79-677.

Argued April 16, 1980.

Decided June 19, 1980.

Syllabus

For more than 50 years, South Dakota has operated a cement plant that produced cement for both state residents and out-of-state buyers. In 1978, because of a cement shortage, the State Cement Commission announced a policy to confine the sale of cement by the state plant to residents of the State. This policy forced petitioner ready-mix concrete distributor, one of the out-of-state buyers, to cut its production severely. Petitioner then brought suit in Federal District Court, challenging the policy. The court granted injunctive relief on the ground that the policy violated the Commerce Clause. The Court of Appeals reversed on the ground that the State had simply acted in a proprietary capacity.

Held : South Dakota's resident-preference program for the sale of cement does not violate the Commerce Clause. Pp. 434-447.

(a) "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." Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810, 96 S.Ct. 2488, 2498, 49 L.Ed.2d 220. Pp. 434-436.

(b) The Commerce Clause responds principally to state taxes and regulatory measures impeding free private trade in the national marketplace, and there is no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market. Restraint in this area is also counseled by considerations of state sovereignty, each State's role as guardian and trustee for its people, and the recognized right of a trader to exercise discretion as to the parties with whom he will deal. Moreover, state proprietary activities often are burdened with the same restrictions as private market participants. And, as this case illustrates, the competing considerations in cases involving state proprietary action often will be subtle, complex, politically charged, and difficult to assess under traditional Commerce Clause analysis. Given these factors, the adjustment of interests in this context is, as a rule, better suited for Congress than this Court. Pp. 436-439.

(c) The arguments for invalidating South Dakota's resident-preference program—that the State, having long exploited the interstate market for cement, should not be permitted to withdraw from it when a shortage arises; that the program responds solely to the nongovernmental objective of protectionism; that hoarding may have undesirable consequences; that the program places South Dakota suppliers of ready-mix concrete at a competitive advantage in the out-of-state market; and that if South Dakota had not acted, free market forces would have generated an appropriate level of supply at free market prices for all buyers in the region—are weak at best. Whatever residual force inheres in them is more than offset by countervailing considerations of policy and fairness. To invalidate the program would discourage similar state projects and rob South Dakota of the intended benefit of its foresight, risk, and industry. Pp. 440-447.

603 F.2d 736, 8 Cir., affirmed.

Dennis M. Kirven, Buffalo, Wyo., for petitioner.

William J. Janklow, Pierre, S. D., for respondents.

Mr. Justice BLACKMUN delivered the opinion of the Court.

The issue in this case is whether, consistent with the Commerce Clause, U. S. Const., Art. I, § 8, cl. 3, the State of South Dakota, in a time of shortage, may confine the sale of the cement it produces solely to its residents.

I

In 1919, South Dakota undertook plans to build a cement plant. The project, a product of the State's then prevailing Progressive political movement, was initiated in response to recent regional cement shortages that "interfered with and delayed both public and private enterprises," and that were "threatening the people of this state." Eakin v. South Dakota State Cement Comm'n, 44 S.D. 268, 272, 183 N.W. 651, 652 (1921).¹ In 1920, the South Dakota Cement Commission anticipated "[t]hat there would be a ready market for the entire output of the plant within the state." Report of State Cement Commission 9 (1920). The plant, however, located at Rapid City, soon produced more cement than South Dakotans could use. Over the years, buyers in no less than nine nearby States purchased cement from the State's plant. App. 26. Between 1970 and 1977, some 40% of the plant's output went outside the State.

The plant's list of out-of-state cement buyers included petitioner Reeves, Inc. Reeves is a ready-mix concrete ² distributor organized under Wyoming law and with facilities in Buffalo, Gillette, and Sheridan, Wyo. Id., at 15. From the beginning of its operations in 1958, and until 1978, Reeves purchased about 95% of its cement from the South Dakota plant. Id., at 15 and 22. In 1977, its purchases were $1,172,000. Id., at 17. In turn, Reeves has supplied three northwestern Wyoming counties with more than half their ready-mix concrete needs. Id., at 15. For 20 years the relationship between Reeves and the South Dakota cement plant was amicable, uninterrupted, and mutually profitable.

As the 1978 construction season approached, difficulties at the plant slowed production. Meanwhile, a booming construction industry spurred demand for cement both regionally and nationally. Id., at 13. The plant found itself unable to meet all orders. Faced with the same type of "serious cement shortage" that inspired the plant's construction, the Commission "reaffirmed its policy of supplying all South Dakota customers first and to honor all contract commit- ments, with the remaining volume allocated on a first come, first served basis." Ibid.³

Reeves, which had no pre-existing long-term supply contract, was hit hard and quickly by this development. On June 30, 1978, the plant informed Reeves that it could not continue to fill Reeves' orders, and on July 5, it turned away a Reeves truck. Id., at 17-18. Unable to find another supplier, id., at 21, Reeves was forced to cut production by 76% in mid-July. Id., at 20.

On July 19, Reeves brought this suit against the Commission, challenging the plant's policy of preferring South Dakota buyers, and seeking injunctive relief. Id., at 3-10. After conducting a hearing and receiving briefs and affidavits, the District Court found no substantial issue of material fact and permanently enjoined the Commission's practice. The court reasoned that South Dakota's "hoarding" was inimical to the national free market envisioned by the Commerce Clause. Id., at 27-30.

The United States Court of Appeals for the Eighth Circuit reversed. Reeves, Inc. v. Kelley, 8 Cir., 586 F.2d 1230, 1232 (1978). It concluded that the State had "simply acted in a proprietary capacity," as permitted by Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976). Petitioner sought certiorari. This Court granted the petition, vacated the judgment, and remanded the case for further consideration in light of Hughes v. Oklahoma, 441 U.S. 322, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979). Reeves, Inc. v. Kelley, 441 U.S. 939, 99 S.Ct. 2155, 60 L.Ed.2d 1041 (1979). On remand, the Court of Appeals distinguished that case.⁴ Again relying on Alexandria Scrap, the court abided by its previous holding. Reeves, Inc. v. Kelley, 8 Cir., 603 F.2d 736 (1979). We granted Reeves' petition for certiorari to consider once again the impact of the Commerce Clause on state proprietary activity. 444 U.S. 1031, 100 S.Ct. 700, 62 L.Ed.2d 666 (1980).⁵

II

A.

Alexandria Scrap concerned a Maryland program designed to remove abandoned automobiles from the State's roadways and junkyards. To encourage recycling, a "bounty" was offered for every Maryland-titled junk car converted into scrap. Processors located both in and outside Maryland were eligible to collect these subsidies. The legislation, as initially enacted in 1969, required a processor seeking a bounty to present documentation evidencing ownership of the wrecked car. This requirement however, did not apply to "hulks," inoperable automobiles over eight years old. In 1974, the statute was amended to extend documentation requirements to hulks, which comprised a large majority of the junk cars being processed. Departing from prior practice, the new law imposed more exacting documentation requirements on out-of-state than in-state processors. By making it less remunerative for suppliers to transfer vehicles outside Maryland, the reform triggered a "precipitate decline in the number of bounty-eligible hulks supplied to appellee's [Virginia] plant from Maryland sources." 426 U.S., at 801, 96 S.Ct., at 2494. Indeed, "[t]he practical effect was substantially the same as if Maryland had withdrawn altogether the availability of bounties on hulks delivered by unlicensed suppliers to licensed non-Maryland processors." Id., at 803, n. 13, 96 S.Ct., at 2495; see id., at 819, 96 S.Ct., at 2502 (dissenting opinion).

Invoking the Commerce Clause, a three-judge District Court struck down the legislation. 391 F.Supp. 46 (Md.1975). It observed that the amendment imposed "substantial burdens upon the free flow of interstate commerce," id., at 62, and reasoned that the discriminatory program was not the least disruptive means of achieving the State's articulated objective. Id., at 63. See generally Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970).⁶

This Court reversed. It recognized the persuasiveness of the lower court's analysis if the inherent restrictions of the Commerce Clause were deemed applicable. In the Court's view, however, Alexandria Scrap did not involve "the kind of action with which the Commerce Clause is concerned." 426 U.S., at 805, 96 S.Ct., at 2495. Unlike prior cases voiding state laws inhibiting interstate trade, "Maryland has not sought to prohibit...