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.
The plant's list of out-of-state cement buyers included petitioner Reeves, Inc. Reeves is a ready-mix concrete distributor organized under Wyoming law and with facilities in Buffalo, Gillette, and Sheridan, Wyo. From the beginning of its operations in 1958, and until 1978, Reeves purchased about 95% of its cement from the South Dakota plant. In 1977, its purchases were $1,172,000. In turn, Reeves has supplied three northwestern Wyoming counties with more than half their ready-mix concrete needs. 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. 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 commitments, with the remaining volume allocated on a first come, first served basis."
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.Unable to find another supplier, Reeves was forced to cut production by 76% in mid-July.
On July 19, Reeves brought this suit against the Commission, challenging the plant's policy of preferring South Dakota buyers, and seeking injunctive relief. 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.
The United States Court of Appeals for the Eighth Circuit reversed. Reeves, Inc. v. Kelley, 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.(1976). Petitioner sought certiorari. We granted Reeves' petition for certiorari to consider once again the impact of the Commerce Clause on state proprietary activity.
....In the Court's view, however, Alexandria Scrap did not involve "the kind of action with which the Commerce Clause is concerned." Unlike prior cases voiding state laws inhibiting interstate trade, "Maryland has not sought to prohibit the flow of hulks, or to regulate the conditions under which it may occur. Instead, it has entered into the market itself to bid up their price," "as a purchaser, in effect, of a potential article of interstate commerce," and has restricted "its trade to its own citizens or businesses within the State."
Having characterized Maryland as a market participant, rather than as
a market regulator, the Court found no reason to "believe the Commerce
Clause was intended to require independent justification for [the State's]
Restraint in this area is also counseled by considerations of state sovereignty, the role of each State "`as guardian and trustee for its people,'" and "the long recognized right of trader or manufacturer, engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal." Moreover, state proprietary activities may be, and often are, burdened with the same restrictions imposed on private market participants. Evenhandedness suggests that, when acting as proprietors, States should similarly share existing freedoms from federal constraints, including the inherent limits of the Commerce Clause....
Our rejection of petitioner's market-exploitation theory fundamentally
refocuses analysis. It means that to reverse we would have to void a South
Dakota "residents only" policy even if it had been enforced from the plant's
very first days. Such a holding, however, would interfere significantly
with a State's ability to structure relations exclusively with its own
citizens. It would also threaten the future fashioning of effective and
creative programs for solving local problems and distributing government
largesse. A healthy regard for federalism and good government renders
us reluctant to risk these results.
First, petitioner protests that South Dakota's preference for its residents responds solely to the "non-governmental objectiv[e]" of protectionism. Therefore, petitioner argues, the policy is per se invalid.
We find the label "protectionism" of little help in this context. The State's refusal to sell to buyers other than South Dakotans is "protectionist" only in the sense that it limits benefits generated by a state program to those who fund the state treasury and whom the State was created to serve. Petitioner's argument apparently also would characterize as "protectionist" rules restricting to state residents the enjoyment of state educational institutions, energy generated by a state-run plant, police and fire protection, and agricultural improvement and business development programs. Such policies, while perhaps "protectionist" in a loose sense, reflect the essential and patently unobjectionable purpose of state government - to serve the citizens of the State.
Second, petitioner echoes the District Court's warning: "If a state in this union, were allowed to hoard its commodities or resources for the use of their own residents only, a drastic situation might evolve. For example, Pennsylvania or Wyoming might keep their coal, the northwest its timber, and the mining states their minerals. The result being that embargo may be retaliated by embargo and commerce would be halted at state lines." This argument, although rooted in the core purpose of the Commerce Clause, does not fit the present facts. Cement is not a natural resource, like coal, timber, wild game, or minerals. It is the end product of a complex process whereby a costly physical plant and human labor act on raw materials. South Dakota has not sought to limit access to the State's limestone or other materials used to make cement. Nor has it restricted the ability of private firms or sister States to set up plants within its borders. Moreover, petitioner has not suggested that South Dakota possesses unique access to the materials needed to produce cement. Whatever limits might exist on a State's ability to hoard resources which by happenstance are found there, those limits do not apply here.
Third, it is suggested that the South Dakota program is infirm because it places South Dakota suppliers of ready-mix concrete at a competitive advantage in the out-of-state market; Wyoming suppliers, such as petitioner, have little chance against South Dakota suppliers who can purchase cement from the State's plant and freely sell beyond South Dakota's borders.
The force of this argument is seriously diminished, if not eliminated, by several considerations. The argument necessarily implies that the South Dakota scheme would be unobjectionable if sales in other States were totally barred. It therefore proves too much, for it would tolerate even a greater measure of protectionism and stifling of interstate commerce than the challenged system allows....
In its last argument, petitioner urges that, had South Dakota not acted, free market forces would have generated an appropriate level of supply at free market prices for all buyers in the region. Having replaced free market forces, South Dakota should be forced to replicate how the free market would have operated under prevailing conditions.
This argument appears to us to be simplistic and speculative. The very
reason South Dakota built its plant was because the free market had failed
adequately to supply the region with cement. There is no indication,
and no way to know, that private industry would have moved into petitioner's
market area, and would have ensured a supply of cement to petitioner either
prior to or during the 1978 construction season. Indeed, it is quite possible
that petitioner would never have existed - far less operated successfully
for 20 years - had it not been for South Dakota cement.
MR. JUSTICE POWELL, with whom MR. JUSTICE BRENNAN, MR. JUSTICE WHITE, and MR. JUSTICE STEVENS join, dissenting....
The South Dakota Cement Commission has ordered that in times of shortage the state cement plant must turn away out-of-state customers until all orders from South Dakotans are filled. This policy represents precisely the kind of economic protectionism that the Commerce Clause was intended to prevent. The Court, however, finds no violation of the Commerce Clause, solely because the State produces the cement. I agree with the Court that the State of South Dakota may provide cement for its public needs without violating the Commerce Clause. But I cannot agree that South Dakota may withhold its cement from interstate commerce in order to benefit private citizens and business within the State....
Exploring Constitutional Conflicts