Inc. v. Stake Reeves

In the early 1900s, according to a report by the South Dakota State Cement Commission, South Dakota had only one cement plant. That one plant, which "had been operating successfully for years," was "bought by the so-called trust [a monopoly] and closed down." At the recommendation of the commission, South Dakota established its own state-run cement plant. This was in line with the sentiments of the Progressive Era, symbolized first by President Theodore Roosevelt and later by Wisconsin's Governor Robert La Follette. In reaction to the abuses of big business during the late nineteenth and early twentieth centuries, the Progressives increasingly came to rely on government rather than private enterprise to meet the needs of the people. Hence, the Cement Commission noted in its recommendation that "capitalists" would not consider it to their "advantage to build a new plant within the state." Therefore, South Dakota needed its own plant.

The need for cement was particularly great because of a regional shortage in that product, a shortage which "interfered with and delayed both public and private enterprise." This was not, however, because cement was a natural resource that had to be retrieved from the environment--a key point in Reeves, Inc. v. Stake. Rather, as the Supreme Court would later note in a comment drawn from a 1978 report by the Portland Cement Association,

[C]ement is a finely ground manufactured mineral product, usually gray in color. It is mixed with water and sand, gravel, crushed stone, or other aggregates to form concrete, the rock-like substance that is the most widely used construction material in the world.

With the cement shortage "threatening the people of this state," in the words of the Cement Commission (which the Court simply referred to as "the Commission"), "there would be a ready market for the entire output of the plant within the state."

The state began building a plant in Rapid City in 1919, and the plant soon began producing more cement than builders in South Dakota could use. Eventually, its clientele spread to nine nearby states, many of which were (like South Dakota) sparsely populated and lacking in the abundant commercial facilities to which most residents of the East and West Coasts were accustomed. During the period from 1970 to 1977, some forty percent of the plant's output was sold to buyers outside the state of South Dakota, one of whom was Reeves, Inc. The latter, a ready-mix concrete distributor based in the even more sparsely populated state of Wyoming, had begun operations in 1958, and had facilities in the Wyoming towns of Buffalo, Gillette, and Sheridan. As the supplier of more than half of the ready-mix concrete for three northwestern Wyoming counties, Reeves brought a great deal of business to the South Dakota plant. Over the course of a twenty-year relationship, Reeves's purchases from the commission grew to $1,172,000 in 1977, and by 1978, it was buying 95 percent of its cement from that one source.

This dependency proved unfortunate when the plant's production slowed down in 1978 due to difficulties at the Rapid City facility. Such problems were compounded when a sudden building boom in the region and the nation resulted in a "serious cement shortage" of the type that had influenced the establishment of the plant nearly 60 years before. In response to this situation, the commission "reaffirmed" its policy of supplying South Dakota customers first, then of honoring any contracts with outside buyers on a first-come, first-served basis. Reeves, however, lacked even a supply contract, and since it was definitely an out-of-state buyer, it "was hit hard and quickly by this development," in the words of the Supreme Court. On 30 June 1978, the plant sent word to Reeves that it could not continue filling the company's orders. Less than a week later, on 5 July, it turned away a Reeves truck that had arrived to pick up an order. Faced with a crisis, Reeves suddenly had to cut production by a staggering 76 percent in mid-July--the height of the building season.

On 19 July 1978, Reeves brought a suit against the commission in district court, challenging the plant's policy of giving preference to South Dakotans, and seeking injunctive relief. The district court ruled that the "hoarding" of cement practiced by South Dakota went against the spirit of the Constitution's Commerce Clause. The U.S. Court of Appeals for the Eight Circuit, however, reversed this decision. Citing Hughes v. Alexandria Scrap Corporation, it held that South Dakota had "simply acted in a proprietary capacity," the permissibility of which had been established in that case.