Inc. v. Stake Reeves

The Supreme Court held, 5-4, that "South Dakota's resident-preference program for the sale of cement does not violate the Commerce Clause." Writing for the majority, Justice Blackmun held that there was nothing in the clause to stop any state--assuming Congress did not expressly prohibit it--"from participating in the market and exercising the right to favor its own citizens over others." The Commerce Clause, according to the Court, was established primarily to respond to issues relating to state taxes and "regulatory measures impeding free private trade in the national market-place," and the Court found no evidence that South Dakota had attempted to impose such impediments to interstate trade. Given the touchy matter of state sovereignty, the Court held that any minor adjustments necessary in this area should be left up to Congress rather than the judicial branch. As for Reeves's arguments for invalidating South Dakota's program of preferring state residents, the Court found them "weak at best."

Much of the Court's ruling in Reeves went back to its opinion in Alexandria Scrap, and Blackmun began his reasoning with a brief review of the earlier case. The state of Maryland had a program in place to encourage the removal of abandoned automobiles from its roadways and junkyards by offering a financial incentive for each wrecked car turned recovered. The original legislation, passed in 1969, provided that anyone presenting a wrecked car should be able to provide documentation proving ownership. That stipulation did not apply to "hulks," or inoperable cars more than eight years old. In 1974, however, the state legislature amended the statute to require documentation for hulks as well, and specifically required "more exacting documentation" (in the Court's words) from out-of-state persons presenting such vehicles. According to the suit filed by Alexandria Scrap, a Virginia processor of hulks, "the practical effect was substantially the same" as if Maryland had simply stopped paying any money for hulks brought by unlicensed suppliers to licensed non-Maryland processors such as Alexandria Scrap.

The district court struck down Maryland's legislation, but the Supreme Court reversed on the grounds that the statute questioned in Alexandria Scrap was not "the kind of action with which the Commerce Clause is concerned." Maryland, the Court reasoned, had not "sought to prohibit the flow of hulks, or to regulate the conditions under which it may occur. Instead, it [had] entered into the market itself to bid up their price." Thus, it characterized the state of Maryland as a market participant rather than a market regulator. Addressing the case before the Court in Reeves, Justice Blackmun wrote that "the basic distinction drawn in Alexandria Scrap between States as market participants and States as market regulators makes good sense and sound law."

Just as the Court in Alexandria Scrap had written 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," so Justice Blackmun wrote now that there was "no indication of a constitutional plan to limit the ability of the States themselves to operate freely in the free market." The issue of state sovereignty further counseled judicial restraint in an area which the Court judged to be the province of Congress.

As for the question of whether South Dakota had operated as a regulator or a participant, the Court held it to be the latter. In making the claim that South Dakota had "exploited" the interstate market, Blackmun wrote, the petitioner had used "self-serving" language: "An equally fair characterization is that neighboring States long have benefited from South Dakota's foresight and industry."

The remainder of the Court's opinion was devoted to addressing four specific arguments offered by Reeves's council. First, the petitioner had charged that South Dakota was practicing economic "protectionism" by favoring its own citizens over others. The Court "[found] the label `protectionism' of little help in this context." Usually the term refers to a national policy of placing heavy duties on imports to encourage the sale of goods produced at home, but here it was used to describe a state policy of "[limiting] benefits generated by a state program to those who fund the state treasury and whom the State was created to serve." Second was the petitioner's charge of "hoarding." In the Court's view, that term only made sense when describing a policy of preventing the interstate flow of natural resources such as coal, timber, or wild game, not something like cement. Cement is "the end product of a complex process whereby a costly physical plant and human labor act on raw materials." Third, Reeves's counsel had charged that the commission program impeded commerce by creating a situation in which South Dakota suppliers of ready-mix concrete had a competitive advantage in the out-of-state market. This argument the Court found without merit, because it seemed to imply that South Dakota should be barred from selling its cement elsewhere--"even a greater measure of protectionism and stifling of interstate commerce than the present system allows." Finally, the petitioner argued that South Dakota, having replaced free-market or private suppliers, should be forced to operate as a free-market supplier--i.e., supplying goods entirely on a first-come, first-served basis, without state preference. The Court held this argument "simplistic and speculative," since there was no guarantee that a free-market supplier would even be operating in South Dakota at that point if the commission had not established its plant six decades earlier. "Indeed," Justice Blackmun wrote, "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."