Reeves, Inc v. Stake

Brief Fact Summary.

Reeves is a ready mix concrete distributor from Wyoming that relied on a cement factory in South Dakota for 95% of its cement. When a cement shortage hit South Dakota, the legislature ordered that the cement plant must first supply all of South Dakota’s customers before honoring out of state contracts or commitments. Reeves had to cut production by 76%.

Synopsis of Rule of Law.

When a state acts as a market participant, and not as a market regulator, it is not prohibited from buying only from or selling only to local businesses. A state as a market participant may hoard its resources from the national market.

Facts.

South Dakota built a cement plant in 1919 to meet the needs of residents and prevent shortages that interfered with and delayed both public and private enterprises. South Dakota operated the plant and soon it was supplying nine nearby states with cement from the plant. Between 1970 and 1977 about 40% of the plant’s output went outside the South Dakota. Reeves was one of the out of state cement buyers who relied on the plant. It bought 95% of its cement from the South Dakota plant. In 1978 there were cement shortages again and the plant was unable to meet all orders. Faced with the same cement shortages that motivated legislatures to create the plant, the State Cement Commission ordered that the plant would first supply all South Dakota customers and then honor all outstanding contractual commitments. The remaining volume would be allocated to out-of-state customers on a first come, first serve basis. Although Reeves had been a customer for 20 years, he did not have a pre-exist
ing long term supply contract. Reeves was forced to cut production by 76%. Reeves brought suit against the Commission challenging the plant’s policy of preferring Sough Dakota buyers. The District Court found that the Commission’s order limited the national free market that the Commerce Clause sought to uphold.

Issue.

Can a state as a market participant restrict its trade of goods to citizens or businesses within that state?

Held.

Justice Blackmun: Yes. Judgment of the United States Court of Appeals is affirmed.
The Court relies on Hughes v. Alexandria Scrap Corp (1976) for the theory that the Commerce Clause was not concerned with a state acting as a market participant. The Commerce Clause was concerned with state laws inhibiting interstate trade such as home embargoes, customs duties, and regulated imports. There is no limit to a State’s ability to operate freely in the free market. A market participant may freely exercise his own independent discretion as to parties with whom he will deal.
South Dakota is a market participant because it built the plant and sold the cement using the State’s money.
The State’s preference for its residents is not protectionism in action. A state program that was funded through taxes paid by the citizens built the cement plant. The State was created to serve the needs of South Dakota citizens during a shortage in 1919. Restricting the benefits to South Dakota citizens is no more protectionist than limiting such public benefits as the enjoyment of state educational institutions, energy run by a state-run plant, and police and fire protection. While these services are protectionist in a loose sense, they also reflect the purpose of the state government (to serve the citizens of the State).
South Dakota is not limiting a natural resource. It is the end product of a complex process that requires a plant and human labor to act on raw materials. The State did not limit access to the raw materials used to make cement, nor did it restrict the ability of private firms or other States to set up plants within its borders. The State is not hoarding natural resources like coal, timber, wild game, or minerals.
Reeves cannot argue that the State is granting in-state ready mix concrete suppliers a competitive advantage over the out of state suppliers. Wyoming could have provided or attracted alternative sources of supply for its suppliers. The suppliers could have guarded against shortages by executing long-term supply contracts with the South Dakota plant.
Whatever burdens South Dakota is placing on interstate commerce in acting as a market participant is offset by countervailing considerations of policy and fairness. To reverse would be to discourage similar state projects.

Dissent.

Justice Powell, Brennan, White, and Stevens dissenting:
The Commerce Clause was intended to prevent a policy where a State may prefer its own citizens to out-of-state customers in times of shortage. South Dakota should not be able to withhold its cement from interstate commerce in order to benefit private citizens and businesses within the State.
The Commerce Clause is a limitation on state sovereignty and is designed to maintain a national market and defeat economic provincialism. This decision approves protectionist state policies. The people of South Dakota are using the power of the State to furnish themselves with cement forbidden to the people of neighboring States.

Discussion.

The market participant exception allows states to avoid the Commerce Clause but it may not prevent a state from being subject to the Privileges and Immunities Clause. See United Building and Construction Trades Council of Camden County and Vicinity v. Mayor and Council of the City of Camden.