South-Central Timber Dev. v. Wunnicke

Brief Fact Summary.

The petitioner challenged the Alaska law that requires timber taken from state lands be processed within the State prior to export.

Synopsis of Rule of Law.

If a State is acting as a market participant, rather than as a market regulator, the dormant Commerce Clause places no limitation on its activities. The market-participant doctrine permits a State to influence a discrete, identifiable class of economic activity in which it is a major participant.

Facts.

The Alaska law requires that manufacturers of timber process timber prior to shipping it outside of the State. The stated purpose of the requirement is to protect existing industries, provide for the establishment of new industries, derive revenue from all timber resources, and manage the State’s forests on a sustained yield basis. When it imposes the requirement, the State charges a significantly lower price for the timber than it otherwise would. Petitioner, South-Central Timber Development, Inc. is an Alaska corporation engaged in the business of purchasing standing timber, logging the timber, and shipping the logs into foreign commerce. It does not operate a mill in Alaska and customarily sells unprocessed logs.

Issue.

Does the Alaska law that requires timber taken from state lands be processed within the State prior to export?

Held.

No, Alaska’s requirement that timber taken from state lands be processed within the State prior to export was not authorized by Congress and therefore violates the Commerce Clause. Alaska was not a market participant that would have allowed it to impose burdens on commerce within the market in which it is a participant, but allows it to go no further. Alaska also unlawfully imposed conditions, whether by statute, regulation, or contract, that have a substantial regulatory effect outside of that particular market.

Dissent.

Justice Rehnquist

Here, Alaska is merely paying the buyer of the timber indirectly, by means of a reduced price, to hire Alaska residents to process the timber. Under existing precedent, the State could accomplish the same result in any number of ways. For instance, the State could choose to sell its timber only to those companies that maintain active primary-processing plants in Alaska. Or the State could directly subsidize the primary-processing industry within the State. It seems unduly formalistic to conclude that the one path chosen by the state as best suited to promote its concern is the path forbidden by the Commerce Clause.

Discussion.

Because of the protectionist nature of Alaska’s local-processing requirement and the burden on commerce resulting therefrom, the restriction falls within the rule of virtual per se invalidity of laws that block the flow of interstate commerce at a State’s borders. Downstream restrictions have a greater regulatory effect than do limitations on the immediate transaction. Instead of merely choosing its own trading partners, the State is attempting to govern the private, separate economic relationships of its trading partners; that is, it restricts the post-purchase activity of the purchaser, rather than merely the purchasing activity. The restriction on private economic activity takes place after the completion of the parties’ direct commercial obligations, rather than during the course of an ongoing commercial relationship in which the city retained a continuing propriety interest in the subject of the contract. In sum, the State may not avail itself of the market participant doctrine to immunize its downstream regulation of the timber-processing market in which it is not a participant. Because Alaska had done this, it unlawfully violated the Constitution.