Brief Fact Summary. Defendant, the State of Alaska, acted as a market participant by including in a sales contract a provision requiring all purchasers of the state’s timber to partially process the timber in Alaska before shipping the timber out of the state. Plaintiff, South-Central Timber Development Inc., an Alaskan corporation, rightfully contends that the provision violates the commerce clause.
Synopsis of Rule of Law. This case demonstrates a limitation on the market-participant doctrine which permits a state to influence an identifiable class of economic activity in which the state is a major participant. Specifically, a state may not impose conditions, whether by statute, regulation or contract, that have a substantial regulatory effect outside of that particular market.
Issue. Whether Defendant’s restriction on processing was exempt from the commerce clause because of the “market-participant” doctrine.
Held. No. Judgment of the highest state court reversed and remanded for further proceedings. Defendant may be a participant in the timber market, but it may not use its leverage in that market to exert a regulatory effect in the processing market, in which it is not a participant. The processing restriction here takes place after the completion of the parties’ direct commercial obligations, rather than during the course of an ongoing commercial relationship. Thus, the Defendant-State may not avail itself of the market-participant doctrine to immunize its downstream regulation of the timber-processing market in which it is a participant. Because of the protectionist nature of Defendant’s local-processing requirement and the burden on commerce resulting therefrom, it falls within the rule of virtual per se invalidity of laws that “block the flow of commerce at a state’s borders.”
Dissent. Defendant is merely paying the purchaser of timber indirectly, by means of a reduced price, to hire Defendant’s residents to process the timber, and that is not a violation of the commerce clause.
Discussion. The plurality uses this case to demonstrate a limitation on the market-participant doctrine and bases that limitation on three key facts: the processing requirement is not a simple transaction; the timber is a natural resource; and the requirement takes place after the sale is finalized.