Reeves, Inc. v. Stake
447 U.S. 429 (1980)
Rule of Law:
When a state acts as a participant in the market, rather than as a market regulator, it is not subject to the traditional limitations of the Commerce Clause and may favor its own citizens over out-of-state residents in its business dealings.
Facts:
- In 1919, the State of South Dakota, in response to regional cement shortages, constructed a state-owned cement plant.
- For many years, the plant produced more cement than was needed by South Dakota residents, selling approximately 40% of its output to out-of-state buyers between 1970 and 1977.
- Reeves, Inc., a Wyoming corporation, was a long-time customer, purchasing about 95% of its cement from the South Dakota plant from 1958 until 1978.
- In 1978, due to production issues at the plant and a regional construction boom, another severe cement shortage occurred.
- In response to the shortage, the South Dakota Cement Commission reaffirmed a policy of supplying all South Dakota customers first, before selling any cement to out-of-state buyers.
- Because Reeves, Inc. had no long-term supply contract, the plant informed Reeves it could no longer fill its orders.
- Unable to find an alternative cement supplier, Reeves, Inc. was forced to reduce its production by 76%.
Procedural Posture:
- Reeves, Inc. filed a lawsuit against the South Dakota Cement Commission in the United States District Court, seeking to enjoin the resident-preference policy.
- The District Court, a court of first instance, granted a permanent injunction, holding that the policy violated the Commerce Clause.
- The Commission, as appellee, appealed the decision to the U.S. Court of Appeals for the Eighth Circuit.
- The Eighth Circuit, an intermediate appellate court, reversed the District Court's judgment, finding that the state was acting as a market participant and was therefore exempt from Commerce Clause restrictions.
- Reeves, Inc., as petitioner, sought a writ of certiorari from the U.S. Supreme Court, which was granted. The Court vacated the appellate judgment and remanded the case for reconsideration in light of a recent decision.
- On remand, the Eighth Circuit reaffirmed its previous holding in favor of the Commission.
- The U.S. Supreme Court granted Reeves, Inc.'s second petition for a writ of certiorari to decide the issue.
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Issue:
Does a state's policy of restricting the sale of cement from a state-owned and operated plant to its own residents during a shortage violate the Commerce Clause?
Opinions:
Majority - Justice Blackmun
No, the state's policy does not violate the Commerce Clause. The Commerce Clause does not prohibit a state, when acting as a market participant, from favoring its own citizens. The Court distinguished between states acting as market regulators, whose actions are limited by the Commerce Clause, and states acting as market participants, which have the same right as private businesses to choose their trading partners. South Dakota was not regulating the cement market but was directly participating in it as a seller. This market-participant doctrine, established in Hughes v. Alexandria Scrap Corp., is supported by principles of state sovereignty and the traditional freedom of traders to select their own customers. The Court rejected the arguments that cement is a natural resource subject to stricter scrutiny or that South Dakota's prior participation in the interstate market obligated it to continue doing so during a shortage.
Dissenting - Justice Powell
Yes, the state's policy violates the Commerce Clause. South Dakota's policy is precisely the kind of economic protectionism that the Commerce Clause was intended to prevent. The dissent argues that the Court's distinction should not be between participant and regulator, but between a state acting in a traditional governmental function versus a state acting as a commercial enterprise for the benefit of its private citizens. When a state enters the private market to favor its own residents' private economic interests, it may not evade the constitutional prohibition against economic Balkanization. Unlike the subsidy in Alexandria Scrap that merely influenced market forces, South Dakota's policy created an absolute barrier to interstate trade, effectively an embargo, which is a direct burden on commerce forbidden by the Constitution.
Analysis:
This case significantly solidifies and expands the 'market participant' doctrine as a major exception to the dormant Commerce Clause. By extending the doctrine from a state acting as a buyer (in Alexandria Scrap) to a state acting as a seller of a manufactured product, the Court granted states considerable latitude to favor their own citizens' economic interests. The decision affirms that states can engage in protectionist behavior without violating the Commerce Clause, provided they do so through direct participation in the market rather than by regulating private actors. This creates a powerful tool for states to control the distribution of state-produced goods and services, potentially insulating a wide range of state-owned enterprises from constitutional challenge.
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