PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 10-2365
_____________
TRI-M GROUP, LLC
v.
THOMAS B. SHARP,
Secretary, Delaware Department of Labor,
Appellant
_____________
Appeal from the United States District Court
for the District of Delaware
(D.C. Civil No. 1-06-cv-00556)
District Judge: Honorable Sue L. Robinson
_____________
Argued December 15, 2010
Before: RENDELL, HARDIMAN and VANASKIE,
Circuit Judges.
(Opinion Filed: March 21, 2011)
_____________
Linda M. Carmichael, Esq.
Jennifer D. Oliva, Esq. [ARGUED]
Department of Justice
Room 627
820 North French Street
Carvel Office Building, 6th Floor
Wilmington, DE 19801
Counsel for Appellant
Alexander G. Bomstein, Esq.
Stephen J. Sundheim, Esq. [ARGUED]
Justin J. Williams, Esq.
Pepper Hamilton
18th & Arch Streets
3000Two Logan Square
Philadelphia, PA 19103
M. Duncan Grant, Esq.
Pepper Hamilton
1313 Market Street
Suite 5100, P.O. Box 1709
Wilmington, DE 19899
Counsel for Appellee
_____________
OPINION OF THE COURT
_____________
RENDELL, Circuit Judge.
In this appeal, we confront Tri-M Group, LLC‟s (“Tri-
M”) challenge to the constitutionality of Delaware‟s
regulatory scheme for the training and compensation of
2
apprentices on construction projects. In the District Court,
Tri-M sought a declaratory judgment and injunctive relief
against enforcement of the Delaware Prevailing Wage
Regulations (“DPWR”), 19-1000-1322 DEL. ADMIN. CODE §
1 et seq. (2010), and the Rules and Regulations Relating to
Delaware Apprenticeship and Training Law (“ATRR”), 19-
1000-1101 DEL. ADMIN. CODE § 1.0 et seq. (2010), alleging
that the regulations discriminated against Tri-M and other
out-of-state contractors in violation of the negative – or
dormant – Commerce Clause. The District Court granted
summary judgment to Tri-M, concluding that Delaware‟s
refusal to recognize out-of-state registered apprentices
facially discriminated against out-of-state contractors without
advancing a legitimate state interest, and this appeal followed.
See Tri-M Group, LLC v. Sharp, 705 F. Supp. 2d 335 (D. Del.
2010). We agree and will affirm.
Background & Procedural History
The facts of the underlying suit are undisputed. In
response to passage of the National Apprentice Act
(“Fitzgerald Act”), 29 U.S.C. § 50 et seq., Delaware enacted
an apprentice regulatory scheme to “develop and conduct
employee training and registered apprenticeship programs,”
and to provide “for the establishment and furtherance of
standards of apprenticeship and training to safeguard the
welfare of apprentices and trainees.” 19 DEL. C. § 201.1 The
1
Pursuant to the implementing regulations, a federal Bureau
of Apprenticeship and Training may delegate authority to
state apprenticeship agencies to register and supervise
apprenticeship programs within the state, and may
promulgate apprenticeship laws and regulations pertaining to
3
Delaware Prevailing Wage Law (“PWL”), 29 DEL. C. § 6960
et seq.,2 provides that, for certain public works projects at
least partially funded by the State, mechanics and laborers –
including apprentices – shall be paid a prevailing wage set by
the Delaware Department of Labor (“DDOL”).3 The
implementing Delaware Prevailing Wage Regulations
(“DPWR”) define mechanics and laborers as “those workers
the registration of apprenticeship programs. See 29 C.F.R. §
29.
2
The PWL states:
The specifications for every contract or
aggregate of contracts relating to a public
works project in excess of $100,000 for new
construction . . . or $15,000 for alteration,
repair, renovation, rehabilitation, demolition
or reconstruction . . . to which this State or
any subdivision thereof is a party and for
which the State appropriated any part of the
funds and which requires or involves the
employment of mechanics and/or laborers
shall contain a provision stating the
minimum wages to be paid various classes
of laborers and mechanics which shall be
based upon the wages that will be
determined by the Delaware Department of
Labor, to be prevailing in the county in
which the work is to be performed.
29 DEL. C. § 6960(a).
3
DDOL is charged with administering and enforcing the
Delaware Prevailing Wage Law. See 19 DEL. C. § 105(a)(1).
4
whose duties are manual or physical in nature, as
distinguished from mental or managerial.” 19-1000-1322
DEL. ADMIN. CODE § 3.1.3. Although apprentices are
included within the definition of a mechanic, the regulations
distinguish between the two, and define apprentices as
“persons who are indentured and employed in a bona fide
apprenticeship program and individually registered by the
program sponsor with the [DDOL].” Id. §§ 3.1.3 & 3.1.4.1.1.
The regulations further provide a detailed schedule of the
“minimum wage progression” for registered apprentices, and
establish that employers must pay apprentices a fraction of
the wages earned by mechanics.4 19-1000-1101 DEL. ADMIN.
CODE §§ 6.2.6 & 6.2.7. The apprentice rate depends on the
length of the project and the apprentice‟s progression, but is
always a percentage of the mechanic‟s rate.5
Pursuant to the regulations, only a contractor that has
registered its apprenticeship program in Delaware is eligible
4
The terms “mechanic” and “journeyman” are used
interchangeably in the Delaware laws and regulations. For
consistency, we utilize the term “mechanic” throughout this
opinion.
5
The applicable regulation provides that in a 2000-hour
apprenticeship program, the minimum apprentice rate is 40%
of the mechanic‟s rate for the first 1,000 hours, and 85% for
the second 1,000 hours. In an 8,000-hour program, the
minimum apprentice rate is 40% for the first 1,000 hours, and
increases at 1,000-hour increments thereafter, with the final
period corresponding to 85% of the mechanic‟s rate. 19-
1000-1101 DEL. ADMIN. CODE. § 6.2.7.
5
to pay the lower apprentice wage rate to registered
apprentices. To qualify, a contractor
must be a “Delaware Resident Contractor” or
hold and maintain a “Delaware Resident
Business License.” The Registrant or Sponsor
must hold and maintain a permanent place of
business, not to include site trailers or other
facilities serving only one contract or related
set of contracts. To be eligible to be a
Registrant or Sponsor, Employer/Business . . .
must have the training program and an
adequate number of Journeypersons to meet
the ratio requirements as stated for that
particular apprenticeable occupation.
19-1000-1101 DEL. ADMIN. CODE § 3.1.6 Under this rubric,
an out-of-state contractor cannot sponsor an apprentice
program without setting up and maintaining a permanent
office location within Delaware.7 Failure to abide by these
conditions may result in financial penalties and bar an
6
A “Delaware Resident Contractor” “includes any general
contractor . . . [or] subcontractor . . . who regularly maintains
a place of business in Delaware. Regularly maintaining a
place of business in Delaware does not include site trailers,
temporary structures associated with one contract or set of
related contracts. . . .” 19-1000-1101 DEL. ADMIN. CODE
§ 3.1
7
Prior to 1999, the pertinent Delaware regulations did not
include a permanent place of business requirement, and Tri-M
was a Delaware-registered sponsor with all of the benefits
pertaining thereto.
6
employer judicially determined to have violated the PWL
from bidding on public construction contracts for three years.
See 29 DEL. C. § 6960(e). In this way, the Delaware
regulations permit in-state contractors on public works
projects to pay a reduced apprentice rate to their Delaware-
registered apprentices, while requiring out-of-state
contractors to pay the higher mechanic‟s rate to their non-
Delaware-registered apprentices.8
Appellee Tri-M is a Pennsylvania-based electrical
contracting company that successfully bid on a sub-contract
for electrical and building automation work at the Delaware
State Veterans Home (“the Project”) in Milford, Delaware,
which was funded in part by Delaware state funds.9 Tri-M
began work on the Project in August 2005, employing
Pennsylvania-registered apprentices and fully-trained
mechanic professionals, but paid its employees pursuant to
the wage rates described in the DDOL prevailing wage
determination for their respective classifications.
8
The prevailing wage rate schedules periodically published
by DDOL explicitly state that “non-registered apprentices
must be paid the mechanic‟s rate.” (See Appellant‟s Opening
Br. at 9; App‟x at 366.)
9
Tri-M maintains an apprenticeship program that is
registered with the Pennsylvania Apprenticeship and Training
Council of the Pennsylvania Department of Labor and
Industry (“PATC”), and its apprentice electricians are
Pennsylvania-registered apprentices, individually registered
with PATC pursuant to individual apprenticeship agreements.
7
On March 26, 2009, a DDOL Labor Law Enforcement
Officer conducted an on-site inspection of the Project site.
The officer subsequently informed Tri-M that the DDOL had
opened a case to verify Tri-M‟s compliance with the PWL,
and requested and timely received Tri-M‟s daily logs and
sworn payroll reports for employees working on the Project.
He also confirmed with the Delaware Apprenticeship and
Training Department that Tri-M did not have an apprentice
program registered in Delaware. This necessarily meant that
Tri-M‟s apprentices were not Delaware-registered
apprentices. Tri-M‟s CFO inquired about registering Tri-M‟s
apprentices in Delaware, but was informed that Delaware
requires an apprentice program sponsor to maintain a
permanent place of business in Delaware.10
Tri-M‟s records indicated that it paid its Pennsylvania-
registered apprentices the Delaware-registered apprentice
rate, rather than the mechanic‟s rate applicable to non-
Delaware-registered apprentices. As a result, DDOL
informed Tri-M that it was in violation of the PWL and
DPWR for failing to pay the applicable higher prevailing
wage rates. Tri-M was thus required to conduct a self-audit
and pay any wage deficiencies to the Pennsylvania-registered
apprentices who incorrectly received the lower apprentice
rate, instead of the higher mechanic‟s rate. Tri-M provided
DDOL with documentation regarding its self-audit, including
the amounts needed to bring each employee‟s pay up to the
mechanic‟s prevailing wage rate, and timely reimbursed the
10
Although Tri-M worked and maintained a site trailer in
Delaware for many years at the AstraZeneca facility in
Wilmington, this presence did not satisfy the residency
requirement. See 19-1000-1101 DEL. ADMIN. CODE § 3.1.
8
six Pennsylvania-registered apprentices working on the
Project who were not recognized as apprentices under
Delaware law.11
Subsequently, Tri-M brought an action for declaratory
and injunctive relief against then-Secretary of the Delaware
Department of Labor Thomas Sharp, alleging that DDOL
discriminated against Tri-M and other out-of-state contractors
by refusing to recognize their out-of-state registered
apprentices for purposes of the PWL and DPWR. At the
conclusion of discovery, the District Court granted summary
judgment to Tri-M, and this appeal followed.
DDOL raises three primary arguments on appeal.
First, DDOL contends that the State‟s challenged
procurement scheme – including the permanent place of
business requirement – does not discriminate against
interstate commerce, and is, therefore, not violative of the
dormant Commerce Clause. Second, DDOL posits that the
contested apprentice program regulations were explicitly
authorized by Congress and approved by the United States
Department of Labor, thus negating any conflict with the
Commerce Clause. Finally, DDOL argues, for the first time
on appeal, that even assuming arguendo that the challenged
regulatory scheme is discriminatory, its attachment of
prevailing wage conditions to State-funded public works
contracts constitutes participation in the private market and
does not run afoul of the dormant Commerce Clause.
11
The DDOL ultimately determined that although Tri-M had
initially violated the PWL and DPWR, the subsequent
reimbursement brought Tri-M into compliance with the rules.
9
Jurisdiction and Standard of Review
The District Court exercised federal subject matter
jurisdiction over Tri-M‟s complaint pursuant to 28 U.S.C.
§1331. Our jurisdiction arises under 28 U.S.C. ' 1291 over
the State‟s appeal of the District Court=s grant of summary
judgment to Tri-M. We exercise plenary review of a district
court‟s order granting or denying summary judgment,
applying the same standard as the district court: “Summary
Judgment is appropriate only where, drawing all reasonable
inferences in favor of the nonmoving party, there is no
genuine issue as to any material fact and . . . the moving party
is entitled to judgment as a matter of law.” Ruehl v. Viacom,
Inc., 500 F.3d 375, 380 n.6 (3d Cir. 2007) (internal quotation
and citation omitted).
Discussion
We are asked to decide whether Delaware‟s
differentiated prevailing wage regulations interfere with
interstate commerce in violation of the Commerce Clause.
See U.S. Const. art. I, § 8, cl. 3. We cannot reach this
question, however, without first resolving DDOL‟s
contention that the imposition of prevailing wage conditions
upon out-of-state contractors constituted permissible market
participation by the State within the bounds of the dormant
Commerce Clause. This is so because “courts treat the
question of whether the state is acting as a market participant
as a threshold question for dormant Commerce Clause
analysis.” United Healthcare Ins. Co. v. Davis, 602 F.3d 618,
624 (5th Cir. 2010) (citing White v. Mass. Council of Const.
Employ., Inc., 460 U.S. 204, 210 (1983)). “Impact on out-of-
state residents figures in the equation only after it is decided
10
that the city is regulating the market rather than participating
in it, for only in the former case need it be determined
whether any burden on interstate commerce is permitted by
the Commerce Clause.” White, 460 U.S. at 210 (emphasis
added); see also Brooks v. Vassar, 462 F.3d 341, 355 (4th
Cir. 2006) (“Before applying the dormant Commerce Clause
to State activities that burden or discriminate against
interstate commerce, a court must determine whether the
State is acting as a market participant, rather than as a market
regulator.”) (citation and internal quotations omitted;
emphasis in original); J.F. Shea Co., Inc. v. City of Chicago,
992 F.2d 745, 748 (7th Cir. 1993) (“The impact of the local
business preference on out-of-state residents figures into the
analysis only after it is decided that the City is regulating the
market rather than participating in it,” and appellant cannot
“jump[ ] to the second aspect of dormant commerce clause
analysis without clearing the first hurdle”) (emphasis in
original). Accordingly, we would customarily assess whether
the market participant exception applies to Delaware‟s
regulatory scheme before deciding if the allegedly
discriminatory rules improperly burden interstate commerce.
See generally Atl. Coast Demolition & Recycling, Inc. v. Bd.
of Chosen Freeholders of Atl. Cnty., 48 F.3d 701, 717 (3d Cir.
1995) (examining burden on interstate commerce after
finding that city rules were promulgated “in its role as a
market regulator” and are “not immune from review under the
Commerce Clause”).
In deciding this threshold question, however, we must
first confront a preliminary issue, namely, whether DDOL
can avail itself of the market participant exception, having
failed to argue to the District Court that the exception should
11
apply.12 It is axiomatic that “„arguments asserted for the first
time on appeal are deemed to be waived and consequently are
not susceptible to review in this Court absent exceptional
circumstances.‟” United States v. Petersen, 622 F.3d 196,
202 n.4 (3d Cir. 2010) (quoting United States v. Rose, 538
F.3d 175, 179 (3d Cir. 2008)). “This general rule serves
several important judicial interests, protect[ing] litigants from
unfair surprise; promot[ing] the finality of judgments and
conserv[ing] judicial resources; and preventing district courts
from being reversed on grounds that were never urged or
argued before [them].” Webb v. City of Philadelphia, 562
F.3d 256, 263 (3d Cir. 2009) (internal citations and quotations
omitted; alterations in original).
Nonetheless, we will still address arguments raised for
the first time on appeal in “exceptional circumstances,” and
note that “„the matter of what questions may be taken up and
resolved for the first time on appeal is one left primarily to
the discretion of the courts of appeals, to be exercised on the
facts of individual cases.‟” Council of Alter. Pol. Parties v.
Hooks, 179 F.3d 64, 69 (3d Cir. 1999) (quoting Singleton v.
Wulff, 428 U.S. 106, 121 (1976)); see also Selected Risks Ins.
Co. v. Bruno, 718 F.2d 67, 69 (3d Cir. 1983) (noting that
waiver rule “is one of discretion rather than jurisdiction”).
Indeed, the waiver principle “is only a rule of practice and
may be relaxed whenever the public interest or justice so
warrants.” Franki Found. Co. v. Alger-Rau & Assoc., Inc.,
12
Before the District Court, DDOL urged that Congress had
explicitly authorized the contested apprentice regulations,
and, presumably, contemplated that no real dormant
Commerce Clause issue actually existed. The District Court
did not accept this argument.
12
513 F.2d 581, 586 (3d Cir. 1975); See also Barefoot
Architect, Inc. v. Bunge, -- F.3d --, 2011 WL 121698, at *10
(3d Cir. Jan. 14, 2011) (same); Rogers v. Larson, 563 F.2d
617, 620 n.4 (3d Cir. 1977) (same).13
We think the “public interest” weighs heavily toward
our consideration of the market participant issue.
Specifically, the District Court‟s decision calls into doubt the
constitutionality of the Delaware regulatory scheme, as well
as the public works procurement laws of approximately 37
other states.14 The market participant doctrine impacts the
labor and wage conditions attendant to every public works
contract in Delaware, and invites legal challenges to the
procurement schemes of every similarly-situated state. As
DDOL suggests, this legal dispute entails crucial and
unresolved issues of state sovereignty and state procurement
13
See also United States v. Anthony Dell’Aquilla, Enters. &
Subsidiaries, 150 F.3d 329, 335 (3d Cir. 1998) (noting that
new issues raised on appeal may warrant review “when the
public interest requires that the issue be heard or when
manifest injustice would result from the failure to consider
the new issue[s]”) (citation and quotations omitted; alteration
in original).
14
We respectfully disagree with our concurring colleague‟s
characterization of this appeal as merely involving “$10,000
in wages Tri-M paid to six apprentices who worked on a
[completed] state-sponsored construction project.” Con. Op.
at 1.
13
spending, and tests the limits of the dormant Commerce
Clause in this field.15
Moreover, the nature of the precise issue raised fits
within the category of “exceptional circumstances”
warranting our consideration. As we noted above, in our
dormant Commerce Clause jurisprudence, the alleged burden
on interstate commerce is generally evaluated “only after” it
is decided that a state is regulating, rather than participating,
in a market. White, 460 U.S. at 210. The market participant
determination is a “threshold question for dormant Commerce
Clause analysis,” Davis, 602 F.3d at 624, because “the
strictures of the dormant Commerce Clause are not activated
unless a state action may be characterized as a „regulation,‟”
SSC Corp. v. Town of Smithtown, 66 F.3d 502, 510 (2d Cir.
1995). Accordingly, a court should not turn a blind eye to the
fact that a state cannot be held to have improperly
discriminated against interstate commerce – as was found in
15
Most recently, we found the fact that “we have not yet
addressed the issue raised” to itself constitute “an institutional
consideration that can be viewed as „an exceptional
circumstance‟” under the “public interest” prong of the
analysis. United States v. Petersen, 622 F.3d 196, 202 n.4 (3d
Cir. 2010) (reviewing a rare procedural posture whereby a
jury charge was offered by the trial court, but refused by the
defendant) (emphasis added). Despite the importance and
novelty of the issues implicated by the market participant
doctrine, our last decision in the field was issued in 1995.
Under Petersen, this itself constitutes an “institutional
consideration” warranting timely review.
14
this case – if it was behaving as a market participant, rather
than a market regulator.
We have previously stated that an argument omitted
before the district court may nevertheless be considered
where it “is closely related to arguments that [the parties] did
raise in that court.” Bagot v. Ashcroft, 398 F.3d 252, 256 (3d
Cir. 2005). Most recently, we declined to apply the waiver
rule formalistically where a party neglected to adequately
press a claim under Restatement (Second) of Torts § 766A
before the district court, having urged instead an unsuccessful
argument based on the related § 766.16 Bunge, -- F.3d --,
2011 WL 121698, at *10. Noting the interrelated nature of
the separate sections, we excused the defendant‟s invocation
of “the wrong definition of the tort,” and decided the § 766A
issue. Id. Similarly here, we cannot conclude that the
intertwined market participant aspect of the dormant
Commerce Clause analysis was waived in a manner that
precludes us from ascertaining whether the regulations at
issue constitute permissible market participation or
unconstitutional discrimination.
Moreover, as in Bunge, from a public policy
standpoint, we think “[t]he public interest is better served by
16
Both sections address the tort of intentional interference
with another‟s performance of a contract, but § 766A lacks as
an element the requirement of a failure to perform; as a result,
§ 776A favored the appellant in Bunge, whereas § 766 did
not. 2011 WL 121698, at *9. We relaxed the waiver rule and
found the new argument under § 766A determinative to the
resolution of the issue in appellant‟s favor requiring reversal,
unlike here, where we are affirming the District Court.
15
addressing [this issue] than by ignoring it.” Id. In its most
recent decision concerning the dormant Commerce Clause,
the Supreme Court observed that it granted certiorari to
address a legal decision that “cast[ ] constitutional doubt on a
tax regime adopted by a majority of the States,” finding the
matter “raised [ ] an important question of constitutional
law.” Dep’t of Rev. v. Davis, 553 U.S. 328, 337 (2008).
Similarly, the instant appeal “casts constitutional doubt” upon
a state procurement scheme “adopted by a majority of the
States,” and presents a weighty question of public concern.
Furthermore, application of waiver is not compelled by
the primary prudential aims of the waiver rule. “The waiver
rule applies with greatest force „where the timely raising of
the issue would have permitted the parties to develop a
factual record.‟” Id. (citation omitted). Accordingly, “we
have been reluctant to apply the waiver doctrine when only an
issue of law is raised” and no additional fact-finding is
necessary. Huber v. Taylor, 469 F.3d 67, 74 (3d Cir. 2006);
see also Hooks, 179 F.3d at 69 (exercising discretion to
address a new argument where the “issue involved . . .
concerns a pure question of law, and in the interest of
avoiding further delay”). “The waiver rule serves two
purposes: ensuring that the necessary evidentiary
development occurs in the trial court, and preventing surprise
to the parties when a case is decided on some basis on which
they have not presented argument.” Bunge, -- F.3d --, 2011
WL 121698, at *10.
Neither party disputes the District Court‟s factual
findings, nor does either party suggest that further
development of the record at the District Court level would
assist resolution of this matter. Therefore, we are confronted
16
solely with a pure question of law as to the applicability of
the market participant exception.17 See Huber, 469 F.3d at 75
(“[W]e are less inclined to find a waiver when the parties
have had the opportunity to offer all the relevant evidence.”).
Furthermore, the litigants were afforded ample opportunity to
present and develop their legal theories and arguments on the
issue, obviating any plausible claim of unfair surprise or
prejudice.18
Finally, the judicial interests highlighted by Webb as
further justification for the general waiver principle are not
undermined by our decision to consider the market participant
exception here. See supra. Specifically, by resolving this
purely legal question without further unnecessary proceedings
before the district court, we will “conserve judicial
resources.” Additionally, because we adopt the District
Court‟s dormant Commerce Clause analysis, and are not
basing our decision on the market participant exception as
such, we are not ruling “on grounds that were never urged or
argued.” Id.
17
In the dormant Commerce Clause context specifically, we
previously declined a request to remand a government
agency‟s new arguments to the district court because “the
facts [were] not in dispute” and the “public interest [was]
sufficiently implicated [ ] to require resolution” of the new
issues. Appalachian States Low-Level Radioactive Waste
Com’n v. Pena, 126 F.3d 193, 196 (3d Cir. 1997).
18
Notably, Tri-M does not actually assert in its briefing that
our resolution of the market participant question would be
prejudicial or unfair.
17
At bottom, because the parties have fully developed
their arguments on appeal and this aspect of the dormant
Commerce Clause challenge before us sufficiently implicates
the public interest, it is appropriate for us to resolve whether
the market participant exception applies.
I. Market Participant Exception
Accordingly, we will first address DDOL‟s claim that
in regulating the prevailing wages and imposing the
permanent place of business requirement, Delaware acted as a
mere participant in the market.
A.
The Commerce Clause of the United States
Constitution grants Congress plenary authority to regulate
commerce among the states, and “has long been understood
to have a „negative‟ aspect that denies the States the power
unjustifiably to discriminate against or burden the interstate
flow of articles of commerce.” Oregon Waste Sys., Inc. v.
Dep’t of Envtl. Quality of Or., 511 U.S. 93, 98 (1994). Where
a state restriction discriminates against interstate commerce
by providing “differential treatment of in-state and out-of-
state economic interests that benefits the former and burdens
the latter,” it is virtually per se invalid in all but the narrowest
circumstances. Granholm v. Heald, 544 U.S. 460, 472 (2005)
(quoting Oregon Waste, 511 U.S. at 99). Pursuant to negative
or dormant Commerce Clause jurisprudence, a discriminatory
state law “will survive only if it „advances a legitimate local
purpose that cannot be adequately served by reasonable
nondiscriminatory alternatives.‟” Davis, 553 U.S. at 338
(quoting Oregon Waste, 511 U.S. at 101).
18
“Some cases run a different course, however, and an
exception covers States that go beyond regulation and
themselves „participat[e] in the market.‟” Id. at 339 (quoting
Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 810 (1976))
(alterations in original). “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.”
Alexandria Scrap, 426 U.S. at 810; see also Atl. Coast, 48
F.3d at 715 (recognizing “exception from the restraints of the
dormant Commerce Clause for otherwise discriminatory
action taken by a governmental entity in its role as a market
participant”). Therefore, “when a state or local government
enters the market as a participant it is not subject to the
restraints of the Commerce Clause,” and our “single inquiry”
is limited to ascertaining “„whether the challenged program
constituted direct state participation in the market.‟” White,
460 U.S. at 208 (quoting Alexandria Scrap, 426 U.S. at 436
n.7).19
In practice, the Supreme Court has found a state or
municipality to act as a market participant where “the
government was participating directly in some aspect of the
market as a purchaser, seller, or producer, and the alleged
19
The Court further emphasized that since “state proprietary
activities may be, and often are, burdened with the same
restrictions imposed on private market participants,”
“[e]venhandedness suggests that, when acting as proprietors,
States should similarly share existing freedoms from federal
constraints, including the inherent limits of the Commerce
Clause.” White, 460 U.S. at 207 n.3.
19
discriminatory effects on the interstate market flowed from
these market actions.” Atl. Coast, 48 F.3d at 716. The
exception was initially described in Alexandria Scrap. 426
U.S. at 797. There, the Supreme Court upheld a Maryland
statute that, in an effort to remove abandoned automobiles
from the State‟s roads, promised a cash “bounty” to scrap
processors licensed by the state for the destruction of any
vehicle previously titled in Maryland, while denying a similar
payment to out-of-state processors. Id. at 797, 801. The
Court found that Maryland had “entered into the market itself
to bid up the[ ] price . . . as a purchaser,” and was a market
participant behaving as a private actor. Id. at 809. Several
years later, the Court reaffirmed the distinction between
market participant and market regulator in Reeves, Inc. v.
Stake, sustaining South Dakota‟s decision to confine sales of
cement by a state-owned and -operated cement plant to state
residents during a cement shortage. 447 U.S. 429, 431-32,
438 (1980) (emphasizing that a state conducting business as a
private actor may “exercise [its] own independent discretion
as to parties with whom [it] will deal,” and may preference
in-state interests.)
Similarly, in White, the Supreme Court again applied
the market participant exception in upholding a mayor‟s
executive order that required every construction project
funded in part by city funds to be performed by a work force
of at least 50% city residents. 460 U.S. at 205, 208. The
Court observed that the city participated in the market by
“expend[ing] its own funds in entering into construction
contracts for public projects,” but cautioned that “some limits
on a state or local government‟s ability to impose restrictions
that reach beyond the immediate parties with which the
government transacts business” must exist. Id. at 211. The
20
Court declined to define those limits, however, because
“everyone affected by the order [was], in a substantial if
informal sense, working for the city.‟” Id. at 214-15 (internal
citations omitted).20
Our own jurisprudence reflects limited opportunity to
opine regarding the exception. In Swin Resources Systems,
Inc. v. Lycoming County, Pa., we upheld a county‟s decision
to charge a preferential rate for reception and disposal of
waste generated within the county as compared to waste
generated outside the vicinity. 883 F.2d 245, 246 (3d Cir.
1989). Analogizing to Alexandria Scrap, Reeves, and White,
we noted that the pricing scheme did not affect prices outside
the direct transactions and reflected permissible restrictions
by a market participant upon those it dealt with directly in the
marketplace. Id. The subsequent year, in Trojan
Technologies v. Pennsylvania, we approved a State
procurement law that required all political subdivisions to
purchase only American-made steel products. 916 F.2d 903,
904-05 (3d Cir. 1990). We noted that, “[a]s the ultimately
controlling public purchaser, the Commonwealth enjoys the
same right to specify to its suppliers the source of steel to be
20
The Supreme Court declined to extend the doctrine,
however, in South-Central Timber Development, Inc. v.
Wunnicke, finding that an Alaska statute conditioning the sale
of state timber to private purchasers upon agreement to
process the timber within the State represented impermissible
“downstream regulation.” 467 U.S. 82, 98-99. The Court
observed that “although the State may be a participant in the
timber market, it is using its leverage in that market to exert a
regulatory effect in the processing market, in which it is not a
participant.” Id.
21
used in any supplies provided as is enjoyed by similarly
situated private purchasers.” Id.
We declined to apply the market participant exception,
however, to a state law that permitted state agencies to
establish solid waste districts that controlled the flow of all
waste within the district to designated disposal facilities
within and outside the district and state. Atl. Coast, 48 F.3d
at 706-07. We determined that the disposal site designation
criteria extended beyond private participation, and, in fact,
controlled the conduct of private parties in the market:
When a public entity participates in a market, it
may sell and buy what it chooses, to or from
whom it chooses, on terms of its choice; its
market participation does not, however, confer
upon it the right to use its regulatory power to
control the actions of others in that market.
Id. at 717. Because the regulations did not “merely determine
the manner or conditions under which the government will
provide a service, [and] require[d] all participants in the
market to purchase the government service,” the state‟s
conduct did not fall within the market participant exception.21
21
Several of our fellow Courts of Appeals have likewise
found the market participant exception inapplicable in
comparable instances where a municipality‟s participation in
a market effected concurrent regulation of private parties in
that market. See, e.g. Waste Mgmt. Holdgs., Inc. v. Gilmore,
252 F.3d 316, 345 (4th Cir. 2001) (finding that Virginia “was
not acting as a private participant in the waste disposal
market” by regulating the conduct of others in that market)
22
Id.; see also United Haulers Ass’n, Inc. v. Oneida-Herkimer
Solid Waste Mgmt. Auth., 438 F.3d 150, 158 (2d Cir. 2006)
(“[I]t is well settled that a state may act as a market
participant with respect to one portion of a program while
operating as a market regulator in implementing another.”)
(citing USA Recycling, 66 F.3d at 1283).
More recently, we had occasion to consider the
“regulator/market-participant distinction” in the context of
federal preemption under the National Labor Relations Act
(“NLRA”), 29 U.S.C. § 151 et seq., where a municipality
conditioned financing upon the borrower‟s agreement to a
labor neutrality agreement. Hotel Empls. & Rest. Empls.
Union, Local 57 v. Sage Hospitality Res., LLC, 390 F.3d 206,
215 (3d Cir. 2004).22 There, we observed that “whether a
(citation omitted); USA Recycling, Inc. v. Town of Babylon,
66 F.3d 1272, 1282 (2d Cir. 1995) (“[S]tates and local
governments do not enjoy carte blanche to regulate a market
simply because they also participate in that market.”).
22
Although this line of cases involves preemption analysis
under the NLRA and other federal statutes, the Supreme
Court‟s discussion of the market participant exception in this
context relies upon and conforms with its dormant Commerce
Clause jurisprudence, and is instructive. See, e.g., Engine
Mfrs. Ass’n v. So. Coast Air Quality Mgmt. Dist., 498 F.3d
1031, 1040 (9th Cir. 2007) (“After the development of the
market participant doctrine in [ ] dormant Commerce Clause
cases, the Supreme Court . . . [has] applied the doctrine to
protect proprietary state action from preemption by various
federal statutes.”); Cardinal Towing & Auto Repair, Inc. v.
City of Bedford, Tx., 180 F.3d 686, 691 (5th Cir. 1999)
23
government‟s condition of funding constitutes market
participation . . . depends upon the following two step test:
First, does the challenged funding condition serve to advance
or preserve the state‟s proprietary interest in a project or
transaction, as an investor, owner, or financier? Second, is
the scope of the funding condition „specifically tailored‟ to
the proprietary interest?” Id. at 215-16 (citing Bldg. &
Constr. Trades Council v. Assoc. Builders & Contr. of
Mass./R.I., Inc. (“Boston Harbor”), 507 U.S. 218, 232
(1993)).23 We emphasized that the “mere fact that
(noting that the market participant exception originating in
dormant Commerce Clause analysis “has been recognized in
preemption cases”); Metro. Taxicab Bd. of Trade v. City of
New York, No. 08 Civ. 7837, 2008 WL 4866021, at *7
(S.D.N.Y. Oct. 31, 2008) (“The market participant doctrine is
an extension of a principle from the Commerce Clause . . .
and has been extended to preemption jurisprudence”) (citing
Alexandria Scrap, 426 U.S. at 810).
23
In Boston Harbor, the Supreme Court found that the NLRA
did not preempt a bid specification by a Massachusetts
agency requiring bidders to abide by a certain labor
agreement because the government was acting as a market
participant, rather than regulating labor-management
relations. 507 U.S. at 229 (explaining that preemption
doctrines apply only to state regulation). The Court
emphasized that the cleanup project targeted by the relevant
specification constituted market participation since it was
“specifically tailored to one particular job” to ensure “an
efficient project that would be completed as quickly and
effectively as possible at the lowest cost.” Id. In effect, the
state was acting “with no interest in setting policy.” Id.
24
government affects labor relations by imposing conditions
under its power to procure or to spend does not automatically
mean that the state is acting in a propriety capacity” as a
market participant. Id. at 213. Finding that the city‟s
insistence upon a no-strike agreement did not “sweep[ ] more
broadly than [ ] a government agency‟s proprietary economic
interest,” we concluded that the funding condition was
“specifically tailored to protect its proprietary interest in the
value” of the implicated property, and was narrowly tailored
only to projects receiving the funds. Id. at 217-18.
Notably, this reasoning squares with the Supreme
Court‟s most recent pronouncement in the field. In Chamber
of Commerce of the U.S.A. v. Brown, the Supreme Court
declined to find market participation in the preemption
context where a California statute imposing a targeted
negative restriction on employer speech was neither
“„specifically tailored to one particular job,‟ nor a „legitimate
response to state procurement constraints or to local
economic needs.‟” 554 U.S. 60, 70 (2008) (quoting Wisc.
Dep’t of Ind., Labor & Human Relations v. Gould Inc., 475
U.S. 282, 291 (1986)). Where the “legislative purpose is not
the efficient procurement of goods and services, but the
furtherance of a labor policy,” a state actor is behaving “in its
capacity as a regulator rather than a market participant.” Id.
B.
From the foregoing, we can glean several questions a
court should ask when conducting the “single inquiry” of
determining “whether the challenged program constitute[s]
direct state participation in the market,” or market regulation.
White, 460 U.S. at 208. Is the regulation limited to a job or
25
contract in which a governmental entity is engaged? Is the
action designed merely to protect or advance a specific
proprietary interest? Is it tailored to that interest? Does the
government‟s involvement affect only those with whom the
entity is dealing in the market, or does it impact others or set
broad policies? In reaching the answer, the Court “must
consider in each specific context if the government is acting
like a private business or a governmental entity.”24 Selevan v.
N.Y. Thruway Auth., 584 F.3d 82, 93 (2d Cir. 2009).
Here, DDOL urges that Delaware‟s attachment of its
prevailing wage conditions to State-funded public works
contracts is analogous to a private party‟s attaching labor
conditions to private market transactions, and that the State‟s
desire to advance policy interests does not preclude the
application of the market participant doctrine. Were this an
accurate characterization of the state‟s conduct – i.e., merely
attaching conditions to private market transactions – we
would agree. But it is not. There is nothing in the regulations
that could be deemed tailored or targeted to a specific
proprietary interest; the conditions do not attach to a specific
job or contract in which the government is engaged. To the
contrary, unlike the factual circumstances considered by the
Supreme Court in Alexandria Scrap, Reeves, and White, and
by our own Court in Swin and Trojan, the disputed prevailing
24
In this regard, we observed in Swin that “application of the
distinction between „market participant‟ and „market
regulator‟ has [ ] occasioned considerable dispute in the
Supreme Court‟s jurisprudence,” with the “author of each of
the three opinions that applied the doctrine [Hughes, White,
and Reeves] . . . author[ing] a dissent in the next.” 883 F.2d
at 249.
26
wage conditions here are part of an expansive regulatory
scheme that controls the market activities of private
participants; this involvement clearly reflects a governmental
interest in setting labor policy, rather than merely impacting
the state‟s own participation in the market.
As an initial matter, the apprenticeship regulations
sweep broadly. They are not limited in scope only to
contracts in which the state directly participates in a funding
or procurement capacity. As DDOL conceded in its briefing
and at oral argument, the ATRR do not refer exclusively to
public contracts, and they actually regulate Delaware-resident
sponsors in the private contractual market for labor. (See
Appellant‟s Reply Br. at 22.) Specifically, once a contractor
becomes a Delaware-registered apprenticeship program
sponsor, it must adhere to the apprentice prevailing wage
rates and training requirements regardless of whether the
contractor is thereafter performing labor on a public or private
contract. (Id. at 22-23; Appellant‟s Opening Br. at 29-30.) In
this context, DDOL expressly conceded that it was
“regulating apprentice labor (rather than acting as a market
participant).” (Appellant‟s Reply Br. at 22-23.)
This admission followed DDOL‟s earlier concession
before the District Court that DDOL‟s ability to monitor and
inspect apprenticeship program resident sponsors – through
on-site visits – and to enforce the apprenticeship wage and
training requirements was “not limited to public works
projects,” and could potentially extend to private projects
outside Delaware.25 (See Sharp‟s Opening Br. in Support of
25
Under this rubric, if, as the Delaware rules currently
provide, an out-of-state contractor establishes a permanent
place of business and becomes a registered sponsor in order
27
Mot. for Sum. Judg. at 22.) In this regard, “the funding
condition [is not] „specifically tailored‟ to the proprietary
interest,” and Delaware is not so much participating in the
market as it is regulating the market as a whole. Hotel
Empls., 390 F.3d at 215.
In Wyoming v. Oklahoma, 502 U.S. 437, 456 (1992),
the Supreme Court invalidated a state statute that required all
Oklahoma electricity plants to use at least 10% Oklahoma
coal. Although the Court acknowledged that the state was
participating in the market by purchasing coal for its own
plant, the Court found the market participant exception
inapplicable because the law also regulated the purchasing
behavior of private plants. Id.; see also SSC Corp. v. Town of
Smithtown, 66 F.3d 502, 513 (2d Cir. 1995) (discussing
Wyoming, and noting that “simply because Oklahoma was in
one respect a „participant‟ in the coal market did not mean
that in all respects its activity affecting the coal market
constituted „market participation‟”) (emphasis in original).
As in Wyoming, while DDOL may at times participate in the
market by directly procuring labor for public works projects,
it also regulates the apprentice wages and apprenticeship
to compete on a level playing field with Delaware
contractors, the out-of-state contractor would become subject
to all of DDOL‟s regulations, including the prevailing wage
regulations governing compensation and training of
apprentices in private contracts. Therefore, unless the out-of-
state contractor is willing to establish a permanent place of
business solely to service public works contracts and then to
exit Delaware to bid on private contracts, the existing rules
would also regulate the private contracts entered into by out-
of-state contractors regardless of their situs.
28
programs implemented by registered sponsors regardless of
whether such sponsors are performing on private contracts
devoid of the State‟s direct involvement as a “purchaser,
seller, or producer.” See Atl. Coast, 48 F.3d at 717. In this
respect, the prevailing wage conditions at issue exceed the
bounds of the State‟s direct participation and affect the
purchasing behavior of private parties. As such, the
regulatory scheme “confer[s] upon [DDOL] the right to use
its regulatory power to control the actions of others in [the]
market,” and “w[as] thus promulgated by [Delaware] in its
role as a market regulator, not in its capacity as a market
participant.” Id.
The expansive scope of Delaware‟s regulations also
distinguishes the case before us from the previously discussed
market participation cases, and, in particular, from White, the
broadest of the decisions. “The city order at issue in White
included the workforce restriction in the city‟s notice for bids,
so the contracting company was aware of the condition if it
decided to bid and could elect not to participate in a sale
under that requirement.” GSW, Inc. v. Long County, Ga., 999
F.2d 1508, 1515 (11th Cir. 1993) (discussing White, 460 U.S.
at 206). In this respect, the city was operating much like a
private entity in providing specific conditions within
individual bid proposals. By contrast, the Delaware PWL and
ATRR are untethered from any specific spending or
procurement project, and apply not just to public works
contracts; they also dictate the wage and employment terms
of a registered sponsor‟s apprenticeship program regardless of
the State‟s involvement with a particular construction project.
As the Fifth Circuit recently observed, “a state cannot
regulate others in the market in which it participates; the
[market participant] doctrine only protects the state‟s
29
participation itself.” United Healthcare, 602 F.3d at 625.
Here, DDOL‟s involvement with the market extends beyond
state participation.
Several cases addressing comparable prevailing wage
laws of other states bolster this conclusion. In addressing the
Pennsylvania Prevailing Wage Act, 43 PA. CONST. STAT. §
165-1 et seq. (2009), we previously observed in the
preemption context that Pennsylvania was “clearly acting
with an „interest in setting policy,‟ not as a proprietor,” in
enacting and applying the statute. Keystone Chapter, Assoc.
Builders & Contractors, Inc. v. Foley, 37 F.3d 945, 955 n.15
(3d Cir. 1994) (quoting Boston Harbor, 507 U.S. at 229).
“The Prevailing Wage Act aims to ensure that workers
receive adequate wages, a governmental objective.” Id.
Accordingly, it “would be difficult for the state to claim it is
acting as a private market participant when it is making rules
that raise the cost of its contracts.” Id. We concluded in that
decision that the state‟s interest in establishing labor
standards and wages constituted an exercise of the State‟s
traditional police power, not market participation. Id.
In an analogous decision, the Ninth Circuit addressed
the payment of prevailing wages pursuant to California‟s
apprenticeship regulations, observing:
The State did not merely create apprenticeship
standards in its contract with [Plaintiff] nor
were the apprenticeship standards in this case
created based upon unique needs that the
detention facility project presented. The
apprentice prevailing wage law applies
uniformly to all public works contracts executed
30
in the State of California and is a mechanism
through which the State regulates
apprenticeship programs and the
employment of apprentices on public works
projects. As this court has stated previously:
“The state‟s involvement does not end with the
awarding of the contract. Section 1777.5 is
aimed at regulating contractors who work on
public contracts.”
Dillingham Constr. N.A., Inc. v. County of Sonoma, 190 F.3d
1034, 1038 (9th Cir. 1999) (citation omitted) (emphasis
added). Consequently, the Ninth Circuit found the
apprenticeship prevailing wage law to constitute “state
regulation” of public works projects, rather than market
participation. Id.
As in the latter cases, identical governmental
objectives underlie the enactment of the Delaware Prevailing
Wage regulations here. See 19-1000-1101 DEL. ADMIN.
CODE § 1.2 (“The purpose of this chapter is to set forth labor
standards to safeguard the welfare of Apprentices . . . .”); id. §
2.1.2 (“Provide for the establishment and furtherance of
Standards of Apprenticeship and Training to safeguard the
welfare of Apprentices and trainees.”). As in Dillingham,
Delaware‟s permanent place of business requirement was not
enacted for purposes of a specific project or to service unique
needs; as in Keystone, the instant regime raises the cost of the
State‟s contracts with the primary purpose of advancing the
State‟s interest in improving apprentice working conditions
on all contracts. See Dillingham, 190 F.3d at 1038; Keystone,
37 F.3d at 955 n.15. Moreover, the regulations diverge from
the Supreme Court‟s most recent pronouncement that funding
31
conditions in procurement agreements should be “specifically
tailored to one particular job” to qualify as market
participation. Brown, 554 U.S. at 70; see also Hotel Empls.,
390 F.3d at 215-16 (same). Here, the “legislative purpose is
not the efficient procurement of goods and services, but the
furtherance of a labor policy,” namely, the setting of
standards for training and payment of apprentices in public
and private contracts alike.26 See Brown, 554 U.S. at 70.
Another factor distinguishes the instant statutory
regime from those that reflect mere market participation by
private actors: the potential civil penalty threatened by the
State for failure to comply with the prevailing wage
conditions. The Delaware Code provides that “any employer
who knowingly fails [ ] to pay the prevailing wage rates
provided for under this section . . . shall, for each such
violation, be subject to a civil penalty of not less than $1,000
nor more than $5,000 for each violation.” 29 DEL. C. §
6960(e). Additionally, as the District Court noted, the PWL
grants DDOL the right to revoke “the ability of a penalized
employer to bid on future public construction contracts.” Id.
In this instance, DDOL directly threatened Tri-M with a
forthcoming civil penalty for failure to conform its
reimbursement of non-Delaware-registered apprentices to the
26
DDOL‟s separate argument that Tri-M is ineligible for
Delaware sponsor registration because it “voluntarily chose[ ]
not to subject [its] apprenticeship program to DDOL
oversight and regulation” further confirms that DDOL‟s role
in enforcing the apprenticeship standards extends beyond
participation in a discrete procurement contract, and entails
regulation of a contractor‟s entire apprenticeship program.
(See Appellant‟s Opening Br. at 29.)
32
ATRR prevailing wages. (See App‟x at 451 (May 9, 2006
Letter from Nelson to Tri-M).)
“A governmental entity acts as a market regulator
when it employs tools in pursuit of compliance that no private
actor could wield, such as the threat of civil fines . . . .”
United Haulers, 438 F.3d at 157 (citing SSC Corp., 66 F.3d at
513) (emphasis added). In addressing the “regulator/market-
participant distinction,” we have noted with approval a Ninth
Circuit decision that found, inter alia, the inclusion of a civil
penalties provision in a state statute as indicative that the
section constituted a regulatory measure outside the bounds
of the market participant exception. Hotel Empls., 390 F.3d
at 215 (discussing United States v. Lockyer, 364 F.3d 1154,
1163 (9th Cir. 2004)); see also Incorp. Vil. of Rockville
Centre v. Town of Hempstead, 196 F.3d 395, 399 (2d Cir.
1999) (“[W]hen the state avails itself of the unique powers or
special leverage it enjoys by virtue of its status as sovereign,
it is „engaging in market regulation.‟”) (citation omitted).
Where the state relies on its coercive power to effectuate
compliance with contractual provisions, it distinguishes itself
from a truly private actor, which must rely on contractual
remedies to remedy breaches. Correspondingly, Delaware‟s
ability to impose civil penalties upon out-of-state contractors
for failure to pay the higher mechanic prevailing wage to
unregistered apprentices confirms that its role is not merely
that of a market participant.
Finally, we are guided by the Supreme Court‟s recent
reminder of a central theme running through its market
participation jurisprudence; one that is noticeably absent here:
33
In each of the [market participation] cases the
commercial activities by the governments and
their regulatory efforts complemented each
other in some way, and in each of them the fact
of tying the regulation to the public object of
the foray into the market was understood to give
the regulation a civic objective different from
the discrimination traditionally held to be
unlawful: in the paradigm of unconstitutional
discrimination the law chills interstate activity
by creating a commercial advantage for
goods or services marketed by local private
actors, not by governments and those they
employ to fulfill their civic objectives.
Davis, 553 U.S. at 347 (emphasis added). Unlike the
important civic considerations that animated the
governmental favoritism in other cases – unemployment and
disenfranchisement in White, limited natural resources in
Reeves, or environmental pollution in Alexandria Scrap –
DDOL‟s “civic objective” in crafting the permanent place of
business requirement here was protectionist – or retaliatory –
in nature. See infra; see also Tri-M Group, 705 F. Supp. 2d at
345-46 (summarizing testimonial evidence showing that
Delaware‟s permanent place of business requirement was
enacted to retaliate against Pennsylvania for failing to
recognize Delaware-registered apprentices). Indeed, the
regulatory scheme here appears to fall “within the forbidden
paradigm” precisely because the state‟s participation creates
“a commercial advantage for goods or services marketed by
local private actors.” Davis, 553 U.S. at 348.
34
Despite its legitimate and considerable investment in
procurement, DDOL acted as a market regulator in
promulgating expansive labor regulations that control
apprenticeship training and wage scales for all apprenticeship
program sponsors, regardless of the State‟s direct
participation in the market. Accordingly, the PWL and
ATRR are subject to review for potentially imposing an
undue burden on interstate commerce in contravention of the
dormant Commerce Clause. See White, 460 U.S. at 210.
II. Dormant Commerce Clause Review
The dormant Commerce Clause “prohibits the states
from imposing restrictions that benefit in-state economic
interests at out-of-state interests‟ expense, thus reinforcing
„the principle of the unitary national market.‟” Cloverland-
Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd., 298 F.3d
201, 210 (3d Cir. 2002) (“Cloverland I”) (quoting West Lynn
Creamery, Inc. v. Healy, 512 U.S. 186, 192-93 (1994)).27
States “cannot impede free market forces to shield in-state
businesses from out-of-state competition,” and, notably,
“state laws that discriminate against out-of-state businesses
by forcing them to „surrender whatever competitive
advantages they may possess‟ are especially suspect.”
Cloverland I, 298 F.3d at 210 (quoting Brown-Forman
Distillers Corp. v. New York State Liquor Auth., 476 U.S.
27
See also Granholm, 544 U.S. at 472 (“This mandate
„reflect[s] a central concern of the Framers that . . . in order to
succeed, the new Union would have to avoid the tendencies
toward economic Balkanization that had plagued relations
among the Colonies and later among the States under the
Articles of Confederation.”).
35
573, 580 (1986)).
To decide that Delaware‟s permanent place of business
requirement violates the dormant Commerce Clause, we must
first assess “whether the state regulation at issue discriminates
against interstate commerce „either on its face or in practical
effect.‟” Id. (quoting Maine v. Taylor, 477 U.S. 131, 138
(1986)); see also Am. Trucking Ass’n, Inc. v. Whitman, 437
F.3d 313, 319 (3d Cir. 2006) (“[T]he level of scrutiny to be
applied . . . is contingent upon whether the court finds that the
statute or regulation is discriminatory”).28 Where a regulation
discriminates against interstate commerce in favor of local
business, such protectionism “is per se invalid, save in a
narrow class of cases in which the [State] can demonstrate,
under rigorous scrutiny, that it has no other means to advance
a legitimate local interest.” Cloverland I, 298 F.3d at 211;
see also Cloverland-Green Spring Dairies, Inc. v. Pa. Milk
Mktg. Bd., 462 F.3d 249, 262 (3d Cir. 2006) (“Cloverland II”)
(“Any statute that discriminates against interstate commerce
on its face or in effect is thus subject to heightened scrutiny”)
(quotations and citation omitted).
If, however, the state regulation is not discriminatory
and “regulates even-handedly” with merely “incidental”
burdens upon interstate commerce, it is subject to a
“balancing test whereby the statute must be upheld unless the
burden imposed on interstate commerce is „clearly excessive
28
Statutes that discriminate by “practical effect and design,”
rather than explicitly on the face of the regulation, are
similarly subjected to heightened scrutiny. Am. Trucking, 437
F.3d at 319 n.2 (quoting C & A Carbone, Inc. v. Town of
Clarkstown, 511 U.S. 383, 394 (1994)).
36
in relation to the putative local benefits.‟” Cloverland I, 298
F.3d at 211 (quoting Pike v. Bruce Church, Inc., 297 U.S.
137, 142 (1970)); Davis, 553 U.S. at 339 (same).
Here, the District Court found Delaware‟s statutory
scheme to be discriminatory on its face, and we are not
persuaded otherwise. DDOL contends repeatedly throughout
its briefing that the regulatory regime is not discriminatory
since it applies to all program sponsors regardless of state
residency. Yet the District Court correctly observed that the
ATRR “contain an express in-state presence requirement: a
„registrant‟ sponsor must „regularly maintain[ ] a place of
business in Delaware‟ that is not a site trailer, temporary
structure, or post office box.” Tri-M Group, 705 F. Supp. 2d
at 344 (quoting 19-1000-1101 DEL. ADMIN. CODE § 3.1).
Without establishing this in-state presence, an out-of-state
contractor cannot become a registered sponsor of Delaware-
registered apprentices, and is required to reimburse all
employed apprentices at the higher mechanic‟s rate. See 19-
1000-1101 DEL. ADMIN. CODE §§ 6.2.6 & 6.2.7. As such, the
regulations on their face restrict sponsor registration – and the
concomitant lower wages pertaining thereto – to in-state
contractors or those possessing a permanent place of business
in Delaware. This statutory scheme forces out-of-state
contractors such as Tri-M to “surrender whatever competitive
advantages they may possess” by burdening them with
expenditures for a new local operation, or with the payment
of increased wages on their contracts, thereby increasing their
costs and decreasing their ability to submit competitive bids
for projects.
Our conclusion here is informed by the Supreme
Court‟s reasoning in Granholm, which rejected a New York
37
state law requiring out-of-state wineries to establish a branch
factory, office, or storeroom in the state in order to ship wine
directly to New York consumers. 544 U.S. at 470. At the
same time, in-state wineries received the same shipping
privileges simply by applying for a license. Id. Finding that
the extra step of establishing an office for out-of-state
wineries “[drove] up the cost of their wine,” the Supreme
Court found New York‟s “in-state presence requirement”
discriminatory and applied heightened scrutiny, noting that
such discrimination “runs contrary to our admonition that
States cannot require an out-of-state firm „to become a
resident in order to compete on equal terms.‟” Id. at 474-75
(quoting Halliburton Oil Well Cementing Co. v. Reily, 373
U.S. 64, 72 (1963)). Echoing this holding, we subsequently
noted that “statutes that increase out-of-state competitors‟
costs are subject to heightened scrutiny under the Commerce
Clause.” Am. Trucking, 437 F.3d at 322.
The instant regulations explicitly treat in-state and out-
of-state economic interests differently by compelling out-of-
state contractors “to become [ ] resident[s] in order to
compete on equal terms.” Granholm, 544 U.S. at 474-75.
Contrary to DDOL‟s misleading assertion that Tri-M
voluntarily chose not to subject its apprenticeship program to
DDOL oversight and regulation, Tri-M‟s purported “choice”
in the matter would entail an assumption of costs not imposed
upon in-state contractors. Accordingly, the regulations
effectuate a protectionist bias against out-of-state contractors
and are subject to heightened scrutiny.29
29
Even were we to find the disputed regulations not facially
discriminatory, we would nevertheless conclude that the
regulations discriminate in effect by requiring out-of-state
38
Once the party challenging the statute meets its burden
of showing discriminatory design or effect, the burden shifts
to the State to demonstrate “„1) that the statute serves a
legitimate local interest, and 2) that this purpose could not be
served as well by available non-discriminatory means.‟”
Freeman v. Corzine, -- 629 F.3d 146,158 (3d Cir. Dec. 17,
2010) (quoting Am. Trucking, 437 F.3d at 319). Moreover,
the “absence of evidence is dispositive, because „[t]he burden
is on the State to show that the discrimination is demonstrably
justified,‟ and we may „[u]phold state regulations that
discriminate against interstate commerce only after finding,
based on concrete record evidence, that a state‟s
nondiscriminatory alternatives will prove unworkable.‟” Id.
at 161 (quoting Granholm, 544 U.S. at 492-93) (emphasis and
alterations in original).
DDOL contends that it has a legitimate interest in
safeguarding the safety and welfare of all apprentices by
requiring a permanent place of business in Delaware, and that
it lacks the resources to effectively monitor out-of-state
apprenticeship programs for compliance with the Delaware
standards. Its position is belied, however, by the State‟s
conduct in this case, as well as the evidentiary history of the
regulations at issue. The evidence and testimony adduced by
the parties demonstrated the retaliatory motivations
underlying the amendment of the Delaware regulations in
1999 to include the permanent place of business requirement.
Prior to that time, the disputed regulations contained no such
contractors to pay higher mechanic‟s wage rates to registered
apprentices merely because the registering contractor lacks a
permanent place of business in Delaware.
39
residency condition, and Tri-M was a registered apprentice
sponsor in Delaware. (App‟x at A493-494.) As the District
Court discussed, the State added the discriminatory residency
requirement to the regulatory regime in response to similar
legislative enactments by Pennsylvania and Maryland. Tri-M
Group, 705 F. Supp. 2d at 346. Rather than advancing the
legitimate state interest in improving apprentice labor and
wage conditions, this amendment primarily reflected an
intransigent “contest of wills over apprentice recognition”
between neighboring states. Id.
Moreover, as the District Court concluded, the
demonstrated existence of non-discriminatory alternatives for
ensuring the safety and training of apprentices did not
overcome the per se invalidity presumption applicable to
discriminatory regulations. Tri-M‟s lack of a permanent
place of business in Delaware did not prevent DDOL from
conducting a thorough investigation to ensure Tri-M‟s
compliance with the PWL and ATRR. See id. (“In essence,
defendant argues that the DDOL cannot take out-of-state
companies at their word, but did exactly that with respect to
its investigation of plaintiff.”). Indeed, other than a few
conclusory statements to that effect, DDOL advanced no
evidence to support its contention that monitoring out-of-state
contractors working on in-state public projects is any more
difficult than for in-state contractors, much less that such
oversight is “unworkable,” as Granholm requires. See 544
U.S. at 493. Indeed, we find the record devoid of evidence to
substantiate DDOL‟s assertion that it could not verify out-of-
state work standards through postal or electronic transmission
of “certified payrolls, tax records, or other documentation as
compared to a personal inspection of the apprentice‟s out-of-
40
state work job site.” See Tri-M Group, 705 F. Supp. 2d at
346.
The “Commerce Clause cases demand more than mere
speculation to support discrimination against out-of-state
[interests].” Granholm, 544 U.S. at 492. DDOL‟s vague and
unsubstantiated justifications for the discriminatory
regulations failed to clear this hurdle, and we can discern no
evidence confirming that the permanent place of business
requirement actually advances legitimate interests or that
“nondiscriminatory alternatives will prove unworkable.”30
See Freeman, -- F.3d --, 2010 WL 5129219, at *9.
Accordingly, we conclude that the disputed regulations do not
withstand heightened scrutiny and violate the dormant
Commerce Clause.
III. Congressional Authorization of the Discriminatory
Regulatory Scheme
Finally, we consider DDOL‟s argument that Congress
and the United States Department of Labor (“USDOL”)
expressly approved the challenged state regulation, thus
removing any objection under the dormant Commerce
Clause. The District Court rejected this argument, finding
DDOL‟s “assertion that Congress‟s empowerment of the
USDOL with „regulatory power‟ somehow nullifies the
dormant commerce clause issue presented in this case is, at a
30
While DDOL could have potentially satisfied its burden by
demonstrating that the pre-1999 regulatory framework –
which did not mandate a permanent in-state present for out-
of-state contractors – was unworkable, it adduced no
argument or concrete evidence to support this position.
41
minimum, not compelling.” Tri-M Group, 705 F. Supp. 2d at
343. We agree.
It is well established that “Congress can authorize
states to impose restrictions that the dormant Commerce
Clause would otherwise forbid.” Cloverland I, 298 F.3d at
210 n.13; see also Pic-A-State Pa., Inc. v. Reno, 76 F.3d
1294, 1304 (3d Cir. 1996) (“Congress may consent to state
regulation that discriminates against interstate commerce.”)
(citation omitted). “When Congress so chooses, state actions
which it plainly authorizes are invulnerable to constitutional
attack” since Congress‟s commerce power in such instances
is “not dormant, but has been exercised by that body.”
Northeast Bancorp, Inc. v. Bd. of Gov’rs of Fed. Res. Sys.,
472 U.S. 159, 174 (1985); see also Life Partners, Inc. v.
Morrison, 484 F.3d 284, 291 (4th Cir. 2007) (“Congress
holds the authority to „redefine the distribution of power over
interstate commerce‟ by „permit[ting] the states to regulate
the commerce in a manner which would otherwise not be
permissible.‟”) (quoting So. Pac. Co. v. Arizona, 325 U.S.
761, 769 (1945)).
Importantly, however, congressional consent must be
express, and is only evidenced “where Congress has
„affirmatively contemplate[d] otherwise invalid state
legislation,‟ and „[w]here state or local government action is
specifically authorized by Congress.‟” Norfolk So. Corp. v.
Oberly, 822 F.2d 388, 393 (3d Cir. 1987) (internal citations
omitted). “Because of the important role the Commerce
Clause plays in protecting the free flow of interstate trade,
[the Supreme] Court has exempted state statutes from the
implied limitations of the Clause only when the congressional
direction to do so has been „unmistakably clear.‟” Maine,
42
477 U.S. at 138-39 (quoting Wunnicke, 467 U.S. at 91); see
also Arab African Intern. Bank v. Epstein, 10 F.3d 168, 172-
73 (3d Cir. 1993) (“Congress must manifest its unambiguous
intent before a federal statute will be read to permit or
approve . . . a violation of the Commerce Clause.”) (quoting
Wyoming, 502 U.S. at 458). Moreover, the state has the
“burden of demonstrating a clear and unambiguous intent on
behalf of Congress to permit the discrimination against
interstate commerce.” Wyoming, 502 U.S. at 458.
DDOL presents the Fitzgerald Act, 29 U.S.C. § 50 et
seq., as reflecting Congress‟s intent to remove from
Commerce Clause scrutiny State regulations implemented
pursuant to the Act, including the discriminatory regulations
at issue here. The Act authorized and directed the Secretary
of Labor “to formulate and promote the furtherance of labor
standards necessary to safeguard the welfare of apprentices . .
. [and] to cooperate with State agencies engaged in the
formulation and promotion of standards of apprenticeship.”
29 U.S.C. § 50. The implementing regulations provide “a
detailed regulatory scheme defining apprenticeship programs
and their requirements, and establish a review, approval, and
registration process for proposed apprenticeship programs
administered by State Apprenticeship Councils under the
aegis of the United States Department of Labor.”
Hydrostorage, Inc. v. N. Cal. Boilermakers Local Joint
Apprenticeship Comm., 891 F.2d 719, 731 (9th Cir. 1989),
abrogated in part on other grounds as stated in Engine Mfrs.
Ass’n v. S. Coast Air Quality Maintenance Dist., 498 F.3d
1031, 1044 (9th Cir. 2007).31
31
Pursuant to the pertinent regulations, the Department of
Labor may “recognize” a State Apprenticeship Agency,
43
While DDOL is correct that the Fitzgerald Act
provides for state regulation of apprenticeship standards and
authorizes the Department of Labor to cooperate with state
agencies in their regulation of apprenticeship programs,
DDOL failed to establish that the Act and the implementing
regulations expressly authorized the states to enact
apprenticeship regulations that discriminate against out-of-
state interests, let alone in an “unmistakably clear” manner.
DDOL references several of the implementing regulations,
each of which “relate only to eligibility for federal
registration.” See Hydrostorage, 891 F.2d at 731; see also
Assoc. Bldrs. & Contractors v. Perry, 817 F. Supp. 49, 53
(E.D. Mich. 1992) (same). Notably, none of the referenced
regulations clearly and unambiguously manifests Congress‟s
intent to empower the State to discriminate against interstate
commerce; the same may be said of the Act itself.
In fact, a comparison of the cases relied upon by
DDOL is instructive. In Norfolk Southern Corporation v.
Oberly, the district court examined whether developmental
which confers upon that agency the “non-exclusive authority
to determine whether an apprenticeship program conforms to
the published standards.” 29 C.F.R. § 29.13. To be
recognized, the state agency “must submit a State
apprenticeship law . . . that conforms to the requirements of
29 CFR parts 29 and 30,” which must include, inter alia, “a
description of the basic standards, criteria, and requirements
for program registration and/or approval,” as well as “a
description of policies and operating procedures which depart
from or impose requirements in addition to those prescribed
in this part.” Id.
44
restrictions in the Delaware Coastal Zone Act were
specifically authorized under the federal Coastal Zone
Management Act of 1972, 16 U.S. § 1454 et seq. 632 F.
Supp. 1225, 1245 (D. Del. 1986). After careful review, the
court found that “Congress deliberately and repeatedly spoke
of „choices‟ to be made by the states,” and expressly
committed to the states the power “to resolve choices among
competing uses in a manner that might otherwise be subject
to Commerce Clause challenge.” Id. at 1248.
Similarly, in Prudential Insurance Company v.
Benjamin, in the context of the McCarron Act, 15 U.S.C. §
1011 et seq., the Supreme Court observed that Congress
“intended to declare, and in effect declared, that uniformity of
regulation, and of state taxation, are not required in reference
to the business of insurance.” 328 U.S. 408, 431 (1946).
Finding Congress‟s determination that “state taxes, which in
[Congress‟s] silence might be held invalid as discriminatory,
do not place on interstate insurance business a burden which
it is unable generally to bear,” the Court concluded that
rejection of a state tax “would flout the expressly declared
policies of both Congress and the state.” Id. at 431, 433.
Finally, DDOL‟s citation to White is also inapposite, for in
that instance, “the federal regulations for each program
affirmatively permit[ted] the type of parochial favoritism
expressed in the order.” 460 U.S. at 213 (noting that the
Housing and Urban Development Act of 1968 required that
“opportunities for training and employment be given to
lower-income residents of the project area”).
This jurisprudence makes clear that courts will find
congressional authorization to discriminate against interstate
commerce only where such behavior is clearly and
45
affirmatively contemplated by Congress, and expressly
authorized in the statutory language. See Oberly, 822 F.2d at
393. The regulatory language defining eligibility for
apprenticeship program registration that DDOL relies upon
does not manifest in an unmistakably clear manner that
Congress expressly envisioned or authorized a state to
exercise its cooperative apprenticeship regulatory power to
discriminate in favor of in-state parties.
Accordingly, we reject DDOL‟s argument that the
United States Secretary of Labor‟s recognition of the
Delaware apprenticeship agency as conforming with the
pertinent implementing regulations immunizes the regulation
in dispute from dormant Commerce Clause review. Only
“Congress may authorize the States to engage in regulation
that the Commerce Clause would otherwise forbid.” Maine,
477 U.S. at 138. The Fitzgerald Act did not explicitly endow
the Secretary with authority to permit discrimination against
interstate commerce, and DDOL provided no other basis to
conclude that discriminatory regulation may be authorized by
a federal agency.
Because Congress did not authorize the discrimination
at issue, DDOL‟s regulatory scheme constitutes
impermissible discrimination under the dormant Commerce
Clause.
Conclusion
For the foregoing reasons, we will affirm the District
Court‟s grant of summary judgment in this matter.
46
HARDIMAN, Circuit Judge, concurring,
I concur in the result in this case. Unlike my
colleagues, I would hold that the Delaware Department of
Labor (DDOL) forfeited its right to argue on appeal that
Delaware acted as a market participant because it failed to
raise that argument in the District Court.
I
DDOL provides no explanation for its failure to raise
the market participant exception to the Dormant Commerce
Clause in the District Court. Nevertheless, the Majority
reaches this issue because the appeal “implicates significant
issues of state sovereignty” and “raises a pure question of
law.” True as these conclusions are, they do not constitute
“exceptional circumstances” necessary to overcome DDOL‟s
forfeiture of a significant argument that it could have and
should have made in the District Court.1
1
The parties describe Delaware‟s failure to raise the
market participant exception as a “waiver.” As the Supreme
Court has explained, “[w]aiver is different from forfeiture.
Whereas forfeiture is the failure to make the timely assertion
of a right, waiver is the „intentional relinquishment or
abandonment of a known right.‟” United States v. Olano, 507
U.S. 725, 733 (1993) (quoting Johnson v. Zerbst, 304 U.S.
458, 464 (1938)). Under this definition, Delaware‟s failure to
raise this issue in the District Court is more properly
characterized as a “forfeiture” than as a “waiver.”
At issue in this appeal are some $10,000 in wages Tri-
M paid to six apprentices who worked on a state-sponsored
construction project. The project has been completed, so all
that remains for adjudication is who must pay this relatively
modest sum. In my view, this has little or no effect on the
public interest and, regardless of which side prevails, cannot
rise to the level of “manifest injustice.” Accordingly, I would
not excuse DDOL‟s forfeiture.
If we adhere to our forfeiture doctrine in this appeal,
the constitutionality of the Delaware Prevailing Wage Law
can be litigated in the next case and DDOL may, if it chooses,
raise the market participant exception at that time. If the
issue were joined and fully litigated in the District Court, we
would have the benefit of a complete record and a reasoned
decision by a trial judge.2 Moreover, as the Majority rightly
notes, litigants in thirty-seven other states would be free to
2
Although the Majority states that “we are confronted
solely with a pure question of law,” Maj. Op. at 16-17, the
opinion relies, to a large extent, on factual determinations
regarding the scope of Delaware‟s regulatory scheme. For
instance, the Majority finds that Delaware‟s apprenticeship
wage and training regulations “are not limited to public works
projects,” because they apply, on their face, to any Delaware-
registered apprentice sponsor operating in the State. The
record does not reflect, however, whether the State actively
regulates non-public-works projects or whether companies
may opt out of the program once their contractual obligations
to the State are complete. These are precisely the types of
factual questions we expect a trial court to find, and our task
would be made clearer if we allowed the District Court to do
so in this case.
2
challenge regulations granting similar benefits to in-state
companies. Maj. Op. at 13. As a result, district courts
throughout the country would have the opportunity to review
the constitutionality of a wide array of state procurement
statutes, and in so doing provide appellate courts with a
deeper understanding of this unsettled area of the law.3 Cf.
Bagot v. Ashcroft, 398 F.3d 252, 256 (3d Cir. 2005) (deciding
the merits of a forfeited claim where the “proper resolution of
the legal question, though not exactly simple, [wa]s
reasonably certain”).
I agree with the Majority that in some cases “the
public interest is better served by addressing [an issue] than
by ignoring it.” Maj. Op. at 15-16 (citing Barefoot Architect,
Inc. v. Bunge, -- F.3d --, 2011 WL 121698, at *10 (3d Cir.
Jan. 14, 2011). For instance, in United States v. Bagot, 398
F.3d 252 (3d Cir. 2005), we exercised our discretion to
review a deportee‟s claim after finding that “failing to
consider Bagot‟s arguments would result in the substantial
injustice of deporting an American citizen.” Id. at 256.
Similarly, in United States v. Petersen, 622 F.3d 196, 202 n.4
(3d Cir. 2010), we held that, at least where the “public
reputation of judicial proceedings” is at stake, we have an
“institutional” interest in resolving unsettled questions
regarding a defendant‟s trial rights. Id. at 202 n.4. Finally, in
Bunge, we held that inadvertent mistakes, such as a party‟s
3
As the Majority notes, “application of the distinction
between „market participant‟ and „market regulator‟ has []
occasioned considerable dispute in the Supreme Court‟s
jurisprudence,” Maj. Op. at 26 n.24, and our own
jurisprudence “reflects limited opportunity to opine regarding
the exception,” id. at 21.
3
invocation of “the wrong definition of the tort,” does not
necessarily trigger the application of the waiver doctrine.
2011 WL 121698, at *10.
Unlike in Bagot, here I see no exigency that
necessitates a prompt resolution of the market participant
issue. Indeed, as noted above, a trial court‟s thorough
analysis of the legal and factual questions raised on appeal
would be tremendously helpful in deciding this difficult issue.
Moreover, the “institutional” interest in resolving this issue is
minimal. There is no evidence that lower courts are reaching
inconsistent results or that states are responding to the legal
uncertainty by halting enforcement or repealing regulations
that may be discriminatory. The fact that the issue is one of
constitutional import does not alone transform it into a matter
of public importance, as we have enforced waivers in
weightier circumstances, including those affecting
constitutional rights. See e.g., United States v. Lockett, 406
F.3d 207, 212 (3d Cir. 2005) (holding that defendant waived
his legal argument for “limited consent” under the Fourth and
Fourteenth Amendments by failing to raise it before the
district court); Brennan v. Norton, 350 F.3d 399, 418 (3d Cir.
2003) (finding that defendant waived his legal argument for
relief under the Petition Clause).
Finally, there is no evidence in this record to suggest
that Delaware‟s failure to raise the market participant issue
was inadvertent. Cf. Bunge, -- F.3d --, 2011 WL 121698, at
*10. Indeed, given that the market participant doctrine has
long been a recognized exception to the dormant Commerce
Clause, it is unlikely that counsel for DDOL simply missed
the issue. The DDOL could just as plausibly have decided to
pursue an alternative theory after evaluating the relative
merits of the arguments. See United States v. Nee, 261 F.3d
4
79, 86 (1st Cir. 2001) (“Th[e] „raise-or-waive rule‟ prevents
sandbagging; for instance, it precludes a party from making a
tactical decision to refrain from objecting, and subsequently,
should the case turn sour, assigning error.”) (citation omitted).
Just as private litigants may not “jump from theory to theory
like a bee buzzing from flower to flower,” United States v.
Rose, 538 F.3d 175, 180 (3d Cir. 2008) (internal citations and
quotations marks omitted), a state should not be permitted to
do so in the absence of truly exceptional circumstances.
For these reasons, I concur in the Court‟s judgment.
5