Swin Resource Systems, Inc. v. Lycoming County ex rel. Lycoming County Solid Waste Department

GIBBONS, Chief Judge,

dissenting.

The majority opinion holds that Lycom-ing County’s operation of a landfill falls within the “market participant” exception to the dormant Commerce Clause. This conclusion misapplies the Supreme Court’s most recent limitation of this peculiar doctrine. It also fails to consider that exception in light of Garcia v. San Antonio Metropolitan Transportation Authority, 469 U.S. 528, 105 S.Ct. 1005, 83 L.Ed.2d 1016 (1984). In consequence, finally, it ignores the market participant exception’s economic unreality. Since neither this particular application of the exception, nor the exception itself, survives these considerations, I dissent from part II of the majority opinion.

I

Thirteen years ago in a peculiar eruption of Dixieism, the Supreme Court announced that the dormant Commerce Clause (unex-ercised by Congress) did not reach local government’s “non-governmental” participation in the market. Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976). On the same day the Supreme Court, manifesting the same disease, also declared that the Commerce Clause granted Congress no power to regulate local governments’ “governmental” functions. National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976). Garcia has since expressly dispensed with the doctrine of National League of Cities, 469 U.S. at 531, 105 S.Ct. at 1007. In so doing, it also effectively eliminated the Dixiecrat basis for Alexandria Scrap, its progeny, and the market participant exception.

When Alexandria Scrap first carved out the market participant exception to the federal law on the dormant or unexercised reach by the Commerce Clause it did so narrowly. The case involved a Maryland statutory scheme designed to rid the state of derelict automobiles by granting wreck*258ers who brought such vehicles to a licenced scrapper a bounty to be shared between the two. An amendment placed a higher administrative burden on out-of-state scrappers applying for the bounty than on their Maryland counterparts. 426 U.S. at 795-99, 96 S.Ct. at 2491-93. The Court held that the amendment was not an impermissible burden on interstate commerce. Justice Powell, writing for the majority, noted that Maryland had not attempted to regulate the flow of interstate commerce by placing limits on goods before they could move beyond the state’s borders. Rather, the Court concluded that Maryland had in effect entered the market as a participant by making goods more lucrative if processed within the state. Id. at 807, 96 S.Ct. at 2496-97. It was in this context that the Court more generally opined that the Commerce Clause does not prohibit states “from participating in the market and exercising the right in favor of its citizens.” Id. at 809-10, 96 S.Ct. at 2498.

The Court expanded Alexandria Scrap into a categorical exception to the unexer-cised Commerce Clause in Reeves, Inc. v. Stake, 447 U.S. 429, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1976). It also applied the doctrine to the prohibition of goods from leaving a state rather than merely the inducement of goods into a state. Reeves involved a South Dakota policy restricting the sale of cement produced at a state-owned plant to state residents. Id. at 431-34, 100 S.Ct. at 2274-76. Justice Black-mun, relying in part on National League of Cities, postulated a fundamental distinction between states as market regulators and states as market participants. The Court read Alexandria Scrap as holding that “the Commerce Clause responds principally to state taxes and regulatory measures impeding free private trade in the national marketplace.” Id. 447 U.S. at 436-37, 100 S.Ct. at 2277.1 Making this categorical distinction, the Reeves court concluded that the negative Commerce Clause did not bind regardless of whether a state “market participant” attempted to attract interstate commerce from without or to impede it from leaving within. Id. at 444 n. 17, 100 S.Ct. at 2281 n. 17.

The Court widened the market participant exception still further in White v. Massachusetts Council of Construction Employers, 460 U.S. 204, 103 S.Ct. 1042, 75 L.Ed.2d 1 (1983). White dealt with an executive order of the Mayor of Boston requiring that all construction projects funded in whole or in part by city money to be performed by a work force composed of at least 50% Boston residents. 460 U.S. at 211, 103 S.Ct. at 1046. In an opinion by Justice Rehnquist, the Court upheld this local resident condition by reading Alexandria Scrap and Reeves as standing for “the proposition that when a state or local government enters the market as a participant it is not subject to the restraints of the Commerce Clause.” 460 U.S. at 208, 103 S.Ct. at 1044. Justice Blackmun, the author of Reeves, dissented on the ground that the majority position would effectively permit any degree of market participation to render a state activity immune from Commerce Clause intrusion. 460 U.S. 216-25, 103 S.Ct. at 1049-54. (Blackmun, J. dissenting).

The Court eventually had second thoughts, limiting the market participant exception in South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 104 S.Ct. 2237, 81 L.Ed.2d 71 (1984), a decision that would place the Lycoming County landfill outside the doctrine. In South-Central Timber, the Court held that an Alaska regulation mandating the in-state processing of timber from state lands prior to export did not enjoy an implicit Congressional sanction from a parallel policy for timber harvested from Federal land. Id. at 87-93, 104 S.Ct. at 2240-43. Writing for a plurality, Justice White went on to reject Alaska’s contention that regulation fell within the market participant doctrine. The plurality distinguished Alexandria Scrap by noting that Alaska did not offer a subsidy. It distinguished *259Reeves by noting that the Alaska regulation involved foreign commerce, a natural resource, and restrictions on resale of that resource. Finally, it distinguished White by suggesting that the limit of the market participation exception must at least be the “narrowly defined” market in which the state participates. Otherwise, the plurality stated, the exception “has the potential of swallowing up the rule that States may not impose substantial burdens on interstate commerce even if they act with the permissible state purpose of fostering local industry.”

Justice White concluded that while Alaska may qualify as a participant in the timber market, the state’s policy exerted a regulatory effect in the downstream timber-processing market in which it did not participate. Id. at 97-99,104 S.Ct. at 2245-47 (White, J., plurality opinion). South-Central Timber defined such markets as: first, outside the immediate disposition of a product; and second, consisting of the separate economic activities of the local government’s trading partners. Id. at 98-99, 104 S.Ct. at 2245-47. The Alaska regulation failed on both counts: in conditioning the initial sale on subsequent processing the policy, first, effectively affected a transaction beyond the initial sale of a product, and, second, sought to govern the downstream activity of the purchaser.

There is no principled way to distinguish this case from South-Central Timber. Lycoming County does not participate in a market “for disposal services.” Rather, like any other landfill, it sells space to concerns that have earlier transacted to purchase and process solid waste. No less than with Alaskan timber, conditions on the sale of Pennsylvanian space, at least when based on the origin of incoming solid waste, have a significant regulatory impact on markets in which the county does not participate. Like the Alaska prohibition, Lycoming County’s price structure in reality attempts to restrict waste processors from purchasing waste from outside the county and state; transactions clearly beyond those involving the processors and the county itself. Also like the Alaskan policy, the county pricing scheme governs the “private economic relationships of its trading partners”; namely, the patterns of trade between concerns like Swin and its waste suppliers in New Jersey.

The only conceivable distinction between the two situations lies in the timing of the extra-market activity affected. With timber the impermissible restrictions hindered post-purchase activity; in the case of landfill space the burdened activity is retrospective. That the regulation here thus affects an “upstream” rather than “downstream” market in no way salvages the county’s policy from Commerce Clause disfavor.

The Lycoming landfill does not qualify as a market participant even absent the limit of the South-Central Timber plurality. Unlike Alexandria Scrap, the county is not encouraging goods across its borders by means of a bounty, but is instead prohibiting the interstate flow of goods by means of a discriminatory charge. See Alexandria Scrap, 426 U.S. at 804-06, 96 S.Ct. at 2495-96. Unlike Reeves and White, the county has not entered a highly competitive market dominated by private enterprise, such as concrete and construction, but has rather entered a hybrid area that involves a distinctive public need in a highly regulated environment. See Hancock Industries v. Schaeffer, 811 F.2d at 231-32 (3d Cir.1987). In this regard, the operation of a municipal landfill is no more an entry into a local market than is the operation of a municipal school system.2

*260South-Central Timber is also significant in anticipating the Supreme Court’s tacit rejection of the market participant theory in Garcia. The Alexandria Scrap line of cases rests upon substantially the same notoriously flawed analytic framework of the state-federal relationship made infamous in National League of Cities, the companion case to Alexandria Scrap. In National League of Cities, the Court held that the Commerce Clause did not empower Congress to enforce the minimum-wage and overtime provisions of the Fair Labor Standards Act against states in “areas of traditional government functions.” 426 U.S. at 852, 96 S.Ct. at 2474. Eight years later, and subsequent to all four market participant cases, Garcia explicitly overruled the Commerce Clause analysis of National League of Cities.3 Since this now-rejected analysis also underlies Alexandria Scrap, Reeves, White, and even South-Central Timber, this Court should reject the market participant exception in light of Garcia’s mandate.

Garcia overturned National League of Cities on two main grounds: first, that the concept of “traditional” governmental functions was unworkable; and second, that the true safeguard of state sovereignty lies not with judicially-imposed limits on the reach of the Commerce Clause in the interest of states rights but in the procedural political safeguards present in Federal government. The Court observed that the lower courts’ numerous attempts to apply the National League of Cities standard of “traditional,” “historic,” “integral,” or “non-proprietary,” to actual government functions had proven wildly inconsistent. 469 U.S. at 538-39, 105 S.Ct. at 1010-11. Among the instances so noted is one case deeming solid waste disposal a traditional government activity. Id. at 538, 105 S.Ct. at 1010-11 (citing Hybud Equipment Corp. v. City of Akron, 654 F.2d 1187, 1196 (6th Cir.1981). The Court therefore rejected any attempt at judicial determination of what was or was not a proper governmental function for Commerce Clause purposes. Viewing the consequence of National League of Cities in tandem with democratic theory, the Court declared:

We therefore now reject, as unsound in principle and unworkable in practice, a rule of state immunity from federal regulation that turns on a judicial appraisal of whether a particular governmental function is “integral’’ or “traditional.” Any such rule leads to inconsistent results at the same time that it disserves principles of democratic self-governance, and it breeds inconsistency precisely because it is divorced from these principles. If there are to be any limits on the Federal Government’s power to interfere with state functions ... we must look elsewhere.

Id. at 546-47, 105 S.Ct. at 1015 (emphasis added).

The Garcia court found these limits in the structure of the Federal government. The devices cited included state representation in the Senate, the electoral college, and separation of powers prevention of a single-minded attack on state sovereignty. From this survey the Court concluded that the fundamental limits on the scope of the Commerce Clause are not categorical but procedural, stating that “[a]ny substantive restraint on the exercise of Commerce Clause powers must find its justification in the procedural nature of this basic limitation, and it must be tailored to compensate for possible failings in the national political process rather than dictate a ‘sacred province of state autonomy.’ ” Id. at 554, 105 S.Ct. at 1019 (citation omitted).

Rejection of the market participant theory necessarily follows from Garcia on each *261of that case’s main premises. First, the regulatory/government distinction is nothing more than the integral/non-integral distinction in another guise. To be sure, the distinction played divergent roles depending upon whether Congress had acted. Under National League of Cities, the label of “integral” or “governmental” protected a state activity from the Commerce Clause; under Alexandria Scrap, the label “regulatory” or “governmental” left a state activity open to (dormant) Commerce Clause attack. The different uses of the categories, however, changes neither their similarity nor their invalidity. Garcia noted at length the inherent unworkability of such labeling. Indeed, in other contexts, courts have concluded exactly what the cases cited by the majority deny, that the operation of a landfill is an integral, traditional governmental activity. See Hybud Equipment Corp., 654 F.2d at 1196 (deeming landfill operation a traditional governmental activity); Hancock, 619 F.Supp. 322, 328 (E.D.Pa.1985) (stating, without deciding, that counties “simply regulat[e]” landfills), 811 F.2d 225, 231-32 (3d Cir.1987) (holding county operation of landfill “state action” for antitrust purposes).

Likewise, Garcia’s reliance on procedural over categorical safeguards necessarily follows with respect to the dormant Commerce Clause no less than in its legislative aspect. Garcia reflected this reliance by asking whether, absent facile categories, Congressional action under the Commerce Clause violated state sovereignty given the procedural safeguards the states enjoy under the Constitutional framework. 469 U.S. at 547-55, 105 S.Ct. at 1015-20. Here the inquiry logically becomes whether, again absent categories like “participant” and “regulator,” a state activity burdens interstate commerce given the economic safeguards that parties engaging in interstate commerce enjoy in a national economy. States affected by a measure under the court’s application of the dormant Commerce Clause are free to seek redress through the national political process;4 only when Congressional action undermines that process may courts limit that action. Parties like Swin affected by a state’s purported private commercial activity are left to respond through the national free market; only when the state’s measure distorts usual market processes may the courts invalidate such a measure. In each instance the question turns on whether the challenged activity assaults a value protected by the Constitution despite protections inherent in the national framework.5

In light of Garcia, the Commerce Clause clearly prohibits the three-tier fee structure of Lycoming County. In the first instance, no facile analogy of the county to a private landfill operator, or labelling of its operation as “non-governmental” or “non-regulatory” automatically protects the county’s activity. Instead, the proper inquiry is whether the county’s actions distort market forces in such a way that private parties engaged in interstate commerce cannot realistically respond or compete. Here the answer must be yes. No number of efficiencies on Swin’s part would overcome the $16.75 to $20.00 per ton differential that effectively bars New Jersey’s solid waste from crossing the Delaware to Lycoming. Given the county’s discriminatory rate structure, there is simply no way that private processors purchasing out-of-state waste could through the market compete against those who use Pennsylvania’s waste exclusively for the use of the Lycom-ing landfill.

Viewed in this way, Garcia’s repudiation of the market participant doctrine reflects economic reality and common sense. The notion that state enterprises “participate” in the market on the same footing as private concerns is a chimera. Private market *262participants have limited resources and must ultimately seek a profit to survive. In contrast, government “market participants” invariably seek political goals in the place of economic ends. They do so because the ultimate option of raising compulsory revenue affords governments the luxury of ignoring bottom lines in a manner no private concern would dare.

The present appeal provides a typical case in point. However much their market might be regulated, private landfill operators still desire to turn a profit. Few, if any, would give a second thought to the origin of the waste filling the space sold. Nor is it likely that any would long stay in business even assuming some highly unusual public commitment to the preservation of that space by locals. Under any realistic view, the Lycoming landfill in private hands would never have hindered its ability to sell space to the highest bidder by erecting a differential rate structure that discriminated against waste the further its point of origin. If anything, it would have created a fee structure that did precisely the opposite. A vendor of landfill space hoping to attract business, as do genuine market participants, would logically attempt to lure large volume purchasers concerned with transportation costs through a discount, especially when it appeared that customers dealing in local waste could not themselves provide sufficient business. As an exercise toward the political end of saving space for county waste, Lycoming County’s price structure makes good regulatory sense. As an essay in market participation, it is aberrant and the majority’s application of the label “market participant” to Lycoming County is an economic jest.

The other market participation cases on which the majority rely are no less anomalous. No private real estate developer in a competitive market would last long given a self-imposed, political restriction of its work force to local residents assuming the availability of cheaper or more qualified labor residing elsewhere. See White, 460 U.S. at 208, 103 S.Ct. at 1044-45. Nor in any realistic sense does a state-backed concrete producer that restricts the sale of its product on political grounds resemble a private business. See Reeves, 447 U.S. at 437-39, 100 S.Ct. at 2277-79. Nor, finally, would any private scrapper be likely to grant a bonus to wreckers carting hulks from within a state. See Alexandria Scrap, 426 U.S. at 804-06, 96 S.Ct. at 2495-96. The whole charade of the market participant exception totally unrelated to the regulatory effect of free markets operating with a profit motive, was never anything but a peculiar manifestation of the “new federalism” run amok; states rights in drag. Garcia, I believe, signals that the Supreme Court has turned its back on the political rhetoric of the “new federalism,” and on its economically deformed market participant sibling.

II

It is not the task of this Court to overrule past Supreme Court decisions in light of later precedents. Instead, this Court must apply current Commerce Clause jurisprudence to the present appeal. That jurisprudence at the very least precludes application of the market participation doctrine to this case. Properly read, it further requires the rejection of that doctrine and the economic fantasies that underpin it. For all these reasons, I dissent from the application of the so called market participant exception to the Commerce Clause in this case.

. Reeves also paradoxically counseled against interfering with states in their non-sovereign capacity as market participants on grounds of state sovereignty. 447 U.S. at 429, 100 S.Ct. at 2271.

. The majority’s glib response to this observation, page 251 n. 2, entirely misses the point. Local school district pupil placement escapes dormant commerce clause scrutiny not because school districts are market participants, but because offering instruction to pupils has not been traditionally regarded as commerce. Operating sanitary landfills is commerce. City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978). A Pennsylvania regulation prohibiting school districts from purchasing pencils, paper, or milk originating in New Jersey would affect commerce, and could escape dormant commerce clause scrutiny only by virtue of an exception. Such a regulation would not be adopted by any rational decision-maker acting consistently with market motivations. It might well be adopted by a rational local politician who had a local contributor in the school supply or milk business. Apparently *260the majority would uphold such a regulation which demonstrates that its application is nothing more than an application of National League of Cities v. Usery, 426 U.S. 833, 96 S.Ct. 2465, 49 L.Ed.2d 245 (1976) in drag. That is true as well, of course, of Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976).

. Since Garcia, only two cases have discussed the market participant doctrine to any degree; neither applied it. See New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1988); Wisconsin Dept. of Industry, Labor and Human Relations v. Gould, Inc., 475 U.S. 282, 106 S.Ct. 1057, 89 L.Ed.2d 223 (1986).

. E.g. Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 66 S.Ct. 1142, 90 L.Ed. 1342 (1946) (State taxation of foreign insurance companies does not violate commerce clause where Congressional act authorizes tax.).

. Logic might suggest that not only the states as states but private parties as well should address federalistic concerns to Congress. See J. Chop-er, Judicial Review and the National Political Process (1980). One reason against extending the matter this far is the comparatively greater power of the states in national politics than of any individual. In any event, the Court has thus far only addressed the problem of the unique role of states as states.