R & M Oil & Supply v. John L. Saunders ( 2002 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 02-2370
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R & M Oil & Supply, Inc., *
an Illinois Corporation, *
*
Appellee, *
* Appeal from the United States
v. * District Court for the Western
* District of Missouri.
John L. Saunders, Director, *
Department of Agriculture *
of the State of Missouri, *
*
Appellant. *
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Submitted: September 12, 2002
Filed: October 11, 2002
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Before WOLLMAN and MORRIS SHEPPARD ARNOLD, Circuit Judges, and
BOGUE,1 District Judge.
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MORRIS SHEPPARD ARNOLD, Circuit Judge.
This case raises a constitutional challenge to a Missouri statute regulating the
storage of propane. R & M Oil & Supply, Inc., filed an action against Missouri's
1
The Honorable Andrew W. Bogue, United States District Judge for the District
of South Dakota, sitting by designation.
Director of Agriculture requesting that the district court2 declare that Mo. Rev. Stat.
§ 323.060.1 violates the commerce clause of the United States Constitution. The
district court agreed with R & M and enjoined the statute's enforcement. The state
appeals, arguing that the burden on interstate commerce that the statute creates does
not exceed the local benefits derived from it. Because we agree with the district court
that the state regulation burdens interstate commerce and provides minimal local
benefit, we affirm.
I.
Propane is a fossil fuel by-product generated during the processing of natural
gas and the refining of petroleum. Although propane is a versatile fuel with many
uses, its primary use is as a home heating fuel in rural areas. Because Missouri
produces no propane, propane-producing states deliver propane by pipeline to
terminals located in or near the state. At those terminals, the propane is unloaded into
the retailers' tanker trucks and delivered to their storage tanks. The retailers then use
smaller trucks, called bobtails, to transport propane from storage tanks to the tanks
of individual customers.
The demand for propane is, of course, significantly higher during the winter
months. During periods of extreme cold, the supply of propane available through the
pipelines is often insufficient to meet the increased demand. This may result in the
rationing, called "allocation," of the available propane among the existing retailers.
Retailers often experience substantial delays at the pipeline terminals – as long as six
to eight hours – while waiting for their allocation. If the allocation does not meet
their customers' demand, retailers must either travel a greater distance to another
pipeline terminal or forego filling their customers' orders altogether. Pipeline breaks
2
The Honorable Sarah W. Hays, United States Magistrate Judge for the
Western District of Missouri, sitting by consent of the parties. See 28 U.S.C.
§ 636(c); see also Fed. R. Civ. P. 73.
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and unfavorable road conditions during the winter months also occasionally disrupt
the supply of propane.
Missouri asserts that the described shortages and disruptions in the propane
supply led it to amend its statutes regulating the propane industry. One of these
amendments, § 323.060.1, requires persons engaged in the bulk sale of propane at
retail to maintain and operate a minimum storage capacity of 18,000 gallons in the
state. The amended statute does not obligate retailers to keep an actual propane
reserve and there is no requirement that the retailer actually use the tank. Complying
with the statute costs retailers $25,000 for the purchase and installation of the storage
tank, the market price for one acre of land (between $10,000 and $35,000, depending
on location) upon which to locate the storage tank, and approximately $500 annually
for maintenance and upkeep of the propane storage area.
R & M is an Illinois corporation engaged in the retail sale of propane with its
principal place of business in Columbia, Illinois, which is near the Missouri border.
R & M runs a typical retail propane operation. They obtain most of their oil from the
Cahokia, Illinois, pipeline terminal, although they occasionally purchase propane at
terminals in Wood River, Illinois, Jefferson City, Missouri, Moberly, Missouri, and
Princeton, Indiana. After purchasing propane from the pipeline terminals, they
transport it to Columbia where it is stored in one of two 30,000 gallon storage tanks.
When a Missouri order is placed, one of two R & M drivers living in Hillsboro,
Missouri, will drive a bobtail truck from Hillsboro to Columbia, Illinois, to pick up
propane (a distance of 36 miles), then back to Missouri to deliver it. Because of the
time that it takes to deliver the propane, R & M is able to serve only customers
located within a fifty miles radius of its storage facility in Columbia.
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II.
The facts are not in dispute, having been stipulated to by the parties. "Because
our decision is predominantly one of determining whether the established facts fall
within the relevant legal definition, albeit a constitutional definition, we apply a de
novo standard of review" in deciding whether there has been a violation of the
commerce clause. Falls v. Nesbitt, 966 F.2d 375, 377 (8th Cir. 1992); see also
Hampton Feedlot, Inc. v. Nixon, 249 F.3d 814, 818 (8th Cir. 2001).
The commerce clause of the United States Constitution grants to Congress the
power "[t]o regulate Commerce ... among the several States." Art. I, § 8, cl. 3. Even
where Congress fails to legislate on a matter affecting interstate commerce, the courts
have recognized that a "dormant implication of the Commerce Clause prohibits state
... regulation ... that discriminates against or unduly burdens interstate commerce and
thereby 'imped[es] free private trade in the national marketplace.' " General Motors
Corp. v. Tracy, 519 U.S. 278, 287 (1997) (quoting Reeves, Inc. v. Stake, 447 U.S.
429, 437 (1980)). When a claim is made that a state statute violates the dormant
commerce clause, we first determine whether the " 'law in question overtly
discriminates against interstate commerce.' " Hampton Feedlot, 249 F.3d at 818. If
it does, then the law is unconstitutional unless the state can demonstrate, "under
rigorous scrutiny, that it has no other means to advance a legitimate local interest."
Id. (quoting C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 392 (1994)).
A statute "overtly discriminates" if it is discriminatory on its face, in its purpose, or
through its effects. U & I Sanitation v. City of Columbus, 205 F.3d 1063, 1067 (8th
Cir. 2000). For purposes of this analysis, " 'discrimination' " means " 'differential
treatment of in-state and out-of-state economic interests that benefits the former and
burdens the latter.' " Id. (quoting Oregon Waste Sys., Inc. v. Dep't of Envtl. Quality,
511 U.S. 93, 99 (1994)).
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Section 323.060.1 requires persons engaged in the bulk sale of propane at retail
to maintain and operate at least eighteen thousand gallons of storage capacity in the
state. We agree with both parties that the challenged statute is facially neutral, as it
requires both in-state and out-of-state businesses to maintain and operate a Missouri
storage facility. R & M argues, however, that the statute has a discriminatory effect
on out-of-state distributors. R & M maintains that the evidence shows that propane
distributors tend to have their operational tanks where they are headquartered. In
their view, out-of-state distributors must realistically maintain two storage facilities
under § 323.060.1, while in-state distributors must maintain only one.
The difficulty with this claim, as we see it, is that R & M has not presented
sufficient evidence to show such a discriminatory effect. The stipulated facts reveal
only that of three propane distributors (R& M being one of the three), all three had
storage facilities in their headquartered state, and one also had storage facilities in
seven other states. We conclude that R & M has failed to prove that non-Missouri
distributors must, as a practical matter, maintain more than one storage facility to
operate in Missouri. Even if that showing had been made, we discern no basis for
concluding that this places out-of-state distributors at a competitive disadvantage vis-
a-vis distributors headquartered in Missouri. We find, therefore, that there is
insufficient evidence to support the claim that the Missouri statute overtly
discriminates against out-of-state propane distributors, either on its face or through
its effects.
III.
Although Missouri's statute does not overtly discriminate against interstate
commerce, the law "may still violate the dormant Commerce Clause if the local
interests that it serves do not justify the burden that it imposes upon interstate
commerce." U & I Sanitation, 205 F.3d at 1069. We look at whether the local
interest involved "could be promoted as well with a lesser impact on interstate
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activities" to help us determine whether the "burden imposed on [interstate]
commerce is clearly excessive in relation to the putative local benefits." Pike v.
Bruce Church, Inc., 397 U.S. 137, 142 (1970).
We turn first to the local benefit that § 323.060.1 provides. The state argues
that the statute is a health and safety regulation designed to protect those who rely on
propane to heat their homes in the wintertime. But we question whether the Missouri
statute will have any measurable tendency to prevent propane shortages, because the
State presented no evidence to the district court that the propane storage capacity in
existence before the passage of the statute was insufficient. In addition, we agree
with the district court that the shortages that concerned the state stemmed "primarily
from the pipeline delivery system as opposed to any claim of inadequate propane
storage capacity." Finally, since § 323.060.1 does not actually require distributors to
keep propane in the required tanks, as the district court found, the state has been
unable "identify any actual benefit from the statute as currently written."
Even if we assume that § 323.060.1 is designed to further Missouri's legitimate
interest in protecting the health and safety of its citizens, we are of the view that the
local benefit actually derived from the statute is minimal or nonexistent. Like the
district court, we find it most difficult to see how this statute will protect Missourians
from propane shortages. It is even conceivable that the statute will have precisely the
opposite effect. Given the choice between investing in a Missouri storage facility or
not doing business in Missouri, R & M might well conclude that there is not enough
existing or potential business in Missouri to justify the increased costs incurred by
complying with Missouri law. Thus, Missouri citizens could very easily lose the
benefit of R & M's existing storage capacity, some 60,000 gallons worth, located just
miles across the border.
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Finding relatively little local benefit in the statute as written, we turn to a
consideration of the statute's burden on interstate commerce. The financial burden
imposed upon R & M by the Missouri statute – an initial investment of $35,000 to
$60,000 – is, standing alone, not in itself inconsequential. In comparing the putative
local benefit of the statute to the burden imposed on commerce, moreover, we are not
constrained (indeed, we are not allowed) to look only at the burden on R & M.
Instead, we must look at the cumulative effects of the Missouri statute on all propane
distributors. See U & I Sanitation, 205 F.3d at 1069. Although there is nothing in the
stipulated record that indicates the number of propane distributors doing business in
Missouri without in-state storage capacity, we think that it would be reasonable to
assume that R & M is not alone.
In addition to the cumulative effects of the Missouri statute, we must also
consider the "interstate effect on the [propane] market if several jurisdictions were to
adopt similar [statutes]." Id. at 1069; see also Healy v. Beer Inst., 491 U.S. 324, 336
(1989) ("[T]he practical effect of the statute must be evaluated not only by
considering the consequences of the statute itself, but also by considering . . . what
effect would arise if not one, but many or every, State adopted similar legislation.").
Again, there is little evidence in the record to suggest how many distributors would
find themselves in R & M's position if each state were to adopt statutes like
Missouri's. But we would be turning a blind eye to reality if we did not acknowledge
that such a situation could create a substantial burden on interstate commerce along
the borders of states throughout the country. In any event, a precise aggregation is
not necessary. We think that there is clearly a burden substantial enough to outweigh
the de minimis putative local benefit of the law.
Finally, we consider whether the local interest involved "could be promoted as
well with a lesser impact on interstate activities." Pike, 397 U.S. at 142. In
circumstances similar to the present case, the Supreme Court struck an Arizona
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regulation that prohibited a grower of high quality cantaloupes from transporting
uncrated cantaloupes from its Arizona ranch to a nearby California city for packing
and processing. Id. at 138-39. The following observation is particularly relevant to
the present issue:
[T]he Court has viewed with particular suspicion state statutes requiring
business operations to be performed in the home State that could more
efficiently be performed elsewhere. Even where the State is pursuing a
clearly legitimate local interest, this particular burden on commerce has
been declared to be virtually per se illegal.
Id. at 145. Like the regulation in Pike, Missouri's statute requires business operations
that had evidently been performed efficiently outside the state to be performed in-
state, at an increased cost. And Missouri had less burdensome alternatives available
to it at the time that it enacted § 323.060.1. For instance, if there was a serious
concern that propane distributors did not have enough storage capacity to meet their
customers' demand during times of shortage (and there is no evidence that storage
capacity was in short supply), Missouri could have required those distributing
propane within the state to have a minimum storage capacity within a reasonable
specified distance from (rather than in the same state as) their customers. This would
have ensured an adequate storage capacity without requiring that business operations
be performed on the Missouri side of the borders. There are no doubt other
alternatives that also would impose less of a burden on interstate commerce than the
statute at issue here. In accord with the presumption set forth in Pike, we do not think
that § 323.060.1, which requires business operations to be performed in Missouri at
increased expense, is the least burdensome means of promoting the state interest.
State statutes passed for the protection of the public's health and safety are
generally constitutional despite the incidental burden they may impose on interstate
commerce. But when a statute provides little or nothing in the way of demonstrable
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legitimate local benefit, any significant burden on interstate commerce is burden too
much. Such is the case here.
IV.
Accordingly, we affirm the judgment of the district court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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