J. L. Smith v. The Department of Agriculture of the State of Georgia, Defendants , 630 F.2d 1081 ( 1981 )

LYNNE, District Judge:

This appeal involves a challenge to the constitutionality of a rule or regulation of the Department of Agriculture of the State of Georgia, whereby non-residents of Georgia are assigned to inferior sales locations at the Georgia State Farmers Market in Columbus, Georgia (“Columbus Farmers Market”), during periods of crowded conditions. The District Court found that the rule violated both the Equal Protection Clause and the Commerce Clause of the United States Constitution. We affirm solely on the ground that the rule violates the Commerce Clause, U.S. Const., Art. I, § 8, cl. 3.

I.

The Columbus Farmers Market is owned and partially financed¹ by the State of Georgia, and operated by the State Department of Agriculture. Individuals who wish to sell their produce at such market must acquire a license from the Georgia Department of Agriculture and rent space therein. The market consists of three separate selling areas from which individual growers sell their produce to the general public. Two of the selling locations are “elevated shed” areas, and the third has been designated the “drive-through” shed. Based upon substantial evidence in the record, the trial court found that the elevated sheds are much more desirable locations from which to sell. In comparison with the drive-through shed, the elevated shed areas afford better protection for produce from the sun and rain, and superior produce display location, more readily available customer parking, and better accessibility for the farmers to load and unload their produce. Findings of Fact ¶ 4, App. 47.

Plaintiff-appellee J. L. Smith is a resident of Phenix City, Alabama, and is engaged in farming operations in Russell and Lee Counties, Alabama. Smith has sold his produce at the Columbus Farmers Market over a period of approximately twenty years. Until 1973, he was assigned space at the market without regard to the fact that he is a non-resident of the State of Georgia.

In 1973, however, the Georgia Department of Agriculture instructed its Columbus Market manager that space assignments at the market were to be made on the basis of state residence, with preference to residents of the State of Georgia. Accordingly, at times when all farmers could not be accommodated in the elevated shed area, non-resident farmers were to be relegated to the drive-through shed. The sole basis for the assignment of Alabama farmers to the less desirable shed is the fact that they are non-residents of the State of Georgia. Findings of Fact ¶ 5, App. 47. Most significantly, the admitted purpose of the rule was to give a preference to Georgia residents over non-residents of Georgia, thereby providing a competitive advantage to Georgia farmers.²

During the selling season of 1978, Smith was told to move his produce sales from an elevated shed to the drive-through shed. When he refused, he was told that his license was subject to suspension or revocation for failure to move.

Smith filed suit on July 5, 1978, seeking injunctive and declaratory relief and claiming that the regulation giving preference to Georgia residents violated the Commerce Clause, the Equal Protection Clause and the Privilege and Immunities Clause. After an evidentiary hearing, the district court entered a judgment declaring the rule violative of both the Commerce Clause and the Equal Protection Clause and permanently enjoining the enforcement of the regulation. Because we hold that the regulation violates the Commerce Clause, it is unnecessary to address the merits of the other grounds advanced by appellees.

II.

The threshold issue involved in this appeal is whether the regulation of the Georgia Department of Agriculture is subject to scrutiny under the Commerce Clause at all. Two recent decisions of the United States Supreme Court indicate that the resolution of this issue depends upon whether the defendants were acting in a proprietary capacity on the one hand or in a regulatory capacity on the other. See Reeves v. Stake, - U.S. -, 100 S.Ct. 2271, 65 L.Ed.2d 244 (1980); Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 96 S.Ct. 2488, 49 L.Ed.2d 220 (1976).

-A-

In Alexandria Scrap, the Supreme Court rejected a Virginia scrap processor’s challenge to a Maryland program to pay a bounty for every Maryland-titled junk car converted into scrap, despite a 1974 amendment to the legislation which imposed more onerous documentation standards on out-of-state than in-state processors. The Court held that Alexandria Scrap did not involve “the kind of action with which the Commerce Clause is concerned,” 426 U.S., at 805, 96 S.Ct., at 2495, and explained that, “Maryland had not sought to prohibit the flow of hulks, or to regulate the condition under which it may occur. Instead, it has entered into the market itself to bid up their price.” Id., at 806, 96 S.Ct., at 2496. The Court concluded that: “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.” Id., at 810, 96 S.Ct., at 2498 (footnotes omitted).

In Reeves v. Stake, supra, - U.S. -, 100 S.Ct. 2271, 65 L.Ed.2d 244, the Supreme Court reiterated its belief that, “The basic distinction drawn in Alexandria Scrap between States as market participants and States as market regulators makes good sense and sound law.” - U.S., at -, 100 S.Ct., at 2277. The Court then held that the State of South Dakota, in a time of shortage, may confine the sale of the cement which it produces at a state-owned plant, solely to residents of South Dakota. The basis of the Court’s decision in Reeves was again that the State was acting as a market participant rather than as a market regulator.

-B-

Georgia’s role at the Columbus Farmers Market can only be described as a hybrid one. Admittedly, the market is owned, operated and partially financed by the State of Georgia. On the other hand, it is significant that appellants neither produce the goods to be sold at the market, nor engage in the actual buying or selling of those goods. In essence, the State of Georgia has simply provided a suitable marketplace for the buying and selling of privately owned goods. It is this type of activity which was distinguished by the Court in Alexandria Scrap, 426 U.S., at 805-806, 96 S.Ct., at 2495-96, and Reeves, - U.S., at - n. 4, 100 S.Ct., at 2275 n. 4. Accordingly, the State of Georgia cannot be deemed an actual market participant at the Columbus Farmers Market. Rather, its essential role is that of market regulator. As such, appellants’ rules and regulations governing the operation of the Columbus Farmers Market are subject to scrutiny under the Commerce Clause.

III.

Having decided that this case involves the kind of activity to which the Commerce Clause applies, it is necessary to determine whether the regulation at issue imposes an impermissible burden on interstate commerce. The purpose underlying the Commerce Clause has been most appropriately stated by Justice Jackson in H. P. Hood & Sons v. Du Mond, 336 U.S. 525, 69 S.Ct. 657, 93 L.Ed. 865 (1949):

Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the nation, that no home embargoes will withhold his exports, and no foreign state will by customs duties or regulations exclude them. Likewise, every consumer may look to the free competition from every producing area in the nation to protect him from exploitation by any. ' Such was the vision of the Founders; such has been the doctrine of this Court which has given it reality.

Id., at 539, 69 S.Ct., at 665.

Traditional Commerce Clause analysis follows the three-pronged inquiry outlined by the Court in Hughes v. Oklahoma, 441 U.S. 322, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979):

Under that general rule we must inquire (1) whether the challenged statute regulates evenhandedly with only “incidental” effects on interstate commerce, or discriminates against interstate commerce either on its face or in practical effect; (2) whether the statute serves a legitimate local purpose; and, if so, (3) whether alternative means could promote this local purpose as well without discriminating against interstate commerce.

Id., at 336, 99 S.Ct., at 1736. See also Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct., 844, 25 L.Ed.2d 174 (1970). Under the first step of the Hughes test, it is undeniable that the regulation at issue discriminates against interstate commerce on its face by giving Georgia farmers a preference over out-of-state farmers solely on the basis of their residence. Accordingly, the burden falls on appellants to justify the regulation both in terms of the local benefits flowing from it and the unavailability of nondiscriminatory alternatives that would adequately preserve those local interests. Hughes v. Oklahoma, 441 U.S., at 336, 99 S.Ct. at 1736; Hunt v. Washington Apple Advertising Commission, 432 U.S. 333, 353, 97 S.Ct. 2434, 2446, 53 L.Ed.2d 383 (1977); Service Machine & Shipbuilding Corp. v. Edwards, 617 F.2d 70, 73 (5th Cir. 1980).

Under the circumstances of the case sub judice, appellants’ burden is virtually insurmountable. The avowed purpose of the regulation is to give a preference to Georgia farmers over nonresident farmers, thereby promoting an in-state industry.³ It is precisely this type of parochial legislation which has been subject to the closest scrutiny by the courts:

The opinions of the Court through the years have reflected an alertness to the evils of “economic isolation” and protectionism, while at the same time recognizing that incidental burdens on interstate commerce may be unavoidable when a State legislates to safeguard the health and safety of its people. Thus, where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected. See, e. g., Hood & Sons v. Du Mond, supra; Toomer v. Witsell, 334 U.S. 385, 403-406, [68 S.Ct. 1156, 1165-1167, 92 L.Ed. 1460]; Baldwin v. G. A. F. Seelig, [294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032], supra; Buck v. Kuykendall, 267 U.S. 307, 315-316, [45 S.Ct. 324, 325-326, 69 L.Ed. 623]....

The crucial inquiry, therefore, must be directed to determining whether ch. 363 [the law at issue] is basically a protectionist measure, or whether it can fairly be viewed as a law directed to legitimate local concerns, with effects upon interstate commerce that are only incidental.

City of Philadelphia v. New Jersey, 437 U.S. 617, 623-24, 98 S.Ct. 2531, 2535-2536, 57 L.Ed.2d 475 (1978). More recently, in Lewis v. BT Investment Managers, Inc., - U.S. -, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980), the Court was faced with a challenge to a Florida statute which prohibited an out-of-state bank holding company from owning or controlling a business within Florida that sells investment advisory services. In finding the statute unconstitutional, the Court again recognized “the general principle that the Commerce Clause prohibits a State from using its regulatory power to protect its own citizens from outside competition.” Id., at -, 100 S.Ct., at 2019.⁴

The clear teaching of City of Philadelphia and Lewis is that economic protectionism is not the kind of legitimate local purpose that would justify a discriminatory burden on interstate commerce. In light of the admitted purpose of the regulation at issue to promote in-state business by giving preferential space assignments to Georgia farmers, the conclusion is inescapable that it is basically a protectionist measure. Appellants have failed to provide any convincing justification for the preference given to Georgia growers. Indeed, there is obviously no reason to differentiate between Georgia and non-resident growers on any basis other than their residence. Accordingly, this case appears to fall squarely within the “virtually per se ” language of City of Philadelphia, 437 U.S., at 624, 98 S.Ct., at 2536.⁵

For the foregoing reasons, we conclude that the district court correctly found that the regulation at issue violates the Commerce Clause, and properly enjoined the continued enforcement thereof.

AFFIRMED.

1 . In the fiscal years 1975-76, 1976-77 and 1977 78, the percentage of the Columbus Farmers Market’s operating expenses which were funded by the State of Georgia ranged from approximately 39.4% to 45.4%. See Record at 56 58.

2 . “Witnesses for the Defendants testified that the purpose for the method of assignment was to give preference to Georgia residents over residents of other states.” Findings of Fact ' 6, App., 47. Moreover, appellants have virtually conceded the underlying purpose of the rule by arguing that “the burden placed upon interstate commerce to promote an in state industry . . . fosters a legitimate state interest ...” Brief for Appellants 19 (emphasis supplied).

3 . See footnote 2, supra. It might be argued that the actual purpose of the regulation was simply to deal with the lack of space available at the Columbus Farmers Market. However, “the evil of protectionism can reside in legislative means as well as legislative ends.” City of Philadelphia v. New Jersey, 437 U.S. 617, 626, 98 S.Ct. 2531, 2537, 57 L.Ed.2d 475 (1978). In City of Philadelphia, the Court explained: “But whatever New Jersey’s ultimate purpose, it may not be accomplished by discriminating against articles of commerce coming from outside the state unless there is some reason, apart from their origin, to treat them differently.” Id., at 626-27, 98 S.Ct., at 2537.

4 . See also, Service Machine & Shipbuilding Corp. v. Edwards, 617 F.2d 70 (5th Cir. 1980) (holding a Louisiana workers’ registration ordinance violative of the Commerce Clause):

The type of discrimination that has been the focus of the Supreme Court’s analysis occurs when a state or local law distinguishes between commerce originating within a state and commerce originating outside the state. Most often this discrimination takes the form of economic protectionism, and the Court has consistently held this type of parochial legislation constitutionally invalid. See, e. g., City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978) . . .

5 . Having concluded that the regulation does not serve a legitimate local purpose, it is unnecessary to balance the burden of the regulation on interstate commerce against its putative local benefits. “If a legitimate local purpose is found, then the question becomes one of degree.” Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (emphasis supplied).