Exxon Corp. v. Governor of Maryland
Opinion of the Court
delivered the opinion of the Court.
A Maryland statute provides that a producer or refiner of petroleum products (1) may not operate any retail service station within the State, and (2) must extend all “voluntary
I
The Maryland statute is an outgrowth of the 1973 shortage of petroleum. In response to complaints about inequitable distribution of gasoline among retail stations, the Governor of Maryland directed the State Comptroller to conduct a market survey. The results of that survey indicated that gasoline stations operated by producers or refiners had received preferential treatment during the period of short supply. The Comptroller therefore proposed legislation which, according to the Court of Appeals, was “designed to correct the inequities in the distribution and pricing of gasoline reflected by the survey.” Id., at 421, 370 A. 2d, at 1109. After legislative hearings and a “special veto hearing” before the Governor, the bill was enacted and signed into law.
Shortly before the effective date of the Act, Exxon Corp. filed a declaratory judgment action challenging the statute in the Circuit Court of Anne Arundel County, Md. The essential facts alleged in the complaint are not in dispute. All of the gasoline sold by Exxon in Maryland is transported into the State from refineries located elsewhere. Although Exxon sells the bulk of this gas to wholesalers and independent retailers, it also sells directly to the consuming public through 36 company-operated stations.
During the ensuing nine months, six other oil companies instituted comparable actions. Three of these plaintiffs, or their subsidiaries, sell their gasoline in Maryland exclusively through company-operated stations.'
The three other plaintiffs, like Exxon, sell major brands primarily through dealer-operated stations, although they also operate at least one retail station each.
The Circuit Court granted the motion, and the trial then focused on the validity of the divestiture provisions. As brought out during the trial, the salient characteristics of the Maryland retail gasoline market are as follows: Approximately 3,800 retail service stations in Maryland sell over 20 different brands of gasoline. However, no petroleum products are produced or refined in Maryland, and the number of stations actually operated by a refiner or an affiliate is relatively small, representing about 5% of the total number of Maryland retailers.
The refiners introduced evidence indicating that their ownership of retail service stations has produced significant benefits for the consuming public.
The Maryland Court of Appeals reversed, rejecting all of the refiners’ attacks against both the divestiture provisions and
II
Appellants’ substantive due process argument requires little discussion.
Ill
Appellants argue that the divestiture provisions of the Maryland statute violate the Commerce Clause in three ways: (1) by discriminating against interstate commerce; (2) by unduly burdening interstate commerce; and (3) by imposing controls on a commercial activity of such an essentially interstate character that it is not amenable to state regulation.
Plainly, the Maryland statute does not discriminate against interstate goods, nor does it favor local producers and refiners. Since Maryland’s entire gasoline supply flows in interstate commerce and since there are no local producers or refiners, such claims of disparate treatment' between interstate and local commerce would be meritless. Appellants, however, focus on the retail market, arguing that the effect of the statute is to protect in-state independent dealers from out-of-state competition. They contend that the divestiture provisions “create a protected enclave for Maryland independent dealers ... .”
As the record shows, there are several major interstate marketers of petroleum that own and operate their own retail
Some refiners may choose to withdraw entirely from the Maryland market, but there is no reason to assume that their share of the entire supply will not be promptly replaced by other interstate refiners. The source of the consumers’ supply may switch from company-operated stations to independent dealers, but interstate commerce is not subjected to an impermissible burden simply because an otherwise valid regulation causes some business to shift from one interstate supplier to another.
The crux of appellants’ claim is that, regardless of whether the State has interfered with the movement of goods in interstate commerce, it has interfered “with the natural functioning of the interstate market either through prohibition or through burdensome regulation.” Hughes v. Alexandria Scrap Corp., 426 U. S. 794, 806. Appellants then claim that the statute “will surely change the market structure by weakening the independent refiners . ...”
Finally, we cannot adopt appellants' novel suggestion that because the economic market for petroleum products is nationwide, no State has the power to regulate the retail marketing of gas. Appellants point out that many state legislatures have either enacted or considered proposals similar to Maryland's,
IV
Exxon, Phillips, Shell, and Gulf contend that the requirement that voluntary allowances be extended to all retail service stations is either in direct conflict with § 2 (b) of the Clayton Act, as amended by the Robinson-Patman Act, or, more generally, in conflict with the basic federal policy in favor of competition, which is reflected in the Sherman Act as well as § 2 (b). In rejecting these contentions, the Maryland Court of Appeals noted that the Maryland statute covered two different competitive situations.
Appellants’ first argument is that compliance with the Maryland statute may cause them to violate the Robinson-Patman Act. They stress the possibility that the requirement that a price reduction be made on a statewide basis may result in discrimination between customers who would otherwise receive the same price, and they describe various hypothetical situations to illustrate this point.
Appellants, however, also claim that the Robinson-Patman Act does not simply permit localized discrimination, but actually establishes a federal right to engage in discriminatory pricing in certain situations. They argue that this federal right may be found directly in § 2 (b), or, more generally, in our Nation's basic policy favoring competition as reflected in the Sherman Act as well as § 2 (b). We find neither argument persuasive.
The proviso in § 2 (b) of the Clayton Act, as amended by
Appellants point out that the Robinson-Patman Act itself may be characterized as an exception to, or a qualification of, the more basic national policy favoring free competition,
The judgment is affirmed.
So ordered.
The pertinent provisions of the statute are as follows:
“(b) After July 1, 1974, no producer or refiner of petroleum products shall open a major brand, secondary brand or unbranded retail service station in the State of Maryland, and operate it with company personnel, a subsidiary company, commissioned agent, or under a contract with any person, firm, or corporation, managing a service station on a fee arrangement with the producer or refiner. The station must be operated by a retail service station dealer.
“(c) After July 1, 1975, no producer or refiner of petroleum products shall operate a major brand, secondary brand, or unbranded retail service station in the State of Maryland, with company personnel, a subsidiary company, commissioned agent, or under a contract with any person, firm, or corporation managing a service station on a fee arrangement with the producer or refiner. The station must be operated by a retail service station dealer.
“(d) Every producer, refiner, or wholesaler of petroleum products supplying gasoline and special fuels to retail service station dealers shall extend all voluntary allowances uniformly to all retail service station dealers supplied.” Md. Code Ann., Art. 56, § 157E (Supp. 1977).
“Upon proof being made, at any hearing on a complaint under this section, that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima-faeie case thus made by showing justification shall be upon the person charged with a violation of this section, and unless justification shall be affirmatively shown, the Commission is authorized to issue an order terminating the discrimination: Provided, however, That nothing herein contained shall prevent a seller rebutting the prima-facie case thus made by showing that his lower price or the furnishing of services or facilities to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor.” 15 U. S. C. § 13 (b) (1976 ed.).
As used by the Court of Appeals and in this opinion, “company-operated station” refers to a retail service station operated directly by employees of a refiner or producer of petroleum products (or a subsidiary). 279 Md., at 419 n. 2, 370 A. 2d, at 1108 n. 2.
For instance, Exxon has used its company-operated stations to introduce such marketing ideas as partial self-service, in-bay car-wash units, and motor-oil vending machines. App. 205-209.
Exxon presented nine arguments, both constitutional and statutory. It contended that the statute was arbitrary and irrational under the Due Process Clause; constituted an unconstitutional taking of property without just compensation; denied it, in two distinct ways, the equal protection of the laws; constituted an unlawful delegation of legislative authority; was unconstitutionally vague; discriminated against and burdened interstate commerce; and was pre-empted by the Robinson-Patman Act and the Federal Emergency Petroleum Allocation Act of 1973. Id,., at T4-16.
These plaintiffs are Continental Oil Co. (and its subsidiary Kayo Oil Co.), Commonwealth Oil Refining Co. (and its subsidiary Petroleum Marketing Corp.), and Ashland Oil Co.
These plaintiffs are Phillips Petroleum Co., Shell Oil Co., and Gulf Oil Corp.
The Court of Appeals stated that the statute “would not in any way restrict the free flow of petroleum products into or out of the state.” Id., at 431, 370 A. 2d, at 1114. While the evidence in the record does not directly support this assertion, it is certainly a permissible inference to be drawn from the evidence, or lack thereof, presented by the appellants. See Reply Brief for Appellants in No. 77-64, p. 7.
See n. 5, supra.
Indeed, although the Circuit Court’s decision rested primarily on the substantive due process claim, only appellants Continental Oil and its subsidiary, Kayo Oil, press that claim here.
It is worth noting that divestiture is by no means a novel method of economic regulation, and is found in both federal and state statutes. To date, the courts have had little difficulty sustaining suoh statutes against a substantive due process attack. See, e. g., Paramount Pictures,
Brief for Appellants in No. 77-10, p. 27.
For instance, as of July 1, 1974, such interstate, nonrefining or non-producing, companies as Sears, Roebuck & Co., Hudson Oil Co., and Pantry Pride operated retail gas stations in Maryland. App. 190-191. Hudson has, however, recently acquired a refinery. See Brief for Appellants in No. 77-10, p. 33 n. 17.
If the effect of a state regulation is to cause local goods to constitute a larger share, and goods with an out-of-state source to constitute a smaller share, of the total sales in the market — as in Hunt, 432 U. S., at 347, and Dean Milk, 340 U. S., at 354 — the regulation may have a discriminatory effect on interstate commerce. But the Maryland statute has no impact on the relative proportions of local and out-of-state goods sold in Maryland and, indeed, no demonstrable effect whatsoever on the interstate flow of goods. The sales by independent retailers are just as much a part of
Reply Brief for Appellants in No. 77-64, p. 7.
California, Delaware, the District of Columbia, and Florida have adopted laws restricting refiners' operation of service stations. Similar proposals have been before the legislatures of 32 other jurisdictions. See Brief for Appellants in No. 77-10, p. 45 nn. 21 and 22; Brief for the State of California as Amicus Curiae.
The Court of Appeals also noted that there is a third competitive situation — a discriminatory price reduction made to meet an equally low price offered to the same buyer by a competing seller. In the lower court’s view, this situation clearly fell within the § 2 (b) defense, but was not encompassed by the term “voluntary allowances.” 279 Md., at 452, 370 A. 2d, at 1125.
The Court left the question open in Sun Oil, 371 U. S., at 512 n. 7, and the lower courts have reached conflicting results. Compare Enterprise Industries v. Texas Co., 136 F. Supp. 420 (Conn. 1955), rev’d on other grounds, 240 F. 2d 457 (CA2 1957), cert. denied, 353 U. S. 965, with Bargain Car Wash, Inc. v. Standard Oil Co. (Indiana), 466 F. 2d 1163 (CA7 1972).
Appellants argue that compliance with the “voluntary allowance” provision may expose them to both primary-line and secondary-line liability under § 2 (a) of the Clayton Act, as amended by the Robinson-Patman Act. With respect to primary-line liability, they pose the hypothesis of a seller who responds to a competitor’s lower price in Baltimore. Under the statute, he must lower his prices throughout the State, even though the competitive market justifying that price is confined to Baltimore. Appellants then argue that a competitor operating only in Salisbury, Md., may be injured by this price reduction. But an injury flowing from a uniform price reduction is not actionable under the Robinson-Patman Act, which only prohibits price discrimination. See F. Rowe, Price Discrimination Under the Robinson-Patman Act 93 (1962).
Thus, appellants’ claim that the statute will create secondary-line liability is premised on the possibility that price differentials may arise between stations located in Maryland and those in neighboring States. With respect to this claim, it is sufficient to note that, although the Maryland statute may affect the business decision of whether or not to reduce prices, it does not create any irreconcilable conflict with the Robinson-Patman Act. The statute may require that a voluntary allowance that could legally have been confined to the Baltimore area be extended to Salisbury. We may then assume, arguendo, that the Robinson-Patman Act could require a further extension of the allowance into the neighboring State. The possible scope of the voluntary allowance may, therefore, have an impact on the company’s decision on whether or not to meet the competition in Baltimore, but the state statute does not in any way require discriminatory prices. See also n. 20, supra.
Section 2 of the original Clayton Act, 38 Stat. 730, established an absolute defense for a seller’s reductions in price made “in good faith to meet competition . . . .” The legislative history of the Robinson-Patman Act shows that § 2 (b) was intended to limit that broad defense. See Standard Oil Co. v. FTC, 340 U. S. 231, 247-249, n. 14.
In holding that § 2 (b) created a substantive, rather than merely a procedural, defense, the Court explained:
“The heart of our national economic policy long has been faith in the value of competition. In the Sherman and Clayton Acts, as well as in the Robinson-Patman Act, 'Congress was dealing with competition, which it sought to protect, and monopoly, which it sought to prevent.’ Staley Mfg. Co. v. Federal Trade Comm’n, 135 F. 2d 453, 455. We need not now reconcile, in its entirety, the economic theory which underlies the Robinson-Patman Act with that of the Sherman and Clayton Acts. It is enough to say that Congress did not seek by the Robinson-Patman Act either to abolish competition or so radically to curtail it that a seller would have no substantial right of self-defense against a price raid by a competitor.” Standard Oil Co., supra, at 248-249 (footnote omitted).
Just as the political and economic stimulus for the Robinson-Patman Act was the perceived need to protect independent retail stores from “chain stores,” see U. S. Department of Justice, Report on the Robinson-Patman Act ll-L-124 (1977), so too the Maryland statute was prompted by the perceived need to protect independent retail service station dealers from the vertically integrated oil companies. 279 Md., at 422, 370 A. 2d, at 1109.
Indeed, many have argued that the Robinson-Patman Act is fundamentally anticompetitive and undermines the purposes of the Sherman Act. See generally U. S. Department of Justice Report, supra.
Brief for Appellants in No. 77-10, p. 80.
Appellants argue that Maryland has actually regulated beyond its boundaries, pointing to the possibility that they may have to extend voluntary allowances into neighboring States in order to avoid liability under the Robinson-Patman Act. See nn. 21 and 22, supra. But this alleged extra-territorial effect arises from the Robinson-Patman Act, not the Maryland statute.
Concurring in Part
concurring in part and dissenting in part.
Although I agree that the Maryland Motor Fuel Inspection Law
I
In Maryland the retail marketing of gasoline is interstate commerce, for all petroleum products come from outside the State. Retailers serve interstate travelers. To the extent that particular retailers succeed or fail in their businesses, the interstate wholesale market for petroleum products is affected. Cf. Dean Milk Co. v. Madison, 340 U. S. 349 (1951).
A
The Commerce Clause forbids discrimination against interstate commerce, which repeatedly has been held to mean that States and localities may not discriminate against the transactions of out-of-state actors in interstate markets. E. g., Hunt v. Washington Apple Advertising Comm’n, 432 U. S. 333, 350-352 (1977); Halliburton Oil Well Co. v. Reily, 373 U. S. 64, 69-73 (1963); Dean Milk Co. v. Madison, 340 U. S., at 354; Best & Co. v. Maxwell, 311 U. S. 454, 455-456 (1940). The discrimination need not appear on the face of the state or local regulation. “The commerce clause forbids discrimination, whether forthright or ingenious. In each case it is our duty to determine whether the statute under attack, whatever its name may be, will in its practical operation work discrimination against interstate commerce.” Ibid, (footnote omitted). The state or local authority need not intend to discriminate in order to offend the policy of maintaining a free-flowing national economy. As demonstrated in Hunt, a statute that on its face restricts both intrastate and interstate transactions may violate the Clause by having the “practical effect” of discriminating in its operation. 432 U. S., at 350-352.
If discrimination results from a statute, the burden falls upon the state or local government to demonstrate legitimate local benefits justifying the inequality and to show that less discriminatory alternatives cannot protect the local interests.
“A different view, that the ordinance is valid simply because it professes to be a health measure, would mean that the Commerce Clause of itself imposes no limitations on state action other than those laid down by the Due Process Clause, save for the rare instance where a state artlessly discloses an avowed purpose to discriminate against interstate goods.” Ibid.
In an independent assessment of the asserted purpose, the Court determined exactly how the ordinance protected public health and then concluded that other measures could accomplish the same ends. Id., at 354-356. The city’s public health purpose therefore did not justify the discrimination, and the ordinance violated the Commerce Clause.
B
With this background, the unconstitutional discrimination in the Maryland statute becomes apparent. No facial inequality exists; §§ (b) and (c) preclude all refiners and producers from marketing gasoline at the retail level. But given the structure of the retail gasoline market in Maryland, the effect of §§ (b) and (c) is to exclude a class of predominantly out-of-state gasoline retailers while providing protection from competition to a class of nonintegrated retailers that is overwhelmingly composed of local businessmen. In 1974, of the 3,780 gasoline service stations in the State, 3,547 were operated by nonintegrated local retail dealers. App. 191, 569, 755. Of the 233 company-operated stations, 197 belonged to out-of-
The discrimination suffered by the out-of-state integrated producers and refiners is significant. Five of the excluded enterprises, Ashland Oil, Inc., BP Oil, Inc., Kayo Oil Co., Petroleum Marketing Corp., and Southern States Cooperative, Inc., market nonbranded gasoline through price competition rather than through brand recognition. Of the 98 stations marketing gasoline in this manner, all but 6 are company operated. The company operations result from the dominant fact of price competition marketing. According to repeated testimony from petroleum economics experts and officers of price marketers — testimony that the trial court did not discredit — such nonbranded stations can compete successfully only if they have day-to-day control of the retail price of their products, the hours of operation of their stations, and related business details. App. 320, 357, 370-371, 449-451, 503-504,
The record also contains testimony that the discrimination will burden the operations of major branded companies, such as appellants Exxon, Phillips, Shell, and Gulf, all of which are out-of-state firms. Most importantly, §§ (b) and (c) will preclude these companies, as well as those mentioned in the previous paragraph, from competing directly for the profits of retail marketing. According to Richard T. Harvin, retail sales manager for Exxon’s eastern marketing region, Exxon’s company-operated stations in Maryland annually return 15% of the company’s investment — a profit of $700,000 in 1974. App. 316. Sections (b) and (c) will force this return to be shared with the local dealers. In addition, the ban of the sections will preclude the majors from enhancing brand recognition and consumer acceptance through retail outlets with company-controlled standards. Id., at 316, 320, 647, 668-669. Their ability directly to monitor consumer preferences and
Similar hardship is not imposed upon the local service station dealers by the divestiture provisions. Indeed, rather than restricting their ability to compete, the Maryland Act effectively and perhaps intentionally improves their competitive position by insulating them from competition by out-of-state integrated producers and refiners. In its answers to the various complaints in this case, the State repeatedly conceded that the Act was intended to protect “the retail dealer as an independent businessman [by] reducing the control and dominance of the vertically integrated petroleum producer and refiner in the retail market.” Id., at 33; see id., at 51, 54, 104, 128, 132, 145, 147. At trial the State’s expert said that the legislation would have the effect of protecting the local dealers against the out-of-state competition. Id., at 613. In short, the foundation of the discrimination in this case is that the local dealers may continue to enter retail transactions and to compete for retail profits while the statute will deny similar opportunities to the class composed almost entirely of out-of-state businesses.
The State’s showing may be so meager because any legitimate interest in competition can be vindicated with more evenhanded regulation. First, to the extent that the State’s interest in competition is nothing more than a desire to protect particular competitors — less efficient local businessmen — from the legal competition of more efficient out-of-state firms, the interest is illegitimate under the Commerce Clause. A national economy would hardly flourish if each State could effectively insist that local nonintegrated dealers handle product retailing to the exclusion of out-of-state integrated firms that would not have sufficient local political clout to challenge the influence of local businessmen with their local government leaders.
Second, a legitimate concern of the State could be to limit the economic power of vertical integration. But nothing in the record suggests that the vertical integration that has
In sum, the State has asserted before this Court only a vague interest in preserving competition in its retail gasoline market. It has not shown why its interest cannot be vindicated by legislation less discriminatory toward out-of-state retailers. It therefore has not met its burden to justify the discrimination inherent in §§ (b) and (c), and they violate the Commerce Clause.
II
The arguments of the Court’s opinion, the Maryland Court of Appeals decision,
A
The Court offers essentially three responses to the discrimination in the retail gasoline market imposed by the divestiture provisions.
To accept the argument of the Court, that is, that discrimination must be universal to offend the Commerce Clause, naively will foster protectionist discrimination against interstate commerce. In the future, States will be able to insulate in-state interests from competition by identifying the most potent segments of out-of-state business, banning them, and permitting less effective out-of-state actors to remain. The record shows that the Court permits Maryland to effect just such discrimination in this case. The State bans the most powerful out-of-state firms from retailing gasoline within its boundaries. It then insulates the forced divestiture of 199 service stations from constitutional attack by permitting out-of-state firms such as Pantry Pride, Pisca, Hi-Way, and Midway to continue to operate 34 gasoline stations. Effective out-of-state competition is thereby emasculated — no doubt, an ingenious discrimination. But as stated at the outset, “the commerce clause forbids discrimination, whether forthright or ingenious.” Best & Co. v. Maxwell, 311 U. S., at 455.
Second, the Court contends, as a subpart of its primary argument, that the discrimination in Hunt “raised the cost of doing business for out-of-state dealers, and, in various other ways, favored the in-state dealer in the local market. 432 U. S., at 351-352. No comparable claim can be made here.” Ante, at 126. Once it is seen that the discrimination in Hunt raised the cost of doing business for only one group of the out-of-state marketers of apples, the fallacy of the Court’s
Third, the Court asserts without citation: "The fact that the burden of a state regulation falls on some interstate companies does not, by itself, establish a claim of discrimination against interstate commerce.” Ante, at 126. This proposition is correct only to the extent that it is incomplete; it does not apply to the facts present here. It is true that merely demonstrating a burden on some out-of-state actors does not prove unconstitutional discrimination. But when the burden is significant, when it falls on the most numerous and effective group of out-of-state competitors, when a similar burden does not fall on the class of protected in-state businessmen, and when the State cannot justify the'resulting disparity by showing that its legislative interests cannot be vindicated by more evenhanded regulation, unconstitutional discrimination exists. The facts of this litigation demonstrate such discrimination, and the Court does not argue persuasively to the contrary.
B
The contentions of the Maryland Court of Appeals, which also found no violation of the Commerce Clause, are no more convincing than the arguments of the Court’s opinion. First, the Court of Appeals reasoned that §§ (b) and (c) did not discriminate against the class of out-of-state refiners and producers because the wholesale flow of petroleum products into the State was not restricted. 279 Md. 410, 431, 370 A. 2d 1102, 1114 (1977). This supposedly distinguished the present
Furthermore, Dean Milk cannot be distinguished on the ground asserted by the Court of Appeals. There, this Court invalidated § 7.21 of the General Ordinances of the city of Madison (1949), which outlawed the local sale of milk not pasteurized within five miles of the city. The section did not legally or effectively block the flow of out-of-state milk into Madison to any greater extent than the restrictions on sales of gasoline by out-of-state companies block the flow of gasoline here. In Dean Milk out-of-state producers could bring their milk to Madison, have it pasteurized in Madison, and sell it in Madison without violating § 7.21. If the flow of milk were at all restricted, it was merely because the out-of-state producers chose not to deal with the Madison pasteurizers. Similarly, the flow of gasoline into Maryland may be restricted if the out-of-state producers and refiners choose not to supply the dealers who replace the company-owned operations.
Second, the Court of Appeals said the Maryland legislation did not offend the Commerce Clause because the legislature intended to preserve competition, not to discriminate against interstate commerce. 279 Md., at 431, 370 A. 2d, at 1114.
Third, the Court of Appeals resurrected the outdated notion that retailing is merely local activity not subject to the strictures of the Commerce Clause. 279 Md., at 432, 370 A. 2d, at 1114-1115, citing Crescent Oil Co. v. Mississippi, 257 U. S. 129 (1921). In Crescent Oil the Court said that the operation of cotton gins was local manufacturing rather than interstate commerce. As explained at the beginning of Part I of this opinion, however, the interstate character of the retail gasoline market and 57 years of intervening constitutional and economic development prevent the application of Crescent Oil to the facts of this litigation. See nn. 3 and 4, and accompanying text, supra.
C
Finally, nothing in the argument of the appellees saves the distinctions in §§ (b) and (c) from the taint of unconstitutionality. First, the State argues that discrimination against interstate commerce has not occurred because “[n]o nexus between interstate as opposed to local interests inheres in the production or refining of petroleum.” Brief for Appellees 23. Although this statement might be correct in the abstract, it is incorrect in reality, given the structure of the Maryland petroleum market. Due to geological formation as so far known, no petroleum is produced in Maryland; due to the economics of production and refining, as well as to the geology,
Third, appellees rely upon the Court of Appeals’ contention that unconstitutional discrimination against interstate commerce can be found only where the flow of interstate goods is curtailed. Appellees’ assertion fares no better than did the court’s because the appellees fail to show how the effect on the flow of interstate goods varies in kind between this case and Dean Milk. See Part II-B, supra.
Ill
The Court’s decision brings to mind the well-known words of Mr. Justice Cardozo:
“To give entrance to [protectionism] would be to invite a speedy end of our national solidarity. The Constitution was framed under the dominion of a political philosophy less parochial in range. It was framed upon the theory that the peoples of the several states must sink or swim together, and that in the long run prosperity and salvation are in union and not division.” Baldwin v. G. A. F. Seelig, Inc., 294 U. S. 511, 523 (1935).
Today, the Court fails to heed the Justice’s admonition. The parochial political philosophy of the Maryland Legislature thereby prevails. I would reverse the judgment of the Maryland Court of Appeals.
The presently challenged portions of the law were enacted four years ago and amended once since then. 1974 Md. Laws, eh. 854; 1975 Md. Laws, ch. 608. The statute is now codified as Md. Code Ann., Art. 56, § 157E (Supp. 1977), and reads:
“(a) For the purpose of this law all gasoline and special fuels sold or offered or exposed for sale shall be subject to inspection and analysis as hereinafter provided. . . .
“(b) After July 1, 1974, no producer or refiner of petroleum producís shall open a major brand, secondary brand or unbranded retail service station in the State of Maryland, and operate it with company personnel, a subsidiary company, commissioned agent, or under a contract with any person, firm, or corporation, managing a service station on a fee arrangement with the producer or refiner. The station must be operated by a retail service station dealer.
“(c) After July 1, 1975, no producer or refiner of petroleum products shall operate a major brand, secondary brand, or unbranded retail service station in the State of Maryland, with company personnel, a subsidiary company, commissioned agent, or under a contract with any person, firm, or corporation managing a service station on a fee arrangement with the producer or refiner. The station must be operated by a retail service station dealer.
“(d) Every producer, refiner, or wholesaler of petroleum products supplying gasoline and special fuels to retail service station dealers shall extend all voluntary allowances uniformly to all retail service station dealers supplied.
“(e) Every producer, refiner, or wholesaler of petroleum products supplying gasoline and special fuels to retail service station dealers shall*135 apply all equipment rentals uniformly to all retail service station dealers supplied.
“(f) Every producer, refiner or wholesaler of petroleum products shall apportion uniformly all gasoline and special fuels to all retail service station dealers during periods of shortages on an equitable basis, and shall not discriminate among the dealers in their allotments.”
U. S. Const., Art. I, § 8, cl. 3:
“The Congress shall have Power . . .
“To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”
The inherent effect of local regulation of retail sales on interstate commerce is well illustrated by Dean Mük. The city of Madison forbade the sale of pasteurized milk unless pasteurization occurred at a plant located within five miles of the center of the city. General Ordinances of the City of Madison §7.21 (1949). Even though only local sale was prohibited, the Court considered the ordinance to be a regulation of interstate commerce.
Cf. Best & Co. v. Maxwell, 311 U. S. 454 (1940) (holding that taxation of local retailing was within the reach of the Commerce Clause); United States v. Frankfort Distilleries, Inc., 324 U. S. 293 (1945) (holding that retailing was interstate commerce within the scope of the Sherman Act). See generally Note, Gasoline Marketing Divestiture Statutes: A Preliminary Constitutional and Economic Assessment, 28 Vand. L. Rev. 1277, 1303 (1975).
In 1974 Fisca Oil Co., Giant Food, Inc., Hi-Way Oil, Inc., Homes Oil Co., Hudson Oil Co., Midway Petroleum, National Oil Co., Pantry Pride, Savon Gas Stations, and Sears, Roebuck & Co. operated gasoline stations in Maryland. Because none of these organizations produced or refined petroleum at that time, the statute would not have restricted their operations. It should be noted, however, that the statute will reach any of these firms deciding to integrate backwards from retailing to refining or producing. After this suit was filed, Hudson Oil Co. acquired a refinery and thus became another out-of-state business subject to the ban of §§ (b) and (c). App. 518-519.
The sections will force Ashland to divest 17 stations in which it has invested $2,381,385. Id., at 257, 258-259. Petroleum Marketing has 21 stations valued at $2,043,710. Id., at 656.
Another indication of the discrimination against out-of-state business was the amendment of the original legislative proposal to exempt wholesalers of gasoline from the divestiture requirements. The author of the proposal intended to ban retailing by wholesalers and “not to discriminate against one class as to another.” Id., at 568. On cross-examination he was asked why the exemption was enacted. He replied:
“It was up to the General Assembly to malee that decision. Apparently the wholesalers were represented at the testimony in the hearings. ... I did hear at a later date that they wanted to be exempt from it because*141 some of the wholesalers being local jobbers had no investment or financial activity or engagement with the producer-refiner so they wanted to plea upon the mercy of the committee so to speak ....
“Q. You have no information then as to why the Legislature of Maryland chose to make that discrimination? A. Not other than hearsay as to the general data that these men were local businessmen, had no definite tie in with the refinery . . . .” Id., at 568-569.
There is support in the record for the inference that the Maryland Legislature passed the divestiture provisions in response to the pleas of local
"I would like to begin by telling you gentlemen that these are desperate days for service station dealers. . . .
“Now beset by the critical gasoline supply situation, the squeeze by his landlord-supplier and the shrinking service and tire, battery and accessory market, the dealer is now faced with an even more serious problem.
“That is the sinister threat of the major oil companies to complete their takeover of the retail-marketing of gasoline, not just to be in competition with their own branded dealers, but to squeeze them out and convert their stations to company operation.
“Our oil industry has grown beyond the borders of our country to where its American character has been replaced by a multinational one.
“Are the legislators of Maryland now about to let this octopus loose and unrestricted in the state of Maryland, among our small businessmen to devour them? We sincerely hope not.
“The men that you see here today are the back-bone of American small business. . . .
“We are here today asking you, our own legislators to protect us from an economic giant who would take away our very livelihood and our children’s future in its greed for greater profits. Please give us the protection we need to save our stations.” Id., at 755, 756, 761.
From the facts stipulated by the parties, the trial court found:
“Retail petroleum marketing in the State of Maryland is and has been a highly competitive industry. This is a result of the number and location of available facilities, the comparatively small capital costs for entering the business, the mobility of the purchaser at the time of purchasing the products, the relative interchangeability of one competitor’s products with another in the mind of the consumer, the visibility of price information, and the many choices the consumer has in terms of prices, brands, and services offered.” Joint App. to Jurisdictional Statements 99a.
The continuing competitive nature of the Maryland gasoline market provided one basis for the trial court’s holding that the State had not “demonstrated a real and substantial relation to the object sought to be attained by the means selectedf;] the evidence presented before it indicates that the statute is inversely related to the public welfare.” Id., at 131a-132a. The trial court therefore considered the statute unconstitutional.
The trial court entered several findings about the integration of the oil companies and the need for divestiture:
“Apart from restraining free competition, it was shown that divestiture would be harmful to competition in the industry, and would primarily serve to protect the independent dealers rather than the public at large. There was no proven detrimental effect upon the retail market caused by company-owned-and-operated stations which could not be curbed by federal and state anti-trust laws.
“The court also finds from the preponderance of the evidence that the law will preclude all of some thirty-two producer-refiners not now in the State from ever entering the competitive market in Maryland, and vertical*144 integration will be prohibited. Neither effect is in the public interest since competition is essentially for consumer benefit.
“Noteworthy also is the fact that the original draft of the law included wholesalers in the prohibition against retail selling. The final draft of the law eliminated wholesalers, for the sole reason, according to Mr. Coleman, that the wholesalers requested their elimination from the act. There is no evidence whatsoever relative to why wholesalers should have been included initially, nor how the general public benefited from their exemption.
“In all the more than one hundred eighty-five pounds of pleadings, motions, briefs, exhibits and depositions before this court, there is no concrete evidence that the act was justified as to the classes of operators singled out to be affected in order to promote the general welfare of the citizens of the State. Rather, it is apparent that the entire bill is designed to benefit one class of merchants to the detriment of another.” Id., at 130a-131a (emphasis supplied).
This statute states:
“(g) Distributor may not unreasonably withhold certain consents . . . The distributor may not unreasonably withhold his consent to any assignment, transfer, sale, or renewal of a marketing agreement. . . .”
279 Md. 410, 370 A. 2d 1102 and 372 A. 2d 237 (1977). The trial court, the Circuit Court for Anne Arundel County, Md., did not address the question whether §§ (b) and (c) unconstitutionally discriminated against interstate commerce. It held that the statute offended substantive due process, in violation of the Maryland Declaration of Rights, Art. 23.
The Court also notes that §§ (b) and (c) do not discriminate against interstate goods and do not favor local producers and refiners. While true, the observation is irrelevant because it does not address the discrimination inflicted upon retail marketing in the State. Cf. Part II-B, infra.
Footnote 16 of the Court's opinion, ante, at 126-127, suggests that unconstitutional discrimination does not exist unless there is an effect on the quantity of out-of-state goods entering a State. This is too narrow a view of the Commerce Clause. First, interstate commerce consists of far more than mere production of goods. It also consists of transactions — of repeated buying and selling of both goods and services. By focusing exclu
Growers from 13 States marketed apples in North Carolina. Six of the States did not have state grading systems apart from the USDA regulations. 432 U. S., at 349.
In fact, the disruption of the flow of gasoline in this case could be greater than the disruption of the flow of milk in Madison. The record supports the proposition that the ban on company operations may so unsettle the wholesale and refining enterprises of the independent price marketers that they will not be able profitably to supply gasoline to the stations of nonintegrated retailers in Maryland. App. 504-505, 509, 531.
Given the Nation’s experience under the Articles of Confederation, the assumption is not an unreasonable one. At that time authority to regulate commerce rested with the States rather than with Congress. The pursuit by each State of the particular interests of its economy and constituents nearly wrecked the national economy. “The almost catastrophic results from this sort of situation were harmful commercial wars and reprisals at home among the States . . . .” P. Hartman, State Taxation of Interstate Commerce 2 (1953), citing, e. g., The Federalist, Nos. 7, 11, 22 (Hamilton), No. 42 (Madison).
Reference
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- EXXON CORP. Et Al. v. GOVERNOR OF MARYLAND Et Al.
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