*1 HQ7 rеasons, judg- For these prosecution. court is reversed.
ment of the district MANAGEMENT, INC., a South
CHANCE corporation; A.
Dakota William Sand-
ers, Wyoming resident, Plaintiffs-Ap-
pellants, DAKOTA; Mark
STATE OF SOUTH W.
Barnett, capacity official as Attor- his Dakota;
ney General of South Lottery; Walker, in her
Dakota Susan capacity Executive
official Director Lottery; King,
of the South Dakota H.I. capacity as member of the his official Lottery Commission; Dakota
Beverly McCracken, ca- in her official
pacity Dakota as member of the South
Lottery Commission; Emery, Elaine capacity
her official as member of Lottery Commission; Dakota Don
Bender, capacity in his official as mem- Lottery Dakota
ber of the South Com-
mission; Solum, in her official Burdette
capacity as member of the South
Lottery Commission; Carmody, E. John
Sr., capacity in his official as member of Lottery Commission,
Defendants-Appellees.
No. 95-1665. Appeals,
United States Court
Eighth Circuit. 17, 1995.
Submitted Nov. 10, 1996.
Decided Oct. *2 Sanford, Falls, argued,
Steven W. Sioux SD, plaintiffs-appellants. for (Lee Hallem, Pierre, Jeffrey argued, P. SD McCahren, brief), M. defendants- appellees. HANSEN, LAY, MURPHY,
Before Judges. Circuit HANSEN, Judge. Circuit corporation may A obtain a license as lottery operator machine for the South Lottery only if residents of South majority ownership Dakota hold the interest corporation. Laws Ann. S.D. Codified (Supp.1995). Manage- 42-7A-ri3 Chance ment, Inc., and William A. Sanders filed this suit, challenging constitutionality residency requirement under the Commerce Clause, Equal Protection Clause Amendment, Privileges Fourteenth and Immunities Clause. The district court1 granted summary judgment. the defendants court concluded that Commerce Clause apply restrictions do not to the statute be- cause the state of Dakota is in the video busi- ness. The court further held that the statute Equal does not violate the Protection Clause plaintiffs standing and that the Jones, Judge 1. The Honorable John B. United States District for the District of South Dakota.
H09 Commission, promulgated by § 42- id. Privileges and Immunities Clause assert 7A-21. appeal. We affirm. ehallenge. operates South Dakota controls I. large part through Dakota, gam- various forms In South computer system, central which is located in *3 Laws Ann. legal. Codified
bling are
See S.D.
Lottery
the main office of the South Dakota
(1991
Supp.1996)
§§
to -106
42-7-47
Pierre,
Although
in
South Dakota.
the state
(horse
§§
dog racing);
id.
42-7A-1
and
on which
does
own the video machines
(South
§§
Lottery);
id.
42-7B-1
Dakota
-55
games
played or
of chance are
the mo-
machines).
(card games and slot
to -62
machines, it
dems attached to the
owns the
operates one of the
Dakota owns and
South
programs
operate
dominant software
Dakota,
gaming enterprises
South
Erasable,
machines. The state owns the
Lottery,
a video lot-
Dakota
which is
South
(EP-
Only Memory
Programmable, Read
lottеry
of
tery
consists
business. Video
ROM)
machines,
chips in the video
without
computer-con-
played on a
games of chance
could not function. The
which the machines
machine, simulating
games
trolled video
chips
protects
data that
EPROM
contain the
keno,
blackjack,
bingo.
poker,
South
system
by
and secures the
from invasion
lottery business in
operates
Dakota
its video
year
In
outside influences.
the first
of its
III,
25 of the
with Article
Section
accordance
operation,
spent
the state
two million dollars
Constitution, which, as amend-
Dakota
South
computer system, personnel,
on the central
1994,2
reads as follows:
ed
expenses.
and related
any
Legislature shall not authorize
lottery
operators (opera-
machine
Video
However,
lottery_
it shall
game of ...
tors) own the individual video machines and
Legislature to authorize
lawful for the
operation
responsible
are
for their
and main-
law,
games
lottery or video
by
a state
(J.A.
49.)
operator places
An
tenance.
chance,
both,
regulated
or
which are
lоttery
equip-
or
video
machines
associated
Dakota,
separately
either
state of South
play in
ment for authorized
licensed video
jointly
or
with one or more
Dakota,
lottery
in-
establishments
states,
operated
owned and
and which are
restaurants, bars, lounges,
cluding
lodging
Dakota,
sepa-
either
the state of South
licensed to sell alcoholic bev-
establishments
jointly
one or
rately by the state or
erages
premises. S.D. Codified Laws
on the
any
persons, provided
such
more states or
42-7A-l(6)
(defining
§§
Ann.
“licensed es-
directly
games of chance shall not
video
-1(17)
tablishment”),
(defining
lottery
“video
dispense coins or tokens.
operator”).
oper-
machine
The state bills
Chapter 42-7A of the South Dakota Codi-
revenue, receiving
portion of the
ators for its
lottery
establishes the state’s video
fied Laws
by electronically sweeping
oper-
payment
independent
direction of an
under the
S.D. Admin. R.
ators’ bank accounts.
Lottery
Dakota
Commis-
agency, the South
of the
The state’s share
48:02:06:03
(the Commission).
S.D. Codified
sion
per
time thе
net income was 37
cent
chapter
(Supp.1995).
§ 42-7A-2
This
Ann.
case;
this
the South
district court decided
statutory
govern-
a detailed
scheme
creates
Legislature
increased the
has since
ing
Dakota’s video
business.
portion
per
cent.
§
An
di-
42-7A-1 to -55.
executive
See id.
manufacturers,
All
machine
lottery pursuant
administers the
rector
distributors,
42-7A,
operators
§
must obtain
Chapter
42-
provisions of
id.
7A-2,
from the executive director
regulations
license
and under the rules
amending
ing joint
the South Dakota
Lottery began operating
resolution
2. The South Dakota
Lottery.
Supreme
the South Dakota
Court of
Constitution
allow
1989. In
October
pro-
approved the
voters of South Dakota
declared that the state was
South Dakota
actually running
amendment,
chance,
posed
in Novem-
lottery,
games
constitutional
but
III,
Article
Section
ber
under the amended
Dakota Constitution.
in violation
Constitution,
(S.D.1994).
lot-
Poppen
25 of the South Dakota
vestigation,
person
must be a
of
resident
Cir.1995).
South Dakota to obtain a video
ma-
operator’s
chine
license. S.D. Codified Laws
Challenge
A. Commerce Clause
§
party seeking
Ann.
If
42-7A-43.
Under the Commerce Clause of the
operator’s
corporation, majority
license is a
States, “Congress
Constitution of the United
ownership
corporation
of the
interest
regulate
shall have Power ... To
Commerce
must be held
South Dakota
residents
Nations,
foreign
among
the several
qualify
order to
for a license. Id.
”
States, and with the Indian Tribes....
Inc.,
Management,
Plaintiff Chance
is a
I,
8,§
U.S. Const. art.
cl. 3. This clause acts
corporation organized under the laws of the
only
grant
regulatory
as an affirmative
of
state of South Dakota and is owned
two
power Congress,
but also “as a restriction
Sanders,
persons. Plaintiff
A.
William
a res-
permissible
regulation.” Hughes
on
state
v.
(51%)
Wyoming,
majority
ident of
owns the
Oklahoma,
322, 326,
1727,
441 U.S.
99 S.Ct.
Management,
of the stock in Chance
(1979).
1731,
‘negative’
HH
to be the
opted instead
ket,
legislature
Tim
South-Central
See
842
L.Ed.2d
operate a
and to
82,
to own
largest participant,
Wunnicke,
93-
467 U.S.
Dev., Inc. v.
ber
That
the action.
2243-45,
huge piece
71
2237,
L.Ed.2d
81
95, 104 S.Ct.
mean
does not
in the market
v. Massa
actor
(1984)
opinion); White
dominant
(plurality
460
Employers,
participant.
it is not
Constr.
Council
chusetts
104-45,
1042,
75
204, 208, 103 S.Ct.
U.S.
is not
argue that the state
plaintiffs
Stake,
447
(1983);
Inc.
L.Ed.2d
it is
participant because
acting
aas market
436-37,
U.S.
seller,
employer.
buyer,
aas
(1980);
v. Alexandria
Hughes
L.Ed.2d
argument
this
base
808-10,
Scrap Corp.,
Supreme
played in the three
roles the states
(1976). A
2496-98,
49 L.Ed.2d
ex
applying market
cases
Court
free
a market
acting as
205-06,
White,
ception. See
Clause
Commerce
the strictures
Reeves, 447
(employer);
at 1043-44
S.Ct.
no indication
because “there
(seller); at 2274-75
S.Ct.
to limit
intended
Clause was
[Commerce]
Scrap, 426 U.S.
Alexandria
operate
themselves
ability
[s]tates
reasoning
these
(buyer). The
2492-93
Charities,
F.3d at
market.”
in the free
plain
support the
cases,
does not
capacity
proprietary
acting in a
799. States
inquiry
argument.
Court’s
tiffs’
as
federal constraints
free from
should
*5
not whether
cases asks
participation
market
Id.
participants.
market
private
are
seller, or
buyer,
acting as
is
a
state
the
court’s
the district
agree with
We
market,
in a
participates
it
employer when
lottery
video
that South Dakota’s
conclusion
actually participat
state is
the
whether
but
residency requirement,
statute, including its
propri
market as a
narrowly defined
ing in a
exception
market
the
falls within
ac
simply regulating the
than
rather
etor
with, the
begin
To
Clause.
to the Commerce
participants.
private market
of other
tions
the
business within
a state
statute created
94-95,
at
Wunnicke,
U.S.
sub
Dakota invested
South
gaming market.
White, Reeves,
Alex
(explaining
2243-45
get
money to
the
sums
stantial
97-98,
2245-
104 S.Ct. at
Sсrap),
andria
state
ground. The
Lottery off the
Dakota
actually be
must
that a state
(explaining
that
programs
software
the dominant
owns
regu
market
is
specific
in the
participating
owns
lottery
machines
video
operate the
exception
participation
market
lating for the
ma
controls
system
computer
that
be
We do not
opinion).
(plurality
apply)
Moreover,
present
the state
payouts.
chine
questioned that
seriously be
that it can
lieve
generated
revenue
percent of the
ly reaps 50
money
substantial
has invested
Dakota
Thus,
Lottery.
by the South
narrowly
in the
participating
into
effort
in the
actively running a business
is
proprietor.
a
market as
gaming
defined
mon
itsof
In furtherance
gaming market.
residency re
argue that
plaintiffs
The
has created
enterprise,
state
ey-making
of the
equivalent
functional
is the
quirement
relationship
unconstitu
court declared
the district
statute
partner
akin
much
operators
machine
Dak
v. South
Gaming, Inc.
in Gulch
tional
parties.
private
joint venture between
ship or
о
(D.S.D.1991).
stat
The
ta,
F.Supp.
“busi
of its
choice
Because South
imposed a
Gaming
in Gulch
at issue
ute
market
in its role
is made
partners”
ness
retail
operators or
on
residency requirement
only with
to deal
its decision
participant,
Deadwood, South
gaming in
in
engaged
ers
major part
corporations owned
§ 42-7B-
Ann.
Codified
S.D.
Dakota.
purview
beyond the
Dakota residents
issue in Gulch
Although the statute
[sjtate, like
“[T]he
Clause.
the Commerce
one
analogous
to be
Gaming appears
right to
company], has a
any private [gaming
us,
role in Gulch
the state’s
before
presently
deal.”
whom will
parties with
select
role
from its
entirely different
Gaming was
made
huge profits to
Id.
lure
had
the state
Gaming,
In Gulch
here.
too attractive
proved
market
gaming
activity and
gaming
ownership interest
taxing or
just
legislature.
Instead
gambling
solely
regulator
the mar- was
participants
the other
regulating
by private
conducted
businesses
they
in Dead-
permissible
act with the
purpose
Here, however,
wood.
residency
fostering
require-
industry.
local
ment
reflects a decision
the stаte taken as
97-98, 104
Id. at
S.Ct. at 2245-46.
operator
an owner and
gaming
busi-
language
This
indicates that
the market
ness.
participant exception is limited to the actual
which the state
participating,
also contend that the resi-
extent,
and to
plaintiffs’
that
assertion
dency requirement falls outside the market
statute must be related to the state’s
participation exception
residency
because the
participation is correct. Once we determine
requirement
is unrelated to the
par-
state’s
that the state
participating
in the relevant
ticipation in
Plaintiffs market, however,
scrutinize,
we do not
under
point to the fact
imposes
Commerce
analysis,
Clause
whether
requirements
number of
on
ma-
proprietary
state’s
decisions best meet chine manufacturers and restricts the manu-
goals.
We further note that unlike
facturers’ sales of the machines to licensed
Wunnicke,
Alaska
South Dakota is actual-
operators.
distributors
argue
Plaintiffs
ly participating
in the market affected
Wunnicke,
that under
this restriction violates
legislation at
Moreover,
issue in this case.
the Commerce Clause.
residency requirement
for video lottery
operators
machine
beyond
does not reach
Wunnicke involved a Commerce Clause
parties
those
actually
who are
and freely
based
challenge
constitutional
require
to a
dealing with the
its business enter-
ment
timber harvested from Alaska
prise.
processed
state-owned lands be
in Alaska
plaintiffs rely
GSW,
Inc. v. Long
prior
export.
84-86, 104
County,
Cir.1993),
1H3 participation and beyond own go to power participation withstanding OHahoma’s private market activities control could to Oklahoma market, held that the Court Sys., Resource Swin participants); pur- to utility companies private require not County, 883 F.2d Lycoming v. Inc. Okla- coal from percentage of certain chase a Cir.1989) allegedly discrimina- (3d (upholding distinguished be- Court homa sources. county’s concerning the landfill tory rules limitations imposition of state’s tween a private apply to land- they did “not because utility business own beyond the apply immedi- not and d[id] fills statute noting companies, private county] transacted] in which [the ate fundamentally different become “would business.”). not us does before issue apply were construed legislation piece of power using regulatory “its state involve the utility company].” only [state-owned [gam- participants other[] to control case If the Id. at Demolition Coast ing] Atlantic market.” residency require- today us involved before Rather, it Inc., at 717. Recycling, with doing corporations ment for integral state’s decision involves which the companies in gaming business, choice, will deal as to whom interest, would this case proprietary had no operators. as However, v. Wyoming Oklahoma.3 be like fundamentally licensing differ- scheme rath- of a considering “a use The state’s we are agreement issue does the statute contractual legislation”; er than a piece ent partic- of the market only [state-owned this outside “applies take case case in this such, doctrine, contend. state’s as ipation company].” Id. As gaming Scrap, at 808- See, e.g., mar- within the Alexandria falls residency requirement (holding that 2496-98 to the Commerce exception participation ket in its as a market was Clause. scrap pro- in-state statutory giving scheme Su correctly *7 deal, through licensure or con- itbe it will Indeed, as analysis. utility our affects tract. expressly out, the Court pointed have we argue that the dissent plaintiffs and The before as that legislation such distinguished virtually ev- involvement in Legislature us, to “the Oklahoma left Lottery, as of the South ery aspect [its] burden wishe[d] whether decide consti- amended in South Dakota’s expressed will private utilities utility when state-owned the legislation, reveals and state tution Id. ... restrictions.” free of be otherwise We actually regulating the is state of Smithtown, 66 Corp. v. Town also SSC See perva- involvement the state’s agree that that, Cir.1995) (2d (holding 502, 512 F.3d this involvement sive, agree that but cannot participant county was market the although the con- To market.” of “the business, county the disposal in the waste administering state is the trary, we believe buy ser parties to compel private could not state, private like The its own business. incinerator), cert. de lоcal vices from its manage entitled companies, is gaming — -, S.Ct. nied, 116 U.S. business. (1996); Demoli Atlantic Coast 842 L.Ed.2d that the mar- argue plaintiffs Finally, Chosen v. Board Recycling, Inc. tion & apply to Cir.1995) not exception does (3d participation Freeholders, ket 717 F.3d 48 because, by constitutional this case a market the state was (holding that Dakota has mandate, of South regulatory using its it was when Gaming. in Gulch by district court Indeed, struck down was such a statute 3.
1114
monopoly in
the video
plaintiffs’
business in the
and the dissent’s
reliance
Thus,
South Dakota.
plaintiffs
argue, Western
misplaced.5
Oil &
isGas
fur-We
acting
the state is
sovereign
capacity.
ther note that
residency
South Dakota’s
re-
Ninth
Circuit
of Appeals
Court
used this
quirement for its
pre-
own business does not
reasoning in Western Oil & Gas Ass’n v.
clude Chance
dealing
from
Cory,
Cir.1984),
plaintiffs’ refining facilities, which did not Equal B. Protection Clause plaintiffs allow the any option but to lease submerged state the and tidewater Sanders Chance Management upon lands pipelines their rested. The also contend residency that the requirement that, facts, court held under those where the equal violates protection their rights under monopoly state had a companies had the Fourteenth Amendment. plaintiffs leases, choice but to renew their concede that rational basis review governs was sovereign capacity equal protection their challenge. Under the regulator rather than partici- as a market standard, rational basis presume legisla we pant. Id. at 1343. tion is valid and will sustain it if the classifi cation drawn entirely rationally We are not statute is persuaded by re the rea- soning legitimate lated to a Gas;4 City Western state interest. Oil and Ctr., Inc., if Cleburne v. agree, Living even we were Cleburne this case is differ- 432, 440, ent. This case does not concern an estab- L.Ed.2d lished relationship statutory between classifica tion private party state and “need not drawn so where the as to fit with party precision raising legitimate challenge purposes constitutional animating the state’s it.” change unilateral Scrap, to the Alexandria terms 426 U.S. at the “contract.” Instead, Nor S.Ct. at does this case involve *8 parties who are forced to the burden proving continue to of deal that the classification the with state because of is so permanency the of attenuated its purpose to asserted that Rather, their facilities. parties involves the distinction it wholly draws is arbitrary who asserting are they right have a Cleburne, to and City do irrational. 478 U.S. at of initially state, business and the Moreover, state party 3257-58. determining that it does want to do challenging busi- legislation negate must “ev with parties. such, ness As we ery believe conceivable might basis which support Regardless of our reasoning doubt about the "activity-by-activity in analysis," post see Gas, agree Western Oil & we with the result confined to whether state’s decision on the because the state actively engaged was residency requirement falls within the market narrowly defined transportation of oil participation exception. Because neither and was for that reason anot market Management Chance nor challenged Sanders has industry. that reap state's to decision of the 50% revenue (nor from its they standing would 5. The dissent finds the state’s recent increase of so), to do we express opinion on share issue. Lottery of the that State revenue to be rele- to respectfully vant this case. We disagree. Our
1H5 Panel, Communications, Inc., Review Procurement v. Beach it.” FCC Cir.1994) rationally (holding was statute in direct- legitimate interest to state’s (internal related (1993) quotations omit- L.Ed.2d by generated purchases ing benefits the state ted). that contend state). of the the citizens purpose for legitimate has not submitted further, that and residency requirement, of 42-7A-43 Accordingly, hold that we is not related residency requirement does not Dakota Codified the South purpose. any legitimate Protection Clause Equal violate Amendment. Fourteenth residency require that the We find inter legitimate rationally related ment is Privileges Clause and Immunities C. is axiomatic by the state. It ests averred interest,- pre first submitted that the state’s claim, argue that appellants In final their and infiltration activities venting illegal requirement vio- residency Da into the elements outside criminal Immunities Clause Privileges lates the Fur purpose. Lottery, legitimate ais kota IV, the United States Article Section court thermore, the district agree with we “citizens of Constitution, that states generally understood “[g]ambling Privileges to all shall be entitled each State tendency attract criminal greater have a in the several Immunities of Citizens types of business most other than infiltration neither responds that The state States.” Management, enterprises.” Chance has stand- Management nor Sanders Chance furtherance note F.Supp. at 212. We if hold argues that we further ing. The state infil against the protecting of its interest on standing, he should lose that Sanders has elements, tration of criminal merits, resi- the South Dakota because lottery machine closely monitors a funda- not burden dency requirement does an exten state undertakes operators. The immunity covered privilege mental appli investigation each background sive Clause, and be- Immunities Privileges and contacts investigations include cant. Those profitability interest cause bodies enforcement foreign law enterprise is integrity of its business con personal contact require sometimes scrutiny. sufficient to survive (J.A. verify information. duct interviews questions not reach We need 50-51.) addition, conducts In Immunities Privileges and of whether premis operators’ periodic inspections residency requirement reaches the Clause 51.) (J.A. use of the state’s While es. its burden has carried and whether the prevent criminal residency requirement statute, neither Chance justifying lottery business infiltration standing on Sanders nor solution, legislature perfect not be the Man corporation, As a Chance this issue. Da that the rationally conclude could Privileges and Im raise the agement cannot the state’s protect Lottery better kota can Ins. Co. & S. claim. Western munities opera Life corporate if the legitimate interests Equalization, State Bd. the vid maintain tors of the machines —who 2076-77, 68 L.Ed.2d temporarily who collect and machines and eo (1981). Sanders, applied indi has not who money them —are large sums hold operator and vidually for a license of South major part residents flowing from his “injury” only whose Dakota. *9 Manage of Chance as a shareholder status court that the agree with district alsoWe & Setzer ment, standing. Smith also lacks insuring in legitimate interest state has a the Sons, 1311. 20 F.3d at in its investment substantial that the state’s distinguish the cases attempts to Sanders ultimately benefits business as a share- status holding that an individual’s legislature taxpayers. The standing by to create inadequate is holder that a resi- rationally concluded could have nonresident prohibits § noting that 42-7A-43 this inter- further dency requirement would in individuals, corporations as Sons, as well Inc. v. S.C. Setzer & est. Smith Cf. 1116 nonresidents,
majority by
obtaining op-
account of its substantial
investment
in a
residency
software,
erator licenses.
requirement
computer,
central
and related ex-
applicants
here,
individual
penses,
is not at issue
the court declares it immune from
however, for no
in
individual
this case has Commerce Clause restrictions.6
applied
operator’s
for an
license.
difficulty
majority’s
stated
points
Sanders also
though
out that even
approach
whether,
is that it fails to ask
while
corporation
applicant
case,
is the
in this
participant,
as a market
the state has
by regulation
required
he
to meet individu-
illegally attempted
also
regulate
the mar
ally
statutory
requirements
imposed
ket.
explained,
As the Second Circuit has
42-7A-43,
Codified
“[cjourts
separately
must evaluate
each chal
provides
background
which
for a
investiga-
lenged activity of the state to determine
requires
tion
operators
certain
meet
participation
whether it constitutes
or regula
qualifications
argu-
a license.
obtain
This
tion.”
Recycling,
USA
Inc. v.
Baby
Town unpersuasive
ment
because it does not
lon,
(2d
1272,
Cir.1995),
F.3d
—
66
1282
cert.
question
address
the material
denied,
-,
1419,
U.S.
—whether
134
and,
cognizable
has a
—
injury
Sanders
under the
544,
denied,
U.S. -,
L.Ed.2d
cert.
Privileges and
Regard-
Immunities Clause.
1452,
(1996).
1H7
beyond merely
Oklahoma,
reach
statutory commands
502 its
Wyoming v.
importantly,
(1992),
partners,”
dictating
to its “business
terms
789, 117
437, 112
L.Ed.2d
S.Ct.
video lot-
its
analysis.
and therefore
majority’s
directly refuted
to the law struck down
tery market is similar
an Oklahoma
struck down
Court
There the
private
Wyoming
Oklahoma.
public and
required all
statute
per
supply ten
to
within the state
utilities
analysis urged by the
In contrast
to the
from Oklahoma-
fuel needs
their
cent of
other cir-
majority, the decisions of several
acknowledging that Okla
coal. While
mined
analysis
activity-by-activity
support an
cuits
market,
coal
homa,
in the
aas
partici-
regulates and
the state both
where
chose,
it
coal from
purchase
whomever
could
In
Atlantic
pates in the relevant
804,
invali
the Court
at
id. at
Recycling, Inc. v. Board
Demolition &
Coast
in im
conduct
regulatory
dated Oklahoma’s
Freeholders,
example,
Chosen
upon private
requirements
purchase
posing
Third Circuit observed:
454-59,
at 800-03.8
112 S.Ct.
at
Id.
utilities.
entity
in a mar-
public
participates
aWhen
Oklahoma, the
discussing Wyoming v.
In
chooses,
buy
ket, may
what it
it
sell and
Supreme
in the
majority takes comfort
chooses,
its
it
on terms of
from whom
or
that were the Oklahoma
observation
Court’s
not,
choice;
participation does
its market
only to the state-
apply
law construed
right to
upon
confer
it the
use
(Grand
Dam Au
utility
River
public
owned
the actions of
regulatory power to control
(GRDA)
“would become
the statute
thority)
in that market.
others
legislation.”
fundamentally
piece of
different
(3d Cir.1995);
accord
SSC
48 F.3d
Oklahoma,
Wyoming v.
(citing
at 1113
Ante
Smithtown,
Corp. v. Town of
804).
If the law
S.Ct. at
—
denied,
U.S. -,
(2d Cir.1995), cert.
were
Wyoming
v. Oklahoma
down
struck
133 L.Ed.2d
GRDA,
the market
only
applied
has likewise stated:
Circuit
Second
applied, private
exception were
Babylon has exercised
of]
Town
[The
own
make their
be free to
would
utilities
denying
powers by
licenses
governmental
buy coal
they might
whom
from
decisions
haulers but the one hired
garbage
all
In
regulation.
government
unimpeded
Town,
by establishing civil and
contrast,
way
Dakota
South
because of
for haulers who collect
penalties
lot-
criminal
regulated the video
has structured
a License. Because
garbage without
market,
not free
companies are
tery
private
activi-
engage
such
actor could
private
unimpeded by government
to do business
regu-
acting as a market
ty,
the Town
penalties.
facing criminal
regulation, without
participant.
a market
than
lator rather
partners,”
choosing its own
Beyond
“business
gar-
‘participate’
Town does
regulated all actors
has
Dakota
re-
in a different
market
bage collection
transac-
by prohibiting
hauling services
buys garbage
spect:
it
Although
parties.
private
tions between
gov-
and local
market,
states
BSSCI. But
participating
Dakota is
involving
guished prior
”interfere[nce]
cases
sought
to limit access
has not
functioning
the interstate
materials used
limestone or
the natural
State’s
other
ability
through
restricted the
Nor has it
through prohibition
cement.
make
either
.market
up plants
or sister
to set
firms
States
“Mary-
concluding
regulation,”
burdensome
Moreover, petitioner has
its borders.
within
hulks,
sought
prohibit
the flow
land has
possesses
suggested that
not
unique
which it
regulate
under
the conditions
or to
pro-
needed to
to the
access
materials
Instead,
into the market
entered
occur.
cement.
duce
up
price." Id. at
their
itself to bid
omitted).
(citation
footnote
at 444
2496.
Likewise,
Mary-
Hughes upheld
Court in
automobile
of the in-state
subsidization
land’s
impracticable to
found it
the Court
8. Because
ground
processing
scrap metal
governing
portion
the statute
state-
sever that
that,
the chal-
"practical effect” of
while
utilities,
Act as a whole
it declared
of hulks
“did not
lenged
"was that
movement
scheme
459-61,
reduced,”
Id.
unconstitutional.
was
commerce
in interstate
directly.”
Clause. A
engaging
in mercantile
(emphasis
Id. at 1343
added and citations
activity
immunity
does not obtаin blanket
omitted).
regulate
partici-
the market in
it
which
There was no doubt in Western Oil & Gas
pates, free from the strictures of the dor-
that the state owned the tidelands over which
mant Commerce Clause.
transported
the refineries
their oil. Yet the
(citations
Recycling,
USA
The State owns and controls tidelands and dealing were foreclosed from with other land submerged lands in sovereign capacity. its owners. If the rationale behind the market Although some of the are in lands genuinely doctrine is evenhanded possession ness, of local State entities see 447 U.S. at interests, (where this does not mean that Califor- 2278-79 proprietary “state activities” many becomes competitors. nia one of are “burdened with the same im- restrictions permanency plaintiffs’ posed facilities does on private participants,” then permit “[ejvenhandedness” them “shop not around”. There supports invocation of competitor other they participant doctrine), can market then it would go required rental strip seem that South Dakota must take bitter coastline. The Commission has with the sweet: enter the market California complete monopoly over the sites purchaser used as a lottery operation of video companies. the oil companies precluding, services while through the use of no choice but to despite renew their regulatory power, leases potential all competi- rate, oil, the volumetric gas as the entering tors from If anything, market.9 petroleum-derived products cannot presents the instant case compel- facts more transported plaintiffs’ ling facilities without than Oil & Gas for applying Western traversing the state-owned lands. This the market exception, for the control over the channels of interstate monopoly state has а over video argument that, oralAt ply, South Dakota conceded regulating activity interests in Chance’s participant exception if ap- does not scrutiny. do not withstand Commerce Clause
1H9
[lottery] games.”
Codified
tion of
S.D.
and not
regulations,
of its own
result
direct
(Michie Supp.1995).
§
See
42-7A-2
Like-
by “happenstance.”10
Ann.
merely
2281;
wise,
see also C
§
42-7A-21 authorizes the Commission
Clarkstown,
Carbone, Inc. v. Town
A
regulations”
con-
promulgate
and
“[r]ules
of
1677, 1682,
388, 391,
aspects
lottery,
in-
cerning seventeen
(1994) (“With
this
respect
qualifications
op-
for ...
cluding “[a]dditional
commerce,
ordi
control
the flow
of
stream
erators,
application
of
fees to
...
the amount
discriminates,
only the
for it allows
nance
42-7A-21(7),
“[l]icensing
§
paid,” id.
and
be
process waste
operator
favored
42-7A-21(16).
§
As
procedures,” id.
town.”);
id. at
limits of the
within
in-
in its brief: “The State’s
Dakota admits
(“[T]hat
control
the flow
at 1683
lottery
pervasive.
in video
Vir-
volvement
...
proprietor
single
local
favors
ordinance
lottery opera-
tually every aspect of video
effect of the
protectionist
just makes the
owned, operated, specified, controlled
tions is
acute.”).
ordinance more
Appel-
by the
Brief for
or monitored
State.”
pres-
question in the
be little
There should
at 12.
lees
simply
is not
Dakota
ent case that South
majority asserts that South
Although the
parties
as to the
exercising
choice
it
“is free to choose those with whom
Indeed, by its own
it will trade.11
with whom
contract,”
deal,
through
licensure or
will
legislative enactments the
and
constitutional
granting
of
and denial
ante
regulating
mar-
it is
concedes
regulation
is far more akin to market
licenses
grant of
to the constitutional
Pursuant
ket.12
Public licen-
participation.
than to
25, the
Dako-
authority
within Section
in nature: a
generally
contractual
sure is
delegated to the South
legislature has
ta
property
grants the licensee a
license neither
the “overall
Lottery
Commission
obligation13 If
a mutual
opera-
right nor creates
“control over the
management”
and
Dakota,
separately
by
either
the state
Theoretically
involved in West-
the refineries
of
statеs,
jointly
by
with one or more
other land-
the state or
have dealt with
ern Oil & Gas could
by
owners;
operated
and
the state
only
prohibited them from so
and which are owned
the cost
Dakota,
Here,
contrast,
separately
entry
either
into the market
doing.
persons,
constitutionally
jointly
states or
and
with one or more
prohibitive, but
or
cost
is not
any
games
shall
provided
such video
of chance
statutorily forbidden.
dispense
directly
or tokens. Howev-
coins
er,
expand
majority, seemingly
Legislature
to broaden
the statuto-
anxious
shall not
11. The
scope
regard-
question
authority existing
ry
and to minimize
as of June
the market in
lottery
complete monopoly
private ownership
ing any
of state
of South
chance,
games
games
“created a state
or both. The
lottery,
that South Dakota
or video
states
market,”
portion
pro-
gaming
Legislature
ante
establish the
within the
shall
residency
lottery
or
adds that “South Dakota’s
due the state from such
ceeds
both,
chance,
pre-
purposes for
games
does not
requirement for its own businеss
or
dealing
proceeds
be used. SDCL
are to
clude Chance
which those
amendments,
42-7A,
regulations,
Da-
private gaming
in South
businesses
and its
various
laws,
relying
cannot
and contracts
at 1114. These statements
and all acts
kota.” Ante
related
regulations,
authority upon
made itself the
laws and
fact that South Dakota
such
soften the
for
plaintiffs may
July
date of
"partner”
beginning
enter
to the effective
only
with whom
amendment,
suggest
approved.
lottery
that the
business. To
are ratified
the video
this
merely go
other
elsewhere into
plaintiffs can
(in part):
authority defines “license"
13.One
private gaming
admission that
is a tacit
market,
lottery
regulated the video
appropriate govern-
granted by
permit,
A
consideration,
majority's
ignore
own command
generally
seems
to a
body,
for a
mental
person,
analyzing
inquiry
firm,
carry
is limited to
that the court's
corporation ...
or
narrowly
subject
defined
under the
some business
be-
police power.
is not a contract
A license
III, §
Constitu-
licensee,
25 of the South Dakota
12. Article
a mere
but is
the state and thе
tween
personal permit.
tion,
part:
example, provides in relevant
property
or
Neither is
right.
any game
property
Legislature
not authorize
shall
1979) (cita-
Dictionary
ed.
any
enterprise,
Black’s Law
lottery,
gift
under
or
of chance
omitted).
quoted
phrase
The final
any purpose whatever....
tions
pretense, or for
policy
public
helpful
light
However,
passage
Legislature
be lawful for the
it shall
Laws Ann.
in S.D. Codified
declaration found
or video
law a state
to authorize
42-7A-56(3) (Michie Supp.1995):
chance,
both,
regulated
games
which are
anything, public licensing
“pri
bargaining pow-
constitutes
serve
limit the licensor’s
governmental activity”
Here,
meval
such as
tax
er.
competi-
the state has no
favoring
ation scheme
in-state residents
tors,
legal
for it has erected a
barrier to then-
partici
found to fall outside of the market
entry
into the video
market. Private
*13
Limbach,
277,
pant exception in
486 U.S. at
enjoy
comparable power.
entities
no such
108
at 1809-10.
(“A
Corp.,
See SSC
posing criminal *14 participant. act of a market
considered Corp., F.3d at 612. Pursuant 66
See SSC constitution, Dakota is the
its state lottery opera of video “purchaser”
exclusive services; is no residual market there
tion services, Jones; Terry JONES; nor is might its Patricia K. sell L. which Chance buy might Plaintiffs-Appellants; purchaser who any residual there (“The III, § 25 Art. Const. them. See S.D. any game of Inc.; Plaintiff; shall not authorize
Legislature
Publishing,
Jones
activity
lottery_”).15
...
public
hallmarks of
all of the
therefore bears
Company, Inc.;
Jones Oil
regulation, and it is inaccurate
licensing and
Plaintiff-Appellant;
lottery arrangement
its
to characterize
Wunnicke,
“participation.” See
as market
Company,
partnership;
Petroleum
Jones
97,
(plurality
104
at 2245
467 U.S. at
Inc., formerly
Holding,
known
J.O.
(market
“does
participant doctrine
opinion)
Plaintiffs;
Inc.;
Company,
Jones Oil
merely because
any requirement
not validate
v.
with
imposes
upon
someone
the State
privity”).
in contractual
whom it is
America; Stephen L.
UNITED STATES
Job-Rivera;
Tinsley; Sandy
Christie
set out
scheme
Under the
Vonderschmitt;
Stubbert;
John
Charles
should
obvious
legislature,
Doe,
Ser-
Internal Revenue
regu-
Unknown
using
police powers to
the stаte is
Treasury and
vice, Department of the
pre-
lottery in a manner
late
Employees;
Department
Jane
pri-
of Justice
comparison to a
cludes an evenhanded
Roe,
Internal Revenue Ser-
question
Unknown
entrepreneur. There is little
vate
791,
Minnesota,
Am.,
F.3d
799
boundary
82
always
Inc.
the outer
is not
contract
Cir.1996) (finding
"no well-founded reason
activity”); White v.
permissible state
Massachu
Inc.,
by the
proprietary
covered
activities
Employers,
460 U.S.
constrict
Constr.
setts Council of
7,
1042,
7,
buying
204,
participant exception
acts of
75
n.
211 n.
(1983) (“[T]he
selling”).
Clause does
Commerce
L.Ed.2d 1
boundary
stop
require
city
at the
activity
against
which the
15. The baseline
Reeves,
contract.”);
U.S. at
privity
formal
not a market
is therefore
should be measured
10,
(noting that
2278 n. 10