CONSTITUTIONALITY OF RESTRICTIONS UPON LOG EXPORTS

OFFICES AND OFFICERS ‑- STATE ‑- DEPARTMENT OF NATURAL RESOURCES ‑- TIMBER ‑- CONSTITUTIONALITY OF RESTRICTIONS UPON LOG EXPORTS

(1) Proposed legislation requiring all timber sold by the state, including that standing on lands covered by §§ 1 and 2, Article XVI of the state constitution, to be primarily processed by a manufacturing establishment employing Washington residents and situated within the United States would probably be unconstitutional under the commerce clause of Article I, § 8 of the United States Constitution and would be at least questionable under §§ 1 and 2, Article XVI of the state constitution.

(2) Proposed legislation to set aside a designated portion of such timber to be sold only to certain "small businesses" would, likewise, be of doubtful constitutionality under Article XVI, §§ 1 and 2 of the state constitution and, probably, the commerce clause as well.

                                                                  - - - - - - - - - - - - -

                                                                October 29, 1975

Honorable John Martinis
State Representative, 38th District
1917 Broadway
Everett, Washington 98201                                                                                                               Cite as:  AGLO 1975 No. 88

Dear Sir:

            This is written in response to your request for our opinion on the constitutionality of proposed legislation which would:

            (1) With certain exceptions, require all timber25,sold by the state including that standing on lands covered by Article XVI, §§ 1 and 2 of the state constitution to be "primarily processed" by a manufacturing establishment employing Washington residents and situated within the United States;

            (2) Set aside a designated portion of such timber for sale only to certain "small businesses".

            We respond to this inquiry in the manner set forth in our analysis.

                                                                     ANALYSIS

            In stating your questions we have placed two terms in quotation marks because, according to your letter and attachments thereto, the bills you have in mind would expressly define them.  The term "primary processing" would mean the initial processing of raw logs into rough green lumber and "small businesses" would include only such independently owned and operated businesses having no more than 500 employees as are engaged in logging or the primary processing of forest products within the state of Washington.

            Of course the legislature is free to pass either bill if a majority of the members of both houses desire to do so ‑ regardless of what we might say as to their constitutionality in an attorney general's opinion.  Witness, for example, the situation in our neighboring state of Oregon where the legislature, in 1961, passed a law restricting the processing of that state's publicly owned timber outside United States even though the state attorney general's office  [[Orig. Op. Page 2]] had earlier opined that such a law would violate Article I, § 8, Clause 3 of the United States Constitution.1/   Moreover, according to information we have recently received from that office, ". . . the 1961 Assembly saw fit to enact the bill into law despite our opinion and it has been on the books ever since without challenge."2/

            Conceivably, the same thing could happen here.  Or, perhaps, the Washington legislature might pass one or both of the bills you have described and litigation would ensue ‑ in which case this office would be obliged to attempt to defend their constitutionality in court.  Should this occur we would, of necessity, have to present as advocates whatever legal arguments might be available in defense of the challenged legislation.  Therefore, while it is fully in accord with long-standing office policy for us to provide you, as a state legislator, with our opinion as to the constitutionality ofproposed legislation such as this,3/ we must in so doing take care to emphasize the purely advisory nature of any such opinion and not by its issuance foreclose our later presentation of arguments in support of the bills in the event that either is enacted and later contested in court.

            All of this, obviously, suggests that we do in fact see some significant constitutional problems with both proposals ‑ for otherwise we could simply pass over the foregoing policy considerations and issue an affirmative opinion wholly consistent with the position we would be called upon to argue in court later, if either bill is passed.  The issue thus becomes for us that of how best to explain our concerns for the guidance of the legislature at this time while also remaining free to play the advocate's role which would be required of us in that event.  Our  [[Orig. Op. Page 3]] response will be to attempt to identify and discuss the constitutional issues which we see as fully as possible but to stop short of expressing an unqualified ultimate conclusion as to the validity or invalidity of either legislative proposal.  We will begin with a consideration of the state constitutional issues which arise from the fact that both bills would include timber sales from lands covered by Article XVI, §§ 1 and 2 of the Washington constitution and then turn to the federal "commerce clause" problem which was earlier noted by the Oregon attorney general in his 1961 opinion, supra.

            A.State Constitutional Questions:

            Article XVI, § 1 of the Washington constitution provides that:

            "All the public lands granted to the state are held in trust for all the people and none of such lands, nor any estate or interest therein, shall ever be disposed of unless the full market value of the estate or interest disposed of, to be ascertained in such manner as may be provided by law, be paid or safely secured to the state; nor shall any lands which the state holds by grant from the United States (in any case in which the manner of disposal and minimum price are so prescribed) be disposed of except in the manner and for at least the price prescribed in the grant thereof, without the consent of the United States."

            Article XVI, § 2 which is limited to lands granted to the state for educational purposes, then says that none of those lands

            ". . . shall be sold otherwise than at public auction to the highest bidder, the value thereof, less the improvements shall, before any sale, be appraised by a board of appraisers to be provided by law, the terms of payment also to be prescribed by law, and no sale shall be valid unless the sum bid be equal to the appraised value of said land.  In estimating the value of such lands for disposal, the value of the improvements thereon shall be excluded:  Provided, That the sale of all school and university land heretofore made by the commissioners of any county or the university commissioners when the purchase  [[Orig. Op. Page 4]] price has been paid in good faith, may be confirmed by the legislature."4/

            As far as the applicability of these state constitutional provisions is concerned, there can be little doubt but that a purchaser of standing timber acquires an "interest" in the lands upon which it is situated.  France v. Deep River Logging Co., 79 Wash. 336, 140 Pac. 361 (1914).  Thus, any sale of such timber from granted lands is subject to Article XVI, § 1,supra.  Moreover, although Article XVI, § 2,supra, on its face appears only to apply to the underlying lands themselves, our court, in Lewellen v. Commissioner Public Lands, 27 Wn.2d 411, 178 P.2d 958 (1947), has held the requirements of this section also to be applicable to the sale of timber situated on those lands (i.e., lands granted to the state for educational purposes) to which this section of the constitution pertains.  Therefore, as to all timber sales by the state from granted lands covered by Article XVI, § 1,supra, the constitution requires the state, as seller, to obtain "full market value".  In addition, if the timber is situated on lands granted to the state for educational purposes, § 2 of this same article requires that any sale shall be ". . . at public auction to the highest bidder. . ."5/

             [[Orig. Op. Page 5]]   The basic state constitutional problem with the legislative proposals you have outlined is that either or both, if enacted into law, could later prove to have an adverse impact upon the marketability of public timber located on lands covered by the above quoted constitutional provisions ‑ and hence, upon its price.  The "log export" prohibition would most likely exclude from the market those prospective purchasers intending to ship their logs overseas or to other points outside of the United States (or even to processing plants within the United States not employing Washington residents) for initial processing into lumber.  Likewise, the "set aside" feature of the second bill you have described would in certain cases exclude from the market all prospective purchasers except "small businesses" as defined in that bill.

            In addition, there is another problem ‑ particularly with the latter bill.  Insofar as the timber in question is situated on lands covered by Article XVI, § 2, supra, it might well be concluded by a court that for the legislature to exclude any significant class of prospective purchasers from the bidding process would constitute a violation of that provision because of the requirement therein that such timber be sold only at public auction to the highest bidder.  If only a limited number of those members of the public who are interested in buying a given timber sale are allowed to bid because others have been made legally ineligible to purchase, the underlying purpose of this requirement would arbuably be thwarted.

            B.Commerce Clause Objections:

            Except forLewellen v. Commissioner Public Lands, supra, there are at present no Washington supreme court decisions dealing with the constitutional aspects of state timber sales under Article XVI, §§ 1-3, supra.  Thus, while certain conclusions with respect to the validity of legislative restraints on marketability appear to be called for in view of the language of those sections, the question remains largely one still to be decided as far as our court is concerned.

            On the other hand, the commerce clause of Article I, § 8 of the United States Constitution has been the subject of a great volume of decisions by the United States Supreme Court over the years.  These decisions may be roughly divided into two categories:  (1) Cases involving the extent of the power granted to congress by the commerce clause;6/ and (2) cases dealing with  [[Orig. Op. Page 6]] the commerce clause as a limitation on the constitutional ability of the states to legislate with respect to interstate or foreign commerce.  It is this second category of cases, obviously, which is most relevant to your present question.

            State legislation, of course, may affect such commerce in a number of ways:  Through taxation, or by means of licensing certain activities or restricting the use of state highways, etc., as well as through more direct restraints on the actual importation or exportation of products.  And not all such legislation is unconstitutional for, as stated in Cities Serv. G. Co. v. Peerless O. & G. Co., 340 U.S. 179, 186, 95 L. ed. [[L.Ed.]]190, 71 S.Ct. 215 (1950),

            ". . .  It is now well settled that a state may regulate matters of local concern over which federal authority has not been exercised, even though the regulation has some impact on interstate commerce.  Parker v. Brown, 317 U.S. 341, 87 L ed [[L.Ed.]]315, 63 S.Ct. 307 (1943); Milk Control Board v. Eisenberg Farm Products, 306 U.S. 346, 83 L ed [[L.Ed.]]752, 59 S.Ct. 528 (1939); South Carolina Highway Dept. v. Barnwell Bros. 303 U.S. 177, 82 L ed [[L.Ed.]]734, 58 S.Ct. 510 (1938).  The only requirements consistently recognized have been that the regulation not discriminate against or place an embargo on interstate commerce, that it safeguard an obvious state interest, and that the local interest at stake outweigh whatever national interest there might be in the prevention of state restrictions. . . ."

            But consistent with this "balancing of interests" approach, the more direct and significant an impact a state law has on interstate or foreign7/ commerce, the greater will be the state's burden in justifying it.  Thus, in general, it may be said that a state law attempting to restrict the movement across state lines of commercial goods or products themselves will be more vulnerable to constitutional challenge than one having a direct focus on some other activity and only an incidental effect on interstate or foreign commerce.  As stated in the concurring opinion of Justice Frankfurter in Toomer v. Witsell, 334 U.S. 385, 409, 92 L. ed. [[L.Ed.)]]1460, 68 S.Ct. 1157 (1948):

             [[Orig. Op. Page 7]] ". . .  When a State regulates the sending of products across State lines we have commerce among the States as to which State intervention is subordinate to the Commerce Clause.  That is the nub of the decision in Foster Fountain Packing Co. v. Haydel, 278 U.S. 1, 73 L ed [[L.Ed.]]147, 49 S.Ct. 1. . . ."

            This 1948 ruling by the Supreme Court, together with the earlier case thus cited by Justice Frankfurter, represent the two decisions most closely in point as far as your present question is concerned.  First, inFoster-Fountain Packing Co. v. Haydel, 278 U.S. 1, 73 L.ed. [[L.Ed.]]147, 49 S.Ct. 1 (1928), the Court struck down a Louisiana statute which, in the guise of a conservation measure, would have required local (in state) processing of all shrimp taken from the state's tidal waters.  In finding that the regulation was in violation of the commerce clause, the Court noted that the statute itself recognized the resource as a subject of interstate commerce and was not enacted to reserve the shrimp for the sole consumption for Louisiana citizens.  The Court thus distinguished earlier decisions in which statutes conserving certain resources for the sole use of local inhabitants were upheld as a valid exercise of the state's police power,8/ saying:

            ". . .  As to such shrimp, the protection of the commerce clause attaches at the time of the taking.  Dahnke‑Walker Mill. Co. v. Bondurant, supra.  Pennsylvania v. West Virginia, supra, 596 et seq. [67 L.ed. [[L.Ed.]]1132, 32 A.L.R. 300, 43 Sup. Ct. Rep. 658].  As the representative of its people, the state might have retained the shrimp for consumption and use therein.  But, in direct opposition to conservation for intrastate use, this enactment permits all parts of the shrimp to be shipped and sold outside the state.  The purpose is not to retain the shrimp for the use of the people of Louisiana; it is to favor the canning of the meat and the manufacture of bran in Louisiana by withholding raw or unshelled shrimp from the Biloxi plants. . . ."  (278 U.S. 13.)

            This result was then reaffirmed twenty years later in Toomer v. Witsell, supra, in which a number of sections of a  [[Orig. Op. Page 8]] South Carolina statute also dealing with shrimp fishing were voided because of conflict with either the commerce clause or the privilege and immunities clause of Article IV, § 2 of the United States Constitution.  Of most direct relevance to the instant question was a provision of the statute requiring the owners of shrimp boats fishing in the South Carolina waters to "port and unload, pack and stamp their catch" before shipping the product to another state.  The Court saw no reason for not applying its prior holding in the Foster-Fountain Packing Co. case to invalidate this statute as well, explaining the key similarity between the two cases as follows:

            "Similarly in the present case, South Carolina has not attempted to retain for the use of its own people the shrimp caught in the marginal sea.  Indeed, the State has been eager to stimulate interstate shipments and sales as a means of increasing the employment and income of its shrimp industry."  (334 U.S. at 406.)

            Another case of similar import is Hood v. Du Mond, 336 U.S. 525, 93 L.ed. [[L.Ed.]]565, 69 S.Ct. 657 (1949).  Here the Supreme Court invalidated a New York restriction upon the purchase of New York dairy products by a Massachusetts distributor where the apparent purpose of the restriction was simply to protect local distributors against a depletion of supply due to a competitive advantage held by the out-of-state distributor resulting from differing price control laws in his home state.  In explaining this ruling the Court, at p. 533, said:

            "This distinction between the power of the State to shelter its people from menaces to their health or safety and from fraud, even when those dangers emanate from interstate commerce, and its lack of power to retard, burden or constrict the flow of such commerce for their economic advantage, is one deeply rooted in both our history and our law."9/

             [[Orig. Op. Page 9]]   Nor does the thinking of the Court appear to have changed with the further passage of time.  Thus, inPike v. Bruce Church, 397 U.S. 137, 25 L.ed [[L.Ed.]]2d 174, 90 S.Ct. 844 (1970), in a unanimous opinion written by Justice Stewart, the Court held an Arizona statute to be unconstitutional which required (with certain exceptions) all cantaloupes grown in that state and offered for sale to "be packed [within Arizona] in regular compact arrangement in closed standard containers approved by the supervisor."  In so ruling the Court first disposed of the state's argument that the statute merely regulated the intrastate packaging process and thus did not offend the commerce clause because it applied equally to cantaloupes destined for in-state and out-of-state markets, saying:

            ". . .  If the appellant's theory were correct, then statutes expressly requiring that certain kinds of processing be done in the home State before shipment to a sister State would be immune from constitutional challenge.  Yet such statutes have been consistently invalidated by this Court under the Commerce Clause.  Foster-Fountain Packing Co. v Haydel, 278 U.S. 1, 73 L Ed [[L.Ed.]]147, 49 S.Ct. 1; Johnson v Haydel, 278 U.S. 16, 73 L Ed [[L.Ed.]]155, 49 S.Ct. 6; Toomer v Witsell, 334 U.S. 385, 92 L Ed [[L.Ed.]]1460, 68 S.Ct. 1156. See also Lemke v Farmers Grain Co. 258 U.S. 50, 66 L Ed [[L.Ed.]]458, 42 S.Ct. 244; Shafer v Farmers Grain Co. 268 U.S. 189, 69 L Ed [[L.Ed.]]909, 45 S.Ct. 481. . . ."  (397 U.S. 141, 142.)

            Then again, later on in its opinion the Court again cited these same prior cases in saying, significantly, at p. 145:

            "Although it is not easy to see why the other growers of Arizona are entitled to benefit at the company's expense from the fact that it produces superior crops, we may assume that the asserted state interest is a legitimate one.  But the State's tenuous interest in having the company's cantaloupes identified as originating in Arizona cannot constitutionally justify the requirement that the company build and operate an unneeded $200,000 packing plant in the State.  The nature of that burden is, constitutionally, more significant than its extent.  For the Court has viewed with particular suspicion state statutes requiring business operations to be performed in the home State that could more efficiently be performed elsewhere.  Even where the State is pursuing a clearly legitimate local interest, this particular burden on commerce has been declared to be virtually per se illegal.  Foster-Fountain  [[Orig. Op. Page 10]] Packing Co. v Haydel, 278 U.S. 1, 73 L Ed [[L.Ed.]]147, 49 S.Ct. 1; Johnson v Haydel, 278 U.S. 16, 73 L Ed [[L.Ed.]]155, 49 S.Ct. 6; Toomer v. Witsell, 334 U.S. 385, 92 L Ed [[L.Ed.]]1460, 68 S.Ct. 1156."  (Emphasis supplied.)

            In view of this line of cases it would thus seem highly unlikely that the constitutionality of state legislation generally restricting log exports could be sustained, from a commerce clause standpoint, simply by demonstrating on an economic or related basis that the benefits to local interests outweigh the burdens on interstate or foreign commerce which the legislation would produce.  While sufficient to sustain export restrictions strictly for the purpose of conservation,10/ the "interest" which a state may be said to have in such natural resources (within its boundaries) as water, nonreserved minerals, wild animals or fish (e.g., shrimp) prior to their withdrawal or capture by private parties will not justify such restrictions for other purposes such as the enhancement of a local industry.  Foster-Fountain Packing Co. v. Haydel, supra; see, also, Commonwealth of Pennsylvania v. State of West Virginia, 262 U.S. 553, 67 L.ed. [[L.Ed.]]1117, 43 S.Ct. 658 (1923), andWest v. Kansas Natural Gas Co., 221 U.S. 229, 55 L.ed. [[L.Ed.]]717, 31 S.Ct. 564 (1911).

            But what of the fact that the legislation in this case would only apply to timber actually owned by the state or its political subdivisions ‑ certainly a more classical form of property interest than the interests in the various natural resources which were involved in the Foster-Fountain line of cases, supra, all of which transformed from a public trust to private ownership upon capture.  To what extent would this factor afford us with a basis for distinguishing the above cases if legislation such as you have described should be passed?

            Before attempting to answer this question a somewhat related point should first be noted.  Aside from its negative aspect as a limitation upon state action, the commerce clause, as we said earlier, serves an affirmative role as the basic source of power on the part of the federal congress to regulate interstate and foreign commerce.  Viewed from this standpoint it must be taken as clear that the issue of state  [[Orig. Op. Page 11]] ownership would be of no possible distinguishing significance if we were looking at an act of congress dealing with log exports, for it is well established that federal legislation may, constitutionally, even restrict a state in the use of such property as is actually owned (in the usual sense) by it.  For example, as a precursor toLewellen v. Commissioner of Public Lands,supra, the United States Supreme Court had held a year earlier, in 1946, that the state of Washington was subject to O.P.A. regulations adopted pursuant to the World War II Price Control Act in the sale of its own timber.  Case v. Bowles, 327 U.S. 92, 90 L. ed. [[L.Ed.]]552, 66 S.Ct. 438 (1946).11/ See, also, Allen v. Regents of University System of Ga., 304 U.S. 439, 82 L. ed. [[L.Ed.]]1448, 58 S.Ct. 980 (1938).  Thus, it can hardly be doubted that congress could by statute prevent this or any other state from requiring local processing by the purchasers of even its own timber in the exercise of its powers under the commerce clause.  Accord,United States v. California, 297 U.S. 175, 80 L. ed. [[L.Ed.]]567, 56 S.Ct. 421 (1936);Maryland v. Wirtz, 392 U.S. 183, 201 L. ed. [[L.Ed.]]2d 1020, 88 S.Ct. 2017 (1968).  Or, by the same token, congress could expressly permit such a state enactment and thereby remove any commerce clause objections to the state restriction.  The fact that congress has not12/ acted or that a state may have attempted to regulate in the area in question does not diminish the sphere of congressional power over interstate commerce, United States v. Darby, 312 U.S. 100, 85 L. ed.[[L.Ed.]]609, 61 S.Ct. 451 (1941), and that power clearly extends to commerce involving the states themselves.

            As for the significance of state ownership in terms of the constitutionality ofstate restrictions upon log exports, about the most we can honestly say is that the Foster-Fountain line of cases do not absolutely foreclose the possibility of a sustaining argument being based upon this distinguishing factor.  Some affirmative support for such  [[Orig. Op. Page 12]] an argument might even be derived from Atkin v. Kansas, 191 U.S. 207, 48 L. ed. [[L.Ed.]]207, 24 S.Ct. 124 (1903), in which the Court turned aside the challenge to the Kansas eight-hour law as applied to public works.  In language that can hardly be called equivocal, the Court there could conceive of no basis for denying the power of the state to enact such regulations when applied to its direct concerns, saying

            ". . . we can imagine no possible ground to dispute the power of the state to declare that no one undertaking work for it or for one of its municipal agencies should permit or require an employee on such work to labor in excess of eight hours each day, and to inflict punishment upon those who are embraced by such regulations and yet disregard them.  It cannot be deemed a part of the liberty of any contractor that he be allowed to do public work in any mode he may choose to adopt, without regard to the wishes of the state.  On the contrary, it belongs to the state, as the guardian and trustee for its people, and having control of its affairs, to prescribe the conditions upon which it will permit public work to be done on its behalf, or on behalf of its municipalities.  No court has authority to review its action in that respect.  Regulations on this subject suggest only considerations of public policy.  And with such considerations the courts have no concern."  (191 U.S. at 222-223.)

            More recent cases, however, have at least clouded the picture as far as this doctrine is concerned.  For example, inSugarman v. Dougall, 413 U.S. 634, 37 L. ed. [[L.Ed.]]2d 853, 93 S.Ct. 2842 (1973), the Court barred the states from discriminating against aliens in even their own public employment practices.  Although this ruling was based on the equal protection clause of the Fourteenth Amendment to the United States Constitution rather than the commerce clause, that factor would seem to be of doubtful significance.  As related to action by a state either in the employment of personnel to work for it or, for example, in the marketing of state owned timber, there would appear to be little if any basis for differentiating between competing private rights asserted under one of these limiting constitutional provisions as opposed to the other.  And, obviously, to the extent that judicial scrutiny is now focusing on the impact of a state  [[Orig. Op. Page 13]] regulatory action rather than upon the capacity in which the regulator is acting, the legal merit of the possible distinction which we have above suggested between the action of the state as a timber owner or as a mere regulator of other timber owners is weakened.

            In addition, there is another problem with this argument when applied to the sale of timber on lands covered by Article XVI, §§ 1 and 2 of the Washington constitution,supra ‑ and in explaining that problem we will attempt to sum up and tie together all that we have said thus far.

            As we have above seen, these state constitutional provisions also pose obstacles to legislation requiring local processing of state timber (or the setting aside of designated amounts of such timber exclusively for "small businesses") because of the potential impact of such legislation on the market price of the timber so restricted.  The state constitutional directive, in essence, is to obtain "full market value"; and in the case of timber situated on lands granted for educational purposes, at least, this is required to be done through sale "at public auction to the highest bidder" at a price not less than its appraised value.  Thus, in most basic terms, the policy of the state of Washington with respect to the sale of its own timber, as expressed in its constitution, is, as we suggested in dealing with this aspect of your question earlier, quite probably at odds with a proposed legislative policy to make use of that timber to bolster the state's economic well being through assistance to the local processing industry.  Yet in order to make the argument based upon state ownership which would be required in an attempt to distinguish the proposed legislation here in question from that which was invalidated on commerce clause grounds in the Foster-Fountain, et al., supra, one would have to assert, as justification, a state interest keyed to that latter policy instead of the apparently contrary policy of the state constitution.

                        SUMMARY

            As we said at the beginning our goal in writing this opinion has been to explain our concerns with the constitutionality of the proposed legislative action you have asked us to review while at the same time remaining free to defend it in court should either bill later be passed and then challenged.  Thus, we have avoided the expression of an ultimate conclusion as to the constitutionality of either facet of the legislation in question.  Yet some sort of overall evaluation and prognosis is no doubt in order.

             [[Orig. Op. Page 14]] A.The "Log Export" Bill

            But for the factor of state ownership (or ownership by political subdivisions of the state) the proposed requirement for local "primary processing" of timber sold by the state or its subdivisions would probably have to be labeled as indefensible under the federal commerce clause.  Because the impact of the legislation would be limited in this respect, however, an argument can be framed in its support from that federal constitutional standpoint.  But the force of such an argument is considerably weakened by the conflictingstate policy apparently expressed in our own constitution with regard to state timber to which Article XVI, §§ 1 and 2,supra apply.

            B.The "Set Aside" Bill

            Because the problem with this proposal is more one of a potential conflict with the state constitution than with the federal, a somewhat less pessimistic prognosis might be expressed as to it simply because of the absence of any definitive state cases to the contrary at the present time.  Nevertheless, even without such interpretive decisions the language of Article XVI, §§ 1 and 2 appears to state a policy with respect to the sale of state timber (although not that owned, instead, by political subdivisions) would be at variance with the marketing restrictions that this bill would impose.