Filed: Jan. 17, 2012
Latest Update: Feb. 22, 2020
Summary: -3-, A. The Statutes at Issue.1, This factual determination is relevant to whether the, Commonwealth acts as a market participant or a market regulator, when it enforces Law 109.permits Congress to treat Puerto Rico differently from the states.Sprietsma v. Mercury Marine, 537 U.S. 51, 58-59 (2002).
United States Court of Appeals
For the First Circuit
No. 09-1314
ANTILLES CEMENT CORPORATION,
Plaintiff, Appellee,
v.
LUIS FORTUÑO, Governor of the Commonwealth of Puerto Rico;
ANTONIO M. SAGARDÍA-DE-JESÚS, Secretary of the Department of
Justice; LUIS G. RIVERA-MARÍN, Secretary of the Department of
Consumer Affairs; RUBEN A. HERNÁNDEZ-GREGORAT, Secretary of the
Department of Transportation and Public Works,
Defendants, Appellants,
CEMEX DE PUERTO RICO, INC., f/k/a Puerto Rican Cement Co., Inc.,
Defendant.
No. 09-1583
ANTILLES CEMENT CORPORATION,
Plaintiff, Appellee,
v.
CEMEX DE PUERTO RICO, INC., f/k/a Puerto Rican Cement Co., Inc.
Defendant, Appellant,
LUIS FORTUÑO, Governor of the Commonwealth of Puerto Rico;
ANTONIO M. SAGARDÍA-DE-JESÚS, Secretary of the Department of
Justice; LUIS G. RIVERA-MARÍN, Secretary of the Department of
Consumer Affairs; RUBEN A. HERNÁNDEZ-GREGORAT, Secretary of the
Department of Transportation and Public Works,
Defendants.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jamie Pieras, Jr., U.S. District Judge]
Before
Howard, Selya and Thompson,
Circuit Judges.
Angel E. Rotger-Sabat, with whom Maymí, Rivera & Rotger,
P.S.C. was on brief, for appellant Commonwealth of Puerto Rico.
Juan Ramón Cancio-Ortiz, with whom José Raúl Cancio-Bigas,
Charles E. Vilaró-Valderrábano and Cancio Covas & Santiago, LLP
were on brief, for appellant Cemex de Puerto Rico, Inc.
Hector Saldaña-Egozcue, with whom Carlos Lugo-Fiol and Saldaña
& Saldaña-Egozcue, PSC were on brief, for appellee.
January 17, 2012
HOWARD, Circuit Judge. These appeals present two complex
questions of first impression: Does the Buy American Act (BAA), 41
U.S.C. §§ 8301-8305 (formerly codified at 41 U.S.C. §§ 10a-10d),
preempt two Puerto Rico statutes? And if not, do those Puerto Rico
statutes unconstitutionally interfere with Congress's power to
regulate foreign commerce?
The district court initially struck down the two local
laws on the ground that they contravene the dormant Foreign
Commerce Clause. Antilles Cement Corp. v. Calderón (Antilles I),
288 F. Supp. 2d 187, 197-202 (D.P.R. 2003). On appeal, we vacated
that decision and remanded for consideration of the role of the
BAA. Antilles Cement Corp. v. Acevedo Vilá (Antilles II),
408 F.3d
41, 47-49 (1st Cir. 2005). On remand, the district court again
invalidated the local laws, this time concluding that they are
preempted by the BAA. We affirm in part and reverse in part.
I. BACKGROUND
We presume the reader's familiarity with our prior
decision in this matter and recount here only the facts needed to
illuminate the issues under appeal. Additional background may be
found in the related district court decisions. See Antilles Cement
Corp. v. Calderón (Antilles IV), No. Civ. 02-1643, slip op. (D.P.R.
Jan. 9, 2009); Antilles Cement Corp. v. Acevedo Vilá (Antilles
III), No. Civ. 02-1643,
2005 WL 2138753 (D.P.R. Sept. 1, 2005);
Antilles I,
288 F. Supp. 2d 187.
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A. The Statutes at Issue.
The BAA was enacted during the Great Depression to
promote American industry and jobs by requiring that certain public
projects use only domestically produced materials. See United
States v. Rule Indus., Inc.,
878 F.2d 535, 538 (1st Cir. 1989); see
also 76 Cong. Rec. 1892 (1933) (statement of Rep. John J. Cochran)
("In times such as we are now experiencing let us put American
labor to work on Government supplies and material."); see generally
Charles F. Szurgot, Comment, The Buy American Act: Reverse
Discrimination against Domestic Manufacturers; Implications of the
Trade Agreements Act of 1979 on the Rule of Origin Test, 7 Admin.
L.J. Am. U. 737, 739-40 (1993). Specifically, the BAA ordains,
subject to certain exceptions, that only materials that are mined,
produced, and/or manufactured in the United States may be employed
for "public use" or utilized in the construction, alteration, or
repair of "any public building or public work." 41 U.S.C. §§ 8302-
8303. "Public building," "public use," and "public work" are terms
of art, defined as "a public building of, use by, and a public work
of, the Federal Government, the District of Columbia, Puerto Rico,
American Samoa, and the Virgin Islands."
Id. § 8301 (emphasis
supplied).
We turn now to the two local laws that are challenged
here. The first, P.R. Laws Ann. tit. 3, §§ 927-927h (Law 109), is
a preference statute enacted in 1985 to promote the Puerto Rican
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construction industry. It requires that local construction
projects financed with funds from the federal government or the
Commonwealth use only "construction materials manufactured in
Puerto Rico,"
id. §§ 927a-927c, with certain limited exceptions
relating to the price, quality, and available quantity of local
materials,
id. § 927e. Of particular pertinence for present
purposes, cement is deemed "manufactured in Puerto Rico" only if it
is composed entirely of raw materials from Puerto Rico (unless a
particular component is unavailable in industrial quantities
locally).
Id. § 927(d).
The second challenged statute is P.R. Laws Ann. tit. 10,
§ 167e (Law 132). Enacted in 2001, it imposes certain labeling
requirements on cement sold in Puerto Rico. Among other things,
Law 132 requires that foreign-manufactured cement carry a special
label warning against its use in government-financed construction
projects unless one of the exceptions contained in the BAA and Law
109 applies. See
id. § 167e(a)(4). Law 132 also prohibits the
sale or distribution of foreign-manufactured cement that is not so
labeled and imposes fines for any violation of the labeling
requirements. See
id. §§ 167e(b), 167f.
B. Travel of the Case.
Antilles Cement Corporation, a firm that imports foreign
cement, commenced this action by filing a complaint in the United
States District Court for the District of Puerto Rico. Antilles
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sought a declaratory judgment that Laws 109 and 132 violate the
dormant Foreign Commerce Clause and conflict with the BAA. In the
early going, Antilles amended its complaint to withdraw the BAA
preemption claim.
The district court initially granted summary judgment for
Antilles, concluding that Laws 109 and 132 as applied to foreign
materials violate the dormant Foreign Commerce Clause. See
Antilles
I, 288 F. Supp. 2d at 197-202. On direct review, we
questioned whether the BAA might preempt the laws being challenged,
thereby obviating the need for constitutional analysis. See
Antilles
II, 408 F.3d at 47-49. Moreover, we found the record
lacking in factual development. See
id. at 49-51. Given these
concerns, we vacated the lower court's decision and remanded to
determine (1) whether the BAA applies to public projects undertaken
by the Commonwealth of Puerto Rico, and, if so, whether it preempts
Law 109; (2) whether Law 109 has been applied only to the
Commonwealth's own construction projects or, conversely, whether it
has been applied to private construction projects subsidized in
part by government funds;1 and (3) whether the status of Law 132
was altered in light of the answers to these first two questions.
See
id. at 51.
1
This factual determination is relevant to whether the
Commonwealth acts as a market participant or a market regulator
when it enforces Law 109.
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On remand, the district court concluded that the BAA
applies to public projects undertaken by the government of Puerto
Rico. See Antilles IV, No. Civ. 02-1643, slip op. at 58-64. It
further concluded that the BAA preempts Laws 109 and 132 because
the Puerto Rico statutes limit the use of foreign construction
materials more stringently than the BAA requires.
Id. at 64-66.
In view of this holding, the court recognized the lack of need for
further constitutional analysis.
Id. at 67. Nonetheless, in
compliance with our mandate, the court determined that Law 109 has
been applied only to public works projects undertaken by the
Commonwealth itself.
Id. at 67-68.
The Commonwealth and Cemex de Puerto Rico, Inc., an
intervenor, now appeal.
II. PRELIMINARY MATTERS
At the threshold, we must address the appellants'
contention that Antilles lacks standing to challenge Laws 109 and
132 under a preemption theory. According to the appellants,
Antilles stands to gain nothing by arguing that the BAA trumps the
Puerto Rico statutes; for even if Antilles successfully advances
that challenge, its cement would nevertheless remain barred from
use in the Commonwealth's public works projects under the terms of
the BAA itself. Although the appellants failed to raise this
argument during the remanded proceeding, Article III standing is a
jurisdictional question that must be resolved whenever it arises.
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See Weaver's Cove Energy, LLC v. R.I. Coastal Res. Mgmt. Council,
589 F.3d 458, 467 (1st Cir. 2009).
To establish Article III standing, Antilles must allege
"a concrete and particularized injury in fact, a causal connection
that permits tracing the claimed injury to the defendant's actions,
and a likelihood that prevailing in the action will afford some
redress for the injury."
Id. (internal quotation marks omitted).
The loss of sales resulting from the local laws' discrimination
against foreign cement is plainly a "concrete and particularized
injury" to Antilles that is traceable to the challenged laws. Our
inquiry must therefore focus on the final element of standing:
whether Antilles's injury will be redressed if Laws 109 and 132 are
held to be preempted by the BAA.
To carry its burden of establishing redressability,
Antilles need only show that a favorable ruling could potentially
lessen its injury; it need not definitively demonstrate that a
victory would completely remedy the harm. See, e.g., Monsanto Co.
v. Geertson Seed Farms,
130 S. Ct. 2743, 2752-54 (2010) (holding
that plaintiffs had standing to challenge an injunction preventing
them from planting a regulated crop, even though a decision
vacating the injunction would enable plaintiffs only to petition
for partial deregulation); see also Weaver's
Cove, 589 F.3d at 467-
68 (holding that a favorable decision would provide plaintiff
"effectual relief" by removing "a barrier to achieving approval"
even though additional regulatory hurdles would need to be cleared
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before project could be commenced). Antilles has met that
requirement here. As we explain below, the BAA provides
significantly greater opportunity than does Law 109 for suppliers
of foreign cement to participate in the Commonwealth's public
construction projects. Accordingly, Antilles stands to benefit if
Law 109 is nullified, leaving the company subject only to the
looser strictures of the BAA.
A simple side-by-side comparison of the BAA and Law 109
underscores the more formidable burden that the Puerto Rico statute
places on sellers of foreign cement. For example, under the BAA,
a construction material is considered "domestic" if it is
manufactured in the United States and if the cost of its components
that were mined, produced, or manufactured in the United States
exceeds half of its total component cost. See 48 C.F.R. § 25.003;
see also Exec. Order No. 10582, 19 Fed. Reg. 8723 (Dec. 17, 1954).
Pursuant to this definition, concrete manufactured from foreign
cement could be considered a domestic product (and thus eligible
for use in public paving projects) because, according to record
evidence, cement represents only about 42 percent of the cost of
concrete's components. By contrast, Law 109 would rarely permit
the public use of concrete made with foreign cement due to its
requirement that all cement used in public works be manufactured
using raw materials from Puerto Rico. See P.R. Laws Ann. tit. 3,
§ 927(d). Obviously, the opportunities for Antilles to sell its
cement in Puerto Rico would be greater under the BAA because that
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law allows concrete manufacturers who sell to the Commonwealth to
purchase and employ foreign cement.
The BAA also permits government purchasers to ignore the
domestic preference rule if adherence is impracticable or not in
the public interest, see 41 U.S.C. §§ 8302-8303, or if the domestic
material is greater than six percent more expensive than its
foreign counterpart, see id.; 48 C.F.R. § 25.204(b). Law 109's
exceptions are much narrower: domestic preferences may be ignored
only when indigenous construction materials are not available in
sufficient quantity or quality, see P.R. Laws Ann. tit. 3,
§ 927e(b), or if the domestic material is at least fifteen percent
more expensive than a comparable foreign-made material, see
id.
§ 927e(a); Antilles
II, 408 F.3d at 44. Given the relative
strictness of Law 109's domestic preference requirements, Antilles
would be more likely to sell its cement to contractors carrying out
public works projects in Puerto Rico if that law were preempted by
the BAA.
Law 132 is susceptible to a similar comparative analysis.
Unlike that law, the BAA does not impose any burdensome labeling
requirements on sellers of foreign cement. According to the
evidence of record, those idiosyncratic labels frighten away
potential customers.
In sum, Laws 109 and 132 place more onerous burdens on
Antilles than does the BAA. Antilles has therefore demonstrated
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that its injury would at least be alleviated by a finding that the
BAA preempts Laws 109 and 132.
One other bit of procedural underbrush must be cleared
before we can proceed to the merits of these appeals. The
appellants contend that Antilles waived its preemption claim by
failing to amend its complaint to reassert that claim after we sent
the case back to the district court. The district court determined
that it could consider the issue even without a formal amendment
because the Commonwealth and Cemex had fair warning that BAA
preemption would be litigated. We review that determination for
abuse of discretion. See Kenda Corp. v. Pot O'Gold Money Leagues,
Inc.,
329 F.3d 216, 232 (1st Cir. 2003).
Federal Rule of Civil Procedure 15(b) allows an unpleaded
claim to be considered when the parties' conduct demonstrates their
express or implied consent to litigate the claim. See Rodriguez v.
Doral Mortg. Corp.,
57 F.3d 1168, 1172 (1st Cir. 1995). The rule
provides in relevant part:
When an issue not raised by the pleadings is
tried by the parties' express or implied
consent, it must be treated in all respects as
if raised in the pleadings. A party may move
— at any time, even after judgment — to amend
the pleadings to conform them to the evidence
and to raise an unpleaded issue. But failure
to amend does not affect the result of the
trial of that issue.
Fed. R. Civ. P. 15(b)(2). A party can give implied consent to the
litigation of an unpleaded claim in two ways: by treating a claim
introduced outside the complaint "as having been pleaded, either
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through [the party's] effective engagement of the claim or through
his silent acquiescence"; or by acquiescing during trial "in the
introduction of evidence which is relevant only to that issue."
Doral
Mortg., 57 F.3d at 1172.
Here, the appellants plainly gave their implied consent
to the adjudication of the preemption claim. For one thing, they
never objected when it became clear that BAA preemption would be at
the heart of the remanded proceeding. At its first scheduling
conference following remand, the district court discussed with the
parties the scope of the Antilles II mandate. When the court
issued its scheduling order, it listed the BAA's preemptive effect
among the controverted issues. There was no objection. The
parties then engaged in extensive discovery, which included
numerous matters related to the BAA and preemption. Later, the
parties briefed several issues, including the applicability of the
BAA to Puerto Rico and its preemptive effect. Throughout all of
these proceedings, the appellants never suggested that BAA
preemption went beyond the scope of the issues properly before the
district court. Indeed, the appellants joined the preemption issue
by arguing that the BAA represented a congressional authorization
of the challenged statutes.
By actively contesting the BAA preemption claim on the
merits, the appellants effectively conceded that it had been
incorporated into the complaint. Moreover, given the extensive
notice that BAA preemption would be litigated upon remand, see,
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e.g., Antilles
II, 408 F.3d at 47-49, the appellants cannot show
that they were prejudiced by the court's consideration of that
issue.2 We therefore uphold the district court's ruling that the
BAA preemption claim was properly before it.
III. THE MERITS
The parties have stipulated to the salient facts, and the
issues before us are legal in nature. Those issues engender de
novo review. See Morales Feliciano v. Rullán,
378 F.3d 42, 49 (1st
Cir. 2004).
A. Preemption.
According to the district court, Laws 109 and 132 unduly
restrict Puerto Rico's ability to procure foreign materials for its
public projects and, in the process, undermine the BAA's delicate
balancing of protectionism and foreign trade and its policy of
encouraging flexibility in procurement decisions. We do not agree.
As a preliminary matter, the appellants concede (as they
must) that the BAA places restrictions on federal construction
projects in Puerto Rico. They likewise concede that Law 109, which
purports to govern public projects that are financed with either
2
The cases cited by the appellants in which implied consent
was not found are inapposite. See, e.g., United States v. Davis,
261 F.3d 1, 59 (1st Cir. 2001) (finding no abuse of discretion when
court denied plaintiff's belated request to amend complaint);
Rodriguez v. Banco Cent. Corp.,
990 F.2d 7, 13-14 (1st Cir. 1993)
(affirming denial of motion to amend where claim raised far into
discovery); Campana v. Eller,
755 F.2d 212, 215-16 (1st Cir. 1985)
(same). In none of those cases did the parties, at the court's
direction, engage the issue in question.
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federal or Commonwealth funds, see P.R. Laws Ann. tit. 3, § 927(f),
is preempted by the BAA to the extent that it tries to restrict
federal projects in Puerto Rico. But the appellants dispute the
district court's ruling that the BAA preempts Laws 109 and 132 as
they apply to public projects that are funded by the Commonwealth.
Refined to its bare essence, the appellants' argument is that the
Commonwealth has the same degree of sovereignty as the several
states; and that because the BAA does not pertain to state
governments, it should not be construed to restrict public projects
undertaken by Puerto Rico.
We reject the appellants' contention that the BAA has no
application to Puerto Rico. Whether and how a federal statute
applies to Puerto Rico is a question of Congressional intent.
Jusino Mercado v. Puerto Rico,
214 F.3d 34, 40 (1st Cir. 2000).
The critical inquiry in this instance, then, is whether Congress
intended for Puerto Rico to be treated as a state under the BAA.
See
id. Because this poses a question of statutory interpretation,
we employ the usual tools. See In re Pharm. Indus. Average
Wholesale Price Litig.,
582 F.3d 156, 168 (1st Cir. 2009) (limning
general principles of statutory construction). We must evaluate
the statute's language within the statutory scheme and look to the
legislative history and policy only if that language is unclear.
See Gen. Motors Corp. v. Darling's,
444 F.3d 98, 108 (1st Cir.
2006).
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Under the express terms of the BAA (and leaving its
exceptions to one side), only domestic materials may be acquired
for "public use" or used in the construction, alteration, or repair
of any "public building" or "public work." 41 U.S.C. §§ 8302-8303.
The statute applies only to "a public building of, use by, and a
public work of, the Federal Government, the District of Columbia,
Puerto Rico, American Samoa, and the Virgin Islands."
Id. § 8301
(emphasis supplied). By its plain terms, then, the BAA encompasses
public construction projects undertaken by the government of Puerto
Rico. We find this explicit language dispositive. See In re
Pharm.
Indus., 582 F.3d at 168 ("The Supreme Court has repeatedly
emphasized the importance of the plain meaning rule, stating that
if the language of a statute or regulation has a plain and ordinary
meaning, courts need look no further and should apply the
regulation as it is written." (quoting Textron Inc. v. Comm'r of
Internal Revenue,
336 F.3d 26, 31 (1st Cir. 2003))).
The appellants attempt to dampen the impact of the BAA's
plain language by arguing that the explicit reference to Puerto
Rico is a vestige of a time when Puerto Rico was a federally
administered territory. They point out that, more than a decade
after the BAA's enactment in 1933, Puerto Rico was transformed from
a territory into a self-governing commonwealth. See Federal
Relations Act of 1950 (FRA), Pub. L. No. 81-600, 64 Stat. 319
(codified at 48 U.S.C. §§ 731b-731e). In Cordova & Simonpietri
Insurance Agency Inc. v. Chase Manhattan Bank N.A., we recognized
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that, following the adoption of the FRA, federal statutes that had
applied to Puerto Rico as a territory might no longer pertain to it
in its capacity as a commonwealth.
649 F.2d 36, 38 (1st Cir.
1981). The appellants argue that the BAA is such a statute. They
contend that the BAA's framers would not have intended for the law
to apply to an autonomous commonwealth like Puerto Rico and that
the words "Puerto Rico" remain in the statute due only to the
inadvertence of subsequent Congresses.
This argument is not without some force, but it is
defeated by the fact that Congress recently overhauled the BAA yet
left the words "Puerto Rico" intact. See Act of Jan. 4, 2011, Pub.
L. No. 111-350, § 3, 124 Stat. 3677, 3830-33. The stated purpose
of this overhaul was to clarify ambiguities in the BAA (and other
laws codified in Title 41 of the United States Code) and better
effect the intent of the drafters of those laws. See
id. § 2, 124
Stat. at 3677. As part of this legislative refurbishment, among
other things, Congress restructured and re-enacted the BAA, removed
the "[Panama] Canal Zone" from the list of covered entities, and
rechristened the "United States" as "the Federal Government." Yet
Congress did not delete the BAA's reference to Puerto Rico. We can
think of no better indicator of Congress's intent to continue to
include Puerto Rico within the reach of the BAA than its
overhauling the BAA yet preserving the law's explicit application
to the Commonwealth.
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Even beyond this recent overhaul, we note that Congress
historically has been diligent in amending the BAA to remove
entities that it no longer intends to cover. For example, when the
BAA was initially enacted, it expressly applied to the territories
of Alaska and Hawaii. But when Alaska and Hawaii achieved
statehood, Congress amended the BAA to remove them from its
purview. See Hawaii Omnibus Act, Pub. L. No. 86-624, § 28, 74
Stat. 411, 419 (1960); Alaska Omnibus Act, Pub. L. No. 86-70, § 43,
73 Stat. 141, 151 (1959). Congress's failure similarly to amend
the BAA following the FRA's enactment strongly suggests an intent
that the BAA continue to apply to Puerto Rico. See Caribbean
Tubular Corp. v. Fernandez Torrecillas,
67 B.R. 172, 175 (D.P.R.
1986) ("[H]ad Congress intended to oust Puerto Rico from the
coverage of the BAA it would have done so in 1959 when it excluded
Alaska and Hawaii.").
Cordova does not compel a different conclusion.3 There,
we observed that following passage of the FRA Puerto Rico now
enjoys "the degree of autonomy and independence normally associated
with a State of the
Union." 649 F.2d at 41 (quoting Examining Bd.
of Eng'rs, Architects & Surveyors v. Flores de Otero,
426 U.S. 572,
594 (1976)). But we recognized that Puerto Rico is not a state.
See
id. (referencing Puerto Rico's "unique status of
3
In Cordova, we determined that the Sherman Act applies in
Puerto Rico the same as it does in any state in part because the
law did not expressly refer to the
Commonwealth. 649 F.2d at 42.
The BAA, by contrast, explicitly references Puerto Rico.
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Commonwealth"). Accordingly, although we now generally presume
that Congress intends its laws to have the same effect on Puerto
Rico as they do on any state, that presumption can be overcome by
"specific evidence" to the contrary or by "clear policy reasons
embedded in" a statute.
Id. at 42; see Jusino
Mercado, 214 F.3d at
42 (listing "two possible avenues to differential treatment: an
express direction in the statutory text or some other compelling
reason"). Here, the explicit reference to Puerto Rico in the BAA
and Congress's decision to retain that reference notwithstanding
its recent overhaul of the statute are overwhelming and express
evidence that Congress intends the BAA to apply to the Commonwealth
even though it does not apply to any of the fifty states.
In an effort to blunt the force of this reasoning, the
appellants note that a 1988 amendment to the BAA added several
references to "Federal agenc[ies]." See Act of Aug. 23, 1988, Pub.
L. No. 100-418, §§ 7002, 7005, 102 Stat. 1107. They assert that
this amendment demonstrates that the BAA applies only to the
federal government, not to the autonomous government of Puerto
Rico. But the 1988 amendment did not eliminate the BAA's explicit
reference to Puerto Rico and, in all events, that amendment ceased
to be effective on April 30, 1996. See
id. § 7004.
We also reject the appellants' asseveration that the
BAA's inclusion of Puerto Rico was impliedly repealed when Congress
passed the FRA. It is a "cardinal rule . . . that repeals by
implication are not favored." Morton v. Mancari,
417 U.S. 535, 549
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(1974) (quotation marks omitted). Implied repeal occurs only where
two acts are in irreconcilable conflict or when a later act "covers
the whole subject of the earlier one and is clearly intended as a
substitute." Posadas v. Nat'l City Bank of N.Y.,
296 U.S. 497, 503
(1936).
Here, there is no basis for arguing that the FRA was
intended to replace the BAA (and, indeed, the appellants abjure any
such argument). What is more, the BAA and the FRA coexist in
perfect harmony. It is beyond hope of contradiction that the FRA
permits Congress to treat Puerto Rico differently from the states.
See Jusino
Mercado, 214 F.3d at 40;
Cordova, 649 F.2d at 42. The
BAA does exactly that, imposing unique procurement restraints on
the Commonwealth's government. There is simply no conflict between
the FRA's granting of autonomy to Puerto Rico and the BAA's
imposition of rules applicable to the Commonwealth. Moreover, even
if the BAA and FRA were in irreconcilable conflict, the BAA holds
the trump card. After all, Congress re-enacted the BAA in 2011,
making it the more recent expression of Congress's intent. See
Pub. L. No. 111-350.
We are also unpersuaded by the appellants' reliance on 48
U.S.C. § 734, which states that: "The statutory laws of the United
States not locally inapplicable . . . shall have the same force and
effect in Puerto Rico as in the United States . . . ." As we have
made pellucid, this provision is without force where Congress
intends to treat Puerto Rico differently from the states. See
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Jusino
Mercado, 214 F.3d at 42. By expressly including "Puerto
Rico" among the entities enumerated in the BAA, Congress plainly
intended the law to apply to the Commonwealth even though it does
not apply to the states.
Equally misplaced is the appellants' reliance on the 1950
Act of Congress that granted Puerto Rico the right to ratify a
constitution. Section 6 of that Act states that "All laws or parts
of laws inconsistent with this Act are hereby repealed." FRA, § 6,
64 Stat. at 320. We see nothing "inconsistent" between the BAA and
the 1950 Act. Congress is permitted to treat Puerto Rico
differently despite its state-like status, Jusino
Mercado, 214 F.3d
at 42, and the BAA is merely an instance of Congress exercising
that prerogative.4
To say more on this point would be supererogatory. We
conclude that the BAA by its express terms imposes restrictions on
public construction projects undertaken by the Commonwealth of
Puerto Rico. But this conclusion, in and of itself, does not
resolve the preemption inquiry. We turn next to the preemptive
effect, if any, of the BAA on the local laws at issue here.
It is a matter of bedrock that "the Laws of the United
States . . . shall be the supreme Law of the Land; and the Judges
in every State shall be bound thereby, any Thing in the
4
At any rate, the 1950 Act repealed only "inconsistent" laws
then in existence; it has no effect on Congress's 2011 re-enactment
of the BAA.
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Constitution or Laws of any State to the Contrary notwithstanding."
U.S. Const. art. VI, cl. 2; see M'Culloch v. Maryland, 17 U.S. (4
Wheat.) 316, 427 (1819) ("It is of the very essence of supremacy,
to remove all obstacles to its action within its own sphere, and so
to modify every power vested in subordinate governments . . . .").
Consequently, state laws that "interfere with, or are contrary to
the laws of Congress" are void ab initio. Gibbons v. Ogden, 22
U.S. (9 Wheat.) 1, 211 (1824); see Free v. Bland,
369 U.S. 663, 666
(1962) (stating that "any state law, however clearly within a
State's acknowledged power, which interferes with or is contrary to
federal law, must yield"). For preemption purposes, the laws of
Puerto Rico are the functional equivalent of state laws. See P.R.
Dep't of Consumer Affairs v. Isla Petroleum Corp.,
485 U.S. 495,
499 (1988).
In determining the preemptive effect of a federal law, we
must look to the intent of Congress. Altria Grp., Inc. v. Good,
555 U.S. 70, 76 (2008). We begin with the presumption that a
federal act does not preempt an otherwise valid state law, and we
set aside that postulate only in the face of clear and contrary
congressional intent. City of Columbus v. Ours Garage & Wrecker
Serv., Inc.,
536 U.S. 424, 432 (2002). In some instances, that
intent can appear haec verba on the face of a statute. See, e.g.,
Sprietsma v. Mercury Marine,
537 U.S. 51, 58-59 (2002). In the
absence of express language, however, we must look to the structure
and purpose of the statute. See Barnett Bank of Marion Cnty., N.A.
-21-
v. Nelson,
517 U.S. 25, 31 (1996). For example, we can infer
Congress's intent to preempt an entire field of law when it enacts
a scheme of regulation "so pervasive as to make reasonable the
inference that Congress left no room for the States to supplement
it." Rice v. Santa Fe Elevator Corp.,
331 U.S. 218, 230 (1947).
By like token, when a state law directly conflicts with a federal
statute — such as where it is "physically impossible" to comply
with both laws or "where the state law stands as an obstacle to the
accomplishment and execution of the full objectives of Congress" —
we can presume that Congress intended preemption to occur. La.
Pub. Serv. Comm'n v. FCC,
476 U.S. 355, 368-69 (1986).
No express language in the BAA evinces an intent to
preempt state law. Nor can we perceive any field that Congress
attempted to occupy through the enactment of the BAA.
To be sure, Antilles proposes that Congress intended by
means of the BAA to exercise full dominion over "the field of
acquisitions of foreign products, insofar as Puerto Rico and the
other territories of the United States are concerned." Appellee's
Br. at 33. There are two problems with this concept. First, the
BAA is the only federal statute that purposes to regulate Puerto
Rico's acquisitions of foreign products, and its scope is hardly
pervasive. Second, there is a strong presumption that Congress
does not intend to preempt a field traditionally occupied by the
states unless Congress makes such an intention "clear and
manifest." Hillsborough Cnty., Fla. v. Automated Med. Labs., Inc.,
-22-
471 U.S. 707, 715 (1985). Puerto Rico's ability to spend its money
as it chooses is a basic aspect of its autonomy, and we cannot
believe that Congress intended to commandeer Puerto Rico's spending
power insofar as it relates to foreign products without making that
intent clear.
Antilles suggests that Congress demonstrated its intent
to preempt Puerto Rico's procurement policies by enacting the BAA.
But this is little more than a tautology, and the Supreme Court has
cautioned against the tautological inference that whenever the
federal government steps into a field, its regulations will be
exclusive. See
id. at 717. The Court added that "[s]uch a rule
. . . would be inconsistent with the federal-state balance embodied
in our Supremacy Clause jurisprudence."
Id. Consistent with this
guidance, we conclude that the mere fact that Congress enacted the
BAA is not enough to evince a manifest intent to preempt all Puerto
Rico laws relating to the Commonwealth's purchase of foreign
products.
Having determined that the BAA neither expressly preempts
Laws 109 and 132 nor preempts the field in which those statutes
operate, we are left with the question of whether there is any
irreconcilable conflict between the BAA and those laws. We
undertake this inquiry mindful that a state law must yield to a
federal law "when compliance with both state and federal
regulations is impossible or when state law interposes an obstacle
to the achievement of Congress's discernible objectives." Grant's
-23-
Dairy-Me., LLC v. Comm'r of Me. Dep't of Agric., Food & Rural Res.,
232 F.3d 8, 15 (1st Cir. 2000).
It is surely possible to comply simultaneously with both
the BAA and the challenged Puerto Rico statutes. Laws 109 and 132
stiffen, but do not contradict, the protectionist requirements of
the BAA. A few examples will serve to illustrate this point.
Under the BAA, Puerto Rico must purchase domestic
materials for use in public construction projects unless the cost
of comparable foreign materials would be at least six percent
lower. See 48 C.F.R. § 25.204(b). Law 109, however, demands
adherence to the domestic preference unless the foreign product is
at least fifteen percent cheaper. See Antilles
II, 408 F.3d at 44.
Similarly, the BAA's domestic preference requirement can be waived
if a department head determines that it is not in the "public
interest." 41 U.S.C. §§ 8302(a)(1); 8303(b)(3). Law 109
eviscerates this exemption. Up and down the line, Law 109 imposes
more severe obstacles to the Commonwealth's ability to purchase
foreign goods than does the BAA. It follows that if the
Commonwealth is in compliance with Law 109, then it by definition
has satisfied the BAA's more relaxed standards. After all, the
greater necessarily includes the lesser.
The district court implicitly agreed that it is possible
to comply with both the BAA and the challenged statutes. It
nonetheless found that the former preempted the latter because Laws
109 and 132 undercut Congress's aims. We are not persuaded.
-24-
There is nothing unusual about a state supplementing a
federal statute with stronger regulations. See, e.g., Attrezzi,
LLC v. Maytag Corp.,
436 F.3d 32, 41 (1st Cir. 2006). By
legislating in an area, Congress generally does "not mean that
States and localities [are] barred from . . . imposing further
requirements in the field." Hillsborough
Cnty., 471 U.S. at 717.
Thus, courts routinely have upheld state statutes that impose
tougher restrictions than their federal counterparts as long as the
state law does not undermine the purposes of the federal statute.
See, e.g., Cal. Fed. Sav. & Loan Ass'n v. Guerra,
479 U.S. 272,
288-92 (1987); Keebler Co. v. Rovira Biscuit Corp.,
624 F.2d 366,
372 n.3 (1st Cir. 1980), abrogated on other grounds, Two Pesos,
Inc. v. Taco Cabana, Inc.,
505 U.S. 763 (1992). Conversely, state
statutes that flatly contradict policies embedded in a federal
statute are preempted. See, e.g., Bonito Boats, Inc. v. Thunder
Craft Boats, Inc.,
489 U.S. 141, 159-60 (1989).
Among other things, then, determining whether state and
federal statutes can coexist requires us to consider the extent to
which their policy aims are harmonious. See United States v.
Locke,
529 U.S. 89, 108 (2000). The core policy of the BAA is the
protection of American industry (and, by extension, the American
worker) from foreign competition. See Rule
Indus., 878 F.2d at
538; Allis-Chalmers Corp., Hydro-Turbine Div. v. Friedkin,
635 F.2d
248, 257 (3d Cir. 1980); see also 76 Cong. Rec. 1893 (statement of
Rep. Riley J. Wilson) (explaining, in his role as the BAA's
-25-
principal sponsor, that "the purpose of this bill is to establish
a policy by the Government assuring the use of American materials
for the execution and carrying on of public works in every place
where the United States has jurisdiction"); 155 Cong. Rec. *S13321,
*S13322 (statement of Sen. Russ Feingold) (noting that the name of
the BAA "accurately describes its purpose: to ensure that the
Federal Government supports domestic companies and domestic workers
by buying American-made goods"). Laws 109 and 132, which are
protectionist in nature, comport perfectly with that policy.
Of course, the BAA makes some exceptions to its
essentially protectionist regime, and the Executive Branch has
sometimes blunted its thrust. See, e.g., Exec. Order No. 10582, 19
Fed. Reg. 8723 (Dec. 17, 1954). But that nibbling around the edges
does not mean, as Antilles would have it, that the BAA embodies a
federal policy of "allow[ing] a reasonable flux of foreign
commerce." Appellee's Br. at 36. The fact that either Congress or
the Executive Branch has determined, in particular circumstances,
that a covered entity is not bound by the BAA's strictures does not
show that the BAA manifests any type of pro-trade policy; those
exceptions merely recognize that the BAA's protectionist regime may
be impracticable in some situations. Indeed, if the BAA were
concerned with encouraging international trade, then we would
expect a covered entity to be required to purchase foreign goods
when a BAA exception applies. But that is not the case. The BAA
simply gives covered entities the option to buy foreign goods in
-26-
certain circumstances, but it never demands engagement in foreign
commerce. See, e.g., 41 U.S.C. §§ 8302(a)(1)-(2); 8303(b) (limning
situations where "Buy American" requirement does not apply); 48
C.F.R. § 25.204(b) (expressly permitting covered entity to ignore
cost exception to BAA).
The district court found that Law 109 contravenes the
BAA's policy of encouraging "flexibility" in procurement decisions.
Leaving to one side whether "flexibility" is a "policy" indulging
the BAA, Law 109 strikes us as a manifestation of the flexibility
contemplated by the statute. The BAA sets a floor of protectionism
— not a ceiling. It then invites the covered entities to build
upon that floor. For example, the BAA requires a covered entity to
procure domestic materials as long as their foreign counterparts
are not more than six percent cheaper; but the covered entity, if
it so chooses, can require a higher price discrepancy before it
looks overseas. See 48 C.F.R. § 25.204(b). By enacting Law 109,
Puerto Rico — as explicitly permitted by the BAA — has raised from
six to fifteen percent the price discrepancy that must exist before
the Commonwealth will purchase foreign materials. In doing so,
Puerto Rico has simply built upon the BAA's floor of protectionism.
See Atherton v. FDIC,
519 U.S. 213, 227 (1997) (finding no
preemption where federal statute "provides only a floor" that "does
not stand in the way of a stricter standard that the laws of some
States provide").
-27-
A second example may also prove helpful. The BAA confers
upon a covered entity the option — but not the obligation — to buy
foreign goods if it determines that doing so would be in the public
interest. See 41 U.S.C. §§ 8302(a)(1); 8303(b)(3). In Law 109,
Puerto Rico has declared its belief that purchasing foreign goods
for its own public works is never in the public interest. So
viewed, to the extent that the BAA embodies a policy of providing
covered entities with flexibility in procurement decisions, Law 109
is merely an outgrowth of that policy. We find no conflict and,
therefore, no preemption.5
B. Dormant Foreign Commerce Clause.
Our conclusion that the BAA does not preempt Laws 109 and
132 brings us to the question of whether the challenged statutes
violate the dormant Foreign Commerce Clause. In our federal
system, Congress is imbued with the sole power "[t]o regulate
Commerce with foreign Nations, and among the several States
. . . ." U.S. Const. art. I, § 8, cl. 3. There are two sides to
the Commerce Clause coin: the Clause not only gives Congress the
express power to regulate commerce but also implicitly protects
against state laws inimical to foreign or national trade. Barclays
Bank PLC v. Franchise Tax Bd. of Cal.,
512 U.S. 298, 310-11 (1994).
5
We need not address the suggestion that Laws 109 and 132
undermine the BAA's exemption for certain purchases made pursuant
to reciprocal defense procurement agreements. See 41 U.S.C.
§ 8304. This exemption applies only to military procurements and
is unaffected by the challenged Puerto Rico statutes.
-28-
In other words, "[a]lthough the Commerce Clause is by its text an
affirmative grant of power to Congress to regulate interstate and
foreign commerce, the Clause has long been recognized as a self-
executing limitation on the power of the States to enact laws
imposing substantial burdens on such commerce." S.-Cent. Timber
Dev., Inc. v. Wunnicke,
467 U.S. 82, 87 (1984).
In the case at bar, Antilles insists that Laws 109 and
132 impermissibly infringe upon Congress's constitutional
prerogative to regulate trade with foreign nations and thus violate
the dormant aspect of the Foreign Commerce Clause. This argument
is difficult to unpack because the Supreme Court has had few
occasions to offer guidance regarding the contours of the dormant
Foreign Commerce Clause. See Antilles
II, 408 F.3d at 46. Each of
these few instances involved the inapposite issue of state taxation
of foreign commerce. See
id. (collecting cases). Even so, there
are principles that can be gleaned from cases discussing a closely
related concept: the dormant Interstate Commerce Clause. See
id.
("Although the language of dormant Commerce Clause jurisprudence
most often concerns interstate commerce, essentially the same
doctrine applies to international commerce.").
To begin, those cases make it clear that Puerto Rico is
subject to the strictures of the dormant Commerce Clause in regard
to both interstate and foreign commerce. See Trailer Marine
Transp. Corp. v. Rivera Vazquez,
977 F.2d 1, 6-9 (1st Cir. 1992).
Like a state, therefore, Puerto Rico generally may not enact
-29-
policies that discriminate against out-of-state commerce. See,
e.g., Dep't of Revenue of Ky. v. Davis,
553 U.S. 328, 338 (2008).
But like any state, Puerto Rico is unchained from the shackles of
the Commerce Clause when it acts as a participant in the free
market as opposed to a sovereign regulating the market. See White
v. Mass. Council of Constr. Emp'rs, Inc.,
460 U.S. 204, 208 (1983)
(holding that "when a state or local government enters the market
as a participant it is not subject to the restraints of the
Commerce Clause"); Reeves, Inc. v. Stake,
447 U.S. 429, 437 (1980)
(finding "no indication of a constitutional plan to limit the
ability of the States themselves to operate freely in the free
market"). For example, when a state sells cement from a factory
that it owns, it is free to sell exclusively to in-state customers.
See
Reeves, 447 U.S. at 440. Similarly, a state acting as a buyer
in a particular market may discriminate in favor of in-state
sellers. See Hughes v. Alexandria Scrap Corp.,
426 U.S. 794, 808-
09 (1976). Conversely, when a state is acting as a regulator
rather than as a market participant, it cannot institute
discriminatory policies. See, e.g., New Energy Co. of Ind. v.
Limbach,
486 U.S. 269, 277-78 (1988).
It cannot be gainsaid that Laws 109 and 132 discriminate
against products that are produced outside Puerto Rico. The
constitutionality of these laws therefore turns on whether Puerto
Rico acts as a market participant or a market regulator when it
enforces them.
-30-
Before we proceed further, we must add a coda. To date,
the market participant exception has been recognized by the Supreme
Court only in cases implicating the dormant Interstate Commerce
Clause. The Court has not said one way or the other whether the
exception applies in cases — like this one — in which a state law
is challenged under the Foreign Commerce Clause. See
Reeves, 447
U.S. at 437 n.9. There is some reason to believe that the market
participant exception might be inapplicable to state laws that
discriminate against foreign commerce. The need for national
uniformity in foreign affairs is important, see Wardair Can., Inc.
v. Fla. Dep't of Revenue,
477 U.S. 1, 8 (1986), and therefore state
laws that burden foreign trade necessarily deserve closer scrutiny
than those that burden only interstate commerce, see
Barclays, 512
U.S. at 311. Put another way, the dormant Foreign Commerce Clause
places stricter constraints on states than its interstate
counterpart. See Japan Line, Ltd. v. Cnty. of L.A.,
441 U.S. 434,
448 (1979) ("Although the [Commerce Clause] grants Congress power
to regulate commerce 'with foreign Nations' and 'among the several
States' in parallel phrases, there is evidence that the Founders
intended the scope of the foreign commerce power to be the
greater.").
The issue of whether the market participant exception can
save state laws that discriminate against foreign commerce is one
of first impression for this court. See Nat'l Foreign Trade
Council v. Natsios,
181 F.3d 38, 65-66 (1st Cir. 1999) (leaving
-31-
question open), aff'd on other grounds sub nom. Crosby v. Nat'l
Foreign Trade Council,
530 U.S. 363 (2000). After careful
consideration, we hold that a state may discriminate against
foreign commerce when it participates in the free market. Accord
Trojan Techs., Inc. v. Pennsylvania,
916 F.2d 903, 910-12 (3d Cir.
1990); K.S.B. Technical Sales Corp. v. N. Jersey Dist. Water Supply
Comm'n of N.J.,
381 A.2d 774, 787 (N.J. 1977).
Our conclusion is justified by the Supreme Court's oft-
repeated mantra that a state, when acting as a market participant,
is not "subject to the limitations of the negative Commerce
Clause." Camps Newfound/Owatonna, Inc. v. Town of Harrison,
520
U.S. 564, 592 (1997). Even though the Court once expressly
reserved judgment on whether this principle applies to the negative
Foreign Commerce Clause, see
Reeves, 447 U.S. at 437 n.9 (dictum),
it has not otherwise suggested that the market participant
exception is limited to interstate commerce. To the contrary, the
Court has frequently employed sweeping language to the effect that
the Commerce Clause in its entirety does not apply to market
participants. See, e.g., Camps
Newfound, 520 U.S. at 592-93; New
Energy, 486 U.S. at 277; S.-Cent.
Timber, 467 U.S. at 94;
White,
460 U.S. at 208, 210; Alexandria
Scrap, 426 U.S. at 810.
Furthermore, extending the market participant exception
to the context of foreign commerce is consistent with the purposes
undergirding the exemption. As the Court has explained, the
exception recognizes that a state that delves into the free market
-32-
is akin to a private business — and the law has long respected the
unfettered discretion of private businesses to deal with whomever
they please. See
Reeves, 447 U.S. at 438-39; see also S.-Cent.
Timber, 467 U.S. at 94 (concluding that "the Commerce Clause places
no limitations on a State's refusal to deal with particular parties
when it is participating in the interstate market in goods"). This
makes perfect sense. After all, a state that participates in the
market is burdened by the same regulations as private companies.
Reeves, 447 U.S. at 439. To ensure a level playing field, "when
acting as proprietors, States should similarly share existing
freedoms from federal constraints, including the inherent limits of
the Commerce Clause."
Id. While these principles have been
developed in the interstate commerce context, they apply with equal
force when a state-proprietor discriminates against foreign
commerce. Private businesses are permitted to refuse to deal with
foreign companies, and so states, acting as market participants,
deserve the same leeway.
A contrary rule would lead to anomalous results. Indeed,
any law that discriminates against out-of-state companies
necessarily impedes both interstate and foreign commerce. The
Supreme Court has repeatedly relied on the market participant
doctrine to uphold discriminatory laws against Commerce Clause
challenges with respect to interstate commerce. If the market
participant exception cannot also excuse barriers to foreign trade,
however, then all of these laws would be suspect and the Supreme
-33-
Court's forging of the market participant doctrine would have been
little more than an exercise in futility.
At bottom, we can see no reason why a state participating
in the market should not be permitted to choose with whom it does
business. The dormant Foreign Commerce Clause exists to ensure
that the United States speaks with a unified voice when it engages
in foreign trade.
Wardair, 477 U.S. at 8; Japan
Line, 441 U.S. at
448-51. A particular state's refusal, as a market participant, to
transact business with a foreign company does not undermine the
cohesiveness of our national trade policy; it merely removes one
entry from the foreign company's customer list. Indeed, given that
the federal government has adopted a protectionist posture
regarding its own public procurements, it can even be argued that
a state Buy American statute — such as Law 109 — actually fosters
more uniformity in our trade policy.
Some commentators have expressed concern that foreign
countries will view a state-proprietor's decision not to do
business with them as a trade barrier erected by the United States
and will seek to retaliate against the nation as whole. See
Natsios, 181 F.3d at 66. But this fear makes sense only when
discussing state regulations that burden trade between foreign
companies and private entities within that state. If such laws
were permitted, foreign countries would face a confusing array of
protectionist state regulations and, as a result, might either
eschew trade with the United States or erect their own barriers to
-34-
American products. But when a state-proprietor chooses to transact
business with only domestic entities, foreign companies face "no
problems of reconciling conflicting policy among multiple national
sovereigns." Trojan
Techs., 916 F.2d at 912. The companies can
still do business anywhere in the United States under the same
terms; they simply cannot contract with the government of the state
that enacted the protectionist statute.
To sum up, we hold that a state cannot violate the
dormant Foreign Commerce Clause when acting as a market
participant. This holding applies equally to Puerto Rico.
But this conclusion does not end our odyssey. The
question remains whether Puerto Rico acts as a market participant
or a market regulator when enforcing Laws 109 and 132.
In order to qualify for the prophylaxis of the market
participant doctrine, a state must be acting as a private company
would act, not "in its distinctive governmental capacity." New
Energy
Co., 486 U.S. at 277. Conversely, when a state flexes its
sovereign muscle to regulate the behavior of other players in the
market, the market participant exception does not apply. See,
e.g.,
id. at 277-78.
We add, moreover, that a state-proprietor may
discriminate against foreign commerce only within the narrow market
realm in which it operates. See S.-Cent.
Timber, 467 U.S. at 99
(holding that a state "may not avail itself of the
-35-
market-participant doctrine to immunize its downstream regulation
of [a] market in which it is not a participant").
We turn from the general to the specific. Law 109 states
(with exceptions not relevant here) that when the Commonwealth
either uses public funds to hire a contractor or engages in
construction work itself, the materials used in the construction
must originate from Puerto Rico. See P.R. Laws Ann. tit. 3,
§§ 927a-927c. These provisions do not implicate the Commerce
Clause. When the Commonwealth uses its own funds to undertake a
construction project, it is acting as a buyer in the market for
construction services. Cf. Alexandria
Scrap, 426 U.S. at 808-10
(holding that state acting as a buyer of scrap metal is a market
participant). Because it is a market participant, the Commonwealth
is entitled (as any private company would be) to demand contractual
conditions that relate directly to the service being purchased.
See S.-Cent.
Timber, 467 U.S. at 97 (explaining that "market-
participant doctrine permits a State to influence 'a discrete,
identifiable class of economic activity in which [it] is a major
participant'" (quoting
White, 460 U.S. at 211 n. 7 (1983))).
This case is unlike South-Central Timber, where the
Supreme Court prevented Alaska from imposing downstream
restrictions on its customers. Under the invalidated Alaska
statute, customers who gathered timber from state land were
required to process that timber in Alaska. The Court held that
Alaska had no business telling its customers what they could do
-36-
with their timber after their transactions with the state were
completed.
Id. at 96-99. The market participant doctrine was
inapplicable because Alaska, by regulating behavior that was
unrelated to its timber sales transactions, acted more like a
sovereign than a private company. See
id. at 99. Here, by
contrast, Puerto Rico has legislated domestic preference
requirements that are directly tied to its activities as a
participant in the market for construction services. When the
Commonwealth acts as a run-of-the-mill buyer, the market
participant doctrine allows it to demand discriminatory concessions
that are proximately related to the transactions at issue.
It is important to note that the parties do not challenge
the district court's finding that Law 109 has no bearing on private
construction projects that are subsidized by the Commonwealth. If
the Commonwealth had been enforcing Law 109 against such private
projects, then arguably it would be acting as a market regulator,
and the outcome of this appeal might be different.
We are unconvinced by Antilles's attempts to characterize
Law 109 as a market regulation. It first points to the law's
enforcement mechanism, which provides the Commonwealth with greater
recourse against a contractor who violates Law 109 than a private
party would have against a breaching counterparty under general
law. See P.R. Laws Ann. tit. 3, §§ 927f-927g. By including these
"punitive" measures, Antilles says, the Commonwealth is regulating
its contractors as a sovereign would. This line of reasoning goes
-37-
nowhere because a private party could easily insert similar
enforcement mechanisms in a private construction contract. The
Commonwealth has merely codified in legislation the sort of
concessions that a private business could codify in an agreement,
and doing so does not divest Puerto Rico of market participant
status.
Antilles next contends that Law 109 essentially regulates
the entire construction industry because it restrains the various
subcontractors who work on large government projects. We are not
prepared to take such a leap. Law 109 regulates subcontractors
only to the extent that they are providing a service to the
Commonwealth. And, as we have already established, the
Commonwealth is permitted to place protectionist demands on its
service providers when it participates as a buyer in the
marketplace.
That ends this aspect of the matter. We conclude that
Law 109 is shielded from Commerce Clause scrutiny by the market
participant doctrine.
This leaves only Law 132, which requires companies that
sell cement in Puerto Rico to place certain labels on their
products. See P.R. Laws Ann. tit. 10, § 167e. That law is quite
clearly an attempt to regulate the cement market.
The Commonwealth does not participate in the cement
market. Rather, it has by means of Law 132 imposed labeling
regulations that affect transactions between its citizens and
-38-
private companies. That is the essence of acting as a market
regulator. See Pharm. Research & Mfrs. of Am. v. Concannon,
249
F.3d 66, 80 (1st Cir. 2001).
Where, as here, the market participant exception does not
apply and where Congress has not spoken otherwise, state laws that
on their face discriminate against foreign commerce are almost
always invalid. See Fulton Corp. v. Faulkner,
516 U.S. 325, 331
(1996). Law 132 is such a law: it requires companies that sell
foreign cement to place a different label on their products than
companies that sell domestic cement. See P.R. Laws Ann. tit. 10,
§ 167e(a)(4). The record adequately evinces that this
discriminatory labeling requirement has placed the sellers of
foreign cement at a competitive disadvantage. Law 132 can thus
survive only if the Commonwealth can show that the law advances a
legitimate local goal that could not have been served as well by
nondiscriminatory means. See Maine v. Taylor,
477 U.S. 131, 138
(1986).
The Commonwealth has not made such a showing here. The
purported justification for Law 132 - insuring that contractors
comply with the BAA and Law 109 - can easily be accomplished by
less discriminatory means. For example, the Commonwealth could
maintain a database of companies that sell qualified cement and
-39-
share that information with contractors who work on projects
covered by the BAA and Law 109.6
We hold, therefore, that, to the extent that Law 132
discriminates against sellers of foreign cement, it contravenes the
Foreign Commerce Clause. Withal, we leave intact the labeling
requirements of Law 132 that apply evenhandedly to sellers of
foreign and domestic cement. See Ayotte v. Planned Parenthood of
N. New Eng.,
546 U.S. 320, 328-29 (2006) ("We prefer . . . to sever
[a statute's] problematic portions while leaving the remainder
intact.").
IV. CONCLUSION
To recapitulate, we uphold Law 109 as a permissible
action taken by Puerto Rico in its capacity as a market
participant, but we strike down those provisions of Law 132 that
discriminate against sellers of foreign cement (leaving the
remainder of that law intact).
Affirmed in part, reversed in part. All parties shall bear their
own costs.
6
Indeed, it appears that the Commonwealth already maintains
precisely this type of database. See P.R. Laws Ann. tit. 3,
§ 927d.
-40-