Hillside Dairy, et al. v. Lyons, Secy. of Food & Agriculture / Ponderosa Dairy, et al. v. Lyons (06/09/2003)

Questions presented: 1. Whether section 144 of the 1996 Farm Bill creates an unmistakably clear "blanket" exemption to the dormant Commerce Clause for California's interstate regulation of the dairy industry, which would be otherwise limited by Baldwin v. G.A. F. Seelig, Inc., 294 U.S. 511 (1935), and its progeny? 2. Whether it is proper for courts to resort to legislative history or a paraphrase of a statute in order to discern an "unmistakably clear" Congressional exemption to the negative Commerce Clause? 3. Is substantive judicial review of discriminatory effect under the Privileges and Immunities Clause foreclosed as a matter of law where state discrimination is facially based on the out-of-state location of a farm or business, but the statute does not expressly refer to out-of-state residency or citizenship?

BY: GABRIEL CABARROUY, MEDILL NEWS SERVICE

Out-of-state dairy farmers were threatening to knock out California as the top producer of milk in the United States. But California legislators passed a 1997 amendment to its milk pricing and pooling system to protect their own from competition.

Thirty years earlier, California legislators had passed an act to regulate the price of milk and create a pooling system in which revenues were distributed among all producers. This program stopped dairy processors from controlling prices and also "leveled the playing field" among dairy farmers whose milk value would depend on its use.

At that time, legislators were not concerned about out-of-state producers. Geography and other limitations had prevented out-of-state competition from penetrating Californias market.

By 1997, California processors were buying more milk from out-of-state producers than from their own state producers. Out-of-state milk prices tended to be cheaper because there was no minimum price and no money had to be paid to the pool.

Faced with pressure from the California dairy industry, legislators amended the pooling plan. In-state processors had to comply with the minimum price obligation and pay some portion of the revenue to the pool even when they bought out-of-state milk.

Out-of-state dairy farmers then saw their milk profits go down. They were not guaranteed any minimum price for their raw milk and they did not receive any shared revenues from the pool.

In July 21, 1999, Hillside and Ponderosa dairies, representing dairy farmers in Nevada and Arizona, filed suit questioning the constitutionality of the 1997 amendments to the California pooling plan. They alleged these changes discriminate against out-of-state dairy farmers, arguing that only Congress could make such regulations.

Hillside and Ponderosa asked the district court to stop California from imposing such regulations, but the court ruled against them. To support its decision, the court cited Shamrock Farms Co. v. Veneman, a 1998 opinion from the 9th Circuit Court of Appeals that found that part of the 1996 Farm Bill passed by Congress immunized Californias milk pricing and pooling laws.

Hillside and Ponderosa dairies appealed, and a 9th Circuit Court panel unanimously affirmed. Hillside and Ponderosa contended the 1996 Farm Bill gives authority to California to establish any law or regulation regarding the composition of the milk and its labeling, but not price or pooling system.

The appeals court said the 1996 Farm Bill provided an exception to the Commerce Clause, allowing California to modify the price and pooling system.

"The unanimous panel [in Shamrock] found the language persuasive and indicative of Congress intent to create a blanket exclusion for California's composition requirements," wrote Judge John Sedwick. "With respect to the pricing and pooling laws, the appellate court found them to be interrelated and mutually interdependent."

Ponderosa Dairy had listed different ways the pooling system discriminates. Out-of-state dairies have a quota share but are not eligible for the benefits, plus they also get lower milk prices from producers than in-state dairy farmers.

The 9th Circuit said that even if those discriminatory practices were true, Ponderosa failed to show why the 1997 amendments are "arbitrary or why they are not related to legitimate state interests."

Ponderosa and Hillside had also argued that the pooling system discriminates between citizens of one state to another, but the appeals court disagreed.

"The classifications the pooling system plan amendments create are based on the location where milk is produced," Sedwick wrote. "The amendments do not, on their face, create classifications based on any individuals residency or citizenship."

On Jan. 10, 2003, the U.S. Supreme Court granted certiorari to both Hillside and Ponderora, and consolidated the cases for review.

The Court is being asked to decide whether the Farm Bill creates "an unmistakably clear blanket" that would exempt them from the constitutional prohibition of interstate regulation of the dairy industry. The Court is also being asked to determine whether out-of-state dairy farmers were discriminated against even though the statute does not target out-of-state residency or citizenship.

The Court's decision may have nationwide impact as every state participates in the dairy industry. Charles English, the attorney representing Hillside Dairy, said the California dairy industry could face tougher competition if the Courts decision goes in favor of out-of-state dairy farmers. Otherwise, free-trade among states might be jeopardized.

"We became the United States precisely because of tariffs," English said. "If a state is allowed to have tariffs, it could be extended [to other industries]."

On June 9, 2003, the Court reversed. In a unanimous decision written by Justice John Paul Stevens, the Court held for the dairies that California's milk pricing and pooling regulations are not exempted from Commerce Clause scrutiny by sect. 144 of the 1996 Farm Bill.

Concluding that the dairies might have a case under either the Constitution's commerce clause or its privileges and immunities clause, the case was remanded for trial.