INTERNATIONAL DAIRY FOODS ASS'N v. BOGGSNos. 09-3515, 09-3526.
622 F.3d 628 (2010)
INTERNATIONAL DAIRY FOODS ASSOCIATION (09-3515); Organic Trade Association (09-3526), Plaintiffs-Appellants,
Robert J. BOGGS, in his official capacity as Ohio Director of Agriculture, Defendant-Appellee.
Robert J. BOGGS, in his official capacity as Ohio Director of Agriculture, Defendant-Appellee.
United States Court of Appeals, Sixth Circuit.
Argued: June 10, 2010.
Decided and Filed: September 30, 2010.
ARGUED: Charles M. English, Jr., Ober, Kaler, Grimes & Shriver, Washington, D.C., Randall J. Sunshine, Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLP, Los Angeles, California, for Appellants. David M. Lieberman, Office of the Ohio Attorney General, Columbus, Ohio, for Appellee. ON BRIEF: Charles M. English, Jr., Wendy Yoviene, Ober, Kaler, Grimes & Shriver, Washington, D.C., Randall J. Sunshine, Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor LLP, Los Angeles, California, for Appellants. David M. Lieberman, Benjamin C. Mizer, Stephen P. Carney, William J. Cole, James Patterson, Office of the Ohio Attorney General, Columbus, Ohio, for Appellee. Gregory R. flax, Baker & Hostetler LLP, Columbus, Ohio, Paige Tomaselli, The Center for Food Safety, San Francisco, California, for Amici Curiae.
Before: GILMAN and WHITE, Circuit Judges; THAPAR, District Judge.
RONALD LEE GILMAN, Circuit Judge.
In response to a number of dairy processors advertising their nonuse of artificial hormones in the production of milk, the Ohio Department of Agriculture (ODA) adopted a regulation designed to curb the allegedly misleading labeling of dairy products. The regulation prohibits dairy processors from making claims about the absence of artificial hormones in their milk products (composition claims), and it also requires them to include a disclaimer when making such claims about their production processes. Two separate dairy-processor trade organizations filed suit, asserting that the regulation violates their First Amendment rights and the dormant Commerce Clause.
The district court granted summary judgment in favor of the state of Ohio on all but one of these claims. Based on this ruling, the court also denied the dairy processors' motion for a preliminary injunction. The processors then filed an interlocutory appeal with regard to both orders. For the following reasons, we
A. Factual history
This case concerns the labeling of milk products to reflect the nonuse of artificial hormones by members of two dairy-processor trade organizations, the International Dairy Foods Association (IDFA) and the Organic Trade Association (OTA). The IDFA is a trade organization whose collective membership consists of an estimated 85 percent of the milk, cultured-products, cheese, and frozen-desserts producers in the United States. In contrast, OTA's members span the entire organic industry, including dairy production. Several OTA members are certified organic dairy processors that must comply with the Organic Foods Production Act (OFPA), 7 U.S.C. § 6501 et seq., which forbids the use of antibiotics, artificial hormones, and pesticides in food production. (The IDFA and the OTA are hereinafter collectively referred to as "the Processors.")
At issue in this case is a genetically engineered hormone called recombinant bovine somatotropin (rbST), also known as recombinant bovine growth hormone (rbGH). The substance is given to lactating cows to increase their milk production. As used, rbST combines with the naturally occurring bovine somatotropin (bST) to increase dairy cows' milk production by up to 10 percent over cows not given the artificial hormone.
In 1993, the Food and Drug Administration (FDA) approved the use of rbST in cows, concluding that the artificial hormone "is safe and effective for dairy cows, that milk from rbST-treated cows is safe for human consumption, and that production and use of the product do not have a significant impact on the environment." Interim Guidance on the Voluntary Labeling of Milk and Milk Products from Cows that Have Not Been Treated with Recombinant Bovine Somatotropin, 59 Fed.Reg. 6279, 6279-80 (Feb. 10, 1994); see also 58 Fed.Reg. 59946 (Nov. 12, 1993) (approving the use of rbST). The agency further "found that there was no significant difference between milk from treated and untreated cows." Id. at 6280. Recognizing that some food companies might wish to inform consumers that they do not use
In response to requests from several states for further guidance on this issue, the FDA in 1994 published an Interim Guidance regarding the labeling of milk and milk products from cows not treated with rbST. The Guidance addressed two types of claims: (1) "composition claims," which refer to the final composition of the milk or milk product (e.g., "rbST free"), and (2) "production claims," which refer to the manner in which the product is produced (e.g., "from cows not treated with rbST"). With regard to composition claims, the FDA strongly discouraged their use. It concluded that the term "bST-free" would be false under any circumstances, given that bST is naturally present in milk. 59 Fed.Reg. at 6280. The FDA next addressed the claim "rbST free," noting that it was "concerned that the term ... may imply a compositional difference between milk from treated and untreated cows rather than a difference in the way the milk is produced." Id.
Instead, the agency encouraged dairy processors to use production claims such as "from cows not treated with rbST." But it cautioned that even these claims have "the potential to be misunderstood by consumers" because they "may imply that milk from untreated cows is safer or of higher quality than milk from treated cows," an implication that would be "false and misleading." Id. The FDA therefore suggested that processors place production claims "in a proper context," such as by pairing a production claim with the statement that "[n]o significant difference has been shown between milk derived from rbST-treated and non-rbST-treated cows," or "by conveying the firm's reasons (other than safety or quality) for choosing not to use milk from cows treated with rbST." Id.
Bowing to "the traditional role of the States in overseeing milk production," the FDA clarified that its Guidance was a nonbinding document intended to give states assistance in formulating their own labeling laws. Id. The FDA also recommended that states require food companies to maintain records substantiating their claims and to make those records available for inspection. Id.
In the 14 years since the FDA issued its Guidance, consumer demand for dairy products made with milk from non-rbST-treated cows has increased. Many dairy processors, including those belonging to both the IDFA and the OTA, no longer accept milk from dairy farmers that comes from cows treated with rbST. Some IDFA processors, for example, have entered into agreements with milk suppliers to ensure that the milk received is from untreated cows, and the processors label their products to reflect this fact. And OTA members who label their products as "organic" are specifically precluded by the OFPA from using milk from cows treated with rbST or any other artificial hormone.
Several of these Processors advertised their nonuse of rbST on dairy products that they sold in Ohio. In response, Ohio Governor Ted Strickland issued an executive order in February 2008 that directed the ODA to "define what constitutes false and misleading labels on milk and milk products." Ohio Governor Executive Order 2008-03S (Feb. 7, 2008). He further ordered the agency to require dairy producers claiming that they do not use rbST to submit supporting documentation and to create labels containing representations consistent with the FDA's rbST findings.
The ODA then issued a proposed Rule restricting the types of claims that dairy processors could make about milk and milk
ODA Director Robert Boggs nevertheless adopted the Rule in May 2008. In relevant part, the final Rule states that
Ohio Admin. Code § 901:11-8-01.
B. Procedural history
Shortly after the final adoption of the Rule, the IDFA and the OTA filed separate lawsuits in the district court, challenging the Rule as unconstitutional. The two cases were later consolidated by the district court. According to the Processors, Ohio's labeling Rule infringes on their First Amendment rights, violates the dormant Commerce Clause, is unconstitutionally vague, and is preempted by the OFPA. The IDFA also asserted an equal protection claim in its complaint.
The Processors sought a preliminary injunction, after which both sides moved for summary judgment on all issues except the IDFA's equal protection claim. Addressing all three motions in one order, the district court granted summary judgment in favor of the State on the Processors' Commerce Clause, void-for-vagueness, and preemption claims. Regarding the Processors' First Amendment claim, the court granted summary judgment in favor of the State on the issue of the Rule's prohibition of composition claims. But it granted the State only partial summary judgment as to the Rule's restrictions on production claims in light of an undeveloped factual record on the issue of whether the Rule's requirements were unduly burdensome as applied to small containers.
A. Standards of review
We review de novo a district court's grant of summary judgment. ACLU of Ky. v. Grayson County,
By contrast, the decision of whether to grant a motion for a preliminary injunction is "left to the sound discretion of the district court." Deja Vu of Cincinnati, L.L.C. v. Union Twp. Bd. of Trs.,
Nightclubs, Inc. v. City of Paducah,
Like the parties, the district court focused exclusively on the first of these four factors—whether the Processors are likely to succeed on the merits of their claims— and relied on its summary judgment ruling to conclude that the Processors were not entitled to injunctive relief. The key issue on appeal is thus whether the district court erred in its adverse rulings on the Processors' (1) First Amendment challenge to the Rule's prophylactic ban on composition claims, (2) First Amendment challenge to the Rule's disclosure requirement for production claims, and (3) dormant Commerce Clause challenge to the Rule. We address each claim in turn below.
B. First Amendment challenge to the ban on composition claims
The Processors contend that the Ohio rule violates the First Amendment by placing a prophylactic ban on composition claims such as "rbST free," "antibiotic-free," and "pesticide-free." Both sides agree that the composition claims at issue constitute commercial speech and are thus afforded less extensive protection under the First Amendment than noncommercial speech. See Zauderer v. Office of Disciplinary
Prophylactic bans on commercial speech are evaluated under a four-part analysis first set forth in Central Hudson Gas & Electric Corp. v. Public Service Commission,
1. Whether the Processors' composition claims are inherently misleading
The district court in the present case concluded that the composition claims were misleading and therefore not entitled to any First Amendment protection. "Misleading advertising may be prohibited entirely," including where the speech is "inherently likely to deceive or where the record indicates that a particular form or method of advertising has in fact been deceptive." In re R.M.J., 455 U.S. at 202-03, 102 S.Ct. 929. Where speech is only potentially misleading, however, the Central Hudson framework applies. Id. at 203, 102 S.Ct. 929. Under these circumstances, "the preferred remedy is more disclosure, rather than less." Bates v. State Bar of Ariz.,
The district court held that the composition claims were inherently misleading because "they imply a compositional difference between those products that are produced with rb[ST] and those that are not," in contravention of the FDA's finding that there is no measurable compositional difference between the two. This conclusion is belied by the record, however, which shows that, contrary to the district court's assertion, a compositional difference does exist between milk from untreated cows and conventional milk ("conventional milk," as used throughout this opinion, refers to milk from cows treated with rbST). As detailed by the amici parties seeking to strike down the Rule, the use of rbST in milk production has been shown to elevate the levels of insulin-like growth factor 1 (IGF-1), a naturally-occurring hormone that in high levels is linked to several types of cancers, among other things. The amici also point to certain studies indicating that rbST use induces an unnatural period of milk production during a cow's "negative energy phase." According to these studies, milk produced during this
In addition, and more salient to the regulation of composition claims like "rbST free," the failure to discover rbST in conventional milk is not necessarily because the artificial hormone is absent in such milk, but rather because scientists have been unable to perfect a test to detect it. As recognized by the State's brief in the district court, "given existing technology, it is currently impossible to test milk to determine whether the hormones present are natural hormones or recombinant hormones (such as rbST)." The State further conceded this point at oral argument, acknowledging that conventional milk "could" contain rbST, but that no test has been able to verify if this is in fact the case. This uncertainty is also implicit in the FDA's 1994 Guidance. There, the agency stated that "there [i]s no significant difference between milk from treated and untreated cows" because "[t]here is currently no way to differentiate analytically between naturally occurring bST and [r]bST in milk." 59 Fed.Reg. 6279, 6280 (emphasis added). The FDA thus appears to have left room for the fact that some compositional difference between the two types of milk may exist, leaving open the possibility that one day a method might exist to detect whether rbST is in fact present in conventional milk.
Taken collectively, this evidence points to two distinct types of milk. On the one hand is milk from cows never given rbST, which in turn cannot produce milk that has rbST as a matter of fact. The composition claim "rbST free" is therefore demonstrably true as applied to this milk. On the other hand, milk from cows treated with rbST might contain the artificial hormone, although there is currently no way to determine whether that is the case. But even if rbST is not present in conventional milk, there is still evidence that it contains increased levels of IGF-1 and might be compositionally of a lesser quality.
A compositional difference thus exists between the two types of milk, although the extent of this difference—namely whether conventional milk does in fact contain rbST—is still very much an open question. As such, the composition claim "rbST free" at best informs consumers of a meaningful distinction between conventional and other types of milk and at worst potentially misleads them into believing that a compositionally distinct milk adversely affects their health. Under these circumstances, we conclude that composition claims like "rbST free" are not inherently misleading. We must therefore apply the remaining three Central Hudson factors to assess the constitutionality of the Rule's prophylactic ban on the composition claims "rbST free" and "artificial hormone free."
As a separate matter, the Processors challenge on appeal the Rule's ban of composition claims related to antibiotics and pesticides. The State responds that antibiotics and pesticides are "largely detectable in milk" and that "all milk is routinely tested for antibiotics, and the presence of any antibiotic in any amount renders the milk unacceptable for consumption." It added that cost considerations prevent the routine testing of every batch of milk. The State, however, did not present any evidence with regard to testing procedures used to detect antibiotics and pesticides.
2. The remaining Central Hudson factors
Having determined that the composition claim "rbST free" is not inherently misleading, we must review the State's ban on such claims under the final three Central Hudson factors: (1) whether the State's asserted interest is substantial, (2) whether the regulation directly advances that interest, and (3) whether the regulation is no more extensive than necessary to serve the asserted interest. See Central Hudson, 447 U.S. at 566, 100 S.Ct. 2343. All three of these factors must be met in order for the Rule to be upheld. See id.
Turning to the first factor, we note that the Rule's purported purpose is to prevent the use of "false or misleading" labeling. See Ohio Admin. Code § 901:11-8-01(A). The Processors concede that this interest is substantial. But because the Rule is aimed at preventing consumer deception, the State bears the burden to "demonstrate that the harms it recites are real and that its restriction will in fact alleviate them to a material degree." Ibanez v. Fla. Dep't of Bus. & Prof'l Regulation, Bd. of Accountancy,
In the present case, the record of deception is weak at best. The only evidence that the State points to is the FDA's Interim Guidance and consumer comments that it received in response to the proposed Rule. But the Guidance provides little support in this regard. The FDA suggests in the Guidance that the claim "rbST free" "may imply a compositional difference" between the two types of milk, 59 Fed.Reg. 6279, 6280 (emphasis added), but this statement does not establish that such a claim is necessarily misleading in every context. Furthermore, the FDA cited no evidence or studies in the Guidance to support its concerns regarding consumer confusion. The Guidance therefore does not constitute "evidence of deception" as required under Ibanez.
Also unhelpful are the consumer comments that the ODA received after issuing the proposed Rule. The State received approximately 2,700 comments, of which the Processors estimate that only 70 were in support of the Rule. We agree with the State that some of these comments demonstrate consumer confusion regarding the use of rbST in milk production. One commenter, for example, asserted that she needed "to know that the milk I drink has no added hormones," thereby indicating
We need not address this issue further, however, because we conclude that the Rule does not directly advance the State's interest and is more extensive than necessary to serve that interest. These last two steps of the Central Hudson test are complementary. They involve "asking whether the speech restriction is not more extensive than necessary to serve the interests that support it." Lorillard Tobacco Co. v. Reilly,
We agree with the Processors that the potential consumer confusion created by the composition claim "rbST free" could be alleviated by accompanying the claim with a disclaimer informing consumers that rbST has yet to be detected in conventional milk. Examples of possible disclaimers include a statement regarding the lack of evidence that conventional milk contains rbST, or even the disclaimer already required by the Rule to accompany production claims: "The FDA has determined that no significant difference has been shown between milk derived from rbST-supplemented and non-rbST-supplemented cows."
The district court rejected the use of a disclaimer to cure any confusion caused by the claim "rbST free," reasoning that "such a statement would only serve to confuse a consumer." In the district court's view, "the label would contain contradictory information—it would say a product is `free' of rbST, but at the same time state that there is no rbST in other products, which defeats the purpose of making the claim in the first place." But this conclusion rests on the assumption that conventional milk has conclusively been shown to be free of rbST, when in fact that possibility remains an open question. The claim "rbST free," when used in conjunction with an appropriate disclaimer, could assure consumers that the substance is definitively not in milk so labeled while also advising them that it has yet to be detected in conventional milk. There thus exists a method by which the potential difference between the two types of milk can be presented without also being deceptive. See In re R.M.J.,
For these reasons, we conclude that the Rule's prophylactic ban of composition claims such as "rbST free" is more extensive than necessary to serve the State's interest in preventing consumer deception.
C. First Amendment challenge to the disclosure requirement for production claims
In addition to composition claims, the Ohio Rule regulates the use of production claims such as "this milk is from cows not supplemented with rbST." When using these claims, processors must include a disclosure on the label stating that "[t]he FDA has determined that no significant difference has been shown between milk derived from rbST-supplemented and non-rbST-supplemented cows." Ohio Admin. Code § 901:11-8-01(B)(2). This disclosure must be on the same label panel, "in exactly the same font, style, case, and color and at least half the size (but no smaller than seven point font)" as the production claim. Id.
The district court granted the State partial summary judgment on this issue. First, the court held that the disclosure requirement is subject to a reasonableness standard rather than intermediate scrutiny under the Central Hudson test. The court then found that the claim "this milk is from cows not supplemented with rbST" implies that processors using rbST have an inferior or unsafe product, and that the State has an interest in preventing the dissemination of this potentially misleading information. Although the court rejected the Processors' argument that the cost of ensuring that their labels comply with the Rule makes the Rule unduly burdensome, it found that there was a factual dispute as to whether the Rule's formatting requirements were unduly burdensome to the extent that the Processors might not be able to include the required disclosure on small containers. The court therefore denied the State summary judgment on this latter issue.
1. Proper standard for evaluating disclosure requirements
As an initial matter, the Processors argue that the district court failed to employ the appropriate standard of review for evaluating disclosure requirements. The court relied on Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio,
The Supreme Court recently clarified the standard of review to apply to disclosure requirements in Milavetz, Gallop & Milavetz, P.A. v. United States, ___ U.S. ___,
Milavetz thus established that Zauderer applies where a disclosure requirement targets speech that is inherently misleading. We conclude that Zauderer also controls our analysis where, as here, the speech at issue is potentially misleading. Several reasons support this conclusion. First, in Milavetz, the Court did not explicitly limit its application of Zauderer to inherently misleading speech, instead stating that a relaxed standard of review applies to disclosure requirements regulating "misleading commercial speech." Id. at 1339 (emphasis in original). But see id. (Thomas, J., concurring) ("[A] disclosure requirement passes constitutional muster only to the extent that it is aimed at advertisements that, by their nature, [are inherently likely to deceive or have in fact been deceptive].").
In addition, as the Court recognized in Milavetz, the impetus behind the formation of the Zauderer standard was the fact that "First Amendment protection for commercial speech is justified in large part by the information's value to consumers." Id. The speech rights of advertisers, in contrast, are of less value; specifically, their "constitutionally protected interest in not providing the required factual information is `minimal.'" Id. (citing Zauderer, 471 U.S. at 651, 105 S.Ct. 2265). This justification for the Zauderer standard thus fits regulations that require a disclosure, regardless of whether the speech being targeted is inherently or potentially misleading. Because the Ohio Rule regulates production claims by requiring them to be accompanied by a disclosure, Zauderer controls our review.
Our sister circuits have similarly recognized this rationale for employing the Zauderer standard. The Court of Appeals for the Second Circuit, for example, has held that "there are material differences between purely factual and uncontroversial disclosure requirements and outright prohibitions on speech." Nat'l Elec. Mfrs. Ass'n v. Sorrell,
In arguing to the contrary, the Processors rely on two decisions from the Eleventh Circuit Court of Appeals in which that court applied the Central Hudson factors to disclosure requirements. One of these is Borgner v. Brooks,
In sum, we conclude that the Rule's disclosure requirement is reasonably related to the State's interest in preventing consumers from being deceived by production claims. Like composition claims, production claims such as "this milk is from cows not supplemented with rbST" are potentially misleading because they imply that conventional milk is inferior or unsafe in some way. But neither the FDA nor any study has conclusively shown that to be the case. Furthermore, unlike its regulation of composition claims, the Rule does not prohibit the use of production claims. It instead requires only the disclosure of accompanying information. We therefore conclude that the less-burdensome analytical framework from Zauderer should apply.
2. Evaluation of the disclosure requirement under Zauderer
Under Zauderer, the Rule's disclosure requirement for production claims must be "reasonably related to the State's interest in preventing deception of consumers" and cannot be "unjustified or unduly burdensome." Zauderer, 471 U.S. at 651, 105 S.Ct. 2265. The district court concluded that the Rule was in compliance with the Zauderer standard because the production claim that "this milk is from cows not supplemented with rbST," despite its accuracy, nevertheless "implies that those processors that do use rbST have an inferior or unsafe product or that it is compositionally different." Ohio's Rule, the court continued, "strikes the right balance between preventing misleading information and providing enough information for consumers to make an informed choice."
The Processors first contend that the State failed to show that their production claims are misleading. But the State's burden of providing such evidence is more relaxed where disclosure requirements are at issue (as opposed to a ban on commercial speech) and "the possibility of deception is . . . self-evident." See Zauderer, 471 U.S. at 652, 105 S.Ct. 2265 (holding that, to justify the state's imposition of a disclosure requirement for attorney advertising, the state need not "conduct a survey of the public before it may determine that the advertisement had a tendency to mislead" (alterations, citation, and ellipsis omitted)).
The Supreme Court rejected a similar argument made by those challenging the revised Bankruptcy Code in Milavetz, noting Zauderer's holding that a survey of the public was unnecessary. Milavetz, 130 S.Ct. at 1340. It instead determined that "[e]vidence in the congressional record demonstrating a pattern of [misleading] advertisements . . . is adequate to establish that the likelihood of deception in this case is hardly a speculative one." Id. (citation and internal quotation marks omitted). Although the FDA's Interim Guidance and the consumer comments relied on by the State constitute weak evidence of deception, they at least demonstrate that the risk of deception in this case is not speculative. At a minimum, the Guidance supports the conclusion that production claims can be misleading and the comments show that there is general confusion among some Ohio consumers regarding what substances are (or are not) in the milk they purchase. The district court accordingly did not err in concluding that the Rule's disclosure requirement is reasonably related to thwarting that risk.
In contrast, we find no rational basis in the record for the Rule's contiguity requirement. The Processors specifically take issue with this provision, noting that it prevents them from linking the production claim to the disclosure through the use of an asterisk. Director Boggs testified in his deposition that the ODA decided against the use of an asterisk based on his "anecdotal experience" of talking to consumers in grocery stores. According to Director Boggs, these consumers informed him that "oftentimes it's hard to understand labels, especially when the print is so small." But these observations reveal nothing about whether the use of an asterisk to link information was effective in conveying a disclosure to consumers. Nor did Director Boggs point to any other basis for his belief. He instead asserted, without any supporting evidence, that he had "been aware of [asterisks being a problem in conveying information] for a long time."
In light of the paucity of evidence supporting the Rule's contiguity requirement, we conclude that it has no demonstrable connection to ensuring that consumers are not misled. We therefore hold that it lacks a rational basis. See Nat'l Elec. Mfrs. Ass'n v. Sorrell,
Finally, the Processors challenge the Rule's disclosure requirement as being unduly burdensome. They contend that it hinders their ability to convey their message regarding rbST as well as their ability to operate in interstate commerce. But the Processors' concerns regarding the ability to convey their message stem largely from the Rule's prohibition on asterisks, a concern that we have dealt with above. And they have not pointed to any evidence that the Rule's font, size, and color requirements impair their ability to communicate effectively.
Any alleged burden that the Rule imposes on the Processors' ability to participate in interstate commerce has similarly been alleviated. The Processors argue that the Rule's requirements are sufficiently distinct from those of other states so as to necessitate Ohio-specific labels and to cause disruption of the nationwide distribution of dairy products. Without the prophylactic ban on composition claims and the prohibition on asterisk use, however, the Rule will be largely indistinguishable from similar regulations in other states. See, e.g., Alaska Stat. § 17.20.013(a) (requiring production claims to be accompanied by the disclaimer "No significant difference has been shown between milk derived from rBST treated and non-rBST treated cows"); Vt. Stat. Ann. tit. 6, § 2762(3) (requiring production
D. Dormant Commerce Clause
As a final challenge to the Rule, the Processors claim that it violates the dormant Commerce Clause. The Constitution grants Congress power "[t]o regulate Commerce with foreign Nations, and among the several States." U.S. Const. art. I, § 8, cl. 3. "Although 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,
1. Standard for evaluating dormant Commerce Clause challenges
The parties initially dispute whether the district court used the proper standard to evaluate the Processors' Commerce Clause claims. Such claims are traditionally evaluated using a two-tiered analysis. The first inquiry requires a court to determine whether "a state statute directly regulates or discriminates against interstate commerce, or [whether] its effect is to favor in-state economic interests over out-of-state interests." Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth.,
The first inquiry under Brown-Forman focuses on whether a regulation has a direct effect or only an incidental effect on interstate commerce. But "[w]hat counts as a `direct' burden on interstate commerce has long been a matter of difficulty for courts, and, presumably due to its questionable value as an analytical device, the `direct/incidental' distinction has fallen out of use in dormant commerce clause analysis." Tenn. Scrap Recyclers Ass'n v. Bredesen,
Id. at 449 (citations and internal quotation marks omitted).
In addition to regulations that are protectionist, the Supreme Court has recognized a second category of regulation that is also virtually per se invalid under the dormant Commerce Clause: a regulation that has the practical effect of controlling commerce that occurs entirely outside of the state in question. The Commerce Clause "precludes the application of a state statute to commerce that takes place wholly outside of the State's borders, whether or not the commerce has effects within the State." Healy v. Beer Inst.,
The district court in the present case addressed the Processors' extraterritorial arguments in the latter half of its analysis under Tennessee Scrap, where it employed the Pike test. According to the Processors, the court erred by failing to recognize that the Rule is per se invalid if it has the practical effect of controlling commerce outside of Ohio. In response, the State defends the court's analysis as correct in light of Tennessee Scrap.
But the plaintiffs in Tennessee Scrap did not argue that the regulation at issue in that case had any extraterritorial effects. Tenn. Scrap, 556 F.3d at 448. Moreover, recent cases from other circuits have expressly held that a state regulation that governs extraterritorially is a per se violation of the Commerce Clause. The Eighth Circuit Court of Appeals, for example, has held that
Grand River Enters. Six Nations, Ltd. v. Beebe,
At least three other circuits have expressed their Commerce Clause jurisprudence in a similar three-part fashion. See Selevan v. N. Y. Thruway Auth.,
To be sure, "the critical consideration" in any dormant Commerce Clause analysis "is the overall effect of the statute on both local and interstate activity." Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth.,
2. Whether the Rule governs extraterritorially
Our first consideration is therefore whether the Ohio Rule has any extraterritorial effect. As discussed above, "a statute that directly controls commerce occurring wholly outside the boundaries of a State exceeds the inherent limits of the enacting State's authority." Healy, 491 U.S. at 336, 109 S.Ct. 2491.
The Supreme Court has struck down state regulations due to their extraterritorial effects in the context of price-affirmation statutes. In Brown-Forman, for example, the Court analyzed a New York law that required liquor distillers selling to wholesalers in the state to affirm that the prices charged were not higher than the lowest price at which the same product was sold in any other state during the month covered by the affirmation. Certain distillers offered "promotional allowances" to wholesalers purchasing their products, but were not allowed to do so in New York. The state further determined that promotional allowances offered to wholesalers in other states effectively lowered the prices charged in those states, a view that was not shared by other states with affirmation laws. These distillers were therefore faced with the choice of either reducing their New York prices, in violation of the affirmation laws in other states, or discontinuing their promotional programs in the other states. Brown-Forman, 476 U.S. at 576, 579-82, 106 S.Ct. 2080.
The Supreme Court struck down New York's affirmation law. As a result of the statute, the Court observed, distillers who had posted prices in New York were unable to change their prices elsewhere during the relevant month. The statute therefore had the effect of "[f]orcing a merchant to seek regulatory approval in one State before undertaking a transaction
The Supreme Court struck down a somewhat different affirmation law in Healy. There, a Connecticut statute required out-of-state beer shippers to affirm that their posted prices for products sold to in-state wholesalers were no higher, at the moment of posting, than prices charged in all neighboring states. The Court reasoned that the statute effectively required "out-of-state shippers to forgo the implementation of competitive-pricing schemes in out-of-state markets because those pricing decisions are imported by statute into the Connecticut market regardless of local competitive conditions." Healy, 491 U.S. at 339, 109 S.Ct. 2491. By having "the undeniable effect of controlling commercial activity occurring wholly outside the boundary of the State," the Court concluded that the statute violated the Commerce Clause. Id. at 337, 109 S.Ct. 2491.
Ohio's Rule, by contrast, does not affect interstate commerce in the same manner as the statutes at issue in Brown-Forman and Healy. The Processors argue that, due to the complex national distribution channels through which milk products are delivered and the costs associated with changing their labels, the Rule in effect forces them to create a nationwide label in accordance with Ohio's requirements. But unlike the price-affirmation statutes, which directly tied their pricing requirements to the prices charged by the distillers in other states, the Ohio Rule's labeling requirements have no direct effect on the Processors' out-of-state labeling conduct. That is to say, how the Processors label their products in Ohio has no bearing on how they are required to label their products in other states (or vice versa). Nor does compliance with the Ohio Rule raise the possibility that the Processors would be in violation of the regulations of another state—the key problem with the New York statute in Brown-Forman. The Rule accordingly does not purport to "regulate conduct occurring wholly outside the state." See Brown-Forman, 476 U.S. at 582, 106 S.Ct. 2080 (alteration and citation omitted).
In addition to Brown-Forman and Healy, the Processors rely on Southern Pacific Co. v. Arizona,
Unlike the Arizona statute, the Ohio Rule in the present case does not impede or control the flow of milk products across the country. The Rule therefore does not create a "serious impediment to the free flow of commerce." See id. at 775, 65 S.Ct. 1515. Moreover, the need for regulation
3. Whether the Rule is protectionist
In addition to a consideration of the Rule's alleged extraterritorial effects, we must assess whether it is protectionist; that is, whether the Rule results in "differential treatment of in-state and out-of-state economic interests that benefits the former and burdens the latter." Tenn. Scrap Recyclers Ass'n v. Bredesen,
In general, the purpose of a regulation can be ascertained from its language. Id. at 542. Here, the Rule's purpose is to prevent the "false or misleading" labeling of dairy products. Ohio Admin. Code § 901:11-8-01(A). Nothing about this purpose indicates that Ohio is attempting to protect its local economic interests or burden out-of-state actors.
The Processors argue, however, that other evidence indicates the presence of a discriminatory purpose. They allege that traditional Ohio dairy farmers and Monsanto, which is headquartered in Missouri, "were the driving force behind the proposals." According to the Processors, traditional Ohio dairy farmers and Monsanto pushed through the enactment of the Rule in order to derail other Ohio dairy processors in their effort to use milk only from cows not given rbST. A number of out-of-state processors, who had already committed to not using milk from cows treated with rbST, were also stripped of any competitive advantage they had developed from advertising their nonuse of such milk in Ohio.
But the Processors' discriminatory-purpose argument is undermined by their own evidence. They assert that traditional Ohio dairy farmers and Monsanto lobbied for the Rule in an effort to prevent other Ohio dairy processors from converting to products made with milk from cows not treated with rbST. Their argument therefore does not support the conclusion that the Rule is aimed at favoring Ohio economic actors at the expense of out-of-state interests.
The Processors next contend that the Rule has a discriminatory effect. "[T]here are two complementary components to a claim that a statute has a discriminatory effect on interstate commerce: the claimant must show both how local economic actors are favored by the legislation, and how out-of-state actors are burdened by the legislation." E. Ky. Res., 127 F.3d at 543.
The case of Hunt v. Washington State Apple Advertising Commission,
In the present case, the Processors argue that the Rule favors those Ohio dairy farmers who wish to continue treating their cows with rbST, and harms out-of-state farmers and processors who have committed to discontinuing the use of the hormone. But the Rule burdens Ohio dairy farmers and processors who do not use rbST in their production of milk products to the same extent as it burdens out-of-state farmers and processors not using rbST. Conversely, the Rule favors out-of-state farmers and processors who do use rbST in the same way that it favors Ohio farmers and processors who use rbST. The point is made all the more clear by the fact that an out-of-state processor whose production includes the use of rbST benefits from the Rule more than an Ohio processor who uses milk from cows not treated with rbST.
As the district court noted, the Processors' "argument is more akin to stating that the law discriminates against dairy producers that do not use rbST as opposed to dairy producers that do use rbST." The problem with the Processors' argument is that it is of no help in meeting their burden of demonstrating how Ohio economic actors are favored by the Rule at the expense of out-of-state actors. Both Ohio and out-of-state processors are in effect either benefitted or burdened equally. Accordingly, we conclude that the Processors' claim that the Rule is protectionist and thus per se invalid is without merit.
4. Weighing the Rule's burdens and benefits
Because the Rule does not have an impermissible extraterritorial effect and is not protectionist, we must weigh its burdens and benefits in accordance with the Pike test. See Tenn. Scrap Recyclers Ass'n v. Bredesen,
Applying Pike to the present case results in our finding that the alleged burdens on interstate commerce are not excessive in relation to the putative local benefits. The Processors' primary complaint is that Ohio's absolute prohibitions, formatting restrictions, and cumbersome requirements are different from those in other states, and the economic realities will require them to either stop selling in Ohio or conform their national labels to Ohio's requirements. But these burdens have largely been alleviated by our conclusion that the more restrictive provisions of the Rule are invalid under the First Amendment.
Moreover, Ohio has a reasonable basis to believe that the Rule's intended benefit—consumer protection—is significant. "[T]he supervision of the readying of foodstuffs for market has always been deemed a matter of peculiarly local concern," and states "have always possessed a legitimate interest in the protection of their people against fraud and deception in the sale of food products." Fla. Lime & Avocado
For all of the reasons set forth above, we
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