Grant's Dairy v. Comm'r Maine Dept Ag

• Decision Date: 12 September 2000
• Docket Number: No. 00-1040,00-1040
• Citation: 232 F.3d 8
• Parties: (1st Cir. 2000) GRANT'S DAIRY -- MAINE, LLC, Plaintiff, Appellant, v. COMMISSIONER OF MAINE DEPARTMENT OF AGRICULTURE, FOOD & RURAL RESOURCES, ET AL., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 8

232 F.3d 8 (1st Cir. 2000)

GRANT'S DAIRY -- MAINE, LLC, Plaintiff, Appellant, v. COMMISSIONER OF MAINE DEPARTMENT OF AGRICULTURE, FOOD & RURAL RESOURCES, ET AL., Defendants, Appellees.

No. 00-1040.

United States Court of Appeals, For the First Circuit.

Heard Sept. 12, 2000.

Decided November 13, 2000.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MAINE. Hon. Morton A. Brody, U.S. District Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] John H. Vetne, with whom Judith H. Mizner was on brief, for appellant.

Lucinda E. White, Assistant Attorney General, with whom Andrew Ketterer, Maine Attorney General, and William R. Stokes, Assistant Attorney General, were on brief, for appellees.

Before Selya, Circuit Judge, Coffin, Senior Circuit Judge, and Stahl, Circuit Judge.

SELYA, Circuit Judge.

Federally regulated milk dealers ("handlers") are required by federal law to pay a minimum price for all the raw milk that they purchase from dairy farmers ("producers").¹ In addition, the State of Maine sets a minimum price that in-state handlers must pay to in-state producers with respect to milk produced, processed, and sold in Maine ("Maine milk"). Plaintiff-appellant Grant's Dairy -- Maine, LLC ("Grant"), a fully federally regulated handler based in northern Maine, brought suit against several state plenipotentiaries, including the Commissioner of the Maine Department of Agriculture, Food, and Rural Resources and the members of the Maine Milk Commission ("the Commission"), arguing that, as applied, Maine's additional level of price regulation violated the United States Constitution. In an unpublished opinion, the district court rejected Grant's constitutional claims. Grant pursues its Supremacy Clause and Commerce Clause challenges in this venue. Discerning no constitutional infirmity, we affirm the lower court's entry of summary judgment.

I. BACKGROUND

To place Grant's antipathy to Maine's imposition of a minimum milk price in context, we provide a brief overview of applicable federal and state regulation and then trace the interaction of the two schemes.

A. Federal Regulation.

More than six decades ago, the Agricultural Marketing Agreement Act of 1937 ("AMAA"), now codified, as amended, at 7 U.S.C. 601-626, authorized the Secretary of Agriculture (the Secretary) to set minimum prices for milk. Id. 608c(1) & (2). To this end, the Secretary divided the country into regions, each of which is known as a federal order milk marketing area.² 7 C.F.R. 1001-1135. In each area, a milk marketing order sets minimum prices that handlers must pay producers. The Northeast Marketing Area includes five New England states (Connecticut, Massachusetts, New Hampshire, Rhode Island, and Vermont), Delaware, New Jersey, the District of Columbia, and portions of Maryland, New York, Pennsylvania, and Virginia. 7 C.F.R. 1001.2. Maine is not part of this, or any other, federal order milk marketing area. See 64 Fed. Reg. 16,056 (1999).

Although Maine is not within a federal order area, certain aspects of the federal paradigm are pertinent to an understanding of the present problem. First, the federal system takes account of the fact that the value of milk varies according to use. See West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 189 n.1 (1994). Before federal regulation came upon the scene, producers vied to sell their milk for processing as fluid milk (the use that fetched the highest price). Lansing Dairy, Inc. v. Espy, 39 F.3d 1339, 1343 (6th Cir. 1994). The federal order system obviated the need for such cutthroat competition. Under it, raw milk is classified into four use categories: Class I (fluid milk); Class II (soft dairy products, e.g., yogurt and cottage cheese); Class III (spreadable and hard cheese); and Class IV (butter and powdered milk). 7 C.F.R. 1000.40. Each class of milk commands a different price. Id. 1000.50. Though handlers pay for raw milk based on the uses to which they put it, id. 1001.60, 1001.71, producers ultimately receive a uniform "blend" price based on the percentage of milk used in each class throughout the marketing area, id. 1001.72-1001.73. The purpose of this pooling mechanism is to ensure that all producers selling milk into a particular federal order area receive a uniform minimum price for their milk regardless of the milk's end use. See 7 U.S.C. 608c(5)(B)(ii); see also West Lynn, 512 U.S. at 189 n.1 (discussing computation of blend price).

Another important aspect of the federal order system relates to geography. The minimum price is subject to an adjustment based on the location of the handler's plant. See 7 C.F.R. 1000.52 (table of price differentials arranged by county). These location adjustments recognize the fact that handlers holding milk near areas of high consumption have a more valuable commodity than handlers holding milk out in the boondocks (who must underwrite the cost of transporting their milk to population centers). Lansing Dairy, 39 F.3d at 1344-45. Thus, for example, in the Northeast Marketing Area, handlers near Boston pay more for raw milk than handlers in outlying rural communities.

B. Maine Regulation.

Under the Maine Milk Commission Act, Me. Rev. Stat. Ann. tit. 7, 2951-2963, the Commission is authorized to set minimum prices anent Maine milk. Id. 2954(1). The minimum price that Maine handlers³ must pay to Maine producers for milk sold within Maine usually is comparable to the prevailing federal price in southern New England, plus any premium the Commission decides is appropriate to reflect the added cost of producing Maine milk. Id. 2954(2)(A). The minimum price that the Commission sets is uniform throughout the state, without any location adjustments. Maine handlers make payments at (or above) the Maine minimum directly to the producers with whom they deal. Id. 2954-A(1).

Maine producers sell milk not only into the Maine market, but also into the federal order area. Because an inordinately high percentage of milk that stays in Maine is used as Class I drinking milk, Maine producers selling into the Maine market historically received higher prices for their milk than Maine producers selling into the federal order area. To counteract this phenomenon, the Maine legislature in 1983 passed the Maine Milk Pool Act, Me. Rev. Stat. Ann. tit. 7, 3151-3156. This law requires that all Maine producers ultimately receive the same blend price (based on overall usage in the federal market). Id. 3151. Maine handlers who have a higher Class I utilization than the federal average pay that difference into the Maine Milk Pool. Id. 3153(2). The funds in the Maine Milk Pool are distributed among all Maine producers, thus equalizing the prices received for Maine milk. Id. 3153(4).

C. The Federal/State Interface.

The case at bar arises from the interaction of these two regulatory systems. A handler that sells a stipulated percentage of its milk into the Northeast Marketing Area -- the figure, once ten percent, is now twenty-five percent -- becomes a fully federally regulated handler, even if it is located outside the area. 7 C.F.R. 1001.7(a). Being fully federally regulated means that a handler must pay no less than the federal minimum price on all the milk that it receives at its plant and must contribute to the federal pool that equalizes the price paid to producers for milk put to divergent uses. Id. 1001.71, 1001.73.

In 1990, H.P. Hood, one of the first Maine handlers to become fully federally regulated, simultaneously stopped making payments into the Maine Milk Pool and started making payments into the federal pool. Maine brought suit in a state court to compel Hood to continue paying into the Maine Milk Pool. In an unpublished rescript dated September 16, 1991, a state superior court judge ruled that the Maine Milk Pool Act did not apply to fully federally regulated Maine handlers. From then on, federally regulated handlers in Maine turned a cold shoulder to the Maine Milk Pool. Hood, however, continued to comply with Maine's minimum price requirement.

Grant is a Maine corporation that owns and operates a fluid milk bottling plant in Bangor, Maine. In 1997, Grant for the first time began selling enough milk into the Northeast Marketing Area to become fully federally regulated. When that occurred, Grant informed the Commission that it did not consider itself bound to pay its Maine producers the Maine minimum price, but would pay them instead the federal minimum (location adjusted to Bangor). The Commission disagreed, maintaining that Grant, notwithstanding its federally regulated status, was obligated to pay the Maine minimum. In a preemptive strike, Grant brought suit in Maine's federal district court challenging the authority of state officials to enforce the Maine minimum in these circumstances.

The district court, in an interlocutory order, found it "reasonably clear" that Maine's statute did not authorize the Commission to require a fully federally regulated handler to honor Maine's minimum pricing. Grant's Dairy, Inc. v. McLaughlin, 20 F. Supp. 2d 112, 116-18 (D. Me. 1998). Within months, however, the Maine legislature passed "An Act to Clarify the Authority of the Maine Milk Commission," Me. Rev. Stat. Ann. tit. 7, 2954(9) ("the Clarification Act"). This legislation cleared away the mist and made it plain that Maine intended to require its fully federally regulated handlers to pay the Maine minimum price to Maine producers for milk destined to be sold within the state.⁴ With the meaning of the Maine Milk Commission Act clarified, the district court, ruling on cross-motions for summary judgment, determined that Maine's system passed constitutional muster. This appeal ensued.

II. ANALYSIS

In simplified form, Grant's principal contentions are that Maine's statutory scheme (1) contravenes the Supremacy Clause because its state-wide uniform milk price neutralizes the effect of the federal location adjustments, and (2)...