Country Classic Dairies, Inc. v. State of Mont., Dept. of Commerce Milk Control Bureau

• Decision Date: 26 May 1988
• Docket Number: No. 87-3997,87-3997
• Citation: 847 F.2d 593
• Parties: COUNTRY CLASSIC DAIRIES, INC., a Montana Cooperative Association, formerly Gallatin Dairies, Inc., Plaintiff-Appellant, v. STATE OF MONTANA, DEPARTMENT OF COMMERCE MILK CONTROL BUREAU, Defendant- Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 593

847 F.2d 593

COUNTRY CLASSIC DAIRIES, INC., a Montana Cooperative Association, formerly Gallatin Dairies, Inc. Plaintiff-Appellant, v. STATE OF MONTANA, DEPARTMENT OF COMMERCE MILK CONTROL BUREAU, Defendant- Appellee.

No. 87-3997.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 4, 1988.

Decided May 26, 1988.

Michael D. Cok, Cok & Wheat and James H. Goetz, Goetz, Madden & Dunn, Bozeman, Mont., for plaintiff-appellant.

Geoffrey L. Brazier, Staff Atty., Dept. of Commerce, Helena, Mont., for defendant-appellee.

On Appeal from the United States District Court for the District of Montana.

Before BEEZER, HALL and WIGGINS, Circuit Judges.

BEEZER, Circuit Judge:

The Montana Milk Control Bureau (the Bureau) regulates the wholesale and retail prices of milk sold in Montana. Country Classic Dairies (Country Classic) buys milk in Montana and delivers it in cartons to a facility in Wyoming. There Country Classic sells the milk to Associated Grocers at a negotiated price below Montana's regulated wholesale price. Title passes, and Country Classic transfers the milk to Associated Grocers' trucks. Associated Grocers redelivers the milk to Montana and resells it at Montana's regulated retail price. Country Classic seeks, among other things, a declaration that any attempt by the Bureau to regulate the wholesale price of this milk would violate the Commerce Clause and the Equal Protection Clause. The district court granted summary judgment in favor of the Bureau. We affirm in part, reverse in part, and remand for trial on the question of whether the Bureau's regulation would violate the Commerce Clause.

I

Seeking to restrain Montana's regulatory power, Country Classic's challenge invokes the Commerce Clause in its dormant state. Most cases under the dormant Commerce Clause deal with commerce that begins in the regulating state and ends in another ("outgoing commerce"), or begins in another state and ends in the regulating state ("incoming commerce"). See 1 Rotunda, Nowak, and Young, Constitutional Law 600-619 (1986). This case deals with commerce that begins in the regulating state, changes hands in another state, and ends in the regulating state in its original form: we refer to it as "come-back commerce." This case posed a question of first impression for the district court.

We review de novo a district court's grant of summary judgment. Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). Our task is to determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material fact and whether the district court correctly applied the relevant substantive law. Ashton v. Cory, 780 F.2d 816, 818 (9th Cir.1986). With respect to Country Classic's challenge under the Commerce Clause, the district court did not correctly apply the relevant substantive law. In addition, genuine issues of material fact remain unresolved.

The Commerce Clause does not spell out the scope of its restraints on state regulation, but the Commerce Clause does, by its terms, apply only to regulation of certain types of commerce. One of these is "Commerce ... among the several States"--interstate commerce. U.S. Const. art. I, Sec. 8, cl. 3. The district court held that "the subject milk is not in interstate commerce." In doing so the district court did not correctly apply the law.

To begin with, Country Classic transports the milk from Montana to Wyoming. As the Supreme Court made plain in Greyhound Lines v. Mealey, 334 U.S. 653, 655-56, 68 S.Ct. 1260, 1262, 92 L.Ed. 1633 (1948), "It is too late in the day to deny that transportation which leaves a State and enters another State is 'Commerce ... among the several States' simply because the points from and to are in the same State." Furthermore, Country Classic's milk is an object of interstate trade. After delivering the milk across state lines, Country Classic conveys title in Wyoming, not Montana. Risk of loss passes from Country Classic to buyers, including Associated Grocers, in Wyoming. At that point Country Classic has no control over the milk. Associated Grocers, using its own trucks, has discretion to further deliver the milk in accordance with its own commercial marketing decisions. As the Supreme Court has said, "All objects of interstate trade merit Commerce Clause protection," including protection under the dormant Commerce Clause. Philadelphia v. New Jersey, 437 U.S. 617, 622, 98 S.Ct. 2531, 2534, 57 L.Ed.2d 475 (1978). The milk is an object of interstate trade and so is in interstate commerce.

Concluding that interstate commerce never took place, the district court did not rigorously apply the test for a Commerce Clause violation. The modern test for such a violation has had two tracks. In Brown-Forman Distillers v. N.Y. Liquor Auth., 476 U.S. 573, 106 S.Ct. 2080, 90 L.Ed.2d 552 (1986), the Supreme Court described these tracks:

When a state statute directly regulates or discriminates against interstate commerce, or when its effect is to favor in-state economic interests over out-of-state interests, we have generally struck down the statute without further inquiry. When, however, a statute has only indirect effects on interstate commerce and regulates evenhandedly, we have examined whether the State's interest is legitimate and whether the burden on interstate commerce clearly exceeds the local benefits.

Id. at 579, 106 S.Ct. at 2084 (citations omitted). In Brown-Forman the Court did not follow one track to the exclusion of the other. Instead, the Court engaged in an overarching analysis. The Court explained its approach as follows:

We have also recognized that there is no clear line separating the category of state regulation that is virtually per se invalid under the Commerce Clause, and the category subject to the ... balancing approach. In either situation the critical consideration is the overall effect of the statute on both local and interstate activity.

Id.

In CTS Corp. v. Dynamics Corp. of America, --- U.S. ----, 107 S.Ct. 1637, 1648, 95 L.Ed.2d 67 (1987), the Court shifted emphasis, declaring that "[t]he principal objects of dormant Commerce Clause scrutiny are statutes that discriminate against interstate commerce." In addition, the Court noted that its recent cases have struck down statutes "that adversely may affect interstate commerce by subjecting activities to inconsistent regulations." Id. at 1649. All the same, after holding that the Indiana statute did not fail these tests, the Court reviewed the overall effect of the statute--just as it had done in Brown-Forman. See CTS, 107 S.Ct. at 1649-1652 (sustaining the statute).

The district court decided this case shortly after the Supreme Court decided CTS. The court, however, did not recognize a duty to rule on whether the Bureau's regulation "discriminates against interstate commerce" or creates "an impermissible risk of inconsistent regulation by different States." Id. at 1649. Still, in accordance with the Supreme Court's approach in Brown-Forman, the district court should have evaluated the overall effect of the Bureau's regulation on Montana and Wyoming activity. The district court did not rigorously evaluate the regulation's effect on that activity.

In particular, the district court asserted that "[t]here is no commercial activity in Wyoming" and that "Wyoming has no interest in the subject milk." The milk travels through Wyoming, subject to Wyoming law. Then the milk is transferred from one carrier, Country Classic, to another, Associated Grocers, at Country Classic's Wyoming facility. This facility, licensed by Wyoming, employs nine people. At this facility Country Classic receives orders for sales in Wyoming; after selling the milk, Country Classic deposits payments in Wyoming banks. At least some commercial activity takes place in Wyoming, and Wyoming has at least some interest in the milk.

In addition, the district court considered a factor that does not figure in Commerce Clause analysis. The district court ruled that the milk sales at issue were "a creature of convenience ... a device created...