Cumberland Farms, Inc. v. LaFaver, Civ. No. 92-70-P-H.
| Decision Date | 03 August 1993 |
| Docket Number | Civ. No. 92-70-P-H. |
| Parties | CUMBERLAND FARMS, INC., Plaintiff, v. John LaFAVER, et al., Defendants. |
| Court | U.S. District Court — District of Maine |
Joel C. Martin, Petruccelli & Martin, Portland, ME, for plaintiff.
Eric Bryant, Asst. Atty. Gen., Augusta, ME, for defendants.
ORDER ON MOTIONS FOR SUMMARY JUDGMENT
Like many states, Maine has found it necessary to take steps to protect its dairy farmers as an embattled species. Usually when states attempt to do this they run afoul of the Interstate Commerce Clause because their legislation discriminates. See, e.g., Marigold Foods, Inc. v. Redalen, 809 F.Supp. 714 (D.Minn.1992); Farmland Dairies v. McGuire, 789 F.Supp. 1243 (S.D.N.Y. 1992); Baldwin v. G.A.F. Selig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032 (1935). Maine has attempted to avoid this pitfall by adopting a slightly different approach from other states. It has applied an "excise tax"1 uniformly to all packaged milk handled within Maine, regardless of its source. The tax is generated whenever the price of milk falls below a certain level. The proceeds of the tax then go into a special fund and are distributed largely to Maine dairy farmers. I conclude that, under current United States Supreme Court precedents, Maine's scheme passes constitutional muster because the tax is uniformly applied. Although Supreme Court precedents prohibit discriminatory taxes, they do not prevent a state from subsidizing a domestic industry. I conclude that that is what Maine has done here. Economists may consider this a distinction without a difference but, for historical and other reasons, the caselaw recognizes a difference.
All parties have moved for summary judgment on the following undisputed facts. The Maine Dairy Farm Stabilization Act (the "Act"), 36 M.R.S.A. § 4541 et seq., was enacted in 1991, P.L.1991, ch. 526, when the producer price of milk had dropped approximately 40 percent and the number of active dairy farms in Maine had fallen to 659 — down from 1023 a decade earlier. Emergency Preamble to the Act, Shaw Aff. ¶ 5. The purpose of the Act was to help stabilize the Maine dairy industry during periods of price fluctuations. Preamble. It tried to do this by creating a stabilization fund to support Maine milk producers,2 § 4544(1), financed through an "excise tax" on the handling in Maine of packaged milk destined for sale within Maine and subject to minimum retail prices set by the Maine Milk Commission. § 4543(1).
The tax must be paid by the first handler of packaged milk in the state. Id. In most cases that is the wholesale handler (commonly referred to as the dealer); if the milk is packaged out-of-state, then the retail handler in Maine pays the tax. Id. The amount of tax is indexed to the "basic price" of milk, § 4543(2), defined as the minimum Class I price of milk as set by the Maine Milk Commission. § 4542(1). The index price is $16 per hundredweight ("cwt"). When the basic price of milk drops below $16 cwt, the amount of the tax varies along a graduated scale from $.01 per quart (when the basic price is $15.50 to $15.99 cwt) to $.05 per quart (when the basic price is below $14 cwt). § 4543(2). Thus, when the basic price falls, the amount of the tax rises. Since the revenues raised are largely distributed to Maine dairy farmers, the fee subsidizes Maine producers during periods of low producer prices.
Under the pricing scheme administered by the Maine Milk Commission, see 7 M.R.S.A. ch. 603, the amount of the excise tax is added, not to the minimum price paid to producers by dealers, but to the minimum wholesale price paid to dealers by retailers. § 2954(2)(B). The minimum retail price, in turn, is fixed in reference to the minimum wholesale price. § 2954(2)(C). Thus, the statutory minimum price paid by consumers of milk in Maine reflects the full amount of the tax.3
Maine dairy farmers ship approximately one half of their production out of state as raw liquid milk to be processed and retailed outside of Maine.4 The other half, processed and ultimately sold to consumers in Maine, accounts for over 95% of all in-state retail sales of liquid milk. The plaintiff, Cumberland Farms, together with a few other processors, accounts for the rest of the in-state wholesale and retail sales, its milk being primarily produced and wholly processed out of state and shipped to Maine in packages for sale to consumers.
Cumberland Farms is an "integrated operation," 7 M.R.S.A. § 2951(4-A), in that it purchases raw milk from producers, processes the milk at its own facilities, packages the milk, ships the packaged milk to its own retail stores, and sells the milk directly to consumers. Within the Maine milk industry, Cumberland Farms is unique in this regard. Cumberland Farms is also unique for its retail sale in Maine of milk produced and processed outside the state. This gives Cumberland Farms a potential competitive advantage over in-state retailers of Maine milk, because the minimum producer price of milk produced in southern New England is less than the minimum price paid to producers in the state.5
As an initial matter, both the defendants and the intervenors6 challenge Cumberland Farms's standing.7 The nub of their argument is that since the burden of the dairy tax is passed on to consumers, Cumberland Farms has suffered no injury-in-fact and thus has no right to bring an action. See Lujan v. Defenders of Wildlife, ___ U.S. ___, ___, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992). But Cumberland Farms is liable for the tax and must return payment to the state. This suffices to confer standing on Cumberland Farms. See Bacchus Imports, Ltd. v. Dias, 468 U.S. 263, 267, 104 S.Ct. 3049, 3053, 82 L.Ed.2d 200 (1984). I need not decide, therefore, whether current market conditions permit Cumberland Farms to pass the entire tax on to consumers.
The Commerce Clause limits economic protectionism by restricting state-imposed regulatory measures designed to benefit in-state economic interests by burdening out-of-state competitors. Wyoming v. Oklahoma, ___ U.S. ___, ___, 112 S.Ct. 789, 800, 117 L.Ed.2d 1 (1992). In order to determine whether Maine's law will withstand a Commerce Clause challenge, I must determine whether it directly discriminates against interstate commerce, or indirectly affects interstate commerce and regulates evenhandedly.8See Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579, 106 S.Ct. 2080, 2084, 90 L.Ed.2d 552 (1986). If the regulation fits the first category, it is unconstitutional; if it fits the second category, I must compare the burden on interstate commerce to the local benefits.9Id. If fits neither category, it passes constitutional muster.
Cumberland Farms argues that the Maine statute places out-of-state producers at a competitive disadvantage in the Maine market, lessens price competition among dealers operating within the state, and insulates Maine farmers who supply milk for retail sale in Maine from the fluctuations of the regional and national markets. None of these contentions bears scrutiny.
The Act applies a uniform excise tax to all milk sold in Maine, regardless of its source. Thus, the Act does not affect handlers' economic decisions about where to purchase raw producer milk. The resulting subsidy paid to Maine producers may provide them with an advantage or insulate them from regional price fluctuations, but the United States Supreme Court has held that to be permissible: New Energy Co. v. Limbach, 486 U.S. 269, 278, 108 S.Ct. 1803, 1810, 100 L.Ed.2d 302 (1988) (emphasis omitted). Similarly, the Act does not lessen price competition because the fee is levied evenhandedly on all dealers in the state. There are no exemptions for milk that is intended for sale in Maine. To the extent that the higher minimum retail price is actually translated into higher prices for consumers, all dealers and retailers are similarly affected.
Cumberland Farms also asserts that the Act exempts all Maine milk shipped in bulk out of state for sale elsewhere, thus improperly preventing the subsidy to Maine dairy farmers from hurting their competitive position in the interstate market. According to Cumberland Farms, this discriminates economically against milk produced outside the state and thus violates the Commerce Clause.
Maine, however, is entitled to enact laws "that have the purpose and effect of encouraging domestic industry." Bacchus Imports, Ltd., 468 U.S. at 271, 104 S.Ct. at 3055. What Maine may not do is burden foreign producers by attempting to tax them or indirectly subject them to Maine's pricing scheme. This is where other states' laws have gone astray. For instance, the New York regulation invalidated in Baldwin attempted to regulate the price paid to producers of milk outside the state by requiring that the producer price conform to New York's prices. Id. 294 U.S. at 521-22, 55 S.Ct. at 500. The regulation struck down in Marigold Foods, Inc. indirectly required Minnesota dairy processors to pay Minnesota's minimum price even on milk purchased from out-of-state producers, thereby negating the economic advantage that foreign dairy farmers with lower prices had over Minnesota dairy farmers. Id. 468 U.S. at 272, 104 S.Ct. at 3055. The regulation struck down in McGuire had precisely the same effect on producers of milk outside of New York. Id. at 1251-53.
The Maine Dairy Farm Stabilization Act works differently. The Act imposes a uniform regulatory fee at the wholesale or retail level on all handlers of packaged milk in Maine. The impost is not based on the differential between...
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