Dean Foods Co. v. Brancel

• Decision Date: 30 September 1998
• Docket Number: No. 96-C-0875-C.,96-C-0875-C.
• Citation: 22 F.Supp.2d 931
• Parties: DEAN FOODS COMPANY, Plaintiff, v. Ben BRANCEL, Secretary of the Wisconsin Department of Agriculture, Trade and Consumer Protection,<SMALL><SUP>†</SUP></SMALL> Defendant.
• Court: U.S. District Court — Western District of Wisconsin

22 F.Supp.2d 931

DEAN FOODS COMPANY, Plaintiff, v. Ben BRANCEL, Secretary of the Wisconsin Department of Agriculture, Trade and Consumer Protection,^† Defendant.

No. 96-C-0875-C.

United States District Court, W.D. Wisconsin.

September 30, 1998.

William M. Conley, Foley & Lardner, Madison WI, for Plaintiff.

Susan K. Ullman, Assistant Attorney General, Madison WI, for Defendant.

OPINION AND ORDER

CRABB, District Judge.

Plaintiff Dean Foods Company, an Illinois milk processor, seeks declaratory and injunctive relief preventing defendant Ben Brancel from applying Wisconsin administrative rules regulating milk processors to purchases of Wisconsin milk that take place out of state. Suing under 42 U.S.C. § 1983, plaintiff contends that the United States Constitution's commerce clause bars defendant from trying to stop plaintiff from paying "volume premiums" to Wisconsin farmers who deliver large volumes of milk directly to plaintiff's Illinois processing plants. Plaintiff is correct. The commerce clause restricts states from applying their commercial rules extraterritorially. Plaintiff's purchases occur outside Wisconsin, beyond the state's reach. I conclude that Wisconsin courts would not interpret defendant's administrative rules to apply to plaintiff's purchases because doing so would render the rules unconstitutional. Therefore, plaintiff will be granted the relief it seeks.

This case has been the subject of many proceedings. A description of the proceedings to date is necessary to put the remaining issue into context. For some time, plaintiff has been paying a "volume premium" to dairy farmers who are able to supply large quantities of milk to plaintiff's processing plants in Illinois. About thirty of these farmers are Wisconsinites. Plaintiff pays these farmers a premium to insure a regular supply of milk and to encourage other dairy farmers to expand because, in plaintiff's view, large dairy operations are the only way dairy farmers in its milkshed can survive economically. (Because Wisconsin farms constitute a major part of plaintiff's milkshed, plaintiff has a strong interest in insuring the long term health of the Wisconsin dairy industry.)

Since 1981, Wisconsin law has prohibited processing companies from discriminating among producers in the price paid for milk "if the discrimination injures producers or injures, destroys or prevents competition between competing purchasers of milk," Wis. Stat. § 101.22(1), unless the discrimination is a good faith effort to meet competition or reflects an actual difference in the quantity of milk, in transportation charges or marketing expenses for the milk purchased. Wis. Stat. § 101.22(3). In 1996, the Wisconsin Department of Agriculture, Trade and Consumer Protection promulgated Wis.Admin.Code §§ ATCP 100.98-100.987 in an effort to put teeth into the statutes and to set out in greater detail what the law prohibits.

The new rules went into effect on October 1, 1996. Thereafter, plaintiff changed its procedures for purchasing raw milk. For milk delivered to its plants in Wisconsin, plaintiff pays no volume premiums over and above those that are cost justified in compliance with the administrative rules. It calls this plan Option 1. Under a second plan known as Option Two, plaintiff pays different and higher volume premiums for milk delivered to its plants in Illinois. Participants in the Option Two program are responsible for hiring a hauler and transporting the milk they produce to one of plaintiff's Illinois plants. Title to the milk and risk of loss are not transferred to plaintiff until the raw milk is accepted.

At the outset of this litigation, defendant raised a number of questions about the viability of plaintiff's request for declaratory and injunctive relief. If, as plaintiff maintained, its transactions with dairy farmers took place in Illinois, on what basis could plaintiff argue that it was truly facing a threat of enforcement from defendant? Defendant is well aware of the limited scope of Wisconsin's authority to regulate out of state commerce, as confirmed in cases such as National Solid Wastes Management Ass'n v. Meyer, 63 F.3d 652, 653 (7th Cir.1995), and K-S Pharmacies v. American Home Products, 962 F.2d 728, 731 (7th Cir.1992); if plaintiff was characterizing its practices accurately, it had nothing to fear because defendant had no intention of trying to regulate out-of-state transactions. If, however, plaintiff's transactions with Wisconsin farmers did not take place completely in Illinois, on what possible ground was plaintiff contesting defendant's application of Wisconsin's rules to it?

Defendant had two other reasons for dismissal. Defendant asserted that the practices described by plaintiff were not a complete and accurate description of plaintiff's Option Two transactions with Wisconsin farmers. In his view, this suit was nothing more than a request for an advisory opinion on the applicability of Wisconsin's rules to business practices that existed only on paper. Moreover, defendant asserted that because there was no actual prosecution or threat of prosecution, plaintiff lacked standing to sue because any injury it might incur was only hypothetical or speculative. Proceeding on these grounds, defendant moved to dismiss plaintiff's complaint for lack of subject matter jurisdiction and alternatively, sought summary judgment on plaintiff's commerce clause claim.

In an opinion and order entered on December 23, 1997, I denied defendant's motion to dismiss but granted his alternative motion for summary judgment on the merits. I concluded that plaintiff could challenge Wisconsin's administrative rules without showing actual or contemplated enforcement of the rules because it faced the choice of complying with the law or suffering sanctions. See Dean Foods Co. v. Tracy, 990 F.Supp. 646, 652 (W.D.Wis.1997). I held also that plaintiff had alleged a sufficient injury to give it standing to sue. If the new rules were enforced against plaintiff, it would be forced to cease paying the volume premiums it wants to pay and has been paying for many years. Although I agreed with plaintiff that there was jurisdiction to entertain its claim, I found that defendant was entitled to summary judgment dismissing the case on its merits. I held that the anti-volume premium rules apply equally to in-state and out-of-state processors buying from Wisconsin dairy farmers. Therefore, the rules had to be evaluated under the balancing test first articulated in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174 (1970): whether "the burden imposed on [interstate] commerce is clearly excessive in relation to the putative local benefits." Reviewing plaintiff's proposed findings of fact, I concluded that plaintiff could introduce evidence at trial showing that the volume premium rules affected interstate commerce by preventing out-of-state milk processors from obtaining whatever economic benefit is derived from paying incentive volume premiums and lowering the amount of milk revenue received by large-scale Wisconsin dairy farmers. But I concluded that plaintiff could not show at trial that the rules placed any significant burden on interstate commerce. Although plaintiff asserted that the rules had the effect of isolating Wisconsin from the national market, its evidence was lacking. Plaintiff's proposed findings of fact did not even reveal the relative sizes of the Wisconsin's milk market and the national milk market. See Dean Foods, 990 F.Supp. at 653-56.

Plaintiff moved for reconsideration of the order granting defendant's motion for summary judgment, arguing that it had not intended to limit its commerce clause challenge to the rules as one requiring a balancing approach, but had argued as well that the rules were an effort to regulate interstate commerce directly by restricting the amount of the premium that could be paid in a transaction occurring wholly outside the state. Also, plaintiff maintained that it had provided sufficient evidence of the rules' effect on interstate commerce to avoid summary judgment and that if it had not, the case should be reopened to give it an opportunity to supplement the record with the additional evidence that would make this showing.

Plaintiff's motion was denied. I held that plaintiff could not show that its transactions with Wisconsin farmers were wholly outside the state when the milk comes from Wisconsin cows, plaintiff does not buy milk on an as-needed basis from any supplier that happens to have raw milk (for example, plaintiff performs preliminary inspections of Wisconsin farms before accepting any supplier into its Option Two program) and the Option Two program is intended to have effects in Wisconsin (it encourages Wisconsin farmers to expand the size of their herds). I held also that plaintiff had had fair warning of what evidence it needed to prove that the rules discriminated against interstate commerce and that it had not shown why it could not have produced its supplemental evidence to that effect when the motion for summary judgment was pending.

Plaintiff then moved for injunctive relief pending appeal that would bar defendant from enforcing the rules against it, as he had begun to do on the heels of his successful summary judgment motion. Plaintiff's arguments for granting the injunction shed more light on the nature of its contention that there was no need to employ a Pike balancing approach because its transactions with Wisconsin farmers were occurring in Illinois and application of Wisconsin's volume premium rules to these out of state transactions would violate the commerce clause for that reason. Given the importance of the issue and the likelihood that if it was not decided at this time, it would be back before the court in some other guise, I concluded that it made sense to reopen the case to allow plaintiff a full opportunity to develop the factual basis for its claim. That was...