Farmland Dairies v. McGuire

• Decision Date: 14 April 1992
• Docket Number: 91 Civ. 4574 (RPP).,No. 91 Civ. 3642 (RPP),91 Civ. 3642 (RPP)
• Citation: 789 F. Supp. 1243
• Parties: FARMLAND DAIRIES, Fairdale Dairies, Inc. and Fairlawn Dairies, Inc., Plaintiffs, v. Richard T. McGUIRE, as Commissioner of the New York State Department of Agriculture and Markets, Defendant. LEHIGH VALLEY DAIRIES, INC., Johanna Farms, Inc., Johnstown Sani-Dairy, a Division of Penn Traffic Co., and Tuscan Dairy Farms, Inc., Plaintiffs, v. Richard T. McGUIRE, as Commissioner of the New York State Department of Agriculture and Markets, Defendant.
• Court: U.S. District Court — Southern District of New York

789 F. Supp. 1243

FARMLAND DAIRIES, Fairdale Dairies, Inc. and Fairlawn Dairies, Inc., Plaintiffs, v. Richard T. McGUIRE, as Commissioner of the New York State Department of Agriculture and Markets, Defendant.

LEHIGH VALLEY DAIRIES, INC., Johanna Farms, Inc., Johnstown Sani-Dairy, a Division of Penn Traffic Co., and Tuscan Dairy Farms, Inc., Plaintiffs, v. Richard T. McGUIRE, as Commissioner of the New York State Department of Agriculture and Markets, Defendant.

Nos. 91 Civ. 3642 (RPP), 91 Civ. 4574 (RPP).

United States District Court, S.D. New York.

April 14, 1992.

Friedman, Wittenstein & Hochman, by Andrew A. Wittenstein, Stuart I. Friedman, New York City, for plaintiffs Farmland Dairies, et al.

Gross, McGinley, LaBarre & Eaton by J. Jackson Eaton, III, Allentown, Pa., Richard Turyn, New York City, for plaintiffs Lehigh Valley, et al.

Robert Abrams, Atty. Gen., State of N.Y. by Barrie L. Goldstein, Dept. of Law, New York City, Joan A. Kehoe by Michael McCormick, Dept. of Agr. and Markets of State of N.Y., Albany, N.Y., for defendant.

ROBERT P. PATTERSON, Jr., District Judge.

Plaintiffs bring these actions for declaratory and injunctive relief under 42 U.S.C. § 1983 and the Commerce Clause of the United States Constitution, Article I, Section 8, Clause 3. Plaintiffs also seek an award of attorneys fees, pursuant to 42 U.S.C. § 1988, and costs. Plaintiffs, milk dealers who are licensed to sell milk in New York and whose milk processing plants are located out of state, challenge New York's implementation of 1991 N.Y.Laws ch. 84. That statute provides for the establishment of interim minimum prices for milk produced in New York and for the establishment of compensatory payment mechanisms to equalize the costs to dealers of supplying Class I milk in New York. Both complaints aver that the portion of the statute requiring compensatory payments, and its implementation pursuant to orders of the Commissioner of the New York State Department Agriculture and Markets ("the Commissioner"), violate the Commerce Clause. Plaintiff Tuscan Dairy Farms, Inc. also alleges that New York's requirement that it pay the New York minimum price for New York milk it purchases F.O.B. its New Jersey plant violates the Commerce Clause. Defendant has filed counterclaims alleging that Plaintiffs owe, and have not paid, compensatory payments under the Commissioner's orders and requesting a money judgment in an amount equal to Plaintiffs' alleged obligations, with interest. Plaintiffs have moved for summary judgment. For the reasons set forth below, Plaintiffs' motions are granted in part denied in part, and Defendant's counterclaims as to the compensatory payments are dismissed.

BACKGROUND

1. The Parties

Defendant Richard T. McGuire is the Commissioner of the New York State Department of Agriculture and Markets (the "Department").¹ The Department is the state administrative agency that, inter alia, is charged with the regulation of the milk industry in New York.

Plaintiff Farmland Dairies is a milk processing company. Plaintiffs Fairdale, Inc. and Fairlawn Dairies, Inc. are wholly owned subsidiaries of Farmland Dairies. (The three companies are referred to herein collectively as "Farmland.") Farmland Dairies and Fairlawn are incorporated in New Jersey, and Fairdale is incorporated in Pennsylvania. All three companies have their principal place of business in Wallington, New Jersey. Fairdale purchases raw milk from dairy farmers in New York, New Jersey, and Pennsylvania. Farmland Dairies processes milk at its plant in New Jersey, and both Farmland Dairies and Fairlawn sell the finished products to retail outlets on the east coast of the United States, including in the state of New York. The Commissioner has required that Farmland make compensatory payments to an equalization fund established by the Commissioner ("the Equalization Fund") with respect to Farmland's non-New York Class I milk distributed and sold in New York.² Goldman Aff. ¶¶ 2-4.

Plaintiff Lehigh Valley Dairies, Inc. ("Lehigh Valley") operates a milk processing plant in Schuylkill Haven, Pennsylvania. It purchases raw milk at its Schuylkill Haven plant from non-New York farmers. It has been shipping milk for Class I distribution into New York State since 1984. The Commissioner has required that Lehigh make compensatory payments to the Equalization Fund for Lehigh Valley's non-New York Class I milk shipped into New York. Cowan Aff. ¶¶ 2-5.

Plaintiff Johnstown Sani-Dairy ("Johns-town") operates a milk processing plant in Johnstown, Pennsylvania. It purchases raw milk at its Johnstown plant from non-New York farmers. It has been shipping milk for Class I distribution into New York State since 1986. The Commissioner has required that Johnstown make compensatory payments to the Equalization Fund for Johnstown's non-New York Class I milk shipped into New York. Wagner Aff. ¶¶ 2-5.

Plaintiff Johanna Farms, Inc. ("Johanna") operates a milk processing plant in Flemington, New Jersey. Johanna purchases raw milk from non-New York farmers. Johanna periodically sells a portion of this raw milk to other milk dealers and ships it to plants operated by these dealers in New York State. The Commissioner has required that dealers purchasing Johanna's raw milk make compensatory payments to the Equalization Fund for Johanna's non-New York Class I milk shipped into New York. Burns Aff. ¶¶ 2-5.

Plaintiff Tuscan Dairy Farms, Inc. ("Tuscan") operates a milk processing plant in Union, New Jersey. It purchases milk from farmers located in Pennsylvania, New Jersey, and New York and has been shipping milk for Class I purposes into New York State since 1987. Pursuant to a contract that has been in effect since 1978, Tuscan purchases some milk originating on New York farms from Dairylea, Inc., a farmers' cooperative, F.O.B. Tuscan's plant in New Jersey. The Commissioner has required that Tuscan pay to Dairylea the New York State minimum price for the New York milk purchased in New Jersey. The Commissioner has also required that Tuscan make compensatory payments to the Equalization Fund for the non-New York Class I milk shipped by Tuscan or its customers (independent distributors) into New York. Demeter Aff. ¶¶ 2-5, 7-8.

2. The Federal Milk Regulatory System

Since 1937, the handling of milk has been extensively regulated by the federal government pursuant to 7 U.S.C. § 608c and the regulations promulgated thereunder, 7 C.F.R. ch. X. Pursuant to § 608c, the United States Secretary of Agriculture has designated milk marketing areas in which regulations establish orderly marketing conditions and minimum prices for milk purchased from dairy farmers in each area. Each such milk marketing area is governed by a separate federal order. The relevant milk marketing area in this case, the New York-New Jersey Marketing Area, is governed by Federal Order 2. 7 C.F.R. pt. 1002.

Federal milk marketing orders classify milk according to the form in which or purpose for which it is used. 7 U.S.C. § 608c(5)(A). Most federal milk marketing orders, including Federal Order 2, divide milk into three classes: Class I primarily includes beverage milk, Class II includes fluid cream items and soft milk products such as yogurt and cottage cheese, and Class III includes hard milk products, such as butter and hard cheese. 56 Fed.Reg. 5308 (1992) (amending 7 C.F.R. § 1002.41). Each class is assigned a specific minimum price, with Class I having the highest, Class II the intermediate, and Class III the lowest price.

The Federal Order 2 regulations governing the pricing of milk and the payments to be made for milk are complex, but essentially operate as follows. Milk pricing within the New York-New Jersey Marketing Area is performed by the federal market administrator, who computes a "Uniform Price," which is a weighted average price based on total sales of Class I, Class II, and Class III milk. 7 C.F.R. § 1002.71. Dealers are required to pay at least the Uniform Price to farmers. If a dealer sells milk for Class I purposes, the dealer is required to pay into a "Producer Settlement Fund" the difference between the Uniform Price paid to the farmer and the higher Class I established minimum price. If the dealer sells milk for Class II or Class III purposes, the dealer receives a reimbursement or credit from the Producer Settlement Fund equal to the difference between the Uniform Price paid to farmers and the lower Class II and Class III established minimum prices. Whether the dealer receives a reimbursement or makes a payment depends on the net differential between the two computations. Thus, all farmers providing milk in a federal market area receive the Uniform Price for their milk, while each dealer, by virtue of payments to or receipts from the Producer Settlement Fund, incurs net costs equal to the total assigned class prices in the market area of the Class I, Class II, and Class III milk that the dealer purchases.

3. The New York Milk Regulatory System³

The dairy industry is also regulated within New York State under provisions of the New York State Agriculture and Markets Law ("the Rogers-Allen Act" or "the Act"), enacted in 1937. N.Y.Agric. & Mkts.Law §§ 258-k to 258-n (McKinney 1991). Section 258-m of the Act grants the Commissioner, upon petition of dairy farmers, the authority to establish marketing orders within New York following a public hearing. Id. § 258-m(1). The petition is presented by a farmers' bargaining agency that represents at least thirty-five percent of the dairy farmers in the market area. Id. If after the hearing the Commissioner finds that conditions in the market require the setting of prices, and if it is favored by at least sixty-six and two-thirds percent of the dairy farmers in the market area, the Commissioner may by order fix and determine for the marketing area fair and equitable minimum prices to be paid to dairy farmers.⁴Id.

On February 13, 1991, the Regional Cooperative...