Grant's Dairy, Inc. v. McLaughlin

• Decision Date: 31 August 1998
• Docket Number: No. Civ. 98-98-B.,Civ. 98-98-B.
• Citation: 20 F.Supp.2d 112
• Parties: GRANT'S DAIRY, INC., Plaintiff, v. Ed McLAUGHLIN, et al., Defendants.
• Court: U.S. District Court — District of Maine

Page 112

20 F.Supp.2d 112

GRANT'S DAIRY, INC., Plaintiff, v. Ed McLAUGHLIN, et al., Defendants.

No. Civ. 98-98-B.

United States District Court, D. Maine.

August 31, 1998.

Neal K. Stillman, Portland, ME, John H. Vetne, Newburyport, MA, for Plaintiff.

Lucinda E. White, Assistant Attorney General, Augusta, ME, for Defendants.

Linda Smith Dyer, Dyer & Goodall, Augusta, ME, for Intervenor Defendant.

ORDER AND MEMORANDUM OF DECISION

BRODY, District Judge.

Plaintiff, Grant's Dairy, Inc., brings this case against Defendants, Ed McLaughlin, Commissioner of Agriculture, Food & Rural Resources for the State of Maine, the Maine Milk Commission (the "Commission"), Cynthia Masterman, the Commission's Executive Director, Colon Durrell, Chairman of the Commission, and several other members of the Commission, challenging the Commission's authority to impose the minimum prices it sets under the Maine Milk Commission Act, 7 M.R.S.A. § 2951 et seq., upon a dealer fully regulated under the New England Milk Marketing Order. Plaintiff alleges that Defendants' regulatory conduct is not authorized by the Maine Milk Commission Act (Count I), and that Defendants are estopped under a Maine Superior Court decision from imposing their state regulations on Plaintiff (Count II). Plaintiff also alleges that Defendants' conduct violates the Supremacy Clause, Commerce Clause, and Equal Protection Clause of the United States Constitution, the Equal Protection Clause of the Maine Constitution, and 42 U.S.C. § 1983 (Counts III-VII). Maine Milk Producers, Inc. ("MMP"), a Maine not-for-profit corporation comprised of Maine dairy farmers who sell their milk to milk processors located in Maine, has intervened on behalf of Defendants. Before the Court is Defendants' motion to certify the following question to the Supreme Judicial Court of Maine:

Does 7 M.R.S.A. § 2954 authorize the Maine Milk Commission ("Commission") to require a federally regulated milk processor ("dairy" or "dealer") with a processing plant located in Maine, purchasing and processing (at its Maine plant) milk from Maine producers, or processing milk delivered to its Maine plant from Maine producers, which milk is then sold in Maine, to pay such Maine producers (for that milk which is sold in Maine) the minimum price set by the Commission?

In the alternative, Defendants request that the Court abstain from deciding Plaintiff's state law claims and require Plaintiff to pursue these claims in state court. For the reasons set forth below, the Court denies Defendant's Motion for Certification or, in the alternative, for Abstention.

I. REGULATORY FRAMEWORK

Entities such as Plaintiff, who purchase raw milk and process it, are called "handlers" or "dealers" in regulatory terminology. Dairy farmers who sell to dealers are known as "producers." Because Maine dairy farmers produce more milk than can be consumed in Maine alone, Maine producers sell their milk to dealers who distribute in two separately regulated markets, the Boston or "Federal" market, and the Maine market. The Federal New England Milk Marketing Area (the "Federal marketing area") includes all or portions of Massachusetts, Rhode Island, Connecticut, Vermont, and New Hampshire, but no part of Maine. 7 C.F.R. § 1001.2. Under Maine regulatory parlance, Maine dairy farmers who sell to dealers marketing milk on the Maine market are known as Maine market producers. Maine dairy farmers who sell to dealers marketing milk on the Federal market are known as Federal market producers. See 7 M.R.S.A. § 3152.

The Federal market is regulated pursuant to the New England Milk Marketing Order (the "Federal Order"), 7 C.F.R. § 1001 et seq., promulgated under the Agricultural Marketing Agreement Act, 7 U.S.C. §§ 601 et seq. Under the Federal Order, payment obligations are fixed based on the ultimate use of the milk. The highest price, known as the Class I price, applies to drinking milk. A lower Class II price applies to milk used in soft manufactured products such as cottage cheese, ice cream, and yogurt, and a Class III price applies to milk used in goods such as butter, hard cheese, and powder. 7 C.F.R. §§ 1001.40-.55.

All producers who sell in the Federal market receive a "blend price" for their milk, which is based upon the average use of milk in all classes of utilization by all regulated dealers in the Federal market. 7 C.F.R. §§ 1001.60, 1001.73. The higher the Class I utilization rate, or the percentage of milk used as Class I milk in the Federal market, therefore, the higher the blend price. For economic reasons, the blend price is also adjusted according to the location of the Federal market dealer. See 7 U.S.C. § 608c(5)(B).

In order to ensure that all Federal market producers receive the same minimum price for their milk, regardless of the ultimate use of that milk, the Federal order provides for a "producer settlement fund" (the "Federal Pool"). As discussed above, all dealers pay their producers the market-wide established blend price. Dealers with Class I utilization rates above the market-wide average then pay the difference between the blend price and the amount they would have paid if the blend price was computed at their individual utilization rates into the Federal pool. Those dealers with Class I utilization rates below the market-wide average receive payments from the pool so that they can pay their producers the uniform blend price. 7 C.F.R. §§ 1001.70-.74.

A dealer who sells in the Federal market may be either fully or partially regulated under the Federal Order. A dealer becomes fully regulated, meaning that all of its producer-to-dealer transactions during a given month are subject to federal regulation, by meeting certain performance standards. Generally, a distributing plant becomes fully regulated when at least 10% of its fluid milk receipts are distributed in packaged fluid form in the Federal marketing area. 7 C.F.R. § 1001.7a. A partially regulated dealer is subject to federal regulation only on those sales made in the Federal marketing area.

Pursuant to the Maine Milk Commission Act, Maine regulates prices in the Maine milk market under a system similar to the Federal system. The minimum producer prices adopted by the State are essentially the Federal Order Class I, Class II, and Class III prices, plus a State-mandated premium or over-order price. 7 M.R.S.A. § 2954(2).

Prior to 1985, Maine market producers received a blend price based on the utilization rate of the buying dealer, rather than on the market-wide utilization rate used under the Federal Order. Under the state system, therefore, producers received various blend prices depending on the percentage of each dealer's Class I use. For a variety of reasons, Maine market dealers' Class I utilization rates have tended to exceed the utilization rates of Federal market dealers, creating a price differential between the prices paid to Maine market producers and Federal market producers. This price differential is known as the Maine market premium. See generally, Crane v. Commissioner of Agriculture, 602 F.Supp. 280, 283-84 (D.Me.1985).

In order to equalize the milk prices paid to all Maine dairy farmers regardless of the market in which they sell their milk, the Maine State Legislature in 1983 enacted the Maine Milk Pool Act, 7 M .R.S.A. § 3151 et seq. Under the Milk Pool Act, Maine milk producers are automatically paid a price based on the Federal Order blend price. Maine market dealers then pay the difference between their individual blend prices and the federal price into the Maine Milk Pool. Subject to some adjustments, the funds received by the Pool are redistributed on an equal basis to all Maine market producers and Federal market producers, thereby achieving substantial price equality for all Maine-produced milk. 7 M.R.S.A. § 3153. The Maine Milk Commission conducts regular audits of dealers to verify compliance with the Maine Milk Pool Act and the Maine Milk Commission Act.

Finally, pursuant to § 147 of the 1996 Farm Bill, Pub.L. 104-127, Congress conditionally approved of additional raw milk minimum price regulation through the Northeast Interstate Dairy Compact Commission, an interstate agency made up of all the New England States, including Maine. See 7 U.S.C. § 7256. The Northeast Interstate Dairy Compact authorizes the New England states to fix minimum milk prices at a level higher than those established by federal regulation. Subject to certain adjustments, dealers regulated under the Compact pay the difference between the Compact Commission price and the Federal Order price into a pool.

II. BACKGROUND

Plaintiff, a dealer, operates a milk processing plant in Bangor, Maine. Plaintiff purchases about 10 million pounds of raw milk per month from Maine dairy farmers, cooperative associations and other sources, most of which ends up as Class I fluid milk. For many years, Plaintiff distributed its fluid milk products exclusively within Maine and was regulated as a Maine market dealer under the Maine Milk Commission Act and the Maine Milk Pool Act. In October, 1997, however, Plaintiff began delivering milk to new accounts in New Hampshire and Massachusetts, causing Plaintiff to become subject to federal regulation under the Federal Order. Since November, 1997, Plaintiff has distributed more than 10% of its milk into the Federal marketing area and has, accordingly, become fully regulated under the Federal Order. Since July 1, 1997, Plaintiff has also been regulated under the Northeast Interstate Dairy Compact.

In October, 1997, Plaintiff advised its producer-patrons that its out-of-state sales would cause Plaintiff to become fully regulated under the Federal Order beginning November 1, 1997. Plaintiff alleges that Defendant McLaughlin attempted to persuade Plaintiff to voluntarily pay the Commission's monthly premium to offset the reduction in Maine Milk Pool revenues resulting from Plaintiff's new status as a fully federally...