Marigold Foods, Inc. v. Redalen

• Decision Date: 23 December 1992
• Docket Number: Civ. No. 4-92-1084.
• Citation: 809 F. Supp. 714
• Parties: MARIGOLD FOODS, INC., Schroeder Milk Company, Inc., George Benz & Sons d/b/a Oak Grove Dairy, Ellsworth Cooperative, Creamery, Inc., Plaintiffs, v. Elton REDALEN, as Commissioner of the Minnesota Department of Agriculture, Defendant.
• Court: U.S. District Court — District of Minnesota

809 F. Supp. 714

MARIGOLD FOODS, INC., Schroeder Milk Company, Inc., George Benz & Sons d/b/a Oak Grove Dairy, Ellsworth Cooperative, Creamery, Inc., Plaintiffs, v. Elton REDALEN, as Commissioner of the Minnesota Department of Agriculture, Defendant.

Civ. No. 4-92-1084.

United States District Court, D. Minnesota, Fourth Division.

December 23, 1992.

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Steven J. Rosenbaum, Andrew I. Schoenholtz, Covington and Burling, Washington, DC, Michael A. Stern, and Fredrikson & Byron, P.A., Minneapolis, MN, for plaintiffs.

Hubert H. Humphrey III, Minnesota Atty. Gen., Scott R. Strand, Asst. Minnesota Atty. Gen., Paul A. Strandberg, John K. Lampe, Sp. Asst. Minnesota Attys. Gen., St. Paul, MN, for defendant.

ORDER

DOTY, District Judge.

This matter is before the court on the plaintiffs' motion for a preliminary injunction. Based on a review of the file, record and proceedings herein, the court grants the plaintiffs' motion.

BACKGROUND

The parties do not dispute the facts underlying this case. Since 1937, the price of raw milk has been extensively regulated by the federal government pursuant to the Agricultural Marketing Agreement Act ("Act"), 7 U.S.C. § 608c. Pursuant to § 608c, the federal government promulgates regulations that establish orderly marketing conditions and set minimum prices for milk purchased from dairy farmers. As part of the pricing system, the federal government classifies milk according to the form in which it is used. 7 U.S.C. § 608c(5)(A). Generally, milk is divided into three classes of utilization: Class I primarily includes bottled milk, Class II includes soft milk products such as yogurt, ice cream and cottage cheese and Class III includes hard milk products such as butter, dry milk powder and certain hard cheeses. Each class is assigned a specific minimum price. Class I milk has the highest price and Class III milk has the lowest price. Under the pricing system devised by the federal government, the minimum price for each class of milk can fluctuate each month.

Despite the minimum price that dairy farmers receive for their milk under federal law, dairy farmers located in the State of Minnesota ("Minnesota") have encountered difficult financial times in recent years and many of Minnesota's dairy farmers have gone out of business. In an attempt to help Minnesota's dairy farmers, the Minnesota legislature recently enacted a law ("Minnesota law") to establish "an over-the-federal-order premium milk price that will benefit the incomes of all Minnesota dairy farmers and improve the economies in rural communities." See Minn. Stat. 32A.071. The Minnesota law provides that the price paid by dairy processors located in Minnesota ("Minnesota dairy processors") for Class I milk shall not be less than $13.20 per hundredweight.

On November 4, 1992, the defendant, the Commissioner of the Minnesota Department of Agriculture ("Commissioner"), released regulations implementing the Minnesota law. The regulations provide that in any month the federal minimum price falls below $13.20 per hundredweight of Class I milk, Minnesota dairy processors must pay the difference between the federal minimum price per hundredweight of Class I milk and the $13.20 minimum price set by Minnesota. The amount by which $13.20 exceeds the Federal minimum price is referred to as the "Minnesota premium." In months when the federal minimum price falls below $13.20 per hundredweight, the price of Class I milk purchased from dairy farmers located in Minnesota ("Minnesota dairy farmers") is likely to be higher than the price of Class I milk purchased from farmers in other states. To protect Minnesota dairy farmers from competition during those months, the regulations also require Minnesota dairy processors to pay the Minnesota premium on Class I milk purchased from dairy farmers located in states other than Minnesota ("out-of-state dairy farmers"). Finally, the regulations, using a complex allocation formula, require that the Minnesota premium be paid only to Minnesota dairy farmers even if Minnesota dairy processors pay the Minnesota premium on Class I milk purchased from out-of-state dairy farmers.

The plaintiffs¹ contend that the Minnesota law and the regulations implementing that law (together "the Minnesota law") violate the Commerce Clause of the United States Constitution ("Commerce Clause") by establishing a minimum price that must be paid by Minnesota dairy processors on Class I milk purchased from out-of-state dairy farmers.² The plaintiffs contend that the minimum price has been imposed to protect Minnesota dairy farmers from out-of-state competition and that such protectionism violates the Commerce Clause. The plaintiffs also contend that the Commissioner's actions infringe on their rights under the Commerce Clause in violation of 42 U.S.C. § 1983. The plaintiffs thus seek a preliminary injunction enjoining the Commissioner from attempting to enforce the Minnesota law requiring Minnesota dairy processors to pay the Minnesota premium or any other minimum price on Class I milk purchased from out-of-state dairy farmers.³

The Commissioner contends that the court cannot consider the plaintiffs' claims because the Minnesota premium is a tax on Class I milk utilization and the court lacks subject matter jurisdiction over the plaintiffs' claims under the Tax Injunction Act, 28 U.S.C. § 1341. The Commissioner also contends that the principal of comity prevents the court from exercising jurisdiction over the plaintiffs' claims. In the alternative, the Commissioner contends that even if the court determines that it has jurisdiction over the plaintiffs' request for a preliminary injunction, application of the Minnesota premium does not violate the Commerce Clause because the Minnesota premium applies equally to the purchase of Class I milk from in-state and out-of-state dairy farmers and does not burden interstate commerce.

DISCUSSION

A. Tax Injunction Act

The Commissioner contends that the court cannot consider the plaintiffs' claims because the Minnesota premium is a tax on Class I milk utilization and the Tax Injunction Act bars the court from considering motions to enjoin the collection of a tax imposed by the state. The Tax Injunction Act prohibits federal courts from exercising jurisdiction over certain claims involving state taxation. Burris v. City of Little Rock, 941 F.2d 717, 720 (8th Cir.1991). The Tax Injunction Act provides that:

The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such state.

28 U.S.C. § 1341. The prohibition extends to suits for injunctive relief and to § 1983 claims in which a plaintiff seeks an injunction. Burris, 941 F.2d at 720 (citations omitted). The plaintiffs in this case have filed such claims. The court thus must determine whether the Commissioner's characterization of the Minnesota premium as a tax is correct. If the court determines that the Minnesota premium is a tax, it must then determine whether state law affords a "plain, speedy and efficient remedy." If the court determines that the Minnesota premium is not a tax, its jurisdictional inquiry ends and it can consider the plaintiffs' request for relief.

Whether the Minnesota premium is a tax is a federal question and the label given by the state is not dispositive of the court's inquiry. Wright v. McClain, 835 F.2d 143, 144 (6th Cir.1987) (citing Robinson Protective Alarm Co. v. City of Philadelphia, 581 F.2d 371, 374-76 (3d Cir. 1978)). To determine whether the Minnesota premium is a tax, the court must look to the purpose underlying the premium. Id. at 145 (citations omitted); Miami Herald Publishing Co. v. City of Hallandale, 734 F.2d 666, 670 (11th Cir.1984) (citations omitted). Premiums imposed primarily for revenue-raising purposes are considered to be taxes. Wright, 835 F.2d at 145; Miami Herald, 734 F.2d at 670. Premiums primarily imposed for regulatory or punitive purposes, even though they may also raise revenues, generally are not considered to be taxes. Miami Herald, 734 F.2d at 670; see also American Petrofina Co. of Texas v. Nance, 859 F.2d 840, 841 (10th Cir.1988) ("`The mere fact a statute raises revenue does not imprint upon it the characteristics of a law by which the taxing power is exercised.'" (citation omitted)).

Applying those standards, the court finds that the Commissioner's characterization of the Minnesota premium as a tax is incorrect. The Commissioner's argument that the Minnesota law exacts a tax because it imposes the Minnesota premium on the purchase of Class I milk in order to raise revenue for a dairy farmer assistance program is not persuasive. The Minnesota law is regulatory in nature. It primarily regulates the price Minnesota dairy processors pay for Class I milk. The fact that the Minnesota law also raises revenue is not dispositive of the issue of whether the Minnesota premium is a tax. American Petrofina, 859 F.2d at 841. The court thus concludes that the Minnesota premium is not a tax and the Tax Injunction Act does not prevent the court from exercising jurisdiction over the plaintiffs' claims.

The Commissioner argues that even if the court concludes that the Minnesota premium does not fall within the scope of the Tax Injunction Act, the court nevertheless should decline to consider the plaintiffs' claims under the principle of comity. The Commissioner relies on Fair Assessment in Real Estate Ass'n, Inc. v. McNary, 454 U.S. 100, 102 S.Ct. 177, 70 L.Ed.2d 271 (1981), to support his argument. In Fair Assessment, the Supreme Court held that "taxpayers are barred by the principle of comity from asserting § 1983 actions against the validity of state tax systems in federal courts." Id. at 116, 102 S.Ct. at 186. The court finds that the Commissioner's reliance on Fair Assessment is misplaced. The...