N.Y. State Dairy Foods v. Northeast Dairy Compact
| Decision Date | 02 November 1998 |
| Docket Number | No. CIV.A. 97-11576-PBS.,CIV.A. 97-11576-PBS. |
| Citation | 26 F.Supp.2d 249 |
| Parties | NEW YORK STATE DAIRY FOODS, INC.; Crowley Foods, Inc.; Cumberland Farms, Inc.; Elmhurst Dairy, Inc.; Farmland Dairies, Inc.; Stewart's Ice Cream Co., Inc.; Stewart's Processing Corp.; Sunnydale Farms Dairy, Inc.; and Byrne Dairy, Inc., Plaintiffs, v. NORTHEAST DAIRY COMPACT COMMISSION, and Daniel Smith, Commission Executive Director, Defendants. |
| Court | U.S. District Court — District of Massachusetts |
John H. Vetne, Blodgett, MaKechnie & Vetne, Newburyport, MA, Sheldon Weiss, Law Office of Sheldon A. Weiss, Mountainside, NJ, for Crowley Foods, Inc., Cumberland Farms, Inc., Elmhurst Dairy, Inc., Farmland Dairies, IN, Marcus Dairy, Inc., Stewart's Ice Cream, Stewart's Processing, Sunnydale Farms, Inc., Plaintiffs.
Clifford M. Sloan, Michael A. Rotker, Wiley, Rein & Fielding, Washington, DC, for Northeast Dairy Compact Commission, Defendant.
David L. Douglass, Clifford M. Sloan, Michael A. Rotker, Wiley, Rein & Fielding, Washington, DC, John H. Vetne, Blodgett MaKechnie & Vetne, Newburyport, MA, Sheldon Weiss, Law Office of Sheldon A. Weiss, Mountainside, NJ, for Daniel Smith, Defendant.
This case concerns the pricing of milk distributed in New England. Plaintiffs challenge the regulations promulgated by defendant Northeast Dairy Compact Commission (the "Commission") on three grounds: (1) the pricing scheme, as applied to milk produced, processed and packaged outside of New England but sold to New England customers, constitutes unauthorized regulation of interstate commerce in violation of the Commerce Clause of the United States Constitution because Congress has not consented to such regulation with the requisite unmistakable clarity; (2) the additional administrative assessment imposed under the scheme conflicts with the Northeast Interstate Dairy Compact (the "Compact"); and (3) the participation of New England dairy farmers and processors in the promulgation and administrative review of pricing regulations in which they have a direct and substantial pecuniary interest violates the Due Process Clause.
The parties have cross-moved for summary judgment. After hearing and for the reasons set forth below, the defendants' motion for summary judgment is ALLOWED. The plaintiffs' motion for summary judgment is DENIED.1
The Court treats the following facts as undisputed, unless otherwise noted.
Plaintiffs include: New York State Dairy Foods, Inc., a non-profit trade association representing New York milk processors and distributors of fluid milk products; five fluid milk processors and distributors that procure raw milk from dairy farms outside of New England and distribute fluid milk in New England; and two New York processors that purchase raw milk from dairy farms outside of New England but do not distribute within New England.2 Plaintiffs compete in New York with New England milk plants for raw milk supplies. Plaintiffs collectively account for approximately three percent of all sales of packaged fluid milk in New England.
The Commission is vested with authority to implement the Compact, which is set forth in section 1(b) of S.J. Res. 28, 104th Cong. (1995). In accordance with the terms of the Compact, the Commission is composed of "delegations" from each of the six participating New England states: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont. See Compact, § 4. Each state's delegation is comprised of three to five individuals and must include at least one dairy farmer and one consumer representative. See id. Each delegation is "entitled to one vote in the conduct of the Commission's affairs." Id.
The milk industry is subject to extensive federal regulation. The Agricultural Marketing Agreement Act of 1937 ("AMAA"), as amended, 7 U.S.C. § 601 et seq., ("AMAA") authorizes the Secretary of Agriculture to set the minimum prices that "handlers" (milk processors) must pay to "producers" (dairy farmers) for raw milk in particular geographic areas. These regulations are known as "Federal Milk Marketing Orders." The highest regulated Federal Milk Order prices are charged for "Class I" or "fluid use" milk, which is raw milk used for consumption (as opposed to milk used for manufacturing such dairy products as ice cream, yogurt, cheese and butter, which is characterized as Class II or Class III milk). See generally West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 188-89 & n. 1, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994) (). Because the AMAA establishes only the minimum prices that handlers must pay producers, "those prices have not been so high as to prevent substantial competition among producers" in neighboring states. Id. at 189, 114 S.Ct. 2205. Efforts by individual states to regulate prices paid to producers above the federal minimum have been invalidated as unduly burdening interstate commerce in violation of the Commerce Clause. See id. at 188, 194-96, 114 S.Ct. 2205 ().
Against this backdrop of failed state regulatory efforts, several northeastern states sought congressional authority to enter into an interstate agreement under the "Compact Clause" of the Constitution, U.S. Const. art. I, § 10, cl. 3 ().
Between 1989 and 1993, the legislatures of the six New England states adopted the Northeast Interstate Dairy Compact, finding that "dramatic price fluctuations, with a pronounced downward trend, threaten the viability and stability of the northeast dairy region." Compact, § 1. Two of the six states — Vermont and Maine — are producer states, i.e., they produce more milk than they consume. The other four states — Massachusetts, Rhode Island, Connecticut and New Hampshire — are consumer states, i.e., they consume more milk than they produce. Although New York and Pennsylvania had participated in negotiating the terms and provisions of the Compact, neither state ultimately joined it.
On June 3, 1996, in the Federal Agriculture Improvement and Reform Act of 1996, Pub.L. No. 104-127, Title I, § 147, 110 Stat. 919 (codified at 7 U.S.C. § 7256), Congress consented to the Compact, which gave the Commission authority to regulate Class I (fluid use) milk. Congress attached seven conditions to its consent, the last of which is the linchpin of the current dispute:
The Northeast Interstate Dairy Compact Commission shall not prohibit or in any way limit the marketing in the Compact region of any milk or milk product produced in any other production area in the United States. The Compact Commission shall respect and abide by the ongoing procedures between Federal milk marketing orders with respect to the sharing of proceeds from sales within the Compact region of bulk milk, packaged milk, or producer milk originating from outside of the Compact region. The Compact Commission shall not use compensatory payments under section 10(6) of the Compact as a barrier to the entry of milk into the Compact region or for any other purpose. Establishment of a Compact over-order price, in itself, shall not be considered a compensatory payment or a limitation or prohibition on the marketing of milk.
7 U.S.C. § 7256(7).
In a colloquy concerning 7 U.S.C. § 7256, as part of the Senate Conference Report, Senator Leahy and Senator Lugar, Chairman of the Agriculture Committee, stated:
This compact will allow the six New England states to regulate the price of all class I drinking milk sold in those States. The regulation may apply to any class I milk sold in the New England States but produced elsewhere, as well as to such milk produced by New England farmers. The compact also provides that farmers from beyond New England receive its benefits as well as their New England counterparts.
142 Cong. Rec. S3056 (1996). Senator Leahy and Senator Lugar also noted that congressional consent to the Compact did not "limit the compact commission's authority to establish a compact over-order price regulation for all fluid milk marketed into the compact region in any form, packaged or bulk, produced in another production region in the United States." Id. at S3057. The President signed the legislation on April 4, 1996.
The Compact authorizes the Commission to set an "over-order" price, which means a "minimum price required to be paid to producers for Class I milk established by the Commission in regulations adopted pursuant to sections nine and ten of this Compact, which is above the price established in federal marketing orders or by state farm price regulation in the regulated area." Compact, § 2(8); see also id. § 9(b); 7 U.S.C. § 7256(2). This minimum price established by the Commission is the "price for milk to be paid by pool plants, partially regulated plants and all other handlers receiving milk from producers located in a regulated area." Compact, § 9(d).
Under the Compact, "region" refers to "the territorial limits of the states which are or become parties to this compact."3 Id. § 2(3). "Regulated area" is defined as "any area within the region governed by and defined in regulations establishing a compact over-order price." Id. § 2(5).
The Compact contains provisions regarding the regulation of both "pool" and "partially regulated" plants. A "pool plant" is "any milk plant located in a regulated area." Id. § 2(6). A "partially regulated plant" is "a milk plant not located in a regulated area but having Class I distribution within such area, or receipts from...
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