School Dist. of Philadelphia v. Pennsylvania Milk Marketing Bd.

• Decision Date: 18 October 1996
• Citation: 683 A.2d 972
• Parties: THE SCHOOL DISTRICT OF PHILADELPHIA and Consumers Education and Protective Association and Lance Haver, on behalf of himself and all others similarly situated, Petitioners, v. PENNSYLVANIA MILK MARKETING BOARD, Respondent.
• Court: Pennsylvania Commonwealth Court

Page 972

683 A.2d 972

THE SCHOOL DISTRICT OF PHILADELPHIA and Consumers Education and Protective Association and Lance Haver, on behalf of himself and all others similarly situated, Petitioners, v. PENNSYLVANIA MILK MARKETING BOARD, Respondent.

Commonwealth Court of Pennsylvania.

Argued June 12, 1996.

Decided Oct. 18, 1996.

Eric B. Schnurer, Philadelphia, for Petitioners.

Jackie B. Sparkman, Philadelphia, for Petitioner School District of Philadelphia.

Sally A. Ulrich, Chief Counsel, for Respondent Pennsylvania Milk Marketing Board.

Allen C. Warshaw, Harrisburg, for Intervenors, Pennsylvania Association of Milk Dealers, Rosenberger's Dairy, Inc., Clover Farms Dairy, and Wawa Dairy.

Gwendolyn T. Mosley, Senior Deputy Attorney General, for Intervenor, Commonwealth of Pennsylvania.

J. Jackson Eaton, III, Allentown, for Intervenor Lehigh Valley Dairies, Inc.

Donald F. Copeland, Philadelphia, for Intervenor Atlantic Dairy Cooperative.

Before COLINS, President Judge, and McGINLEY, SMITH, PELLEGRINI, FRIEDMAN, FLAHERTY and LEADBETTER, JJ.

LEADBETTER, Judge.

This is a petition for review of Official General Order No. A-890 issued by the Pennsylvania Milk Marketing Board, pursuant to Pennsylvania's Milk Marketing Law. The order fixed minimum wholesale prices for milk in Milk Market Area 1 including the prices charged to schools. ¹ Petitioners, the School District of Philadelphia, Consumers Education and Protective Association, and Lance Haver ² ask this Court to declare the Milk Marketing Law unconstitutional, to vacate the subject official general order, and to direct the Board to permit minimum wholesale prices for school milk to be fixed by market forces. We affirm the order of the Board.

In Pennsylvania, the sale of milk is regulated and controlled by the Milk Marketing Law ("the Law"), Act of April 28, 1937, P.L. 417, as amended, 31 P.S. §§ 700j-101 to 700j-1302. The Law is implemented by the Milk Marketing Board (the Board), an independent administrative agency. 31 P.S. § 700j-201. Section 802 of the Law directs the Board to fix by official order the minimum prices for the wholesale and retail sale of milk. 31 P.S. § 700j-802. Section 801 of the Law requires the Board to base minimum prices "upon all conditions affecting the milk industry in each milk marketing area, including the amount necessary to yield a reasonable return ... on aggregate milk sales by milk dealers or handlers and stores selling milk." 31 P.S. § 700j-801. In ascertaining such returns, the Board considers the costs incurred by a cross-section of dealers representative of dealers in the area. Id. Milk dealers are allowed a rate of return of two and one-half (2 1/2%) percent to three and one-half (3 1/2%) percent "based on net sales of price-controlled products determined in accordance with generally accepted accounting principles." Id.

In December 1994, Lehigh Valley Dairies, Inc., applied to the Board for a price hearing to revise Official General Order A-863 (OGO A-863) and establish new minimum prices for the purchase and sale of milk in Area 1. The Board granted Lehigh's application and the hearing was held over several days in June of 1995. ³ The Board heard testimony from a representative of Lehigh, representatives of the School District of Philadelphia, and the Board's staff.

During the hearing, Area 1 was characterized as a competitive market in which milk dealers from both Pennsylvania and New Jersey compete. In recognition of the New Jersey influence, a nearby New Jersey milk dealer was included in the dealer cross-section considered. The School District of Philadelphia provided evidence that it purchases milk from a dealer who does business in both states and that dealer sells half-pints of milk to the similar urban schools in New Jersey for approximately four cents less than the school district is required to pay in Philadelphia. The School District also presented evidence that the price of milk charged to general consumers is higher in Pennsylvania than in neighboring states.

After the hearing, submission of briefs and a pre-order conference open to all interested parties, the Board issued Official General Order A-890 (OGO A-890) fixing minimum prices in Area 1, effective October 1, 1995. The order reduced half-pint prices for milk sold to schools by approximately one and one-third (1 1/3) cents. ⁴ The School District had sought a reduction of approximately five (5) cents.

Petitioners make the general complaint that OGO A-890 interferes with market forces and thus denies them the opportunity to purchase milk in Pennsylvania at a competitive price. They contend that enforcement of the Milk Marketing Law causes the School District of Philadelphia to spend an additional one million ($1,000,000.00) dollars per year to purchase the milk it serves to students. The specific legal issues raised in this appeal are: (1) whether the enforcement of the Milk Marketing Law, particularly [31 P.S.] § 700j-801, violates the Commerce Clause of the United States Constitution; ⁵ (2) whether the procedures followed by the Board in adopting OGO A-890 violated petitioners' right to due process of law; and (3) whether the Board erred in its evaluation of evidence presented at the hearing.

Petitioners first contend that Section 700j-801 of the Law, which provides for the establishment of minimum prices, violates the Commerce Clause of the United States Constitution. A lawfully enacted statute carries a presumption of constitutionality. In re Petition To Increase Millage Limit, 166 Pa.Cmwlth. 161, 646 A.2d 61, 63 (1994). "Legislation will not be invalidated unless it clearly, palpably, and plainly violates the Constitution, and any doubts are to be resolved in favor of a finding of constitutionality." Pennsylvania Liquor Control Board v. Spa Athletic Club, 506 Pa. 364, 370, 485 A.2d 732, 735 (1984). After careful review of case law interpreting the Commerce Clause, we conclude that petitioners have failed to sustain the heavy burden of establishing unconstitutionality. See In re Petition To Recall Reese, 542 Pa. 114, 119, 665 A.2d 1162, 1164 (1995).

The Commerce Clause gives Congress the power to regulate commerce among the several states and with foreign nations. United States Constitution, Art. I, § 8, cl. 3. This affirmative grant of power to Congress "has long been recognized as a self-executing limitation on the power of the States to enact laws imposing substantial burdens on such commerce." South-Central Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 87, 104 S.Ct. 2237, 2240, 81 L.Ed.2d 71, 76 (1984). Thus, the Commerce Clause has long been understood to prohibit the states from discriminating against or imposing an unjustifiable burden upon the interstate flow of articles of commerce. Oregon Waste Systems, Inc. v. Department of Environmental Quality of the State of Oregon, 511 U.S. 93, ----, 114 S.Ct. 1345, 1349, 128 L.Ed.2d 13, 20 (1994).

In determining whether a legislative enactment violates the Commerce Clause, a distinction must be made "between state statutes that burden interstate transactions only incidentally, and those that affirmatively discriminate against such transactions." Maine v. Taylor, 477 U.S. 131, 138, 106 S.Ct. 2440, 2447, 91 L.Ed.2d 110, 120 (1986). When a state statute directly favors in-state economic interests over out-of-state interests, it is discriminatory and the United States Supreme Court has generally struck it down. Brown-Forman Distillers Corp. v. New York State Liquor Authority, 476 U.S. 573, 579, 106 S.Ct. 2080, 2084, 90 L.Ed.2d 552, 559 (1986). In other words, "where simple economic protectionism is effected by state legislation, a virtually per se rule of invalidity has been erected." Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S.Ct. 2531, 2535, 57 L.Ed.2d 475, 481 (1978). "Moreover, finding that state legislation constitutes 'economic protectionism' may be made on the basis of either discriminatory purpose ... or discriminatory effect." Bacchus Imports v. Dias, 468 U.S. 263, 270, 104 S.Ct. 3049, 3054, 82 L.Ed.2d 200, 206 (1984) (citations omitted).

On the other hand, it has been recognized "that incidental burdens on interstate commerce may be unavoidable when a State legislates to safeguard the health and safety of its people." Philadelphia v. New Jersey, 437 U.S. at 623-24, 98 S.Ct. at 2535, 57 L.Ed.2d at 481, and that "[e]very state police statute necessarily will affect interstate commerce in some degree, but such a statute does not run counter to the grant of Congressional power merely because it incidentally or indirectly involves or burdens interstate commerce." Milk Control Board v. Eisenberg Farm Products, 306 U.S. 346, 351, 59 S.Ct. 528, 530, 83 L.Ed. 752, 756 (1939). Thus, it has long been held that "[w]here the statute regulates even-handedly to effectuate a legitimate local public interest and its effects on interstate commerce are only incidental, it will be upheld unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits." Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174, 178 (1970). As the Supreme Court noted:

The crucial inquiry, therefore, must be directed to determining whether [the statute] is basically a protectionist measure, or whether it can fairly be viewed as a law directed to legitimate local concerns, with effects upon interstate commerce that are only incidental.

Philadelphia v. New Jersey, 437 U.S. at 624, 98 S.Ct. at 2536, 57 L.Ed.2d at 482.

Petitioners claim that the price fixing provision of the Milk Marketing Law is protectionist because the Law precludes more efficient out-of-state milk dealers from selling milk in Pennsylvania at prices less than those charged by less efficient Pennsylvania milk dealers, thereby precluding out-of-state dealers from taking advantage of their natural competitive edge. Such a minimum pricing scheme, petitioners argue,...