Delano Farms Co. v. California Table Grape Commission

MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT (Doc. 289) AND GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT (Docs. 311

&

312)

OLIVER W. WANGER, District Judge.

Plaintiffs Delano Farms Company, Susan Neill Company, and Lucas Bros.

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Partnership (hereinafter referred to as Plaintiffs) have filed a motion for partial summary judgment and/or summary adjudication of issues: (1) regarding the “government speech” defense; (2) whether

Glickman v. Wileman Brothers

&

Elliott, Inc. or United Foods, Inc. v. United States

applies; and (3) whether

Central Hudson

intermediate “scrutiny is not applicable.” Defendant California Table Grape Commission (hereinafter referred to as the Commission) has filed a cross— motion for summary judgment on the grounds that (1) requiring Plaintiffs to fund the government speech of the Commission does not implicate the First Amendment; (2) the Ketchum Act is constitutional under

Abood’s

“germaneness” test; (3) the Ketchum Act is constitutional under intermediate scrutiny; and (4) Plaintiffs First Amendment rights are not implicated by compelled funding of most of the Commission’s activities.

A.

PROCEDURAL BACKGROUND.

Plaintiffs commenced this action in the fall of 1996 by bringing two separate complaints against the Commission, alleging,

inter alia,

that the Commission’s regulation and the statute establishing the Commission — the Ketchum Act, California Food & Agrie. Code §§ 65500

et seq.

(the Act) — violate Plaintiffs’ rights under the First and Fourteenth Amendments to the United States Constitution and their civil rights under 42 U.S.C. § 1983 .

1

Plaintiffs initially sought preliminary injunctive relief to permit them to pay the disputed assessments into escrow, and in November 1996 and March 1997, the Court issued two preliminary injunctions granting that relief.

In June 1997, the United States Supreme Court decided

Glickman v. Wile-man Brothers & Elliott, Inc.,

521 U.S. 457 , 117 S.Ct. 2130 , 138 L.Ed.2d 585 (1997), reversing the Court of Appeal’s decision that reversed the trial court’s grant of summary judgment for defendant against the Plaintiff growers who were challenging a generic advertising program for tree fruit under the Agricultural Marketing Agreement Act (AMAA) on First Amendment grounds. The Supreme Court held that because the generic advertising program was germane to a broader regulatory scheme and did not involve the funding of ideological activities,

id.

at 473 , 117 S.Ct. 2130 , it should be reviewed “under the standard appropriate for the review of economic regulation” rather than “under a heightened standard appropriate for the review of First Amendment issues,”

id.

at 469 , 117 S.Ct. 2130 .

In light of

Glickman ,

the Commission sought dismissal of Plaintiffs’ complaints under Rule 12(b)(6), Federal Rules of Civil Procedure. In September 1997, Plaintiffs’ First Amendment claim was dismissed to the extent that it alleged that the Commission’s program as a whole, as opposed to particular acts in administering the program, violated Plaintiffs’ rights. (Doc. 96). The preliminary injunctions were modified to require Plaintiffs pay 98% of the disputed assessments to the Commission and to pay only 2% into escrow.

In 1999, the Court of Appeals for the Sixth Circuit decided

United Foods, Inc. v. United States,

197 F.3d 221 (6th Cir.1999), reversing a grant of summary judgment for the United States. The Sixth Circuit distinguished

Glickman

and held that a generic mushroom advertising program was subject to First Amendment scrutiny.

Id.

at 224-225.

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In light of the Sixth Circuit’s decision in

United Foods,

and contemporaneous Ninth Circuit authority, Plaintiffs moved for reconsideration of the dismissal order. In June 2000, the Court denied Plaintiffs’ motion for reconsideration, relying on the Ninth Circuit’s recent decisions in

Gallo Cattle Co. v. California Milk Advisory Board,

185 F.3d 969 (9th Cir.1999), and

Cal Almond Inc. v. U.S. Department of Agriculture,

192 F.3d 1272 (9th Cir.1999),

cert. denied,

530 U.S. 1213 , 120 S.Ct. 2215 , 147 L.Ed.2d 248 (2000), distinguishing the Commission’s table grape program from the mushroom program at issue in

United Foods.

(Doc. 125). On August 14, 2000, the parties stipulated to dismiss all remaining causes of action with prejudice except Plaintiffs’ cause of action under the First and Fourteenth Amendments and 42 U.S.C. § 1983 , which the parties and the Court agreed could proceed to appeal. Plaintiffs then appealed to the Ninth Circuit.

After briefing in the Ninth Circuit but before any oral arguments or decision, the Supreme Court affirmed the Sixth Circuit’s decision in

United Foods. United States v. United Foods, Inc.,

533 U.S. 405 , 121 S.Ct. 2334 , 150 L.Ed.2d 438 (2001). The Supreme Court held that the challenged mushroom advertising program was distinguishable from the tree fruit advertising program in

Glickman .

On January 27, 2003, the Ninth Circuit reversed the dismissal of Plaintiffs’ claims in this case.

Delano Farms Co. v. California Table Grape Commission,

318 F.3d 895 (9th Cir.2003).

Thereafter, the Commission amended its Answer and Plaintiffs filed a motion for judgment on the pleadings. By Order filed on December 11, 2003, Plaintiffs’ motion for judgment on the pleadings was denied. (Doc. 260).

The Scheduling Conference Order summarizes the parties’ factual and legal contentions. Only the First Cause of Action remains. It alleges that the Ketchum Act violates Plaintiffs’ free speech and association rights under the First and Fourteenth Amendments and Section 1983. Plaintiffs seek declaratory and injunctive relief and a refund of their assessments. They further contend that the Ninth Circuit’s decision in this case is dispositive and that each of the Commission’s affirmative defenses lack legal and factual merit. The Commission contends that it has not violated Plaintiffs’ constitutional rights; that the advertisements at issue are government speech and therefore not subject to First Amendment restrictions; or that the program is part of a comprehensive regulatory scheme and therefore exempt from First Amendment scrutiny; or, to the extent that its program is or implicates speech, the program passes scrutiny under

Central Hudson Gas & Electric Corp. v. Public Service Commission of New York,

447 U.S. 557 , 100 S.Ct. 2343 , 65 L.Ed.2d 341 (1980) and/or

Abood v. Detroit Board of Education,

431 U.S. 209 , 97 S.Ct. 1782 , 52 L.Ed.2d 261 (1977). The Commission further maintains that the Ketchum Act is severable, and that if any section, clause, or part of the Act, or any part of the Commission’s activities, is held unconstitutional, such holding does not affect the remaining portions of the Act or any part of the Commission’s activities. The Commission raises a number of affirmative defenses to defeat Plaintiffs’ claims, in whole or in part, including that Plaintiffs are guilty of unclean hands; they have waived any rights regarding any alleged acts or omissions by the Commission; they are estopped from asserting any rights for alleged acts or omissions by the Commission; their claims are barred by the applicable statute of limitations; their claims are barred by the doctrine of laches; they have not been damaged; their assessments have not been spent for non-germane,

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ideological or political speech; and that Plaintiffs would be unjustly enriched if they are not assessed for the Commission’s programs but continue to benefit from them.

B.

STANDARDS GOVERNING RES-

■

OLUTION OF SUMMARY JUDGMENT OR SUMMARY ADJUDICATION MOTIONS.

Summary judgment is proper when it is shown that there exists “no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. A fact is “material” if it is relevant to an element of a claim or a defense, the existence of which may affect the outcome of the suit.

T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass’n,

809 F.2d 626 , 630 (9th Cir. 1987). Materiality is determined by the substantive law governing a claim or a defense.

Id.

The evidence and all inferences drawn from it must be construed in the light most favorable to the nonmoving party.

Id.

The initial burden in a motion for summary judgment is on the moving party. The moving party satisfies this initial burden by identifying the parts of the materials on file it believes demonstrate an “absence of evidence to support the non-moving party’s case.”

Celotex Corp. v. Catrett,

477 U.S. 317, 325 , 106 S.Ct. 2548 , 91 L.Ed.2d 265 (1986). The burden then shifts to the nonmoving party to defeat summary judgment.

T.W. Elec.,

809 F.2d at 630. The nonmoving party “may not rely on the mere allegations in the pleadings in order to preclude summary judgment,” but must set forth by affidavit or other appropriate evidence “specific facts showing there is a genuine issue for trial.”

Id.

The nonmoving party may not simply state that it will discredit the moving party’s evidence at trial; it must produce at least some “significant probative evidence tending to support the complaint.”

Id.

The question to be resolved is not whether the “evidence unmistakably favors one side or the other, but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.”

United States ex rel. Anderson v. N. Telecom, Inc.,

52 F.3d 810, 815 (9th Cir.1995). This requires more than the “mere existence of a scintilla of evidence in support of the plaintiffs position”; there must be “evidence on which the jury could reasonably find for the plaintiff.”

Id.

The “more implausible the claim or defense asserted by the nonmoving party, the more persuasive its evidence must be to avoid summary judgment.”

Id.

As explained in

Nissan Fire & Marine Ins. Co. v. Fritz Companies,

210 F.3d 1099 , 1102-1103 (9th Cir.2000):

The vocabulary used for discussing summary judgments is somewhat abstract. Because either a plaintiff or a defendant can move for summary judgment, we customarily refer to the moving and nonmoving party rather than to plaintiff and defendant. Further, because either plaintiff or defendant can have the ultimate burden of persuasion at trial, we refer to the party with and without the ultimate burden of persuasion at trial rather than to plaintiff and defendant. Finally, we distinguish among the initial burden of production and two kinds of ultimate burdens of persuasion: The initial burden of production refers to the burden of producing evidence, or showing the absence of evidence, on the motion for summary judgment; the ultimate burden of persuasion can refer either to the burden of persuasion on the motion or to the burden of persuasion at trial.

A moving party without the ultimate burden of persuasion at trial — usually, but not always, a defendant — has both the initial burden of production and the ultimate burden of persuasion on a mo

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tion for summary judgment ... In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party’s claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial ... In order to carry its ultimate burden of persuasion on the motion, the moving party must persuade the court that there is no genuine issue of material fact

If a moving party fails to carry its initial burden of production, the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial ... In such a case, the nonmoving party may defeat the motion for summary judgment without producing anything ... If, however, a moving party carries its burden of production, the nonmoving party must produce evidence to support its claim or defense ... If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment ... But if the nonmoving party produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats the motion.

1.

BURDEN OF PROOF.

Plaintiffs assert the following contentions regarding the respective burdens of proof in connection with these motions:

Since the [Supreme] Court made clear in

United Foods

and

Johanns,

that it is Defendant’s burden of proof re ‘government speech,’ the Table Grape Commission must persuade this Court, through undisputed material facts that the Table Grape Commission law and its operations are government speech ... Further, Plaintiffs, as the moving party with respect to this motion, carry their initial burden of summary judgment by ‘showing’ that the Table Grape Commission lacks sufficient evidence to carry its ultimate burden of persuasion at trial with respect to not only the government speech affirmative defense, but that

Glickman ,

not

United Foods

applies. That is because those are affirmative defenses.

The Commission argues that Plaintiffs are wrong about which party has the burden of proving that the Commission’s speech is government speech and that the table grape industry is collectivized:

...

Wileman Bros,

and

Livestock Marketing

make clear that the First Amendment is

not even implicated

if the table grape industry is collectivized or if the speech of the Commission is government speech. In order to make a First Amendment claim,- Plaintiffs must show that the First Amendment is at least implicated by the challenged speech, and it is therefore

Plaintiffs’

burden to demonstrate that the table grape industry is not collectivized and that the speech of the Commission is not government speech.

Noting that Rule 8(c), Federal Rules of Civil Procedure lists specific affirmative defenses, including “any other matter constituting an avoidance or affirmative defense”, the Commission cites

Zivkovic v. Southern California Edison Co.,

302 F.3d 1080, 1088 (9th Cir.2002):

A defense which demonstrates that plaintiff has not met its burden of proof is not an affirmative defense.

See FlavO-Rich v. Rawson Food Service, Inc. (In re Rawson Food Service, Inc.),

846 F.2d 1343, 1349 (11th Cir.1988) (recognizing that a defense which points out a defect in the plaintiffs prima facie case is not an affirmative defense).

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The Commission correctly asserts the burden of proof is on Plaintiffs. Plaintiffs have the burden to prove that the Commission’s program pursuant to the Ketchum Act is subject to the First Amendment and that the program violates the First Amendment.

C.

STATEMENTS OF UNDISPUTED FACTS.

The parties’ Undisputed Stipulated Facts are 63 pages long and include 170 separately numbered paragraphs containing a multitude of facts.

The Commission’s Statement of Undisputed Facts is 83 pages long, is comprised of 235 facts (with numerous subparts) and has a table of contents. Plaintiffs’ Objections and Response to the Commission’s Statement of Undisputed Facts is 137 pages long, and uses the following abbreviated keys: “‘Stip.’ stands for stipulated; ‘Undis.’ stands for undisputed; ‘Disp.’ stands for disputed; ‘Obj.’ stands for objection; and ‘Rel.’ stands for

not

relevant.” In addition, Plaintiffs assert:

When Plaintiffs ... respond with an undisputed, it is only for the purposes of the instant cross-motions for summary judgment, and Plaintiffs reserve the right, at trial, or any further additional motions for summary judgment to dispute the same alleged fact, or to object, or object on other or additional grounds. In addition, when Plaintiffs and Defendant stipulated to various facts, it was done on the condition that any fact ‘stipulated’ to could be explained, expounded upon, or state how things were different or have changed.

Also, to the greater extent, Plaintiffs’ objections to or disputes with the Commission’s Statement of Undisputed Facts are string-cite objections, i.e., not relevant, hearsay, lack of foundation, improper lay opinion, conclusory, violation of best evidence rule, with no supporting law or analysis.

Plaintiffs Statement of Undisputed Facts is 8 pages long and is comprised of 43 facts.

Because of the magnitude of the factual positions of the parties, in the interests of economy, a separate Statement of Undisputed Facts will not be provided, instead the relevant undisputed facts and certain disputed facts necessary to ruling on the motions will be included in this Memorandum Decision.

D.

UNDISPUTED STIPULATED FACTS.

1. California has the largest agricultural production of any state in the nation.

2. The California Department of Food and Agriculture (“CDFA”) estimated that in 2004, California’s growers produced almost $32 billion in agricultural commodities, valued at the farm-level.

3. Of that figure, grape growers as a whole, including wine, raisin, and table type grapes, accounted for 8.6%.

4. The volume of California table grapes shipped has increased from the equivalent of approximately 37 million 19-pound boxes of grapes per year when the Commission was first created to approximately 94 million 19-pound boxes in 2005.

5. Approximately 97%-99% of the table grapes grown in the United States are grown in California.

6. The total F.O.B. value (value at the point of shipping including picking, packing, and extra services such as cold storage and placing on pallets, as voluntarily reported to the United States Department of Agriculture (“USDA”)) of the California table grapes shipped to buyers in 2004 was just over $1 billion.

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7. Table grapes are grown in California in the Coachella and San Joaquin valleys on approximately 110,000 acres of land.

8. According to the United States Department of Agriculture, farm and farm-related employment accounted for 2.75 million jobs in California in 2002-over 13.8 % of the state’s total employment.

9. In sum, agriculture and the table grape industry are important parts of the California economy.

10. At present, there are 35 active federal regional marketing orders in place and 17 national programs that cover blueberries, beef, cotton, dairy, eggs, milk, Hass avocados, honey, lamb, mangoes, mushrooms, peanuts, popcorn, pork, potatoes, soybeans, and watermelons.

11. In addition to the federal marketing orders covering the state, California currently has 53 active commodity marketing programs. These programs cover about 65% of the value of California’s agricultural production, and include programs for four of California’s top five agricultural products (dairy products, greenhouse/nursery products, grapes, almonds, and cattle/calves).

12. The California Table Grape Commission was established in 1967 by an act of the California Legislature called the Ketchum Act. Its purposes include expanding and maintaining demand for California table grapes worldwide and preventing economic waste of the agricultural wealth of the State of California. The California Legislature has also declared that the Commission’s activities (and those of other commissions) are essential to the goals and interests of the State of California in, among other things, marketing research and trend analysis, elimination of tariff and non-tariff barriers, consumer education relating to the health and other benefits of consuming agricultural products, and “Cooperative crisis resolution.”

13. The Commission is comprised of 18 commissioners representing the six active table grape growing districts in the State of California and one “public member,” all of whom are appointed and subject to removal by the Secretary of the California Department of Food and Agriculture (“CDFA”). Prior to appointment, the CDFA inquires into whether potential commissioners are suitable for appointment.

14. The Commission’s work is funded primarily through assessments that are imposed on all shipments of California table grapes pursuant to the Ketchum Act. Those assessments are paid to the Commission by shippers who are authorized to collect the assessments from the grower of the fruit shipped.

15. The Commission office is located in Fresno, California, where it employs 17 people. It has one employee in Texas. In addition, the Commission contracts for the services of a number of consultants, including one domestic representative who works out of Canada and international representatives in Australia, New Zealand, the United Kingdom, Germany, Japan, South Korea, Hong Kong, Singapore, India, Venezuela, Costa Rica, Mexico, the Philippines, Taiwan, and the United Arab Emirates.

16. The Commission’s fiscal year runs from May 1 to April 30. The 2004-2005 fiscal year therefore closed on April 30, 2005. The Commission’s expenditures for the 2004-2005 fiscal year were $12,015,653. Its adjusted carryover and revenue was $12,497,031. Assessments paid to the Commission (and not into an escrow account) for California table grapes shipped in 2004-2005 accounted for $8,367,429 of that amount. The remaining revenues came principally from federal international marketing grants.

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17. The season for California table grapes runs from May through January. In the early part of the season, retailers purchase grapes grown in the Coachella Valley of California. During this early part of the California season, late season and storage table grapes from Chile and South Africa are still in the market and new crop grapes from Mexico have entered the market. As the season progresses, California table grapes from the Bakersfield area and then farther north are available. By the middle of July, usually only California table grapes are in the domestic market. By November, grapes from a number of southern hemisphere countries (including Brazil, Peru, and Chile) are back in the market.

18. There are at least four different principal paths for California table grapes to travel from the vineyard to the final end retail consumer in the domestic market.

19. All four principal paths start with a grower who harvests the table grapes and a shipper who packs the grapes and finds a first buyer for them. Sometimes growers act as their own shippers. Other times growers contract with a separate entity to act as the shipper.

20. All four principal paths end with a retailer making a sale to a customer. While there are different, kinds of retailers (large supermarket chains, mom-and-pop grocery stores, fruit stands, farmers’ markets etc.), the vast majority of grapes are sold by large retail chains such as Safeway, Albertson’s, Kroger, or Wal-Mart.

21. The distinction between the four principal paths is in how the grapes go from the grower/shipper to the retailer.

a.The first path is directly from shipper to retailer. For large retailers, such as Vons, this is the most common way to purchase grapes. Approximately 70% of all California grapes sold in the United States travel along this path.

b. The second path is from shipper to a broker and then to a retailer. The broker may or may not take ownership or physical custody of the grapes. Approximately 10% of all California grapes sold in the United States travel along this path.

c. The third path is from shipper to a distributor and then from the distributor to the retailer. The distributor may take physical possession of the grapes and generally takes ownership of the grapes. Approximately 10% of all California grapes sold in the United States travel along this path.

d. Finally, the fourth path is from shipper to “terminal market wholesalers.” As the name suggests, these wholesalers operate in so-called “terminal markets” — generally large cities where a large volume of grapes is sold. Terminal market wholesalers take physical possession of the grapes and most often take ownership of them. Approximately 10% of all California grapes sold in the United States travel along this path.

22. California grapes travel along similar paths to consumers in international markets.

23. Although there are four distinct paths along which California table grapes generally travel from vineyard to consumer, there are ultimately two distinct markets for California table grapes. First, there is the market in which retailers and wholesalers purchase California table grapes from grower/shippers (the “wholesale market”). Second, there is the market in which consumers purchase California table grapes from retailers (the “retail market”). These markets operate very differently.

24. Produce retailers, such as supermarket chains like Vons, purchase table grapes in the wholesale market, either

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from grower/shippers, brokers, distributors, or wholesalers. Retailers make four principal decisions when participating in the wholesale market: (1) what quantity of table grapes to put on their shelves, (2) from which production area (Chile, Mexico, California) to buy table grapes, (3) from which specific shippers to buy table grapes, (4) and what price they will pay. Retailers also consider the color and level of fruit quality

(e.g.,

“A” box, “B” box, etc.) of the grapes they sell and whether grapes are seedless.

25. In deciding what quantity of table grapes to put on their shelves and where to put them, retailers must weigh the value of selling grapes versus the value of selling other products. Every square foot allocated to table grapes means one less square foot allocated to something else in the produce department. And every square foot allocated to produce is one square foot less available in the store for toothpaste, coffee, and everything else.

26. California table grapes compete with grapes from other countries (during certain parts of the year) and other fruits (like apples) for shelf space within the produce department. California table grapes and other “snack” produce also compete with “salty snacks,” like potato chips and pretzels and with snacks like candy and ice cream, for overall snack shelf space.

27. Competition for shelf space between different types of produce and among different types of products (produce vs. dairy, for example) is fierce. There is competition across departments and within departments. Foods and non-foods compete for space. Moreover, there is competition for the best shelf space in a grocery store.

28. The goal of individual grower/shippers of table grapes is to obtain the highest price and maximize their own sales. That is, individual grower/shippers are interested only in expanding their slice of the overall table grape market.

29. Every year, each grower/shipper has different levels of fruit quality to sell to his/her customers. A common method of identifying quality is to designate a box of grapes as an “AA” box (highest quality), an “A” box, a “B” box, and a “C” box. Most grower/shippers offer all four levels. It is possible for different grower/shippers to have more- — or less — of the highest quality fruit than their competitors. A particular grower/shipper may generally have a higher percentage of the highest quality fruit than another grower/shipper. But it is possible for that grower/shipper to suffer from adverse weather patterns in a particular year and thus have less highest quality fruit than the grower/shipper whose fruit is generally not as good.

30. Consumers do not shop for grapes with brand names in mind. Rather, table grape consumers consider primarily the ripeness and freshness

(ie.,

quality) of the grapes, the taste of the grapes, the variety and whether the grapes are seeded, and the price of the grapes.

31. Consumer survey evidence indicates that when shoppers buy produce generally, brand is typically not an important factor. While for some types of produce, such as bananas and oranges, brand is more important than it is for grapes, it is still subordinate to a host of other factors like ripeness and freshness

(ie.,

quality), color, and price.

32. In large retail stores, grapes are typically not sold in their boxes, so customers never see the labels on those boxes. Store signage typically does not indicate the name of the grower/shipper of the table grapes being displayed. And most of the time grapes’ packaging does not reveal the grower/shipper’s name.

a. In general, most retailers do not want the produce they sell to be brand

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ed. They find branding on packaging clutters their produce section and confuses consumers because of the different print sizes, colors, and logos fighting for the consumer’s eye. Retailers want the grapes themselves to be the focus of the consumer’s eye. For a product like table grapes — which are produced at different times of the year by different growers in different parts of the world and are shipped to market by multiple shippers who each have multiple labels — this problem of customer confusion is exacerbated. Retailers do not want to be tied to any one grower/shipper or any one label because throughout the year a retailer will buy its grapes from a number of different grower/shippers, both domestic and international.

38. In general, there is less consumer recognition of brands of produce than other food products.

34. Individual California table grape growers and shippers conduct virtually no direct advertising to consumers in the retail market.

35. To achieve its statutory objective of maintaining and expanding demand for California table grapes worldwide, preventing economic waste of the agricultural wealth of the State of California, and promoting the health of the people of California, the Commission conducts a variety of activities that fall into five general categories: (1) Research, (2) Trade Management, (3) Issues Management, (4) Advertising, and (5) Education/Outreach.

36. The Commission’s research activities are broad ranging and include consumer, trade, viticulture, industry statistical, and nutrition research.

a.In 2004-2005, the Commission spent $1,776,950 in assessment dollars on research.

37. The Commission’s trade management activities focus on working with the retail and wholesale produce trade, domestically and internationally, to create demand for the volume of fresh California grapes grown each season.

a. Using the results of its category management (discussed below) and consumer research, as well as analysis of retail chain activities (in the aggregate and individually) and using financial and/or media incentives, the Commission works around the year to attempt to create demand for California table grapes.

b. In 2004-2005, the Commission spent $1,987,783 in assessments on trade management.

38.The Commission’s issue management work is varied, as the issues that might impact demand for the crop can vary week-to-week, month-to-month, and season-to-season.

a. Issue management is an important element of all demand-creation work.

b. Fundamentally, the focus of issue management is working with interested parties and decision makers to keep trade flowing both in the United States and internationally, and to respond to short-term incidents and long-term issues that could impair the economic strength of California’s fresh grape industry.

c. Specifically, issue management typically involves working with other governmental agencies at the county, state, and federal levels and their counterparts in export markets — as well as with industry groups, health authorities, and non-industry organizations.

d. It involves using a variety of disciplines to ensure the long-term continued movement of fresh California grapes from field to market.

e. Categories of issue management on which the Commission works on an ongoing basis include (but are not limit

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ed to) food safety, market access, tariff reduction, standardization of packaging, labeling, pesticide registration, pest infestations, and all litigation involving the Commission. Within each category numerous types of issues can, and do, arise.

f. In 2004-2005, the Commission spent $1,493,192 in assessment dollars on issue management.

39. The Commission conducts advertising campaigns to reach consumers with paid messages designed to increase overall demand for fresh California grapes.

a. Paid media is used in an attempt to keep fresh California grapes “top-of-mind” for consumers in a way that motivates increased purchase.

b. The messages revolve around healthy snacking, positioning grapes as a healthy alternative to products like buttered popcorn, fries, and ice cream. This message is intended to increase demand but also furthers the state interest in public health.

c. In 2004-2005, the Commission spent $2,032,440 in assessment dollars on paid advertising.

40. The Commission’s education and outreach activities are designed to provide education, training, analysis, and general information to retailers, wholesalers, food-service operators, grower/shippers, researchers, consumers, and others such as teachers, editors, authors, doctors, and nutritionists.

a. The Commission provides information about, among other things, nutrition, usage, storage, handling, availability, retail merchandising techniques, product characteristics, technological advances, and statistical analysis through a variety of outreach methods.

b. This work is intended to increase demand. Credible information is required by those who make decisions about what products to place on grocery shelves, what nutritional information to share with patients or clients, what foods to include in classroom lessons, what foods to include in restaurant menu items, what to advise readers about recipes or storing and handling of food, and what to advise viewers to watch for in terms of quality and safety.

c.In 2004-2005, the Commission spent $847,619 in assessment dollars on education and outreach.

41. The Commission operates five principal ongoing programs: Viticulture and Technical Issues, Advertising, Domestic Marketing, International Marketing, and Consumer Education. Each program involves activities that fall within one or more of the categories described above in paragraphs 36-40.

42. The viticulture and technical issues program has three areas of focus: viticulture research, technical issues management, and patenting/licensing. The program includes activities falling within the following categories: research, issue management, and education and outreach.

43. The viticulture research program involves directing and overseeing the funding and implementation of viticulture research performed by scientists from a variety of research institutions including the University of California, USDA, and California State University. The research is designed to increase grower efficiency and improve table grape production and fruit quality.

a. The Commission has developed a process for receiving and evaluating research proposals.

b. The program includes the funding of cultural (horticultural farming) practices research that is intended to improve fruit maturity, storability, and overall quality. It includes work in areas such as pruning techniques, trellising/ training methods, crop/cluster and

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canopy management, crop load regulation, and irrigation strategies.

c. The program also includes the funding of pest and disease management research. Research studies in this category attempt to develop biological and reduced-risk chemical control methods for destructive vineyard pests and diseases such as mealybugs, molds/mildews and grapevine measles. Biological control methods being examined include releasing beneficial insect predators or parasites to reduce the targeted pest population and using pheromones or sex attractants to disrupt mating cycles. The Commission also funds research regarding the application of reduced risk pesticides that target harmful pests without eliminating beneficial insects.

d. The program also funds post-harvest research. The research is intended to improve storing, handling/shipping procedures, shelf life, and overall fruit quality. It includes research on modernizing storage room and phytosanitary fumigations, temperature/humidity requirements, and new packaging methods.

e. Finally, the program funds new grape and grape rootstock variety research. The goal of this research is the development and evaluation of new varieties of grapes and grapes rootstocks with improved characteristics and pest/disease resistance.

i. The Commission has been funding efforts to breed new, better varieties of table grapes since the inception of the research program in 1972, first with the University of California and then with USDA. The Commission currently supports the USDA’s table grape variety breeding program run by Dr. David Ramming, providing approximately one-third of the program’s funding.

ii. Since the Commission began funding the USDA program and advising its breeder in 1981, it has developed over 10 new varieties of grapes that are currently being marketed, including the Crimson Seedless variety that constitutes over half of Delano Farms’ sales as well as the Princess variety sold by Delano Farms,

f.The Commission makes the results of its viticulture research available to grower/shippers in a number of ways that include seminars, field tours, newsletters, and publications. (The new varieties are made available through the patenting and licensing program described below.)

44. Technical issues management encompasses the Commission’s work related to pesticides, pest exclusion, production, packaging, distribution, and quarantines. It includes technical analysis related to the Commission efforts to expand international market access by, among other things, developing international shipping protocols and participating in trade barrier negotiations.

a. The Commission monitors chemical Maximum Residue Level (“MRL”) restrictions proposed by other countries or the international standard-setting body (the Codex Alimentarius Commission) to determine whether the chemicals to be regulated are registered for use on grapes in California and are in fact used, whether the proposed MRL is lower than the U.S. or the Codex MRLs, and if so whether the proposed MRL is likely to disrupt shipments of California table grapes to the country in question. Depending on what is learned, the Commission works with the U.S. government and the country involved to negotiate the best possible solution for California’s table grape grower/shippers.

b. The Commission also conducts research to support its efforts to develop and streamline shipping protocols that

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allow California table grapes to access foreign markets. The research can also support efforts to eliminate those protocols when they are no longer necessary.

45.The patenting and licensing program revolves around the Commission’s efforts to develop new varieties of table grapes jointly with the USDA and to protect the intellectual property developed through U.S. patents, international plant protection, and domestic and international licenses.

a. In 2001, the Commission and USDA signed a Memorandum Of Understanding that outlined an agreement to patent future USDA-developed table grape varieties with the intent that the Commission will become the exclusive licensee of the varieties in domestic and international markets.

b. In 2004 and 2005, at the recommendation of the Commission, the USDA sought patent protection for and then released three newly developed varieties of grapes: Sweet Scarlet, Scarlet Royal, and Autumn King. The USDA has already obtained patents for the Sweet Scarlet and Scarlet Royal varieties, and patent is pending for the Autumn King variety.

c. As the exclusive licensee, the Commission, in turn, has sublicensed the varieties to a number of nurseries that sell the varieties to any domestic grower that wishes to purchase them. The amount of domestic production of the newly developed varieties is not limited. Nurseries that wish to sell the new varieties, however, must pay the Commission a yearly fee and a per-vine fee, a portion of which is remitted to the USDA.

d. The Commission is also charged with applying for intellectual property protection abroad, setting the terms on which the new varieties are made available abroad, and enforcing foreign intellectual property rights obtained.

46. In 2004-2005, the Commission’s viticulture and technical issues program spent $807,377 in assessment dollars on the following categories of activities $548,711 on viticulture research, $12,370 on outreach, and $246,296 on issue management.

47. Since the Commission began funding the USDA breeding program, USDA has developed 10 new varieties of grapes that are currently being marketed and two varieties that are not yet in production. Together, the 10 varieties being currently marketed account for approximately 30% of California grape shipments.

48. The following varieties were developed under the joint USDA/Commission program: Autumn Seedless, Autumn Black, Crimson Seedless, Autumn Royal, Fantasy Seedless, Fresno Seedless, Black Emerald, Princess, Summer Royal, Sweet Scarlet, Scarlet Royal (not yet in production) and Autumn King (not yet in production).

49. The Commission has also helped to fund the development of the Red Globe and Christmas Rose varieties. In total, varieties funded by the Commission account for approximately 45% of the volume of California table grapes shipped to market, and California produces approximately 97%-99% of the commercially grown table grapes in the United States.

50. The Commission’s initiative to obtain patent protection for newly developed varieties has the potential to be beneficial to the California table grape industry.

a. As the exclusive licensee of varieties patented by the USDA, the Commission attempts to ensure that varieties developed by California growers are not misappropriated by foreign growers to unfairly compete with California grapes.

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The Commission also attempts to ensure that the genetic quality of the new varieties is maintained.

51. The California Legislature has directed the Commission to undertake advertising that “promote[s] the sale of fresh grapes” and the Commission has consistently followed that legislative directive.

52. The consumer advertising undertaken by the Commission is known as “generic advertising” because it promotes the entire category of fresh grapes from California. It does not specify any one type of fresh California grape or any one producer of fresh California grapes. Instead, it speaks to the general characteristics of all fresh California grapes — that they are flavorful, convenient, and healthful.

53. All of the Commission’s radio, television, print media, and billboard advertisements are intended to “promote the sale of fresh grapes.” Commission advertisements have not promoted products other than grapes and have not disparaged other California agricultural products. The Commission has not run political or ideological advertisements, and all of the Commission’s advertisements have been in good taste and have not been false or misleading.

54. The development of the Commission’s advertising campaign begins with consumer research.

a. Initially, secondary research on consumer attitudes and buying habits is obtained from a variety of sources to determine the general consumer mindset about the foods they purchase and consume.

b. Next, the Commission conducts primary research to determine how consumers view grapes, why they do and do not purchase them, where and when they purchase them, what they look for when purchasing grapes, how, when and where they consume them, their specific views of fresh grapes from California as opposed to grapes from other sources, what foods they might consume instead of fresh California grapes, and what qualities about fresh California grapes are most and least motivating for their purchase and consumption of fresh California grapes.

55. The research is then analyzed by the Commission staff and its advertising agency — currently McCann Erickson, San Francisco — to develop potential advertising messages to “promote the sale of fresh grapes” and the most effective medium to transmit that message. The potential messages are then taken to additional focus groups to determine their effectiveness in motivating consumers to purchase and consume more fresh California grapes.

56. The current advertising campaign takes into account the fact that fresh California grapes are consumed primarily as a snack and emphasizes that fresh California grapes are a more healthful alternative to other snack food such as ice cream, french fries, chips, and buttered popcorn.

57. The advertising is done primarily in outdoor billboards and in 10-second traffic radio commercials. The Commission also ran a limited amount of television advertising in the fall of 2005 on the Food Network.

58. The Commission’s outdoor billboards use beautiful images of grapes contained in packaging typically associated with less healthful snack foods such as popcorn, potato chips, french fries, and ice cream to remind consumers that grapes are a healthy alternative to these other snack foods.

a. In 2005, the Commission ran 284 billboards for seven months. The billboards were placed in the following major markets: Baltimore, Boston, Chicago, Dallas-Ft. Worth, Denver-Boulder, Los Angeles, New York, Philadelphia, San Francisco, and Seattle-Tacoma. On

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average, there were 18 billboards in each market.

59. The Commission’s radio advertisements are in the form of short radio messages that air during radio traffic reports when consumers are thought to be paying close attention to what they hear on the radio. The messages remind consumers where to go to get the fresh California grapes they enjoy and encourage consumers, while they are out on the road, to stop into the featured store and buy grapes. Like the billboards, these advertisements emphasize that California table grapes are a healthy alternative to other snack foods.

a. One script, for example, reads: “Hold the burger, the fries, and the shake and drive up to (Name of Store) because the fresh California grapes are in season now. This is your window to pick up the grapes everyone likes best— at your local (Name of Store).”

b. Another reads: “Have a sweet tooth that won’t let go? Forget the ice cream and head to (Name of Store). Scoop up a bunch of sweet, fresh California grapes from (Name of Store) and in a few luscious bites you’ll know why California grapes are preferred over any other.”

c. Other radio scripts emphasize the health benefits of table grapes more generally. One reads: “It’s easy to get your recommended five servings of fruits and vegetables a day with fresh California grapes. They come in three colors and fresh California grapes from (Name of Store) are part of a smart, healthy diet. Pick up some sweet, delicious grapes from (Name of Store) and live better.”

60. In 2004 and 2005, the Commission ran two 15-second advertisements on the cable channel the Food Network during the seven-day-a-week cooking program “Sara’s Secrets” featuring renowned chef Sara Moulton.

a. The television advertisements, like the billboards and radio advertisements, emphasized that grapes are a healthy alternative to traditional snack foods.

b. One advertisement showed three colors of grapes in an ice cream cone and the other shows grapes in a popcorn bag. A voiceover declared that “Good Things Come in Bunches.”

61. Past themes of the Commission’s advertising include: (a) “Good things come in bunches.”; (b) “Share some California grapes.”; (c) “Life is complicated. Grapes are simple.”; and (d) “California grapes. The Natural Snack.”

62. The Commission’s advertising is designed to be as motivating to consumers as possible, but it is also used as an incentive for retailers.

63. The Commission’s advertising is meant to work in conjunction with the Commission’s other efforts.

a. The Commission’s efforts with retailers are intended to “push” California table grapes into the stores, and the Commission’s advertising is intended to “pull” consumers into the stores to buy the grapes.

b. Similarly, the Commission’s advertising is intended to build on the research efforts of the Commission. The current advertising campaigns emphasize the health benefits of table grapes and the Commission’s research efforts are focused, in part, on discovering and documenting the health benefits of grapes.

64. In 2004-2005, the Commission’s advertising program spent $2,042,247 in assessment dollars on the following categories of activities: $229,003 on consumer research and $1,813,244 on direct advertising.

65. Most of the advertising on television, in print, or on the radio is “branded

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product” advertising. Advertising for “Pepsi” soda, “Tide” laundry detergent, and “Crest” toothpaste are familiar examples. The goal of this type of advertising is almost entirely to increase sales of the particular product advertised, not to increase overall consumption of a category of product.

66. Product differentiation can stem from actual differences between products — the Microsoft Windows operating system works differently from the operating systems of its competitors. Or product differentiation can result from an extensive advertising campaign that creates perceived differences between products— some consumers prefer Coke while others prefer Pepsi, yet the actual differences between the products may be slight.

67. The California table grape industry is estimated to have 550 growers currently, including grower-shippers. Large growers have market shares only in the single digits.

68. Unlike “branded product” advertising, which often seeks to create preferences in the minds of consumers even absent substantial differences in the products sold, generic advertising often promotes actual characteristics of a category of products. Table grapes, for example, are promoted for their health benefits, convenience of consumption, and good taste.

69. Generic regional advertising is intended to promote all table grapes from a particular region, such as California. This advertising is still generic in that it does not distinguish between different California producers, but it does seek to distinguish California table grapes from grapes grown in other regions.

70. Generic regional advertising allows producers in a region who feel they are too small to run their own advertising to band together and fund efforts to run advertisements focusing on the general attributes of the category of products.

71. Economists have been modeling and measuring the impacts of commodity programs for at least 20 years.

72. The Commission’s current advertising campaign (“Snacks”) was designed to target women aged 25 to 54 and to convey the message that grapes are a healthy alternative to other snack foods based on market data that revealed that the primary shoppers in most households are women in that age range and these women were concerned with providing healthy, tasty, convenient foods to their families.

73. According to consumers in focus group studies, the Commission’s generic “California” advertising campaign motivates consumers to want to purchase more California table grapes.

74. In a focus group study, the “Snacks” campaign was viewed favorably by participants. All participants readily discerned the message that grapes are a healthy alternative to other snack foods.

a. Participants described the campaign as “brilliant” and “clever.” People selected the words, “happy,” “pleased,” “surprised,” “playful,” “joyful,” “amused,” “interested,” and “delighted” to describe their feelings to this campaign. The campaign appeals to adults as individuals and as parents. And the campaign is intended to make consumers think about grapes in a new way, establishing in their minds more occasions for using grapes.

75. Any additional revenue to farmers that might be realized due to the Commission’s advertising, trade management, and education and outreach generally results in additional jobs in the agricultural industry.

76. Like other states, California and its citizens face a number of significant health problems related to poor diets.

a. For example, more than half of California adults are overweight or

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obese. Physically inactive, obese, and overweight individuals cost California billions of dollars every years in medical care, workers’ compensation, and lost productivity.

b. Heart disease is the leading cause of death in California and the nation. In 1999, there were almost 60,000 deaths due to heart disease in California.

c. Stroke is the third leading cause of death in California and the nation. In 1999, there were approximately 18,000 deaths due to stroke in California.

d. Cancer is the second leading cause of death in California and the nation. Cancer accounted for approximately 25% of all deaths in California in 2002.

e. Diabetes is also as significant health problem afflicting Californians and Americans generally.

77. Eating more fruits and vegetables helps to reduce diseases. Eating five to nine servings of fruit and vegetables each day helps protect against heart disease and cancer. Eating fruits and vegetables also has the potential to reduce the risk of obesity and many other chronic diseases including stroke and diabetes.

78. California adults consume, on average, fewer than four daily servings of fruits and vegetables, well below the five to nine daily servings recommended for good health. As a result, efforts to encourage people to eat more fruits and vegetables are important to the future of the state and to the country.

79. Any increase in demand for California table grapes benefits California table grape grower/shippers and the State of California generally.

80. The domestic marketing program is implemented by a staff of 4 people, which includes Cindy Plummer, Jane Lytle, Karen Hearn, and Brad Brownsey (a consultant).

81. The domestic marketing program conducts domestic trade management as well as research and education and outreach.

82. The purpose of the program is to increase the movement of fresh California grapes from field to market or professional kitchen. The program targets (1) retailers and wholesalers of fresh grapes and (2) foodservice entities.

83. The Commission works with retailers and wholesalers to increase the quantity of California table grapes sold during a season, the square feet of display space that will be allocated to California table grapes, the number of varieties displayed, the effectiveness of the displays, and the number and effectiveness of table grape advertisements run by retailers.

84. Among other things, the Commission works to “educate and instruct the ... retail trade with respect to proper methods of handling and selling fresh grapes,” as contemplated by the California Legislature.

85. The portion of the Commission’s trade management program directed toward domestic retailers can be divided into the following subcategories: (a) category management; (b) promotional agreements; (c) tagged advertising, and (d) training.

86. Conducting category management research is one way the Commission seeks to encourage retail grocery stores to sell a greater volume of table grapes. Category management involves the development of a comprehensive strategy for expanding sales of a category of product, in this case California table grapes. Category management research — on which the Commission spent nearly a quarter of a million dollars in both 2004 and 2005 — allows the Commission to provide retailers information about the value of selling fresh California grapes and the tactics that research

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has indicated increase sales of fresh grapes.

a. To conduct some of this research, the Commission contracts with a company called The Perishables Group, one of the country’s top retail produce category management research firm.

b. The results of the Commission’s category management research are then conveyed to the top 75 retailers (which together constitute approximately 80% of the market) in the United States and Canada. Commission staff meet with representatives from retailers at least twice during the growing season. Additionally, every year retailers are provided the Commission’s marketing materials, which summarize the Commission’s category management findings.

c. The Commission also conducts consumer research. For this work, the Commission contracts with Fleishman-Hillard, a national public relations and advertising firm.

d. In addition to the general category and consumer research data provided to retailers, the Commission also shares with retailers data related to that retailer’s performance in the grape category. This information is provided to encourage retailers to increase grape ad activity.

87.Every year the Commission enters into promotional agreements with retailers and wholesalers.

a. Retailers that earn an award are required to spend the award through a third party. For example, retailers frequently use their promotion award funds to have the Commission book flights and hotel rooms for their employees attending the annual Produce Marketing Association (“PMA”) Fresh Summit Conference.

b. Under the promotion agreement, retailers also agree to share with the Commission information about their grape sales and advertising. This allows the Commission to evaluate effectiveness of the efforts overall and to ensure that the retailers have met all of their commitments.

88. The domestic marketing program offers retailers tagged advertising to encourage them to run more advertisements for grapes.

a. The three retailers with the highest volume of grape sales in a market are given the opportunity to have their store name featured in the billboard and radio ads- if it agrees to conduct a certain level of advertising (running more grape ads, increasing size of grape ads) for grapes in the upcoming year. Retailers also must use California logos showing the California origin of the grapes they sell.

b. The retailer’s logo, for example, might be placed on Commission billboard advertisements in the proximity of the retailer’s stores. Similarly, the names of retailers can be used in the Commission’s radio advertisements.

89. Because consumers prefer table grapes that are in good condition, the Commission also provides training or training materials to targeted retailers in the proper procedures for handling, storing, and displaying table grapes.

a. Each year the Commission makes available to retailers (via its website, on CDROMs, and in its Marketing Training Guide) materials providing information about grape displays, storage temperatures, backroom handling, and grape delivery.

b. Because there is constant turnover in produce departments, the Commission believes it must continually reach out to retailers.

c. In addition to providing training materials, the Commission also encourages retailers to put the Commission’s

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advice to use by creating attractive grape displays for entry in the Commission’s seasonal display contests. It is the Commission’s goal to encourage retailers to use the techniques learned during the display contests throughout the California grape season.

90.The Commission devotes significant efforts to encourage foodservice providers to increase the amount of fresh grapes they use.

a. Because people today eat out in restaurants more frequently than ever before, the Commission’s work targeting food service providers is thought to be important.

b. One way the Commission attempts to increase the volume of grapes used by foodservice providers is by working with menu developers. In order to encourage menu developers to use fresh grapes, the Commission has developed numerous recipes featuring fresh grapes that it sends to foodservice providers.

c. Commission representatives also meet with menu developers as frequently as possible. For example, in 2005, a Commission representative attended a leadership retreat for menu developers at the Culinary Institute of America in Napa.

d. In addition to developing and distributing recipes featuring grapes and contacting menu developers, the Commission contacts editors and writers for foodservice publications. For example, every year a Commission representative attends an international foodservice editors’ council in order to meet with editors and tell them about the many uses of grapes in recipes.

e. In aid of its efforts to increase the use of grapes by foodservice providers, the Commission has retained a registered dietician as a consultant. The registered dietician is able to answer nutrition questions from the foodservice industry as well as to help create information useful in foodservice education efforts.

f.The Commission uses the research it has funded on the health benefits of grapes in its efforts to expand their usage by foodservice providers.

91. In 2004-2005, the Commission’s domestic marketing program spent $ 1,445,-242 in assessment dollars on the following categories of activities: $1,066,748 trade management, $328,554 research, and $49,940 education and outreach.

92. Just four years ago, the Commission conducted little category management research, but now the Commission has developed a category management research program. In recognition of the Commission’s new category management research efforts, the Commission recently won the “Category Captain” award for random weight produce from Progressive Grocer magazine.

93. In 2004, the Commission had incentive agreements in place with the retailers whose stores sell approximately 81.2% of the table grapes sold in the United States and Canada. Each year the Commission provides rewards to retailers under these contracts totaling approximately $450,000 to $500,000.

94. Retailers participating in the Commission’s September 2005 display contest reported average increases of grape sales of 217% over normal sales for that time period. Research shows that just over 50% of the (1251) table grape purchasers surveyed decide to buy grapes once they are in the store and just over 60% of those who decide in the store to buy grapes do so because the grapes look good.

95. The Commission undertakes an extensive amount of consumer preference research.

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96. McDonald’s decided in May 2005 to start selling the new Fruit and Walnut Premium Salad, which features fresh grapes. The appearance of fresh grapes on the McDonald’s menu followed more than two years of work by the Commission with McDonald’s menu developers. McDonald’s indicated that it planned to buy 6.5 million pounds of fresh grapes in 2005, but McDonald’s has not made public the amount of California table grapes that actually were purchased that year.

97. A 1993 consumer survey indicated that 82% of responding primary grocery shoppers agreed that “grapes are a healthy, nutritious snack.” A 2005 consumer survey indicated that 99% of U.S. and Canadian shoppers surveyed believe fresh grapes are “extremely good/good for you.”

98. The primary activities of the Commission’s international marketing program can be broken down into three areas: (1) market access (which falls within the issue management category), (2) international trade management, and (3) international research.

a. The market access work undertaken involves efforts to increase access by California grapes to foreign export markets by opening markets, keeping them open, and reducing tariffs.

b. The international marketing program also includes market research on a range of subjects including consumer and trade attitudes, export protocols, and foreign production.

99. In 2004-2005, the Commission’s international marketing program spent a total of $4,666,522. Of that amount, $1,288,853 came from assessments and was spent on the following categories of activities: $121,176 for education and outreach, $170,114 for research, $238,847 for issue management, and $758,717 for trade management.

100. The market access work undertaken by the international marketing program is principally financed with assessment dollars.

101. The Commission received $2,958,649 in MAP funds for 2004; to date for the 2005 fiscal year the figure is $2,501,538, as not all MAP funding has been received.

102. In order to obtain these funds, the Commission must agree to match a certain percentage of the MAP funds with its own funds. For 2005, the Commission agreed to match 79% of the MAP funds with its own spending.

103. USDA data indicate that between 1995 and 2004 the volume of fresh grape exports has increased 63% and the value of those exports has increased 78%.

104. In addressing market access issues, the Commission works closely with USDA and the Office of the U.S. Trade Representative (“USTR”) in attempts to enhance the position of the table industry in negotiations between the United States and other governments. The Commission also retains a consultant, BryanfrChristie, Inc., that specializes in market access issues.

105. Market access work is divided into three primary areas: opening markets, keeping markets open, and providing broader access through the elimination of tariff and nontariff trade barriers.

106. First, the Commission works with USDA and USTR to attempt to open new markets to fresh California grapes. For example:

a. In order to open the Australia market to California grapes, the Commission expended significant efforts from 1990 to 2002 conducting research and working with the USDA and the USTR to negotiate a shipping protocol that called for grapes to be fumigated

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with methyl bromide. It also expends significant efforts helping to administer the shipping protocol put in place.

i. In order to facilitate compliance with the protocol and to fund operations under the protocol, the Commission created the California Table Grape Export Association. The Association works directly with shippers and Australian government officials to manage and coordinate inspections by the Australian officials of California table grapes being shipped to Australia.

ii. Each year, the Australian government also requires a list of all those entities that will be shipping to the Australian market, including their designated contact person, and their fumigation facility locations and operators. The Commission compiles this list for the USDA so that it can provide the information to its Australian counterparts.

b.The Commission also worked with USDA and the USTR to re-open the New Zealand market when its government closed the market to fresh California table grapes in 2001 because of fears that black widow spiders would enter New Zealand and threaten its consumers.

i. To help to resolve the problem, the Commission briefed California shippers exporting to New Zealand on how to improve their handling and shipping of table grapes to eliminate the presence of black widow spiders. The improvements in handling and shipping resulted from Commission sponsored studies of table grape box types and the use of carbon dioxide (“C02”) and sulfur dioxide (“S02”) to kill any black widow spiders that made their way into a shipment. Ultimately, the Commission, USDA, and the USTR were able to convince the New Zealand government that a shipment protocol involving appropriate box types and treatment was adequate protection.

ii. The Commission worked with county agricultural inspectors in California and USDA to develop the protocol and assure the New Zealand government that it was being used uniformly. Through this effort, the New Zealand market was re-opened before the end of the 2002 California marketing period.

c. The Commission also worked closely with USDA Animal and Plant Health Inspection Service to convince the New Zealand government that cold treatment was unnecessary to prevent the introduction of glassy winged sharpshooters in California grape shipments. New Zealand repealed its cold storage requirement in 2005.

d. The Commission also worked with USDA and the USTR to open the India market to California table grapes in 2001. India had long been closed to imports or had extremely high tariffs or complex import permit requirements that sharply limited volumes. The Commission began working with USDA, the Indian government, and the Indian table grape industry approximately four years in advance of the opening of the market. A Commission representative was sent to India twice to pave the way for opening the market. When India started to liberalize its market to world trade in April 2001, the Commission immediately worked with the U.S. and Indian governments to help gain access and California table grape shipments were sent to India in that first season following the liberalization.

e. The Commission also helped to open the China market to lawful imports of California table grapes in 1997 following years of negotiation between the

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U.S. and Chinese governments. The U.S. government worked to open the market at the urging of, and in conjunction with, the Commission. The Commission’s role in opening the market was two-fold: keeping the U.S. government focused on getting the market open; and participating with the U.S. government in the development of a work plan that outlined the rules under which the fruit could be shipped between the two countries.

i. The agreement was negotiated between and signed by the governments of China and the United States, but like most market access issues in which the Commission is involved, the Commission played an important role in the negotiations. The Commission had a representative from Bryant Christie in attendance at most of the negotiation sessions, including the final session.

ii. To this day, China continues to require a list of approved shippers, and the Commission continues to be responsible for developing that list and maintaining it. It is submitted annually to USDA which in turn submits it to the Chinese government. The Mediterranean fruit fly trapping continues to be required, although in recent years the cost has been borne by the counties.

f. The Commission is also working to facilitate expanded shipments into China by California grower/shippers.

i. As noted above, China requires that all shippers of California grapes into China be registered. The list of registered shippers is given to Chinese customs officials at all of the ports of entry. Any grapes from a shipper not on the list are turned away. At the request of China and the USDA, the Commission compiles and maintains the list. The list is compiled after soliciting California grower/shippers to sign up. After the list is compiled, it is given to USDA, which then gives the list to the Chinese authorities.

ii. In addition to working under the China protocol, the Commission is working to modify the protocol to permit inspections to be made in the U.S. at the port of exit. Under the current system, Chinese customs officials from time to time turn away shipments of fruit from registered shippers based on minor errors in the list or other mistakes.

iii. Additionally, the Commission is working with the USDA and the USTR to eliminate the Mediterranean fruit fly trapping program required by China and to open a new port in China to shipments of California table grapes.

107. Second, the Commission works with USDA, the USTR, foreign governments, and other interested parties to attempt to keep foreign markets open to California grapes by responding to incidents that arise that need a prompt resolution.

a. When exported California grapes are turned away by foreign customs officials or other critical export problems arise, the Commission responds by coordinating the efforts of the U.S. government, U.S. embassy officials, foreign industry, and foreign governments to attempt to resolve the problem.

b. Various impediments to exports periodically arise requiring the Commission to work with others to attempt to avert two types of potential losses: immediate loss to the shippers whose fruit is sitting on a dock or at a border crossing awaiting approval to move, and loss to the industry as a whole from the closing of a market mid-season.

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c. For example, a black widow spider was found in the United Kingdom in 2002 and threatened to close that market to California grapes. In 2004-2005, an European Union sulphur dioxide requirement almost closed the member countries’ markets to California grapes. Mexico and Panama briefly closed in 1999 due to misidentified pests. California grape shipments that had already arrived in Australia were held up in 2003 due to missing box stamps. Venezuelan shipments were disrupted due to the Venezuelan government reducing the number of, and volumes within, import permits they issue that allow fruit into that market. Concern about Mediterranean fruit flies in Taiwan almost closed that market to California grapes. The Commission responded to each of these incidents by working with the relevant governmental and private parties to keep the markets open.

108. Third, the Commission works with the USDA and the USTR to attempt to lower tariff and non-tariff barriers that impede the flow of California table grapes to foreign countries.

a. The Commission tracks international standards for grapes — including packaging standards, maturity/quality standards, and especially pesticide maximum residue levels (“MRLs”) — and works with USDA, the USTR, foreign governments, and international bodies to ensure that these standards are reasonable and based on an informed judgment about the costs and benefits of setting standards at various levels.

i.The Commission works with the Codex Alimentarius Commission (which was created in 1963 by the United Nations Food and Agriculture Organization and the World Health Organization) in its efforts to set international standards for grapes.

ii.The Commission works with USDA, the USTR, and other countries that import grapes to attempt to implement workable MRL standards in countries that import grapes and to develop reasonable packaging and labeling standards.

b. The Commission expends significant efforts working with USDA and the USTR to attempt to lower tariffs imposed by foreign countries.

i. The Commission has worked with the Bryanb-Christie firm to attempt to lower tariffs on California grapes since 2004.

ii. The Commission has conducted a review of the tariffs applicable to California table grapes in numerous foreign countries and has outlined not only the tariffs that California grower/shippers must pay but also the tariffs that their competitors must pay.

iii. For the California table grape industry, the effort to reduce tariffs involves meeting with the USTR, the federal government agency responsible for the United States’ participation in the WTO negotiations, and urging the agency to attempt to secure the lowest possible tariffs for California grapes. The issue of lowering tariffs comes up frequently, both in the context of the WTO negotiations and regional negotiations, such as the Central America Free Trade Agreement. In these negotiations, it is important to keep the importance of lower tariffs for California table grapes in the negotiators’ minds, and provide data in support of these requests. This can make the difference between having a reduced tariff take effect immediately versus having a high tariff maintained or phased out over an extended period, such as 12 years.

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iv. By working to keep the issue of tariffs before the USTR, the Commission has helped to obtain tariff reductions for California table grapes in markets such as the Central America Free Trade Agreement countries and the Dominican Republic.

109. The Commission’s international trade management activities, which are funded principally with MAP funds, target the trade: retailers, importers, and wholesalers. The goal of the program is to encourage retailers, importers, and wholesalers to buy more California grapes more often and during more of the California season (May-January).

110. The core of the Commission’s international trade management effort is the work of its 15 overseas representatives who work directly with overseas retailers, importers, and wholesalers. They provide grape storage, handling, and display information to retail stores.

111. The representatives also monitor local markets in their countries or regions and provide information that is conveyed in “Global Market Reports” that are sent twice a month during the California season to California table grape grower/shippers to help them, if they are interested, understand the dynamics at work in foreign markets.

112. A portion of the Commission’s international trade management consists of “joint promotions” with retailers. These joint promotions include activities such as in-store demonstrations where the Commission employs people to provide information and grape tastings to consumers, competitions for consumers to enter at the point of sale of table grapes, cooking demonstrations at the point of sale, special displays including secondary display locations and center aisle locations, point of sale posters, banners and the like.

113. The Commission also provides financial awards to retailers for certain grape promotional activities, like offering samples or otherwise featuring California grapes.

114. In support of its market access and international trade management efforts, the Commission conducts research on various international topics.

a. A portion of that research work consists of foreign production studies designed to provide California grower/shippers, if they are interested, with specific information about competitive countries. The Commission has recently conducted production studies of a number of countries, including China, Peru, and Spain. The studies examine grape production in foreign countries, and in China’s case also the development of the infrastructure for the postharvest management and transportation of fresh grapes.

b. The Commission has also funded two transshipment studies. One tracked grapes that were exported to Malaysia but then transported across the border into Thailand. The other tracked grapes that traveled from China to Vietnam across their shared land border.

115. Exports of California table grapes have increased over the past decade.

a. According to USDA data, total exports of California table grapes to offshore markets and Mexico increased from 122,451 metric tons in 1995 to 201,-653 metric tons in 2004. The total volume of California table grapes exported over the past five years is higher than the previous five years.

b. Over the past five years (2000 versus 2004), exports to some of the industry’s largest exports markets have increased. For instance, exports to Malaysia have increased 98% (4-11,510 metric tons), exports to the United Kingdom have increased 30% (4-3,396 metric tons), and exports to Indonesia

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have increased 152% (+6,694 metric tons).

116. Studies indicate that 94% of consumers surveyed in select markets in certain Central American countries are aware of U.S./California grapes, 78% of consumers surveyed in select markets in China are aware of U.S./California grapes, 97% of consumers surveyed in select markets in Hong Kong are aware of U.S./California grapes, 57% of consumers surveyed in select markets in Japan are aware of U.S./California grapes, 85% of consumers surveyed in select markets in Indonesia are aware of U.S./California grapes, 65% of consumers surveyed in select markets in Malaysia are aware of U.S./California grapes, 87% of consumers surveyed in select markets in the Philippines are aware of U.S./California grapes, 65% of consumers surveyed in select markets in Singapore are aware of U.S./California grapes, and 95% of consumers surveyed in select markets in Taiwan are aware of U.S./California grapes. Research has also shown that awareness of U.S./California as an origin for grapes in most export markets significantly increases the likelihood of trial by the consumer.

117. To receive MAP and EMP funds, a party must provide a certain level of matching funds, which the Commission is able to do.

118. The Commission has been able to increase the amount of federal funds it receives while the its contribution has remained fairly stable. While federal funds allocated to the Commission increased 69% in the five years between 2000 and 2004, the Commission’s contributions have increased only 20%.

119. The Commission has had success working with USDA and the USTR to open new markets to California table grapes. For example, since 1997, the Commission has been actively involved in efforts with USDA and the USTR to open China, India, and Australia. It also worked with USDA and the USTR to reopen the New Zealand market.

120.The Commission works with USDA, the USTR, foreign governments, and interested parties to keep existing markets open to California grapes.

a. For example, the Commission’s work with the U.K. government and U.K. retailers helped to keep the United Kingdom market open when U.K. retailers indicated they intended to stop importing California grapes in 2002 following the discovery of a black widow spider in a shipment of California table grapes.

i. The U.K. is one of the California table grape industry’s largest export markets.

ii. The black widow discovery was noted in the press in London, and retailers indicated that they intended to stop buying California grapes. A few retailers continued to sell the product they had on their shelves and a few accepted loads of fruit that were already on the water but most did not. More important, major retailers indicated that California grapes would not be imported in the 2003 season.

iii. In response to the incident, the Commission President traveled to the U.K. in early January of 2003 to meet with retailers and importers. To address retailers concerns, the Commission put together a voluntary protocol for shipping to the U.K. that is designed to eliminate black widow spiders.

iv. The shipping protocol, which remains in existence, requires shippers to register with the Commission in order to ship to the U.K. and agree to take certain steps pre-harvest to eliminate black widow spiders in the field and to submit to post-harvest

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fumigations and inspections. Shippers agree to have their names provided to buyers in the U.K. so that buyers know which shippers have agreed to abide by the shipping protocol.

v. As a result of the protocol, shipments to the United Kingdom resumed in 2003 and have been uninterrupted. The U.K. remains one of the industry’s top markets. There have been no more reported spider finds.

b. In 2004, when different Member State interpretations of a European Union directive 95/2/EC were creating uncertainty about the tolerance level for sulfur dioxide on table grapes, the Commission, Bryant Christie, the USDA, and Freshfel (a European fresh produce importers association) entered into consultations with the European Commission to clarify the issue and press for a definitive S02 tolerance of 10 ppm on fresh grapes. This has led to a process currently underway to amend the E.U. legislation to clearly establish a 10 ppm S02 tolerance on fresh grapes. Approval of the amendment is expected by spring 2006.

c. In late 2004, the Thai government suddenly released a Ministerial announcement effectively banning three chemicals by setting a zero tolerance on them, thereby preventing the importation of California table grapes. The Commission worked with various departments of the U.S. government, including the U.S. Department of Agriculture Animal and Plant Health Inspection Service, the Foreign Agricultural Service, and the U.S. Embassy in Bangkok, Thailand to have the announcement reversed. The Thai government postponed the start date for implementation of this requirement, and the requirement has not yet been implemented.

d. The Commission tracks packaging, shipping, residue levels, and phytosanitary requirements imposed by countries that import California table grapes. It summarizes this data (along with marketing information) by country in a database that is accessible only to California table grape grower/shippers on a password-protected portion of the Commission’s web site, www.freshcalifornia grapes.com/en-US/Growers/ InternationalTrade.htm>. This information is not available anywhere else.

121. The Commission’s consumer education program is intended to provide consumers with information about the health and nutrition benefits of fresh California grapes and with information about the industry, with the goal of keeping California table grapes “top-of-mind” for consumers and educating them about grapes and California’s fresh grape industry.

122. For example, the Commission sends recipe ideas, photography, and fresh California grape health information to newspaper food editors.

123. The Commission also regularly contacts writers and editors of consumer magazines to learn what would prompt them to write stories about fresh grapes and then responds by providing them with the latest research on grape phytonutrient, photography, recipe ideas, and news about the industry.

a. For a current example, as a result of the Commission’s outreach efforts, the October 2005 issue of the culinary magazine Gourmet contained a two-page story on grapes and the October 2005 issue of the culinary magazine Bon Apatite contained a four page article about cooking with table grapes and published a number of recipes using grapes.

124. In 2004, the Commission contacted television stations and cable broadcast networks and made available to them a spokesperson (Food Network host, celebrity chef, and award-winning cookbook au

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thor Kathleen Daelemans) hired by the Commission to explain how fresh California grapes can be an important part of a healthy diet. In response, 47 television stations decided to air footage of Ms. Daelemans talking about grapes. She also appeared by tape on the Health and Home Report, a syndicated television show that airs on cable broadcast networks.

125. The Commission produces educational brochures and publications that detail the history of the industry, the health benefits of eating fresh grapes, and usage ideas such as freezing grapes for a cool summertime treat or adding them to salads for a pleasing hint of sweetness, color, and a crisp texture. This information is also included on the commission’s website at www.freshCaliforniagrapes.com.

126. The Commission sends materials to members of the American Dietetic Association and meets with dietitians, nutritionists, and family physicians, answering their questions about the health benefits of fresh California grapes and providing them with the information and resources the Commission thinks they need to confidently recommend to their clients, consumers, or patients that fresh California grapes should be a part of their diet.

a. In 2005, the Commission went to the annual convention of the American Academy of Family Physicians and spoke with the doctors in attendance about the health benefits of fresh California grapes. The Commission interviewed the doctors about healthy eating, and those interviews were then used in a video and an audio news release for television and radio stations about healthy eating and the benefits of fresh California grapes as part of a healthy diet.

127. Each year the Commission sends out news releases announcing the start of the California table grape season and conducts outreach on television

(e.g.,

sending grapes to television newscasters and conducting live interviews) to tell people that they are now able to purchase California grapes.

128. In 2004-2005, the Commission’s consumer education program spent $694,229 in assessment dollars on the following categories of activities: $56,084 on research and $638,145 on education and outreach.

129. The Commission provides information about California table grapes to newspapers to encourage them to run stories about California grapes. The firm that tracks news coverage for the Commission .(Burrelle’s Information Services) found that in 2004 a significant number of stories about fresh grapes and the California industry were based on this information.

130. The Commission also provides information about California grapes to magazine writers and editors. The consumer research and public relations firm Fleishman-Hillard found that in 2004, more than 90 articles based on this information appeared in major consumer magazines like Better Homes and Gardens, Bon Appetit, Family Circle, Good Housekeeping, Martha Stewart Living, and Woman’s Day.

131. In addition to the Commission activities that fall generally within one of the five principal Commission programs, a number of Commission issue management activities fall outside of the established programs. One such activity is the Commission’s phytonutrient research program. Another is its work with foundations that work to educate consumers about the value of a good diet.

132. The Commission’s phytonutrient research program funds research into the potential health benefits of table grapes.

133. In 1997, a researcher from the University of Illinois, Chicago, published a

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study that found that a substance called resveratrol fought cancer at three different stages of its growth. The predominant dietary source of resveratrol is grapes.

134. The Commission, after speaking with the researcher, Dr. John Pezzuto, held a symposium on grape phytonutrient among researchers exploring the human health potential of grape compounds and then created a scientific advisory panel, chaired by Dr. Pezzuto, to advance the science Unking fresh grapes with the prevention of disease and improved human health.

a.The panel consists of Dr. Pezzuto, currently Dean of the College of Pharmacy, Nursing and Health Sciences at Purdue University, Dr. Richard Moon with the University of Illinois, Chicago, Dr. Le Creasy of Cornell University, Dr. Richard Van Breemen with the University of Illinois, Chicago, Dr. Myron Gross with the University of Minnesota, and one member of the Commission board, Fred Smeds.

135. One of the foundations of the Commission’s research is a standardized preparation of fresh California grapes used for the research, which the Commission developed.

a. The grapes are collected from throughout California’s growing region during the growing season which runs from May through December. The grapes are frozen, blended, and freeze-dried in a proprietary process that ensures that the compound contains all of the biologically active compounds found in fresh California grapes.

136. Since 1998, the Commission has funded or supported 29 research studies.

137. As research studies are completed and published and new information about the impact of grape consumption on human health is generated, this information is disseminated to the media and others, such as dieticians, nutritionists, and family physicians.

138. In 2004-2005, the Commission spent approximately $270,000 on its phytonutrient research efforts.

139. The Commission has been and continues to be involved in the efforts to address obesity and improve the health of consumers by working with various foundations that educate consumers about the value of a good diet.

a. The Commission assisted in the creation of and works with the California and national 5-A-Day programs, in conjunction with the California Department of Health Services, the National Cancer Institute, and the Center for Disease Control. These efforts encourage all Americans to eat five or more servings of fruits and vegetables each day in order to prevent obesity and other disease. The Commission was a founding partner of both organizations and remains actively involved.

b. The Commission’s Vice President serves on a committee of the Produce for Better Health Foundation (“PBH”) and sits on the board of Spoons Across America, two organizations that are actively involved in improving the quality of Americans’ diet. PBH educates consumers about the importance of eating more fruits and vegetables, and Spoons Across American teaches children about good nutrition and provides them with the basic cooking skills they need to have control over their own diet.

c. The Commission’s Vice President of Domestic Marketing serves on the PBH board and Marketing Committee and as the co-chair of the Joint Steering Committee for the California Nutrition Network and California 5 A Day program.

140. The Commission’s efforts to develop a standardized freeze-dried mixture of

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California grapes that can be used in research projects have helped improve research on the health benefits of grapes.

141. Researchers funded by the Commission have found links between the compounds in fresh California grapes and fighting or preventing diseases such as cancer, heart disease, and degenerative nerve damage.

142. The Commission’s health research program and the work of its Scientific Advisory Panel has been helpful in generating research and awareness of the health potential for fresh grapes and fresh grape compounds in the scientific community. For example, there are researchers exploring potential links between grapes and prevention of certain viruses as well as prevention of Alzheimer’s disease.

143. Consumer research by the Commission has shown that the existence of a health claim that eating grapes is beneficial to one’s health would motivate some primary grocery shoppers to purchase and consume more fresh California grapes more often.

144. Research by the Commission has shown that awareness of the health benefits of fresh California grapes can be a motivating purchase factor for a majority of primary grocery shoppers even without the health claim.

145. The Commission’s support of the California and national 5 A Day programs and the Produce for Better Health Foundation, in conjunction with the efforts of other groups, has been important in those programs in encouraging Californians and Americans to eat more fruits and vegetables and thereby improve their health.

146. If an individual promotion program would be profitable without a generic promotion program, it would also be profitable with a generic promotion program.

147. The process of obtaining the federal funds used by the Commission is complex and cumbersome, but the Commission is willing and able to dedicate the resources necessary to obtain the funding.

148. The Commission is able to provide the matching funds required to obtain federal export grant money.

149. Individual grape grower/shippers do not have the incentive to conduct the consumer education activities undertaken by the Commission.

150. The Plaintiffs conduct no significant direct advertising to consumers.

a. When Plaintiffs Susan Neill Company and Lucas Brothers Partnership grew and shipped California table grapes, they advertised only in trade publications, and that advertising (which was for Lucas Brothers grapes) was relatively limited.

b. Virtually all of Plaintiff Delano Farms’ advertising is in trade publications.

151. The Susan Neill Company and Lucas Brothers Partnership no longer grow or ship California table grapes and therefore no longer pay assessments to the Commission.

152. Susan Neill Company has never itself borne the cost of the assessments paid on grapes it has shipped. Susan Neill Company has always passed the cost of the assessment on to Lucas Brothers Partnership.

153. The Commission was created by the California Legislature, and the Legislature has defined its duties.

154. The CDFA oversees and conducts voting on five-year and special termination referenda under the Ketchum Act.

155. The CDFA oversees the nomination and selection of producers eligible to be appointed to the Commission board by the Secretary.

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156. All of the Commissioners of the Commission are appointed and subject to removal by the Secretary.

a. Growers hold nominating meetings followed by elections to determine who they will recommend to the Secretary for appointment.

b. The Secretary then determines who to appoint to the Commission and appoints that person.

c. Prior to appointment, the CDFA inquires into whether potential commissioners are suitable for appointment.

d. The Secretary is authorized to remove a commissioner if necessary.

157. The Commission, like other mandated commodity organizations overseen by the CDFA, pays its share of the common expenses incurred by the marketing branch of the CDFA.

158. California table grape growers have filed grievances with the Commission, as permitted under the Ketchum Act, on at least four occasions in the past.

159. When a grievance is filed, the grower is given an opportunity to present his position to the Commission and then the Commission renders a decision, which can be appealed to the CDFA.

160. In 2004, a grower appealed the Commission’s denial of his request for disclosure of the salary of the Commission President under the Public Records Act. After receiving the appeal, the Secretary asked the Commission to submit the video tape of the hearing at which the grievance was presented and to explain the rationale behind its decision. After considering the Commission’s submission, the Secretary rendered a decision reversing the Commission’s determination and ordered disclosure of the salary. The Secretary held that the Commission “is a government entity within the meaning of the Public Records Act.” The Commission then disclosed the requested information as ordered.

161. The CDFA has indicated that if a person complained to the CDFA about a Commission advertisement, the CDFA would review the matter internally and could act to block the ad or advise that it be changed.

162. Each month the Commission receives the CDFA’s Marketing Memo, which contains information and instructions for marketing orders, agreements, councils, and commissions.

163. The CDFA has provided guidance to the Commission regarding the level of reserves it maintains.

164. The CDFA can, if it wants, request that the Commission provide it with information, including notices of meetings, meeting minutes, contracts, and copies of advertisements.

165. The Commission responds to any requests for information from CDFA marketing branch staff.

166. The CDFA conducts audits of grape shippers on behalf of the Commission.

167. The Commission complies with certain legal requirements imposed on some state agencies.

a. All of the Commission’s meetings are conducted in accordance with the Bagley — Keene Open Meeting Act, as directed by the CDFA. Accordingly, the Commission gives notice of all of its meetings and its meetings are generally open to the public.

b. The Commission is required to comply with the Public Records Act.

c. The Commission is required to and does submit a Statement of Facts Roster of Public Agencies Filing to the California Department of State every year.

d. The Commission’s Commissioners are required each year to submit disclo

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sure statements to the Fair Political Practices Commission every year.

168. Commission employees are eligible to participate in the state’s Savings Plus Program, a retirement saving program for state employees, but are not required to.

169. The CDFA provides Commission employees with a template for creating identification cards that allow them to take advantage of special rates for state employees, but said employees are not required to do so.

170. Commission employees may, and are encouraged by the CDFA to, use State of California employee travel discounts.

E.

STANDING OF THE SUSAN NEILL COMPANY AND LUCAS BROTHERS PARTNERSHIP.

A footnote to the Commission’s opening memorandum supporting its motion for summary judgment argues that Plaintiffs The Susan Neill Company and Lucas Brothers Partnership lack standing to seek any prospective relief because they stipulated that these plaintiffs “no longer grow or ship California table grapes and therefore no longer pay assessments to the Commission.”

Plaintiffs respond that this stipulated fact is “irrelevant to the extent that these two Plaintiffs are seeking refunds of past paid assessments.” This is a concession that The Susan Neill Company and Lucas Brothers Partnership no longer have standing to obtain prospective relief.

The Commission also cites to the stipulated fact that the “Susan Neill Company has never itself borne the cost of the assessments paid on grapes it has shipped [and that] Susan Neill Company has always passed the cost of the assessment on to Lucas Brothers Partnership”. Plaintiffs respond by an objection on the ground of relevance. In a footnote to their opposition brief to the Commission’s motion for summary judgment, Plaintiffs object to the contention that the Susan Neill Company has no standing: “First of all Susan Neill is married to George Lucas, general partner of Lucas Bros, partnership. Secondly, the Susan Neill Company does have standing since the [Act] does require the shipper (Susan Neill) to actually pay the assessments to the Commission, regardless of whether she passes that on to Lucas Bros.”

As the Commission correctly responds, Plaintiffs’ contentions do not establish standing for The Susan Neill Company:

Whether Ms. Neill is married to Mr. Lucas ... says nothing about whether The Susan Neill Company can recover assessments for which it was reimbursed and seek declaratory and injunctive relief with respect to a law that no longer affects it. Moreover, because The Susan Neill Company seeks only a refund of past assessments, not recovery of any administrative costs it might have incurred in paying assessments on behalf of Lucas Bros. Partnership ..., that fact that it ‘actually pa[id] the assessments’ before getting reimbursed is irrelevant.

The Commission’s motion for partial summary judgment on the grounds that The Susan Neill Company lacks standing to obtain relief as that entity never paid assessments and that the Lucas Brothers Partnership lacks standing to obtain prospective as opposed to past relief is GRANTED and Plaintiffs’ motion for summary judgment on this issue is DENIED.

F.

GOVERNMENT SPEECH.

The parties respectively move for summary judgment that the Commission’s program is or is not “government speech,” subject or not subject to First Amendment protections.

Relying on the Supreme Court’s opinion in

Johanns v. Livestock Marketing Ass’n.,

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544 U.S. 550 , 125 S.Ct. 2055 , 161 L.Ed.2d 896 (2005), Plaintiffs argue that the Act’s provisions and the California Department of Food and Agriculture’s involvement “in the Commission’s speech, let alone [the Commission’s] activities, [are] not even arguably in the same ball park compared to the control over the make-up and communications of the Beef Board.” Plaintiffs argue the Commission’s program is not “government speech” as that term is defined in

Johanns

and summary adjudication in their favor on this issue is appropriate.

The Commission rejoins that the Commission’s speech is “government speech” for three reasons: “(1) the messages Plaintiffs challenge were mandated by the California Legislature; (2) the Commission itself is a governmental entity; and (3) the CDFA retains effective control over the Commission’s speech because it appoints and can remove Commission board members and is empowered to reverse any improper actions taken by the Commission.”

1.

Johanns v. Livestock Marketing Ass’n.

In

Johanns v. Livestock Marketing Ass’n.,

the Supreme Court addressed “whether the generic advertising at issue is the Government’s own speech and therefore is exempt from First Amendment scrutiny.” 544 U.S. at 553 , 125 S.Ct. 2055 . The Beef Promotion and Research Act of 1985, 7 U.S.C. § 2901 (b), announces a federal policy of promoting the marketing and consumption of “beef and beef products.” The statute directs the Secretary of Agriculture to implement this policy by issuing a Beef Promotion and Research Order (Beef Order or Order) and specifies four key terms the Beef Order must contain: (1) The Secretary is to appoint a Cattlemen’s Beef Promotion and Research Board (Beef Board or Board), whose members are to be a geographically representative group of beef producers and importers, nominated by trade associations; (2) the Beef Board is to convene an Operating Committee, composed of 10 Beef Board members and 10 representatives named by a federation of state beef councils; (3) the Secretary is to impose a $l-per-head assessment or checkoff on all sales or importation of cattle and a comparable assessment on imported beef products; and (4) the assessment is to be used to fund beef-related projects, including promotional campaigns, designed by the Operating Committee and approved by the Secretary.

The Secretary promulgated the Beef Order with the specified terms. The assessment is collected primarily by state beef councils, which then forward the proceeds to the Beef Board. The Operating Committee proposes projects to be funded by the checkoff, including promotion and research. The Secretary or his designee approves each project and, in the case of promotional materials, the content of each communication. Respondents sued the Secretary in federal court, arguing based on

United Foods

that the advertising promotes beef as a generic commodity which impedes their efforts to promote the superiority of American beef, grain-feed beef, or certified Angus or Hereford beef.

Id.

at 554-555 , 125 S.Ct. 2055 . After a bench trial, the district court ruled for respondents, declaring that the Beef Act and Beef Order unconstitutionally compel respondents to subsidize speech to which they object, and rejected the Government’s contention that the checkoff survives First Amendment scrutiny because it funds only government speech.

Id.,

at 556 , 125 S.Ct. 2055 .

The Eighth Circuit affirmed the district court, although the Eighth Circuit did not find that the challenged advertising was government speech. Instead, the Eighth Circuit found that government speech is

*892

relevant only to First Amendment challenges to the speech’s content, not to challenges to compelled funding for the speech, and that compelled funding of speech may violate the First Amendment even if the speech in question is the government’s.

Id.,

at 556-557 , 125 S.Ct. 2055 .

The Supreme Court noted that it had sustained First Amendment challenges to compelled expression in two categories of cases: “true ‘compelled speech’ cases in which an individual is obliged personally to express a message he disagrees with, imposed by the government; and ‘compelled subsidy’ cases, in which an individual is required by the government to subsidize a message he disagrees with, expressed by a private entity.”

Id.,

at 557 , 125 S.Ct. 2055 . The Supreme Court recognized that it had not previously considered “the First Amendment consequences of government-compelled subsidy of the government’s own speech.”

Id.

Respondents there argued that the challenged promotional campaigns “differ dispositively from the type of government speech that, our cases suggest, is not susceptible to First Amendment challenge” by pointing to “the role of the Beef Board and its Operating Committee in designing the promotional campaigns, and to the use of a mandatory assessment on beef producers to fund the advertising.”

Id.,

at 560 , 125 S.Ct. 2055 .

As to the identity of the speaker, respondents argued that “speech whose content is effectively controlled by a nongovernmental entity — the Operating Committee — cannot be considered government speech.” The Supreme Court ruled: “We need not address this contention, because we reject its premise. The message of the promotional campaigns is effectively controlled by the Federal Government itself.”

Id.

From this conclusion, the Supreme Court reasoned:

We therefore need not label the Operating Committee as ‘governmental’ or ‘nongovernmental.’ The entity to which assessments are remitted is the Beef Board, all of whose members are appointed by the Secretary pursuant to law. The Operating Committee’s only relevant involvement is ancillary- — it designs the promotional campaigns, which the Secretary supervises and approves— and its status as a state actor is not directly at issue.

Id.,

at 560 n. 4, 125 S.Ct. 2055 . In explaining this conclusion, the Supreme Court stated:

The message set out in the beef promotions is from beginning to end the message established by the Federal Government. Congress has directed the implementation of a ‘coordinated program’ of promotion, ‘including paid advertising, to advance the image and desirability of beef and beef products.’ 7 U.S.C. §§ 2901 (b), 2902(13). Congress and the Secretary have also specified, in general terms, what the promotional campaigns shall contain, see,

e.g.,

§ 2904(4)(B) (i) (campaigns ‘shall ... take into account’ different types of beef products), and what they shall not, see,

e.g.,

7 CFR § 1260.169 (d) (2004) (campaigns shall not, without prior approval, refer ‘to a brand or trade name of any beef product’). Thus, Congress and the Secretary have set out the overarching message and some of the elements, and they have left the development of the remaining details to an entity whose members are answerable to the Secretary (and in some cases appointed by him as well).

Moreover, the record demonstrates that the Secretary exercises final approval authority over every word used in every promotional campaign. All proposed promotional messages are reviewed by Department officials both for substance and for wording, and some proposals are

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rejected or rewritten by the Department ... Nor is the Secretary’s role limited to final approval or rejection; officials of the Department also attend and participate in the open meetings at which proposals are developed ....

This degree of governmental control over the message funded by the checkoff distinguishes these cases from

Keller.

There the state bar’s communicative activities to which the plaintiffs objected were not prescribed by law in their general outline and not developed under official government supervision. Indeed, many of them consisted of lobbying the state legislature on various issues ... When, as here, the government sets the overall message to be communicated and approves every word that is disseminated, it is not precluded from relying on the government speech doctrine merely because it solicits assistance from nongovernmental sources in developing specific messages.

Id.,

at 560-562 , 125 S.Ct. 2055 .

The Supreme Court rejected the argument that the beef program does not qualify as “government speech” because it is funded by a targeted assessment on beef producers, rather than by general revenues, thereby giving control to a narrow interest group that will not heed respondents’ objections, as opposed to politically accountable legislators:

... The compelled-subsidy analysis is altogether unaffected by whether the funds for the promotions are raised by general taxes or through a targeted assessment. Citizens may challenge compelled support of private speech, but have no First Amendment right not to fund government speech. And that is no less true when the funding is achieved through targeted assessments devoted exclusively to the program to which the assessed citizens object .... Some of our cases have justified compelled funding of government speech by pointing out that government speech is subject to democratic accountability ... But our references to ‘traditional political controls’ ... do not signify that the First Amendment duplicates the Appropriations Clause ... or that every instance of government speech must be funded by a line item in an appropriations bill. Here, the beef advertisements are subject to political safeguards more than adequate to set them apart from private messages. The program is authorized and the basic message prescribed by federal statute, and specific requirements for the promotions’ content are imposed by federal regulations promulgated after notice and comment. The Secretary of Agriculture, a politically accountable official, oversees the program, appoints and dismisses the key personnel, and retains absolute veto power over the advertisements’ content, right down to the wording. And Congress, of course, retains oversight authority, not to mention the ability to reform the program at any time. No more is required.

Id.,

at 562-564 , 125 S.Ct. 2055 .

Finally, the Supreme Court refused to rule on the contention that crediting the advertising to “American Beef Producers” impermissibly uses not only their money but also their seeming endorsement to promote a message with which they do not agree. Respondents had argued to the Supreme Court that “[cjommunications cannot be ‘government speech’ ... if they are attributed to someone other than the government; and the person to whom they are attributed, when he is, by compulsory funding, made the unwilling instrument of communication, may raise a First Amendment objection.”

Id.,

at 564 , 125 S.Ct. 2055 . The Supreme Court stated:

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We need not determine the validity of this argument — which relates to compelled

speech

rather than compelled

subsidy

— with regard to respondents’ facial challenge. Since neither the Beef Act nor the Beef Order requires attribution, neither can be the cause of any possible First Amendment harm. The District Court’s order enjoining enforcement of the Act and the Order thus cannot be sustained on this theory.

On some set of facts, this second theory might (again, we express no view on the point) form the basis for an as-applied challenge — if it were established, that is, that individual beef advertisements were attributed to respondents. The record, however, includes only a stipulated sampling of these promotional materials ... and none of the exemplars provides any support for this attribution theory except for the tagline identifying the funding. Respondents apparently presented no other evidence of attribution at trial and the District Court made no factual findings on the point.... Whether the

individual

respondents who are beef producers would be associated with speech labeled as coming from “America’s Beef Producers” is a question on which the trial record is altogether silent. We have only the funding tagline itself, a trademarked term that, standing alone, is not sufficiently specific to convince a reasonable factfinder that any particular beef producer, or all beef producers, would be tarred with the content of each trademarked ad.

Id.,

at 564-566 , 125 S.Ct. 2055 .

2

2.

Paramount Land Co., LP v. Cal. Pistachio Com’n.

Since these motions for summary judgment were argued and submitted, the Ninth Circuit decided

Paramount Land Co., LP v. Cal. Pistachio Com’n,

491 F.3d 1003 (9th Cir.2007).

In

Paramount,

a group of pistachio growers (collectively referred to as Paramount) challenged the marketing and promotional activities of the California Pistachio Commission under the First Amendment and on various state law grounds. Paramount moved the District Court for a preliminary injunction. The District Court granted the preliminary injunction on the ground that it was unlikely that the California state government exercised effective control over the Pistachio Commission for its expressive activity to qualify as “government speech” under

Johanns’

and that, under

Glickman v. Wileman Brothers & Elliott, Inc.,

521 U.S. 457, 469-70 , 117 S.Ct. 2130 , 138 L.Ed.2d 585 (1997) and

United States v. United Foods, Inc.,

533 U.S. 405, 415 , 121 S.Ct. 2334 , 150 L.Ed.2d 438 (2001), the assessments funded by the Pistachio Commission probably were not part of a larger economic regulatory scheme so as to make them constitutionally permissible under

Glickman.

491 F.3d at 1008 . On appeal, the Ninth Circuit addressed “whether this generic advertising is ‘the Government’s own speech and therefore is exempt from First Amendment scrutiny’ under the Supreme Court’s analysis in

Johanns v. Livestock Marketing Association.” Id.,

at 1005.

Paramount

describes the state regulation of pistachios:

The California state legislature created the Pistachio Commission “to enhance and preserve the economic interests of the State of California,’ by among other activities, ‘[i]mplement[ing] public policy through [its] expressive conduct.” Cal. Food & Agrie. Code § 63901 . The Pis

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tachio Commission administers the Pistachio Act and supports the pistachio industry through advertising, marketing, research, and government relations campaigns.

See

Pistachio Act § 69051.

The Pistachio Commission is authorized to undertake a broad range of activity: (1) research into production, food safety, marketing, crop protection and production materials, (2) promotion of the elimination of trade barriers, (3) consumer education regarding the health benefits of pistachios, (4) demand-side regulation to stabilize the market, (5) analysis of relevant foreign, federal and state regulation, (6) cooperative crisis resolution, (7) cooperation with state and federal agencies in foreign negotiations, and (8) support of industry self-regulation.

See

Cal. Food & Agrie. Code §§ 63901-63901.3 . This regulatory scheme, which applies to all councils and commissions relating to agricultural or seafood markets in California, is designed to ‘work subject to, and together with, the constraints placed on the agricultural industry by state and federal statutes and regulations and international restrictions.’

Id.

§ 69301.4.

The Pistachio Commission has nine members, eight selected by California pistachio growers and one selected by the Secretary of the California Department of Food and Agriculture (‘CDFA’). Pistachio Act § 69031. Acting through committees chaired by the commissioners, the Commission meets three times a year and employs a full-time staff to handle daily operations. In addition to appointing one member of the committee [sic], the Secretary of the CDFA (or a designee), may attend and participate in the Pistachio Commission or committee meetings as an ex officio member.

Id.

Like other entities in the state government, the Commission is subject to transparency and ethics regulations designed to promote public accountability.

The Secretary retains broad statutory authority to: (1) review and approve the Pistachio Commission’s annual budget and planned activities, (2) conduct fiscal and compliance audits, (3) approve nomination and election procedures, (4) decide appeals from grievance petitions filed by growers, and (5) suspend or discharge the Commission’s president.

See id.

§§ 69051, 69069, 69092. The Secretary may also require the Pistachio Commission to ‘correct or cease any activity or function that is determined by the secretary not to be in the public interest or to be in violation of [the Pistachio Act].’

Id.

§ 69032. Although the Secretary has ultimate authority over the Commission’s budget, operations, and planning, the Secretary has declined to exercise many of his more specific statutory powers.

Paramount and its various affiliated entities are the largest producers of pistachios in California, together paying between 25 and 30 percent of the Pistachio Commission’s total assessments in recent years. The expressive activity that has attracted Paramount’s ire centers around generic print and public relations advertising campaigns for California pistachios. The most recent campaign features the logo ‘California Pistachios’ and the slogan ‘Grab a Handful.’ The campaign included print advertising in magazines, media mailings, a satellite tour, talk-show appearances by spokesperson Jane Seymour, and promotion at the retail level (including point-of-sale promotional materials, price recommendations, and advertising incentives). Paramount maintains that these campaigns are ‘ineffective in augmenting pistachio sales,’ ‘do not adequately feature the nuts themselves,’ and are ‘antithetical to Paramount’s interests,’ which are to ‘increase sales by differentiating its product from competitor’s products.’

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Paramount also targets the Pistachio Commission’s government relations activities, which are coordinated by a political consultant who hires lawyers to represent the industry before the International Trade Commission and the Commerce Department, and to lobby government entities on behalf of the pistachio industry. Paramount complains that the Pistachio Commission has ‘not done enough to protect the domestic pistachio industry from foreign pistachios.’

These offending activities [of the Pistachio Commission complained of by Paramount] are funded by mandatory assessments paid by pistachio producers and importers (via processors who deduct dues from the amount they pay the producers).

See id.

§§ 69081 & 69085. Failure to pay invites financial penalties and possible enforcement action by the Pistachio Commission.

Id.

§§ 69088-93. The majority of the Commission’s annual budget, which has fluctuated between $6.6 million and almost $8 million in recent years, is dedicated to the challenged expressive activity.

491 F.3d at 1006-1007 . The Ninth Circuit then describes federal regulation of pistachios:

In 2004, the United States Secretary of Agriculture issued a marketing order for California pistachios under the Agricultural Marketing Agreement Act of 1937 ..., 7 U.S.C. § 601

et seq. See

7 C.F.R. § 983 (the ‘Marketing Order’). The Marketing Order regulates two broad areas of the pistachio industry: aflatoxin levels and minimum quality levels.

Id.

§ 938.38-39. The Marketing Order makes no mention of promotion, marketing, advertising, research, government relations or other potential expressive activity to be carried out by the administrative committee established by the federal regulations. The committee may ‘deliberate, consult, cooperate and exchange information with the California Pistachio Commission.’ 7 C.F.R. § 983.71 .

Id.,

at 10071

Based on the Supreme Court’s decision in

Johanns ,

the Ninth Circuit ruled that Paramount had not shown a likelihood of success on the merits of the First Amendment claim:

The framework of statutes and regulations governing the Pistachio Commission and its activities essentially mirrors the scheme addressed in

Johanns .

Although the state of California may, in practice, exercise less oversight over the Pistachio Commission than the Secretary of Agriculture exercises over the Beef Board, on the record developed thus far, that distinction is not enough to differentiate the activities of the Pistachio Commission from those of the Beef Board.

The structure of the Pistachio Commission and its relationship to the State of California is nearly identical in design to that of the Beef Board at issue in

Johanns .

The Pistachio Commission consists of nine members, of which eight are elected by industry members and one is appointed by the Secretary of the CDFA.

4

The Secretary must also concur in any nomination and election procedures adopted by the Pistachio Commission. Pistachio Act § 69069.

The Pistachio Commission is directed to ‘promote the sale of pistachios by advertising and other promotional means,’

id.

§ 69051(i), while the Beef Board is tasked with ‘carrying out a coordinated program of promotion and research designed to strengthen the beef industry’s position in the marketplace and to maintain and expand domestic and foreign markets and uses for been and beef products.’ 7 U.S.C. § 2901 (b).

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The Secretary of the CDFA is authorized to attend and participate in the meetings where promotional activities are planned, Pistachio Act § 69041, just as the Secretary of Agriculture or his designee may attend the meetings where the Beef Board develops marketing plans,

see

7 C.F.R. § 1260.168 (h). As a practical matter, the Secretary of the CDFA or his representative routinely attends Commission meetings.

The Secretary of Agriculture approves the Beef Board’s detailed plans for promotional or marketing activities.

See

7 C.F.R. §§ 1260.150 (f)-(g) & 1260.169. Similarly, the Pistachio Commission must submit to the Secretary of the CDFA, for his concurrence, ‘an annual statement of contemplated activities authorized [by the Pistachio Act], including advertising, promotion, marketing research, and production research.’ Pistachio Act § 69051(q).

Although there is no provision in the Pistachio Act allowing the Secretary of the CDFA to remove members of the Pistachio Commission,

compare Johanns,

544 U.S. at 563 , 125 S.Ct. 2055 ..., the Pistachio Act authorizes the Secretary of the CDFA to ‘correct or cease any existing activity or function that is determined by the secretary not to be in the public interest or in violation of [the Pistachio Act].’ Pistachio Act § 69032. And, the Secretary may suspend or discharge the Commission’s president if he has engaged in any conduct that the Secretary determines is not in the public interest.

Id.

§ 69051(d).

Other factors also demonstrate the Secretary’s control over the Commission. For example, growers dissatisfied with any Commission activity may file a grievance, which can be directly appealed to the Secretary.

Id.

§ 69092. The Secretary also must approve the Commission’s annual budget before the Commission may disburse funds,

id.

§ 69051(p), and he may conduct a separate fiscal compliance audit whenever he deems such an audit is necessary,

id.

§ 69051(h). Given the similarities to

Johanns

and the level of control vested in the Secretary, Paramount has not yet demonstrated that the Pistachio Commission should be classified as a nongovernmental entity.

Paramount argues that

Johanns

should not apply here because, in practice, the Secretary of the CDFA exercises ‘no control’ over the Pistachio Commission’s promotional and marketing activities. In

Johanns ,

the Court held that the speech at issue in that case more than met the requirements for qualifying as government speech.

See

544 U.S. at 563 , 125 S.Ct. 2055 ... (holding that ‘the beef advertisements here are subject to political safeguards more than adequate to set them apart from private messages’). However,

Johanns

did not set a floor or define minimum requirements.

Id.

At this stage of the proceedings, we cannot say that Paramount is likely to overcome the barrier of

Johanns .

Paramount has not made a sufficient showing that the Secretary of the CDFA exercises inadequate oversight over the activities of the Commission. To be sure, the Secretary of the CDFA exercises less control over the Pistachio Commission than the Secretary of Agriculture exercised over the Beef Board. Nonetheless, the marketing and promotional plans submitted to the CDFA include a significant amount of detail. For example, they include a general description of the advertisements, detail the themes to be emphasized, the actors to be used, the demographics to be targeted, and the media to be employed. Last year’s budget noted that the ‘proposed advertising campaign will feature three gener

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ations of [Jane] Seymour’s family ... making the connection that heart disease is not a discriminator of age, and that California pistachios can be an important part of lifetime heart health.’ The proposal describes the specific magazines in which the advertisements will run, notes the approximate timing of their publication (in February, to coincide with the Super Bowl, for example), and often includes specific words and imagery to be used. The overall budget also includes specific line-item budgets for promotional, advertising, marketing, and research activities, a report from a retained private advertising agency that discusses the advertisements generally and each selected publication and promotional activity specifically, and a 15-page overview of the entire public relations strategy, including advertising, marketing, and promotions.

Although the Secretary has not rejected or edited proposals, or taken a particularly active role in meetings, this passivity is not an indication that the government cannot exercise authority.

See Johanns,

544 U.S. at 560 , 125 S.Ct. 2055 ... (focusing on effective control). The Secretary, through his staff, retains authority to control both the activities and the message. The fact that he has not played an active role cannot be equated with abdication of his role. Just as ‘[t]he Secretary of Agriculture does not write [the copy of the beef advertisements] himself for the Beef Board, neither should such oversight be required for the California scheme to pass constitutional muster.

Id.

We acknowledge that there are differences in actual oversight between the beef scheme and the pistachio scheme, but these factual differences are legally insufficient to justify the injunction. To draw a line between these two approaches to oversight risks micro-managing legislative and

regulatory

schemes, a task federal courts are ill-equipped to undertake. ‘The message set out in the [pistachio] promotions is from beginning to end the message established’ by the state government.

Id.

5

491 F.3d at 1010-1012 .

3.

Message Mandated by California Legislature.

The California Table Grape Commission was established and is regulated pursuant to Division 22 (Marketing Advisory and Promotional Agency Laws) of the California Food

&

Agriculture Code.

California Food & Agriculture Code § 63901, as enacted in 1995, is the California Legislature’s statement of purpose:

The Legislature hereby finds and declares that the commissions and councils established pursuant to this division advance the interests of the State of California in that they do all of the following:

(a) Reflect a continuing commitment on the part of the State of California to its agricultural and seafood industries. The state’s agricultural and seafood industries are a source of substantial employment for the state’s citizens, produce needed tax revenues for the support of state and local government, encourage

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responsible stewardship of valuable land and marine resources, and produce substantial necessary food and fiber for the state, nation, and world, at reasonable costs.

(b) Represent a policy of support for self-help, public-private partnerships. These commissions and councils are particularly important for the continued success of California agriculture and seafood because of the unique nature of agricultural and seafood production, which tends to be decentralized with many small entities operating in diverse locations.

(c) Are intended to provide benefit to the entire industry and all of the people of this state. The commissions and councils are not enacted, and are not intended to produce measurable benefit, on an individual basis, and their successes should be evaluated accordingly by analyzing the extent to which the commissions and councils have improved the overall conditions for the particular commodity subject to the commission’s or council’s jurisdiction.

(d) Are intended to enhance the image of California agricultural and seafood products to increase the overall demand for these commodities. In this fashion, the Legislature intends that the commissions and councils operate primarily for the purpose of creating a more receptive environment for the commodity and for the individual efforts of those persons in the industry, and thereby compliment those individual, targeted, and specific activities.

(e) Are now more necessary and valuable than ever before as a result of declining support from the federal government and the increasing competition attributable to the global marketplace.

Section 63901 was amended in 2001. As amended, Section 63901 sets forth the California Legislature’s declaration:

[T]he agricultural and seafood industries are vitally important elements of the state’s economy and are supported by state established commissions and councils specified in this division that are mandated to enhance and preserve the economic interests of the State of California and are intended to do all of the following:

(a) Implement public policy through their expressive conduct. The programs conducted by these commissions and councils are among the broad range of state-mandated regulatory programs that are funded by the public through user fees assessed in accordance with each person’s relationship to a particular program.

(b) Reflect a continuing commitment by the State of California to its agricultural and seafood industries that are integral to its economy. These industries are a source of substantial employment for the state’s citizens, produce needed tax revenues for the support of state and local government, encourage responsible stewardship of valuable land and marine resources, and produce substantial necessary food and fiber for the state, nation, and world.

(c) Represent a policy of support for persons engaged in the agricultural and seafood industries, which are critically important elements of the state’s economy. These commissions and councils are particularly important for the continued success of California’s unique agricultural and seafood industries which tend to be decentralized with many small entities operating in diverse locations.

(d) Provide benefit to the entire industry and all of the people of this state. The commissions and councils are not enacted, and are not intended to produce measurable benefit, on an individual ba

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sis, and their successes should be evaluated by analyzing the extent to which they have improved the overall conditions for the particular commodity subject to the commission’s or council’s jurisdiction with resulting benefit to the overall economy of the state.

(e)Enhance the image of California agricultural and seafood products to increase the overall demand for these commodities. In this fashion, the Legislature intends that the commissions and councils operate primarily for the purpose of creating a more receptive environment for the commodity and for the individual efforts of those persons in the industry, and thereby compliment individual, targeted, and specific activities.

Section 63901.3, enacted in 2001, provides: The Legislature further finds and declares that the commission and council activities are essential to the goals and interests of the State of California that include, but are not limited to, all of the following:

(a) Research, including, but not limited to, production research, food safety research, marketing research and trends analysis, and research relating to crop protection and production materials.

(b) Elimination of tariff and nontariff trade barriers.

(c) Consumer education relating to the health and other benefits of using and consuming agricultural and seafood products.

(d) Consumer education relating to environmental protection and conservation.

(e) Demand-side regulation that stabilizes the flow of product to market through promotion.

(f) Analysis of the impact of federal, state and foreign regulation.

(g) Cooperative crisis resolution that impacts public health and safety and the continued stability of the industry.

(h) Participation with state and federal agencies in negotiating with other governments relating to market access issues such as phytosanitary issues, shipping protocols, crop protection residues, packaging, labeling, and other issues raised by countries imposing trade barriers on the import of agricultural and seafood products into their markets.

(i) Industry self-regulation to establish and maintain grade, size and maturity standards and to stabilize the flow of product to market.

In Section 63901.4, enacted in 2001, the Legislature:

[FJurther finds and declares that mandated cooperative efforts engaged in by the commissions and councils have proven to be effective methods to avoid economic waste and maintain stable agricultural markets. These cooperative efforts are intended to work subject to, and together with, the constraints placed on the agricultural industry by state and federal statutes and regulations and international restrictions.

Section 63902, amended in 2001, provides:

In addition to any specific provisions regarding grievance procedures, and consistent with the nature of the commissions and councils established pursuant to Part 2 (commencing with Section 64001) and the desire to resolve conflicts in the most timely and cost-effective manner, any person subject to this division shall file a grievance with the appropriate commission or council, and exhaust all administrative remedies prior to the initiation of any litigation based on a claim, express or implied, that the activities undertaken by the commission or council do not directly or materially advance the interests of the State of California as set forth in this part.

Section 63903, enacted in 1997, provides that, “[i]n addition to the authority granted

*901

to any commission by Part 2 (commencing with Section 64001), those commissions may commence or participate in administrative and civil actions relative to the activities of the commission.” Pursuant to Section 63904, enacted in 1998, “[t]he Legislature finds and declares that the councils and commissions operating pursuant to this division are duly constituted authorities of this state for purposes of subdivision (i) of Section 610 of Title 7 of the United States Code.” 7 U.S.C. § 610 (i) provides:

The Secretary of Agriculture upon the request of the duly constituted authorities of any State is directed, in order to effectuate the declared policy of this chapter and in order to obtain uniformity in the formulation, administration, and enforcement of Federal and State programs relating to the regulation of the handling of agricultural commodities or products thereof, to confer with and hold joint hearings with the duly constituted authorities of any State, and is authorized to cooperate with such authorities; to accept and utilize, with the consent of the State, such State and local officers and employees as may be necessary; to avail himself of the records and facilities of such authorities; to issue orders (subject to the provisions of section 608c of this title) complementary to orders or other regulations issued by such authorities; and to make available to such State authorities the records and facilities of the Department of Agriculture:

Provided,

That information furnished to the Secretary of Agriculture pursuant to section 608d(l) of this title shall be made available only to the extent that such information is relevant to transactions within the regulatory jurisdiction of such authorities that the information so furnished shall be kept confidential by them in a manner similar to that required of Federal officers and employees under the provisions of section 608d(2) of this title.

Section 63905, enacted in 2001 and amended in 2006, provides:

(a) Any commission or council may petition the secretary to adopt or administer any activity authorized pursuant to the California Marketing Act of 1937 (Chapter 1 (commencing with Section 58601) of Part 2 of Division' 21) relating to the commodity that is covered by any commission or council. Adoption and administration of the activity by any commission or council shall be in accordance with the fact.

(b) Any commission or council may petition the secretary to administer any activity that the commission or council is authorized to engage in, and that is authorized pursuant to the California Marketing Act of 1937 (Chapter 1 (commencing with Section 58601) of Part 2 of Division 21), relating to the commodity that is covered by any commission or council. If the secretary accepts the petition, the commission or council shall reimburse the secretary for his or her actual cost for administering the activity. The secretary may waive referendum under the act, if following a hearing, the secretary determines that there is no substantial question of opposition to doing so among affected assessment payers. Administration of the activity by the secretary shall be in accordance with the act.

(c) As determined by the secretary, the governing body of the commission or council may serve as the advisory board with respect to any activity recommended and approved pursuant to this section.

(d) As used in this section, ‘substantial question of opposition’ means opposition to the substance of the petition among currently affected assessment payers,

*902

and is not intended to mean a particular number of assessment payers.

The 2001 amendments and enactments were part of AB 1612. The Report of the California Senate Agriculture and Water Resources Committee explains the reasons for the 2001 amendments and enactments:

Existing law ... allows for the establishment of commissions and councils to advance the interests of California agriculture and seafood. The Legislature declares that these commissions and councils are established to reflect a commitment to California agriculture and seafood industries, represent a policy of support for self-help and public-private partnerships, provide a benefit to the entire industry and all Californians, and are intended to enhance the image of California agriculture and seafood products. Each commission and council is established and administered according to its own statutory guidelines. According to information provided by the California Department of Food and Agriculture, California has 51 advisory boards, councils and commissions.

A series of cases and court rulings have clouded marketing orders, commissions, and councils [sic] legal status based on the First Amendment. In 1996, The [sic] United States Supreme Court held that the First Amendment was not violated when agricultural marketing orders, as part of a larger regulatory scheme, required fruit producers of California tree fruit to pay assessments for product advertising

(Glickman v. Wileman Brothers and Elliott,

521 U.S. 457 , 117 S.Ct. 2130 , 138 L.Ed.2d 585 ). In [sic] June 25, 2001, the United States Supreme Court found that a federal marketing order covering generic mushroom promotion was a violation of the First Amendment

(United States etal. [sic] v. United Foods, Inc.,

No. 00276, Decided June 25, 2001). The United Foods court found that no corollary to Glickmans cooperative marketing structure existed. The promotion activities the opponent was required to support was not directly associated with other regulatory activities as required in Glickman.

Many legal analysts believe the result of these cases is a spectrum. On one end is acceptable compelled speech if it is associated with a regulatory program. On the other end of the spectrum are programs that compel speech that are not associated with a comprehensive regulatory scheme. At this point, there is not a bright line determining where the appropriate level of regulation or identifying the necessary activities required for these programs.

PROPOSED LAW

This measure states that the agriculture and seafood industries are vitally important elements of the state’s economy and are supported by state established commissions and councils mandated to enhance and preserve the economic interests of California.

This bill contains findings and declarations stating that commissions and councils implement public policy through their expressive conduct and these programs are among the broad range of state mandated regulatory programs that are funded by the public generally through user fees assessed in accordance with each persons [sic] relationship to a particular program.

The bill amends several existing findings with clarifying language and further articulating the importance of these programs to the state’s economy.

The bill states additional findings concerning these programs importance to California’s interests and that these programs activities include but are not limited to the following:

Research

*903

Elimination of tariff and non tariff trade barriers

Consumer education relating to health and other benefits of using and consuming these products

Demand side regulation

Analysis of government regulation

Cooperative crisis resolution

Participation in negotiations with other governments relating to market access issues

Industry self regulation to establish and maintain grade, size, and maturity standards and to stabilize the flow of product.

The final finding declares that mandated cooperative efforts engaged in by the commissions and councils are the best methods to avoid economic waste and maintain stable markets and work in cooperation with government regulation.

The bill allows commissions and councils to petition the Secretary to engage in any activity authorized by the California Marketing Act of 1937. This bill would require a successful referendum according to the statutory requirements of the Marketing Act ... and approval by the Secretary ... before the new activity could be implemented

COMMENTS

1.According to the sponsor, the reason the additions to the declarations and findings are included is to strengthen commissions and councils directives and to clarify them importance and duties. By strengthening the findings and declarations and expressly stating many of the various important activities in which these programs participate, it clarifies these programs importance to California’s economy and interest and how integral these programs are to other government regulatory and non-regulatory activities.

2. This bill expands the authorized powers of the various commissions and councils which have been established to promote California agriculture and seafood. Under current law, each commission or council is allowed to engage in only those activities authorized by its specific statutory guidelines. This measure would allow each commission and council to engage in any of the activities included in the California Marketing Act of 1937.

3. Although this bill does expand the scope of activities that can be undertaken by commissions and councils, the increased activities can only be initiated after a successful referendum of affected members according to the requirements of the act. Furthermore, the Secretary still retains the authority to approve marketing programs and activities recommended by the governing boards of the commissions and councils.

The Commission notes that § 65572(h) empowers the Commission “[t]o promote the sale of fresh grapes by advertising and other similar means for the purpose of maintaining and expanding present markets and creating new and larger intrastate, interstate and foreign markets for fresh grapes; to educate and instruct the public with respect to fresh grapes; and the uses and time to use the several varieties, and the healthful properties and dietetic value of fresh grapes”. Section 65572® empowers the Commission, in its discretion, “to educate and instruct the wholesale and retail trade with respect to proper methods of handling and selling fresh grapes; to arrange for the performance of dealer service work providing display and other promotional materials; to make market surveys and analyses; and to

*904

present facts to and negotiate with state, federal and foreign agencies on matters which affect the marketing and distribution of fresh grapes; and to undertake any other similar activities which the commission may determine appropriate for the maintenance and expansion of present markets and the creation of new and larger markets for fresh grapes”.

The Commission argues that Plaintiffs do not dispute that the Commission has followed these statutory directives and that Plaintiffs, having dismissed with prejudice their challenges to particular activities conducted by the Commission, raise only a facial challenge to the Ketchum Act as a whole. The Commission asserts: “[I]f Plaintiffs challenge only the overall message of the program — a message that is defined by

statute

— Plaintiffs cannot plausibly claim that the speech they challenge is not

government

speech.” Therefore, the Commission contends, the level of oversight of the Commission’s activities by the CDFA is irrelevant.

In contending that Plaintiffs raise only a facial challenge to the Ketchum Act, the Commission relies on its Statement of Undisputed Facts:

CUF No. 203:

Plaintiff Susan Neill Company does not object to the message of the Commission’s consumer education, research, or market access activities. Its only objection is that it does not want to fund these activities.

See

Neill Dep. 62:1-66:3, 83:24-84:12, 96:5-10, May 17 2004. To the extent The Susan Neill Company objects to any of the Commission’s messages, it is principally an objection to the advertising of all California table grapes as opposed to Lucas Brothers’ table grapes.

See if.

at 33:2-34:12.

Plaintiffs’ dispute CUF No. 203, asserting in pertinent part:

[T]he Susan Neill Company and Lucas Bros, believe that the millions of dollars spent by the Commission on generic advertising hurts a company like Plaintiffs to urge buyers to buy Plaintiffs’ product not ‘generic’ table grapes produced in California and grown by others (response to interrogatory number 13, set number two, Exhibit T to Boynton Declaration). Plaintiff [sic] contends that virtually everything that the Commission does is some form of speech-communication, the administration of same, as well as the salaries, benefits, travel expenses for speech/communication related activities. ‘That obviously would include bird sanctuaries, scholarship funds, dinners, charter planes, lavish parties, limousines, payoffs to buyers of table grapes, and when these activities cannot be quantified as reducing demand for Plaintiffs’ table grapes, when the Commission members are part of this extravagance paid for by Plaintiffs, and the Commission members, who are Plaintiffs’ competitors are “high-styling” with buyers of table grapes, that could have an indirect reduction of demand for Plaintiffs’ table grapes, as well as the fact that since Plaintiffs are forced to fund such nonsense, it is less money that Plaintiffs have in promoting and selling its own table grapes.’ Neill response to interrogatory number 14, set number 2. ‘[Neill and Lucas], stated in response to the previous interrogatory, does not seek the Commission’s help with respect to any of Plaintiffs’ farming operations, cultural methods, varieties, sales or promotion. Those would be actions on behalf of Plaintiff that showed that it does not want to be forced to associate with or financially support the Commission, its speech efforts, or its claims that it represents Plaintiff. Plaintiff has hired an attorney to represent it in this lawsuit against the Table Grape Commission and expended thousands of dollars for the attorney to contest the constitutionality and the legitimacy of the Com

*905

mission. If Plaintiff had agreed with the Commission and its speech efforts, Plaintiff would not be pursuing this 8 year effort to have a court find that the Commission is unconstitutional. To reiterate, Plaintiff vehemently disagrees with being forced to associate with and financial support the Commission [sic], its speech efforts and its claim that the Commission represents Plaintiff.’ (Neill’s response to interrogatory number 16, set number 2). (Neill and Lucas vehemently object to any and all expenditures and programs of the Commission. (Response to interrogatory number 17.) Lucas’ Bros, objections were the same as Susan Neill’s. (See Exhibit ‘2’ to the Declaration of Boynton, Lucas Bros.’ responses to interrogatories, set number two, numbers 7, 9, 12, 18, 15, and 16.[sic])

Defendant misstates the deposition testimony of Susan Neill (Exhibit ‘7’ to the Declaration of Boynton (after explaining all of the things that the [sic] Susan Neill Company does to promote and advertise their product (Depo Transcript pages 19-25) Susan Neill laid into the Commission program, and objects to the Commission engaging in consumer education, objects to it, does not believe it is necessary, believes it is a waste of Neill and Lucas money, the same for research, the same for export activities, and its more than just not wanting to pay the assessments, 1 do not want to be compelled to have to spend money on this when it does nothing for me, and I do not believe that it is useful.’ (Depo transcript at 64) Neill also does not like the Commission message, she does not want to pay for it because it is not useful in selling their grapes, she does not like the scholarship program, the bird sanctuary donations, the chartered planes, the limousines, the ‘big dinners and cash payoffs to buyers’ (Depo at 65): T think that they’re [Commission] just wasting money. I object to everything they do. * * * I object to them spending my money to do it. I don’t wish to contribute to that cause.’ Depo at page 83, lines 3-16. When asked if there were any other objections that the [sic] Susan Neill Company had she stated T do not like their message. I don’t like the Commission. I don’t want to be associated with it. They’re — I don’t like to spend my money on it. I don’t want to be compelled to.’ Page 83, Depo transcript, lines 17-23.

CUF No. 204.:

Plaintiff Lucas Brothers does not object to the message of the Commission’s trade management activities directed to retailers, phytonutrient research, or market access activities. Its only objection is that it could spend its assessment dollars more profitably.

See

Lucas Dep. 60:23-61:14; 64:10-16; 65:19-66:5, May 17, 2005. To the extent Lucas Brothers objects to any of the Commission’s messages, it is principally an objection to the advertising of all California table grapes as opposed to his table grapes.

See id.

at 58:14-22, 59:9-21.

Plaintiffs dispute CUF No. 204 on the same grounds as set forth in connection with CUF No. 203. Plaintiffs add that the Commission misstates the deposition testimony of George Lucas:

Lucas objects to the Commission’s advertising, he objects to the Commission’s research, he objects to the Commission itself because it is made up of his competitors, Lucas believes that he could use the assessments much more profitably promoting and advertising his table grapes, he feels the same about the Commission’s activities with respect to foreign markets, and he does not like the Commission’s expenditures for extravagant things. Lucas Depo pages 60-66; Exhibit ‘8’ to Declaration of Boynton.

*906

CUF No. 206:

Even though Delano Farms receives all of the reports and correspondence sent out by the Commission to growers explaining what the Commission is doing ..., Delano Farms has not raised any objection to the substance of any of the Commission’s nonadvertising activities.

See

Middleton Dep. 35:5-18; 81:8-84:10, 93:25-94:10. To the extent Delano Farms objects to any of the Commission’s messages, it is principally an objection to the advertising of all California table grapes as opposed to Delano Farms’s table grapes.

See id.

40:19-25.

Plaintiffs dispute CUF No. 206, referring to Delano Farms responses to the Commission’s interrogatories, set no. 2:

After Delano Farms explained the substantial efforts it goes to in planting the best varieties and growing the best quality, wherein buyers are asking specifically for Delano Farms’ grapes (responses to interrogatories 9 and 10), and also explaining the number of branded labels Delano Farms uses for its table grapes (response to interrogatory 2), as well as what its substantial sales force does in the procurement of buyers, sustaining and developing current buyers and for the promotion of the company and its product, and the expenditure of countless hours, dollars and efforts developing and maintaining a relationship with prospective and current customers, and understanding their needs (answers to interrogatories 5 and 8), as well as planting of the newer varieties and significant quantity of the varieties in order to supply the major buyers (response to interrogatory 10), and the fact that Delano Farms is the industry leader in terms of acreage planted for one variety, and added to its customer list as a result of the superb quality and quantity (response to interrogatory 11), Delano explained at first that one of its objections to the Commission program by stating (response to interrogatory 13) that ‘Delano Farms believes that the Commission’s advertising efforts, since those efforts are generic only, equating all table grapes produced by one variety to be “generic,” fungible, and the same quality is absolutely worthless to Delano Farms in selling its product. Whether the Commission’s advertising reduces demand is totally subjective, but Delano Farms believes that millions of dollars spent on generic advertising hurts a company like Delano which desires to urge buyer to buy Delano’s product, not “generic” table grapes produced in California and grown by others.’ (Response to interrogatory 13)

In response to interrogatory 16, Delano Farms responded: ‘Delano, as stated in response to the previous interrogatories, does not seek the Commission’s help with respect to any aspects of Delano Farms’ farming operations, cultural methods, varieties, sales or promotion. Those would be actions on behalf of Delano that showed it does not want to be forced to associate with or financially support the Commission, its speech efforts or its claims that it represents Delano. (Response to interrogatory 16) In response to interrogatory 17 which [sic] they asked the question as to what funding of the Commission’s activities Delano Farms contended constituted compelled speech in violation of the First Amendment, Delano Farms responded: ‘Delano Farms contends that virtually all funding activities of the Table Grape Commission are speech/communication related activities, so therefore requiring Delano to fund these speech related activities constitutes compelled speech, or compelled funding of speech. Those activities would include lobbying, promotion, consumer education, merchandising, advertising, promotion, research, salaries, travel and benefits of the employees to carry out

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the same, payments to attorneys, payments to lobbyists, donations, scholarships, the Commission’s building, the Commission’s meetings, and virtually every activity is communication, which is speech related activities.’ (Response to interrogatory 18)

Citing only a selected portion of Jim Middleton’s deposition transcript (Jim Middleton being the main director and shareholder of Delano Farms), Mr. Middleton objected to the Commission’s activities far more that asserted by the Commission. Those selected portions of Middleton’s deposition transcript is located as Exhibit ‘9’ to the declaration of Boynton. Therein Mr. Middleton explained a letter that he sent out to table grape growers in January of 1997 (Exhibit ’21’ to Middleton deposition transcript, a copy of which is attached hereto), explaining Delano Farms’ position as to why the growers should vote out the Commission in the next referendum, and explaining all of the reasons ... Middleton testified that those were Delano Farms’ objections then, and they would be currently the same objections now (2004 when he was deposed). In said letter, Delano Farms stated fully its position regarding the objections to the Commission, what it stands for, and how it is funded. Middleton was asked at his deposition whether his objections ‘is simply to the mandatory nature of the payment to the Commission.’ (Page 44 of depo transcript) Middleton’s response was: “We believe in democracy, and what you got here is a piece of socialism that doesn’t work. And organizations that we belong to that are voluntary are always very effective. If they aren’t, the members say, “see ya later.” When you have to belong to something, it becomes like the United States Department of Commerce. Pretty soon, it is just a big unwieldy thing. And that is what has happened here.’ He later stated that the biggest objection is the structure of the Commission and the mandatory nature of it. (Depo transcript at 44)

Therefore, the Commission’s assertion that Delano Farms’ only objection is being required to pay the assessment is absolutely false, and while it is certainly one of the reasons, the main reason is the socialistic nature of the Commission.

As the Commission contends, Plaintiffs’ objections to the Commissions Statements of Undisputed Fact attack “the general message promoting all California table grapes, as opposed to grapes from a particular grower/shipper, that Plaintiffs attack — to the extent they attack a

message

delivered by the Commission at all.” P

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