Rocky Mountain Farmers Union v. Richard W. Corey

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ROCKY MOUNTAIN FARMERS UNION; No. 12-15131

REDWOOD COUNTY MINNESOTA

CORN AND SOYBEAN GROWERS; D.C. Nos.

PENNY NEWMAN GRAIN, INC.; REX 1:09-cv-02234-

NEDEREND; FRESNO COUNTY FARM LJO-GSA

BUREAU; NISEI FARMERS LEAGUE; 1:10-cv-00163-

CALIFORNIA DAIRY CAMPAIGN; LJO-DLB

GROWTH ENERGY; RENEWABLE

FUELS ASSOCIATION; AMERICAN

FUEL & PETROCHEMICAL

MANUFACTURERS ASSOCIATION,

FKA National Petrochemical &

Refiners Association; AMERICAN

TRUCKINGS ASSOCIATIONS; CENTER

FOR NORTH AMERICAN ENERGY

SECURITY; THE CONSUMER ENERGY

ALLIANCE,

Plaintiffs-Appellees,

v.

RICHARD W. COREY, in his official

capacity as Executive Officer of the

California Air Resources Board;

MARY D. NICHOLS; DANIEL

SPERLING; KEN YEAGER; DORENE

D’ADAMO; BARBARA RIORDAN;

JOHN R. BALMES; LYDIA H.

KENNARD; SANDRA BERG; RON

2 ROCKY MOUNTAIN FARMERS UNION V. COREY

ROBERTS; JOHN G. TELLES, in his

official capacity as member of the

California Air Resources Board;

RONALD O. LOVERIDGE, in his

official capacity as member of the

California Air Resources Board;

EDMUND G. BROWN, JR., in his

official capacity as Governor of the

State of California; KAMALA D.

HARRIS, Attorney General, in her

official capacity as Attorney General

of the State of California,

Defendants-Appellants,

ENVIRONMENTAL DEFENSE FUND;

NATURAL RESOURCES DEFENSE

COUNCIL; SIERRA CLUB;

CONSERVATION LAW FOUNDATION,

Intervenor-Defendants-Appellants.

ROCKY MOUNTAIN FARMERS UNION; No. 12-15135

REDWOOD COUNTY MINNESOTA

CORN AND SOYBEAN GROWERS; D.C. Nos.

PENNY NEWMAN GRAIN, INC.; REX 1:09-cv-02234-

NEDEREND; FRESNO COUNTY FARM LJO-GSA

BUREAU; NISEI FARMERS LEAGUE; 1:10-cv-00163-

CALIFORNIA DAIRY CAMPAIGN; LJO-DLB

GROWTH ENERGY; RENEWABLE

FUELS ASSOCIATION; AMERICAN

FUEL & PETROCHEMICAL ORDER

MANUFACTURERS ASSOCIATION,

FKA National Petrochemical &

ROCKY MOUNTAIN FARMERS UNION V. COREY 3

Refiners Association; AMERICAN

TRUCKINGS ASSOCIATIONS; CENTER

FOR NORTH AMERICAN ENERGY

SECURITY; THE CONSUMER ENERGY

ALLIANCE,

Plaintiffs-Appellees,

v.

RICHARD W. COREY, in his official

capacity as Executive Officer of the

California Air Resources Board;

MARY D. NICHOLS; DANIEL

SPERLING; KEN YEAGER; DORENE

D’ADAMO; BARBARA RIORDAN;

JOHN R. BALMES; LYDIA H.

KENNARD; SANDRA BERG; RON

ROBERTS; JOHN G. TELLES, in his

official capacity as member of the

California Air Resources Board;

RONALD O. LOVERIDGE, in his

official capacity as member of the

California Air Resources Board;

EDMUND G. BROWN, JR., in his

official capacity as Governor of the

State of California; KAMALA D.

HARRIS, Attorney General, in her

official capacity as Attorney General

of the State of California,

Defendants-Appellants,

ENVIRONMENTAL DEFENSE FUND;

NATURAL RESOURCES DEFENSE

4 ROCKY MOUNTAIN FARMERS UNION V. COREY

COUNCIL; SIERRA CLUB;

CONSERVATION LAW FOUNDATION,

Intervenor-Defendants-Appellants.

Filed January 22, 2014

Before: Dorothy W. Nelson, Ronald M. Gould,

and Mary H. Murguia, Circuit Judges.

Order;

Concurrence by Judge Gould;

Dissent by Judge Milan D. Smith, Jr.

SUMMARY*

Fuel Standards/Commerce Clause

The panel denied the petitions for rehearing en banc on

behalf of the court in a case alleging that California’s Low

Carbon Fuel Standard, Cal. Code Regs. tit. 17, §§ 95480–90

(2011), violated the dormant Commerce Clause and was

preempted by Section 211(o) of the Clean Air Act, 42 U.S.C.

§ 7545(o).

In the opinion, the panel held that the Fuel Standard’s

ethanol provisions were not facially discriminatory, and

reversed that portion of the district court’s decision. The

*

This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

ROCKY MOUNTAIN FARMERS UNION V. COREY 5

panel also reversed the district court’s decision that the Fuel

Standard was an impermissible extraterritorial regulation.

The panel affirmed the district court’s conclusion that the

Fuel Standard’s crude oil provisions were not facially

discriminatory, but reversed the district court’s holding that

the provisions were discriminatory in purpose and effect. The

panel affirmed the district court’s conclusion that Section

211(c)(4)(b) of the Clean Air Act did not insulate California

from scrutiny under the dormant Commerce Clause. Judge

Murguia concurred in part and dissented from the majority’s

conclusion that the ethanol regulations did not facially

discriminate against interstate commerce.

Concurring in the denial of rehearing en banc, Judge

Gould stated that in his view the opinion and partial dissent

fairly presented the key issues in this appeal, and the denial

order should be read with the majority opinion’s reasoning in

mind. He wrote to offer supplemental observations that

responded to the views of the judges who dissented from the

denial of rehearing en banc.

Dissenting from the denial of rehearing en banc, Judge M.

Smith, joined by Judges O’Scannlain, Callahan, Bea, Ikuta

and N.R. Smith, and joined by Judge Murguia as to Part III,

stated that in upholding California’s ethanol regulations, the

majority disregarded longstanding dormant Commerce

Clause doctrine, and placed the law of this circuit squarely at

odds with Supreme Court precedent.

6 ROCKY MOUNTAIN FARMERS UNION V. COREY

ORDER

The full court was advised of the petitions for rehearing

en banc. A judge requested a vote on whether to rehear the

matter en banc, and the matter failed to receive a majority of

the votes of the nonrecused active judges in favor of en banc

consideration. Fed. R. App. P. 35.

The petitions for rehearing en banc are DENIED.

GOULD, Circuit Judge, concurring in the denial of rehearing

en banc:

I respectfully file this separate concurrence in the denial

order. In my view, the opinion and partial dissent fairly

present the key issues in this appeal, and the denial order

should be read with the majority opinion’s reasoning in mind.

But in light of the views of my dissenting colleagues, I offer

supplemental observations.

First, the dissent is riddled with overstatements. For

example, it claims that California’s Low Carbon Fuel

Standard (“LCFS”)—and the ethanol provisions contained

therein—explicitly discriminates against other states and is a

“protectionist regulatory scheme that threatens to Balkanize

our national economy.” Dissent at 14. Not only is this mere

alarmist rhetoric, it also does not fit the reality of the

California legislation. Moreover, although the dissent

trumpets that nine states seek rehearing, the converse is that

41 do not. And some states, like Washington and Oregon,

have already joined California in its endeavor to combat

global warming by reducing greenhouse gas emissions from

ROCKY MOUNTAIN FARMERS UNION V. COREY 7

fuels. Finally, the dissent characterizes the LCFS as an

extraterritorial regulation, and argues that the majority’s

position to the contrary contravenes Supreme Court

precedent. This is an incorrect view of the law: California is

free to regulate commerce within its borders even if it has an

ancillary goal of influencing the choices of actors in other

states. See Pharm. Research & Mfrs. of Am. v. Walsh,

538 U.S. 644, 669 (2003).

Second, the dissent is written as if the majority opinion

conclusively determined that the LCFS was above

constitutional reproach. It begins, for example, by accusing

the majority of “upholding California’s ethanol regulations.”

Dissent at 14. It later repeats this charge. See Dissent at 19.

We did no such thing. Believing that findings of fact and

more proceedings in the district court were needed to

determine the LCFS’s constitutionality, we remanded. All we

did, in other words, was to reject the argument that the

LCFS’s ethanol provisions facially discriminate against out-

of-state commerce. Our remand advises the district court to

determine “whether the Fuel Standard’s ethanol provisions

discriminate in purpose or in practical effect.” Rocky Mtn.

Farmers Union v. Corey, 730 F.3d 1070, 1078 (9th Cir.

2013). And we instructed the district court to apply strict

scrutiny to those provisions if it found that they did

discriminate, or to apply the balancing test set forth in Pike v.

Bruce Church, Inc., 397 U.S. 137 (1970), if it found that they

did not. Rocky Mtn. Farmers Union, 730 F.3d at 1078. The

dissent acknowledges our remand, but it rhetorically argues

that the remand has a “predestined” outcome, Dissent at 17,

because of our statement that the LCFS incorporates state

boundaries for “good and non-discriminatory” reasons, Rocky

Mtn. Farmers Union, 730 F.3d at 1107. There is a simple

response to this critique, which has no legal merit: We

8 ROCKY MOUNTAIN FARMERS UNION V. COREY

reviewed this case at the summary judgment stage. As such,

we had to take as true all facts presented by California and

reasonable inferences therefrom. Our statement, then, about

good and non-discriminatory reasons for incorporating state

boundaries into the LCFS methodology is based on evidence

that had to be credited at the summary judgment stage. It will

not control what the district court decides on remand as it

considers the LCFS’s purpose and effect and makes factual

findings on disputed evidence.

Similarly, the dissent asserts that our opinion “nullifies”

constitutional limitations on states’ ability to legislate in ways

that affect other states. Dissent at 15. I disagree. If the

LCFS in purpose or practical effect discriminates against

interstate commerce, such limitations still exist in the form of

strict scrutiny. And even if it does not discriminate, the Pike

balancing test imposes its own limitations on states’ ability to

legislate in this arena.1

Third, the dissent argues that the LCFS’s ethanol

provisions facially discriminate against out-of-state

commerce by drawing lines based on state borders, and that

strict scrutiny therefore applies to invalidate the law. I

disagree. For the reasons stated in the majority opinion, I

believe that California made its geographic distinctions based

on the carbon impact and intensity of various fuels, not on

their state-of-origin. True, the LCFS does attribute different

1

The dissent’s insistence that strict scrutiny should be applied to the

regulatory provisions here, absent a finding of discriminatory purpose or

effect, is a type of “archaic formalism” that should not be encouraged by

the Supreme Court. Rocky Mtn. Farmers Union, 730 F.3d at 1107. In my

view, the Supreme Court has not applied strict scrutiny to provisions like

those in the LCFS based on a theory of facial discrimination.

ROCKY MOUNTAIN FARMERS UNION V. COREY 9

carbon intensity values to fuels from different geographic

areas. CAL. CODE REGS. tit. 17, § 95486(b). But the dissent’s

argument that it is “clear that the challenged regulations

discriminate against interstate commerce” is wide of the

mark. Dissent at 21. A legislative geographic distinction is

not facially discriminatory merely because it affects in-state

and out-of-state interests unequally. Rather, as long as there

is “some reason, apart from their origin, to treat them

differently,” California may distinguish between Midwestern,

Brazilian, and California ethanols. Philadelphia v. New

Jersey, 437 U.S. 617, 627 (1978). The dissent disregards this

principle. To the extent that California treats fuels based on

their location, it does so for non-discriminatory reasons; if

Midwestern ethanol is more carbon-intensive than its

California counterpart, that is so not because of its origin but

rather because of its method of production and other objective

factors, including transportation-related emissions.

Further, the pathways set forth in the LCFS—and

reproduced at the end of the majority opinion in Appendix

One—are not immutable legislative classifications. They are

default pathways, and while they may be relied upon by

producers, they may also be supplanted if a producer creates

an individualized pathway by supplying its own data about

the carbon emission impact of its product. This allows

ethanol producers in California and elsewhere some control

over the carbon intensity value assigned to their fuels. And

it shows that the dissent’s position that the LCFS facially

discriminates is incorrect. The LCFS’s ethanol provisions are

based on an objective fact, carbon emissions, not on the

constitutionally impermissible goal of benefitting local

companies at the expense of foreign ones. Such a system

does not warrant strict scrutiny.

10 ROCKY MOUNTAIN FARMERS UNION V. COREY

The dissent notes that “the Fuel Standard expressly

assigns a higher carbon intensity to Midwestern ethanol.”

Dissent at 21. In fact, however, the lowest carbon intensity

values yet—supplied by producers who went outside the

default pathways to provide their own data—are from

Midwestern and Brazilian ethanol producers. See CAL. CODE

REGS. tit. 17, § 95486(b)(1); Rocky Mtn. Farmers Union,

730 F.3d at 1084. This is so largely because the LCFS takes

into account carbon emissions from transportation, and most

California ethanol producers import corn from the Midwest

to make their product, whereas Midwestern ethanol

producers, who have corn close by, avoid those transportation

emissions. The geographic distinctions made by California,

then, are not classifications based on state boundaries per se;

rather, they are classifications based on the carbon impact of

fuels as calculated under a rubric that considers

transportation-related emissions. That does not warrant strict

scrutiny unless the district court concludes that the LCFS

discriminates against out-of-state commerce in purpose or

practical effect. That is why we remanded with instructions

to consider such purpose and effect.

Fourth, the tone and substance of the dissent is perhaps

aimed at encouraging Supreme Court review. A petition for

writ of certiorari from the parties who sought rehearing is

likely forthcoming, but our court properly declines to give its

judicial imprimatur to the dissent’s position. Because

Supreme Court review is possible, however, I set forth my

own views on that prospect. On the one hand, the Supreme

Court’s considered judgment could be helpful to clarify as

soon as practical what states may do of their own accord to

deter or slow global warming. The Supreme Court, if it

wants to do so at this time, can set constitutional limits,

binding in all circuits, as to what the individual states in our

ROCKY MOUNTAIN FARMERS UNION V. COREY 11

Union may do to combat global warming. The Supreme

Court also can give meaning to, or limit, the general principle

that state experimentation is often a desirable predicate to

actions by other states or the federal government. On the

other hand, the record in this case is incomplete and thus

unsuitable for understanding the full scope of the issues

presented. The panel remanded for findings on

discriminatory purpose or effect which, if it exists, would

invoke strict scrutiny. And, if not, the majority required on

remand that the district court engage in Pike balancing,

weighing the LCFS’s benefits against its impact on interstate

competition. The issues raised by the dissent, then, may be

rendered moot by the district court’s decision, and in any

event there will be a more complete record, including

findings on purpose and effect, on which to make a ruling

about the controlling legal principles.

Fifth, the dissent contends that California admits its

scheme will, by itself, have little effect in averting

environmental catastrophe. Dissent at 22. This argument

ignores not only the principle that incremental change, when

aggregated, can be significant, but also the possibility that

successful experimentation by California could lead to

broader action by other states and/or the federal government.

The Supreme Court has reminded us that it is “erroneous” to

assume that “a small, incremental step, because it is

incremental” is legally—or truly—insignificant.

Massachusetts v. EPA, 549 U.S. 497, 524 (2007). Just as a

journey of 1,000 miles begins with a single step, so too must

legislative action to fight global warming start somewhere.

Further, once other states appreciate the benefits of the LCFS,

there may be a cascade of similar laws throughout the

country—and perhaps federal action—aimed at stemming the

tide of global warming. Indeed, proposed legislation in

12 ROCKY MOUNTAIN FARMERS UNION V. COREY

Oregon and Washington is an example of this. See Rocky

Mtn. Farmers Union, 730 F.3d at 1104 n.14; Michael Wines,

Climate Pact Is Signed by 3 States and Partner, N.Y. TIMES,

Oct. 30, 2013, at A18 (noting an agreement between

California, Oregon, and Washington, as well as British

Columbia, to “raise the cost of greenhouse gas pollution,

promote zero-emission vehicles and push for the use of

cleaner-burning fuels in transportation” as part of a “broad

alliance to combat climate change”).

Meanwhile, global temperatures are increasing, storms are

intensifying, polar ice caps are melting, and seas are rising.

If California’s experiment with the LCFS is to succeed in

inducing increased production of alternative fuels and/or

decreased carbon impact of existing fuels, the sooner it can

proceed, the better; it could take years, or decades, for other

states to recognize the benefits of the LCFS, to react to it, and

to engage in similar experiments themselves. Justice

Brandeis recognized the importance of this sort of state

experimentation in his now-famous dissent in New State Ice

Co. v. Liebmann, when he wrote: “It is one of the happy

incidents of the federal system that a single courageous state

may, if its citizens choose, serve as a laboratory; and try

novel social and economic experiments without risk to the

rest of the country.” 285 U.S. 262, 311 (1932) (Brandeis, J.,

dissenting). This is what California has done with the LCFS.

The benefits that may flow from such cooperative state action

do not, as the dissent urges, threaten to “Balkanize our

national economy.” Dissent at 14. Rather, the development

of alternative fuels and a market system regulating carbon

emissions would likely benefit the national economy.

Sixth, the dissent’s argument that California’s “economic

clout” means that the “practical effect” of the LCFS is to

ROCKY MOUNTAIN FARMERS UNION V. COREY 13

regulate commerce beyond California’s borders misstates the

law. Dissent at 24. In fact, Supreme Court precedent points

in a contrary direction. See, e.g., Walsh, 538 U.S. at 669

(refusing to apply the extraterritoriality doctrine to a law that

“does not regulate the price of any out-of-state transaction,

either by its express terms or by its inevitable effect” (internal

quotation marks omitted)). While a state may not mandate

compliance with its preferred policies in wholly out-of-state

transactions, it may regulate commerce within its boundaries

even if one of its goals is to influence the out-of-state choices

of market participants. See id. This is what California

permissibly has done with the LCFS.2

A majority of active judges on our court wisely refused to

grant en banc consideration in this case. I concur in the order

denying rehearing en banc.

2

If the dissent’s position were adopted, it would spell the end of much

beneficent state legislation. Let us assume, for example, that a safety-

conscious state regulates automobiles, preventing them from being sold

in that state absent certain safety protections like airbags or a performance

standard requiring a minimum survival rate from a crash at 40 miles per

hour. The dissent apparently would say that the safety-conscious state is

regulating extraterritorially because its restrictions provide incentives to

automakers in other states to make their cars safer if they wish to sell them

in the safety-conscious state. I respectfully disagree. The Supreme Court

has not said anything to that effect, and, as explained above, its precedent

points in the opposite direction.

14 ROCKY MOUNTAIN FARMERS UNION V. COREY

M. SMITH, Circuit Judge, with whom O’SCANNLAIN,

CALLAHAN, BEA, IKUTA, and N.R. SMITH, Circuit

Judges, join, and with whom MURGUIA, Circuit Judge, joins

as to Part III, dissenting from the denial of rehearing en banc:

In upholding California’s ethanol regulations, the 2-1

majority in this case finds at least facially constitutional a

protectionist regulatory scheme that threatens to Balkanize

our national economy. In so doing, the majority disregards

longstanding dormant Commerce Clause doctrine, and places

the law of this circuit squarely at odds with Supreme Court

precedent.

The deleterious effects of California’s scheme on our

national economic union are not speculative. The states of

Nebraska, Illinois, Iowa, Kansas, Michigan, Missouri, North

Dakota, Ohio, and South Dakota (which are major producers

of corn and ethanol) filed an amicus brief in support of en

banc rehearing.1 They argue that California’s ethanol

regulations “impinge[] on the sovereign interests of the Amici

States to regulate farming, ethanol production, and other

activities within their own borders as they see fit.” These

states further observe that California’s regulations “close[]

the California border to ethanol produced in Amici States in

favor of chemically-identical ethanol produced within

California . . . .” These are the very types of concerns that

generated the Supreme Court’s dormant Commerce Clause

case law, and the panel majority ignores them.

1

In his concurrence in the denial of rehearing en banc, Judge Gould

notes that 41 states did not join in the amicus brief seeking en banc

rehearing. This should be no surprise since one of those states is

California, which promulgated the offending regulations, and most of the

other states are not major corn or ethanol producers.

ROCKY MOUNTAIN FARMERS UNION V. COREY 15

Our federal system grants states substantial discretion to

remedy perceived local problems. But the Constitution

sharply constrains their power to do so at the expense of other

states. Because the majority opinion nullifies any such

limitations, I respectfully dissent from our failure to rehear

this case en banc.

I.

In the Global Warming Solutions Act of 2006, California

pledged to reduce its greenhouse gas emissions to 1990 levels

by the year 2020. To implement this goal, the California Air

Resources Board (CARB) promulgated the Low Carbon Fuel

Standard (Fuel Standard). The Fuel Standard requires

businesses that sell transportation fuels in California to

reduce the “carbon intensity” of their fuels by ten percent

before 2020. As CARB describes it, “[c]arbon intensity is not

an inherent chemical property of a fuel, but rather it is

reflective of the process in making, distributing, and using

that fuel.”

The Fuel Standard explicitly treats in-state and out-of-

state ethanol differently in calculating carbon intensity.2

Indeed, a fuel’s carbon intensity depends in part on the

location where it is produced. All else equal, the regulations

always assign a higher carbon intensity to Midwestern

ethanol than ethanol from California. As such, CARB

predicts that the Fuel Standard will soon eliminate

Midwestern ethanol from the California market. Further, the

regulations sweep beyond the borders of California. Because

2

For the sake of brevity, I focus on the majority’s endorsement of

California’s ethanol regulations. But the panel’s approval of California’s

sweeping crude oil regulations also merited en banc review.

16 ROCKY MOUNTAIN FARMERS UNION V. COREY

a fuel’s carbon intensity depends largely on out-of-state

production and land use decisions, California’s scheme

necessarily affects those processes.

On December 23, 2009, and February 2, 2010, Plaintiffs-

Appellees filed suit in the United States District Court for the

Eastern District of California, contending that California’s

regulations violate the dormant Commerce Clause.

Specifically, two groups of Plaintiffs led by the Rocky

Mountain Farmers Union (Rocky Mountain) and the

American Fuels & Petrochemical Manufacturers Association

challenged the Fuel Standard’s ethanol regulations. On

December 29, 2011, the district court agreed that the ethanol

regulations violate the dormant Commerce Clause, awarded

summary judgment on that basis, and granted Rocky

Mountain’s motion for a preliminary injunction.

On September 18, 2013, a divided panel of our court

reversed and remanded in principal part. According to the

majority, the Fuel Standard’s ethanol regulations do not

facially discriminate against interstate commerce because

California has “good and non-discriminatory reason[s]” for

treating out-of-state ethanol differently. Rocky Mountain

Farmers Union v. Corey, 730 F.3d 1070, 1107 (9th Cir.

2013). The majority further concluded that the regulations do

not have extraterritorial reach because they merely provide

incentives to out-of-state firms. The majority therefore

reversed the judgment of the district court in relevant part,

vacated the preliminary injunction, and remanded to the

district court for consideration of whether the ethanol

regulations “discriminate in purpose or in practical effect.”

Id. at 1078. The panel instructed the district court to apply

strict scrutiny if it finds that they do, and to apply the

balancing test established in Pike v. Bruce Church, Inc.,

ROCKY MOUNTAIN FARMERS UNION V. COREY 17

397 U.S. 137 (1970), if it determines that they do not. Rocky

Mountain Farmers Union, 730 F.3d at 1078. However, the

majority made clear that the outcome of this analysis is

predestined, instructing the district court that the regulations

“incorporate state boundaries for good and non-

discriminatory reason[s].” Id. at 1107.

Judge Murguia concurred in part and dissented in part.

While she agreed with the majority in some respects, she

disagreed regarding the ethanol regulations. Judge Murguia

determined that the ethanol regulations were facially

discriminatory, and she concluded that they failed to

withstand strict scrutiny because California could attempt to

mitigate climate change through non-discriminatory means.

II.

In the name of combating “a new type of harm,” the

majority rejects longstanding dormant Commerce Clause

precedent as mere “archaic formalism.” Rocky Mountain

Farmers Union, 730 F.3d at 1107. I therefore begin with a

brief survey of the doctrine, and its critical place in our

constitutional order.

“During the first years of our history as an independent

confederation, the National Government lacked the power to

regulate commerce among the States,” and “each State was

free to adopt measures fostering its own local interests

without regard to possible prejudice to nonresidents . . . .”

Camps Newfound/Owatonna, Inc. v. Town of Harrison, Me.,

520 U.S. 564, 571 (1997). This “conflict of commercial

regulations, destructive to the harmony of the States . . . . was

the immediate cause that led to the forming of a

[constitutional] convention.” Id. (quoting Gibbons v. Ogden,

18 ROCKY MOUNTAIN FARMERS UNION V. COREY

22 U.S. (9 Wheat.) 1, 224 (1824) (Johnson, J., concurring in

the judgment)). Thus, as Justice Cardozo observed long ago,

the Constitution “was framed upon the theory that the peoples

of the several states must sink or swim together, and that in

the long run prosperity and salvation are in union and not

division.” Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 523

(1935).

To implement the Constitution’s objective of national

economic unity, the Supreme Court “has consistently held

that the Constitution’s express grant to Congress of the power

to ‘regulate Commerce . . . among the several States,’ Art. I,

§ 8, cl. 3, contains ‘a further, negative command, known as

the dormant Commerce Clause . . . .’” Am. Trucking Ass’ns

v. Mich. Pub. Serv. Comm’n, 545 U.S. 429, 433 (2005)

(quoting Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S.

175, 179 (1995)).3 The dormant Commerce Clause promotes

economic integration by “significantly limit[ing] the ability

of States and localities to regulate or otherwise burden the

flow of interstate commerce.” McBurney v. Young, 133 S. Ct.

1709, 1719 (2013) (quoting Maine v. Taylor, 477 U.S. 131,

151 (1986)). “It is driven by a concern about ‘economic

protectionism—that is, regulatory measures designed to

benefit in-state economic interests by burdening out-of-state

3

“The ‘negative’ aspect of the Commerce Clause was considered the

more important by the ‘father of the Constitution,’ James Madison. In one

of his letters, Madison wrote that the Commerce Clause ‘grew out of the

abuse of the power by the importing States in taxing the non-importing,

and was intended as a negative and preventive provision against injustice

among the States themselves, rather than as a power to be used for the

positive purposes of the General Government.’” W. Lynn Creamery, Inc.

v. Healy, 512 U.S. 186, 193 n.9 (1994) (quoting 3 M. Farrand, Records of

the Federal Convention of 1787, at 478 (1911)).

ROCKY MOUNTAIN FARMERS UNION V. COREY 19

competitors.’” McBurney, 133 S. Ct. at 1719 (quoting New

Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273–74 (1988)).

In upholding California’s sweeping and discriminatory

ethanol regulations, the majority brushes aside two

foundational tenets of dormant Commerce Clause

jurisprudence. First, the majority gives short shrift to the

principle that “[s]tate laws that discriminate against interstate

commerce face ‘a virtually per se rule of invalidity.’”

Granholm v. Heald, 544 U.S. 460, 476 (2005) (quoting

Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978)).

Second, the majority abjures the rule that “a state law that has

the ‘practical effect’ of regulating commerce occurring

wholly outside that State’s borders is invalid . . . .” Healy v.

Beer Inst., 491 U.S. 324, 332 (1989).

Until recently, our circuit faithfully applied these

doctrines, striking down parochial state laws that burdened

interstate commerce. See, e.g., Birth Hope Adoption Agency,

Inc. v. Ariz. Health Care Cost Containment Sys., 218 F.3d

1040, 1044–45 (9th Cir. 2000); NCAA v. Miller, 10 F.3d 633,

640 (9th Cir. 1993); BFI Med. Waste Sys. v. Whatcom Cnty.,

983 F.2d 911, 913 (9th Cir. 1993). The majority opinion

represents a dramatic and unwarranted change of course.

III.

The majority’s most basic, and perhaps most

consequential, error is its contention that California’s

regulatory scheme does not facially discriminate against out-

of-state commerce. The majority concludes, in essence, that

the regulations are not discriminatory on their face because

California has “some reason, apart from [its] origin, to treat

[out-of-state ethanol] differently.” Rocky Mountain Farmers

20 ROCKY MOUNTAIN FARMERS UNION V. COREY

Union, 730 F.3d at 1089 (quoting Philadelphia, 437 U.S. at

627). As Judge Murguia observes in dissent, however, this

reasoning “puts the cart before the horse,” and is therefore

“inconsistent with Supreme Court precedent.” Rocky

Mountain Farmers Union, 730 F.3d at 1108 (Murguia, J.,

concurring in part and dissenting in part).

Contrary to the majority’s analytical framework,

“[d]etermining whether a regulation facially discriminates

against interstate commerce begins and ends with the

regulation’s plain language.” Id. Under the dormant

Commerce Clause, “‘discrimination’ simply means

differential treatment of in-state and out-of-state economic

interests that benefits the former and burdens the latter.” Or.

Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99

(1994). “[T]he purpose of, or justification for, a law has no

bearing on whether it is facially discriminatory.” Id. at 100

(citing Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334,

340–41 (1992)).

Further, the language from Philadelphia, 437 U.S. at 627,

on which the majority relies has nothing to do with

determining whether a regulation facially discriminates

against interstate commerce. Rather, it merely shows that

some discriminatory regulations may ultimately survive strict

scrutiny. See United Haulers Ass’n v. Oneida-Herkimer Solid

Waste Mgmt. Auth., 550 U.S. 330, 366 (2007) (Alito, J.,

dissenting) (citing quoted passage from Philadelphia as

example of applying strict scrutiny). Thus, whether

California has good reasons for penalizing Midwestern

ethanol simply has nothing to do with whether the state’s

regulations are facially discriminatory.

ROCKY MOUNTAIN FARMERS UNION V. COREY 21

It is clear that the challenged regulations discriminate

against interstate commerce. Most blatantly, the Fuel

Standard expressly assigns a higher carbon intensity to

Midwestern ethanol, based in part on the greenhouse gas

emissions arising from its transportation to California.

Ethanol produced in-state faces no such penalty. As Judge

Murguia notes, the regulatory scheme therefore

“differentiates between in-state and out-of-state ethanol,

according more preferential treatment to the former at the

expense of the latter.” Rocky Mountain Farmers Union,

730 F.3d at 1108 (Murguia, J., concurring in part and

dissenting in part). Because ethanol from Midwestern states

faces a regulatory burden that chemically identical in-state

ethanol does not, California’s regime is facially

discriminatory. See Or. Waste, 511 U.S. at 99–100. In

concluding otherwise, the majority contravenes black letter

law and renders our dormant Commerce Clause jurisprudence

incoherent.

IV.

The majority compounds its error by concluding that

legitimate local concerns support California’s regulation of

the interstate ethanol market. Because the regulations are

facially discriminatory, any justifications for them must “pass

the ‘strictest scrutiny.’” Id. at 101 (quoting Hughes v.

Oklahoma, 441 U.S. 322, 337 (1979)). To withstand this

searching review, “the statute must serve a legitimate local

purpose, and the purpose must be one that cannot be served

as well by available nondiscriminatory means.” Maine,

477 U.S. at 140. “This is an extremely difficult burden, ‘so

heavy that facial discrimination by itself may be a fatal

defect.’” Camps Newfound, 520 U.S. at 582 (quoting Or.

Waste, 511 U.S. at 101)).

22 ROCKY MOUNTAIN FARMERS UNION V. COREY

California fails to carry its heavy burden. According to

the majority, “[i]f [greenhouse gas] emissions continue to

increase, California may see its coastline crumble under

rising seas, its labor force imperiled by rising temperatures,

and its farms devastated by severe droughts.” Rocky

Mountain Farmers Union, 730 F.3d at 1097. When viewed

against this backdrop, California’s regulatory justifications

appear weighty indeed. But the majority overlooks a critical

fact—the Fuel Standard will not remedy the problem. To the

contrary, CARB acknowledges that “[greenhouse gas]

emission reductions by the [Fuel Standard] alone will not

result in significant climate change.” In other words,

California admits that its scheme will have little to no effect

in averting the environmental catastrophe envisioned by the

majority. This concession alone shows that the regulations

fail strict scrutiny.4

And the defects in California’s ethanol regime go well

beyond its ineffectiveness. While the regulations may not

slow climate change, they will assuredly promote California’s

energy industry at the expense of out-of-state competitors.

CARB acknowledges that the Fuel Standard will “reduc[e]

the volume of transportation fuels that are imported from

other states . . . .” As such, CARB expects that the

regulations will “keep[] more money in the State,” and that

they “will provide needed employment, [and] an increased

tax base for the State . . . .” In short, CARB admits that it

4

As Judge Murguia observes in dissent, the ethanol regulations also fail

strict scrutiny because California could endeavor to reduce greenhouse gas

emissions through non-discriminatory means. California could, for

instance, “treat[] ethanol produced in efficient plants more favorably than

ethanol from inefficient plants . . . .” Rocky Mountain Farmers Union,

730 F.3d at 1109 (Murguia, J., concurring in part and dissenting in part).

ROCKY MOUNTAIN FARMERS UNION V. COREY 23

purposefully “developed the [Fuel Standard] in a manner that

minimizes costs and maximizes the total benefits to

California.”

Of course, states may pass legislation that benefits local

industry. But, “in all but the narrowest circumstances,” they

may not do so at the expense of other states. Granholm,

544 U.S. at 472. In concluding that California’s ethanol

regulations are facially neutral in spite of their overt and

unjustified discrimination against interstate commerce, the

majority departs from settled law and cuts this circuit’s

dormant Commerce Clause jurisprudence loose from its

moorings.

V.

California’s ethanol regulations suffer from another

constitutional defect: they seek to control conduct in other

states. The Supreme Court has clearly and consistently

instructed that “a state law that has the ‘practical effect’ of

regulating commerce occurring wholly outside that State’s

borders is invalid . . . .” Healy, 491 U.S. at 332; see also

Baldwin, 294 U.S. at 521–22. And the ethanol regulations

plainly have extraterritorial reach, as they seek to influence

out-of-state land use decisions and production methods. In

concluding otherwise, the majority disregards controlling

precedent and departs from the holdings of the Supreme

Court and our sister circuits. More fundamentally, the

majority approves a regime that threatens the very sort of

“economic Balkanization that had plagued relations among

the Colonies and later among the States under the Articles of

Confederation.” Granholm, 544 U.S. at 472 (quoting

Hughes, 441 U.S. at 325–26)).

24 ROCKY MOUNTAIN FARMERS UNION V. COREY

The rule that one state “has no power to project its

legislation into” another state, Baldwin, 294 U.S. at 521, is

fundamental to our federal system. It embodies “the

Constitution’s special concern both with the maintenance of

a national economic union unfettered by state-imposed

limitations on interstate commerce and with the autonomy of

the individual States within their respective spheres.” Healy,

491 U.S. at 335–36 (footnotes omitted). Thus, “the

‘Commerce Clause . . . precludes the application of a state

statute to commerce that takes place wholly outside of the

State’s borders, whether or not the commerce has effects

within the State . . . .’” Id. at 336 (quoting Edgar v. MITE

Corp., 457 U.S. 624, 642–43 (1982) (plurality opinion)).

California’s ethanol regulations fail this test.

It is no answer to assert, as the majority does, that the

Fuel Standard merely provides “incentives” that might

influence out-of-state conduct. See Rocky Mountain Farmers

Union, 730 F.3d at 1103–04. By penalizing certain out-of-

state practices, California’s regulations control out-of-state

conduct just as surely as a mandate would, particularly in

view of California’s economic clout. Thus, whether

California’s scheme is characterized as providing

“incentives” or establishing “mandates,” it has the practical

effect of regulating interstate commerce. And, under the

dormant Commerce Clause, “[t]he critical inquiry is whether

the practical effect of the regulation is to control conduct

beyond the boundaries of the State.” Healy, 491 U.S. at 336

(citing Brown-Forman Distillers Corp. v. N.Y. State Liquor

Auth., 476 U.S. 573, 579 (1986)) (emphasis added).5

5

Other courts of appeals have correctly held that Commerce Clause

analysis turns on a law’s practical consequences, not on semantics. See,

e.g., Nat’l Foreign Trade Council v. Natsios, 181 F.3d 38, 69 (1st Cir.

ROCKY MOUNTAIN FARMERS UNION V. COREY 25

Finally, the majority significantly underestimates the risk

that California’s ethanol scheme will spur other states to

enact “the kind of competing and interlocking local economic

regulation that the Commerce Clause was meant to preclude.”

Healy, 491 U.S. at 337. For example, now that the panel

majority has blessed California’s experiment in

extraterritorial regulation, Oregon may move forward with its

own Clean Fuels Program. The majority assures us that the

Oregon program and those of other states will merely

“complement[]” California’s, Rocky Mountain Farmers

Union, 730 F.3d at 1104, but there is no guarantee that this is

so.6 In any event, ethanol producers will soon face the

daunting prospect of navigating several interlocking, if not

entirely contradictory, regulatory regimes. Fragmentation of

the national economy may ensue.

Two brief examples illustrate the point. If California

may, consistent with the dormant Commerce Clause, seek to

influence out-of-state ethanol production, it may just as

legitimately seek to influence any out-of-state conduct with

perceived local effects. Under the majority’s reasoning,

1999), aff’d sub nom. Crosby v. Nat’l Foreign Trade Council, 530 U.S.

363 (2000); Nat’l Solid Wastes Mgmt. Ass’n v. Meyer, 63 F.3d 652,

661–62 (7th Cir. 1995).

6

California recently pledged to align its energy policies with Oregon,

Washington, and British Columbia. Michael Wines, Climate Pact Is

Signed by 3 States and Partner, N.Y. Times, Oct. 30, 2013, at A18. If, as

the majority holds, the Constitution poses no obstacle to California’s

regulation of interstate commerce, there is little reason to doubt that

California may regulate foreign commerce as well. Unsurprisingly, this

conclusion puts us squarely at odds with our sister circuits. See Natsios,

181 F.3d at 69. Further, the grouping of states in this fashion represents

the type of “economic Balkanization” that the Commerce Clause was

intended to prevent. Hughes, 441 U.S. at 325.

26 ROCKY MOUNTAIN FARMERS UNION V. COREY

California could impose regulatory penalties (or grant

“incentives”) to require manufacturers in Texas to pay higher

wages to their employees if they intend to sell their products

in California. Such a measure would, of course, benefit

California to the extent that it would minimize the risk of

competition from Texas businesses, with their lower labor

costs. But under the same logic, Texas could—and assuredly

would—respond in kind, perhaps by penalizing California

agriculture on account of its reliance on costly irrigation

methods.

Similarly, California could—under the majority’s

reasoning—penalize out-of-state wineries to account for the

environmental effects of transporting their wines to

California. Like the Fuel Standard, such a regulation would

promote California businesses at the expense of out-of-state

interests. And, also like the Fuel Standard, such a regulation

could lead to destructive interstate retaliation.7

The very purpose of the dormant Commerce Clause is to

ensure that “[r]ivalries among the States are . . . kept to a

minimum, and a proliferation of trade zones is prevented.”

Granholm, 544 U.S. at 472 (citing C & A Carbone, Inc. v.

Town of Clarkstown, N.Y., 511 U.S. 383, 390 (1994)). Until

the majority’s ruling, the dormant Commerce Clause guarded

against such economic fragmentation. See Baldwin, 294 U.S.

at 524 (explaining that a state may not “condition importation

7

In his concurrence in the denial of rehearing en banc, Judge Gould

relies on Pharmaceutical Research & Manufacturers of America v. Walsh,

538 U.S. 644, 669 (2003), for the proposition that California may

legitimately regulate in-state commerce with the goal of influencing out-

of-state conduct. But nothing in Walsh repudiates the principle that a state

may not close its borders to out-of-state goods unless exporters alter their

out-of-state conduct. See Baldwin, 294 U.S. at 524.

ROCKY MOUNTAIN FARMERS UNION V. COREY 27

upon proof of a satisfactory wage scale in factory or shop”).

Now, the dormant Commerce Clause has been rendered

toothless in our circuit, and we stand in open defiance of

controlling Supreme Court precedent.

VI.

The majority opinion in this case upholds a regulatory

scheme that, on its face, promotes California industry at the

expense of out-of-state interests. The majority opinion also

sanctions California’s clear attempt to project its authority

into other states. Because the Constitution forbids such an

expansive and discriminatory exercise of state power over

interstate commerce, I respectfully dissent from our failure to

rehear this case en banc.