Amicus Curiae Brief — West Lynn Creamery, Inc. v. Healy

No. 93-141

seca “ou m EpY

Supreme Court of the United States renal :

OCTOBER TERM, 1993

WEST LYNN CREAMERY, INC., AND

LECOMTE’S DAIRY, INC..,

Petitioners,

i Vv.

JONATHAN HEALY, COMMISSIONER,

MASSACHUSETTS DEPARTMENT OF

FOOD AND AGRICULTURE,

Respondent.

On Writ of Certiorari

to the Supreme Judicial Court of Massachusetts

BRIEF OF MASSACHUSETTS ASSOCIATION OF DAIRY

FARMERS, GORDON M. COOK, DAVID W. DUPREY,

WARREN E. FACEY, DONALD LEAB,

MASSACHUSETTS FARM BUREAU FEDERATION, INC.

AND MASSACHUSETTS COOPERATIVE MILK

PRODUCERS FEDERATION, INC. AS AMICI CURIAE

IN SUPPORT OF RESPONDENT

e

ERWIN N. GRISWOLD

(Counsel of Record)

GREGORY A. CASTANIAS

JONES, DAY, REAVIS & POGUE

Metropolitan Square

1450.G Street, N.W.

Washington, D.C. 20005-2088

(202) 879-3939

oe eee

—

AVAILABLE COPY;

a

ALLEN TUPPER BROWN

58 River Road

Gill, Massachusetts 01376

(413) 863-3100

Counsel for Amici Curiae

—

Fe)

Adhd

co

'

t

.

|

b

:

aio

TABLE OF CONTENTS

Page

CAs Ge ECU vce cece cr euecsenn iii

INTEREST OF THE AMICI ...... Tre Te ey l

as a euh ws o 6 wa ee Oe eee ee ee 2

SUMMARY OF ARGUMENT .................. 4

SE”. 6s db SEW se Se tS oe hdceer ee 5

I.

II.

III.

IV.

THE SO-CALLED "PRICING ORDER" HAS THE EFFECT OF

A TAX ON SALES OF MILK By DEALERS IN

i ee ts a es wi 6

THE NONDISCRIMINATORY PREMIUM IMPOSED UPON ALL

FRESH MILK SOLD IN MASSACHUSETTS DoEs Not

VIOLATE THE DORMANT COMMERCE CLAUSE ...... 8

A. The Burden Falls On Massachusetts Consumers... 8

B. In Any Event, The Pricing Order Is Not

IE re ee 10

THE COMMONWEALTH’S SUBSIDIZATION OF DOMESTIC

DAIRY FARMERS DOES NOT VIOLATE THE DORMANT

eR EER ee a ec oe OE ae ke a a 14

THE FACT THAT THE PREMIUM PAYMENTS ARE

SPECIFICALLY EARMARKED TO SUBSIDIZE

MASSACHUSETTS DAIRY FARMERS HAS No

CONSTITUTIONAL SIGNIFICANCE ............... 17

Ee ee ee ee ee er ee 21

(i)

(ii)

TABLE OF AUTHORITIES

Page

Cases

Bacchus Imports, Ltd. v. Dias,

ot eee eee ee eee ee 14

Baldwin v. G.A.F. Seelig, Inc.,

wack a tec tee cc ceseces 11, 12

Carmichael v. Southern Coal & Coke Co.,

i Ek wee te ee cece neces 19

Complete Auto Transit, Inc. v. Brady,

cee. bs cece ees e eles 11

Eastern Air Transport, Inc. v. South

Carolina Comm’n, 285 U.S. 147 (1932) ........... 7

Felt & Tarrant Mfg. Co. v. Gallagher,

kee ese see ecceeses 7

Henneford v. Silas Mason Co. ,

ek cee etc e eee sees 7

Hughes v. Alexandria Scrap Corp. ,

EE ee 8, 15

International Harvester Co. v. Department

of Treasury, 322 U.S. 340 (1944) .............. 11

Lacoste v. Department of Conservation,

ES OLE EEE 18

McGoldrick v. Berwind-White Coal Mining Co..,

ae. ete Geese cee te ce 18

Metropolitan Life Ins. Co. v. Ward,

EES OE ee 14, 15

Milk Control Bd. v. Eisenberg Farm Prods..,

EEE 11

Monamotor Oil Co. v. Johnson,

TEs cc oc eek ec cee seen 7

Nelson v. Sears, Roebuck & Co..,

es ee chee eee eens 18

New Energy Co. of Indiana v. Limbach,

ee ea tet pees ee ees 14

New York Rapid Transit Corp. v.

City of New York, 303 U.S. 573 (1938) ........ 18, 19

(iii)

TABLE OF AUTHORITIES (Cont’d)

Page

Pike v. Bruce Church, Inc..,

CE 11

Reeves, Inc. v. Stake, 447 U.S. 429 (1980) ........ 15, 17

Schwegmann Bros. Giant Super Mkts. v.

Louisiana Milk Comm’n, 365 F. Supp. 1144

(M.D. La. 1973), aff'd, 416 U.S. 922 (1974) ....... 13

Sonneborn Bros. v. Cureton,

RR 11

Southern Pacific Co. v. Gallagher,

a ED ccc cc cccccccccccccccces 7

Trinova Corp. v. Michigan Dep’t of Treasury,

498 U.S. 358 (1991) .........0.0 000. ee ee 18

United States v. Butler, 297 U.S. 1 (1936) .......... 19

Usery v. Turner Elkhorn Mining Co. .,

GE DOE co veccccersccccccccccccees 20

Woodruff v. Parham, 75 U.S. (8 Wall.) 123 (1869) ...... 7

Constitutional Provisions & Statutes

U.S. Const., art. 1, §8 ............0.0 000005. 19

Agricultural Adjustment Act of May 12, 1933,

c. 25, § 9(a), 48 Stat. 31 2.2.2... 2. ee ee ee 19

Black Lung Benefits Act of 1972, Pub. L.

No. 92-303, § 7, 86 Stat. 150 ................ 20

Mass. Gen. Laws Ann. ch. 94A

(West 1984 & Supp. 1993) ................. 3, 10

Miscellaneous Authorities

American Heritage Dictionary

(2d college ed. 1991) ... 2... ee eee, 6

Black’s Law Dictionary (6th ed. 1990) ............. 18

Richard B. Collins, Economic Union as a Constitutional

Value, 63 N.Y.U. L. Rev. 43 (1988) .......... 12, 14

(iv)

TABLE OF AUTHORITIES (Cont'd)

Page

William B. Lockhart, The Sales Tax in Interstate Commerce,

Se, as ED ki ccvcctseeeenseess 7

2 Ronald D. Rotunda & John E. Nowak, Treatise on

Constitutional Law: Substance and Procedure § 11.8

Sa Pe oe 17

Kevin Sack, Proposing a Manhattan Stadium Is a Risky Play

for Cuomo and His Team, N.Y. Times, Oct. 3, 1993,

Pere de ae eel eee eh ek ooo} a 17

Laurence H. Tribe, American Constitutional Law

ee ae Be eee ales so 6 & 6 20

Jonathan D. Varat, State “Citzenship” and Interstate

Equality, 48 U. Chi. L. Rev. 487 (1981) ......... 12

IN THE

Supreme Court of the United States

OCTOBER TERM, 1993

No. 93-141

WEST LYNN CREAMERY, INC., and

LECOMTE’S DAIRY, INC.,

Petitioners,

Vv.

JONATHAN HEALY, COMMISSIONER,

MASSACHUSETTS DEPARTMENT OF

FOOD AND AGRICULTURE,

Respondent.

On Writ of Certiorari

to the Supreme Judicial Court of Massachusetts

BRIEF OF MASSACHUSETTS ASSOCIATION OF DAIRY

FARMERS, GORDON M. COOK, DAVID W. DUPREY,

WARREN E. FACEY, DONALD LEAB,

MASSACHUSETTS FARM BUREAU FEDERATION, INC.

AND MASSACHUSETTS COOPERATIVE MILK

PRODUCERS FEDERATION, INC. AS AMICI CURIAE

IN SUPPORT OF RESPONDENT

INTEREST OF THE AMICT

The Massachusetts Association of Dairy Farmers (the

" Association") is an unincorporated association of milk producers

located in the Commonwealth of Massachusetts. Messrs. Cook,

” Counsel for all parties have consented to the filing of this brief amici

curiae. Amici have filed those consents with the Clerk of this Court.

2

Duprey, Facey and Leab are members of the Association and are

Owners and operators of dairy farms within the Commonwealth.

Massachusetts Farm Bureau Federation, Inc. (the “Federation")

is am incorporated, not-for-profit organization consisting of

members of all segments of the Massachusetts agricultural

industry, including approximately eighty-six percent of the dairy

farms in Massachusetts. Massachusetts Cooperative Milk

Producers Federation, Inc. (the "Co-op"), a Massachusetts not-

for-profit corporation, is a marketing cooperative of approxi-

mately seventy Massachusetts dairy farmers. The Association, the

four individuals, and the dairy farming members of the Federation

and the Co-op are hereafter referred to as the "Producers."

The Producers’ farms are part of the dairy industry which the

Massachusetts Commissioner of Food and Agriculture declared to

be in a state of emergency, thus bringing into effect the Milk

Pricing Order which is the subject of Petitioners’ attacks. The

Producers have a direct interest in sustaining the validity of the

Milk Pricing Order in order to avoid the loss of their farms.

The Producers support the decision of the Massachusetts

Supreme Judicial Court that upheld the constitutionality of the

Milk Pricing Order, and support the position of Respondent in

this Court.

STATEMENT

1. In 1992, the Massachusetts Commissioner of Food and

Ay culture "determined that an emergency of unprecedented

proportions exists within the Massachusetts dairy industry." J.A.

30. The Commissioner's declaration of emergency was

underscored by these findings:

(a) In 1991, the average Massachusetts dairy farmer

received $12.64 per hundredweight of milk (approximately 11.6

gallons), but it cost farmers an average of $15.50 to produce that

same amount of milk (J.A. 27); and “the price of milk in

Massachusetts [is] twenty-six cents a gallon less than the national

average” (J.A. 18);

3

(b) Because of this economic shortfall, Massachusetts

dairy farmers “are no longer able to pay for feed for the[ir] cows,

have been forced to mortgage homes which have been in their

families for generations, are working twelve hours, seven days a

week to operate at a loss while being forced to forsake such basic

necessities as medical insurance for their families" (J.A. 27-28);

(c) Absent some form of relief, according to a professor

at the University of Massachusetts, the Commonwealth would lose

one-third of its remaining dairy farms in the next year (J.A. 28);

(d) The collapse of the local dairy industry would pose

an immediate threat to the supply of fresh milk available to

Massachusetts consumers: For instance, “farmers have petitioned

the [United States Department of Agriculture] to allow shipments

of powdered milk to be trucked to states like Massachusetts,

reconstituted, and treated as Class I fluid milk, despite significant

losses of flavor and nutritional value during processing and

shipping" (J.A. 29); it is a reasonable inference that this proposed

"reconstituted" milk, which is to be “treated as Class I fluid

milk," will be sold in Massachusetts without labelling to indicate

that it has been “powdered” and "reconstituted"; and

(e) The loss of its dairy farms would also seriously

endanger the remaining rural aspects of the Commonwealth:

"Without the continued existence of dairy farmers, the

Commonwealth will lose its supply of locally produced fresh

milk, together with the open lands that are used as wildlife

refuges, for recreation, hunting, fishing, tourism, and education."

J.A. 13.

2. Consistent with the finding of an emergency, and pursuant

to Massachusetts General Laws Annotated ch. 94A, §§ 10-12

(West 1984 & Supp. 1993), the Commissioner on February 26,

1992 issued an order which he called a “Pricing Order,"

“designed to boost the amount of money local dairy farmers . . .

receive for milk above and beyond that required by the Federal

{milk pricing) program." J.A. 121.

4

3. The Pricing Order works in this fashion:

(a) Each milk “dealer"' reports the amount of Class |

milk (milk consumed as fluid and not processed into other

products) which that dealer sold within the Commonwealth of

Massachusetts during the preceding month. J.A. 34-35.

(b) The volume of Class I milk sold by the dealer in the

prior month is then multiplied by an “order premium" -- one-third

of the difference between the federally set "blend price" and the

Commissioner-set target price. J.A. 35-36.

(c) The resultant amount is paid by the dealer into the

Massachusetts Dairy Equalization Fund (“Equalization Fund").

J.A. 35.

(d) Monies in the Equalization Fund are then distributed

to Massachusetts milk “producers”? in proportion to the milk

produced by that producer during the preceding month. J.A. 36-

38.

SUMMARY OF ARGUMENT

The Pricing Order under scrutiny consists of two principal

elements: (1) It imposes a nondiscriminatory premium upon

every unit of milk sold in the Commonwealth of Massachusetts,

from whatever source; and (2) it provides for the payment of a

subsidy, out of the Equalization Fund created from those

' The Massachusetts Department of Food and Agriculture defines a milk

“dealer” as "any person who is engaged within the Commonwealth in the

business of receiving, purchasing, pasteurizing, bottling, processing,

distributing, or otherwise handling milk." J.A. 32-33; see also J.A. 119

n.3. Each of the Petitioners is a milk dealer. J.A. 119.

* The Department of Food and Agriculture defines a "producer" as "any

person producing milk from dairy cattle" -- i.e., dairy farmers. J.A.

33; see also J.A. 120 n.4. Each of the individual amici is a milk

“producer” within the Department’s definition.

5

premiums, to the Commonwealth’s dairy farmers in order to aid

in their continued survival.

Three propositions support the constitutionality of the

Commissioner’s Order. One, this Court’s decisions make clear

that a State may constitutionally impose a nondiscriminatory

premium upon a wholly in-State transaction. Two, a State may

provide a subsidy to support a local industry without running

afoul of the Constitution. Three, it is constitutionally inconse-

quential that the subsidy is related to the premium payments.

Since the order at issue accomplishes the permissible goal of

saving Massachusetts’ dairy industry without discriminating

against or impermissibly burdening interstate commerce, the

decision of the Massachusetts Supreme Judicial Court, sustaining

the Pricing Order, should be affirmed.

ARGUMENT

These amici support the basic arguments presented in the brief

filed on behalf of the Commissioner of the Massachusetts

Department of Food and Agriculture. In an effort to be of

assistance to the Court, and in the interest of the amici, counsel

submit the further arguments which are set out in this brief.

Petitioners’ contentions are summed up in three sentences

from their Brief:

The Massachusetts court reasoned that the Pricing Order is

“evenhanded in its application" because "[a}ll milk dealers that

sell Class I milk for consumption in Massachusetts are

required to contribute to the Fund." . . . But it is not just

who contributes to the Fund that is the gravamen; it is also

who takes out of the Fund. Almost all money paid into the

Fund comes from out-of-state milk sources, while all the

money paid out is given to in-state producers.

Petitioners’ Brief ("Pet. Br.") 24.

6

Petitioners’ understanding of the Pricing Order is largely

correct. The Order does impose a nondiscriminatory premium

upon all milk sold by dealers within Massachusetts’ borders. And

those whom the Fund benefits are only those milk producers

located within the Commonwealth. The flaw in Petitioners’

assessment of the Pricing Order is found in the third sentence; the

money paid into the Fund is paid by dealers, but it does not

follow that "all money paid into the Fund comes from out-of-state

milk sources." On the contrary, all money paid into the Fund

comes from a premium imposed only on the sale of milk within

Massachusetts. And the burden of the payment does not fall out

of State, but upon Massachusetts consumers. The result is not

enough to show a violation of the "dormant" Commerce Clause.

I.

THE SO-CALLED "PRICING ORDER" HAS THE

EFFECT OF A TAX ON SALES OF MILK BY DEALERS

IN MASSACHUSETTS.

As the Pricing Order under attack was issued by an executive

agency, though pursuant to a state statute, the assessed premium

is not referred to as a “tax."* It is clear, though, that the

premium bears many resemblances to a "tax" -- it is imposed by

the government and it is paid into a government fund which is

distributed in order to serve a public purpose. What Petitioners

and their amici fail to recognize is that their proposed

interpretation of the dormant Commerce Clause would not only

affect "Pricing Orders" and similar government actions; it would

* The question is also affected by the "no new taxes” atmosphere which

is quite often found today. Thus, government officers generally avoid

referring to exactions like this as a "tax" and prefer to use other

language to describe the payment. It does appear, however, that "the

amount owed to the fund" is "[a} contribution for the support of a

government required of persons, groups, or businesses within the

domain of that government." American Heritage Dictionary 1246 (2d

college ed. 1991).

7

also work a profound change upon this Court’s State-tax

jurisprudence under the dormant Commerce Clause. Indeed, the

"Pricing Order" in practical effect is a taxing provision requiring

a payment to the government on ail sales of fluid milk within

Massachusetts. When so recognized, its constitutionality should

be undisputed.

Although labeled a "Pricing Order," the Order under attack

does not fix the price which the milk dealer must pay for milk

produced outside Massachusetts. Rather, the minimum price to

be paid to the producers for such milk is fixed by federal orders.

The Pricing Order specifically provides, in its preamble, that

"[t]he price the farmer is paid for his milk is established by a

highly regulated federal pricing system." J.A. 32.

The Pricing Order has essentially the same effect as a sales tax

on all fluid milk sold by dealers in Massachusetts. Without any

reference to the dealer’s cost for milk purchased from producers,

it adds a charge when the milk is resold in Massachusetts for use

as ClassI milk. The result is in substance a tax paid to

Massachusetts for all such milk sold within Massachusetts

(regardless of where that milk was originally produced). The sale

which is subjected to this charge occurs within Massachusetts, and

the payment to the Commonwealth under the order is simply a

cost of doing business, like a sales tax or the cost of

transportation of the milk to the point of sale. The assessment of

the premium is completely non-discriminatory and is fully

applicable to milk produced both within and outside of

Massachusetts. The power to impose such a "tax" -- even upon

goods which originate out-of-State -- is firmly established in this

Court’s decisions. Woodruff v. Parham, 75 U.S. (8 Wall.) 123

(1869); Eastern Air Transport, Inc. v. South Carolina Comm'n,

285 U.S. 147 (1932); Monamotor Oil Co. v. Johnson, 292 U.S.

86 (1934); Henneford v. Silas Mason Co., 300 U.S. 577 (1937);

Felt & Tarrant Mfg. Co. v. Gallagher, 306 U.S. 62 (1939);

Southern Pacific Co. v. Gallagher, 306 U.S. 167 (1939). See

also William B. Lockhart, The Sales Tax in Interstate Commerce,

52 Harv. L. Rev. 617 (1939).

8

THE NONDISCRIMINATORY PREMIUM IMPOSED

UPON ALL FRESH MILK SOLD IN MASSACHUSETTS

DOES NOT VIOLATE THE DORMANT COMMERCE

CLAUSE.

A. The Burden Falls On Massachusetts Consumers.

Throughout the Petitioners’ brief, the contention is frequently

made that the burden of the Pricing Order will fall on out-of-State

producers -- in other words, that they will receive less for their

milk than they would in the absence of the premium.‘

There is little if any competent evidence in the record

supporting this contention. On the contrary, it seems clear that

the chief burden of the charge is borne not by out-of-State

producers, but by Massachusetts consumers of milk bought at

retail outlets, such as at grocery stores and supermarkets, or by

dealers that chose, for competitive reasons, to absorb a part of the

assessment as they might with any other cost. See J.A. 59. The

dealer will base his charge for the milk to retailers on all his

costs, which will include (a) the price paid to the farmer, (b) the

price of transportation into Massachusetts, and (c) the amount of

the Massachusetts premium, together with its other costs of doing

business. Cf. Hughes v. Alexandria Scrap Corp., 426 U.S. 794,

810 (1976). Since the premium is imposed equally on all dealers,

it has no direct competitive effect. All or most of the dealer’s

costs, with an appropriate profit, will be passed on to the retailer,

who, after a suitable markup, will fix his price to consumers in

Massachusetts. Since all milk, wherever produced, will be

subject to the Massachusetts premium, and not subject to non-

taxed competition, the cost burden will fall on Massachusetts

* Petitioners, both of whom are milk dealers located within the

Commonwealth of Massachusetts, nonetheless claim a Commerce Clause

injury in that "the Pricing Order is more economically harmful to out-of-

state farmers, and those who deal with them." Pet. Br. 19 n.17

(emphasis added).

9

consumers. The Supreme Judicial Court below (the only court

below that reviewed the record) concluded that "[t]he premiums

required under the pricing order may have detrimental financial

impacts on milk dealers such as West Lynn and LeComte, but

those detrimental impacts alone do not in our view run afoul of

the commerce clause. Rather, the premiums represent one of the

costs of doing business in the Commonwealth, a cost all milk

dealers must pay." J.A. 130.

The premium clearly has little, if any, impact on the price

received by producers outside of Massachusetts. Any impact on

out-of-State producers will be incidental, at most. Petitioners’

own expert witness testified via affidavit that the "primary

consumer impact is in the higher price that must be paid for

Massachusetts milk." J.A. 75. Even the President and Chief

Executive Officer of Petitioner West Lynn Creamery, Inc.

conceded that the Creamery passed the costs on to its

Massachusetts customers: ". .. we attempted to pass on these

costs. We’re not going to hide the fact that we attempted to pass

it on to all our customers." J.A. 58, 65. Indeed, the only injury

that Petitioner West Lynn Creamery has itself suffered is a

claimed monthly cost of $30,000 to $50,000 "to fund this tax

payment." J.A. 58. This cost, however, is attributable not to

any constitutional violation on the part of Massachusetts, but to

West Lynn Creamery’s own business judgment, since it has

chosen to pass on only about half of the cost of the premium to

its customers. Jd. And West Lynn is a Massachusetts

corporation, carrying on its operations, including these sales, in

Massachusetts.

The burden of proof in this case is on the Petitioners, who

were the plaintiffs in the trial court. They have not produced any

evidence which shows that the burden of the tax will fall, in any

significant degree, outside the Commonwealth. In fact, the

evidence which they have produced shows that Massachusetts

consumers have borne the burden of the charge. On this record,

it must be concluded that the burden of the tax falls on

Massachusetts consumers, who may petition the Massachusetts

legislature if, in the future, they become unwilling to pay a few

10

pennies more for milk in order to preserve the dairy farms of the

Commonwealth.

B. In Any Event, The Pricing Order Is Not Discrimina-

tory.

Petitioners claim that the Pricing Order is discriminatory in

purpose and effect, and therefore per se invalid. See Pet. Br. 16-

31. It is not. Petitioners, and to a large extent their amici as

well, reach this conclusion by erroneously focusing their attention

not upon the incidence of the tax, but upon the recipients of the

subsidy paid from the tax.

1. By properly focusing on the incidence of the premium, it

is plain that the Order is nondiscriminatory. To sell milk on the

wholesale level in Massachusetts, a milk dealer -- whether located

within or without the Commonwealth — must be licensed by the

Commonwealth of Massachusetts. See Mass. Gen. Laws Ann.

ch. 944A, §5 (West 1984 & Supp. 1993); see also Pet. Br. 3.

The Pricing Order imposes a premium upon each unit of milk

sold within the Commonwealth by a Massachusetts-licensed

dealer; it is irrelevant to the Pricing Order whether that dealer is

located within or without Massachusetts. Nor is it relevant to the

Pricing Order where the milk was originally produced.

Despite the undisputable fact that the Pricing Order applies

only to sales of fluid milk which occur with... Massachusetts,

Petitioners nonetheless seek immunity from paying premiums

based simply on the fact that they originally purchased the taxed

milk from an out-of-State source. Of course, this is completely

contrary to this Court’s Commerce Clause jurisprudence, which

holds that essentially local actions which benefit in-State interests

do not run afoul of the Commerce Clause:

Every state police statute necessarily will affect interstate

commerce in some degree, but such a statute does not run

counter to the grant of Congressional power merely because

it incideptally or indirectly involves or burdens interstate

commerce. . . . These principles . . . not only are inevitable

corollaries of the constitutional provision, but their unimpaired

11

enforcement is of the highest importance to the continued

existence of our dual form of government.

Milk Control Bd. v. Eisenberg Farm Prods. , 306 U.S. 346, 351-

52 (1939) (footnote omitted). See also Pike v. Bruce Church,

Inc., 397 U.S. 137, 142 (1970).

But, more drastically, Petitioners’ proposed rule wouid wholly

ignore a fundamental proposition established by this Court’s State-

tax precedents, that goods sold in-State are not immune from State

sales taxes merely because they originate outside the taxing State.

See, e.g., McGoldrick v. Berwind-White Coal Mining Co., 309

U.S. 33, 58 (1940) (sustaining sales tax "conditioned upon a local

activity, delivery of goods within the state upon their purchase for

consumption. It is an activity which apart from its effect on the

commerce, is subject to the state taxing power"); Sonneborn Bros.

v. Cureton, 262 U.S. 506, 508-09 (1923). Thus in Jnternational

Harvester Co. v. Department of Treasury, 322 U.S. 340, 346

(1944), this Court said that where a local transaction is made the

taxable event and that event is separate and distinct from the

transportation or intercourse which is interstate commerce, no

violation of the Commerce Clause occurs. That is precisely the

case here.

Under this Court’s four-part test for determining the

constitutionality of State taxes under the Commerce Clause, see

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977),

the Pricing Order would pass muster because (1) it is “applied to

an activity with a substantial nexus with" Massachusetts -- the sale

of milk in the Commonwealth; (2) it "is fairly apportioned,"

because no other State could impose such a premium upon the

same sale, and the amount of the premium is proportional to the

business transacted in Massachusetts; (3) it "does not discriminate

against interstate commerce" because it applies equally to all milk

dealers; and (4) it "is fairly related to services provided by the

State," such as police and highway services available to milk

dealers who transact business within the Commonwealth.

2. Petitioners and their amici have also attempted to force

their case into this Court’s decision in Baldwin v. G.A.F. Seelig,

12

Inc., 294 U.S. 511 (1935). In so doing, however, Petitioners

have glossed over the important differences between that case and

this one. In Baldwin, New York had established minimum prices

to be paid to in-State milk producers by milk dealers, a plainly

proper system which “has support in our decisions." Jd. at 519

(citing cases). However, the statute in Baldwin, unlike the

Pricing Order here, also banned the sale of milk imported from

another State unless the same minimum price had been paid to the

out-of-State farmers. Jd. This Court held that the latter

requirement ran afoul of the Commerce Clause: New York,

which had no sovereign interest in the well-being of Vermont's

farmers, was plainly requiring the Vermont farmers to receive the

same minimum prices -- not to preserve Vermont’s dairy farms,

but merely "[t]o keep the system unimpaired by competition from

afar." Id.°

The Pricing Order under attack here thus is far different from

the statute at issue in Baldwin. For one thing, the incidence of

the tax does not fall beyond Massachusetts’ borders, unlike the

situation in Baldwin, where New York "project[ed] its legislation

into Vermont by regulating the price to be paid in that state for

milk acquired there." Jd. at 521. Rather, Massachusetts imposes

the milk premium upon a wholly in-State transaction -- the sale of

milk, within Massachusetts’ borders, by a Massachusetts-licensed

* Ironically, the State of Vermont now objects to the fact that the

Massachusetts Order does not reach across State borders and pay

premiums to Vermont farmers. See Br. Amicus Curiae of State of

Vermont 2, 3, 4, 7. It is, however, "hard to see why out-of-state

traders should have a federal right to share in commerce created by the

state." Richard B. Collins, Economic Union as a Constitutional Value,

63 N.Y.U. L. Rev. 43, 102 (1988). See also Jonathan D. Varat, State

"Citzenship” and Interstate Equality, 48 U. Chi. L. Rev. 487, 540-41

(1981) ("When the states spend money directly on private parties, either

through subsidies or through payments for goods and services, they

would appear to have the strongest justification for preferring residents

as the recipients of those funds").

13

milk dealer. Indeed, the costs of that premium are ultimately

passed on to Massachusetts’ milk consumers, who -- if they are

not willing to pay a few cents extra for each gallon of milk in

order to subsidize the Commonwealth’s endangered dairy farms --

may avail themselves of the Massachusetts political processes in

order to rescind the Order. Since the Pricing Order has only an

intrastate reach, it does not implicate the same concerns for

national economic unity as did the overreaching statute struck

down in Baldwin.

Another important distinction between the statute at issue in

Baldwin and the Pricing Order under attack here is that the latter

does not "set a barrier to traffic between one state and another,"

as did the statute at issue in Baldwin. Rather, the Pricing Order

imposes a premium on an in-State transaction which funds a

subsidy for in-State dairy farmers. As the Massachusetts Supreme

Judicial Court correctly recognized, "[t}he constitutional infirmity

in Baldwin was not New York State’s desire to aid its farmers to

the exclusion of out-of-State farmers but, rather, the protectionist

nature of the regulation." J.A. 129.

Thus, the Pricing Order does not discriminate against

interstate commerce, for it is in substance and effect like a sales

tax (or value added tax) imposed upon each unit of fresh milk

sold within the Commonwealth, without regard to the place where

the milk was produced. It does not in any way extend itself to

transactions which take place beyond the Commonwealth’s

borders. Since the Pricing Order at issue suffers from neither of

these claimed defects, it does not violate the Commerce Clause.

* Compare Schwegmann Bros. Giant Super Mkts. v. Louisiana Milk

Comm'n, 365 F. Supp. 1144, 1156 (M.D. La. 1973) (three-judge court)

(“there is no constitutional infirmity in a state regulation requiring that

purely in-state transactions be governed by the Commission's pricing

schedules . . . even though the product sold within the state and whose

selling price is there regulated, originates outside of the state"), aff'd,

416 U.S. 922 (1974).

14

THE COMMONWEALTH’S SUBSIDIZATION OF

DOMESTIC DAIRY FARMERS DOES NOT VIOLATE

THE DORMANT COMMERCE CLAUSE.

Petitioners’ brief, and the briefs of their amici, are free in

their accusations of “economic protectionism" in the Pricing

Order. They say that since all milk dealers, in-State or out, are

taxed, but only in-State milk producers benefit from the subsidy,

the Commerce Clause is somehow violated. Petitioners seem to

believe that any effort by a State to assist local business interests,

which is funded by a tax levied upon a wholly in-State transaction

in which both in-and out-of-State businesses engage, is a violation

of the Commerce Clause. This is not an accurate reflection of

this Court’s decisions.’

Many cases support the right of a State to promote its own

industries: “{P]romotion of local industry is a legitimate state

interest in the Commerce Clause context." Metropolitan Life Ins.

Co. v. Ward, 470 U.S. 869, 877 n.6 (1985). See also Bacchus

Imports, Lid. v. Dias, 468 U.S. 263, 271 (1984) ("a State may

enact laws pursuant to its police powers that have the purpose and

effect of encouraging domestic industry").

Indeed, such promotion can take the form of a subsidy paid to

local industries, but not to foreign ones, so long as the subsidy

has a rational basis. “Direct subsidization of domestic industry

does not ordinarily run afoul of [the Commerce Clause]

prohibition; discriminatory taxation of out-of-state manufacturers

does." New Energy Co. of Indiana v. Limbach, 486 U.S. 269,

’ Accord Collins, supra n. 5, at 103: "Yet, the state treasury and state

property are, for the most part, simply accumulations of state taxes,

collected from out-of-state merchants as well as locais. Even so,

reservation of resources for state citizens exports costs to a lesser degree

than laws that selectively impose on outsiders. The treasury and other

property of a state are sufficiently related to the tax burden on its own

citizens to restrain subsidies by normal political discipline.”

15

278 (1988); see also Hughes v. Alexandria Scrap Corp., 426 U.S.

at $16 (Stevens, J., concurring); Metropolitan Life Ins. Co. v.

Ward, 470 U.S. at 895 (O’Connor, J., dissenting) ("Moreover,

the Court has held in the dormant Commerce Clause context that

a State may provide subsidies or rebates to domestic but not to

foreign enterprises if it rationally believes that the former

contribute to the State’s welfare in ways that the latter do not.").

Petitioners point to no constitutional requirement that the subsidy

must be funded from taxes bearing solely on in-State interests,

and indeed they cannot.*

Here, it is plain that Massachusetts dairy farms contribute to

the Commonwealth’s welfare in ways that out-of-State dairy farms

cannot. As the Governor’s Special Commission Relative to the

Establishment of a Dairy Stabilization Fund found, Massachusetts’

dairy farmers “have been the stewards of the commonwealth’s

land since the first decade of the sixteenth [sic; perhaps

* Two of Petitioners’ amici, the Milk Industry Foundation and the Food

Marketing Institute, suggest in their joint brief (at p. 24) that this Court

has approved subsidies only where the State "limits benefits generated

by a state program to those who fund the state treasury" (quoting

Reeves, Inc. v. Stake, 447 U.S. 429, 442 (1980)). This quotation from

Reeves is cropped and incomplete. In full, it is not helpful to Petitioners

or their amici:

We find the label “protectionism” of little help in this context. The

State’s refusal to sell to buyers other than South Dakotans is

"protectionist" only in the sense that it limits benefits generated by

Se ee ee aa ea aD

was created to serve. Petitioner's argument apparently also

would cduasastesian 05 “pestestioniet” oulee sectdeting to cate

residents the enjoyment of state educational institutions, energy

generated by a state-run plant, police and fire protection, and

agricultural improvement and business development programs. Such

policies, while perhaps “protectionist” in a loose sense, reflect the

essential and patently unobjectionable purpose of state government

-- to serve the citizens of the State.

Reeves, Inc., 447 U.S. at 442 (emphasis added).

16

seventeenth was intended] century. . . . Without the continued

existence of dairy farmers, the Commonwealth will lose its supply

of locally produced fresh milk, together with the open lands that

are used as wildlife refuges, for recreation, hunting, fishing,

tourism and education." J.A. 12-13. At public hearings, citizens

of the Commonwealth "expressed concern over losing the rural

character of Massachusetts." “The overriding concern" expressed

by Massachusetts’ citizens in public testimony “was not that the

retail price of milk would be raised, but that the natural

characteristics of the Commonwealth would be gone forever if we

lost our dairy industry." J.A. 17.’

The Commerce Clause surely does not stand as a bar to a

State’s efforts to preserve its countryside. With these important

State concerns in mind, Massachusetts could appropriately

subsidize its dairy farms in order to preserve a bit of its rural and

rustic heritage, as well as a continuous supply of locally produced

fresh milk. The Special Commission’s findings make clear that

Massachusetts” citizens were only too willing to pay the "two

cents increase per quart of milk" (J.A. 18) which was estimated

to follow from the Pricing Order, in order to preserve the

Commonwealth’s dairy farms.

In fact, it is common for States to subsidize local interests in

similar ways. States may institute farm extension programs.

They may reduce state taxes or grant tax holidays in order to

encourage out-of-State businesses to relocate there, or to

encourage local businesses to remain there. Indeed, New York

has recently made efforts to retain its private financial institutions

with various public incentives, and has even encouraged the New

York Yankees to stay in New York with a potential offer to build

* Again with a touch of irony, the Petitioners’ amicus curiae, the State

of Vermont, bemoans the tide of "creeping urbanization” and the loss of

its own dairy farms, noting that this transformation from countryside to

urban landscape “is an irreversible process; once dairy farms are

transformed into subdivisions, there is no turning back." Br. Amicus

Curiae of State of Vermont 15.

- tere

17

a new Yankee Stadium in Manhattan. Kevin Sack, Proposing a

Manhattan Stadium Is a Risky Play for Cuomo and His Team,

N.Y. Times, Oct. 3, 1993, at A37, col. 1. Compare 2 Ronald D.

Rotunda & John E. Nowak, Treatise on Constitutional Law:

Substance and Procedure § 11.8, at 28 (2d ed. 1992) ("If New

York were to decide to aid its dairy farmers to compete with

Vermont dairy farmers, New York could, under Baldwin, decide

to give its farmers, e.g., cash subsidies or tax relief in the form

of reduced property tax or income tax payments.") (emphasis

added). See also Reeves, Inc. v. Stake, 447 U.S. at 441.

In sum, the encouragement of local industry, by means of a

subsidy, is a legitimate goal for a State to pursue; it does not

violate the Commerce Clause.

IV.

THE FACT THAT THE PREMIUM PAYMENTS ARE

SPECIFICALLY EARMARKED TO SUBSIDIZE

MASSACHUSETTS DAIRY FARMERS HAS NO

CONSTITUTIONAL SIGNIFICANCE.

Massachusetts has imposed a nondiscriminatory tax by

assessing a transaction which is wholly within its borders. It has

used those payments to build a Stabilization Fund, disbursements

from which are used to subsidize an important local industry with

historical, rural significance in the life of the Commonwealth’s

citizens. As the amici have shown, above, these are constitutional

means to constitutional ends.

Apparently recognizing that Massachusetts may constitutionally

subsidize local industry, Petitioners devote a section of their Brief

to arguing that the Pricing Order is not, in fact, a subsidy. See

Pet. Br. 28-31; see also Br. Amici Curiae of the Milk Industry

Foundation and the Food Marketing Industry 24. Petitioners’

argument has two threads to it. The first is that since "the Pricing

Order never uses the word subsidy," it cannot be "classified as a

subsidy." Pet. Br. 30. The second is that since the subsidy is not

paid from general tax revenues, it cannot be classified as a

"subsidy." Jd. at 29-30 & n.26.

18

Both arguments champion form over substance, and neither is

supported by this Court’s decisions. In the first place, this Court

has repeatedly eschewed distinctions based on labels in the

Commerce Clause context. See, e.g., Trinova Corp. v. Michigan

Dep’t of Treasury, 498 U.S. 358, 374 (1991); Nelson v. Sears,

Roebuck & Co., 312 U.S. 359, 363 (1941); Lacoste v.

Department of Conservation, 263 U.S. 545, 550 (1924) ("Regard

must be had to the substance of the measure rather than its

form"). Thus, whether or not the State labels the payments a

"subsidy" has no constitutional significance. And in any event,

it cannot seriously be disputed that State payments to local

farmers, whatever they are called, are "subsidies" within the

generally accepted definition of that term."

In the second place, it makes no constitutional difference

whether the subsidy originates in the State’s general treasury or

in a separate, earmarked Stabilization Fund, as is the case here.

In New York Rapid Transit Corp. v. City of New York, 303 U.S.

573 (1938), a New York statute enabled cities "to adopt and

amend local laws, imposing in any such city any tax... . to

relieve the people of any such city from the hardships and

suffering caused by unemployment." The statute specifically

provided that the revenues of such taxes "shall not be credited or

deposited in the general fund of any such city, but shall be

deposited in a separate bank account or accounts" created "for the

relief purposes for which the said taxes have been imposed." /d.

' Black's Law Dictionary (6th ed. 1990) defines "subsidy" as

A grant of money made by government in aid of the promoters of

any enterprise, work, or improvement in which the government

desires to participate, or which is considered a proper subject for

government aid, because such purpose is likely to be of benefit to the

public.

Id. at 1428 (emphasis added). Massachusetts obviously considered that

saving the Commonwealth’s dairy farms was “a proper subject for

government aid" and "likely to be of benefit to the public." See, e.g.,

J.A. 13, 27-30.

19

at 584 n.7 (quoting statute). In dismissing an equal protection

challenge to the statute, this Court held:

We conclude, therefore, that the provisions of the legislation

earmarking the funds collected are not of importance in

determining whether or not the classification of the challenged

acts is discriminatory.

Id. at 587. And in Carmichael v. Southern Coal & Coke Co.,

301 U.S. 495 (1937), Alabama’s employers were required to pay

a percentage of their payrolls into the State Unemployment

Compensation Fund. This Fund was then deposited into the

Federal Government’s "Unemployment Trust Fund," from which

benefits were paid to covered employees in the event of their

unemployment. /d. at 506-07. This Court held that the

earmarking of these funds for unemployed workers was irrelevant

to the constitutional calculus: "If the purpose is legitimate

because public, it will not be defeated because the execution of it

involves payments to individuals," rather than to the general

treasury. Id. at 518.

Another case involving a "taxing" scheme quite similar to the

Pricing Order is United States v. Butler, 297 U.S. 1 (1936).

Butler involved the Agricultural Adjustment Act of May 12,

1933, c. 25, § 9(a), 48 Stat. 31, which imposed a tax “upon the

first domestic processing" of certain commodities. The amount

of the tax was fixed by the Secretary of Agriculture at a rate equal

to the difference between the current average price of the

commodity and the price which would have given the commodity

"the same purchasing power" as it would have had in the pre-war

period 1909-1914. Section 12 of the same Act appropriated “the

proceeds derived from all taxes under this title" for specific

agricultural purposes, including benefit payments to farmers.

The Court held that the Act was not a “tax” but an

unconstitutional economic regulation; and that, for this reason, it

was not within the power "To lay and collect Taxes" given to

Congress by Article I, § 8 of the Constitution. However, “this

distinction proved unworkable, and since its decisions upholding

the Social Security Act, the Supreme Court has effectively

20

ignored Butler in judging the limits of congressional spending

power." Laurence H. Tribe, American Constitutional Law 322

(2d ed. 1988) (footnotes omitted). See, e.g., the Black Lung

Benefits Act of 1972, Pub. L. No. 92-303, § 7, 86 Stat. 150,

157, which required mine operators to pay black lung benefits

directly to claimants, and which was upheld against a due process

challenge in Usery v. Turner Elkhorn Mining Co., 428 U.S. 1

(1976). Petitioners’ argument -- that it somehow makes a

constitutional difference that the funds collected here are

earmarked for Massachusetts dairy farmers -- invites the Court to

engraft the same discarded formalism onto its Commerce Clause

jurisprudence. The invitation should be declined.

In short, Petitioners would have no complaint if Massachusetts

had enacted two separate statutes: one a nondiscriminatory tax

payable to the state treasury, the tax being on all dealer sales of

fresh milk within the Commonwealth of Massachusetts, and the

other providing for a subsidy to the Commonwealth’s dairy

farmers out of funds in the general treasury. The Pricing Order

accomplishes the same thing in a single statute, creating a separate

fund from which the subsidies are paid. Petitioners do not, and

can not cite any case which gives constitutional effect to such a

formalistic distinction. Nor can Petitioners cite any reason for

concern that a State may abuse an arrangement like the Pricing

Order to undermine the economic unity of this country.

21

CONCLUSION

For the foregoing reasons, the judgment of the Massachusetts

Supreme Judicial Court should be affirmed.

Respectfully submitted,

ERWIN N. GRISWOLD

(Counsel of Record)

GREGORY A. CASTANIAS

JONES, DAY, REAVIS & POGUE

Metropolitan Square

1450 G Street, N.W.

Washington, DC 20005-2088

(202) 879-3939

ALLEN TUPPER BROWN

58 River Road

Gill, Massachusetts 01376

(413) 863-3100

Counsel for Amici Curiae

December 14, 1993