Amicus Curiae Brief — Ponderosa Dairy v. Lyons, Secretary, California Department of Food and Agriculture

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Nos. 01-950 and 01-1018

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In the Supreme Court of the United States

HILLSIDE DAIRY INC., A&A DAIRY,

L&S DAIRY, AND MILKY WAY FARMS, PETITIONERS

U.

WILLIAM J. LYONS, JR., SECRETARY, CALIFORNIA

DEPARTMENT OF FOOD AND AGRICULTURE, ET AL.

PONDEROSA DAIRY, ET AL., PETITIONERS

U.

WILLIAM J. LYONS, JR., SECRETARY, CALIFORNIA

DEPARTMENT OF FOOD AND AGRICULTURE, ET AL.

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

THEODORE B. OLSON

Solicitor General

Counsel of Record

ROBERT D. MCCALLUM, JR.

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

BARBARA MCDOWELL

Assistant to the Solicitor

General

MARK B. STERN

ARA B. GERSHENGORN

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTIONS PRESENTED

1. Whether 7 U.S.C. 7254 exempts California’s milk pric-

ing and pooling regulations from scrutiny under the Com-

merce Clause.

2. Whether California’s milk pricing and pooling regula-

tions violate the Privileges and Immunities Clause.

(I)

TABLE OF CONTENTS

Statement — 1

Discussion * —

I. The court of appeals holding that Congress

exempted California's milk pricing and pool-

ing plan from the Commerce Clause, although

erroneous, does not warrant this Court’s review 9

II. The court of appeals’ holding that California’s

milk pricing and pooling plan does not violate

the Privileges and Immunities Clause does not

warrant this Court’s review 19

. 20

TABLE OF AUTHORITIES

Cases:

Baldwin v. G.A.F Seelig, Inc., 294 U.S. 511 (1935) 16

Block v. Community Nutrition Inst., 467 U.S. 340

(1984) 3

C&A Carbone, Inc. v. Town of Clarkstown, 511 U.S.

383 (1994) 17

Camps Newfound/Owatonna, Inc. v. Town of

Harrison, 520 U.S. 564 (1997) * 18

City of Boerne v. Flores, 521 U.S. 507 (1997) 11

General Motors Corp. v. Tracy, 519 U.S. 278

(1997) 18

H.P. Hood & Sons v. Du Mond, 336 U.S. 525 (1949) ...... 16

Maine v. Taylor, 477 U.S. 131 (1986) 10

Polar Ice Cream & Creamery Co. v. Andrews,

375 U.S. 361 (1964) 16

Shamrock Farms Co. v. Veneman, 146 F.3d 1177

(9th Cir. 1998), cert. denied, 525 U.S. 1105 (1999) 7, 8,

12, 13, 15, 17

South-Central Timber Dev., Inc. v. Wunnicke,

467 U.S. 82 (1984) 10, 15, 17

(II

IV

Cases—continued: Page

Tolchin v. Supreme Court, 111 F.3d 1099 (3d Cir.),

cert. denied, 522 U.S. 997 (1997) 20

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

498 U.S. 358 (1991) 18

West Lynn Crec me , Inc. v. Healy, 512 U.S. 186

(1994) 3, 16

Wyoming v. Oklahoma, 502 US. 437 (1992) 10

Zuber v. Allen, 396 U.S. 168 (1969) 2

Constitution, statutes, regulations and rule:

U.S. Const.

Art. I, § 8, Cl. 3 (Commerce Clause) passim

Art. IV, § 3, Cl. 2 (Privileges and Immunities

Clause) 7, 8, 9, 19, 20

Agricultural Adjustment Act, ch. 25, 48 Stat. 311 2

Agricultural Marketing Agreement Act of 1937,

7 U.S.C. 601 et seg. 2

7 U.S.C. 602(1) 2

Federal Agricultural Improvement and Reform

Act of 1996, Pub. L. No. 104-127, 110 Stat. 888

(7 U.S.C. 7201 et 69 — 6

7 U.S.C. 7253 6

7 U.S.C. 725804) 2) 6, 12

7 US.C. 7254 passim

7 US.C. 7254(1) 11

7 U.S.C. 72542) 11

Nutrition Labeling and Education Act of 1990,

Pub. L. No. 101-533, 104 Stat. 2362 13

21 U.S.C. 343-1(a) 13

Cal. Food & Agric. Code (West 2001):

§ 35784 6, 12

§§ 61932-61935 3

§§ 62061 et seg. 12

§§ 62700 et seq. 12

§ 62707 4

V

Regulations and rule Continued: Page

- ʃ———ʒ 3

Sup. Ct. R. 10 17

Miscellaneous:

California Dep’t of Food & Agriculture: California

Dairy Information Bulletin:

Feb. 1999 19

Oct. 2002 <http://www.cdfa.ca.gov> 19

Welcome to California Dairy Programs (visited

Sept. 16, 2002) <http://www.cdfa.ca.gov/dairy> .......... 13

Formulation of the 1995 Farm Bill (Dairy Title): Hear-

ings Before the Subcomm. on Dairy, Livestock, and

Poultry of the Hous» Comm. on Agric., 104th Cong.,

Ist Sess. (1995) 13-14, 15

H.R. Conf. Rep. No. 494, 104th Cong., 2d Sess. (1996) ...... 14

Milk Pooling Branch, California Dept. of Food & Agri-

culture, Pooling Plan for Market Milk As Amended

(Sept. 1, 2001) <http:://www.cdfa.ca.gov> 4,5,6

In the Supreme Court of the United States

No. 01-950

HILLSIDE DAIRY INC., A&A DAIRY,

L&S DAIRY, AND MILKY WAY FARMS, PETITIONERS

V.

WILLIAM J. LYONS, JR., SECRETARY, CALIFORNIA

DEPARTMENT OF FOOD AND AGRICULTURE, ET AL.

No. 01-1018

PONDEROSA DAIRY, ET AL., PETITIONERS

V.

WILLIAM J. LYONS, IR., SECRETARY, CALIFORNIA

DEPARTMENT OF FOOD AND AGRICULTURE, ET AL.

ON PETITIONS FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

This brief is filed in response to the Court’s order of April

15, 2002, inviting the Solicitor General to express the views

of the United States.

STATEMENT

The principal question in this case is whether 7 U.S.C.

7254, which saves from preemption certain California laws

regarding the composition and labeling of “fluid” (i. e., pro-

cessed) milk, exempts the State’s entire program regulating

the market in “raw” (i.e., unprocessed) milk from Commerce

Clause scrutiny. As explained below, the United States has

concluded that, although the court of appeals erred in

(1)

2

holding that Section 7254 furnishes such an exemption, its

holding does not warrant review at this time.

1. The question of the proper interpretation of Section

7254 in this case arises against the backdrop of the complex

regulatory regime governing regional markets in raw milk.

In the 1930s, Congress enacted a series of statutes, including

the Agricultural Marketing Agreement Act of 1937 (AMAA),

7 U.S.C. 601 et seqg., to regulate the marketing of milk and

other dairy products. The need to regulate milk marketing

derives from two distinct phenomena: (1) a pricing structure

that permits different returns for raw milk of the same

quality depending upon its end use (e.g., as fluid milk, as

powdered milk, or as an ingredient in products such as

butter and cheese), and (2) a cyclical production process with

fairly stable demand, which requires farmers to maintain

sufficiently large herds to meet the demand for fluid milk

even in periods of lean production. Zuber v. Allen, 396 U.S.

168, 172-173 (1969). Those two features led to “utter chaos”

when the market was unregulated. Id. at 174. In an effort to

“restore order to the market and boost the purchasing power

of farmers,” ibid., Congress enacted the Agricultural

Adjustment Act, ch. 25, 48 Stat. 31, which later formed the

basis for the AMAA.

The AMAA authorizes the Secretary of Agriculture to

“establish and maintain such orderly marketing conditions

* * * as will establish, as the price to farmers, parity

prices.” 7 U.S.C. 602(1). It accordingly empowers the Secre-

tary to issue marketing orders” that regulate minimum

prices that dairy farmers may receive in a defined geo-

graphic area. The orders classify milk according to its end

use, establish a minimum price for each class of milk, and

require regulated distributors to account to a regional pool

for each class of milk that they purchase. The regional pools

assure dairy farmers a uniform “blend price” for each unit of

milk sold, based on a weighted average value of all milk sold

3

within the marketing area. See West Lynn Creamery, Inc.

v. Healy, 512 U.S. 186, 189 n.1 (1994); Block v. Community

Nutrition Inst., 467 U.S. 340, 342-343 (1984).

2. Not every geographic area in the United States is

covered by a federal marketing order. See 7 C.F.R. Pts.

1000-1199; Block, 467 U.S. at 342. The California dairy

industry has never participated in such an order. Instead,

the State has adopted its own regulatory program to stabi-

lize the market for raw milk. California dairy farmers are

guaranteed a uniform minimum return for their raw milk,

regardless of the end use to which the raw milk is to be put

by a processor (handler). At the same time, California

handlers are required to make different total outlays for raw

milk depending on its end use, which reflects the higher

value of raw milk used to produce fluid milk over raw milk

used to produce other products. A pooling mechanism

among handlers reconciles the varying amounts that han-

dlers pay for raw milk with the uniform amounts that

California dairy farmers receive for raw milk.

a. To accomplish those regulatory goals, California as-

signs raw milk to one of five classes depending on its end

use. Cal. Food & Agric. Code §§ 61932-61935 (West 2001).

Class 1, which consists of raw milk used to produce fluid milk

products, typically demands the highest price. Other classes,

such as raw milk used to produce butter (Class 4a) and

cheese (Class 4b), typically demand lower prices. The Cali-

fornia Department of Food and Agriculture (CDF A) estab-

lishes a minimum price for each component of raw milk

(butterfat, solids-not-fat, and fluid carrier) depending on the

class of product into which the raw milk is to be manufac-

tured. A handler that purchases raw milk from a California

dairy farmer for processing into fluid milk is obligated to pay

the Class 1 price, while a handler that purchases raw milk

from a California dairy farmer for processing into cheese is

obligated to pay the Class 4b price.

4

The price that a handler pays for raw milk—which, as

explained above, is based on its end use—does not equal

the price that a dairy farmer receives for raw milk. All

California dairy farmers are guaranteed a uniform minimum

price for their raw milk regardless of the how the milk is

used by the handler that buys it. Otherwise, dairy farmers

would have an incentive to compete to sell their raw milk to

handlers that produce fluid milk, because those handlers

would pay more for raw milk than would handlers that

produce other dairy products. Such competition was thought

to result in the inefficient movement of milk around the

State. See 01-950 Pet. App. A3, Al4 n.3 (Pet. App.).

The uniform minimum price guaranteed to California

dairy farmers is a blend price, which CDFA computes based

on a weighted average of all raw milk purchases in the State.

It thus falls somewhere between the Class 1 price and the

Class 4b price. See Pet. App. A3. In fact, CDF A computes

two such blend prices—the “quota” price and the “overbase”

price. See Milk Pooling Branch, CDF A, Pooling Plan for

Market Milk As Amended §§ 902-904 (Sept. 1, 2001)

<http://www.cdfa.ca.gov> (Pooling Plan). The quota price,

which is the higher of the two, is paid for an amount of

production that was originally detc.mined for California

dairy farmers based on their respective shares of the fluid

milk market in the 1960s and that has been subject to certain

adjustments in subsequent years. See Cal. Food & Agric.

Code § 62707 (West 2001). The “overbase” price is paid for a

California dairy farmer’s milk in excess of any quota.

The pooling mechanism among handlers, which results in a

transfer of funds from handlers of raw milk for higher-priced

California dairy farmers may buy and sell quota. See Pet. App. A4.

Out-of-state dairy farmers are not permitted to own quota, because quota

is available only to a “[pjroducer,” which is defined as “any person that

produces market milk in the State of California from five or more cows.”

Pooling Plan § 104 (Pet. App. A79).

5

uses (e. g., fluid milk) to handlers of raw milk for lower-priced

uses (e. g., butter and cheese), reconciles the uniform price

received by California dairy farmers with the different

prices paid by handlers depending upon the uses that they

make of raw milk. In order to determine each handler’s

obligation to the pool, CDFA calculates an “in-plant blend

price” for each handler, which is based on the particular use

or uses that the handler makes of the raw milk that it

purchases. See Pooling Plan Art. 9 (The “in-plant” blend

price must be distinguished from the “quota” and “overbase”

blend prices, which are uniform prices paid to California

dairy farmers and are based on usage of raw milk by all

handlers, rather than by a single handler.). The handler’s in-

plant blend price is then multiplied by the total amount of

raw milk that the handler has purchased to determine the

handler’s “gross pool obligation.” The handler must account

to the pool based on that amount, subject to certain adjust-

ments. If the total amount of a handler’s payments to dairy

farmers is less than its pool obligation (as is typically the

case for handlers that primarily produce Class 1 fluid milk,

because their in-plant blend price exceeds the “quota” and

“overbase” prices guaranteed to dairy farmers), the handler

pays the difference into the pool. Jd. § 1003. If the total

amount of a handler’s payments to dairy farmers exceeds its

pool obligation (as is typically the case for handlers that

primarily produce butter or cheese, because their in-plant

blend price is lower than the “quota” and “overbase” prices),

the handler draws on the pool to recover the difference. Id.

§ 1004; see Pet. App. A3-A5.

b. Before the 1997 amendments to the California plan, if

a handler bought milk from an out-of-state dairy farmer, the

handler received a credit against its pool obligation based on

its in-plant blend price. Pet. App. Al7. As a consequence,

although a handler that principally produced fluid milk had

to pay money into the pool for its raw milk purchases from

6

California dairy farmers, it did not have to pay money into

the pool for its purchases from out-of-state farmers.

In 1997, the plan was amended so that the credit that a

handler receives for out-of-state milk purchases is equal to

the lower of the handler’s in-plant blend price or the quota

price. See Pooling Plan § 900(d); Pet. App. A4-A5. For a

handler that principally produces fluid milk, the quota price

is lower than its in-plant blend price. As a result, a handler

that purchases raw milk from out-of-state dairy farmers to

be processed into fluid milk typically must contribute some

additional amount to the pool for those purchases. The 1997

amendment thus reduced an incentive that previously ex-

isted for handlers that produce fluid milk to purchase raw

milk from dairy farmers outside California. At the same

time, however, out-of-state dairy farmers, unlike California

dairy farmers, are not guaranteed any minimum price for

their raw milk (much less the quota price).

c. California also sets composition standards for fluid

milk sold in the State. Those standards, which exceed the

standards set by the federal Food and Drug Administration,

establish minimum levels of solids-not-fat and butterfat. See

Cal. Food & Agric. Code § 35784 (West. 2001). California

handlers standardize their fluid milk by adding a fortifying

agent, and they are provided with a fortification allowance

that reduces the cost of doing so. Pooling Plan § 803(k).

Out-of-state handlers are not eligible to receive that

fortification allowance. See Pet. App. A25-A26.

3. In the Federal Agriculture Improvement and Reform

' Act of 1996 (FAIR Act), Pub. L. No. 104-127, 110 Stat. 888,

Congress required the consolidation and reformation of fed-

eral milk marketing orders. See 7 U.S.C. 7253. Congress

authorized the Secretary of Agriculture, “{u]pon the petition

and approval of California dairy producers,” to “designate

the State of California as a separate Federal milk marketing

order.” 7 U.S.C. 7253(a)(2).

7

In addition, Congress included in the FAIR Act the pro-

vision at issue in this case, 7 U.S.C. 7254, which states:

Nothing in this Act or any other provision of law shall

be construed to preempt, prohibit, or otherwise limit the

authority of the State of California, directly or indirectly,

to establish or continue to effect any law, regulation, or

requirement regarding—

(1) the percentage of milk solids or solids not fat in fluid

milk products sold at retail or marketed in the State of

California; or

(2) the labeling of such fluid milk products with regard

to milk solids or solids not fat.

4. In consolidated actions, petitioners, who operate dairy

farms in Nevada and Arizona, challenged the constitu-

tionality of the 1997 amendments to the California pooling

plan. They contended that the pooling plan discriminates

against out-of-state dairy farmers in violation of the Com-

merce Clause and the Privileges and Immunities Clause.

a. The district court rejected those claims. Pet. App.

A13, A16-A22. The court granted summary judgment for the

State respondents on the Commerce Clause claim. The court

relied on Shamrock Farms Co. v. Veneman, 146 F.3d 1177

(9th Cir. 1998), cert. denied, 525 U.S. 1105 (1999), which the

court understood as holding that 7 U.S.C. 7254 “immunized

California’s milk pricing and pooling laws from Commerce

Clause challenge.” Pet. App. Al9. The court dismissed peti-

tioners’ claim under the Privileges and Immunities Clause on

the ground that the pooling plan does not discriminate based

on out-of-state residency or citizenship. Id. at A13.

b. The United States Court of Appeals for the Ninth

Circuit affirmed. Pet. App. Al-A15.

The court of appeals, like the district court, held that

Shamrock controlled the Commerce Clause claim. Although

Shamrock had addressed California’s fortification require-

8

ment for fluid milk and its fortification allowance for in-state

handlers, not its pricing and pooling requirements for raw

milk, the court held that “Shamrock broadly refers to the

pricing and pooling laws and finds them to be closely related

to California’s composition requirements and protected from

Commerce Clause challenges.” Pet. App. A7-A8. The court

further held that the legislative history of 7 U.S.C. 7254

“demonstrate[s] that California’s pricing and pooling laws

were considered to be an important element of California’s

milk regulatory scheme and necessary to maintain the

‘standards of content and purity’ for milk.” Pet. App. A8

(quoting Shamrock, 146 F.3d at 1182). The court thus con-

cluded that California’s raw milk and fluid milk regulations

are “closely related” and that it “follows that the 1997

amendments which directly affect raw milk, indirectly affect

fluid milk.” Id. at A10.

The court of appeals also affirmed the district court’s dis-

missal of petitioners’ claim under the Privileges and Immuni-

ties Clause. The court noted that the corporate petitioners

could not state such a claim, because that Clause does not

protect corporations. Pet. App. Al3. The court held that the

individual petitioners’ claim failed because “the classifica-

tions the pooling plan amendments create are based on the

location where milk is produced,” not on “any individual’s

residency or citizenship.” Id. at Al4.

DISCUSSION

The court of appeals held that 7 U.S.C. 7254 exempts all of

California’s milk pricing and pooling regulations from the

limitations imposed by the Commerce Clause. That conclu-

sion is incorrect. This Court has repeatedly instructed that

such exemptions must be unmistakably clear. There is no

indication at all in the text or legislative history of Section

7254 that Congress intended to immunize any of California’s

milk regulations from challenge under the Commerce

Clause. Moreover, even if its reference to “any other pro-

9

vision of law” were understood to encompass the Commerce

Clause, Section 7254 would provide an immunity only for the

State’s regulations governing the composition and labeling of

fluid milk, not for its separate regulations governing the

pricing and pooling of raw milk.

The court of appeals’ interpretation of Section 7254,

although erroneous, does not, on balance, require the Court’s

review at this time. The decision may be viewed as involv-

ing the misapplication of the well-established legal standard

governing Commerce Clause exemptions to the particular

statute claimed to create such an exemption in this case.

This Court ordinarily does not grant certiorari to correct a

mistaken application of settled law or an erroneous inter-

pretation of a federal statute by a single court of appeals.

Moreover, because Section 7254 applies only to California

“law[s], regulation(s), or requirement(s],” no inter-circuit

conflict with respect to its interpretation or application is

likely to arise. Although petitioners predict that the court of

appeals’ decision will have a significant adverse impact on

federal milk marketing programs and the dairy industry

nationally, the United States Department of Agriculture has

not detected any such impact to date.

The question presented by petitioners in No. 01-1018

under the Privileges and Immunities Clause also does not

require the Court’s review. The court of appeals’ rejection

of the Privileges and Immunities claim turns on its under-

standing of the unique provisions of state law at issue here.

10

I. THE COURT OF APPEALS’ HOLDING THAT CON-

GRESS EXEMPTED CALIFORNIA'S MILK PRICING

AND POOLING PLAN FROM THE COMMERCE

CLAUSE, ALTHOUGH ERRONEOUS, DOES NOT

WARRANT THIS COURT’S REVIEW

1. Although the Commerce Clause “limits the power of

the States to erect barriers against interstate trade,”

“Congress may authorize the States to engage in regulation

that the Commerce Clause would otherwise forbid.” Maine

v. Taylor, 477 U.S. 131, 137, 138 (1986). The Court has held,

however, that Congress must make any Commerce Clause

exemption “unmistakably clear,” so as to assure that “all

segments of the country are represented” in a decision to

allow one State to affect persons or operations in other

States. South-Central Timber Dev., Inc. v. Wunnicke, 467

U.S. 82, 91, 92 (1984); accord, e.g., Wyoming v. Oklahoma,

502 U.S. 437, 458 (1992); Taylor, 477 U.S. at 139.

Section 7254 does not contain any indication at all, much

less an “unmistakably clear” one, that Congress intended to

immunize California’s milk pricing and pooling laws from

Commerce Clause scrutiny. The statutory text does not

include any reference either to the Commerce Clause or to

California’s pricing and pooling laws for raw milk. Nor does

the legislative history provide any indication that Congress

intended Section 7254 to immunize those laws from scrutiny

under the Commerce Clause.

First, Section 7254 states that Inlothing in this Act or

any other provision of law shall be construed to preempt,

prohibit, or otherwise limit the authority of the State of

California” to enact or enforce certain of its own laws. The

statutory text does not unambiguously indicate that Con-

gress intended to exempt any of California’s laws from the

Commerce Clause. Section 7254 does not refer to the Com-

merce Clause specifically or to the Constitution more

generally. Moreover, its directive that no provision of law

11

“shall be construed” in a particular manner is more naturally

read as referring only to non-constitutional sources of law,

because Congress is not ordinarily assumed to have intended

to constrain the Judiciary’s authority to construe the Con-

stitution. Cf. City of Boerne v. Flores, 521 U.S. 507, 535-536

(1997). Nor is there any reason to suppose that Congress

intended to authorize California, and only California, to erect

barriers to interstate commerce that would otherwise be

forbidden by the Commerce Clause. Section 7254 thus is

best understood as protecting certain California laws against

preemption only by “this Act” (i. e., the FAIR Act) and any

other provisions of federal statutory or regulatory law.

Second, Section 7254, even if understood to provide a

Commerce Clause immunity for some state laws, does not

reach the laws at issue here. Section 7254, by its terms, ap-

plies only to laws regarding “the percentage of milk solids or

solids not fat in fluid milk products sold at retail or marketed

in the State of California” and “the labeling of such fluid milk

products with regard to milk solids or solids not fat.” 7

U.S.C. 7254(1) and (2). California’s pricing and pooling laws

do not regulate either fluid milk content or fluid milk

labeling. They are thus outside the scope of whatever Com-

merce Clause exemption Section 7254 arguably provides.”

Congress’s decision to confine Section 7254 to a subset of

California’s milk marketing laws appears to have been quite

deliberate. Other provisions of the FAIR Act, of which

Section 7254 was a part, demonstrate that, when Congress

wanted to refer to California’s milk pricing and pooling laws,

Congress did so expressly. For example, in the iramediately

2 As noted above (at 4), CDFA establishes minimum prices that han-

dlers must pay for various components of raw milk—butterfat, solids- not-

fat, and fluid carrier. Even if a regulation that provides for setting a price

for the “milk solids” or “solids-not-fat” component of milk could be viewed

as a regulation “regarding * * * the percentage of milk solids or solids

not fat” in milk, Section 7254 refers to the percentage of those components

in “fluid milk,” not raw milk.

12

preceding section of the FAIR Act, Congress authorized the

Secretary of Agriculture, ſulpon the petition and approval

of California dairy producers,” to “designate the State of

California as a separate Federal milk marketing order.”

7 U.S.C. 7253(a)(2). Congress further provided that any such

“order covering California shall have the right to reblend

and distribute order receipts to recognize quota value,” ibid.,

thus referring specifically to the aspect of California’s pric-

ing and pooling laws that guarantees state dairy farmers

with “quota” a higher blend price for their raw milk. Pre-

sumably, if Congress had wanted Section 7254 to encompass

California’s pricing and pooling laws, Congress would have

referred to those laws with similar specificity.

The court of appeals acknowledged in its predecessor

Shamrock case that Section 7254 “does not specifically refer

to these [pricing and pooling] laws, as it does to the milk

composition standards.” 146 F.3d at 1182 (Pet. App. A34).

In both this case and Shamrock, however, the court con-

cluded that Section 7254 encompasses the pricing and pool-

ing laws as well, reasoning that those laws and the composi-

tion and labeling laws are “interrelated and mutually inter-

dependent.” Pet. App. A7 (quoting Shamrock, 146 F.3d at

1182). The court was mistaken. Even if Congress’s express

exemption of one state law from the Commerce Clause were

understood to extend to “interrelated and mutually inter-

dependent” state laws, no such relationship exists between

the composition and labeling laws expressly referred to in

Section 7254 and the pricing and pooling laws at issue here.

The pricing and pooling laws are not part of the same

regulatory program as the composition and labeling laws.

The programs are authorized under different divisions of the

California Food and Agriculture Code. Compare Cal. Food

& Agric. Code § 35784 (West 2001) (composition standards),

with id. §§ 62061 et seg. (minimum prices), and id. §§ 62700 et

seq. (equalization pools). The programs were implemented

13

at different times. And they are administered by different

components of the CDFA. See CDFA, Welcome to Califor-

nia Dairy Programs (visited Sept. 16, 2002) <http://www.

edfa.ca.gov/dairy> (noting that the milk composition laws are

administered by the Milk and Dairy Foods Control Branch,

while the milk pricing and pooling laws are administered by

the Dairy Marketing Branch and the Milk Pooling Branch).

It would be particularly unwarranted in such circumstances

to construe Congress’s express reference to California’s com-

position and labeling laws for fluid milk as also encompassing

California’s pricing and pooling laws for raw milk.

Third, the context in which Section 7254 was enacted

supports the conclusion that it was intended solely to protect

California’s fluid milk composition and labeling laws against

preemption by federal statutes and regulations. In 1990,

Congress enacted the Nutrition Labeling and Education Act

of 1990 (NLEA), Pub. L. No. 101-533, 104 Stat. 2362, which

prohibits States from setting standards of identity for a food

that are different from the standards set by the FDA. See

21 U.S.C. 343-1(a). In response, out-of-state dairy farmers,

who had previously complied with the California composition

and labeling standards when marketing milk in the State,

sought a judicial determination that the NLEA preempted

the California standards. The State, in turn, petitioned the

FDA for an exemption from the NLEA for its milk

composition and labeling standards. See Shamrock, 146 F.3d

at 1180 (Pet. App. A28).

At the congressional hearings on what was to become the

FAIR Act, witnesses asked Congress specifically to exempt

the California milk composition and labeling standards from

preemption by the NLEA or other federal statutes. For

example, Representative Thomas, the only Member of Con-

gress to address the California milk regulations, urged that

those standards be protected against preemption by “na-

tional nutritional labeling requirements.” Formulation of

14

the 1995 Farm Bill (Dairy Title): Hearings Before the

Subcomm. on Dairy, Livestock, and Poultry of the House

Comm. on Agric., 104th Cong., Ist Sess. 435 (1995) (House

Hearings). He did not urge that any of California’s other

milk regulations, including those involving the pricing and

pooling of raw milk, be protected against federal statutory

(or constitutional) challenge. Other witnesses similarly

focused on the need to assure that California could continue

to enforce its fluid milk composition standards.

The Conference Report on the FAIR Act confirms that

Section 7254 was directed only at the particular problem

identified at the congressional hearings. See H.R. Conf.

Rep. No. 494, 104th Cong., 2d Sess. 338 (1996). The Confer-

ence Report explains that Section 7254 “provides the State

of California an exemption from the preemption provisions of

any Federal law respecting standards of identity and

labeling for fluid milk,” so that California may “fully enforce

and apply its fluid milk standards and their attendant

labeling requirements to all fluid milk sold at retail or

marketed in the State.” Id. at 338-339.

The court of appeals, in adopting its more expansive inter-

pretation of Section 7254, did not discuss the Conference

Report, which is usually the most authoritative legislative

history of an Act of Congress. The court nonetheless pur-

ported to find “ample support” in the legislative history

—specifically, the testimony of two witnesses at the con-

gressional hearings—for the proposition that “Congress

intended that the milk pricing and pooling scheme be

included in the exemption.” Shamrock, 146 F.3d at 1182

(Pet. App. A34); accord Pet. App. A8. Ordinarily, the testi-

mony of two witnesses, only one of whom is a Member of

See, eg, House Hearings 517-518 (prepared statement of A. J.

Yates, Deputy Secretary, CDF A); id. at 547-548 (prepared statement of

James E. Tillison, Alliance of Western Milk Producers); id. at 568

(prepared statement of Craig S. Alexander, Dairy Institute of California).

15

—

Congress, is an uncertain indication of what Congress as a

whole intended. Here, moreover, the witnesses’ testimony

does not support the court’s interpretation of Section 7254.

For example, Representative Thomas did not, as the court

of appeals perceived, “explain[{] that the success of Califor-

nia’s milk standards is attributable to the state’s pricing

system.” Shamrock, 146 F.3d at 1182 (Pet. App. A34).

Instead, he stated that the success of the California dairy

industry was attributable both to the State’s “standards for

fluid milk products which ensure a high quality product” and

to the State’s “pricing system for dairy products.” House

Hearings 435. He did not suggest that the composition

regulations and the pricing regulations were dependent on

each other for their effectiveness. Moreover, even if Rep-

resentative Thomas had made the statement that the court

attributed to him, the statement still would say nothing

about any Commerce Clause exemption for the pricing and

pooling laws.*

In sum, Section 7254 provides no indication that Congress

intended to exempt California’s pricing and pooling laws

from the Commerce Clause, much less the “unmistakably

clear” indication that this Court’s decisions require. South-

Central Timber, 467 U.S. at 91. The court of appeals erred

in concluding otherwise.

2. The court of appeals’ error with regard to the scope of

Section 7254 cannot confidently be regarded as harmless.

Although the United States does not take a position on the

underlying constitutional question in this case, the California

milk pricing and pooling laws, at a minimum, raise substan-

* Similarly, Craig S. Alexander of the Dairy Institute of California dis-

cussed the State’s milk composition regulations separately from other as-

pects of its milk marketing program. See House Hearings 480-482. He

urged “[flederal legislation to preserve California’s standards” for

the composition of fluid milk products, id. at 482, but did not urge legisla-

tion to protect the pricing and pooling laws against a federal constitutional

challenge.

16

tial questions under the Commerce Clause because of their

facially disparate treatment of California dairy farmers and

dairy farmers located outside the State.

The Commerce Clause prohibits States from engaging in

“economic protectionism—that is, regulatory measures de-

signed to benefit in-state economic interests by burdening

out-of-state competitors.” West Lynn Creamery, 512 U.S. at

192. On several occasions, the Court has held that state milk

marketing regulations ran afoul of that prohibition. See, e.g.,

Polar Ice Cream & Creamery Co. v. Andrews, 375 U.S. 361,

375-379 (1964); H.P. Hood & Sons v. Du Mond, 336 U.S. 525

(1949); Baldwin v. G. A. F. Seelig, Inc., 294 U.S. 511 (1935).

Most recently, in West Lynn Creamery, the Court struck

down a Massachusetts regulation that required milk han-

dlers to pay an assessment on all milk that they sold to re-

tailers, whether the handlers purchased the milk from in-

state or out-of-state dairy farmers, although the entire as-

sessment was distributed to in-state dairy farmers. The

Court assumed that Ja] pure subsidy [for Massachusetts

dairy farmers] funded out of general revenue” would not vio-

late the Commerce Clause. 512 U.S. at 199. The court held,

however, that the Massachusetts regulation violated the

Commerce Clause, because the subsidy went exclusively to

Massachusetts dairy farmers, yet was “funded principally

from taxes on the sale of milk produced in other States.”

Ibid.

The California pricing and pooling laws at issue here may

raise somewhat similar concerns under the Commerce

Clause. For example, a California handler that purchases

raw milk for processing into fluid milk typically must account

to the equalization pool for the difference between the quota

or overbase price (i.e., the two blend prices that California

dairy farmers are guaranteed for their milk) and the ordinar-

ily higher Class 1 price. In effect, therefore, that handler

writes two checks for each milk purchase—one to the dairy

17

farmer that produced the milk and one to the pool. After the

1997 amendments, the handler must do so whether the milk

came from a California dairy farmer or an out-of-state dairy

farmer. The funds in the pool are then distributed to han-

dlers of other classes of milk—those priced below the quota

and overbase blend prices—to compensate them for paying

those prices to California dairy farmers. Thus, the equaliza-

tion payments are provided to handlers exclusively with

respect to milk purchases from California dairy farmers, but

are collected from handlers with respect to milk purchases

from both California and out-of-state dairy farmers.

The lower courts did not address the merits of petitioners’

Commerce Clause challenge to the California pricing and

pooling laws, having concluded that such a challenge was

foreclosed by Section 7254. The constitutionality of those

laws under the Commerce Clause is thus not among the

Questions Presented in the petitions. In such circumstances,

if the Court were to grant certiorari and reverse on the

Section 7254 question, it would be appropriate to remand the

underlying Commerce Clause question for consideration by

the lower courts in the first instance.

3. It is a close question whether the court of appeals’

erroneous holding with respect to the scope of Section 7254

warrants this Court’s review. The Court ordinarily does not

grant certiorari “when the asserted error consists of * * *

the misapplication of a properly stated rule of law.” Sup. Ct.

R. 10. The court of appeals correctly identified the rule that

Congress must make “unmistakably clear” any intent to

exempt a state law from the Commerce Clause. Shamrock,

146 F.3d at 1180 (quoting C&A Carbone, Inc. v. Town of

Clarkstown, 511 U.S. 383, 408 (1994) (O’Connor, J., con-

curring), and South-Central Timber, 467 U.S. at 91) (Pet.

App. A30). Its error was in misapplying that rule here.

Petitioners do not identify any conflict among the circuits

with respect to the standard for determining whether Con-

18

gress has exempted a state law from the Commerce Clause.

Nor is any circuit conflict likely to arise with respect to the

application of that standard to Section 7254, which concerns

only California’s “law[s], regulation[s], or requirementls],“

and not those of any other State. Neither the federal milk

marketing orders promulgated under the AMAA nor the

milk marketing regulations of any other State contain pro-

visions similar to those at issue here.

To be sure, this Court has considered Commerce Clause

challenges to state regulations in the absence of an asserted

conflict among the federal or state appellate courts. See, e.g.,

Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520

U.S. 564 (1997); General Moiors Corp. v. Tracy, 519 U.S. 278

(1997); Trinova Corp. v. Michigan Dep't of Treasury, 498

U.S. 358 (1991). The petitions in those cases, however,

presented a constitutional question of at least potential sig-

nificance in other States, whereas the petitions in this case

present a question concerning the construction of a federal

statute that applies only to California milk regulations.

At the same time, it is relevant to the appropriateness of

review that the court of appeals clearly erred in its con-

struction of Section 7254 and that the result of its error is to

shield from Commerce Clause scrutiny not only the 1997

amendments to California’s pricing and pooling plan, but also

any revisions to the plan that California may make in the

future. Indeed, petitioners assert (01-950 Pet. 13) that the

court of appeals’ decision “has the potential for a significant

impact on the future course” of federal milk programs. The

United States Department of Agriculture, however, has not

detected any such impact to date. The decision has no direct

effect on the regulation of milk under the federal milk mar-

keting orders. At least to this point, the Department has not

found that the operation of the California milk pricing and

pooling plan, as amended in 1997, has resulted in the uneco-

nomic movement of milk on a regional or national basis, or

19

has had other adverse effects on the federal program that

the Department administers.’ If in the future the decision

proves to have the adverse consequences that petitioners

predict, perhaps as a result of further amendments to

California’s pricing and pooling plan, this Court could grant

review in another case at that time. Alternatively, Congress

could exercise its power under the Commerce Clause to

address those consequences.

On balance, therefore, the United States does not believe

that the court of appeals’ interpretation of Section 7254,

although erroneous, warrants the Court’s review at this

time. If, however, the Court were to conclude otherwise,

this case is a suitable vehicle in which to address the scope of

that provision.

Il. THE COURT OF APPEALS’ F “ING THAT

CALIFORNIA’S MILK PRICING AND POOLING

PLAN DOES NOT VIOLATE THE PRIVILEGES

AND IMMUNITIES CLAUSE DOES NOT WAR-

RANT THIS COURT’S REVIEW

The court of appeals’ rejection of petitioner’s Privileges

and Immunities Clause challenge to the California pricing

and pooling laws also does not warrant this Court’s review.

The court ruled that most of the parties could not assert a

claim under that “lause, because they are corporations, not

individuals. Pet. App. Al3. Petitioners do not seek review

of that ruling. Instead, petitioners contend that the court of

5 According to statistics compiled by CDFA, out-of-state dairy

farmers have continued to ship substantial quantities of raw milk into

California since the 1997 amendments to the California pricing and pooling

plan. In January 1997, before the amendments, approximately 64 million

pounds of milk were shipped into California. In January 2001, approxi-

mately 53 million pounds were shipped into California, and in January

2002, approximately 87 million pounds were shipped into California. See

CDFA, California Dairy Information Bulletin 10 (Oct. 2002) <http://

www.cdfa.ca.gov>; CDFA, California Dairy Information Bulletin 10

(Feb. 1999).

20

appeals erred in ruling that a state law cannot violate the

Clause unless it discriminates on its face based on citizenship

or residency. See 01-1018 Pet. 17-23.

Petitioners misread the court of appeals’ opinion. The

court’s reasoning did not, as petitioners suggest, turn on

whether California’s pricing and pooling laws discriminate

on their face, rather than only in their impact. Instead, the

court reasoned that the classifications created by those laws

are based not on where dairy farmers reside, but on “the

location where milk is produced,” and do not violate the

Privileges and Immunities Clause for that reason. Pet. App.

Al4. That holding, which turns on the interpretation of

unique provisions of state law, does not present a question of

general significance that merits this Court's review.“

CONCLUSION

The petitions for a writ of certiorari should be denied.

Respectfully submitted.

THEODORE B. OLSON

Solicitor General

ROBERT D. MCCALLUM, JR.

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

BARBARA MCDOWELL

Assistant to the Solicitor

General

MARK B. STERN

ARA B. GERSHENGORN

Attorneys

DECEMBER 2002

Nor does the Ninth Circuit’s decision in this case “conflict,” as

petitioners assert (01-1018 Pet. 23), with the Third Circuit's decision in

Tolchin v. Supreme Court, 111 F.3d 1099, cert. denied, 522 U.S. 977 (1997).

In Tolchin, as here, the court of appeals held that the provision at issue

did not discriminate on the basis of residency in violation of the Privileges

and Immunities Clause. See 111 F.3d at 1113.