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

PS ——

—ea |

Supreme Court, U.S.

FILED

12) (10)

7 NO)

FEB 24 2005

Nos. 01-950, 01-1018

Jn the Supreme Court of the United Stategc2«

HILLSIDE DAIRY, INC ., A&A DAIRY, L&S DAIRY,

and MILKY WAY FARMS,

Petitioners,

Vv.

WILLIAM J. LYONS, JR., Secretary, Department of Food & Agriculture,

State of California, and ROBERT TAD BELL, Undersecretary,

Department of Food & Agriculture, State of California,

Respondents.

PONDEROSA DAIRY, PAHRUMP DAIRY, ROCKVIEW

DAIRIES, INC., and DARREL KUIPER and DIANE KUIPER,

D/B/A D. KUIPER DAIRY,

Petitioners,

v.

WILLIAM J. LYONS, JR., Secretary, Department of Food & Agriculture,

State of California, and ROBERT TAD BELL, Undersecretary,

Department of Food & Agriculture, State of California,

Respondents.

Writs Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF FOR AMICUS CURIAE DAIRY INSTITUTE

OF CALIFORNIA IN SUPPORT OF PETITIONERS

ON THE MERITS

Thomas S. Knox, Esq.*

John M. Lemmon, Esq.

Glen C. Hansen, Esq.

Knox, Lemmon & Anapolsky, LLP

One Capitol Mall, Suite 700 *Counsel of Record

Sacramento, California 95814

(916) 498-991 |

Attomeys for Amicus Curiae Dairy Institute of California

TABLE OF CONTENTS

Page

Se a iid ceceacsesirseunininannsiennse il

ee gtd), nnn l

SUMMARY OF ARGUMENT ..............:.cccccssscssscssssceeseesees 2

SEITE ceridhdniaihbitiblesipdadibcieiptdiinaninsdinetaiescinevesinnamiinmduniniiiids 3

I. The Court Below Misconstrued the Plain Language

3, 5 __ ERREEAED CEERI aren Omen a

A. Under the Doctrine of Expressio Unius Est

Exclusio Alterius, Congress’ Explicit Protection

of Composition and Labeling Standards from

Federal Intervention Supports the Conclusion

that Congress Did Not Intend Implicitly to

Extend Protection in Unenumerated Areas......... 4

B. The Ninth Circuit’s Ruling that Virtually All of

California’s Milk Laws are Protected from

Federal Intervention Because They are “Closely

Related” to the § 7254(1) Composition

Standards Would Render § 7254(2)

SERA: Ee a 5

Il. California’s Milk Composition and Labeling

Standards Are Not “Closely Related” to the State’s

Pricing and Pooling Policies ..................:ccccccseeceeeeeees 6

A. The Congressional Testimony Cited in Shamrock

and in this Case Below Does Not Support the

Conclusion that the Milk Standards Identified in

§ 7254 are “Closely Related” to the State’s Milk

Pooling and Pricing Policies ..................:00000000++ 6

B. California’s Milk Marketing Laws Show that

the State’s Milk Pooling and Pricing Policies

are Independent of the Milk Standards Identified

Ill. | The Ninth Circuit Has Ignored this Court’s

“Unmistakably Clear” Standard for Determining

When Congress Intends to Confer an Exemption

from Dormant Commerce Clause Scrutiny............... 10

CONCLUSION ..........sccccsscssssssssscssssecrsssneesenersssssscosssssessosnes 12

APPENDIX: Hearings before the Subcommittee on Dairy,

Livestock, and Poultry of the Committee on Agriculture, House of

Representatives, One Hundred Fourth Congress, First Session,

Tulare, CA, April 20, 1995.

TABLE OF AUTHORITIES

Cases Page

Andrus v. Glover Construction Co., 446 U.S. 608 (1980)... 4

Barnhart v. Peabody Coal Co., 123 S.Ct. 748 (2003).......... 4

C&A Carbone, Inc. v. Town of Clarkston, 511 U.S. 383 (1994) 3

Chevron U.S.A., Inc. v. Echazabal, 536 U.S. 73 (2002)....... 5

Duncan v. Walker, 5335 U.S. 167 (2001) .o.cccccccccccccccccceeeeeee 6

Hughes v. Oklahoma, 441 U.S. 322 (1979) .o...cccccccccccecesseeees 10

New England Power Co. v. New Hampshire,

EE 12

People ex rel. Lockyer v. Shamrock Foods Co.,

24 Cal.4™ 415 (Cal.2000)........ccccccccccccesssssscsecsseeeesseseeveves g

Ponderosa Dairy v. Lyons, 259 F.3d 1148 (9" Cir. 1999)... 2

Prudential Ins. Co. v. Benjamin, 328 U.S. 408 (1946)......... 12

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

(9" Cir. 1998), cert. denied, 525 U.S. 1105 (1999)........ 2

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

Ee 3

Sporhase v. Nebraska ex rel. Douglas,

EEE 3

TRW, Inc. v. Andrews, 534 U.S. 19 (2001) ..ccccccccccccccccccceceeee 4

United States v. Menasche, 348 U.S. 528 (1955) ......ccccccc000 6

United States v. Johnson, 529 U.S. 53 (2000) .........ccccccccc000 4

United States v. Vonn, 535 U.S. 55 (2002) .........ccccccececeeeeeees 5

iV

Statutes

LUE UC ody , . ” SENET e ——

FT UBC. TOSS (18) nccececccccccrsccsecssecscessssscssessscssccsessscsenesssesensnees 5

FT UBC. TOS6 C2) .ncereceecsecsesesscsrscsecensecesesosccsscscsscssosonsscnsnsenss 5

California Food & Agriculture Code § 32501 ..............:00+ 8

California Food & Agriculture Code § 32912 ...........00:00 8

California Food & Agriculture Code § 61801 ...............000+ 8

California Food & Agriculture Code § 61805 ................000+ 9

California Food & Agriculture Code § 62700 ................000+ 9

California Food & Agriculture Code § 62702 ...............0.000 9

California Food & Agriculture Code § 62702.1. .............00++ 10

Miscellaneous

Hearing Before the Subcomm. On Livestock, Dairy

and Poultry, 104" Cong., Apr. 20, 1995 .........--ssssess00 6

BRIEF FOR AMICUS CURIAE

DAIRY INSTITUTE OF CALIFORNIA

IN SUPPORT OF PETITIONERS ON THE MERITS

STATEMENT OF INTERESTS

Dairy Institute of California is a California non-profit

mutual benefit trade association representing dairy processing

companies that purchase 52% of the milk produced in California.

Dairy Institute members manufacture over 80% of the fluid,

frozen and cultured dairy products and cheese sold in California.

Many Dairy Institute members also have manufacturing facilities

in other states. '

California processors have historically operated within

California’s regulated minimum pricing structure administered

through the State’s milk marketing program. California

processors have been able to maintain their businesses and adhere

to the State’s regulated minimum prices for raw milk, so long as

the minimum price structure does not increase raw milk prices to

levels exceeding competitive conditions. One measure of

competitive conditions is the price charged by out-of-state

producers for raw milk.

California processors depend on milk purchases from

sources outside California in order to meet their obligations to

customers while still remaining competitive.

The July 1997 amendments to California’s Pooling Plan

upset the competitive balance. As a result of these amendments,

out-of-state dairy farmers cannot receive the full value for their

product when it is sold to California processors. These

amendments create an economic disincentive for California

processors to do business with out-of-state producers and lead to

shutting down markets for those producers. The absence of

reasonably priced supply fosters uncompetitive conditions within

No counsel for any party to this proceeding authored this brief in whole, or in part. No

person or entity other than Amicus Curiae Dairy Institute of California, its members or

counsel, made any monetary contribution to the preparation submission of this bnef.

2

California, and the resulting uncompetitive conditions unduly

increase milk prices to processors, wholesale customers and

consumers.

SUMMARY OF ARGUMENT

The Ninth Circuit erred in this case because it mistakenly

relied on Shamrock Farms Co. v. Veneman, 146 F.3d 1177 (9

Cir. 1998) (Reinhardt, J.) cert denied, 525 U.S. 1105 (1999).

While Shamrock correctly concluded that 7 U.S.C. § 7254 (1999)

shielded California’s milk composition standards from scrutiny

under the dormant aspect of the Commerce Clause of the U.S.

Constitution, it erroneously extended that shield beyond the items

enumerated in the statute — composition and labeling - and

embraced all of California’s milk pricing and pooling policies.

The Ninth Circuit erred in Shamrock, and consequently in

this case, for at least three reasons.

First, in Shamrock and in this case, the Ninth Circuit

ignored the plain language of the statute. The statute specifically

identifies California’s milk composition and labeling standards as

areas protected from federal interference. The statute does not list

California’s milk pricing or pooling. Under the settled rules of

construction, the language of the statute — what it states and what

it omits - should be the clearest guide to congressional intent.

Second, the Ninth Circuit in this case relied on Shamrock

for its conclusion that in spite of the statutory ellipsis, pooling and

pricing policies must be included on the list of protected

California activities because pricing and pooling policies are

“closely related” to California’s composition requirements and

therefore also protected from Commerce Clause _ challenges.

Ponderosa Dairy v. Lyons, 259 F.3d 1148, 1153 (9" Cir. 2001)

(Pet. App. A7 — A8) (citing Shamrock, 146 F.3d at 1178, 1182).

Both cases mistakenly relied on Congressional testimony taken

out of context — perhaps inadvertently — to support the conclusion

that composition standards were “closely related” to pooling and

pricing policies. A fair and full reading of that testimony lends no

support to that conclusion, however. Conversely, a review of

California’s milk laws shows the contrary. The State’s milk

ition and labeling standards are stand-alone bodies of law,

independent of the pricing and pooling policies California has

3

Commerce Clause scrutiny. The standard for that determination,

as this Court has held most recently, is whether Congress’

intention in that regard is “unmistakably clear.” South-Central

Timber Development, Inc. v. Wunnicke, 467 U.S. 82, 91 (1984).

See also Sporhase v. Nebraska ex. rel. Douglas, 458 U.S. 941,

960 (1982); C & A Carbone, Inc. v. Town of Clarkston, 511 U.S.

383, 408 (1994) (O’Connor, J., concurring). Congress was

“unmistakably clear” about its intention to protect California's

milk composition and labeling standards from federal

interference. Section 7254 expressly identifies those subject

areas. However, Congress did nor identify California’s milk

pricing and pooling policies as subject to the same protection.

That should put paid to any obligation to inquire regarding what is

“unmistakably clear” and what isn’t.

For all of these reasons, the Court should reverse the court

below and, further, disapprove Shamrock insofar as it holds that

California’s milk pooling and pricing policies are exempt from

scrutiny under the dormant Commerce Clause.

ARGUMENT

I. The Court Below Misconstrued the Plain

Language of 7 U.S.C. § 7254.

Section 7254 expressly lists two areas pertaining to fluid

milk standards in California that are protected from direct or

indirect preemption, prohibition or limitation under federal law:

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

products sold or marketed in California, and (2) labeling of fluid

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

Section 7254 nowhere mentions California’s pricing and

pooling policies.

That should be the end of it. Had Congress wished to

protect California's milk pooling and pricing policies from federal

action, Congress would have said so directly. The customary

guides to statutory construction reinforce that conclusion.

> 7 USC. § 7254, also referred to as Section 144 of the Federal Agriculture

Improvement and Reform Act of 1996, states in its entirety: “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 - (|) 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

A. Under the Doctrine of Expressio Unius

Est Exclusio Alterius, Congress’ Explicit

Protection of Composition and Labeling

Standards from Federal Intervention

Supports the Conclusion that Congress

Did Not Intend Implicitly to Extend

Protection in Unenumerated Areas.

The venerable doctrine of statutory construction, Expressio

unius est exclusio alterius, is applicable here. Congress having

specified two areas in which California’s milk standards are

exempt from federal intervention, it is not for the court to spawn

others by judicial fiat.

In TRW Inc. v. Andrews, 534 U.S. 19 (2001), a unanimous

Court reversed the Ninth Circuit which had held that the statute of

limitations for violation of the Fair Credit Reporting Act

(“FCRA”) begins to run at the time the plaintiff discovers he or

she has been injured by a violation of the FCRA and not at the

(earlier) time of the violation itself. /d. at 26. Although the statute

on its face began to run at time of the violation, not the time that

the plaintiff discovered his or her injury, id. at 22, the Ninth

Circuit held that the requirement of discovery was implied in

every federal statute of limitations. /d. at 26. Reversing the Ninth

Circuit, the Court noted that Congress had adopted an explicit

limitation based on discovery in FCRA actions involving

misrepresentation, and so would not be presumed to have done the

same thing implicitly in all other FCRA actions. /d. at 28. The

Court stated, “The most natural reading of § 1681p [the limitation

based on discovery in FCRA misrepresentation actions] is that

Congress implicitly excluded a general discovery rule by

explicitly including a more limited one.” /bid. See also United

States v. Johnson, 529 U.S. 53, 58 (2000) (“When Congress

provides exceptions in a statute, it does not follow that courts have

authority to create others. The proper inference, and the one we

adopt here, is that Congress considered the issue of exceptions

and, in the end, limited the statute to the ones set forth.”); Andrus

v. Glover Construction Co., 446 U.S. 608, 616-17 (1980) (“Where

Congress explicitly enumerates certain exceptions to a general

prohibition, additional exceptions are not to be implied, in the

absence of a contrary legislative intent.”)

Section 7254 satisfies even the Court’s restrictive ——

of the Expressio unius rule in Barnhart v. Peabody Coal Co., 52

U.S. 123 S. Ct. 748, 71 USLW 4041 (January 15, 2003). In

Barnhart, the Court cautioned that it applied the principle only

5

when “[t}he items expressed are members of an ‘associated group

or series,’ justifying the inference that items not mentioned were

excluded by deliberate choice, not inadvertence.” /d. at —y

S.Ct. at 760 (quoting United States v. Vonn, 535 U.S. 55, 65

(2002)). See also Chevron U.S.A., Inc. v. Echazabal. $36 U.S. 73,

81 (2002).

It is beyond dispute that the milk composition standards

described in § 7254(1) and the milk labeling standards described

in § 7254(2) are an “associated group or series.” Congress’

election to afford explicit protection from federal interference in

these two areas of California milk law, without also listing

California pricing and pooling policies, justifies the conclusion

that Congress intended no such protection for the latter.

B. The Ninth Circuit’s Ruling that Virtually All

of California’s Milk Laws are Protected from

Federal Intervention Because They are

“Closely Related” to the §7254(1)

Composition Standards Would Render §

7254(2) Superfluous.

The Ninth Circuit holds that California’s milk pricing and

pooling policies are protected from federal intervention under §

7254 because they are “closely related” to the milk composition

standards of § 7254(1). Ponderosa, 259 F.3d at 1153 (Pet. App.

A7-A8) (citing Shamrock, 146 F.3d at 1182). How much more

closely related to the composition standards are the labeling

standards of § 7254(2)? Subsection (1) refers to standards

governing “the percentage of milk solids or solids not fat in fluid

milk....” Subsection (2) refers to the “the labeling of such fluid

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

the Ninth Circuit’s reasoning, subsection (2) protecting labeling is

superfluous because labeling is “closely related” to the

composition standards of subsection (1) and therefore protected

already from federal interference.

It is a canon of construction, however, that the courts will

whenever possible avoid construction of statutes that render any

section mere surplusage. See TRW, 534 U.S. at 29. In TRW

dealing with the statute of limitations under the Fair Credit and

Reporting Act, the Court cited the canon as an additional reason

for rejecting the Ninth Circuit’s decision that implied a discovery

element in every FCRA statute of limitations. The Ninth Circuit's

gloss, the Court said, would make surplusage of the single statute

that contained an explicit discovery element in actions based on

intentional misrepresentation. /bid| The Court held, “It is ‘a

6

cardinal principle of statutory construction’ that ‘a statute ought,

upon the whole, to be so construed that, if it can be prevented, no

clause, sentence, or word shall be superfluous, void or

insignificant.” Jd. at 31 (quoting Duncan v. Walker, 533 U.S.

167, 174 (2001)). See also United States. v. Menasche, 348 U.S.

528, 538-39 (1955).

The plain language of the statute, along with the

conventional canons of construction, compel the conclusion that

Congress did not intend to exempt California’s pooling and

pricing policies from dormant Commerce Clause scrutiny.

Il. California’s Milk Composition and Labeling

Standards Are Net “Closely Related” to the

State’s Pricing and Pooling Policies.

Were the plain language of the statute all that this Court

considered, its decision to overturn the Ninth Circuit in this case

would already be an easy one. That decision is easier still,

however, in light of the lower court’s misplaced reliance on the

congressional testimony described in Shamrock. Further, an

examination of the outline and structure of California’s milk laws

shows that the State’s milk composition and labeling standards are

independent of the pricing and pooling policies and not “closely

related” at all.

A. The Congressional Testimony Cited in

Shamrock and in this Case below Does lvot

Support the Conclusion that the Milk

Standards Identified in Section 7254 are

“Closely Related” to the State’s Milk Pooling

and Pricing Policies.

The Shamrock court cited statements made by a Member

of Congress from California and the Executive Director of this

Amicus Curiae Dairy Institute of California as legislative history

demonstrating that Congress intended that the milk pricing and

ling be exempted from Commerce Clause scrutiny. 146 F.3d

at 1182. Shamrock’s description of those statements is

misleading.

The Ninth Circuit summarized the testimony of the

Honorable Bill Thomas as “explaining that the success of

California’s milk standards is attributable to the State’s pricing

system.” Shamrock, 146 F.3d at 1182 (citing Hearing Before the

Subcomm. On Livestock, Dairy and Poultry, 104" Cong., Apr. 20,

7

1995 (“House Hearing”), at 435-436).> That is not what he said.

The theme of Rep. Thomas’ statement was the success of “the

California dairy industry.” House Hearing at 435. After

attributing “[a] substantial part of that success” to the “enormous

growth in California’s population,” Rep. Thomas described “two

other factors for the California dairy industry’s success.” Jbid

First, he explained that “the State of California has for over 30

years had a set of standards for fluid milk products which ensure a

high quality product.” Jbid. Then, Rep. Thomas stated, “The

California dairy industry has enjoyed great success for another

reason: the pricing system for dairy products in California has

been developed through a very flexible, market-oriented

approach.” /bid. Thus, Rep. Thomas actually attributed the

success of California’s dairy industry to the State’s “pricing

system”; he did not attribute the success of California’s “milk

standards” to the “pricing system,” as the Ninth Circuit asserts.

Shamrock, 146 F.3d at 1182.

Also misleading is the Ninth Circuit’s summary of the

written testimony of Craig S. Alexander, Executive Director at the

time of Dairy Institute of California. The Shamrock court stated

that Mr. Alexander “discuss[ed] California’s pricing and pooling

system in the context of California’s milk quality standards.” 146

F.3d at 1182. That is not an accurate summary of Mr.

Alexander’s testimony. Mr. Alexander made remarks regarding

“those issues which specifically impact California’s programs”

that Congress should consider as it pieces together a new national

farm bill. House Hearing, at 480. Those “issues” briefly mentioned

by Mr. Alexander were “California’s milk marketing programs,”

“California market order pricing policies,” “Federal Producer

Security Legislation,” and finally, “Milk Solids Standards.” /d. at

481-82. Contrary to the Ninth Circuit’s summary of Mr.

Alexander’s remarks, the final discussion regarding California’s

milk composition standards did not form the “context” of Mr.

Alexander’s remarks, and did not even relate to his earlier remarks

regarding milk pricing. /bid.

Thus, the Ninth Circuit fails to cite any reliable legislative

history in Shamrock demonstrating that Congress intended that the

milk pricing and pooling scheme be included in the § 7254

exemption as a means of effecting California’s milk composition

standards.

’ Applicable pages of the House Hearing are attached hereto as Al through A7.

8

B. California’s Milk Marketing Laws Show

that the State’s Milk Pooling and Pricing

Policies are Independent of the Milk

Standards Identified in § 7254.

In Shamrock, the Ninth Circuit asserted that California’s

pricing and pooling laws are an element of the “milk fortification

scheme” and are “an essential part of California’s plan to maintain

its milk composition standards.” 146 F.3d at 1182. In the case at

bar, the court below added that the pricing and pooling schemes

are “closely related” to composition standards. Ponderosa, 259

F.3d at 1153 (Pet. App. A7-A8). Each of those assertions is

incorrect. Illogically, the Ninth Circuit has lumped together three

different legislative schemes, found in three distinct provisions of

the California Food & Agricultural Code and administered by

three different divisions of the California Department of Food and

Agriculture.

California’s law regarding milk composition standards (or

“standards of identity”) is set forth in Milk and Milk Products Act

of 1947, which is codified in Division 15 of the State’s Food &

Agricultural Code. See CAL. FOOD & AGRIC. CODE § 32501, et

seq. (West 2001). Not surprisingly, California’s milk labeling

laws relating to those milk compositional standards are also found

in Division 15 of the State’s Food and Agricultural Code. See

CAL. Foop & AGRIC. CODE § 32912 (West 2001). See generally,

People ex rel. Lockyer v. Shamrock Foods Co., 24 Cal.4” 415,

418-19, 11 P.3d 956, 959, 101 Cal.Rptr.2d 200, 203 (2000). The

Milk and Dairy Foods Control Branch of the California

Department of Food and Agriculture enforces the state’s

composition standards and labeling requirements.

California’s law regarding milk pricing, however, is found

in Chapter 2 (“Stabilization and Marketing of Market Milk”) of

Part 3 (“Marketing Laws Regarding Particular Products”) of

Division 21 (“Marketing”) of the State’s Food and Agricultural

Code. See CAL. Foop & AGRIC. CODE § 61801, ef seq. (West

1997). The legislative purposes of Chapter 2 are (1) to provide

funds for administration and enforcement of the milk pricing laws;

(2) to authorize the Director of the Department of Food and

_ Agriculture to prescribe marketing area and to determine

minimum prices; (3) to authorize and enable the Director of the

Department of Food and Agriculture to formulate stabilization and

marketing plans; and (4) to enable the dairy industry to develop

and maintain satisfactory marketing conditions, bring about and

maintain a reasonable amount of stability and prosperity in the

9

production of market milk, and provide means for Carrying on

essential educational activities. See CAL. FooD & AGRIC. CODE §

61805 (West 1997). Those stated purposes underlying the

California’s pricing laws say nothing about maintaining the

State’s milk composition standards and labeling requirements.

The milk pricing laws are administered by the Dairy Marketing

Branch of the California Department of Food and Agriculture

through the Stabilization Plan. The Dairy Marketing Branch is

different from the branch that administers the composition and

labeling laws.

California’s Gonsalves Milk Pooling Act of 1967 is found

in Chapter 3 (“Equalization Pools”) of Part 3 (“Marketing Laws

Regarding Particular Products”) of Division 21 (“Marketing”) of

the State’s Food and Agricultural Code. See CAL. Foop & AGRIC.

CODE § 62700, et seg. (West 1997). In enacting the milk pooling

laws, the California Legislature not only articulated the purposes

behind those laws, but also distinguished them from the pricing

and stabilization laws (i.e., Chapter 2 of Part 3 of Division 21 of

the Food & Agricultural Code). The Legislature generally

explained:

It is recognized by the Legislature that currently

the powers conferred upon the director by Chapter

2 (commencing with Section 61801) are inadequate

to enable the dairy industry to develop and

maintain satisfactory marketing conditions and

bring about and maintain a reasonable amount of

stability and prosperity in the production of fluid

milk and fluid cream; and that to accomplish these

purposes, and particularly to insure [sic] to

consumers within California an adequate and

continuous supply of pure, fresh, and wholesome

milk at fair and reasonable prices, including a

reasonable estimate of the additional supply which

is needed to provide for normal fluctuations in

production and in consumer demand for those

products, those powers must be supplemented by

the powers conferred in this chapter upon the

director to equalize gradually the distribution of

class | usage among the producers of this state.

CAL. FooD & AGRIC. CODE § 62702 (West 1997).

The Legislature described the specific purposes of the

pooling laws as the “equalization of usages among producers” and

the “entry of new producers. “ See CAL. Foop & AGRIC. CODE §

10

62702.1. (West 1997). Those general and specific legislative

purposes underlying the pooling laws are silent regarding

maintenance of the State’s milk composition standards and

labeling requirements. The milk pooling laws are administered by

the Milk Pooling Branch of the California Department of Food and

Agriculture, which is different from the branches that administer

the composition and labeling laws, or for that matter, the pricing

laws.

lll. The Ninth Circuit Has Ignored This Court’s

“Unmistakably Clear” Standard for

Determining When Congress Intends to Confer

an Exemption from Dormant Commerce Clause

Scrutiny.

Section 7254 does not make “unmistakably clear” that

Congress intended to exempt California’s milk pricing and

pooling policies from dormant Commerce Clause scrutiny. Rather,

the contrary conclusion is more reasonable in light of the statute’s

silence on the matter, interpreted in light of the canon of

Expressio unius and the principle that the court will avoid where

possible rendering any part of a statute mere surplusage.

The Court has always maintained a very high bar to claims

that Congress intended an exemption to dormant Commerce

Clause scrutiny. In South-Central Timber Development, the Court

held that such intent must be “unmistakably clear.” 467 U.S. at

91. In that case, a timber company challenged on Commerce

Clause grounds an Alaska state requirement that timber harvested

on state land be processed in the state before export. Alaska

responded that Congress had intended to exempt such “primary-

manufacture” requirements from Commerce Clause scrutiny. In

support of that claim, Alaska pointed to a federal policy restricting

out-of-state shipment of unprocessed timber from federal lands.

Id. at 89-90. The Court held that evidence of the federal policy

was insufficient by itself to establish Congressional intent to

exempt even a parallel state policy from Commerce Clause

scrutiny. See id. at 92-93.

The Court explained the purpose of maintaining a high

threshold for ascertaining Congressional intent with regard to such

exemptions. The Commerce Clause is designed “*to avoid the

tendencies toward economic Balkanization that had plagued

relations among the colonies and later among the States under the

Articles of Confederation.” Jd. at 92 (quoting Hughes v.

Oklahoma, 441 U.S. 322, 325 (1979)). Legislative or regulatory

action by a state affecting interests within the state will normally

————— rl

ll

be constrained by the state’s political processes. Such constraints

may not operate, however, where the burden of the state’s

legislative or regulatory action falls on interests situated outside

the state and therefore unrepresented in the state’s political

processes. /bid. For such “outside interests,” the Commerce

Clause provides protection from discriminatory action by the

state.

Although Congress may from time to time exempt

specified state actions from Commerce Clause scrutiny,

congressional review at least assures that all segments of the

country have been represented in the decision-making process,

thereby reducing the danger that one state will be in position to

exploit others. The rule requiring “unmistakably clear” intent by

Congress in connection with such exemptions serves this purpose.

A rule requiring a clear expression of approval by

Congress ensures that there is, in fact, such a

collective decision and reduces significantly the

risk that unrepresented interests will be adversely

affected by restraints on commerce.

Id. at 92. The application of the “unmistakably clear” standard to

this case yields a result that is itself unmistakably clear. In

enacting § 7254, Congress evidenced no intent to exempt from

dormant Commerce Clause scrutiny any portion of California’s

milk laws other than those specifically enumerated: composition

standards and labeling standards. The language of the statute

omits any mention of other subject matter. The rule of

construction Expressio unius and the judicial policy of avoiding

interpretations that will render any portion of a statute surplusage

support that conclusion. The congressional testimony cited in the

court below does not establish that composition and labeling

standards are so “closely related” to the unenumerated items that

congressional intent to confer an exemption on areas other than

those specifically listed in the statute must be presumed. To the

contrary, an examination of California’s milk iaws shows that the

composition and labeling standards are not especially entwined

with the State’s pricing and pooling policies, and certainly not

linked to the extent that congressional intent to extend the

exemption may be inferred.

In other cases, the Court has described the test for

congressional intent in similar but no less demanding ways. In

Sporhase, 458 U.S. 941, the Court rejected a claim by the State of

Nebraska that Congress had intended to exempt ground water

regulation from Commerce Clause scrutiny. The Court noted that

12

in other cases sustaining such exemptions, Congress had

“expressly stated” its intention to do so. /d. at 960 (citing New

England Power Co. v. New Hampshire, 455 U.S. 331, 343 (1982)

(quoting Prudential Ins. Co. v. Benjamin, 328 U.S. 408, 427

(1946))). In the case at bar, of course, Congress has nowhere

“expressly stated” its intention to exempt California’s pricing and

pooling standards from scrutiny. Had Congress wished to do so, it

would certainly have added them to the short list of subject areas

in § 7254.

It makes little difference in this case whether the test for

Congressional intent is described as a requirement that the

exemption be “expressly stated” or “unmistakably clear.”

Application of either standard shows that Congress did not intend

to exempt California’s pricing and pooling standards from

dormant Commerce Clause scrutiny.

CONCLUSION

Section 7254 refers expressly to California’s composition

and labeling standards. It omits any reference to the broader areas

of pricing and pooling. In itself, that should be sufficient evidence

of Congress’ intent to exempt only the former standards from

dormant Commerce Clause scrutiny.

The Ninth Circuit notwithstanding, California’s

composition and labeling standards are not so “closely related” to

the State’s pricing and pooling policies as to warrant the inference

that Congress intended something more than what it stated plainly

in the statute. The congressional testimony summarized in

Shamrock, read in its entirety, does not support the conclusions

drawn by the Shamrock court regarding the interdependence of

composition standards on the one hand and pooling and pricing

policies on the other. Rather, an examination of California’s milk

laws shows that they intersect hardly at all.

The Ninth Circuit’s rulings in this case and in Shamrock

pays lip service only to the Court’s standard for ascertaining

congressional intent in connection with claims of exemption from

Commerce Clause scrutiny. The Court has articulated that

standard as evidence that is “unmistakably clear” or even

“expressly stated.” The Ninth Circuit’s holding in this case fails

either test.

For the reasons set forth herein, this Court should reverse

the Ninth Circuit in this case and disapprove Shamrock to the

13

extent it holds that California’s milk pooling and pricing policies

are exempt from dormant Commerce Clause scrutiny.

Respectfully submitted,

THOMAS S. KNOX

JOHN M. LEMMON

GLEN C. HANSEN

Attorneys

FEBRUARY 21, 2003

APPENDIX

on ee eee aE Bt Hires FOE “ye

. ~The 2

FORMULATION OF THE 1995 FARM BILL

(DAIRY TITLE)

HEARINGS

SUBCOMMITTEE ON DAIRY, LIVESTOCK, AND

POULTRY

COMMITTEE ON AGRICULTURE

HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION

Printed for the use of the Committee on Agriculture

U.S. GOVERNMENT PRINTING OFFICE

o-242 WASHINGTON 1996

For sale by the U.S Government Prnang Offic>

Supenreendent of Documens, Congresmonai Sates Office, Washangion, DC 20402

ISBN 0-16-047304-7

[Table of Contents and Statements R weinesses

other than Mr. Thomas and Mr A exander

intentionally omitted]

CRE OR

435

Statement Por the Record

THE HON. BILL THOMAS

Subcommittee on Livestock, Dairy and Poultry

April 20, 1995

I appreciate the Chairman’s willingness to hold a hearing in

Tulare County on dairy issues. In the past, dairymen across the

nation have had public, divisive disputes about farm legislation

and dairy policy. With the spending constraints under which

Congress and the Department of iculture are going to operate

in the next few years, this hear is an indication of the

Chairman’s willingness to work with all segments of the dairy

mae me | as this Subcommittee begins deliberations on the 1995

Parm Bill.

As most of know, the California dairy industry has been

very successful in recent years. A substantial part of that

success is due to enormous growth in California’s population.

There are two other factors for the California dairy industry‘s

success that I hope the Subcommittee will allow the State to

preserve.

Firet, the State of California has for over 30 years had a

get of etandards for fluid milk products which ensure a high

quality product. These standards require addition of nonfat

solids into low fat milk, making low fat milk taste like whole

milk. Milk consumers also get more calcium and protein under

these standards. The standards are strongly supported by

consumers in California, dai and by nutritionists

interested in the health of chil and women.

Unfortunately, national nutritional labeling requirements

may lead to the termination of California‘’s system. These

standards have come under assault recently by dairymen outside

the state, who wish to w~ lower standard, so-called “federal

milk* into California. afornia’s fluid milk standards are one

area where a state really “knows best.* The California fluid

milk market is almost totally self-contained--only 1% of the

state’s total ion comes from out-of-state sources. The

standards are not a ier to milk produced in other states as,

until recently, all packaged milk entering the state conformed to

California standards. In a case such as this, where a state has

had a very successful program for several decades, and where any

burden on outside interests is largely theoretical, I would hope

the federal government would got override that systea.

In addition to all the nutrition and health reasons why

California fluid milk standards should remain in place, there

will be a very real impact on the federal deficit if the

California standards are overridden. Without the standards,

California dairymen will offer additional product to the

Commodity Credit Corporation, which in turn increases the federal

deficit. The ional rn Office has estimated this

impact in the vicinity of $75 million over the next five years.

Unless the law is amended soon, California‘’s standards may

be eliminated. To give the State . ne ability to — a

svetem that has served axempe cal yf well, I have

# bill would Ate A» £- ~

requirement . bowsh thd Bef 1 43 not bere ene

agriculture Committee, ad join’se ic suppaee te

The California dairy industry has enjoyed great success for

another reason: the pricing system for dairy 2 in

California has been developed a very flexible, market-

oriented approach. Products are ced according to what the

thie system must be retained. In fact, the Subcommittee may want

to examine the California system, to see whether there are

aspects of it which could serve as the basis for changes in the

federal order systes.

I also want to say a word about California’s ‘make

allowance* for manufactured dairy s. When Congress sought

to override the California “make allowance* in section 102 of the

1990 Pare Bill, it involved USDA and dairysen in a morass. USDA

recently suggested that section 102 should be rethought during

development of the 1995 fare bill. In reconsidering the policy,

I hope the Subcoumittee will Gecide to allow California to retain

its historic practice.

The advantages of allowing California to preserve its make

allowance are clear. The Congressional —-y Office estimates

that ending California’s make allowance would spending

under today’s fare bill ase auch as $54 million during the next

five years. Such a cost is beard to defend when congress

is being forced to scrutinize every federal account for potential

At a time when fare are going to need each other's

support to a fare bill, I hope the Subcommittee will

consider al yd California’s

I heard of the new members of the House

1 help ue develop the kind of reforms our

colleagues will demand in return for passing a 1995 fare bill.

ov

—_—

480

Mr. TILLISON. See, Mr. Peterson, somehow California can lewer

the milk price all over the United States, but you will not believe

that a producer in California that is not willing to go along with

the pricing structure because he is looking for a market himself,

= ve the same impact in California on our milk prices. It does

n.

r. PETERSON. A producer or a processor?

Mr. TILLISON. A producer.

Mr. PRINCE. An individual.

Mr. TILLISON. A producer organization.

Mr. PETERSON. But if they are all in the cooperatives, I-——

= TILLISON. They are not all in the cooperatives, that is the

problem.

Mr. PETERSON. I appreciate the chance to ask that question, Mr.

Chairman.

Mr. GUNDERSON. Thank you, and thank you all for your contribu-

tions.

We will call our next panel. Craig Alexander of the Dairy Insti-

tute of California; Larry Jensen, Leprino Foods; Richard Low of

Darigold Foods; and John Kaczor of Super Stores Industries.

I apologize. Mr. Ziehnert is going to replace Mr. Richard Low.

I understand everyone’s need to stretch and all of that. I would

encourage you, if you want to visit for a little bit, that you step out-

side. As you can see, the hearing is taking perhaps more time than

some ~~ because of the dialogue. I think that is healthy

personally, but as a result, 1 am going to beg everyone’s coopera-

tion so that we can continue to move along.

With that, Craig, if you are ready, you are recognized for 5 min-

utes.

STATEMENT OF CRAIG ALEXANDER, DAIRY INSTITUTE OF

CALIFORNIA

Mr. ALEXANDER. Thank you, Mr. Chairman and members of th

Committee. I appreciate the opportunity to testify today

the upcoming 1995 farm bill. My name is Craig S. Alexander. I am

the executive director of the Dairy Institute of California. Dairy In-

stitute is a voluntary trade association representing 45 dairy com-

panies who Dang fluid, cultured and butter, powder and cheese

products in the State of California.

Dairy Institute has traditionally represented California's proc-

essors on State dairy issues. Many of our members are also mem-

bers of the International Dairy Foods Association which has well

represented California’s dairy processors interests on most federal

issues. In the last 5 years, it seems that several Federal policies

pave tanpetes Gis anime ane chen Smee p ive dairy market-

ing policies found in California. In response, Dairy Institute has be-

come active on those issues which specifically impact California’s

programs. We wish to focus our attention today primarily on those

issu

es.

Let me first say, however, that the 1995 farm bill debate may

provide a great aoeeany for the dairy industry, rather than a

threat, as we prepare for the 21st century. The dynamic nature of

dairy farming is evident here in California. Dairy product tech-

nologies and consumer markets are also rapidly changing, particu-

481

larly with the NAFTA and GATT agreements. Federal dairy policy

needs te focus first and foremost on expanding dairy markets at

home and abroad. Without shifting the priority to market expan-

sion and competitive pricing policies we will lose domestic and

international opportunities and in the long run farm prices and in-

comes will suffer.

California’s milk marketing programs. The California system of

regulation has adapted to the rapidly changing dairy industry and

unique programs have developed in advance of slower development

of Federal policies. The responsiveness of the program has been

beneficial to dairy farmers and processors. One aspect of the State’s

milk order program, for example, is that decisions can be made and

in fact are required to be made in the matter of a few months rath-

er than a few years as is currently the case under Federal market-

ing orders. Dairy Institute supports this type of responsiveness and

would recommend that Federal milk order regulations each make

similar procedural ch to be effective in the future.

California market order pricing policies. There’s been a percep-

tion that California’s market order regulation has somehow created

California’s growth in milk production. The cause of California's

growth in dairving has been due to the outstanding productivity

and management capability of California’s dairymen. California's

market order regulation with respect to manufacturing prices is

simple. It develops manufacturing milk prices based on the market

values for butter, powder and cheese as well as the product yields

and processing costs of the manufacturers.

Dairy Institute strongly supports the repeal of Section 102 of the

1990 farm bill. Implementation of Section 102 would not only in-

jury processors in California, including the farmers that own prot-

essing facilities, but studies have also shown that Section 102 as

proposed by USDA, will increase nonfat dry milk production, in-

crease CCC sales and reduce farm income in other parts of the

country. Price setting for manufacturing milk under Federal orders

should adopt competitively lower minimum prices similar to Cali-

fornia’s. Setting manufacturing prices nationally based on the obso-

lete M-W is a prescription for increased milk supplies outside the

upper midwest. reduced international competitiveness, and reduced

dairy product demand.

Federal Producer Security Legislation. California producers and

processors developed a producer security program after the default

of a major processor in the State in 1986. This innovative program

was carefully designed to serve the needs of the industry. ay In-

stitute is very concerned that attempts to preempt a well defined

successful program will result in higher costs for processors and re-

duced protection for dairy farmers. If it is felt that a Federal pro-

gram is needed for other areas of the country that do not have se-

curity laws, California’s system would be exempted.

Federal Milk Solids Standards. Dairy Institute has oupgerens

California’s higher solids standards for fluid milk products. It is a

system which worked in California, but we do not know if the

program adapts very well to other parts of the country as some pro-

ducer groups have discussed. It was of concern to our me

that federal preemption of the California standards took place

under the Nutrition Labeling and Education Act of 1990 without

482

consideration for the longstanding tradition of our ay oy We

supported a petition to FDA and Federal legislation last fall to pre-

serve California’s standards. At this point, California standards are

being challenged by an out-of-state company and some of Califor-

nia’s fluid processors have lost business to out-of-state competitors

with lower cost Federal solids milk products. If the issue is to be

resolved legislatively, it must be resolved quickly, and we feel the

issue should not wait several months for the farm bill.

This concludes my testimony and I would be happy to answer

any question.

Mr. GUNDERSON. Thanks.

Larry Jensen.

(The prepared statement of Mr. Alexander appears at the conclu-

sion of the hearing.)

STATEMENT OF LARRY JENSEN, LEPRINO FOODS

Mr. JENSEN. Thank you, Mr. Chairman.

Mr. Chairman, and Subcommittee Members, I a preciate the op-

portunity to summarize the views of Leprino Foods Company con-

tained in the ey statement on important issues facing

our dairy industry. The 1995 farm bill presents us with the oppor-

tunity and challenge to review national dairy policy for the first

time in the context of the Uruguay Round of the GATT.

Recent trade initiatives such as NAFTA and the Uruguay Round

provide unprecedented opportunities for future development of

international markets for American dairy products. In formulating

national dairy policy, U.S. policy makers must ensure that govern-

ment programs enhance, rather than impede our industry’s ability

to ae on these opportunities. Over the course of the next 10

to 15 years it is likely that international trade in dairy products

will expand a. It is critical that the U.S. dairy industry

position itself over the long term to capture a much greater share

of the world market and remain competitive in its domestic mar-

kets by encouraging and capitalizing on efficiencies in our own

milk production and processing systems. The U.S. dairy industry

will be positioned for Dee = opportunities only if free market com-

petition is allowed to flourish within our domestic industry.

Current Federal manufacturing milk price policy centered

around the obsolete Minnesota/Wisconsin price series is stifling the

transition toward global competitiveness. When established 35

years ago, the M—W reflected the market clearing value of milk in

the primary reserve supply region of the Nation; however, it now

reflects a localized —_ y competitive deficit market that incor-

~_— a premium ve the fundamental value of milk Mr.

hairman, much of the concept of basing fluid milk differentials on

distances from this former reserve supply region has become obso-

lete. So has the concept of basing minimum manufacturing milk

prices on competitive prices in that region. In spite of USDA’s at-

tempts to temporarily correct its shortcomings, the M-—W is no

longer reflective of a market clearing value for manufacturing milk.

e use of a manufacturing milk price in the Federal! orders that

is well above market clearing value in ay parts of the company

has led to rapid milk production growth in lower cost regions such

as the West and Southwest. This growth has contributed to an in-