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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0536%3A13

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2003
- **Citation:** 537 U.S. 1099

## Text

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-

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0536%3A13. Public record. Not legal advice.