Cloverland-Green Spring v. Pennsylvania Milk

298 F.3d 201

CLOVERLAND-GREEN SPRING DAIRIES, INC. v. PENNSYLVANIA MILK MARKETING BOARD; Beverly R. Minor, Individually and as members of the Board; Luke F. Brubaker; J. Robert Derry, Individually and as members of the Board, Thomas E. McGlinchey; Gertrude Giorgini; Sue A. Spigler, ("Milk Consumers"), Intervenors-Plaintiffs, Cloverland-Green Spring Dairies, Inc., Appellant.

*(Amended per Clerk's Order filed 10/3/01)

Cloverland-Green Spring Dairies, Inc. v. Pennsylvania Milk Marketing Board; Beverly R. Minor, Individually and as chairperson of the Board; Luke F. Brubaker; J. Robert Derry, Individually and as members of the Board, Thomas E. McGlinchey; Gertrude Giorgini; Sue A. Spigler, ("Milk Consumers"), Intervenors-Plaintiffs, Thomas E. McGlinchey; Gertrude Giorgini; Sue A. Spigler, Individually, and on behalf of milk consumers in PMMB Areas #1 and #4, Appellants.

*(Amended per Clerk's Order filed 10/3/01)

No. 01-2210.

No. 01-2219.

United States Court of Appeals, Third Circuit.

Argued February 5, 2002.

Filed July 24, 2002.

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Kevin J. McKeon, Malatesta, Hawke & McKeon, Harrisburg, PA, Sheldon A. Weiss, (argued), Mountainside, NJ, for appellant/cross appellee Cloverland-Green Spring Dairies, Inc.

Thomas J. Finucane, (argued), Chambersburg, PA, D. Michael Fisher, Attorney General of Pennsylvania, Gwendolyn T. Mosley, (argued), Senior Deputy Attorney General, Calvin R. Koons, Senior Deputy Attorney General, John G. Knorr, III, Chief Deputy Attorney General, Chief Appellate Litigation Section, Office of Attorney General of Pennsylvania, Harrisburg, PA, for appellees/cross appellants.

Allen C. Warshaw, (argued), Duane, Morris & Heckscher, Harrisburg, PA, for appellee Pennsylvania Association of Milk Dealers.

Before: SLOVITER, and AMBRO, Circuit Judges POLLAK,^** District Judge.

OPINION OF THE COURT

AMBRO, Circuit Judge.

The primary issue in this case is whether the dormant Commerce Clause allows a state to impose wholesale price floors that shield in-state businesses from more efficient out-of-state competitors. Under the circumstances presented here, we hold that it does not.

Federal milk marketing orders fix minimum prices (or price floors) for milk producers' sales in most of the United States. Pennsylvania, the fourth-largest milk-producing state in the nation, sets minimum producer prices above the federal floors. To compensate its dealers¹ and retailers for paying higher raw milk costs, Pennsylvania enforces minimum prices for wholesale and retail milk sales. The wholesale and retail price floors, which are designed to "best protect the milk industry of the Commonwealth," are fixed according to in-state milk dealers' and retailers' costs to guarantee them desirable profits. As a consequence, wholesale and retail milk prices in Pennsylvania are considerably higher than the prevailing prices in neighboring states, none of which imposes price controls. Out-of-state milk dealers want to compete in the Pennsylvania market by offering prices below the wholesale floors, but face criminal penalties for doing so.

Cloverland-Green Spring Dairies, Inc. ("Cloverland"), a Maryland milk dealer, sued the Pennsylvania Milk Marketing Board (the "Board") under 42 U.S.C. § 1983, seeking declaratory and injunctive relief with respect to the minimum wholesale prices.² Three milk consumers who live in Pennsylvania (Thomas McGlinchey, Gertrude Giorgini, and Sue Spigler) intervened to challenge Pennsylvania's minimum retail prices. The Pennsylvania Association of Milk Dealers (the "Pennsylvania Milk Dealers"), which represents milk dealers within the Commonwealth, intervened to help defend the minimum wholesale prices. The District Court granted summary judgment for the defendants with respect to both the wholesale and retail price floors, prompting this appeal. We affirm the Court's ruling on the minimum retail prices, but reverse its ruling on the minimum wholesale prices and remand for further proceedings.

I. Background

Because we are at the summary judgment stage, we describe the facts in the light most favorable to Cloverland, the non-moving party. See Schnall v. Amboy Nat'l Bank, 279 F.3d 205, 209 n. 1 (3d Cir.2002).

In most parts of the United States, producer-to-dealer milk sales are subject to price floors imposed by the federal government. Under the federal regulatory scheme, see 7 U.S.C. § 608c; 7 C.F.R. § 1001.1 et seq., the Secretary of Agriculture divides the country into geographic regions and issues milk marketing orders that set minimum producer prices for each region. Prices are set at levels that "insure a sufficient quantity of pure and wholesome milk to meet current needs and further to assure a level of farm income adequate to maintain productive capacity sufficient to meet anticipated future needs." 7 U.S.C. § 608c(18).³ Congress first authorized the Secretary to set minimum producer prices in 1937, amidst widespread fear of a milk shortage. Today, more than six decades later, dairy farmers across the United States produce far more milk than our country consumes.

Pennsylvania's dairy industry is among our nation's most productive. Milk production in the Commonwealth outpaces consumption by roughly 350%. Annual production per-capita is around 900 pounds; consumption per-capita is merely 200 pounds. Only three states (California, Wisconsin, and New York) produce more milk than Pennsylvania.⁴

Nonetheless, to "best protect the milk industry of the Commonwealth and insure a sufficient quantity of pure and wholesome milk to [its] inhabitants," Pennsylvania forces its milk producers to sell at "over-order" prices — meaning prices above those required by federal milk marketing orders — and, unlike any other state in the region, sets minimum prices for wholesale and retail milk sales. 31 Pa.Stat.Ann. § 700j-801 (2002). The animating statute is the Pennsylvania Milk Marketing Law (the "Milk Law"), originally enacted in 1934, before the federal government began regulating dairy farmers' prices. See Finucane v. Pa. Milk Mktg. Bd., 136 Pa. Cmwlth. 272, 582 A.2d 1152, 1153 n. 1 (1990). Pursuant to the Milk Law, the Board divides Pennsylvania into six "milk marketing areas" and sets minimum prices therein, based on "conditions affecting the milk industry in each milk marketing area," i.e., the respective costs of "producers, dealers and stores in the area." § 700j-801. The Board fixes "over-order" producer prices at levels that guarantee Pennsylvania milk producers "a reasonable return." Id. Neighboring states, in contrast, do not impose minimum producer prices, apparently deeming the federal price floors sufficiently protective of their milk supplies.

To compensate dealers (and, in turn, retailers) for paying higher raw milk prices, the Commonwealth fixes wholesale and retail price floors at levels that guarantee them, also, "a reasonable return," which the Milk Law defines as "not less than a two and one-half percent (2%) nor more than a three and one-half percent (3%) rate of return based on net sales." Id. As a result, Pennsylvania dealers currently reap profits of around 3.3% of net sales, whereas net resale margins for dealers, sales in other states are typically around 1-2%. Persons who sell (or offer to sell) milk at prices below those dictated by the Board are subject to criminal penalties, including imprisonment. 31 Pa.Cons. Stat.Ann. §§ 700j-1001, -1002 (2002).

Pennsylvania's price control regime is virtually without peer. Only two other states (North Dakota and Maine) impose resale price floors. But unlike Pennsylvania, North Dakota and Maine do not require their milk control agencies to set price floors, instead giving them the option to do so.⁵ Everywhere else in the United States, wholesale and retail milk prices are determined by market forces, not government fiat.

The five southeastern and ten south-central counties in Pennsylvania (Areas 1 and 4, respectively, under the Board's regime) are part of the Northeast federal milk marketing region,⁶ which meanders from northern Virginia through New Hampshire and Vermont.⁷ 7 C.F.R. § 1001.2 (2002). Evidence indicates that milk dealers in the states bordering Pennsylvania have the ability to sell fluid milk to retailers located as far as 150 miles away from their processing plants. According to a study the Board conducted in 1992, when the Pennsylvania Milk Dealers asked it to assess the threats posed by out-of-state dealers, at least seventeen out-of-state dealers are capable of selling milk to Pennsylvania retailers. However, while substantial interstate movement of milk occurs within other parts of the Northeast region, out-of-state dealers do little business in Pennsylvania.

Cloverland, which is based in Baltimore, profitably sells wholesale milk in Maryland at prices well below the minimum prices applicable to sales in Areas 1 and 4. In the absence of the wholesale price floors, Cloverland would offer similarly low prices to retailers in those areas. It has tried to gain customers in Areas 1 and 4 by competing based on non-price criteria, such as packaging, quality, and service, but has been unsuccessful. Cloverland maintains that the only way it can attract business in Pennsylvania is by offering lower prices. It offered evidence that it is almost impossible for dealers to acquire business in Pennsylvania without offering milk at lower prices because there is little (if any) difference among dealers with respect to factors other than price.

It is unclear why Cloverland is able to offer prices well below Pennsylvania's wholesale floors. Perhaps out-of-state dealers can acquire raw milk at lower prices because their home states do not impose "over-order" prices, as one of the defendants' affiants indicated. On the other hand, Cloverland suggests that "large producer cooperatives" may render raw milk prices in neighboring states nearly as high as those dictated by law in Pennsylvania. So...