CLOVERLAND-GREEN SPRING DAIRIES, INC.
v.
PENNSYLVANIA MILK MARKETING BOARD; Bеverly 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.
COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED 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 аppellee 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 Pеnnsylvania 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 revеrse 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,
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 producе 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,
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 belоw 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 аssess 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) differenсe 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 perhaps out-of-state dealers process milk more efficiently than their Pennsylvania counterparts, as Cloverland contends. Whatever the reason, it is apparent that the minimum wholesale prices prevent Cloverland from using its competitive advantage in price to attract business in Pennsylvania. At the same time, there is no evidence that any in-state dealer wants to sell milk in Pennsylvania at lower prices; indeed, the Pennsylvania Milk Dealеrs intervened in this case to help defend the price floors.
In an effort to justify the wholesale price floors, the defendants offered evidence, in the form of affidavits from representatives of the Pennsylvania milk industry, that the Commonwealth's "over-order" producer prices are needed to prevent "predatory pricing" that could cause a milk shortage, and that the minimum wholesale prices are necessary to compensate dealers for paying higher raw milk prices. Cloverland countered with evidence that "for many decades" the federal producer price floors have yielded an ample milk supply in other states within the Northeast milk marketing region, none of which has wholesale or retail price floors. Further, Cloverland offered evidence that Pennsylvania's minimum wholesale prices are much higher than is necessary to keep reasonably efficient dealers in business. For instance, Cloverland presented evidence, which the defendants did not dispute, that efficient milk dealers can profitably sell milk for thirty cents per gallon less than the minimum wholesale prices.8
To put this in perspective, in May 2002, the minimum wholesale prices in Areas 1 and 4 were $2.66 and $2.64 per gallon, respectively.9 The defendants maintain that the wholesale price floors appear excessively high only because the Board bases them on dealers' average total costs, which include both average variable costs (such as raw milk, processing, labor, and transportation) and average fixed costs (such as equipment, office space, and other "overhead" expenses).10 However, this practice of fixing prices based on average total costs significantly increases dealers' profits because it will be in their economic interest to sell additional units of milk at any price above their average variable costs, even if below their average total costs. Outside Pennsylvania, in contrast, milk dealers generally offer pricеs based on their average variable costs.
With the record in this state, the parties filed cross-motions for summary judgment, and the District Court issued the first of two opinions. After reviewing the record, the Court determined that, because of the minimum wholesale prices, "[m]ore efficient out-of-state firms with lower costs are prohibited from utilizing their competitive advantage and attracting new customers by offering milk at lower prices."
Based on evidence subsequently introduced into the record, the District Court concluded that the wholesale price floors had some legitimate local benefits and that they burden interstate commerce less than it previously thought. Id. at 622. Relying on Pennsylvania milk industry representatives' statements that the wholesale price floors are necessary to compensate dealers for paying "over-order" producer prices, the Court determined that the minimum wholesale prices advance the legitimate local interest in averting a milk shortage. Id. at 621-22. Although there was considerable evidence that "Pennsylvania produces more milk than its inhabitants drink and neighboring states have been able to maintain adequate supplies of milk without state-mandated prices," this did not prove "that the putative local benefits are non-existent or that the legislature could not have believed in the purported purpose of the statute." Id. at 622.
On the burdens side of the scale, the Court reasoned that out-of-state dealers' ability to compete based on non-price criteria rendered the burden on interstate commerce "minimal," and thаt Cloverland "offer[ed] no conclusive evidence" that the minimum wholesale prices "substantial[ly]" reduce the flow of milk into Pennsylvania. Id. at 623. The Court relied heavily on statements by four Pennsylvania dealers and twenty-two Pennsylvania retailers that dealers compete based on non-price criteria, such as quality, service, and packaging. Id. It did not mention that many of the retailers listed price as an important factor—indeed, a number called it the most important — in deciding whether to switch dealers. Nor did it mention that several retailers explicitly said that, were it not for the minimum wholesale prices, they would buy milk from out-of-state dealers if they offered lower prices. In addition to underscoring out-of-state dealers' ability to compete based on factors other than price, the Court emphasized that thirty-three percent of the milk sold by dealers in the Commonwealth was marketed pursuant to state-approved service contracts dubbed "tolling agreements," which allow dealers to sеll at prices below the wholesale floors, and that approximately seven percent of overall fluid milk sales in Pennsylvania are made by out-of-state dealers participating in tolling agreements. Id. With this analytical context, the Court concluded that no reasonable jury could find the price floors failed the Pike test. Id. at 624.
II. Jurisdiction and Standard of Review
The District Court had jurisdiction under 28 U.S.C. §§ 1331, 1332, and 1343. We have jurisdiction under 28 U.S.C. § 1291.
We review the District Court's grant of summary judgment de novo. Fogleman v. Mercy Hosp., Inc.,
III. Minimum Wholesale Prices
A. The Basic Analytical Framework
In addition to granting Congress the power "to regulate Commerce ... among the several States," U.S. Const. art. I, § 8, cl. 3, the Commerce Clause has a negative aspect (commonly called "the dormant Commerce Clause") that limits the states' power to regulate interstate commerce. The dormant Commerce Clause prohibits the states from imposing restrictions that benefit in-state economic interests at out-of-state interests' expense, thus reinforcing "the principle of the unitary national market."13 West Lynn Creamery, Inc. v. Healy,
The initial question in a dormant Commerce Clause case is whether the state regulation at issue discriminates against interstate commerce "either on its face or in practical effect." Maine v. Taylor,
When a facially neutral law has the effect of disproportionately burdening out-of-state interests, it can be difficult to determine whether the burden rises to the level of discrimination against interstate commerce. See Brown-Forman Distillers Corp. v. New York State Liquor Auth.,
In this case, Cloverland argues for heightened scrutiny, but disclaims any contention that the Milk Law is facially discriminatory. Thus we must consider whether a reasonable jury could find that the minimum wholesale prices have the effect of discriminating against out-of-state dealers.
B. Heightened Scrutiny
Two Supreme Court decisions guide our discussion. In the leading case of Baldwin, the Supreme Court struck down a New York law prohibiting in-state dealers from selling milk purchased outside the State at a price below the New York minimum.
Four decades later, the Supreme Court invalidated a North Carolina statute that prohibited closed containers of apples sold in the State, regardless of their origin, from displaying any grade other than that of the United States Department of Agriculture ("USDA"). Wash. State Apple,
The Supreme Court's opinions in Baldwin and Washington State Apple show that if a state regulation has the effect of protecting in-state businesses by eliminating a competitive advantage possessed by their out-of-state counterparts, heightened scrutiny applies. See Laurence H. Tribe, American Constitutional Law § 6-8, at 1076 (3d ed.2000) ("[J]ust as it was impermissible in Baldwin v. Seelig for New York to eliminate the price advantage of Vermont milk by mandating a minimum price, so, too, in Hunt v. Washington State Apple Advertising Commission, was it impermissible for North Carolina to eliminate the quality advantage of apples from Washington by proscribing Washington's use of a quality grading system that distinguished its apples from the local product.").
We believe that a reasonable trier of fact could find that Pennsylvania's minimum wholesale prices eliminate a competitive advantage enjoyed by out-of-state dealers like Cloverland, and thus have an effect indistinguishable from the protectionist effects deemed fatal in Baldwin and Washington State Apple. We therefore hold that the District Court erred by declining to subject the wholesale price floors to heightened scrutiny.
As noted above, there is a factual dispute over why Cloverland can profitably sell milk at prices well below Pennsylvania's wholesale floors. One conclusion that a reasonable trier of fact could reach is that out-of-state dealers have a competitive advantage over their in-state counterparts. Higher raw milk costs necessitate higher wholesale prices. Because dealers buy milk from local dairy farmers, dealers from a state that imposes "over-order" prices are at a disadvantage when exposed to competition from dealers whose home states do not prop up milk producers' prices above the federal floors. Unlike neighboring states such as Maryland, where Cloverland is based, Pennsylvania forces its dealers to pay "over-order" prices for raw milk. A reasonable trier of fact could find that out-of-stаte dealers' ability to acquire raw milk at lower costs gives them a competitive edge over Pennsylvania dealers.16
The District Court acknowledged that a reasonable trier of fact could find that the minimum wholesale prices reduce the flow of out-of-state milk into Pennsylvania by preventing "[m]ore efficient out of state firms with lower costs ... from utilizing their competitive advantage and attracting new customers by offering milk at lower prices."
But the flaw in the District Court's reasoning is more fundamental. The Court believed that a state may remove a competitive advantage possessed by out-of-state firms if some in-state firms are also adversely affected. As we noted several years ago, however, the Supreme Court's decision in C & A Carbone, Inc. v. Town of Clarkstown,
In sum, a reasonable jury could find that Pennsylvania's price floors "neutralize advantages belonging to the place of origin," Baldwin,
If they are subject to heightened scrutiny, the wholesale price floors cannot satisfy the dormant Commerce Clause. Assuming that Pennsylvania has a legitimate interest in providing special protection for its milk supply beyond that afforded by the federal producer price floors, it can achieve its objective through alternative measures that do not discriminate against interstate commerce. For instance, the Commonwealth could encourage production by purchasing large quantities of wholesale milk from its dealers, or large quantities of raw milk from its dairy farmers. Neither action would impede out-of-state dealers' ability to compete for retailers' business, and both might be exempt from dormant Commerce Clause scrutiny under the market participant exception. See South-Central Timber Dev., Inc. v. Wunnicke,
C. Pike Balancing
As explained in the preceding section, a reasonable trier of fact could find that the minimum wholesale prices have an impermissible "leveling effect" that eliminates out-of-state dealers' competitive advantage over in-state dealers. Wash. State Apple,
We begin with the price floors' putative benefits. The defendants insist that we must accept the Pennsylvania General Assembly's empirical judgment, expressed in the Milk Law's text, that the minimum wholesale prices help avert a milk shortage that would harm the public health. Some deference to a state lеgislature's asserted purpose may be appropriate when the burden of a state regulation falls on in-state as well as out-of-state interests, because in that context the state legislature's incentive to protect in-state interests "will serve as a check against unduly burdensome regulations." Kassel v. Consol. Freightways Corp. of Del.,
In any event, "the incantation of a purpose to promote the public health or safety does not insulate a state law from Commerce Clause attack. Regulations designed for that salutary purpose nevertheless may further the purpose so marginally, and interfere with commerce so substantially, as to be invalid under the Commerce Clause." Kassel,
Only meager evidence to this effect appears in the record. The defendants offer nothing more than speculation by representatives of the Pennsylvania dairy industry that in-state milk producers would engage in predatory pricing if the Commonwealth did not impose "over-order" prices, along with the representatives' claims that the minimum wholesale prices are needed to compensate dealers for purchasing raw milk at "over-order" prices. However, a reasonable trier of fact could find that the federal producer price floors provide ample protection against predatory pricing. As the District Court said in its first opinion, the record shows that "the federal minimum pricing is ensuring an adequate supply of milk." Id. at 611. Pennsylvania is the only state in the Northeast milk marketing region that enforces wholesale price floors, yet none of the others has suffered a milk shortage in recent decades.
Moreover, the current success of the Commonwealth's dairy industry belies the defendants' claims that the minimum wholesale prices do more than artificially inflate in-state dealers' profits. At oral argument, counsel for the Pennsylvania Milk Dealers accurately noted that "Pennsylvania is one of the top, I think, toр five producers of raw milk in the country. It is an exporter." As already noted, the Commonwealth ranks fourth among all states in aggregate milk production. Per-capita milk production is even more impressive — Pennsylvania produces four-and-a-half times as much milk as its residents consume. Unless eliminating the minimum wholesale prices would cause Pennsylvania's milk production to decrease so dramatically that the Commonwealth would be forced to import milk to satisfy its residents' needs — and there is no evidence that it would — a reasonable trier of fact could find that the wholesale price floors are superfluous.
On the burdens side of the scale, a reasonable trier of fact could find that the wholesale price floors substantially impede the flow of out-of-state milk into Pennsylvania by protecting incumbent in-state dealers from price competition. Because in-state dealers dominate the wholesale milk market in Pennsylvania, barriers to competition burden out-of-state interests more heavily than in-state ones. Price floors are a barrier especially likely to safeguard existing suppliers' market shares; a number of the retailers who provided affidavits in this case said they would switch dealers if offered prices below the floors. Preventing dealers from attracting customers by offering lower prices thus helps in-state dealers maintain their traditional hegemony.
The District Court recognized that the wholesale price floors disproportionately burden out-of-state dealers, but concluded that there is "no conclusive evidence" of a substantial burden on interstate commerce because dealers can compete based on other criteria, such as packaging, quality, and service.
There is evidence that it is virtually impossible to displace incumbent dealers in Pennsylvania without offering prices below the Board-mandated floors. Not surprisingly, price seems to be an especially important factor — if not the most important factor — in retailers' decisions to find new dealers or retain their existing suppliers. Several retailers expressly ranked price as their most important criterion in deciding whether to seek new wholesale milk suppliers, and said they would switch to out-of-state dealers if they offered prices below the current minimums. Therefore, because the vast majority of incumbent dealers are in-state firms, and because there is no evidence that any in-state dealer — incumbent or not — wants to sell at lower prices, a reasonable trier of fact could find that the minimum wholesale prices place a substantial, disproportionate burden on out-of-state dealers, and that the ability to compete based on non-price criteria does not noticeably alleviate thе burden.19
Nor can we agree with the District Court that out-of-state dealers' ability to enter into tolling agreements meaningfully mitigates the burden on interstate commerce. Tolling agreements can be arranged only with the largest retailers, such as major supermarket chains. For that reason, only thirty-three percent of the milk purchased by Pennsylvania retailers is sold under a tolling agreement. The dormant Commerce Clause does not allow Pennsylvania to hamper out-of-state dealers in two-thirds of its wholesale market on the ground that they may compete freely in the remaining third. Cf. Wyoming v. Oklahoma,
Because the record indicates that the minimum wholesale prices may substantially burden Clovеrland and other out-of-state dealers, and because there is scant evidence that the price floors advance a legitimate local interest, summary judgment would be inappropriate even if a reasonable trier of fact could not find facts sufficient to trigger heightened scrutiny.
IV. Minimum Retail Prices
We can dispense quickly with the milk consumers' challenge to the retail price floors. The dormant Commerce Clause does not prevent a state from forcing its residents to pay more for a product if no out-of-state interests are affected. The intervenor-plaintiffs presented evidence that the retail price floors harm Pennsylvania milk consumers because lower prices are available in Maryland. But they failed to present any evidence that the retail price floors burden interstate commerce by harming out-of-state interests, and thus their dormant Commerce Clause argument fails. See United Dairy Farmers Coop. Ass'n v. Milk Control Comm'n,
V. Conclusion
Genuine issues of material fact exist with respect to whether Pennsylvania's minimum wholesale milk prices interfere with "the Commerce Clause's overriding requirement of a national common market." Wash. State Apple,
Notes:
Notes
Honorable Louis H. Pollak, United States District Judge for the Eastern District of Pennsylvania, sitting by designation
Milk dealers (i.e., processors) buy raw milk from producers (i.e., dairy farmers), process it, and sell it at wholesale prices to retailers (e.g., supermarkets, convenience stores).
As a state agency, the Board is immune from suit under the Eleventh AmendmentSee Fla. Dep't of Health & Rehabilitative Servs. v. Fla. Nursing Home Ass'n,
Beyond inflating prices, the federal floors protect milk producers by eliminating revenue disparities unrelated to efficiency. Milk producers are paid different prices according to the use to which their milk is put. Fluid milk (for examрle, milk sold in containers) commands the highest price; milk used to make other dairy products, such as cheese and butter, sells for less. To encourage producers to sell milk without regard to its use, the federal scheme pays each milk producer a "blend price" based on the aggregate uses of raw milk within his regionSee West Lynn Creamery, Inc. v. Healy,
See USDA, Federal Milk Market Administrator, Marketing Service Bulletin: 2001 Milk Production (Feb.2002), http://fmmacentral.com/PDFdata/msb0202.pdf (visited July 16, 2002). In addition, the Commonwealth ranks eleventh in both production per capita and production per cow. Id.
Both states' agencies exercise the option
Other areas within the Commonwealth are not subject to federal producer price floors. Only the minimum prices for Areas 1 and 4 are at issue in this case
Cloverland challenges not only the Milk Law, but also two orders issued pursuant thereto (Orders A-890A and A-900) that set minimum prices for Areas 1 and 4, respectively. For convenience, we also refer to the statute and the orders collectively as the "Milk Law."
This evidence showed that while dealers spend around twenty-six cents per gallon to рrocess raw milk and transport it for sale, Pennsylvania's price floors inflate dealers' margins (the difference between raw milk costs and wholesale milk prices) to fifty-seven cents per gallon
See Pennsylvania Milk Marketing Board, Minimum Wholesale/Retail Prices — May 2002, http:// sites.state.pa.us/PA—Exec/Milk/wr 200205.pdf (visited July 16, 2002).
See Philip Areeda & Donald F. Turner, Predatory Pricing and Related Practices Under Section 2 of the Sherman Act, 88 Harv.L.Rev. 697, 700 (1975) (explaining that "[f]ixed costs are costs that do not vary with changes in output," whereas variable costs "are costs that vary with changes in output"). Average total cost is calculated by dividing total production expenses (both fixed costs and variable costs) by units of output. Id.
Having just granted the Pennsylvania Milk Dealers' motion to intervene, the District Court wanted to give them an opportunity to introduce evidence regarding the price floors' legitimate local benefits
The standard for granting summary judgment on a request for a declaratory judgment is the same as for any other type of reliefSee Fed.R.Civ.P. 57; Simler v. Conner,
Congress can authorize states to impose restrictions that the dormant Commerce Clause would оtherwise forbidSee, e.g., Shamrock Farms Co. v. Veneman,
The defendants claim thatBaldwin does not apply because New York's law effectively regulated transactions that occurred outside the State's jurisdiction, whereas the Milk Law applies only to in-state transactions. But the problem with the law invalidated in Baldwin was not merely its extraterritorial reach, but that it had the practical effect of discriminating against out-of-state milk producers by eliminating their competitive advantage. See Donald H. Regan, The Supreme Court and State Protectionism: Making Sense of the Dormant Commerce Clause, 84 Mich.L.Rev. 1091, 1247-50 (1986).
BeforeWashington State Apple, a three-judge district court concluded that minimum wholesale prices for in-state sales do not offend the dormant Commerce Clause, but did not consider whether the result would be different if out-of-state dealers were disproportionately burdened. See Baxley v. Ala. Dairy Comm'n,
Quite different considerations were involved inMilk Control Board of Pennsylvania v. Eisenberg Farm Products,
Though not necessary to our decision, we note that the minimum wholesale prices' discriminatory effect on out-of-state dealers is compounded by the fact that they "are set by reference to operations of in-state milk dealers only."Sch. Dist. of Philadelphia v. Pa. Milk Mktg. Bd.,
Clover Leaf Creamery illustrates the importance of adversely affected in-state interests in dormant Commerce Clause analysis. Applying the Pike balancing test, the Supreme Court upheld a Minnesota statute that banned the retail sale of milk in plastic non-returnable, non-refillable containers, but allowed such sales in non-returnable, non-refillable сontainers made of other materials. Clover Leaf Creamery,
ContrastExxon Corp. v. Governor of Md.,
Moreover, the burden on out-of-state dealers mаy extend to their ability to compete intheir own states' wholesale markets. Cloverland introduced evidence that the minimum wholesale prices enable Pennsylvania dealers not only to maintain their in-state market shares without facing price competition from more efficient out-of-state dealers, but also to leverage their artificially inflated profits from in-state sales to undercut more efficient dealers' prices in other states. For instance, Pennsylvania dealers located in Areas 1 and 4 have offered to sell milk to Maryland retailers, including many of Cloverland's customers, at prices as much as fifteen to twenty cents per gallon less than the minimum wholesale prices in Pennsylvania. Cloverland says it has lost hundreds of thousands of dollars in sales as a result.
The District Court refused to consider testimony by Cloverland employees regarding the offers made by Pennsylvania dealers, deeming it inadmissible hearsay. However, a statement offering to sell a product at a particular price is a "verbal act," not hearsay, because the statement itself has legal effect. See Fed.R.Evid. 801 advisory committee's note; United States v. Montana,