NATIONAL PORK PRODUCERS COUNCIL; AMERICAN FARM BUREAU FEDERATION, Plaintiffs-Appellants, v. KAREN ROSS, in her official capacity as Secretary of the California Department of Food & Agriculture; TOMÁS J. ARAGÓN, in his official capacity as Director of the California Department of Public Health; ROB BONTA, in his official capacity as Attorney General of California, Defendants-Appellees, and THE HUMANE SOCIETY OF THE UNITED STATES; ANIMAL LEGAL DEFENSE FUND; ANIMAL EQUALITY; THE HUMANE LEAGUE; FARM SANCTUARY; COMPASSION IN WORLD FARMING USA; COMPASSION OVER KILLING, Intervenor-Defendants-Appellees.
No. 20-55631
United States Court of Appeals, Ninth Circuit
Filed July 28, 2021
D.C. No. 3:19-cv-02324-W-AHG
*
Thomas J. Whelan, District Judge, Presiding
Argued and Submitted April 14, 2021
Pasadena, California
Before: Milan D. Smith, Jr. and Sandra S. Ikuta, Circuit Judges, and John E. Steele,** District Judge.
Opinion by Judge Ikuta
Constitutional Law
The panel affirmed the district court’s dismissal for failure to state a claim of an action filed by the National Pork Producers Council and the American Farm Bureau Federation, seeking declaratory and injunctive relief on the ground that California’s Proposition 12 violates the dormant Commerce Clause in banning the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California standards.
The panel held that the complaint did not plausibly plead that Proposition 12 violates the dormant Commerce Clause by compelling out-of-state producers to change their operations to meet California standards and thus impermissibly regulating extraterritorial conduct outside of California’s borders. First, Proposition 12 does not dictate the price of a product and does not tie the price of in-state products to out-оf-state prices. Further, the interconnected nature of the pork industry does not mean that Proposition 12’s extraterritorial impact violates the underlying principles of the dormant Commerce Clause. The panel held that the complaint plausibly alleged that Proposition 12 has an indirect practical effect on how pork is produced and sold outside California, but such upstream effects do not violate the dormant Commerce Clause. The panel also held that California’s promulgation of regulations to implement Proposition 12, which, as a practical matter, may result in the
The panel further held that the complaint did not plausibly plead that Proposition 12 violates the dormant Commerce Clause by imposing excessive burdens on interstate commerce without advancing any legitimate local interest. The panel concluded that alleged cost increases to market participants and customers did not qualify as a substantial burden to interstate commerce for purposes of the dormant Commerce Clause.
COUNSEL
Timothy S. Bishop (argued) and Brett E. Legner, Mayer Brown LLP, Chicago, Illinois; Dan Himmelfarb and Colleen M. Campbell, Mayer Brown LLP, Washington, D.C.; Travis Cushman, American Farm Bureau Fedеration, Washington, D.C.; Michael C. Formica, National Pork Producers Council, Washington, D.C.; for Plaintiffs-Appellants.
R. Matthew Wise (argued), Deputy Attorney General; Mark R. Beckington, Supervising Deputy Attorney General; Thomas S. Patterson, Senior Assistant Attorney General; Attorney General’s Office, Sacramento, California; for Defendants-Appellees.
Bruce A. Wagman (argued), Riley Safer Holmes & Cancila LLP, San Francisco, California; Rebecca A. Cary and Ralph E. Henry, Humane Society of the United States, Washington, D.C.; for Intervenor-Defendants-Appellees.
Curtis T. Hill Jr., Attorney General; Thomas M. Fisher, Solicitor General; Kian J. Hudson, Deputy Solicitor General; Julia C. Payne, Deputy Attorney General; Office of the Attorney General, Indianapolis, Indiana; Steven Marshall, Alabama Attorney General; Clyde Sniffen Jr., Alaska Attorney General; Leslie Rutledge, Arkansas Attorney General; Christopher M. Carr, Georgia Attorney General; Tom Miller, Iowa Attorney General; Derek Schmidt, Kansas Attorney General; Jeff Landry, Louisiana Attorney General; Eric Schmitt, Missouri Attorney General; Timothy C. Fox, Montana Attorney General; Doug Peterson, Nebraska Attorney General; Wayne Stenehjem, North Dakota Attorney General; Dave Yost, Ohio Attorney General; Mike Hunter, Oklahoma Attorney General; Alan Wilson, South Carolina Attorney General; Jason R. Ravnsborg, South Dakota Attorney General; Ken Paxton, Texas Attorney General; Sean D. Reyes, Utah Attorney General; Patrick Morrisey, West Virginia Attorney General; Bridget Hill, Wyoming Attorney General; for Amici Curiae Indiana, Alabama, Alaska, Arkansas, Georgia, Iowa, Kansas, Louisiana, Missouri,
Robert S. Brewer Jr., United States Attorney; Michael S. Raab and Thomas Pulham, Appellate Staff; Civil Division, United States Department of Justice, Washington, D.C.; Carrie F. Ricci, Associate General Counsel, Department of Agriculture, Washington, D.C.; for Amicus Curiae United States.
Brian M. Boynton and Amy Lishinksi, Wilmer Cutler Pickering Hale and Dorr LLP, Washington, D.C., for Amici Curiae Association of California Egg Farmers and Pacific Egg & Poultry Association.
Matthew G. Berkowitz and Yue (Joy) Wang, Shearman & Sterling LLP, Menlo Park, California; L. Kieran Kieckhefer, Shearman & Sterling LLP, San Francisco, California; Ian E. Roberts, Shearman & Sterling LLP, Dallas, Texas; for Amici Curiae Health Care Without Hаrm, National Council for Occupational Safety and Health, Consumer Federation of America, and Food & Water Watch.
IKUTA, Circuit Judge:
In 2018, California voters passed Proposition 12, which bans the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California standards. The National Pork Producers Council and the American Farm Bureau Federation (collectively referred to as “the Council“) filed an action for declaratory and injunctive relief on the ground that Proposition 12 violates the dormant Commerce Clause. Under our precedent, a state law violates the dormant Commerce Clause only in narrow circumstances. Becausе the complaint here does not plausibly allege that such narrow circumstances apply to Proposition 12, we conclude that the district court did not err in dismissing the Council’s complaint for failure to state a claim.
I
Proposition 12 amended
On April 27, 2020, the district court granted the California defendants’ motion to dismiss and the intervenors’ motion for judgment on the pleadings. The district court held that Proposition 12 did not impermissibly control extraterritorial conduct and did nоt impose a substantial burden on interstate commerce. Although the district court had granted the Council leave to amend, the Council instead moved for entry of judgment, and the district court dismissed the complaint with prejudice. The Council timely appealed.
We have jurisdiction under
II
The Constitution grants Congress the power to “regulate Commerce . . . among the several States.”
The Council does not argue that the complaint has plausibly pleaded that Proposition 12 discriminаtes against out-of-state interests, and so has foregone the first principle recognized in Wayfair. Instead, it argues the second Wayfair principle, that Proposition 12 places an undue burden on interstate commerce, and the Brown-Forman variation, that Proposition 12 has an impermissible extraterritorial effect. At the motion to dismiss stage, we must determine whether the Council has plausibly pleaded a dormant Commerce Clause claim under its theories.
A
The Council’s primary argument is that the complaint adequately alleges that Proposition 12 has an impermissible extraterritorial effect.
1
In making this claim, the Council relies primarily on three historical Supreme Court cases that first delineated when a state law violates the dоrmant Commerce Clause by impermissibly regulating prices in other states. See Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511 (1935); Brown-Forman, 476 U.S. at 579; Healy v. Beer Inst., Inc., 491 U.S. 324
These cases used broad language. For instance, Healy states that the extraterritoriality principle “protects against inconsistent legislation arising from the projection of one state regulatory regime into the jurisdiction of another State,” and “precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders, whether
And indeed, the Supreme Court has given force to these scholarly observations, as it has indicated that the еxtraterritoriality principle in Baldwin, Brown-Forman, and Healy should be interpreted narrowly as applying only to state laws that are “price control or price affirmation statutes,” Pharm. Rsch. & Mfrs. of Am. v. Walsh, 538 U.S. 644, 669 (2003). We have adopted this interpretation and held that the extraterritoriality principle is “not applicable to a statute that does not dictate the price of a product and does not tie the price of its in-state products to out-of-state prices.” Ass’n des Eleveurs de Canards et d’Oies du Quebec v. Harris (Eleveurs), 729 F.3d 937, 951 (9th Cir. 2013) (cleaned up). The Tenth Circuit has followed suit. See Energy & Env’t Legal Inst. v. Epel, 793 F.3d 1169, 1172 (10th Cir. 2015) (Gorsuch, J.) (holding that the “three essential characteristics”
Under this narrow interpretation, Baldwin, Brown-Forman, and Healy do not support the Council’s arguments. It is undisputed that Proposition 12 is neither a price-control nor price-affirmation statute, as it neither dictates the price of pork products nor ties the price of pork products sold in California to out-of-state prices. See Eleveurs, 729 F.3d at 951. And the Council has not claimed that Proposition 12 discriminates against interstate commerce.
2
The Council nevertheless asks us to hold that Proposition 12’s extraterritorial impact violates the underlying principles of the dormant Commerce Clause in light of the unique nature of the pork industry. According to the allegations of the complaint, the pork industry is highly intercоnnected. A single hog is butchered into many different cuts which would normally be sold throughout the country. In order to ensure they are not barred from selling their pork products into California, all the producers and the end-of-chain supplier will require assurances that the cuts and pork products come from hogs confined in a manner compliant with Proposition 12. This means that all pork suppliers will either produce hogs in compliance with California specifications or incur the additional cost of segregating their products. As a practical matter, given the interconnected nature of the nationwide pork industry, all or most hog farmers will be forced to comply with California requirements. The cost of compliance with Proposition 12’s requirements is high, and
The Council’s theory is not barred by Walsh’s characterization of the Baldwin line of cases as being limited to price-control and price-affirmation statutes. We have recognized that the Supreme Court has not expressly narrowed the extraterritoriality principle to only price-control and price-affirmation cases, and we have recognized a “broad[er] understanding of the extraterritoriality principle” may apply outside this context, Ward v. United Airlines, Inc., 986 F.3d 1234, 1240–41 (9th Cir. 2021). But even though the Council’s complaint plausibly alleges that Proposition 12 has an indirect “practical effect” on how pork is produced and sold outside California, we have rejected the argument that such upstream effects violate the dormant Commerce Clause.
Under our precedent, state laws that regulate only conduct in the state, including the sale of products in the state, do not have impermissible extraterritorial effects. See Rosenblatt v. City of Santa Monica, 940 F.3d 439, 445 (9th Cir. 2019). A state law may require out-of-state producers to meet burdensome requirements in order to sell their products in the state without violating the dormant Commerce Clause. See Rocky Mountain Farmers Union v. Corey (Rocky II), 913 F.3d 940, 952 (9th Cir. 2019); Eleveurs, 729 F.3d at 942. Even if a state’s requirements have significant upstream effects outside of the state, and even if the burden of the law falls primarily on citizens of other states, the requirements do not impose impermissible extraterritorial effects. See Eleveurs, 729 F.3d at 942, 948–53. A state law is not
The Council’s allegations regarding the upstream еffects of Proposition 12 are most closely analogous to those we rejected in Eleveurs. Id. at 942. In Eleveurs, plaintiffs argued that a law banning the sale in California of certain duck products made by force feeding the duck violated the extraterritoriality principle because it controlled commerce outside of California. According to the plaintiffs, the law targeted out-of-state entities and compelled out-of-state farmers to comply with California’s standards. Id. at 949. We held that the plaintiff’s argument failed because the state law applied to “both California entities and out-of-state entities,” and the law merely precluded “a more profitable method of operаtion—force feeding birds for the purpose of enlarging its liver—rather than affecting the interstate flow of goods.” Id.
The requirements under Proposition 12 likewise apply to both California entities and out-of-state entities, and merely impose a higher cost on production, rather than affect interstate commerce. Therefore, even though Proposition 12 has some upstream effects, California is “free to regulate commerce and contracts within [its] boundaries with the goal of influencing the out-of-state choices of market participants.” Rocky Mountain Farmers Union v. Corey (Rocky I), 730 F.3d 1070, 1103 (9th Cir. 2013); see also Eleveurs, 729 F.3d at 948–49 (“A statute is not invalid merely
For the same reason, California’s promulgation of regulations to implement Proposition 12, which, as a practical matter, may result in the imposition of complex compliance requirements on out-of-state farmers, does not have an impermissible extraterritorial effect. Proposition 12 required the California Department of Food and Agriculture (CDFA) to publish implementing regulations. Cal. Prop. 12 § 6 (2018);
3
The Council relies on a handful of cases in which we determined that a state law had an impermissibly extraterritorial effect because it directly regulated transactions conducted entirely out of state. In Daniels Sharpsmart, Inc. v. Smith, we struck down a California law requiring a company that sent medical waste out of state for disposal to use only a medical wаste facility that met California requirements. Id. at 612–13, 615–16. The transaction at issue in that case (the purchase of medical waste disposal services from out-of-state treatment facilities in Kentucky and Indiana) occurred wholly outside California. Id.; see also Sam Francis Found. v. Christies, Inc., 784 F.3d 1320, 1323 (9th Cir. 2015) (en banc) (striking down a law that required California residents to pay five percent of their sales price in out-of-state art sale transactions to the artists). And in National Collegiate Athletic Ass’n v. Miller, we held that a statute had extraterritorial effect because it was
The Council’s reliance on the Daniel Sharpsmart line of cases is misplaced, because Proposition 12 does not regulate trаnsactions conducted wholly outside of California. Rather, Proposition 12 directly regulates only the in-state sales of “products that are brought into or are otherwise within the borders of [California].” Daniels Sharpsmart, 889 F.3d at 615. Nor does Proposition 12 directly regulate interstate commerce; rather, by its terms, it is aimed at the in-state sales of pork, regardless whether it is produced by in-state or out-of-state farmers. We have not extended the Daniel Sharpsmart line of cases to a situation where the state law had an upstream effect only as a practical matter on out-of-state transactions. As explained above, we have rejected similar arguments relying on this theory. See Eleveurs, 729 F.3d at 942; see also Epel, 793 F.3d at 1174 (holding that the Supreme Court hаs rejected the “grand[] proposition” that the Baldwin line of cases “require [courts] to declare
4
Finally, the Council argues that Proposition 12 violates the dormant Commerce Clause because it poses a risk of inconsistent regulations that undermines a “compelling need for national uniformity in regulation.” See Gen. Motors Corp. v. Tracy, 519 U.S. 278, 299 n.12 (1997). While Wayfair did not overrule this principle (so it may be deemed a “variation” of the two primary principles of the dormant Commerce Clause), see id. at 2090–91, we have held that only “state regulation of activities that are inherently national or require a uniform system of regulation” violates the dormant Commerce Clause, Rosenblatt, 940 F.3d at 452 (quoting Chinatown Neighborhood Ass’n v. Harris, 794 F.3d 1136, 1146 (9th Cir. 2015)); see also Ward, 986 F.3d at 1242 (holding that to prevail on the contention that it will inevitably be subjected to a patchwork of inconsistent regulations, a party must show that the challenged state law “regulates in an area that requires national uniformity“). Absent such a need for uniform national regulation, a state regulation does not violate the dormant Commerce Clause even where there is a threat of conflicting regulations. See Chinatown, 794 F.3d at 1146–47. The “small number” of cases dealing with “activities that are inherently national or require a uniform system of regulation” generally concern taxation or interstate transportation. See Rosenblatt, 940 F.3d at 452 (quoting Chinatown, 794 F.3d at 1146). Unless the state law at issue interferes with a system of national concern, it does not violate the dormant Commerce Clause. Thus in Eleveurs, we held that “Plaintiffs have not demonstrated that
The complaint here fails to make a plausible allegation that the pork production industry is of such national concern that it is analogous to taxation or interstate travel, where uniform rules are crucial. See Gen. Motors Corp., 519 U.S. at 298 n.12. Although the complaint plausibly alleges that Proposition 12 will have an impact on a national industry, we have already held that such imрacts do not render the state law impermissibly extraterritorial. Accordingly, the complaint fails to state a claim on this basis.3
B
We now turn to the Council’s second argument that Proposition 12 imposes a burden on interstate commerce which is “clearly excessive in relation to the putative local
We have held that a statute imposes such a significant burden only in rare cases. “[M]ost statutes that imposе a substantial burden on interstate commerce do so because they are discriminatory.” Eleveurs, 729 F.3d at 952. As indicated above, the Council does not allege that Proposition 12 has a discriminatory effect. “[L]ess typically, statutes impose significant burdens on interstate commerce as a consequence of inconsistent regulation of activities that are inherently national or require a uniform system of regulation.” Id. (cleaned up). As we have explained, the complaint here does not plausibly allege that Proposition 12 falls into the narrow class of state laws that meets this requirement.
For dormant Commerce Clause purposes, laws that increase compliance costs, without more, do not constitute a significant burden on interstate commerce. “The mere fact that a firm engaged in interstate commerce will face increased costs as a result of complying with state regulations does not, on its own, suffice to establish a substantial burden on interstate commerce.” Ward, 986 F.3d at 1241–42. Nor does a non-discriminatory regulation that “precludes a preferred, more profitable method of operating in a retail market” place a significant burden on interstate commerce. Nat’l Ass’n of Optometrists, 682 F.3d at 1154–55. Finally, even a state law that imposes heavy burdens on some out-of-state sellers does not place an impermissible burden on interstate commerce.
In this case, the crux of the allegations supporting the Council’s substantial burden claim is that the cost of compliance with Proposition 12 makes pork production more expensive nationwide. The complaint alleges that, to comply with Proposition 12’s requirements, “producers will have to expend millions in upfront capital costs and adopt a more labor-intensive method of production.” The cost of compliance would result in a 9.2 percent increase in production cost, which would be passed on to consumers, and producers that do not comply with Proposition 12 would lose businеss with packers that are supplying the California market.
Taking the plausible allegations in the complaint as true and making all reasonable inferences in the Council’s favor, we conclude that these alleged cost increases to market participants and customers do not qualify as a substantial burden to interstate commerce for purposes of the dormant
Accordingly, the district court did not err in holding that, as a matter of law, the Council failed to state a claim that Proposition 12 imposes a substantial burden on interstate commerce. Because the complaint failed to make a plausible allegatiоn to that effect, the district court was correct in concluding that it “need not determine whether the benefits of the challenged law are illusory.” See Rosenblatt, 940 F.3d at 452.
III
While the dormant Commerce Clause is not yet a dead letter, it is moving in that direction. Indeed, some justices have criticized dormant Commerce Clause jurisprudence as being “unmoored from any constitutional text” and resulting in “policy-laden judgments that [courts] are ill equipped and arguably unauthorized to make,” Camps
AFFIRMED.
Notes
Although the CDFA has published the proposed regulations, it has not yet promulgated a final version.