WEST LYNN CREAMERY, INC. v. HEALY, COMMISSIONER OF MASSACHUSETTS DEPARTMENT OF FOOD AND AGRICULTURE
On January 28, 1992, in response to the serious financial hardships of Massachusetts dairy farmers, the Commissioner of Massachusetts Department of Food and Agriculture issued a pricing order. The order required all dealers who sold milk to Massachusetts retailers to make a monthly premium payment to be distributed among in-state dairy farmers. Two Massachusetts milk dealers --West Lynn Creamery and LeComte's Dairy -- sell dairy products in Massachusetts. West Lynn Creamery relies on out-of-state producers; LeComte purchases all of its milk from West Lynn. The dealers filed an action in state court claiming that the order violated the Commerce Clause of the Constitution. The state court rejected their claims; the Supreme Judicial Court of Massachusetts affirmed.
Is the Massachusetts pricing order a breach of the Commerce Clause?
Legal provision: Article 1, Section 8, Paragraph 3: Interstate Commerce Clause
Yes. In a majority decision authored by Justice John Paul Stevens, the Court determined that the pricing order violated the Commerce Clause because it discriminated against interstate commerce. The majority found that while the pricing order taxed all dealers, the benefit of the tax was reserved exclusively for in-state dairy farmers and outweighed the tax they were required to pay. Thus, the Court concluded that, in effect, the pricing order functioned like a tariff, and was clearly unconstitutional. The decision of the Supreme Judicial Court of Massachusetts was reversed.
Argument of Steven J. Rosenbaum
Chief Justice Rehnquist: We'll hear argument next in Number 93-141, West Lynn Creamery v. Jonathan Healy.
Mr. Rosenbaum: Mr. Chief Justice, and may it please the Court:
This case involves a pricing order issued by the Massachusetts Commissioner of Agriculture.
We submit that this order violates the Commerce Clause of the United States Constitution because it restrains competition between in-state and out-of-state dairy farmers, blatantly discriminates against out-of-state dairy farmers, and prevents milk processors from taking advantage of cheaper out-of-state milk.
Unknown Speaker: Mr. Rosenbaum, I'm wondering if... if all we have in the order was the requirement that there be paid an assessment on all liquid milk sold in Massachusetts, would that be a Commerce Clause violation?
Mr. Rosenbaum: If the assessment were to go into the general revenues of the State, Your Honor, is that the assumption I'm to be making?
Unknown Speaker: Nothing more than that.
We have the assessment on all liquid milk.
Mr. Rosenbaum: --If the assessment goes to the State and not to the farmers, that would not be a violation of the Commerce Clause, because that would simply be a tax.
Unknown Speaker: Not... if all we had was not an assessment, but just money appropriated by the State to give to Massachusetts dairy farmers to help them, would that be a Commerce Clause violation?
Mr. Rosenbaum: This Court said in the New Energy case that ordinarily a subsidy will not be a violation of the Commerce Clause.
The Court has never yet actually addressed a case that had such facts, and actually opined with specificity that such a regime is constitutional.
Unknown Speaker: Presumably that's okay.
We have all kinds of ways of helping local industries, don't we?
Mr. Rosenbaum: Yes, pre--
Unknown Speaker: And we've never held that's a violation of the Commerce Clause.
Mr. Rosenbaum: --Presumably money appropriated from the general revenues of the State of Massachusetts going to Massachusetts dairy farmers would be constitutional.
Unknown Speaker: Well, if both of those acts can be constitutional, then what makes it unconstitutional when you put them together, in your view?
Mr. Rosenbaum: Well, this Court held in New Energy explicitly that merely because a State could achieve its goals through a subsidy did not mean other methods of achieving that goal would be constitutional.
And that is the situation here.
Here, we, the processors, the buyers, are being required to pay additional sums to the in-state farmers.
There is no subsidization going on.
This is a pricing order, as the title of the... of the document makes clear.
Subsidies, of course, are different.
Those come from the general revenues, as a whole.
They are subject to the political processes of the requirement that dairy farmers fight it out with firemen or policemen or anyone else who wants those funds.
And they're unlikely to be a substantial problem for that reason.
This, though, is a very different system.
This is a system that was put in place by the Commissioner explicitly because he believed that Massachusetts dairy farmers were, quote, being overrun, end quote, by out-of-state dairy farmers, because those dairy farmers had, as he said, huge herds, vast acreage, and ready availability of supply and labor.
Unknown Speaker: Well, that purpose would not be invalidating so long... you... I think you've said... so long as the subsidy were applied in some other way, right?
Mr. Rosenbaum: The... the only way--
Unknown Speaker: I can... I can want to protect or... or compensate Massachusetts dairy farmers for their inefficiency if I want to, right?
Mr. Rosenbaum: --I believe the only method by which that should be permitted is if it's a direct subsidy from the general revenues of the State.
Unknown Speaker: All right.
So, all that has to be done in this case is to provide... provide the same tax, but the funds, instead of going into this segregated fund, go into general revenues, and that'll do it?
Mr. Rosenbaum: No, Your Honor, that's not my point.
Unknown Speaker: That's not?
Mr. Rosenbaum: I'm assuming, in this--
Unknown Speaker: Why wouldn't that do it?
Mr. Rosenbaum: --Well, because I'm assuming... because, in that hypothetical, if the money were still being raised through the assessment on milk processors, running it through the general revenues would not make a difference.
I'm assuming... I was assuming, in response to Justice O'Connor's question, that there is no specific or special assessment or tax being placed on my clients that is funding this process.
Unknown Speaker: Oh.
Mr. Rosenbaum: Because the effect would be the same.
Unknown Speaker: You... you can't tax milk processors separately?
This is a category of taxation that you can't use?
Mr. Rosenbaum: Milk processors or of course subject to the same taxes as anyone else, but if the--
Unknown Speaker: But you can't pick that out?
You can't pick that out?
Mr. Rosenbaum: --You... you could not single out milk processors for a special tax and simultaneously provide the proceeds of that tax to the dairy farmers.
Unknown Speaker: No, no, not the proceeds of the tax, the tax goes into general revenues.
And then, in a totally different bill the State votes out of general revenues money that could be given to, you know, to elderly and little children, and they say, we're going to give it instead to inefficient milk producers; they make that decision to take the money out of general revenues.
You say that is still bad?
Mr. Rosenbaum: If the processors are being subjected to a tax different from other people similarly situated, I think that is still bad, because, in essence, you're still providing the same sum of money that you would be providing under this scheme.
Unknown Speaker: They're not being... they're not being taxed from other... differently from other people similarly situated.
All milk processors are taxed the same way.
Mr. Rosenbaum: Well--
Unknown Speaker: I mean, taxes are imposed that way.
You pick a class of people and you say, you know, we're going to have a... a lawyers tax, a milk processors... gee, we tax all sorts of little individual groups.
Mr. Rosenbaum: --But the impact of such a regime would be the same as the pricing order... and let me turn--
Unknown Speaker: So, you are complaining about a subsidy then?
Mr. Rosenbaum: --I--
Unknown Speaker: --You... you acknowledge that taxing milk processors alone would be okay.
It... however, if you do that, you're saying, you cannot have a subsidy to Massachusetts inefficient milk producers?
Mr. Rosenbaum: --You can tax milk processors as you would tax any other businessman involved in business in Massachusetts.
But if you were to place a special tax on milk processors and simultaneously provide special funds to the milk farmers of Massachusetts, one would have achieved the same goals as the pricing order.
And that, we submit, would be unconstitutional.
That... that is the not the facts before this case.
In this case, the--
Unknown Speaker: Suppose you just did it in a separate time period, two different acts.
One is just the tax on all dealers who sell fresh milk, and then, another one is, out of general revenues, there's going to be a subsidy for Massachusetts dairy farmers, two discrete acts?
Mr. Rosenbaum: --Well, I think--
Unknown Speaker: I thought your position was that that... that you were, at least not... that your argument here was not dependent upon that being unconstitutional.
Mr. Rosenbaum: --My... my argument is certainly not dependent upon that being unconstitutional.
Unknown Speaker: So, could you distinguish that from what we have before us?
Mr. Rosenbaum: --Well--
Unknown Speaker: Why... why isn't it, as one of the briefs said, that's just a matter of form?
Mr. Rosenbaum: --Well, I do believe that would be unconstitutional.
It's not necessary to reach that result here, because, of course, those are not the facts before this Court.
What is before this Court is a situation in which the State of Massachusetts feels its dairy farmers are not capable of achieving sufficient price based on market prices.
They want to increase that price.
And they have required my clients to pay more money on the milk they receive from Massachusetts farmers.
If they only went that far, they would be acting constitutionally under the Nebbia rule.
But the concern of Massachusetts is that my clients and other processors would then turn to the milk of out-of-state farmers, which would be cheaper if it were not subject to that same premium price.
What they have done here is said, we will require the same premium, the same extra price, to be paid on out-of-state milk, as well, to prevent out-of-state farmers from taking advantage of the fact that their prices are lower than the prices required by the pricing order to be paid to Massachusetts farmers.
The State has gone one step further than that, and said that although this premium price must be paid on out-of-state milk, the recipients of that out-of-state milk will not be... of that price... will not be the out-of-state farmer.
Instead, we will take that money and transfer it to the in-state farmer, as well.
Unknown Speaker: Well, I thought the assessment was on all milk from any source.
Mr. Rosenbaum: That's correct, Your Honor.
Unknown Speaker: It just so happens that a high percentage of the milk is purchased from out of State.
Mr. Rosenbaum: The assessment is on milk of any source.
But any source, obviously, encompasses both in-state and out-of-state milk.
In that sense, this is comparable to the situation in the Baldwin case, where the minimum price that was established applied to all milk.
Unknown Speaker: Well, do you take the position that if all we had before us was an assessment on the sale in Massachusetts of all liquid milk from any source, that that would be a violation of Baldwin... that it would fall under the Baldwin principle and be invalid?
Mr. Rosenbaum: --If the assessment... no, Your Honor.
You have to look at who gets the money.
If... if the assessment were just to go to support road building or the general needs of the State, there would not be a displacement of interstate competition because the in-state farmer and out-of-state farmer, despite the assessment, are still receiving the pre-assessment amounts of money.
So, if the out-of-state farmer has a cost advantage over the in-state farmer, which was the finding that the Massachusetts Commissioner reached, he will still have that price advantage afterwards.
Unknown Speaker: But you say that if they both, impose that tax and also subsidize Massachusetts producers, then it becomes bad?
Mr. Rosenbaum: Yes, Your Honor.
Unknown Speaker: What if they only subsidized Massachusetts producers in two-thirds of the amount that they... that they garner from this tax?
Mr. Rosenbaum: That would, of course, be a different case.
It seems to... and I think, as I said before, this Court has not yet had before it a case involving a challenge to a subsidy coming from general revenues.
And how close one has to get to that situation for it to be unconstitutional is not now before the Court.
Unknown Speaker: Well, I--
Mr. Rosenbaum: I think a bright line--
Unknown Speaker: --I don't want to have to play two-thirds, four-fifths and whatnot, which makes me think, if it comes out of general revenues, it's okay.
And if I think that it's okay when it comes out of general revenues, why isn't it okay when it comes out in your case?
Why is your case so different from general revenues?
Mr. Rosenbaum: --I don't think that that would be the appropriate point to draw the line in your hypothetical.
Unknown Speaker: But assume that I'm... I'm stupid... and that's... that's how I feel about it.
Why is your case different from general revenues?
Mr. Rosenbaum: Well, there is a difference between general revenues and this scheme.
This scheme is imposed by the Massachusetts Commissioner of Agriculture.
Through a one-time action, he can require this price to be paid forever.
Monies coming from general revenues are subject to political constraints of the need that this money be reviewed on a repeated basis for a determination of whether it's better for these monies to go to support Massachusetts farmers or--
Unknown Speaker: Or the elderly and children.
Mr. Rosenbaum: --Or the elderly.
Unknown Speaker: And that it happen every year.
Mr. Rosenbaum: And that would happen on a regularized basis.
Unknown Speaker: So, you'd pay a political price for it?
Mr. Rosenbaum: You would pay a political price for it.
Unknown Speaker: Mr. Rosenbaum, isn't there another... and maybe I'm just missing something here... but it isn't merely whether it's out of general revenues or not, but, rather, whether the computation of the amount of the subsidy is dependent upon the amount collected from all the dealers?
Mr. Rosenbaum: Yes.
Unknown Speaker: That's the key, isn't it, rather than... it doesn't matter whether you fund through general revenue or have two separate bills.
But if it's so separate that the one can go up and the other remain constant, then you'd have a different case?
Mr. Rosenbaum: I think you would have a different case there.
And at that point you would want to address the... the comparability of what... what was happening.
Unknown Speaker: So, four-fifths is okay, so long as it isn't tied to the other one?
Mr. Rosenbaum: I'm not certain, Your Honor, that any percentage is okay.
That's not to say a State could not achieve this goal simp... they could have a tax on all commercial operations in the State and raise money in that fashion, and support their dairy farmers if they so chose.
Unknown Speaker: Well, why is it key that it's this precise correspondence that you talk about?
Mr. Rosenbaum: There is precise corres--
Unknown Speaker: I know.
But why is that so critical?
Mr. Rosenbaum: --Your Honor, I don't believe it would be critical.
Unknown Speaker: I thought in your answer to Justice Stevens you said it was.
Mr. Rosenbaum: Your Honor, what I was suggesting was that if there were so little correlation between the two that they could be viewed as wholly separate, then perhaps at that point this Court would find it to be acceptable.
But, as a general rule, certainly here, where you do have direct correlation between the two, this is an unconstitutional scheme.
Unknown Speaker: But isn't... isn't it because the correlation is directly to a source of revenue which is not subject to political responsiveness within the State?
Isn't that the key to your argument?
Mr. Rosenbaum: Your Honor, I believe that is certainly a key to our argument.
And how far this Court would choose to go if there were repeated--
Unknown Speaker: Well, why is it any concern of this Court interpreting the Commerce Clause as to whether the milk commissioner in Massachusetts or the... what do you call it, the general court, the body that passes laws... makes the decision?
I mean, the organization of State government is purely a matter of State law, isn't it?
Mr. Rosenbaum: --It is a matter of State law, Your Honor.
But there are practical limitations that will result from it coming from general revenues.
Unknown Speaker: We ought to somehow fuse those into our Commerce Clause analysis?
Mr. Rosenbaum: --Well, Your Honor, this Court has recognized that a State... recognized explicitly in the New Energy case... that a State could achieve, at times, the same goals of protecting its in-state citizens through a subsidy that it might also be able to achieve through an unconstitutional restraint on interstate commerce.
But this Court held that that fact did not lead to what would otherwise be an unconstitutional constraint being deemed constitutional.
Well, I... I agree with your reading of that case.
But I don't think the New Energy opinion suggests that it would make a great deal of difference whether the levy or the dispensation was made directly by the legislature or by the milk commissioner being authorized by the legislature.
The difference is that under this scheme, what is happening is Massachusetts dairy farmers who are inefficient and not able to compete are being given a preferential status, as compared to out-of-state dairy farmers who have lower costs and competitive advantages.
Unknown Speaker: But... but that would happen whether it was done by the Massachusetts legislature or by the milk board.
Mr. Rosenbaum: Well, if... if we are talking about monies coming from the general revenues of the State, then there in fact is no regulation being placed upon the transaction between processors and out-of-state farmers.
In this case, processors are being told, if you are buying out-of-state milk, you must pay a premium for that.
If the money were coming from the general revenues, there is no such regulation of interstate commerce going on.
Unknown Speaker: But you--
Mr. Rosenbaum: That transaction... the price of that transaction is wholly unaffected.
Unknown Speaker: --But in answering Justice O'Connor's question, I thought you said that simply a levy on the processors, without any ensuing subsidy, would be unobjectionable?
Mr. Rosenbaum: If the levy were what I would think of as being a pure tax, a dollar tax, going to the general revenues, there would not be any unconstitutionality there.
That is nothing different than any other tax.
The reason is that a one doll... if the price today is $12 to in-state and out-of-state farmers, and a $1 tax were imposed, the price being received by in-state and out-of-state farmers is still $12.
Their relative competitive situation remains unaffected.
Processors desire to buy from in-state and out-of-state farmers remains unaffected.
But that is wholly upset by this scheme.
In this scheme, in-state farmers are receiving a premium price.
We, the processors, would like to respond to that scheme by buying more milk out of State, as was the situation in Baldwin.
We are prevented from doing so as a practical matter of economics, however, because the premium that we are having to pay on in-state milk we're also having to pay on out-of-state milk.
And so, we cannot take advantage of the cheaper out-of-state milk.
Unknown Speaker: Well, I have difficulty putting your case into the Baldwin framework.
Because in Baldwin, there was almost a violation of the State's jurisdiction.
It was predicating its act on occurrences that were outside of the State.
Here the act is key simply to an in-state Massachusetts transaction.
That's all that's happening.
I don't think it's necessarily fatal to your case, but I just do not see the applicability of Baldwin here at all.
Mr. Rosenbaum: Your Honor, Baldwin was limited to sales taking place in the State of New York.
The Baldwin law is identical in--
Unknown Speaker: No.
But the... the law could not operate unless the milk commission, or whoever the State enforcing agency was in that case, took notice of a price of a transaction of an occurrence that happened outside the State.
Mr. Rosenbaum: --Yes, but--
Unknown Speaker: And that is not this case.
Mr. Rosenbaum: --Well, I think it is this case.
The Massachusetts Commissioner must note not only the sales that have taken place in Massachusetts, which triggers the law, just as it triggered the law in Baldwin, but must also determine how much of that milk came from in-state and out of State, and then compute how much money goes to in-state farmers as a result.
Unknown Speaker: Well, that's only for purposes of the... of the subsidy, not for the tax.
Mr. Rosenbaum: Well, if all the milk in the Baldwin situation had come from New York, there would be no triggering of that statute, either.
That's the same situation as we have here.
But of course in both cases, there were, and are, substantial amounts of milk coming in from out of State.
I think it's important to bear in mind here the implications of this regime.
Although we're dealing with milk and perhaps a somewhat complex Federal milk order system, this regime could apply to any product whatsoever.
It doesn't have to be milk.
Any State that determined that its in-state manufacturers were at a competitive disadvantage to the manufacturers of out-of-state people, could simply say, well, what's the difference in their costs?
Is it 25 cents?
We will place a 25-cent assessment on the sales in our State coming from both in-state manufacturers and out-of-state manufacturers.
Unknown Speaker: Well, in that... in that connection, is it any part of your case... perhaps it is not... but is it any part of your case that the invalidity of this scheme is triggered by the fact that it, in effect, piggy-backs off a regional milk-pricing scheme?
Mr. Rosenbaum: Well, we do think, Your Honor, that it's clear that the purpose, of course, of the Federal order system is to establish a minimum price to be paid to farmers in that region.
And this scheme certainly upsets that regime.
Unknown Speaker: Not only does it upset, but it... it uses it as a formula, as a base.
Mr. Rosenbaum: --Yes--
Unknown Speaker: And that seems to me somewhat suspect.
Mr. Rosenbaum: --Yes, Your Honor.
It takes what the Federal Government has determined should be an appropriate minimum price in the area and, instead, establishes a higher minimum price with respect to the farmers of Massachusetts.
Unknown Speaker: Would you say the same about a State income tax law which used the Federal income tax return as the form, and then computed the State income tax on the basis of that?
Mr. Rosenbaum: No, Your Honor, I don't think so.
But in the hypothetical you're--
Unknown Speaker: What's the difference?
Mr. Rosenbaum: --Well, I don't think this... because this is a system devised to upset the competitive relationship between farmers in Massachusetts and in other States--
Unknown Speaker: Are you saying that it's preempted by the Federal system?
Mr. Rosenbaum: --No, Your Honor.
We have not asserted a preemption argument in this case.
Unknown Speaker: Well, then, what is your response to Justice Kennedy?
Is that simply a neutral factor or... I understood you to say that it was perhaps kind of suspect, without being more definite than that.
Mr. Rosenbaum: I think that's probably a fair way to put it.
Unknown Speaker: Well, what does that mean?
Mr. Rosenbaum: Well, what it means is that it makes clear... makes perfectly clear what the State of Massachusetts is up to... namely, they are not happy with the minimum price that their farmers receive under the Federal Government system.
They want to... and what they are doing is piggy-backing on that system so that out-of-state farmers, who will continue to be subject to the Federal order system, will always be receiving a price subject to the Federal regime--
Unknown Speaker: But it does no more than perhaps show motive, is that what you're saying?
Mr. Rosenbaum: --Well, it shows motive, plus it ensures the effect.
I think that's the point... namely, the out-of-state farmers will always be receiving a... a price that's lower than the price that the Massachusetts farmers are receiving, because the amounts received by the out-of-state farmers are dictated by the lower Federal minimum price.
Unknown Speaker: So, without the Federal minimum, it would just be a less-efficient mechanism of doing what it's doing, for the State to do what it's doing?
Mr. Rosenbaum: Well, a State could come up with the same--
Unknown Speaker: The... the Federal minimum gives the scheme a great potency, which it would not otherwise have--
Mr. Rosenbaum: --Yes, that... that's--
Unknown Speaker: --A potent effect on the market, which it would not otherwise have?
Mr. Rosenbaum: --That's correct.
That is the basis... that... although we are not asserting that this is unconstitutional under preemption, we are asserting that the potency of the system is established by the fact that out-of-state farmers will always be subject to a lower price and Massachusetts farmers will always be receiving a higher price, because it is the... they always track in unison.
That's how the Massachusetts price is established.
Indeed, in many respects, this is no different from a scheme in which a State were to put a $1 tax on both in-state and out-of-state goods, and then rebate the tax paid on in-state goods.
In fact, this system is worse than that, in that it not only gives the money raised on in-state milk to in-state farmers, but it takes the money from out-of-state farmers and transfers that money, as well.
The practical effect is that, on any given day, an out-of-state farmer's milk truck who pulls up at my client's place of business will receive, for example, $12 for his milk, while an in-state farmer, pulling up to my client's plant with the same amount of milk, which goes to the same use and goes to the same buyer, will receive $15 for that milk.
That is an openly blatant discrimination.
And it is funded from my clients, not from the general revenues of the State.
Unknown Speaker: It was not clear to me why you have the motive to prefer one truck over the other.
Mr. Rosenbaum: Your Honor, we would... what... what we are losing here is two things.
First, as in Baldwin, if the higher price only applied to in-state milk, which is constitutional under Nebbia, we would prefer the out-of-state milk, because that out-of-state milk would not be subject to the lower prices... to the higher prices and, therefore, it would be cheaper.
That is to say, if the pricing order only applied to Massachusetts-produced milk, then the higher price would only be applicable to that milk, and we would buy more out-of-state milk.
But, beyond that, according to the Commissioner, under the current situation, in-state farmers are losing sales to out-of-state farmers because out-of-state farmers have cheaper costs and, therefore, can make a go of it at the current market prices, while in-state farmers cannot.
Their ability to displace... the out-of-state farmers' ability to displace the less efficient in-state farmers is lost, because the in-state farmers are receiving the extra money to prop up their inefficient operations.
Indeed, the amount of the subsidy is explicitly tied to the Commissioner's determination as to how much Massachusetts farmers needed to cover their cost of operation, explicitly recognizing that the market price was lower than that because out-of-state farmers had lower costs and could sell milk at the lower market price.
So, that competition has been wholly displaced.
That is to say, as this Court held in Baldwin, one of the key incidents of competition, interstate, is that citizens of one State, who have lower cost, are entitled to displace sales by citizens of another State who have higher costs, because they can sell at a lower price.
Massachusetts is explicitly attempting to block that from occurring.
They couldn't be clearer.
Unknown Speaker: But you... you acknowledge that they... you acknowledge that that's perfectly okay, so long as they do it by a general subsidy.
They could have the same motive: we have inefficient producers.
We want to keep those inefficient producers in business.
We are going to carefully calculate how much money we have to give them to keep them in business.
They can do that.
Mr. Rosenbaum: It... it is a--
Unknown Speaker: So, you're just complaining about the tax, really?
Mr. Rosenbaum: --No, I believe it's more than that, Your Honor.
From money coming from the general subsidies, as described by this Court in New Energy, is a very limited exception to the Commerce Clause rules that prevent interference with interstate competition.
The State has not acted in that fashion here.
We believe there are constraints that make it unrealistic that they ever would be able to act in that fashion.
And for that reason this is a very different situation.
I would like to reserve the balance of my time.
Unknown Speaker: Very well, Mr. Rosenbaum.
Mr. Wilkins, we'll hear from you.
Argument of Douglas H. Wilkins
Mr. Wilkins: Mr. Chief Justice, and may it please the Court:
The main issue here is whether this Massachusetts law is, per se, illegal.
We submit that the way this law operates in this particular market shows two things, both of which rebut that claim.
The first is that this order is nothing more than a combination of two elements that ordinarily are lawful under the dormant Commerce Clause; and, second, we have not found a way to avoid the political process.
We have not avoid a way... found a way to avoid accountability and responsibility to the citizens of the Commonwealth.
On that latter point, it is significant that West Lynn testified that it in fact passes on 50 percent of its assessment to its customers.
West Lynn absorbs 50 percent of the... of the assessment.
And so, there are two constituencies, both dealers and either retailers or consumers, who are well represented in Massachusetts, who have every incentive, if they disagree with this disposition of money, to complain.
The record shows that they accept this program.
And that is why we have this law, not because we've found a way to insulate ourselves from the political process.
Now, the context is important.
And we submit that instead of bolstering the Petitioners' argument here, the Federal context actually supports our position.
This is a highly regulated market, and the regulation extends to regulation of price... prices charged by farmers and paid by dealers.
The farmer, therefore, cannot significantly reduce its price in order to effectively pass through this subsidy to the processor.
Unknown Speaker: You're saying Massachusetts is not doing anything worse than what the Federal Government is doing, right?
Mr. Wilkins: I'm sure that's true, Your Honor.
Unknown Speaker: The same thing... the Federal Government just... just isn't giving enough of a subsidy to inefficient producers to carry the Massachusetts people.
It's just carrying people from other States?
Mr. Wilkins: Well, we believe that the Federal system allows us the flexibility to do this.
And, in fact, there is no preemption of our ability to do this, as we argued in our brief.
The Federal Government intends to permit the States to enact this kind of law.
Unknown Speaker: The theory of the Commerce Clause is not that you can't subsidize inefficiency.
It's that only... or favor in-state inefficiency... that isn't the theory of it.
The theory of the Commerce Clause is that only the Federal Government can favor in-state inefficiency, and not the States.
Mr. Wilkins: Well, I disagree with it to the extent we are talking about subsidies, Your Honor.
The dormant Commerce Clause permits the States to exercise its spending power through subsidies in order to favor its... its producers.
And, in this case, it's not a matter of inefficiency of the producers.
The producers themselves are efficient, but there are higher costs.
Unknown Speaker: So, what about the sales tax hypothetical that your... your colleague put to us?
You impose a sales tax on in-state and out-of-state goods, and rebate the full amount to all the in-state people.
That's bad, I suppose.
Because it's a rebate.
Mr. Wilkins: If we're talking about a true rebate.
Unknown Speaker: Okay.
So, we don't call... no, this is not a true rebate.
It's going to be called a subsidy.
It happens to be in the same amount as the tax that you paid; that's okay?
Mr. Wilkins: Well, it's not because we call it a subsidy.
It's because we are not paying the money back to the same people who paid it in.
Our subsidy is not a rebate, because the dealers pay the assessment and we subsidize the farmers.
And, in fact, because of the Federal system and because of the facts developed before the Commissioner regarding this market, that is a... is a particularly meaning distinction in this industry, because there is virtually no likelihood that the farmers will in fact pass that money along.
The Federal minimum price prevents them from doing that, to a large extent.
And, in fact, the... the dire situation of the farmers which led to the enactment of this law suggests strongly that these farmers need to dig themselves out from debt.
They need to invest.
And, indeed, that is why the Supreme Judicial Court of Massachusetts said the purpose of this law is to prevent the collapse of the dairy farms.
Unknown Speaker: I don't know what you mean when you say there's no chance that they're going to pass it along.
I don't under... would you explain that?
Mr. Wilkins: Well, the farmer is greatly restricted in reducing price.
So, if the farmer was going to use this subsidy to reduce price, the Federal law restricts that, and the farmer's own circumstances, given the need to pay back debt and to invest in feed and fertilizer, makes that a virtual impossibility.
Unknown Speaker: He doesn't use it to reduce price, he uses it to increase sales.
Since everybody has to pay this tax, and only he gets it back, he can make more sales.
Otherwise, he couldn't afford to sell at those prices.
Mr. Wilkins: Well, we believe that the farmer is able to survive because of this.
In terms of increasing--
Unknown Speaker: I have no doubt about that.
Mr. Wilkins: --Excuse me?
Unknown Speaker: I have no doubt about that.
But maybe he shouldn't... he shouldn't be able to survive.
I mean, that's... you know, that's the theory of the free market.
Mr. Wilkins: Well, yes, but the dormant Commerce Clause does not enact free market principles.
It... it allows free trade, so that boundaries between States are... are irrelevant.
But it does not prevent the State from deciding, here is an industry or a segment of an industry that provides us many benefits.
It provides us diversity, with respect to our agricultural base.
It provides us other benefits... cultural, social, educational, et cetera.
And to preserve those benefits, the dormant Commerce Clause recognizes that the States may use their spending powers... not their regulatory powers... to preserve those benefits.
Unknown Speaker: You're saying that the dormant Commerce Clause, Mr. Wilkins, does not enact Herbert Spencer's social status?
Mr. Wilkins: I think that would be a good way to put it, Your Honor, yes.
And, indeed, the economic burden falls upon the consumers and dealers of Massachusetts.
So, this is a situation where it's a... a contest between competing groups within the Commonwealth, all of whom have a say in the political process that created the laws.
Unknown Speaker: Well, on that point... and I'm not sure it determines anything under the Commerce Clause... but I assume that if the proposition had to go before the legislature every year, of whether the State should be paying out so much cash to dairy farmers, that might be tough sledding.
But where it can be packaged in a deal, where the legislature is told, look, you only have to decide this one time.
If you let the agricultural secretary impose this order, 90 percent of the cost is going to fall on out-of-staters, and we can help our dairy farmers at no cost to in-staters, for all practical purposes.
That's an easy sell.
Mr. Wilkins: Well, it would be an easy sell, but only because we would have misrepresented what we are doing.
We are not passing on 90 percent of the costs to out-of-staters.
Now, it is true that 90 percent of the milk... the fluid milk... does tend to come from out of State, but that's not a particularly unusual situation, where we are only one out of 50 States.
In fact, that may be a commodity that we produce proportionately more of relative to most commodities.
Unknown Speaker: Yes, but the practical effect here is that 90 percent is coming from out of State, and... and milk sold from out of State is contributing the bulk of the money that's being recycled in-state to local farmers.
Mr. Wilkins: --We don't view it that way, Your Honor.
We don't view it as the milk is contributing... this... this is a... a dollar assessment that falls upon dealers and consumers within Massachusetts, and they're the ones who pay.
So it's not that we're... we're not... we haven't found a way to export our tax burden.
This is a burden that--
Unknown Speaker: Well, if I were a legislator up there, I think I'd found a way.
Mr. Wilkins: --Well, Your Honor, I don't... I don't think it would be accurate.
And I think what... what we have done is found a way to make it palatable for in-state interests to shoulder this burden.
We have... we have said, basically, to the constituencies who are affected by this that if you pay this money, here is where it will go.
We will not use it to build up a bloated bureaucracy, if you will.
This kind of fund is a useful way, particularly in hard fiscal times, to tell the electorate and the people who are going to be shouldering these burdens that we are going to be spending the money for a purpose, and here is what the purpose is.
And if you agree with us, fine.
And if you disagree with us, then you have a remedy through the political process.
Unknown Speaker: And do you think that we could, consistent with our precedence, write in this opinion that any State that wishes to impose a discriminatory tax may do so by imposing a neutral tax and then rebating all in-state payors their share of that tax?
Mr. Wilkins: No, I do not, Your Honor.
Unknown Speaker: Why is this case any different?
Mr. Wilkins: Because this is not a rebate.
We are not paying money back to the in-state people who have been assessed with this assessment.
The... the assessment and the rebate take place at two separate levels.
And the people who are benefitted by this law are not the same people who are burdened by it.
Unknown Speaker: Does formalism count... would formalism count for everything here--
Mr. Wilkins: It doesn't count for everything, Your Honor.
It is important.
But there is a substantive difference, particularly within this industry, where there is even... although this may or may not be constitutionally relevant... there is even a... a bar or... or a severe limit upon passing back this subsidy from the farmer to the processor.
Now, the reason I say that may be of no constitutional significance is because West Lynn, in its reply brief, at page 13, note 10, says that what the farmers do with the money is of no significance.
I... I think that's a question that the Court doesn't have to reach here, because we have an industry where the farmers can't reduce their price below the Federal minimum, where the farmers are required to pay off their debt and to invest.
And the record shows that they are very far behind in those areas.
And, in addition, the order itself is crafted with some limits to make sure that this does not get, if you will, out of hand.
It has a... a limit upon the subsidy.
If the Zone 21 blend price gets to $15, the assessment and the subsidy vanish.
So there's a protection at that level.
And, in addition, there is a limit upon the amount of the subsidy that can be granted.
It's a 200,00 pound limit.
And if the farmer produces more than the 200,000, the farmer will get no subsidy for the excess amount.
So, we have... it is a substantive, as well as formal, distinction in this particular case.
I would not advocate that we could assess our in-state processors... I'm sorry... assess all processors and merely give the money back to in-state processors.
I think that is a discriminatory tax by another name and it ought to be treated as a discriminatory tax.
Now, the case has been argued on... on the basis that Baldwin applies here, and that, therefore, the law is, per se, invalid.
The distinctions between this case and Baldwin are many, and they are fundamental.
Under this law, to the extent allowable by the Federal law, a out-of-state farmer may increase or decrease his or her price.
They may import as much... or export as much milk as they wish.
There is simply no barrier at the border that prevents an out-of-state farmer from competing.
And, indeed, no in-state consumer or dealer has an incentive to buy Massachusetts milk as a result of this order, nor does any incentive to buy out-of-state milk vanish as a result of this order.
And in this resp... these respects, this case is entirely different from Baldwin.
Baldwin involved an import ban, which is not here.
And it involved a condition which, as I think Justice Kennedy pointed out earlier, a condition which injected New York's laws into its neighboring States, to regulate the prices that were being charged there.
To the extent that West Lynn argues that this is price regulation and relies upon the use of that word, I submit that the Supreme Judicial Court considered that issue and said, at page 126 of the joint appendix, that the pricing order does not establish a minimum price milk dealers must pay for milk, regardless of point of origin.
And to the extent that characterization at the State level by State officials is at all relevant here, that characterization should control over the characterization in the Commissioner's order, which, incidentally, was enacted before the legislature passed a statute placing this funds... these funds within the treasury.
And once the legislature did that, and appropriated these funds out on a continuing basis, that was a modification of the order to that extent, and certainly removes the analogy to a price.
The trust fund methodology that we have adopted here is a fairly standard way for States, and even the Federal Government, to structure spending.
And it is necessary for both State and Federal Government to have the kind of flexibility to structure the laws in these ways.
The best analogy that I can think of in this area is the Court's recent decision, 1992, in New York v. United States, particularly Part 3A of that opinion, which was a unanimous holding of the Court, where the Court viewed... or analyzed a Federal escrow scheme that was quite similar to the structure of what we have here.
There, money went into an escrow scheme through... through Federal taxation.
It was specifically, by statute, not deemed to be property of the United States.
And yet, when it was disbursed from this escrow fund, the Court said that this was an exercise of spending power by Congress, and said that the funds were Federal funds.
What we are saying here is something quite similar.
We are saying that we are using a... a trust fund, or analogous to the escrow fund, and that the funds, even though they are held in... in some kind of trust, nevertheless, are spending, when they are disbursed, and, therefore, fall within the market participation doctrine, and, similarly, the funds continue to be States even though they are held in a trust fund.
The use of a trust fund presents no issue under the dormant Commerce Clause, because the dormant Commerce Clause is concerned with free trade, not with how the States structure the powers within their internal governmental organs.
And the Highland Dairy case is... is pertinent here, because it said that how power is distributed by a State among its governmental organs is commonly, if not always, a question for the State itself.
By insisting that a subsidy come out of the general fund, West Lynn is asking the Court to evaluate the efficacy of particular State mechanisms, such as annual appropriations versus general laws versus delegation of power to an executive agency.
It's asking the Court to analyze the purposes for which revenues are raised and spent.
And, indeed, I think counsel's response to Justice Scalia's questions in this regard suggest just how deep that inquiry goes.
Apparently, West Lynn would argue that even if money is paid into the general fund, the Court can still link that money with a subsequent subsidy and declare it invalid.
Unknown Speaker: --I didn't understand it to be that.
I thought they were arguing that if the State itself linked the two, by saying the amount of the subsidy would be geared to the amount of the tax; that then it could be challenged?
Mr. Wilkins: Perhaps that's their argument.
I thought their reply brief was... was broader than that.
But even if the question is the matter of linkage, we think that the matter of linkage is, again, a matter that does not involve questions of free trade among the States.
It is simply a matter of how the State structures its own internal mechanisms for... for assessing money and spending it.
Unknown Speaker: I hate to... maybe you've answered this, but you're saying that if they have a trust fund which is supported entirely by revenues from members of an industry, both in-state and out of State, and then the proceeds of the trust fund are distributed entirely to the in-state members of the industry, that that's strictly a matter of State business?
Mr. Wilkins: If the people who receive the funds are at the same level of competition, if they're all... if they're in competition with each other, I think that would be unlawful.
Unknown Speaker: Oh.
Mr. Wilkins: If they are not in competition, if they're at a different level of the industry, particularly here, where there are many reasons why there is... not even a reason... no basis for reaching a pass-through question, then there is in fact no protectionism, because competitors are not being treated unalike, except... except--
Unknown Speaker: Well, what... what if there is a pass-through, and the effect is to let the Massachusetts dairy farmers sell their milk more cheaply than out-of-staters?
I mean you might have a scheme where the effect is just like imposing a tax on out-of-state milk.
Mr. Wilkins: --Well, ultimately, a subsidy could have that effect.
And I think that one of the--
Unknown Speaker: And if it did, what's the result?
Mr. Wilkins: --Well, this... this gets into, I think, what is a very knotty area.
The result, I think, is that the plaintiff in such a case would have to make a factual showing that in fact there was such a market dislocation that the political process no longer was effective.
That is, Professor Regan's suggestion.
And it is a knotty question either way.
Once you allow a subsidy, do you get into that kind of... of question?
Unknown Speaker: Well, why do you say that inquiry isn't required here?
Mr. Wilkins: Well, because we never get to the point of the pass-through, given the Federal minimum price, given the farmers' need to dig themselves out from... from debt and to invest.
Unknown Speaker: You don't think there are local dairy farmers in Massachusetts that can lower their prices because of this subsidy?
Mr. Wilkins: --Certainly, they can't do it significantly because of the Federal minimum price.
If there's going to be price reduction, it would... it would be of a very minor nature.
And... and the third reason why I think this issue is not here is because this... that's not the theory upon which West Lynn has proceeded.
And so, there is no factual record, there are no findings, that would allow us to get into that.
But I... I think that Professor Regan is quite correct in urging caution in this particular area.
Unknown Speaker: But you do admit, Mr. Wilkins, indeed, it's the whole purpose of the law that some dairy... some dairy farmers in Massachusetts stay in business, who otherwise wouldn't be able to stay in business?
Mr. Wilkins: Absolutely, Your Honor.
Unknown Speaker: And that deprives out-of-state farmers of an opportunity to sell more milk, doesn't it?
Mr. Wilkins: Not necessarily, Your Honor, given the--
Unknown Speaker: It doesn't?
Mr. Wilkins: --Well, no.
There's a surplus of milk.
Unknown Speaker: You mean when a dairy farmer goes out of business in Massachusetts, the people of Massachusetts stop drinking as much milk?
Mr. Wilkins: No.
But there is a surplus of milk.
So, it may simply mean that out-of-state dairy farmers sell more of their milk in the high-paying categories.
It's a very complex system.
But if somebody in Massachusetts goes out of business, then the out-of-state dealer may be--
Unknown Speaker: It doesn't seem to me it makes any difference whether they can raise their price or not raise their price.
If you're keeping somebody in business who otherwise would be out of business, and an in... an in-state person in business who otherwise would be out of business, you're affecting the opportunities of out-of-state people to sell.
It has to follow.
Mr. Wilkins: --Well, we're... to the extent we keep people in business, we're only affecting opportunities by reason of paying a subsidy, by reason of our spending program, which is... is therefore not a--
Unknown Speaker: That's... that's a different argument.
That's different from the argument that there's no harm done because these people can't lower their... lower their prices anyway.
Mr. Wilkins: --That is a different argument, yes, Your Honor.
And I think the question about what would happen if we had a different factual situation, where they could lower their prices, would... the answer, either way, I think, is difficult for this Court.
And I think that's why Professor Regan urges caution in this area.
And... and I certainly agree with that; that there's no reason to reach that kind of issue in this case.
Now, West Lynn has also arguing in its brief that out-of-state farmers are going to receive less from dealers.
That is, that voluntary premiums, to the extent they exist, are not going to be paid.
This argument is rebutted by the testimony of West Lynn's own President.
At page 59 of the joint appendix, he is talking about how he is going to provide for the assessment.
And he says, we're putting in escrow 100 percent of the money.
So, 50 percent of the money is money we've received from customers.
The other 50 percent is money we're receiving that we're putting in right out of our own profits.
So, he's passing on 50 percent and he's taking 50 percent out of his profits.
There's nothing left for him to argue that he's paying less to out-of-state farmers.
And, in fact, West Lynn did not make such a direct argument below.
It based its argument upon an assumption of increased production in Massachusetts, which was speculative, given the limited duration of this order, given the cap and, also, the time and investment it would take to... to increase a herd.
And, in addition, we believe this argument was waived in Supreme Judicial Court for the reasons stated in our brief at 38, note 35.
In short, this statute is not a tariff, because a tariff is something that always affects the cost to the buyers.
It always creates a preference for in-state goods over out-of-state goods.
This law does not have that effect, nor does it have the other effect of a tariff, which is to raise revenue.
This... this law is... to the extent that we have a fund that's limited to a particular purpose, is actually, to that extent, a harder sell in the political process, because with a tariff, the proponents of the tariff can say, well, we have to raise money anyway, let's raise it in a way that gives us ourselves an advantage.
That can't be said about this law.
This law does not defray general costs.
And so, to that extent, is less attractive than a tariff.
In sum, West Lynn wants this Court to adopt a new, per se, rule of illegality, even though the record shows that our law is not a protectionist regulation.
There's no question that Massachusetts dairy farms are in crisis.
Our response to that crisis does not unlawfully affect interstate commerce any more than an ordinary subsidy and an evenhanded tax.
Our program should not be struck down upon the new, per se, rule that runs counter to the record and counter to the findings below.
We submit that the dormant Commerce Clause does not hamper the States in fashioning programs like the one we have adopted.
Unknown Speaker: Thank you, Mr. Wilkins.
Mr. Rosenbaum, you have four minutes remaining.
Rebuttal of Steven J. Rosenbaum
Mr. Rosenbaum: This Court concluded in the Baldwin case that a State could not place itself in a position of economic isolation, quoting from page 527.
That is precisely what Massachusetts is seeking to do.
Today, Massachusetts farmers are less efficient.
They cannot sell at the market price.
And they are losing sales as a result.
The pricing order has come into effect.
It requires we, the processors, to pay more money to the Massachusetts farmers in order that they have enough money in their pockets to meet their costs.
The necessary result is that out-of-state farmers cannot displace in-state farmers as the Interstate Commerce Clause guarantees.
Justice Scalia is precisely right, it makes no difference whether the effect of this is to preserve sales that would otherwise be lost, or increase sales.
In either effect, the purposes of the Interstate Commerce Clause are being thwarted because interstate competition is being thwarted.
The technique being used here is somewhat different than in Baldwin, but the effect is the same.
In Baldwin, the State required a higher price for its farmers in order to keep cheaper milk from coming in from out of State.
They also required that higher price to be paid to out-of-state farmers.
That was deemed unconstitutional.
Here, the State is requiring a higher price to be paid to Massachusetts farmers.
And in order to prevent us from buying cheaper milk, not subject to that requirement, from out-of-state farmers, we are required to pay the same premium... that is to say, the same difference between the market price and the state-mandated price on that out-of-state milk.
The difference is we are being required to pay that money over to the in-state farmers.
To the extent that that is a difference with Baldwin, it's a difference that makes the system worse, because in-state... out-of-state farmers receive no benefit whatsoever from this scheme.
This is not a subsidy.
We are required to pay this money the 25th of every month.
On the 5th of the next month, 10 days later, that money goes out to the out... to the in-state farmers.
No money is going to the general revenues.
No money is coming out of the general revenues.
It is a price regime that is simply increasing how much we are paying, and that is precisely the description of the regime that the State sets forth in the pricing order itself.
With respect to the question of what kind of subsidy would or would not be appropriate, we submit that issue is not before the Court today, as it was not before the Court in New Energy, because we do not have a situation here where monies are coming from the general revenues of the State and going to support an in-state industry.
We do think that if there were a tightly focused tax on a specific industry and a tightly focused subsidy that reflected that tax that then went to someone involved in that same industry, that would also be unconstitutional, because that would have the same defects of the pricing order.
But that is not before the Court today.
Unless there are any further questions, I will complete my argument.
Chief Justice Rehnquist: Thank you, Mr. Rosenbaum.
The case is submitted.
Unknown Speaker: The honorable court is now adjourned until Monday next at ten o'clock.
Argument of Speaker
Mr. Speaker: The opinion of the Court in No. 93-141, West Lynn Creamery, Inc. versus Healy will be announced by Justice Stevens.
Argument of Justice Stevens
Mr. Stevens: The Massachusetts' pricing order imposes an assessment on all fluid milk sold by dealers to Massachusetts' retailers.
About two third of that milk is produced out of state.
The entire assessment, however, is distributed to Massachusetts' dairy farmers.
The question presented is whether the pricing order unconstitutionally discriminates against interstate commerce.
The petitioners in this case are two milk dealers who import milk from neighboring states and distribute it to Massachusetts' retailers.
After paying the assessment for two months, they refuse to make further payments.
When respondent, the Commissioner of the Massachusetts Department of Food and Agriculture, initiated proceedings to revoke their licenses.
Petitioners filed an action in State Court seeking an injunction against the enforcement of the pricing order on the ground that it has violated the Commerce Clause of the Federal Constitution.
The Supreme Judicial Court of Massachusetts upheld the order reasoning that although it had an adverse impact on interstate commerce, the local benefits provided to the Commonwealth Dairy Industry outweigh any such incidental burden on interstate commerce.
The pricing order does violate the Commerce Clause of the Federal Constitution because it discriminates against out of state producers.
Assessments under the pricing order are effectively a tax which makes milk produced out of state more expensive.
Although the tax also applies to milk produced in Massachusetts, its effect on Massachusetts' producers is more than offset by the subsidy provided exclusively to the local dairy farmers.
Respondent's argument that the burden on interstate commerce is outweighed by the local benefits of preserving the Massachusetts' dairy industry would make a virtue of the vice that the rule against interstate discrimination condemns.
Preservation of local industry by protecting it from the rigorous of interstate competition is the hallmark of the economic protectionism that the Commerce Clause forbids.
Justice Scalia, joined by Justice Thomas, has filed an opinion concurring in the judgment; The Chief Justice has filed a dissenting opinion in which Justice Blackmun has joined.