National Pork Producers Council v. Ross

Issues

Does a state statute violate the dormant Commerce Clause when its practical effect burdens out-of-state commerce?

Oral argument:

October 11, 2022

Court below:

United States Court of Appeals for the Ninth Circuit

This case asks the Supreme Court to consider whether California’s Proposition 12 violates the dormant Commerce Clause by failing the extraterritoriality doctrine and the Pike v. Bruce Church, Inc. balancing test. National Pork Producers Council (“NPPC”) argues that Proposition 12 violates the extraterritoriality doctrine by producing a “practical effect,” beyond its influence in California, that unduly burdens the integrated national pork market. NPPC also claims that Proposition 12 does not pass the Pike balancing test, as it imposes an undue burden on out-of-state commerce that is clearly excessive compared to its local benefits. Karen Ross, California’s Secretary of Food and Agriculture, counters that Proposition 12 regulates only the in-state pork market and that the opposing side’s expansive reading of the extraterritoriality doctrine may render it meaningless. Ross also argues that Proposition 12 survives the Pike balancing test. The outcome of this case has important implications for determining the scope of the dormant Commerce Clause as well as the extent of states’ police power.

Questions as Framed for the Court by the Parties

(1) Whether allegations that a state law has dramatic economic effects largely outside of the state and requires pervasive changes to an integrated nationwide industry state a violation of the dormant commerce clause, or whether the extraterritoriality principle described in the Supreme Court’s decisions is now a dead letter; and (2) whether such allegations, concerning a law that is based solely on preferences regarding out-of-state housing of farm animals, state a claim under Pike v. Bruce Church, Inc.

Facts

In 2018, California voters passed ballot initiative Proposition 12, which prohibits businesses from knowingly selling various meat products within California, unless the confinement of animals in the production process complies with certain restrictions. See Nat’l Pork Producers Council v. Ross at 1025. Amending Sections 25990–25993 of the California Health and Safety Code, Proposition 12 expressly applies to whole pork meat—any uncooked cut of pork—regardless of production location. See id.; Cal. Health & Safety Code § 25990(b)(2). It seeks to eliminate certain methods of animal confinement which policymakers consider cruel, such as confining sows—six-month-old-or-older or pregnant female hogs for commercial breeding—in less than 24 square feet per hog, beginning on December 31, 2021. See Ross at 1025; Cal. Health & Safety Code §§ 25991(a) and (e)(3). Beyond addressing animal welfare, policymakers saw these confinement methods as imperiling Californians’ health and safety and increasing the risks of zoonotic diseases and associated economic impacts. See Ross at 1025. Under Proposition 12, any person who violates these amended provisions faces criminal and civil punishment. Cal. Health & Safety Code § 25993(b).

Californians account for 13% of the national pork consumption, but California’s 1,500 in-state sows for commercial breeding are only a margin of the estimated 673,000 required to satisfy the demand. See Nat'l Pork Producers Council v. Ross at 1205. The U.S. pork industry has an annual sales revenue of $26 billion, with most of the national pork production coming from the Midwest and North Carolina. See id. at 1204. Most of the pork products come from sow farms, where sows give birth to piglets which are raised till their weaning. See id. at 1205. The pork products then go to consumers through a segmented supply chain across multiple stages of production. See id. One hog produces different cuts of meat, which are shipped to various end users throughout the country. See id.

On December 5, 2019, National Pork Producers Council (“NPPC”) filed a complaint in federal district court against California officials (collectively “Ross”) challenging Proposition 12’s constitutionality under the dormant Commerce Clause and seeking declaratory and injunctive relief. See Ross at 1025. NPPC alleged that Proposition 12 violates the dormant Commerce Clause because it (1) unconstitutionally regulates extraterritorial activities and (2) fails the Pike v. Bruce Church Inc. balancing test by imposing significant costs “not justified by any animal-welfare interest.” Id. The Humane Society of the United States and other organizations (collectively “the Humane Society”) intervened as defendants. See id. at n. 1. The district court granted Ross’s motion to dismiss for failure to state a claim and the Humane Society’s motion for judgment on the pleadings, denying both of NPPC’s allegations. See id. at 1026. Upon appeal, the Ninth Circuit affirmed the district court’s dismissal of NPPC’s complaint for failure to state a violation of the dormant Commerce Clause on either basis. See id. at 1033–34.

NPPC appealed, and the United States Supreme Court granted certiorari on March 28, 2022. Brief for Petitioners, National Pork Producers Council at 2.

Analysis

APPLICABILITY OF EXTRATERRITORIALITY DOCTRINE

NPPC argues that California’s Proposition 12 invokes an inquiry about the extraterritoriality doctrine the Court set out in Healy v. Beer Institute regarding indirect regulation of out-of-state commerce. See Petition for a Writ of Certiorari, National Pork Producers Council at 16. NPPC contends that Healy set out an extraterritoriality principle that, if “the practical effect of the regulation is to control conduct beyond the boundaries of the State,” such regulation invokes a dormant Commerce Clause inquiry. See id. at 21–22. NPPC further argues that this extraterritoriality doctrine, unlike what the Ninth Circuit has laid out in its opinion, does not limit its application to a state regulation’s direct effect on out-of-state transactions. See id. at 21. To support this proposition, NPPC refers to the Court’s opinion in Baldwin v. G.A.F. Seelig and states that Baldwin allows the application of the extraterritoriality doctrine when states regulate out-of-state commerce by indirect impact. See id. at 16. Furthermore, NPPC refers to a Seventh Circuit decision in which the court struck down an Indiana statute that established compliance with specific manufacturing standards as a compulsory condition for the sale of e-cigarettes in Indiana. See id. at 27. NPPC contends that the Indiana statute produced a similar effect as Proposition 12, yet the Ninth Circuit did not pay sufficient attention to its sister circuit’s decision. See id. at 28. Thus, NPPC posits that it is necessary for the Court to step in and clarify the circuit conflict with respect to the “indirection” issue. See id.

Ross counters that the indirect-impact inquiry is too risky of a tool that may lead to an “overinclusion” of statutes being struck down under the extraterritoriality doctrine. See Brief in Opposition, Karen Ross at 13. Ross refers to multiple cases in which courts upheld state regulations that established standards for products sold in-state and created “ripple” out-of-state effects. See id. at 14. Thus, Ross contends that the “practical effect” standard set out by the Court in Healy does not render a state regulation invalid if the effect is too “upstream” or “indirect,” as in this case. See id. With respect to NPPC’s reference to the Seventh Circuit decision, Ross argues that the Seventh Circuit did not strike down the Indiana statute merely because of its indirect effects on out-of-state e-cigarette manufacturers. See id. at 15. Instead, Ross contends that the Seventh Circuit ruled against the Indiana statute because the statute was “impos[ing] truly direct and burdensome state regulation of commerce beyond the state’s boundaries” out of “protectionist purposes.” See id. Ross argues that the Seventh Circuit recognized the principle that an in-state sales regulation is not invalid merely because it requires modification of out-of-state sellers’ business models to sell to the enacting State’s market, which is the same position that the Ninth Circuit has taken. See id. at 15–16.

SCOPE OF EXTRATERRITORIALITY DOCTRINE

NPPC also argues that the scope of the extraterritoriality doctrine is not limited to “price control or price affirmation statutes.” See Petition for a Writ of Certiorari at 23. NPPC points out that the Ninth Circuit referred to the Court’s opinion in Pharmaceutical Research & Manufacturers of America v. Walsh as support for the opposite proposition, and contends that the Ninth Circuit’s reading of Walsh is incorrect. See id. To support this argument, NPPC points to several decisions of the Court that invoke the extraterritoriality doctrine inquiry in non-price cases concerning state regulations about environmental standards and corporate registration requirements. See id. Moreover, NPPC contends that there is an intra- as well as inter-circuit split on the meaning of Walsh that requires the Court to step in. See id. at 26. NPPC argues that the Ninth Circuit itself has acknowledged that the Court “has not expressly narrowed the extraterritoriality principle to only price-control and price-affirmation cases.” See id. In contrast to this position, NPPC refers to another Ninth Circuit decision that affirmatively limited the scope of the extraterritoriality doctrine to price-related cases. See id. To illustrate the inter-circuit split, NPPC cites a Tenth Circuit decision stating that the doctrine cannot apply to non-price cases and compares this decision with those of the Fourth and Sixth Circuits, which hold that the opposite is the correct reading of Walsh. See id. at 26–27.

Ross counters that the Ninth Circuit does not expressly narrow the scope of the extraterritoriality doctrine to price-control or price-affirmation cases and thus the intra-circuit split argument does not stand. See Brief in Opposition at 10. To support this proposition, Ross refers to two decisions by the Ninth Circuit, in which the court held non-price statutes invalid. See id. at 10-11. One of the two decisions involves a California statute that regulates the sellers of fine art and their royalty payments to the artists, while the other involves another California statute that regulates the standards for medical waste. See id. Moreover, Ross points out that, even if there is an intra-circuit conflict within the Ninth Circuit, it should be left to the specific circuit to resolve. See id. at 12.

PIKE BALANCING TEST

NPPC argues that Proposition 12 violates the dormant Commerce Clause by failing the Pike v. Bruce Church, Inc. balancing test, which balances state interests against burdens on out-of-state commerce. See Petition for a Writ of Certiorari at 28. To fail the Pike balancing test, as NPPC explains, a state statute needs to pose an undue burden that is “clearly excessive in relation to the putative local benefits.” See id. To address the undue burden prong, NPPC mentions the increased costs for pork manufacturers to conform to the sowing requirements of Proposition 12. See id. at 29. In particular, NPPC argues that “Proposition 12 in practice (1) requires a significant restructuring of an entire national, $26-billion industry; (2) requires out-of-state farmers to adopt housing that they believe endangers their herds, employees, and livelihoods; (3) requires California-compliant housing for sows regardless of whether their offspring are sold in California or elsewhere; and (4) will result in consolidation of the industry and put sow farmers out of business.” See id. Listing all the difficulties, NPPC contends that these effects are not merely “increased costs,” as the Ninth Circuit described in its holding, but severe burdens to the pork industry outside California. See id at 28–29. To address the local benefit prong, NPPC argues that Proposition 12 simply provides no local benefit at all. See id. at 30. NPPC points out that there is no evidence to suggest that the change in sowing square footage would reduce “the risk of foodborne illness and associated negative fiscal impacts” related to the safety of the pork and improve local residents’ health. See id. In addition, NPPC states that preventing “allegedly cruel treatment” of sows in sowing houses outside of California is not a legitimate local benefit. See id. at 31.

Ross counters that NPPC overstates Proposition 12’s practical economic effect on the national pork market while understating its local benefits. See Brief in Opposition at 20–24. Ross contends that Proposition 12 does not resemble the small number of cases struck down under the Pike test, which has a greater impact on out-of-state commerce than Proposition 12 does. See id. at 21. Furthermore, Ross refers to Judge Easterbrook’s concern that if Pike “invited constitutional challenges” based simply on concerns that a law would potentially cause economic hardship to a particular industry, the test would become “judicial review of statutory wisdom [in] the fashion of Lochner.” See id. With respect to the local benefit part, Ross points out that the state’s concerns related to any potential risk of foodborne illness, as well as the voters’ expressed purpose of addressing animal cruelty, are legitimate local benefits to consider. See id. at 22-24.

Discussion

ECONOMIC AND PUBLIC HEALTH CONSEQUENCES OF PROPOSITION 12

The Retail Litigation Center, Inc., in support of NPPC, argues that, by imposing massive costs on upstream businesses, Proposition 12 and similar laws will disturb the efficacy of interstate supply chains. See Brief of Amici Curiae The Retail Litigation Center, Inc. et al., in Support of Petitioner at 15. Similarly, Iowa Pork Producers Association, in support of NPPC, predicts that California’s Proposition 12 will force out-of-state small, independent hog farmers out of the national supply chain and concentrate the pork supply due to the mounting costs of compliance. See Brief of Amici Curiae Iowa Pork Producers Association et al., in Support of Petitioner at 21–22. The Canadian Pork Council, also in support of NPPC, suggests that Proposition 12 will interfere with the U.S.-Mexico-Canada Free Trade Agreement. See Brief of Amici Curiae Canadian Pork Council et al., in Support of Petitioner at 19. Supporting NPPC, Protect the Harvest argues that these burdens on interstate and international commerce bear little reward. See Brief of Amicus Curiae Protect the Harvest, in Support of Petitioner at 17. For example, Protect the Harvest suggests that Proposition 12 achieves no public health or safety benefits. See id.

In contrast, The American Society for the Prevention of Cruelty to Animals (“ASPCA”), in support of Ross, contend that Proposition 12 imposes no extra burden to the pork supply chain because businesses can decide for themselves whether to comply with Proposition 12 and sell their products to California. See Brief of Amicus Curiae The American Society for the Prevention of Cruelty to Animals, in Support of Respondents at 15. Small and Independent Farming Businesses, also in support of Ross, contend that, in light of consumers’ rising demand for ethically produced pork products, Proposition 12 will likely increase competition in the highly consolidated pork industry. See Brief of Amici Curiae Small and Independent Farming Businesses et al., in Support of Respondents at 19–20. Further, the Physicians Committee for Responsible Medicine, in support of Ross, suggest that, by eliminating intensive confinement of sows, Proposition 12 will likely prevent the transmission of zoonotic diseases to employees and consumers and reduce the use of antibiotics for sows. See Brief of Amicus Curiae Physicians Committee for Responsible Medicine, in Support of Respondents at 7.

EFFECTS ON FEDERALISM AND THE STATES’ REGULATORY POWER

The National Association of Manufacturers, in support of NPPC, warns that a ruling for Ross will result in a nationwide increase in similar state regulations targeting extraterritorial conduct. See Brief of Amici Curiae The National Association of Manufacturers et al., in Support of Petitioner at 18. The North Carolina Chamber Legal Institute, also in support of NPPC, contends that Proposition 12, a model for other states to impose compliance requirements on interstate commerce, will balkanize the economy, a consequence that undermines the very purpose of the Commerce Clause. See Brief of Amici Curiae North Carolina Chamber Legal Institute et al., in Support of Petitioner at 14. Supporting NPPC, the U.S. Chamber of Commerce further argues that upholding Proposition 12 will encourage the states with the nation’s largest product markets to leverage their market power to regulate conduct in other states. See Brief of Amicus Curiae The Chamber of Commerce of the United States of America, in Support of Petitioner at 26.

The State of Illinois, 13 other states, and the District of Columbia, in support of Ross, counter that NPPC’s expansive reading of the dormant Commerce Clause impairs state sovereignty by jeopardizing existing state laws. See Brief of Amici Curiae State of Illinois et al., in Support of Respondents at 12–13. In particular, the Federalism Scholars, also in support of Ross, predict that a ruling for NPPC will allow other states to veto intra-state policy of any state with tighter regulation or a larger population. See Brief of Amici Curiae Federalism Scholars, in Support of Respondents at 10. Further, the Animal Protection and Rescue League, Inc., in support of Ross, suggests that striking down Proposition 12 will deprive California of its ability to promote the public interest in animal welfare, a cause which Californians voted in support of. See Brief of Amicus Curiae Animal Protection and Rescue League, Inc., in Support of Respondents at 9