Case Title: Diehl, Inc. v. Ohio Dept. of Agriculture

Citation: 2004-Ohio-1870

Docket Number: 20021968

State: ohio

Court: Ohio Supreme Court

Date: 2004-04-28T00:00:00Z

Document:
[Cite as Diehl, Inc. v. Ohio Dept. of Agriculture, 102 Ohio St.3d 50, 2004-Ohio-1870.] 
 
 
DIEHL, INC., APPELLANT, v. OHIO DEPARTMENT OF AGRICULTURE, APPELLEE. 
[Cite as Diehl, Inc. v. Ohio Dept. of Agriculture, 102 Ohio St.3d 50, 2004-
Ohio-1870.] 
Agriculture — Dairies — Milk dealers — Milk Sanitation Board — Testing of 
milk — Ohio Department of Agriculture fee imposed upon imported milk 
processed by Ohio processing plants does not violate the Commerce 
Clause of the United States Constitution. 
(No. 2002-1968 — Submitted November 4, 2003 — Decided April 28, 2004.) 
APPEAL from the Court of Appeals for Defiance County, No. 4-02-14, 2002-Ohio-
5137. 
__________ 
FRANCIS E. SWEENEY, SR., J. 
{¶1} 
Plaintiff-appellant, Diehl, Inc., is a milk processor licensed by 
defendant-appellee, the Ohio Department of Agriculture (“ODA”), with its 
principal place of business in Defiance, Ohio.  Diehl purchases raw milk from 
milk producers to manufacture evaporated-milk products.  It purchases 
approximately 50 to 60 percent of the milk it uses from out-of-state producers. 
{¶2} 
Beginning in September 1998, the ODA’s Milk Sanitation Board 
required milk processors to pay monthly fees, as permitted by R.C. 917.031.  
From September 1998 until February 1999, the ODA invoiced Diehl for monthly 
fees based on the total amount of milk Diehl had received.  However, instead of 
paying the invoiced amounts, Diehl recalculated and paid adjusted fees based only 
on the amount of milk it had purchased from Ohio producers.  Due to Diehl’s 
refusal to pay the assessed amounts, the ODA brought proceedings to revoke 
Diehl’s license.  After a hearing, Diehl’s license was revoked.  The parties agreed 
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to stay the revocation and place the fees in escrow until a final determination was 
reached. 
{¶3} 
Diehl appealed from the order revoking its license to the Defiance 
County Court of Common Pleas, arguing that the fees imposed on imported milk 
violated the Commerce Clause of the United States Constitution, Clause 3, 
Section 8, Article I.  The common pleas court found “no justification to shift the 
cost of [inspecting Ohio dairy farms] to out of state producers” and, therefore, 
determined that the fees imposed an unconstitutional burden on interstate 
commerce.  The court reversed the order revoking Diehl’s license. 
{¶4} 
The court of appeals reversed the trial court’s judgment.  The 
appellate court found that the fee did not violate the Commerce Clause, because it 
neither created a prohibited discriminatory effect nor imposed a burden clearly 
excessive in light of the local benefit.  The cause is before this court upon 
acceptance of a discretionary appeal. 
{¶5} 
The issue is whether the ODA fee imposed upon imported milk 
processed by Ohio processing plants violates the Commerce Clause of the United 
States Constitution.1  We find that it does not and affirm the court of appeals’ 
judgment. 
{¶6} 
In 1997, the General Assembly restructured the dairy industry’s 
regulatory framework and modified the funding methodology for that framework.  
See R.C. Chapter 917; Am.Sub.S.B. No. 87, 147 Ohio Laws, Part IV, 7278-7295.  
The Dairy Division of the ODA was formed to regulate the dairy industry and to 
protect Ohio consumers from adulterated dairy products. Under the regulatory 
                                          
 
1.  There is some discussion in the briefs whether the assessment is a fee or a tax.  State ex rel. 
Petroleum Underground Storage Tank Release Comp. Bd. v. Withrow (1991), 62 Ohio St.3d 111, 
579 N.E.2d 705, answers the question.  In Withrow, we stated, “A fee is a charge imposed by a 
government in return for a service it provides; a fee is not a tax.”  Id. at 113, 579 N.E.2d 705.  
Since the assessment is collected to fund the inspections, we find that it is a fee. 
 
January Term, 2004 
3 
scheme, the operation of the Dairy Division is funded in part by fees assessed 
against dairy-industry participants.  R.C. 917.031. 
{¶7} 
Under this new framework, the General Assembly created a new 
Milk Sanitation Board, which it charged with setting the fees.  R.C. 917.03 and 
917.031(C).  The collected fees are sent to the State Treasurer, who places the 
moneys in a segregated Dairy Industry Fund.  R.C. 917.07.  These funds are then 
used to operate and pay expenses of the Dairy Division of the ODA.  R.C. 917.07. 
{¶8} 
In early 1998, the board decided to assess the following fees:  $5 
monthly fee for processors operating a receiving station; $25 monthly fee for 
processors operating a transfer station; $15 per tank or conveyance for haulers; 
and an apportioned monthly fee for processors operating milk plants.  Each 
processor’s monthly fee is based on the number of pounds of milk it received 
during the month, including out-of-state milk. 
{¶9} 
Diehl argues that the fees structure violates the Commerce Clause 
by shifting part of the cost of inspecting Ohio producers (who do not pay an 
inspection fee) to the cost of processing milk that was produced out of state.  
Diehl argues that this gives Ohio producers an advantage over out-of-state 
producers because the out-of-state producers pay for their state’s inspections and 
reflect those costs in their price.  However, the ODA contends that the fee is a 
regulatory fee because it is collected to fund the Dairy Division of the ODA.  And 
thus, by assessing a regulatory fee on milk processors, appellee is exercising its 
police power to ensure the quality of milk. 
{¶10} The Commerce Clause provides: 
{¶11} “The Congress shall have power * * * [t]o regulate Commerce * * 
* among the several States * * *.”  Clause 3, Section 8, Article I, United States 
Constitution.  The Commerce Clause contains two parts.  First, there is the 
express grant of power to Congress to regulate interstate commerce.  Lawrence, 
Toward a More Coherent Dormant Commerce Clause:  A Proposed Unitary 
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Framework (1998), 21 Harv.J.L. & Pub. Policy 395, 407.  Second, there is the 
implied limitation on states from regulating matters that interfere with interstate 
commerce.  Id.  This limitation is referred to as the negative or dormant 
Commerce Clause.  Id. 
{¶12} “The underlying purpose of the Commerce Clause is to facilitate 
free trade between the states.”  Dayton Power & Light Co. v. Lindley (1979), 58 
Ohio St.2d 465, 467, 12 O.O.3d 387, 391 N.E.2d 716.  As the United States 
Supreme Court has stated, the Constitution “was framed upon the theory that the 
peoples of the several states must sink or swim together, and that in the long run 
prosperity and salvation are in union and not division.”  Baldwin v. G.A.F. Seelig, 
Inc. (1935), 294 U.S. 511, 523, 55 S.Ct. 497, 79 L.Ed. 1032. 
{¶13} However, states have broad police powers to regulate health, 
safety, and general welfare within their borders.  Therefore, problems arise when 
states enact protectionist regulations (i.e., regulatory measures designed to benefit 
in-state economic interests by burdening out-of-state competitors) or legitimate 
nondiscriminatory regulations that interfere with interstate commerce.  Fox, State 
Benefits under the Pike Balancing Test of the Dormant Commerce Clause:  
Putative or Actual? (2003), 1 Ave Maria L.Rev. 175.  To address these problems, 
courts have developed dormant-Commerce-Clause principles to help them 
determine whether to uphold or strike down state regulations.  Petragnani, The 
Dormant Commerce Clause:  On Its Last Leg (1994), 57 Alb.L.Rev. 1215. 
Protectionist regulations are consistently struck down.  The same cannot be said 
for nondiscriminatory regulations that affect interstate commerce.  Id.  These 
regulations are subject to a balancing test: 
{¶14} “Where the statute regulates even-handedly to effectuate a 
legitimate local public interest, and its effects on interstate commerce are only 
incidental, it will be upheld unless the burden imposed on such commerce is 
January Term, 2004 
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clearly excessive in relation to the putative local benefits.”  Pike v. Bruce Church, 
Inc. (1970), 397 U.S. 137, 142, 90 S.Ct. 844, 25 L.Ed.2d 174. 
{¶15} Diehl concedes that the fee does not explicitly discriminate against 
out-of-state interests.  Therefore, we analyze the fee in question by applying the 
Pike test. 
{¶16} Applying this test, we find that the ODA’s fee schedule does not 
violate the dormant Commerce Clause.  First, by requiring Ohio milk processors 
to pay an assessment calculated on the total amount of raw milk they receive 
without regard to the state of origin, the fee is imposed in an evenhanded manner 
that does not favor Ohio milk over out-of-state milk.  Second, there is a legitimate 
local public interest in that the fee is collected to pay the expenses of the Dairy 
Division.  See R.C. 917.07.  The ODA must ensure the safety and wholesomeness 
of milk sold in Ohio.  To accomplish this goal, it inspects milk handlers, including 
producers and processors.  The fee is collected to pay for these inspections.  
Additionally, the effects on interstate commerce, if any, are incidental.  There is 
no evidence that the fee adversely affects sales of out-of-state milk to Ohio 
processors.  Therefore, the fee is not unduly burdensome. 
{¶17} Finally, while Diehl relies upon West Lynn Creamery, Inc. v. Healy 
(1994), 512 U.S. 186, 114 S.Ct. 2205, 129 L.Ed.2d 157, we find that this case 
offers no support for its position.  In West Lynn Creamery, a Massachusetts pricing 
order imposed a uniform fee on all milk sold by dealers to Massachusetts retailers.  
Although most of the milk was produced out of state, the entire assessment was 
distributed to Massachusetts dairy farmers.  The United States Supreme Court held 
that the pricing order unconstitutionally discriminated against interstate commerce.  
It reasoned that the pricing order’s “avowed purpose and its undisputed effect are 
to enable higher cost Massachusetts dairy farmers to compete with lower cost dairy 
farmers in other States.  The ‘premium payments’ are effectively a tax which 
makes milk produced out of State more expensive.  Although the tax also applies 
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to milk produced in Massachusetts, its effect on Massachusetts producers is 
entirely * * * offset by the subsidy provided exclusively to Massachusetts dairy 
farmers. * * * The pricing order thus allows Massachusetts dairy farmers who 
produce at higher cost to sell at or below the price charged by lower cost out-of-
state producers.”  Id., 512 U.S. at 194-195, 114 S.Ct. 2205, 129 L.Ed.2d 157. 
{¶18} In West Lynn Creamery, the fee was returned to Massachusetts 
dairy farmers to subsidize them; thus, the fee was used to favor in-state dairy 
farmers over their out-of-state competitors.  Here, the Ohio fees are not a subsidy 
paid directly to the farmers but are instead collected to fund the Dairy Division.  
Thus, unlike the Massachusetts dairy farmers, Ohio farmers are not given an 
unfair advantage over out-of-state farmers.  Moreover, the purpose behind the 
Ohio fee was different from Massachusetts’ pricing order; in Ohio, the purpose 
was to ensure the quality of the milk not to bolster the competitiveness of Ohio’s 
milk producers.  Thus, West Lynn Creamery is clearly distinguishable. 
{¶19} In conclusion, we find that the fee is not an unconstitutional burden 
on interstate commerce.  The judgment of the court of appeals is affirmed. 
Judgment affirmed. 
 
MOYER, C.J., RESNICK, PFEIFER, LUNDBERG STRATTON, O’CONNOR and 
O’DONNELL, JJ., concur. 
__________ 
 
Benjamin F. Yale & Associates Co., L.P.A., Benjamin F. Yale, Kristine H. 
Reed and Ryan K. Miltner, for appellant. 
 
Jim Petro, Attorney General, Douglas R. Cole, State Solicitor, and Robert 
C. Maier, Assistant Solicitor, for appellee. 
__________