2006 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

9-1-2006

Cloverland Green v. PA Milk Marketing Bd

Precedential or Non-Precedential: Precedential

Docket No. 05-2336

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_2006

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 2006 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Cloverland Green v. PA Milk Marketing Bd" (2006). 2006 Decisions. Paper 402.

http://digitalcommons.law.villanova.edu/thirdcircuit_2006/402
PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

 

No. 05-2336

 

CLOVERLAND-GREEN SPRING DAIRIES, INC.,

Appellant

THOMAS E. MCGLINCHEY; GERTRUDE GIORGINI;

SUE A. SPIGLER, (“Milk Consumers”) (Intervenors in D.C.)

v.

PENNSYLVANIA MILK MARKETING BOARD;

BOYD WOLFF*, in his capacity as member of the Board;

LUKE F. BRUBAKER, Individually and 

as member of the Board;

BARBARA GRUMBINE*, in her capacity as 

member of the Board;

BOYD WOLFF, Individually; 

BARBARA GRUMBINE, Individually

PENNSYLVANIA ASSOCIATION OF MILK DEALERS

(Intervenors in D.C.)

(*Amended - See Clerk’s Order dated 6/29/05)

 
2

Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. Civil Action No. 99-cv-00487)

District Judge: Honorable Yvette Kane

 

Argued June 8, 2006

Before: AMBRO, FUENTES 

and NYGAARD, Circuit Judges

(Opinion filed: September 1, 2006)

Scott T. Wyland, Esquire (Argued)

Kevin J. McKeon, Esquire

Hawke, McKeon, Sniscak & Kennard

100 North Tenth Street

P.O. Box 1778

Garrisburg, PA 17105

Counsel for Appellant

Wendy M. Yoviene, Esquire

Charles M. English, Jr., Esquire (Argued)

Glenn C. Kennett, Esquire

Thelen, Reid & Priest LLP

701 Eighth Street, N.W.

Washington, D.C. 20001

Counsel for Appellees
 1

 Although the members of the Board have been sued

individually in their official capacities, we refer to them as the

“Board”. We also note that the Pennsylvania Association of

Milk Dealers intervened as a defendant in the District Court in

support of the Board, and filed an appellee’s brief on this appeal.

For simplicity, we shall refer to all appellees as the “Board”. 

3

Allen C. Warshaw, Esquire

Buchanan Ingersoll & Rooney PC

17 North Second Street, 15th Floor

Harrisburg, PA 17101

Counsel for Intervenors

PA Assoc. of Milk Dealers

 

OPINION OF THE COURT

 

AMBRO, Circuit Judge

This case, on appeal for the second time to our Court,

concerns whether Pennsylvania’s minimum wholesale prices for

fluid milk violate the dormant Commerce Clause of our

Constitution. In our first opinion, we held that the District Court

improperly granted summary judgment to the Pennsylvania Milk

Marketing Board (“Board”),1

 and remanded to the District Court

for a trial. See Cloverland-Green Spring Dairies, Inc. v. Pa.

Milk Mktg. Bd., 298 F.3d 201 (3d Cir. 2002) (hereafter

“Cloverland I”). The District Court then conducted a six-day
 2

 We note that Professor Bailey testified as an expert witness

for the Board in the District Court. We do not, of course, cite

his textbook herein as a substitute for his testimony, but rather

as a reference for the workings of the federal milk pricing

system, which the parties do not dispute. 

4

bench trial and ruled in favor of the Board. We now affirm. 

I. Milk Economics

Before addressing the facts of this case, we believe it

helpful (if not necessary) to explain how milk pricing works.

On the surface, the path of milk from the cow to the consumer

seems simple. A farmer (commonly called a “producer”) sells

raw milk to a processor (or “handler”). The handler processes

the raw milk into fluid milk or other dairy products, packages it,

and sells the product to a retailer. The retailer, in turn, sells to

the consumer. 

Yet this apparent simplicity is deceptive. Federal and

state regulations regarding the sale of milk make “Byzantine” an

apt, and none too pejorative, description. See, e.g., Lansing

Dairy, Inc. v. Espy, 39 F.3d 1339, 1344 (6th Cir. 1994) (“[T]he

system established by [federal law] to regulate the sale of milk

is of labyrinthine complexity.”); Kenneth W. Bailey, Marketing

and Pricing of Milk and Dairy Products in the United States 109

(1997) (noting that the rules governing milk prices are “mindboggling”);2

 Jim Chen, Around the World in Eighty Centiliters,
 3

 As Judge Jerome Frank of the United States Court of

Appeals for the Second Circuit once observed (in terms more

gilded than our era musters):

[T]he ‘milk problem’ is exquisitely

complicated. The city-dweller or

poet who regards the cow as a

symbol of bucolic serenity is

indeed naive. From the udders of

that placid animal flows a bland

liquid indispensable to human

health but often provoking as much

human strife and nastiness as strong

alcoholic beverages. . . . The[se]

difficulties have given rise to much

legislation and are reflected in

many judicial decisions. . . . The

milk problem is so vast that fully to

comprehend it would require an

almost universal knowledge

ranging from geology, biology,

chemistry and medicine to the

niceties of the legislative, judicial

and administrative processes of

government. It affects an industry

immense in scope, for dairying is

[one of] the largest . . . branch[es]

of agriculture in this country. 

5

15 Minn. J. Int’l L. 1, 6 (2006) (describing the federal milk

pricing structure as “outlandishly complex”).3

 This complexity,
Queensboro Farms Prods. v. Wickard, 137 F.2d 969, 974-75 (2d

Cir. 1943).

 4

 In 2003, for example, U.S. dairy farmers sold about 19.7

billion gallons of milk for more than $21 billion. Gen.

Accounting Office, Dairy Industry: Information on Milk Prices,

Factors Affecting Prices, and Dairy Policy Options 1 (2004). 

6

and the large sums of money at stake,4 have spawned an

extraordinary amount of litigation. It has been estimated that

“no other commodity in the United States has been involved in

as many legal challenges in regard to how it is marketed” as

milk. Bailey, supra, at 3. 

Two systems of milk price regulation concern us on this

appeal: the federal system and Pennsylvania’s state system. We

describe each in turn. 

A. Federal Milk Price Regulation

1. Unique Nature of Milk

Milk is a unique agricultural commodity. The Supreme

Court has recognized “two distinctive and essential phenomena

of the milk industry[:] a basic two-price structure that permits a

higher return for the same product, depending on its ultimate

use, and the cyclical characteristic of production.” Zuber v.

Allen, 396 U.S. 168, 172 (1969); see also Lehigh Valley

Farmers v. Block, 829 F.2d 409, 411 (3d Cir. 1987) (same). The
7

first phenomenon derives from the fact that raw milk may be put

to two general uses by handlers: fluid milk for drinking and

manufactured dairy products such as cheese, butter, and ice

cream. See Zuber, 396 U.S. at 172. Fluid milk is more

expensive for handlers to produce and market because it is

highly perishable (a gallon of milk must ordinarily be marketed

to the consumer within two days of milking), requires more

sanitation and processing than other dairy products, and is

heavier and thus more expensive to transport. See id. at 173 n.3;

Bailey, supra, at 34, 46, 109-10; Alden C. Manchester & Don P.

Blayney, Econ. Research Serv., U.S. Dep’t of Agric., Milk

Pricing in the United States 2 (2001), available at

http://www.ers.usda.gov/publications/aib761/aib761.pdf. Fluid

milk for drinking therefore costs the consumer more per pound

than milk that has been manufactured into other dairy products,

and the partial inelasticity of demand for fluid milk (viewed as

a dietary staple by many Americans) means profit margins on

fluid milk sales may also be higher. See Bailey, supra, at 34;

see also Smyser v. Block, 760 F.2d 514, 516 (3d Cir. 1985)

(“Milk that is ultimately used for fluid purposes has traditionally

commanded a higher price than milk of the same grade and

quality used for manufactured products. This difference is not

entirely accounted for by differences in cost.”). 

Farmers also produce two “grades” of marketable raw

milk. Grade A milk is fit for drinking, and therefore can be

processed into fluid milk or manufactured products, while Grade

B milk is not fit for drinking but may be used in other dairy
8

products. Manchester & Blayney, supra, at 2; David L. Baumer,

Federal Regulation of Milk Production and Sale is Growing at

the Expense of State Authority, 12 J. Agric. Tax. & L. 36, 38-39

(1990). Not surprisingly, in an entirely unregulated market,

handlers would have an incentive to produce manufactured dairy

products using Grade B milk and reserve as much Grade A milk

as possible for the more lucrative fluid milk market. At the

same time, farmers would want to be paid a higher price for

their Grade A milk than for Grade B milk, but handlers would

want to pay less for Grade A milk they intended to put to use in

manufactured dairy products (i.e., surplus Grade A milk they

cannot sell as fluid milk). 

The complexity deepens when we consider the second

phenomenon identified in Zuber: the cyclical nature of milk

production. Demand for fluid milk, though somewhat inelastic

with respect to price, is temporally cyclic, with demand higher

in the fall and winter months than in the spring and summer

months. See Zuber, 396 U.S. at 172-73; Bailey, supra, at 34; see

also John R. Snyder, A Summary: Political and Economic

Analysis of Milk Marketing, 1980-81 Agric. L.J. 297, 310-11.

Unfortunately, cows do not work this way, and produce more

milk in the spring and summer (known as the “flush” season)

than in the fall and winter (the “short-supply” season).

Manchester & Blayney, supra, at 2; Snyder, supra, at 310-11.

Thus, “it [is] necessary to coordinate a supply that is rising when

fluid milk demand is falling.” Manchester & Blayney, supra, at

2. Otherwise, handlers would attempt to “take advantage of this
9

surplus to obtain bargains [from producers] during glut periods,”

which would lead farmers to increase production to maintain a

steady income, “and the disequilibrium snowballs.” Zuber, 396

U.S. at 173; Smyser, 760 F.2d at 516 (“In an unregulated market

‘cutthroat’ competition for more profitable fluid milk sales can

lead to an overall decline in prices.”); see also Bailey, supra, at

110 (explaining that the unique characteristics of the milk

industry, if unregulated, lead to “chaotic marketing conditions”).

2. The Federal System 

Federal regulation of the nation’s dairy industry began in

earnest in the 1930s, when falling prices caused by the Great

Depression led to “utter chaos” in the milk market. Zuber, 396

U.S. at 174. The first attempt at regulation was the Agricultural

Adjustment Act (“AAA”) of 1933, 48 Stat. 31, which

empowered the Secretary of Agriculture to promulgate

emergency licensing requirements in the dairy industry to

regulate output and price. See Zuber, 396 U.S. at 174-75. The

Supreme Court’s decision in A.L.A. Schechter Poultry Corp. v.

United States, 295 U.S. 495 (1935), however, struck down a

similarly broad delegation of rulemaking authority under the

National Industrial Recovery Act of 1933, 48 Stat. 195, and

Congress acted to protect regulation of the dairy market by first

amending the AAA and then enacting the Agricultural

Marketing Agreement Act (“AMAA”) of 1937, 50 Stat. 246,

which replaced the emergency measures with a permanent

system of milk regulation. See Zuber, 396 U.S. at 175-76;
 5

 These are the Northeast, Appalachian, Southeast, Florida,

Mideast, Upper Midwest, Central, Southwest, Arizona, and

Pacific Northwest orders. See U.S. Dep’t of Agric.,

Consolidated Milk Marketing Order Areas, available at

http://www.ams.usda.gov/dairy/dymap.htm. There are also

several parts of the country that are not regulated by a federal

order, including parts of Idaho, New York, Pennsylvania, and

North and South Dakota, and most or all of California, Maine,

Montana, Nevada, Utah, Virginia, and Wyoming. Id. 

Confusingly, the orders are often referred to by a number

that corresponds to the implementing regulation that defines the

order. So, for example, the Northeast order (encompassing all

or part of Vermont, New Hampshire, Massachusetts, Rhode

Island, Connecticut, New York, Pennsylvania, New Jersey,

10

Defiance Milk Prods. Co. v. Lyng, 857 F.2d 1065, 1066-67 (6th

Cir. 1988). 

Under the AMAA, the Secretary of Agriculture is

empowered to regulate the nation’s milk markets by issuing

“orders” that regulate prices in defined geographic areas. See 7

U.S.C. § 608c(1); Defiance, 857 F.2d at 1067; Lehigh Valley,

829 F.2d at 411. These orders are meant to ensure “a sufficient

quantity of pure and wholesome milk to meet current needs and

further to assure a level of farm income adequate to maintain

productive capacity sufficient to meet anticipated future needs.”

7 U.S.C. § 608c(18). Although their number has varied over the

years, there are currently ten federal milk marketing order

areas.5

 See 7 C.F.R. pts. 1001-1135; U.S. Dep’t of Agric.,
Delaware, Maryland, and the District of Columbia, as well as a

few counties in Northern Virginia) is defined in 7 C.F.R. part

1001, and is known commonly as “Order 1”. The Mideast order

(encompassing all or part of Michigan, Indiana, Ohio, Kentucky,

West Virginia, and Pennsylvania) is defined in 7 C.F.R. part

1033, and is known commonly as “Order 33”. 

 6

 To be clear, however, the different classes are merely

administrative distinctions to take account of the fact that

handlers charge different wholesale prices for fluid milk and

11

Consolidated Milk Marketing Order Areas, available at

http://www.ams.usda.gov/dairy/dymap.htm. Within these

orders, the Secretary sets prices at which raw milk may be sold.

There are two main features of this pricing structure that merit

explanation.

Handlers pay for their milk according to a classified

pricing arrangement. See 7 U.S.C. § 608c(5)(A). Grade A raw

milk is classified according to its end use. Class I milk is fluid

milk for drinking, while other classes (II, III, and IV) are

assigned to raw milk used in various manufactured products. 7

C.F.R. § 1000.40; see West Lynn Creamery, Inc. v. Healy, 512

U.S. 186, 189 n.1 (1994). It is not necessary for our purposes to

explain in detail the pricing mechanism for each class, see, e.g.,

7 C.F.R. § 1000.50; we simply note that handlers pay more for

Grade A raw milk they intend to put to use as Class I milk than

they do for Grade A raw milk they intend to put to use as Class

II, III, or IV milk.6

 See Lansing Dairy, 39 F.3d at 1344; Smyser,
manufactured products. The raw milk is all Grade A, and is

alike in all respects except the artificially created class

distinction that depends on the use to which the milk is put.

12

760 F.2d at 516. 

Producers do not, however, receive more or less money

for raw milk based on the handler’s use. Instead, producers

receive a uniform “blend” price that is essentially a weighted

average of the price of all classes of milk sold in the region. See

7 U.S.C. 608c(5)(B); Zuber, 396 U.S. at 177; Lehigh Valley,

829 F.2d at 411. This system “eliminate[s] the potential

situation where one producer, who sold milk to a fluid

processor, would get a higher milk price than his neighbor who

sold to a cheese plant.” Bailey, supra, at 113; see also Lehigh

Valley, 829 F.2d at 411-12 (“By mandating that producers

within a market area receive a uniform price based on the use of

milk within the area, the [AMAA] eliminates the incentive for

dairy farmers to attempt to compete with their neighbors through

lowering their prices.”).

Of course, this would ordinarily lead to a situation in

which handlers dealing mostly in lower classes of milk

essentially subsidize those dealing mostly in Class I milk,

because the blend price paid to the producer will be more than,

say, the classified price of Class IV milk, but lower than the

classified price of Class I milk. To compensate for this, the

regulations establish a “Producer Settlement Fund,” into which
13

handlers who have underpaid contribute an amount equal to the

difference between the blend price and classified price, which is

then distributed to handlers who have overpaid. See 7 C.F.R.

§ 1000.70; Lansing Dairy, 39 F.3d at 1344; Smyser, 760 F.2d at

516. 

By charging handlers less for Grade A raw milk used in

storable dairy products like cheese and butter than for raw milk

used as Class I drinking milk, while assuring that producers are

paid the same no matter the use to which the raw milk is put,

handlers have an incentive to use surplus Grade A milk in

manufactured products during the glut months, and producers

maintain a more stable income year-round. This, in turn, guards

against overproduction in the flush season. Moreover, the

Producer Settlement Fund relieves pressures on handlers to deal

exclusively in fluid milk to the detriment of other dairy

products.

B. Pennsylvania Milk Price Regulation

Although state control of milk markets has declined

significantly in the wake of federal regulation, particularly

through court challenges, it survives in a few states, including

Pennsylvania. See Bailey, supra, at 205, 210; see generally

Baumer, supra. Parts of Pennsylvania are federally regulated —

the southeast and southcentral parts of the Commonwealth are

under the Northeast order, and the western part of the

Commonwealth is under the Mideast order — while other parts
 7

 According to the Board, “the state-mandated premium has

resulted in over 335 million additional dollars being paid to

Pennsylvania farmers” since 1988. Pa. Milk Mktg. Bd., Fiscal

Year Report, 2003-2004 10 (2004), available at http://

14

are not regulated by the federal system. Pennsylvania’s system

covers the entire Commonwealth, however.

Under Pennsylvania’s Milk Marketing Law, 31 Pa. Cons.

Stat. § 700j, the Board is granted “power to supervise,

investigate and regulate the entire milk industry of th[e]

Commonwealth, including the production, transportation,

disposal, manufacture, processing, storage, distribution,

delivery, handling, bailment, brokerage, consignment, purchase

and sale of milk and milk products in th[e] Commonwealth.” 31

Pa. Cons. Stat. § 700j-301. The statute requires that all handlers

operating in Pennsylvania be licensed by the Board, see id. §

700j-401, and empowers the Board to set minimum prices paid

to producers, handlers, and retailers to “benefi[t] . . . the public

interest [and] best protect the milk industry of the

Commonwealth and insure a sufficient quantity of pure and

wholesome milk to [its] inhabitants.” Id. § 700j-801.

In-state handlers who buy raw milk from in-state

producers for in-state use must pay “over-order” prices — which

include a premium above the applicable Class I milk prices —

to assure producers a “reasonable return” based on the

“conditions affecting the milk industry in each marketing area.”7
www.mmb.state.pa.us/mmb/lib/mmb/2003-2004.pdf. From July

2003 to June 2004, the over-order premium resulted in

Pennsylvania farmers receiving $30.8 million more than they

would otherwise have received. Id. at 13. 

 8

 The Board has promulgated a complex mathematical

formula for calculating the over-order premium. See Pa. Milk

Mktg. Bd., Order No. A-913 (2001). It is not necessary to

explain that process here. As of this writing, in all Pennsylvania

milk marketing areas handlers must add $1.60 per

hundredweight (approximately 11.6 gallons) to the price of

Class I milk. See Pa. Milk Mktg. Bd., Order No. A-938 (2006).

15

Id.; see also id. § 700j-803 (“The [B]oard shall fix, by official

order, the minimum prices or a formula for setting of minimum

prices to be paid by milk dealears or handlers to producers for

milk or milk components sold or delivered or made available on

consignment or otherwise by producers to dealers or handlers.”).

The over-order premium only applies to sales of Class I milk.

See Pa. Milk Mktg. Bd., Order No. A-913 (2001) (establishing

the method for calculating the over-order premium, and

specifying that the premium “shall be based on milk that is

produced, processed, and utilized as Class I milk in

Pennsylvania”).8

 

Pennsylvania also exports raw milk to other states. The

over-order price, however, does not apply to sales to out-of-state

handlers. 
16

All handlers who sell milk to retailers in Pennsylvania

must do so at minimum wholesale prices that also guarantee a

“reasonable return,” which state law defines as between 2.5%

and 3.5% of net sales. 31 Pa. Cons. Stat. § 700j-801; see also id.

§ 700j-802 (“The [B]oard shall fix, by official order . . ., the

minimum wholesale and retail prices, and may fix, by official

order, the maximum wholesale and retail prices, to be charged

and received by milk dealers or handlers for milk sold,

delivered, handled or consigned within any milk marketing area

of the Commonwealth.”).

The Board has divided Pennsylvania into six milk

marketing areas. Areas 1 and 4 (the Areas at issue in this

appeal) consist of the counties in southeast and southcentral

Pennsylvania that are also covered by the federal Northeast

order. Area 5 consists of the counties in western Pennsylvania

that are also covered by the federal Mideast order. The

remaining Areas (2, 3, and 6) consist of the counties that are not

regulated by the federal order system. See Pa. Milk Mktg. Bd.,

Fiscal Year Report, 2003-2004 10 (2004), available at

http://www.mmb.state.pa.us/mmb/lib/mmb/2003-2004.pdf. The

Board sets minimum wholesale and retail prices, as well as overorder premiums, in each Area based on the circumstances of that

region, and enforces the minimum prices by regular audits of

handlers’ books. Id. Anyone who sells milk (raw or processed)

at a price below the mandatory minimums set by the Board is

subject to criminal penalties, including fines or imprisonment.

31 Pa. Cons. Stat. § 700j-1001 & 1002.
17

The United States Department of Agriculture (“USDA”)

has identified several important differences between the

Pennsylvania system and the federal orders. First, Pennsylvania

divides milk into only two classes when calculating the price

handlers must pay, as opposed to the four classes applicable to

prices under federal orders. See Milk in the New England and

Other Marketing Areas, 64 Fed. Reg. 16,026, 16,056 (Apr. 2,

1999). As in the federal system, Class I milk in Pennsylvania is

primarily fluid milk for drinking, but Class II milk encompasses

all other dairy products. Second, the location where milk is

distributed for sale determines the applicable minimum price in

Pennsylvania, while under federal orders the price is determined

based on the handler’s plant location. Id. Third, blend prices

paid to farmers under the Pennsylvania system are calculated

based on the individual handler’s usage, and not the use of the

various milk classes in the wider market. Id.; see also 7 Pa.

Code § 143.11 (“Dealers shall pay their producers on a weight

and butterfat basis as determined by the utilization of the milk

received at each plant or receiving station.”). This includes, of

course, the over-order premium, which is added to the Class I

price and then (as part of the Class I price) blended with the

Class II price to yield the handler’s “plant blend” price paid to

its producers. 

II. Facts and Procedural History

With this background in mind, we proceed to the facts of

this case. Appellant Cloverland-Green Spring Dairies, Inc.
18

(“Cloverland”) is a milk handler located in Maryland. It buys

approximately 90% of its raw milk from Pennsylvania

producers, but does not sell processed fluid milk in

Pennsylvania. In March 1999, Cloverland brought suit against

the Board’s members in their official capacities under 42 U.S.C.

§ 1983, alleging that Pennsylvania’s milk pricing scheme

eliminates competition based on price and, as such, nullifies

Cloverland’s competitive advantages, thereby effectively

barring it from Pennsylvania’s market. This, it argues, violates

the Constitution’s dormant Commerce Clause (described in Part

III.A below). Three individual milk consumers in Pennsylvania

intervened as plaintiffs in the suit, and the Pennsylvania

Association of Milk Dealers intervened as a defendant in

support of the minimum prices.

A. Summary Judgment and Appeal

The District Court granted summary judgment to the

Board, see Cloverland-Green Spring Dairies, Inc. v. Pa. Milk

Mktg. Bd., 138 F. Supp. 2d 593 (M.D. Pa. 2001), and

Cloverland appealed. We affirmed the grant of summary

judgment with respect to Pennsylvania’s minimum retail prices

(i.e., prices charged to consumers, which are not at issue on this

appeal), but reversed with respect to the minimum wholesale

prices. Cloverland I, 298 F.3d at 205. Viewing all facts in the

light most favorable to Cloverland — as required at that stage of

the proceedings, see id. — we held that a reasonable trier of fact

could find (on the facts presented) that Pennsylvania’s minimum
 9

 Indeed, on the facts Cloverland offered, it appeared to us

that “[b]y calibrating wholesale price floors for a particular milk

marketing area to the operating costs of average dealers in that

area, the Commonwealth enables Pennsylvania dealers to

operate less efficiently without fearing losses to lower-cost

competitors like Cloverland. This aspect of Pennsylvania’s

scheme appears to run afoul of the cardinal rule that states may

not shield in-state businesses from out-of-state competitors.”

Cloverland I, 298 F.3d at 214 n.17. 

19

wholesale milk prices were unconstitutional, thus precluding

summary judgment for the Board. Specifically, we noted that

Cloverland indicated it had evidence that it could offer prices

below Pennsylvania’s wholesale floor. Although, based on the

limited record available at that stage of the proceedings, it was

not entirely clear to us why Cloverland could offer lower prices,

id. at 207, we observed that Cloverland (as an out-of-state

handler) is exempt from paying the over-order premium on

Class I milk purchased from Pennsylvania producers, and thus

its raw milk costs could be lower than similarly situated

Pennsylvania handlers. Id. at 213. As such, “a reasonable trier

of fact could find that Pennsylvania’s minimum wholesale prices

eliminate a competitive advantage enjoyed by out-of-state

dealers like Cloverland,” which would trigger heightened

scrutiny under the dormant Commerce Clause. Id. at 213.

Moreover, there was no evidence (at that time) that there were

Pennsylvania firms more efficient than Cloverland, and thus the

minimum price floors did not necessarily affect all in-state and

out-of-state firms equally. Id.9

 
20

Even if the District Court were to conclude that

heightened scrutiny did not apply, we held that “the record . . .

amply supports a finding that the wholesale floors

. . . incidentally burden interstate commerce by making it more

difficult for out-of-state dealers to attract new business in a

market dominated by in-state dealers,” id. at 215, and thus the

District Court would have to employ the balancing test set forth

in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), to determine

whether the burdens on interstate commerce substantially

outweighed the putative local benefits. Cloverland I, 298 F.3d

at 215. We held that the “the purpose asserted in the

[Pennsylvania Milk Marketing Law’s] text deserve[d] little

deference” in identifying the law’s benefits because no

Pennsylvania milk processors objected to the minimum prices

(indeed, the Pennsylvania Association of Milk Dealers

intervened in support of the law), and the price scheme therefore

“appear[ed] to [burden] only . . . out-of-state dealers.” Id. at

216. Moreover, we found only “meager evidence” that the

minimum prices were necessary to sustain Pennsylvania’s dairy

industry — since “the federal producer price floors [appear to]

provide ample protection against predatory pricing” in other

states, and the Pennsylvania dairy industry was quite successful

(indeed, it exported most of its raw milk) — and thus it seemed

to us unlikely that the minimum prices were necessary to secure

a supply sufficient to meet the needs of Pennsylvania’s

residents. Id. at 216-17. Moreover, the burdens on interstate

commerce appeared substantial: Cloverland’s stated evidence

suggested it was “virtually impossible to displace incumbent
21

dealers in Pennsylvania without offering prices below the

Board-mandated floors.” Id. at 217. Thus, construing all the

facts in the light most favorable to Cloverland, the

Commonwealth’s minimum wholesale milk prices could fail the

Pike balancing test. 

C. Second District Court Proceeding

On remand, the District Court permitted full discovery

and held a bench trial at which numerous witnesses testified.

Based on this evidence, the Court made detailed findings of fact

that largely contradicted the facts (viewed in the light most

favorable to Cloverland) on which we relied in our earlier

decision. The District Court found that Cloverland — which,

again, buys about 90% of its raw milk from Pennsylvania

suppliers — purchases about 35% of this milk from dairy farm

cooperatives, which negotiate prices with Cloverland equal to

the over-order price charged to Pennsylvania processors.

Cloverland-Green Spring Dairies, Inc. v. Pa. Milk Mktg. Bd.,

No. 1:CV-99-487, slip op. at 5 (M.D. Pa. 2005) (hereafter

“Cloverland II”). The other 65% is purchased from independent

Pennsylvania farmers, who do not charge the over-order

premium to Cloverland because, as an out-of-state handler, it is

exempt. Id. at 6. The Board nonetheless offered expert

testimony that Cloverland actually had higher raw milk costs

and was less efficient than three of four sample dairies, which

the Court accepted because Cloverland did not produce
 10 The District Court expressly found the Board’s expert on

milk pricing to be more credible than Cloverland’s. Cloverland

II, slip op. at 6 n.4. 

22

sufficient countervailing evidence.10 Id. at 6, 15. Thus, the

Court found that “[a]lthough Cloverland can sell milk at a cost

below the minimum wholesale price floor established by the

Board, Cloverland does not have an out-of-state price or

efficiency comparative advantage.” Id. at 6.

Indeed, the Court concluded that, even if Cloverland’s

exemption from the over-order premium conferred an advantage

because it is an out-of-state firm, that advantage “arises from the

very Milk Law pricing structure [Cloverland] seeks to partially

invalidate,” and thus, if Cloverland’s suit were successful, its

advantage would be “ephemeral.” Id. at 16. In the Court’s

view, the invalidation of the wholesale price would necessarily

lead to the abandonment of the over-order premium, which

would make it economically unfeasible for small dairy farms to

remain in business and thus would force them into cooperatives

(which negotiate prices with out-of-state processors equal to the

over-order price). Id. at 15-16. 

The District Court also found that, although “[m]ost

processors sell at or around the wholesale floor price, [thus]

precluding appreciable amounts of competition based upon

price,” id. at 6-7, Cloverland failed to show that competition on

non-price factors did not exist. Indeed, the Court found
 11 At one point in its opinion, the District Court stated that

“Cloverland has established that it can compete with

Pennsylvania dealers only by selling milk at prices below the

wholesale milk floor,” Cloverland II, slip op. at 7 (emphasis

added), but we do not believe the Court meant what it literally

said. In the same paragraph, the Court explained that robust

competition exists in the Pennsylvania market on a variety of

non-price factors, and “even were Cloverland able to establish

that it could sell milk for the lowest price, [it] would not enjoy

a competitive advantage that would enable it to penetrate the

Pennsylvania dairy market.” Id. (emphasis added). The Court

expressly found “that the minimum price floor does not have the

practical effect of preventing Cloverland from entering the

Pennsylvania milk market,” id. (emphasis added), and later

observed that Cloverland “offered no credible evidence that it

could in fact compete in the Pennsylvania marketplace, absent

of the Milk law.” Id. at 20. 

Under these circumstances, we are confident that the

District Court, by typographical error or otherwise, misstated the

intended proposition when it said Cloverland did establish the

23

“competition among processors in quality, service, and the

ability to bundle the delivery of non-milk based drinks,” and

“[a]lthough price is a significant factor in competing for

business within the Pennsylvania dairy market, twice as many

retailers choose name recognition as the number one factor

informing their choice of supplier.” Id. at 7. Thus, even if

Cloverland could compete on the basis of price, the Court found

that it failed to prove it could penetrate the Pennsylvania market.

Id.11 Indeed, the Court noted that Cloverland only attempted
very thing it repeatedly explained Cloverland did not establish.

24

(and failed) to solicit business from three retailers in Area 4 and

none in Area 1, and provided no evidence that these retailers

rejected it because of price. Id. at 6, 20.

Thus, the District Court concluded that Cloverland failed

to prove that the Pennsylvania Milk Marketing Law nullified

any competitive advantage it enjoyed by virtue of being an outof-state firm, and thus heightened scrutiny did not apply.

The Court then considered whether the minimum pricing

scheme’s incidental burdens on interstate commerce

substantially outweighed the putative local benefits, as required

by the Pike balancing test. It concluded that minimum

wholesale prices confer substantial benefits on Pennsylvania’s

dairy industry, because the federal minimums “ha[ve] not

adequately guaranteed enough income to protect Pennsylvania

dairy farms since 1988,” when federal deregulation lowered the

minimums. Id. at 8, 26. Minimum wholesale prices allow

handlers a sufficient return to enable them to pay the over-order

premium, which in turn allows Pennsylvania’s independent

dairy farms to survive. Id. at 8, 24. Based largely on evidence

produced at trial regarding the abolition of minimum prices in

California, the District Court concluded that if Pennsylvania’s

market were dominated by a few large players, “[c]onsumer

prices would fall in the short term, but rise heavily in the long

term.” Id. at 9, 25. And, if small farms went out of business,
 12 These conclusions were based largely on the testimony of

the Board’s experts, which the District Court expressly found

more credible than Cloverland’s expert. Cloverland II, slip op.

at 27. 

 13 The District Court had subject matter jurisdiction over this

case pursuant to 28 U.S.C. §§ 1331 and 1332, and we have

jurisdiction over the appeal pursuant to 28 U.S.C. § 1291. Our

review of the District Court’s decision is subject to familiar

standards: we review findings of fact for clear error (meaning

we will reverse only if we are “left with a definite and firm

conviction that a mistake has been committed”), and exercise

25

the Court concluded that the “agricultural infrastructure” that

supports the dairy industry — including “dealers, feed stores,

veterinarians, and other business[es]” — might suffer.12 Id. at

9, 26. 

In contrast, the Court found only incidental burdens on

interstate commerce: the minimum prices simply placed

Cloverland on the same footing as every other handler doing

business in Pennsylvania, did not prevent interstate competition

on non-price factors, and the dominance of incumbent handlers

could be attributed to Pennsylvania retailers’ preference for

doing business with local handlers “independent of regulatory

pressures.” Id. at 22. Thus, the Court held that, under the Pike

test, Cloverland failed to prove a violation of the dormant

Commerce Clause, and granted judgment in the Board’s favor.

Cloverland appeals.13
plenary review over legal conclusions. Gordon v. Lewiston

Hosp., 423 F.3d 184, 201 (3d Cir. 2005). 

26

III. Analysis

Cloverland raises two issues on appeal. It contends its

competitive advantages require heightened scrutiny, regardless

whether those advantages derive from its status as an out-ofstate firm, and that the mandatory minimum wholesale prices are

the only reason it cannot compete in the Pennsylvania market.

Even if heightened scrutiny does not apply, Cloverland argues

that under the Pike test the burdens on interstate commerce

clearly outweigh any putative benefits.

A. The Dormant Commerce Clause

Under the federal Constitution’s Commerce Clause,

Congress has explicit power to “regulate Commerce . . . among

the several States.” U.S. Const. art. I, § 8, cl. 3. This clause

also has an implied requirement (often called the “negative” or

“dormant” aspect of the clause) that states not “mandate

differential treatment of in-state and out-of-state economic

interests that benefits the former and burdens the latter.”

Granholm v. Heald, 544 U.S. 460, 472 (2005) (internal

quotation marks omitted); West Lynn Creamery, 512 U.S. at

192-93 (same). Under the dormant Commerce Clause, it is

“[a]xiomatic . . . that a state cannot impede free market forces to

shield in-state businesses from out-of-state competition.”
 14 Notably, “in order to find a dormant Commerce Clause

violation there is no requirement that discrimination must be the

‘primary’ purpose or effect” of the challenged state law. Harvey

& Harvey, 68 F.3d at 803.

27

Cloverland I, 298 F.3d at 210. This includes “forcing [out-ofstate businesses] to ‘surrender whatever competitive advantages

they may possess’” as the price of doing business in the state.

Id. (quoting Brown-Forman Distillers Corp. v. N.Y. State Liquor

Auth., 476 U.S. 573, 580 (1986)).

In considering whether a state law violates the dormant

Commerce Clause, the inquiry is twofold: a court considers first

whether “heightened scrutiny” applies, and, if not, then

considers whether the law is invalid under the Pike balancing

test. See, e.g., Cloverland I, 298 F.3d at 210-11. 

Heightened scrutiny applies when a law “discriminates

against interstate commerce” in its purpose or effect. C & A

Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 390 (1994);

Harvey & Harvey, Inc. v. County of Chester, 68 F.3d 788, 797-

98 (3d Cir. 1995).14 The party challenging the statute has the

burden of proving the existence of such discrimination, Harvey

& Harvey, 68 F.3d at 802, and the burden then shifts to the state

to prove that “the statute serves a legitimate local purpose, and

that this purpose could not be served as well by available

nondiscriminatory means.” Maine v. Taylor, 477 U.S. 131, 138

(1986); Harvey & Harvey, 68 F.3d at 797 (same). This standard
28

renders all but the most unusual statute invalid. Carbone, 511

U.S. at 393; Brown-Forman, 476 U.S. at 579 (“When a state

statute directly regulates or discriminates against interstate

commerce, or when its effect is to favor in-state economic

interests over out-of-state interests, we have generally struck

down the statute without further inquiry.”); Cloverland I, 298

F.3d at 210-11; see also Harvey & Harvey, 68 F.3d at 797

(referring to this standard as “strict scrutiny”).

There are two general types of discrimination that a

plaintiff may show to trigger heightened scrutiny (although they

are not entirely distinct, and overlap in many ways). First, it

may show that the challenged state statute has extraterritorial

effects that adversely affect economic production (and hence

interstate commerce) in other states, thereby forcing “producers

or consumers in other States [to] surrender whatever competitive

advantages they may possess” to “give local consumers an

advantage over consumers in other states.” Brown-Forman, 476

U.S. at 580; see Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511,

521, 527 (1935) (“New York has no power to project its

legislation into Vermont by regulating the price to be paid in

that state for milk acquired there,” because such regulation

“set[s] up what is equivalent to a rampart of customs duties

designed to neutralize advantages belonging to the place of

origin.”). 

Second, it may show that the “object [of the law] is local

economic protectionism,” in that it disadvantages out-of-state
 15 The Board argues that the Supreme Court’s decision in

Pharmaceutical Research and Manufacturers of America v.

Walsh, 538 U.S. 644 (2003), stands for the proposition that two

“separate and distinct” types of heightened scrutiny analysis

exist (extraterritorial effect and discrimination), and that

“extraterritorial effect” cases like Baldwin and Brown-Forman

are not relevant to “discrimination” cases like Carbone and

Harvey, and vice versa. Pa. Milk Mktg. Bd. Br. at 49-51. 

The Board substantially overreads Pharmaceutical

29

businesses to benefit in-state ones. Carbone, 511 U.S. at 390;

see West Lynn Creamery, 512 U.S. at 194-96 (holding that a

Massachusetts state law requiring milk processors, including

out-of-state firms, to pay a premium to a state fund that was then

disbursed only to in-state producers was “effectively a tax which

makes milk produced out-of-state more expensive,” thus

discriminating against out-of-state milk); Hunt v. Wash. State

Apple Adver. Comm’n, 432 U.S. 333, 351-53 (1977)

(overturning a North Carolina statute that forbade importing

apples bearing a quality mark other than one issued by the

USDA, because Washington’s apples bore a state quality mark

and thus “the statute’s consequence [is] raising the costs of

doing business in the North Carolina market for Washington

apple growers and dealers, while leaving those of their North

Carolina counterparts unaffected”); Polar Ice Cream &

Creamery Co. v. Andrews, 375 U.S. 361, 375-77 (1964)

(holding that a Florida statute requiring in-state milk processors

to purchase raw milk from in-state producers unlawfully

discriminated against interstate commerce).15
Research. The Supreme Court discussed the “extraterritorial

effect” cases apart from other discrimination cases only because

the petitioner framed its argument that way. See Pharm.

Research, 538 U.S. 669-70. Nowhere did the Supreme Court

suggest that the two lines of cases are mutually exclusive;

indeed, so-called “discrimination” cases like Carbone, West

Lynn Creamery, and Washington State Apple rely heavily on

so-called “extraterritorial effect” cases like Baldwin, and vice

versa. As we noted in Cloverland I, both types of cases may

share the common element of “state laws that are facially neutral

but have the effect of eliminating a competitive advantage

possessed by out-of-state firms, [thus] trigger[ing] heightened

scrutiny.” 298 F.3d at 211 (citing Wash. State Apple, 432 U.S.

333, and Baldwin, 294 U.S. 511); see also id. at 212 n.14

(“[T]he problem with the law invalidated in Baldwin was not

merely its extraterritorial reach, but that it had the practical

effect of discriminating against out-of-state milk producers by

eliminating their competitive advantage.”). Thus, while it may

sometimes be useful to consider the two types of cases

separately for ease of analysis, they are actually just two forms

of discrimination, with significant overlap.

30

In deciding whether a state law discriminates against outof-state businesses, it is immaterial whether the statute or

ordinance also burdens some in-state businesses. See Carbone,

511 U.S. at 391 (“The ordinance is no less discriminatory

because in-state or in-town processors are also covered by the

prohibition.”); Cloverland I, 298 F.3d at 214 (noting that

Carbone “‘explicitly rejected the argument that a disputed

statute would have to favor all in-state businesses as a group —
31

a statute may be invalid if it favors only a single or finite set of

businesses’” (quoting Harvey & Harvey, 68 F.3d at 798)). 

If the plaintiff does not succeed in showing that the

purpose or effect of the state law discriminates against interstate

commerce — but, rather, the statute “regulates even-handedly

to effectuate a legitimate local public interest, and its effects on

interstate commerce are only incidental” — the court must

determine whether “the burden imposed on such commerce is

clearly excessive in relation to the putative local benefits.” Pike,

397 U.S. at 142; Cloverland I, 298 F.3d at 211 (same). This

balancing test is significantly less restrictive of state laws than

heightened scrutiny. 

Often, “there is no clear line separating the category of

state regulation that is virtually per se invalid under the

Commerce Clause, and the category subject to the Pike v. Bruce

Church balancing approach.” Brown-Forman, 476 U.S. at 579;

see Cloverland I, 298 F.3d at 211 (“[S]ometimes the distinction

between state laws subject only to Pike balancing and those that

are nearly per se invalid is ‘hazy.’”). In determining whether

heightened scrutiny should be applied instead of the Pike test,

“the critical consideration is the overall effect of the statute on

both local and interstate activity,” Brown-Forman, 476 U.S. at

579, with special attention paid to whether a “facially neutral”

state law “ha[s] the effect of eliminating a competitive

advantage possessed by out-of-state firms” (which “trigger[s]

heightened scrutiny”). Cloverland I, 298 F.3d at 211.
 16 Cloverland’s exemption from the over-order premium is

due to its status as an out-of-state firm, but it argues this fact is

not relevant to the heightened scrutiny analysis. 

32

B. Heightened Scrutiny

Cloverland’s argument against the District Court’s

heightened scrutiny analysis may be distilled as follows. The

District Court concluded that Cloverland has some advantages

over some Pennsylvania firms — it is more efficient than some,

it sells milk in Maryland for less than the minimum wholesale

prices that exist in Pennsylvania, and its exemption from the

over-order premium for raw milk purchased from independent

Pennsylvania dairy farmers means its raw milk costs might

theoretically be lower than its Pennsylvania competitors’ costs.

Although these advantages may not derive necessarily from

Cloverland’s status as an out-of-state handler,16 the argument

proceeds, there is no question that Pennsylvania’s minimum

prices level the playing field with Pennsylvania firms that have

higher costs and are less efficient, thus nullifying Cloverland’s

alleged competitive advantages. Since it is an out-of-state firm,

Cloverland contends the pricing scheme necessarily restrains

interstate commerce. Moreover, it asserts that Pennsylvania’s

in-state processors are so entrenched (we noted previously that

“in-state dealers dominate the wholesale milk market in

Pennsylvania,” Cloverland I, 298 F.3d at 217), other means of

competition are so lacking, and the wholesale minimums are set

so high (such that they effectively set the actual price for all
33

handlers), that no out-of-state firm can compete in the

Pennsylvania market without offering a lower price. As we

summarized the argument, “[p]reventing dealers from attracting

customers by offering lower prices . . . helps in-state dealers

maintain their traditional hegemony.” Id. 

1. Must a Competitive Advantage Arise from

Cloverland’s Status as an Out-of-State

Firm?

Although Cloverland’s arguments were persuasive on the

limited facts (construed in Cloverland’s favor) available in

Cloverland I, they are less compelling in light of the factual

record developed at trial. As a starting point, we note that

Cloverland is incorrect that, at least on the facts of this case,

state regulations that nullify a competitive advantage unrelated

to the firm’s out-of-state status may nonetheless, on their own,

trigger heightened scrutiny. 

As the District Court framed the issue, “courts have

struggled with . . . the difficulty in examining laws which do not

facially discriminate against out-of-state interests under

[d]ormant Commerce Clause jurisprudence. When does a

simple economic advantage rise to the level of [a] competitive

advantage, within the heightened scrutiny context?” Cloverland

II, slip op. at 16-17. The Supreme Court has never expressly
34

addressed this issue, but it has often stated that a state law that

“cause[s] local goods to constitute a larger share, and goods with

an out-of-state source to constitute a smaller share, of the total

sales in the market” is unconstitutional “because it, like a tariff,

‘neutraliz[es] advantages belonging to the place of origin.’”

West Lynn Creamery, 512 U.S. at 196 (quoting Baldwin, 294

U.S. at 527) (internal quotation marks omitted) (emphasis

added); Polar Ice Cream, 375 U.S. at 377 (same with respect to

a Florida law barring in-state handlers from buying raw milk

from out-of-state producers); see also Wash. State Apple, 432

U.S. at 351 (noting that a North Carolina statute forbidding

importing apples with a non-USDA quality mark “has the effect

of stripping away from the Washington apple industry the

competitive and economic advantages it has earned for itself

though its expensive inspection and grading system”). 

We have observed that “[t]he Supreme Court’s opinions

in Baldwin and Washington State Apple show that if a state

regulation has the effect of protecting in-state businesses by

eliminating a competitive advantage possessed by their out-ofstate counterparts, heightened scrutiny applies. . . . [Here,] a

reasonable trier of fact could find that Pennsylvania’s minimum

wholesale prices eliminate a competitive advantage enjoyed by

out-of-state dealers like Cloverland.” Cloverland I, 298 F.3d at

212-13. By referencing a “competitive advantage enjoyed by

out-of-state dealers” not shared by in-state dealers, we presumed

the advantage would have something to do with the out-of-state

status of the advantaged firms. 
35

Cloverland argues, however, that it need not prove a cost

advantage linked to its place of origin. It contends that the mere

fact it has some efficiency advantage (for whatever reason) over

at least one in-state firm means it can sell milk for less, and

because Pennsylvania’s minimum wholesale prices nullify its

ability to do so, they render meaningless its efficiency advantage

and thus trigger heightened scrutiny.

The ramifications of this argument are expansive.

Cloverland’s proposed rule would eviscerate longstanding

Supreme Court precedent that “price regulation [is not] an

impermissible burden upon commerce” where “the burden on

commerce is indirect and only incidental to the regulation of an

essentially local activity,” Polar Ice Cream, 375 U.S. at 378

(citing Milk Control Bd. of Pa. v. Eisenberg Farm Prods., 306

U.S. 346 (1939), and Highland Farms Dairy v. Agnew, 300 U.S.

608 (1937)) — subject, of course, to the Pike balancing test.

See Cloverland I, 298 F.3d at 215-16. As the District Court

noted, in any state with minimum price regulations, there will

always be some out-of-state competitors (like Cloverland) that

have some advantages over at least one in-state firm, even

though those advantages may reflect differences in capacity,

efficiency, workers, etc., that have nothing to do with the firm’s

location (and indeed are shared with many in-state firms). See

Cloverland II, slip op. at 16-17, 19. Thus, under Cloverland’s

proposed rule, state milk price regulations will always be subject

to heightened scrutiny (and thus nearly per se invalid), despite

the fact we and the Supreme Court have clearly recognized this
36

is not always the case. If the neutralization of any advantage

possessed by any out-of-state firm were enough to trigger

heightened scrutiny, it is difficult to think of a state pricing

regulation that could survive. 

The elimination of a particular competitive advantage

belonging to the place of origin is not, of course, a determinative

inquiry in every case. For example, where a state statute

imposes an outright ban on competition by reserving all business

for an in-state firm or firms and explicitly barring interstate

commerce, see Carbone, 511 U.S. at 391-93; Polar Ice Cream,

375 U.S. at 376-77, or targets out-of-state firms for special

burdens from which in-state firms are exempt, see West Lynn

Creamery, 512 U.S. at 194-95; Wash. State Apple, 432 U.S. at

350-51, the problem is more blatant: the out-of-state firms are

subjected to overt discrimination or an outright ban on

competition. But Cloverland does not allege those barriers here.

Rather, it alleges more subtle discrimination, stemming from a

law and regulatory scheme that are not facially discriminatory.

Hence, a nexus between the advantage that has been neutralized

and the firm’s out-of-state status is necessary. 

We therefore hold that, if Cloverland is to succeed in

demonstrating that heightened scrutiny applies because its

competitive advantages have been neutralized by the

Pennsylvania Milk Marketing Law, it must establish that those

advantages arise by virtue of its out-of-state status.
37

2. Does Cloverland Have an Out-of-State

Competitive Advantage?

The question becomes, then, whether the Pennsylvania

Milk Marketing Law operates to neutralize competitive

advantages belonging to Cloverland’s place of origin. The

record reveals only one such potential advantage vis-a-vis

Cloverland’s Pennsylvania competitors — its potential raw milk

cost advantage due to its exemption from the over-order

premium.

a. Legal Errors in the District Court’s

Analysis

We note at the outset two legal errors in the District

Court’s opinion that cannot form the basis for a determination

of whether Cloverland’s exemption from the over-order

premium should trigger heightened scrutiny. 

(1) Nexus Between the

Challenged State Law and

Cloverland’s Advantage

We are unpersuaded by the District Court’s reasoning

that because Cloverland’s exemption arises from Pennsylvania

law, any cost advantage it has is “ephemeral” — the argument

being that if the minimum wholesale prices were invalidated (as

Cloverland desires), its purported raw milk cost advantage
38

would disappear because the over-order premium would no

longer be viable. We assume, without deciding, that if the

minimum wholesale prices themselves conferred an advantage

on Cloverland due to its out-of-state status, it could not rely on

that advantage to challenge those prices because invalidating the

prices would necessarily nullify the advantage (though, of

course, Cloverland would have no incentive to challenge the

prices in that event). Here, however, Cloverland’s purported

cost advantage arises from the operation of a different aspect of

the regulatory scheme — the over-order premium — that is not

challenged in this suit. 

The District Court concluded, based on the Board’s

evidence, that if the minimum wholesale prices were

invalidated, the over-order premium would fall. But this is not

a question susceptible to definitive proof by the Board’s experts.

It may well be that invalidating the minimum wholesale prices

would place pressure on the Commonwealth’s legislature to

repeal the over-order premium or extend it to out-of-state

purchasers (both of which would nullify Cloverland’s supposed

advantage). The cost disadvantage to Pennsylvania handlers of

paying the over-order premium and then competing against outof-state handlers without the protection of minimum wholesale

prices might make the over-order premium less feasible or

encourage them to purchase out-of-state milk to avoid the

premium. But we note that, under the current system,

Pennsylvania handlers already have an incentive to purchase

out-of-state milk to maximize their profit margins, yet the over-
39

order premium remains strong. Moreover, even assuming

Pennsylvania could constitutionally impose over-order

premiums on sales of milk to out-of-state purchasers (an issue

we do not decide here), doing so would presumably damage the

Commonwealth’s ability to export milk by essentially adding a

surcharge on exports. And the Board has gone to great lengths

(as explained below) to demonstrate several legal options

handlers use to sell milk at below minimum wholesale prices in

Pennsylvania, which suggests that invalidating the minimum

wholesale prices would not necessarily harm the handlers’

ability to pay the over-order premium to producers. 

If the minimum wholesale prices were invalidated, the

Pennsylvania legislature would be faced with these thorny

policy questions and would have to weigh the competing

considerations to determine whether the over-order premium

provisions of 31 Pa. Cons. Stat. § 700j remain viable. There is

simply no way to determine, at this stage, whether the overorder premium would necessarily be repealed or extended to

out-of-state purchasers of Pennsylvania milk. At best, the

Board’s evidence and the District Court’s opinion establish that

such an event would be likely. We hold, though, that the

possible removal of Cloverland’s purported out-of-state

advantage if it is successful on this appeal is insufficient to

render that advantage irrelevant to our heightened scrutiny

analysis.

(2) Availability of Non-Price
 17 Indeed, the Board’s argument (which the District Court

accepted) is similar conceptually to the one advanced

unsuccessfully by the State of Oklahoma in Wyoming. There,

Oklahoma argued that it “set[] aside only a ‘small portion’ of the

40

Competition

We also are unpersuaded by the District Court’s reliance

on the availability of non-price competition in the Pennsylvania

market. As we explain below, if Cloverland proves that its

exemption from the over-order premium confers a cost

advantage over Pennsylvania handlers that is neutralized by the

Commonwealth’s minimum wholesale prices, heightened

scrutiny applies. The fact that Cloverland might be able to

compete for some retailer accounts on non-price bases is

irrelevant, because even if there are other potential paths into the

Pennsylvania market that may allow an out-of-state handler

successfully to obtain some business, neutralizing an out-ofstate price advantage alone offends the dormant Commerce

Clause (especially since the record amply demonstrates that

price is — or, at least, would be if competition on price were

allowed — an important factor retailers consider in choosing a

supplier). See Wyoming v. Oklahoma, 502 U.S. 437, 455

(1992) (holding that a state may not insulate part of its market

from out-of-state competition while leaving other parts open,

because this “measures only the extent of the discrimination; it

is of no relevance to the determination whether a State has

discriminated against interstate commerce”).17
Oklahoma coal market” for in-state coal producers, “without

placing an ‘overall burden’ on out-of-state coal producers doing

business in Oklahoma.” Wyoming, 502 U.S. at 455. Here, the

Board essentially contends there is no “overall burden” on

handlers (including out-of-state handlers) because they may

compete for business on non-price factors, even though at least

part of the market would surely be more receptive to Cloverland

if it were allowed to exploit its alleged out-of-state cost

advantage to offer a lower price on wholesale milk. The fact

that Cloverland may compete on bases in which it does not

enjoy an advantage (and on which it would, therefore, have

considerable difficulty displacing an incumbent handler from an

established account with a retailer, especially a retailer that is

primarily concerned with price) resolve the constitutional

problem. 

41

If Cloverland proves its Maryland residency confers a

cost advantage it wishes to exploit in the Pennsylvania market,

but Pennsylvania law neutralizes that advantage (and thus

unlawfully shields in-state handlers from price competition),

heightened scrutiny will apply regardless of the existence of

other competitive means that Pennsylvania has not neutralized.

In demonstrating that heightened scrutiny should apply to a state

law, a plaintiff like Cloverland need only prove that its out-ofstate residency confers competitive advantages that are

neutralized by the state law under review, thus preventing

competition in the area in which the plaintiff enjoys an

advantage. The plaintiff need not prove it is prevented from

entering the market through competition on all possible bases.
42

b. Factual Support for District Court’s

Decision

Notwithstanding these errors in the District Court’s

analysis, we conclude it was not clearly erroneous for the Court

to find that Cloverland did not sustain its burden of proving an

actual raw milk cost advantage belonging to its place of origin.

Cloverland’s proof of its alleged cost advantage consisted

primarily of testimony from Lawrence Webster, Cloverland’s

general manager, and Robert Havemeyer, a management

consultant who testified as an expert in the costs of processing

and delivering milk. Webster testified that, by not adding the

over-order premium to the 65% of raw milk it purchases from

independent Pennsylvania farmers, Cloverland saves about five

cents per gallon, which would allow Cloverland to lower its

wholesale prices enough to gain a significant price advantage

over Pennsylvania competitors. Havemeyer testified that, based

on a survey of Cloverland’s costs during a 13-week period in the

fall of 1998 (when demand was at its peak), and updated in

2002, Cloverland’s variable costs (i.e., costs that vary with the

volume of production) allowed it to sell its milk in Pennsylvania

below wholesale minimum prices. 

Notably absent from Cloverland’s offer of proof,

however, was any comparison to actual Pennsylvania

competitors’ costs, despite the fact this was crucial to

demonstrating a cost advantage vis a vis those competitors. At

most, Cloverland proved it was capable of selling milk for less
 18 We observed in Cloverland I that, based solely on

Cloverland’s evidence, it appeared that “fixing prices based on

average total costs” — which includes variable costs and fixed

costs “such as equipment, office space, and other ‘overhead’

expenses” — “significantly increases dealers’ profits because it

will be in their economic interest to sell additional units of milk

at any price above their average variable costs, even if below

their total costs. Outside Pennsylvania, in contrast, milk dealers

generally offer prices based on their average variable costs.”

298 F.3d at 208. Herbein and Havemeyer presented conflicting

evidence on this point at trial, and the District Court agreed with

Herbein that an analysis of total costs is necessary to take into

account fully the costs of production. Since this conclusion is

supported by Herbein’s testimony, and Cloverland has not

shown that the testimony is demonstrably untrue, the District

Court’s conclusion is not clearly erroneous. 

43

than the wholesale minimum, but (as explained above) this is

not in itself sufficient to trigger heightened scrutiny.

Carl Herbein, who testified for the Board as an expert in

milk cost accounting, conducted the comparison with

Pennsylvania handlers that Cloverland’s expert did not, and

concluded that Cloverland’s total costs rendered it less efficient

than three of the four sample handlers. Herbein explained, and

the District Court agreed, that Havemeyer’s calculations were

unreliable because they used an unreasonably small time frame,

relied only on Cloverland’s variable costs (rather than looking

at total costs),18 and considered a time when demand was at its
 19 Although Pennsylvania Areas 1 and 4 and the State of

Maryland are all under the Northeast federal order, there are

numerous price differentials that set various minimum prices

throughout the order. See, e.g., U.S. Dep’t of Agric., Northeast

States Class I Differentials, available at

http://www.fmmone.com/New_Zone_Diffs/

NEZoneDiffMap.pdf. 

 20 A tolling agreement is a state-approved service contract

whereby a handler contracts with a large retailer that is

vertically integrated (i.e., processes its own milk) to process,

package, and deliver milk to the retailer. Essentially, the

handler acts as a proxy for the retailer’s milk processing

operation, and thereby avoids charging minimum wholesale

prices. 

We have previously held that “out-of-state dealers’

ability to enter into tolling agreements [does not] meaningfully

mitigate[] the burden on interstate commerce,” because only

about one-third of wholesale milk sales in Pennsylvania are

made pursuant to tolling, and “[t]he dormant Commerce Clause

44

peak rather than a period representative of the full year.

Herbein, and other witnesses offered by the Board, also

explained that the cost advantage resulting from Cloverland’s

exemption from the over-order premium vis a vis a particular

Pennsylvania competitor may be mitigated by the fact that

Cloverland pays a slightly higher federal price for raw milk

because it is located in Maryland,19 and many Pennsylvania

handlers avoid paying minimum wholesale prices by entering

tolling agreements20 and taking advantage of allowable
does not allow Pennsylvania to hamper out-of-state dealers in

two-thirds of its wholesale market on the ground that they may

compete freely in the remaining third.” Cloverland I, 298 F.3d

at 218 (citing Wyoming, 502 U.S. at 455). We adhere fully to

this holding. Thus, the Board’s evidence at trial, and argument

on appeal, that tolling is available to Cloverland as a means to

avoid minimum wholesale prices do not defeat Cloverland’s

dormant Commerce Clause challenge. But, as explained below,

the plaintiff in a case like this must prove an out-of-state

advantage over similarly situated in-state handlers, and in

conducting this comparison the plaintiff must take account of

the circumstances of the in-state handlers over which it claims

to have an advantage. Since Cloverland did not analyze

Pennsylvania handlers’ costs, the District Court did not clearly

err in relying on the Board’s comparison. 

 21 The relative costs of milk handlers are trade secrets, and

thus the sample dairies are referenced by pseudonyms. 

45

discounts for high volume sales, partial service (i.e., delivering

the milk to a retailer but not stocking it in the cooler or ordering

future inventory), and multi-store customers. None of this was

reflected in Cloverland’s offer of proof at trial, which relied on

a straightforward comparison between the price of raw milk

with the over-order premium and the price of milk without it.

Cloverland argues strenuously that the Board’s data is

flawed. It contends, first, that the Board purposely selected

sample handlers with lower operating costs than Cloverland, and

argues specifically against the inclusion of “Dealer 4”,21 which
46

is not located within a federal order area and moves less than

25% of its total Class I milk volume into that area, and thus is

only partially regulated by federal law. See 7 C.F.R. § 1001.7;

see also Sani-Dairy, Div. of Penn Traffic Co, Inc. v. Espy, 939

F. Supp. 410, 412 (W.D. Pa. 1993) (same under earlier federal

order regulations). Herbein testified, and Cloverland does not

dispute, that a partially regulated handler like Dealer 4 need not

account to the Producer Settlement Fund, and is therefore able

to pay producers more for raw milk (which gives it a price

advantage over fully regulated handlers, and a corresponding

cost advantage when the market price of raw milk is higher than

the federal minimum). See 7 C.F.R. § 1000.76. Since

Cloverland is fully regulated federally, and must account to the

Producer Settlement Fund, it argues a comparison with the

partially regulated Dealer 4 is irrelevant. 

Cloverland’s argument misses the mark. Dealer 4 would

clearly be a competitor in the Pennsylvania market; although

Dealer 4 cannot sell more than 25% of its total milk volume into

a federal order area and remain partially regulated, it could still

compete with Cloverland for retail outlets in Areas 1 and 4 with

the milk it does move into the order area. Dealer 4 is not,

therefore, a wholly irrelevant comparison. Cloverland’s

argument is really addressed to whether Dealer 4 is a proper

representative for comparison. Yet Cloverland had every

opportunity to submit evidence of similarly situated

Pennsylvania handlers with comparatively higher costs, and it

failed to do so. As the Board was the only one to submit
 22 Herbein justified his reliance on the plant blend cost — as

does the Board in its arguments on appeal — by noting that

plant blend is an accepted method of pricing the cost of raw

milk, and reflects the way handlers actually operate (i.e., by

purchasing Grade A raw milk and only later deciding how it will

be classified). While we have no doubt plant blend is

recognized and accepted in the industry, here Cloverland

contends that its exemption from the over-order premium (which

applies only to purchases of Class I raw milk) gives it an

advantage over other purchasers of Class I raw milk. Reliance

on the plant blend cost in determining Cloverland’s advantage

over other handlers makes sense only if Cloverland and the

Pennsylvania handlers to which it is compared have the same

47

evidence of comparative costs, the District Court did not clearly

err in relying on the Board’s sample.

Second, Cloverland argues Herbein erroneously relied on

the “plant blend” cost of raw milk (i.e., the weighted average of

the costs of different classes of milk used by the plant, which is

paid to producers), rather than a segregated Class I price, in

conducting his analysis of comparative costs. This, according

to Cloverland, artificially lowered the costs of plants with less

Class I usage than Cloverland. The Board counters that the

plant blend method of calculating costs is the norm in the

industry and comports with generally accepted accounting

practices. 

Although Cloverland’s argument may have some merit,22
Class I usage. Otherwise, as Cloverland argues, the comparison

will be flawed: because it has a high Class I usage, its plant

blend cost will be artificially higher than a plant with lower

Class I usage, even though the cost of its Class I milk alone may

be lower than the Pennsylvania competitor.

Of course, it may be difficult to calculate a discrete

“Class I” cost because if (as the Board persuasively argued, and

the District Court found) it is appropriate to consider the total

costs of production — including fixed costs like capital

investment, facilities, equipment, and other overhead — in

deciding whether one handler has a cost or efficiency advantage

over another, it would be an arduous task to separate out the

portion of fixed costs attributable to the production of Class I

milk, as many fixed costs are directed at processing raw milk

regardless of its end use. It may be, then, that plant blend is an

unavoidable consequence of the way handlers actually work,

though we still think it most useful if the two handlers compared

use roughly the same amount of raw milk as Class I. But, as we

explain, in this case Cloverland’s failure of proof makes it

unnecessary to resolve this question. 

48

we note that it submitted no evidence that the sample handlers

(which Herbein testified were “very similar” to Cloverland in

terms of size, volume, and gross sales) had appreciably different

Class I usage. Havemeyer provided evidence of Cloverland’s

Class I costs, but did not compare these to any actual

Pennsylvania competitors, and the District Court expressly

found his study unreliable due to its limited time frame and

examination of only variable costs. Again, under these

circumstances, we cannot conclude that the District Court
 23 Herbein’s testimony indicated that Cloverland had a cost

advantage over one of the four sample dairies offered by the

Board (which Herbein selected because they were similarly

situated to Cloverland), but Cloverland offered no proof that this

cost advantage arose because of its out-of-state status. In any

event, given the totality of the Board’s evidence, the District

Court did not clearly err in deciding (implicitly) that evidence of

a cost advantage over one similarly situated Pennsylvania

49

committed clear error by relying on the only comparative

evidence before it.

* * * * * 

To be sure, we do not mean to suggest that a defendant

in a case such as this may defeat heightened scrutiny merely by

showing that the plaintiff does not have a competitive advantage

over some of its putative competitors. Such a rule would be at

odds with the well-established principle that “‘a statute may be

invalid if it favors only a single or finite set of businesses.’”

Cloverland I, 298 F.3d at 214 (quoting Harvey & Harvey, 68

F.3d at 798). But this does not relieve a plaintiff like Cloverland

of its burden of proving, as part of its prima facie case of

discrimination, that it has an actual competitive advantage over

some of its prospective competitors because it is an out-of-state

firm. Cloverland should have established that its exemption

from the over-order premium gave it a relevant cost advantage

over similarly situated Pennsylvania competitors that translated

into an ability to sell wholesale milk at a lower cost.23 Had it
handler, owing possibly to Cloverland’s exemption from the

over-order premium, was not sufficient to trigger heightened

scrutiny.

50

done so, the Board could (of course) have attempted to rebut this

proof by showing that Cloverland did not have an actual cost

advantage over its competitors, or its cost advantage was not

related to its out-of-state status. The District Court would then

have had to weigh the evidence. But Cloverland’s evidence did

not compare its costs to the costs of its competitors, and thus the

Court did not commit clear error when it held that Cloverland

failed to sustain its burden of proving an out-of-state

competitive advantage vis a vis its Pennsylvania competitors

that is neutralized by the Commonwealth’s mandatory minimum

wholesale prices. In this context, we do not have facts calling

for heightened scrutiny.

C. Pike Balancing

Having concluded that Cloverland failed to prove the

applicability of heightened scrutiny, we proceed to the Pike

balancing test. Pike, 397 U.S. at 142. As noted, when a law

“effectuate[s] a legitimate local public interest, and its effects on

interstate commerce are only incidental,” the court must

determine whether “the burden imposed on such commerce is

clearly excessive in relation to the putative local benefits.” Id.

The District Court concluded that Pennsylvania’s mandatory

minimum wholesale milk prices survive this test. 
51

Cloverland argues that the “benefits” conferred by the

minimum wholesale prices are merely economic protectionism,

“the very evil the Commerce Clause seeks to prohibit.”

Appellant’s Br. at 40. The District Court disagreed, crediting

the Board’s witnesses who testified that minimum wholesale

prices make it easier for handlers to pay the over-order

premium. The over-order premium, in turn, helps small,

independent dairy farms remain profitable without joining

cooperatives, which fosters market diversity and prevents a

possible future rise in retail prices. Indeed, the District Court

was persuaded by expert testimony offered by the Board that the

abolition of minimum prices in California led to consolidation

of farms and handlers into a few dominant market participants,

resulting eventually in a sharp rise in consumer prices. The

District Court also credited testimony offered by the Board that

if small farms went out of business, “the agricultural

infrastructure built around the industry will also be negatively

affected, resulting in the loss of dealers, feed stores,

veterinarians, and other business[es] that support the dairy

industry.” Cloverland II, slip op. at 9, 26.

Although Cloverland presented testimony tending to

establish the opposite — that the abolition of minimum

wholesale prices would have no adverse effect on the dairy

industry, which would continue to thrive as it does in other

states — the District Court was entitled to base its ultimate

factual conclusion on the Board’s evidence. “As we have

recognized, the clearly erroneous standard of review does not
 24 Although we held above that evidence of other competitive

outlets is not relevant to the question of whether heightened

scrutiny applies — because, as explained, the only relevant

inquiry in making that determination is whether an out-of-state

competitive advantage is neutralized by Pennsylvania law — the

presence of other forms of competition is one of many factors

that may be taken into account under the Pike balancing test,

where the inquiry concerns the magnitude of the incidental

burden on commerce and the countervailing benefits of the law.

52

permit an appellate court to substitute its findings for those of

the trial court. It allows only an assessment of whether there is

enough evidence on the record to support those findings. That

a different set of inferences could be drawn from the record is

not determinative. . . . Where there are two permissible views of

the evidence, the factfinder’s choice between them cannot be

clearly erroneous.” Scully v. US WATS, Inc., 238 F.3d 497,

506 (3d Cir. 2001) (citations and internal quotation marks

omitted); see Anderson v. Bessemer City, 470 U.S. 564, 573-74

(1985) (same). 

The next question, then, is whether the putative benefits

of the Milk Law are outweighed by a significant incidental

burden on commerce. Cloverland offered testimony that the

minimum prices prevented it from competing in the

Pennsylvania milk market, and thus the burdens on interstate

commerce were substantial. As noted, the Board offered

testimony that several other forms of competition exist in the

Pennsylvania market,24 and therefore the minimum wholesale
 

 25 In Cloverland I, we noted that “Pennsylvania’s dairy

industry is among our nation’s most productive. Milk

production in the Commonwealth outpaces consumption by

roughly 350%. Annual production per-capita [for Pennsylvania

residents] is around 900 pounds; consumption [by Pennsylvania

53

prices do not entirely prevent new competitors from challenging

incumbent handlers and moving their milk interstate. As with

the benefits of the law, the District Court was forced to choose

between conflicting evidence, and we cannot say its choice was

clearly erroneous. Thus, we affirm the District Court’s holding

that Cloverland failed to sustain its burden of proving that the

incidental burdens of Pennsylvania’s minimum wholesale milk

prices outweigh the putative benefits.

V. Conclusion

In Cloverland I, we expressed our unease with the fact

that Pennsylvania is the only state with mandatory price controls

of the sort described in this case, while its milk industry

(dominated by in-state firms) is flourishing. In our view, the

Board’s argument that the price controls are the only thing

preventing a vulnerable milk industry from complete collapse

(and a concomitant disruption in the supply of milk to

Pennsylvania’s residents) rings hollow in light of the undisputed

evidence that Pennsylvania exports far more milk than its

residents consume,25 and other states appear to do quite well
residents] per-capita is merely 200 pounds.” 298 F.3d at 206.

54

without mandatory minimum prices. It is quite likely, as we

stated on the limited factual record in Cloverland I, that

preventing competition based on price works to the advantage

of Pennsylvania’s resident handlers by helping maintain their

dominance in the market. Indeed, there is apparently no

political incentive for in-state handlers to resist the price

controls, as evidenced by the fact that the Pennsylvania

Association of Milk Dealers has intervened in support of the

challenged law. Cf. West Lynn Creamery, 512 U.S. at 200-01

(“[O]ne would ordinarily have expected at least three groups to

lobby against the order premium, which, as a tax, raises the

price (and hence lowers demand) for milk: dairy farmers, milk

dealers, and consumers. But because the tax was coupled with

a subsidy, one of the most powerful of these groups,

Massachusetts dairy farmers, instead of exerting their influence

against the tax, were in fact its primary supporters. . . . [Thus,]

[the] State’s political processes can no longer be relied upon to

prevent legislative abuse.”). 

Cloverland failed to prove its case, however, and the

District Court cannot be faulted for relying on the evidence

presented at trial. But our opinion today does not settle the

question of the Pennsylvania Milk Marketing Law’s

constitutionality. Indeed, if another out-of-state plaintiff can

prove it has competitive advantages over actual Pennsylvania

competitors belonging to its place of origin (whether by virtue
 26 The District Court noted, for example, that “if . . . [a]

competitive price advantage arose from [out-of-state] firms’

ability to buy cheap local milk, the wholesale price floor would

fall under a heightened scrutiny analysis.” Cloverland II, slip

op. at 18 n.13.

 27 We have already held that “[i]f they are subject to

heightened scrutiny, the wholesale price floors cannot satisfy the

dormant Commerce Clause” because Pennsylvania could

“achieve its objective through alternative measures that do not

discriminate against interstate commerce” — by acting as a

market participant, for example. Cloverland I, 298 F.3d at 215.

This holding would, of course, apply in any future challenge to

the minimum wholesale prices. 

55

of its exemption from the over-order premium or otherwise),26

and these advantages translate into an actual ability to sell milk

for less than similarly situated Pennsylvania handlers that is

neutralized by the minimum wholesale prices, heightened

scrutiny would apply.27 Cloverland lost this case because its

evidence was insufficient, but the constitutionality of

Pennsylvania’s minimum wholesale prices remains unresolved.

In this context, the District Court’s judgment is affirmed.