Opinion ID: 795612
Heading Depth: 4
Heading Rank: 2

Heading: Factual Support for District Court's Decision

Text: 60 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. 61 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 than the wholesale minimum, but (as explained above) this is not in itself sufficient to trigger heightened scrutiny. 62 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 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 agreements 20 and taking advantage of allowable 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. 63 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 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. 64 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 evidence of comparative costs, the District Court did not clearly err in relying on the Board's sample. 65 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. 66 Although Cloverland's argument may have some merit, 22 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 committed clear error by relying on the only comparative evidence before it. 67