Opinion ID: 795612
Heading Depth: 4
Heading Rank: 1

Heading: Legal Errors in the District Court's Analysis

Text: 51 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. 52
53 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 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. 54 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 out-of-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-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. 55 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. Stat. § 700j remain viable. There is simply no way to determine, at this stage, whether the over-order 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. 56
57 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-of-state 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, 112 S.Ct. 789, 117 L.Ed.2d 1 (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 58 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-of-state 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. 59