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CLOVERLAND-GREEN SPRING DAIRIES, INC., v. MCGLINCHEY

February 2, 2001

CLOVERLAND-GREEN SPRING DAIRIES, INC., PLAINTIFF AND THOMAS E. MCGLINCHEY, ET AL., PLAINTIFFS/INTERVENORS
v.
PENNSYLVANIA MILK MARKETING BOARD, BEVERLY R. MINOR, INDIVIDUALLY AND AS CHAIRPERSON OF THE BOARD, LUKE F. BRUBAKER AND J. ROBERT DERRY, INDIVIDUALLY AND AS MEMBERS OF THE BOARD, DEFENDANTS



The opinion of the court was delivered by: Sylvia H. Rambo, United States District Judge.

  M E M O R A N D U M

Before the court are three separate motions for summary judgment submitted by Plaintiff, Intervenor Plaintiffs, and Defendants.*fn1 The parties have briefed the issues, the court has conducted oral argument, and the motions are ripe for disposition.

I. Background

The instant action seeks a declaratory judgment that certain provisions of Pennsylvania's Milk Marketing Law, 31 Pa. Cons. Stat. Ann. §§ 700j-101, et seq. ("PMML"), and certain provisions of Official General Orders A-890A and A-900, (i) violate the Commerce Clause of the United States Constitution, and (ii) deprive Plaintiff of rights guaranteed pursuant to 42 U.S.C. § 1983. Additionally Plaintiff seeks to enjoin Defendants from enforcing the minimum milk prices fixed pursuant to Orders A-890A and A-900.
A. Factual Background
Unless otherwise indicated, the following facts are undisputed by the parties. Plaintiff, Cloverland-Green Spring Dairies, Inc. ("Cloverland"), is a Maryland corporation that engages in the business of processing and selling milk to various wholesale accounts, primarily stores, within and around Baltimore, Maryland. Plaintiff-Intervenors are Pennsylvania milk consumers residing in Pennsylvania Milk Marketing Area #4 ("Area #4"), Sue A. Spigler and Gertrude Giorgini, and in Pennsylvania Milk Marketing Area #1 ("Area #1"), Thomas E. McGlinchey (collectively referred to as the "Milk Consumers," or together with Cloverland as "Plaintiffs"). Defendant Pennsylvania Milk Marketing Board (the "Board") is the Pennsylvania state administrative agency charged by state law with the task of promulgating orders designating milk marketing areas within the Commonwealth and fixing minimum wholesale and retail prices to be charged within such milk marketing areas. Defendant Beverly Minor is the present Chairperson, and Defendants Luke Brubaker and J. Robert Derry are the two other members of the Board. Acting in their official capacities, Defendants promulgated Official General Orders A-890A and A-900, including the minimum wholesale milk prices established thereby.
Southeastern and South Central Pennsylvania comprise part of a much larger interstate milk market which includes, in addition to the five Southeastern and ten South Central Counties of Pennsylvania, Southern New Jersey, Delaware, Maryland, Washington, D.C., and portions of Northern Virginia. The milk industry in that area is characterized by substantial interstate movement of fluid milk, both from the dairy farm to the processing/bottling plant, and from the plant to the retailer and ultimate consumer. Throughout most of the Northeast, including Southeastern and South Central Pennsylvania, the minimum prices that fluid milk processors ("handlers") must pay to dairy farmers ("producers") or associations of dairy farmers ("cooperatives"), are established by "regional" Federal Milk Marketing Orders, promulgated by the United States Secretary of Agriculture ("Secretary"), pursuant to the Agriculture Marketing Agreement Act of 1937 ("AMAA"), 7 U.S.C. § 601, et seq., as amended.

The Secretary has issued and enforced the "Middle Atlantic Marketing Order, Order #4," which regulates the minimum prices that processing plants pay to producers for raw milk which is processed and packaged for sale to consumers. Among other things, the Secretary has promulgated and enforces provisions that: (a) establish the minimum prices that fluid milk handlers must pay producers for milk which is used for bottling as packaged fluid milk ("Class I" milk) or manufactured into soft or hard dairy products, such as cottage cheese, cream cheese, hard cheese, butter, or powdered milk ("Class II" or "Class III" milk); and (b) establish a mechanism for the "pooling" of all revenue received for raw milk among all producers regulated by the Order. In determining said minimum producer prices, the Secretary is required by law to fix, among other things, such prices as he finds will "ensure a sufficient quantity of pure and wholesome milk to meet current needs and further assure a level of farm income adequate to maintain productive capacity sufficient to meet anticipated future needs, and be in the public interest." 7 U.S.C. § 608c(18).

There has been more than an adequate supply of milk available to consumers throughout Pennsylvania and all of the Middle Atlantic region. Currently, and for the past several years, approximately half, or even less, of producer milk regulated by Federal Order #4 has been used for fluid purposes. The remainder is used to manufacture Class II and Class III products, which are marketed in competition with the Class II and III milk products from elsewhere in the United States. Much more milk is produced in Pennsylvania than is consumed in Pennsylvania. According to statistics published by the Agriculture Marketing Service of the United States Department of Agriculture, in 1997 and 1998 Pennsylvania dairy farmers in the aggregate produced and marketed approximately 900 pounds of milk per year for each inhabitant of the Commonwealth, whereas per capita fluid milk consumption nationwide was about 200 pounds per year.

Federal Milk Marketing Orders do not in any way establish or fix "resale" prices, that is, prices paid for the finished product, whether sold by the milk processor to nonprocessing milk dealers ("distributors"), or to other "wholesale" customers (e.g., stores, schools, hospitals, and other institutions); or the prices received by processors, distributors, or stores from the ultimate consumers. Throughout virtually all of the United States, those "resale" or wholesale and retail milk prices are determined by competitive market forces, not by state regulation. (Pl.'s Mot. for Sum. Jud. App. A, Webster Aff. ("Webster") ¶ 4; Pl.'s Mot. for Sum. Jud. App. B, Harris Aff. ("Harris") ¶ 9.)

The Commonwealth of Pennsylvania, through the Defendant Board, establishes and enforces "minimum" wholesale and retail milk prices which stores, schools, and consumers must pay for the milk they purchase. The state statute pursuant to which the Board sets said minimum prices is the PMML, Pennsylvania's Milk Marketing Law, 31 Pa. Cons. Stat. Ann. §§ 700j-101, et seq. The PMML was first enacted in 1933 during the Great Depression, several years before an effective federal milk marketing program was in place. The PMML mandates the state agency, the Board, to establish "milk marketing areas" within the Commonwealth, and to fix minimum "wholesale and retail" milk prices applicable to every level of transaction.
Pennsylvania is the only state that by law requires that a state agency set mandatory minimum wholesale and retail milk prices. Today, the only other states that impose minimum resale prices are Maine and North Dakota; however unlike Pennsylvania, whether to set mandatory prices in those states is at the discretion of the states' milk control agencies. *fn2 (Webster ¶ 5; Harris ¶¶ 9, 12, 13.) Throughout the rest of the country, grocery stores, and all other wholesale customers acquire their milk pursuant to competitive forces, primarily price competition, unhampered by state-imposed "minimum" prices.
The operative provisions of the PMML with respect to the criteria to be employed by the Board in fixing minimum wholesale and retail prices are contained in PMML § 801. Among other things, that section requires that after a hearing, the Board shall "ascertain and maintain such prices . . . for milk in the respective milk marketing areas as will . . . best protect the milk industry of the Commonwealth and insure a sufficient quantity of pure and wholesome milk to the inhabitants of the Commonwealth . . ." 31 Pa. Cons. Stat. Ann. § 700j-801. Plaintiffs assert that Pennsylvania inhabitants would have a "sufficient quantity of pure and wholesome milk" without the fixing of minimum resale prices by the Board. (Harris ¶¶ 6-12, 23, 24, 26; Webster ¶ 4.)
Pursuant to the mandate of § 801 of the PMML, the Board has established six milk marketing areas within the Commonwealth. Milk Marketing Area #1 ("Area #1"), the "Southeastern" consists of the five Southeastern Counties of Pennsylvania (Philadelphia, Delaware, Bucks, Montgomery, and Chester). Milk Marketing Area #4 (Area #4), the "South Central" is comprised of ten counties in South Central Pennsylvania (Fulton, Franklin, Adams, York, Lancaster, Juniata, Perry, Cumberland, Dauphin, and Lebanon), five of which abut the State of Maryland. The minimum price orders promulgated by the Board in effect for those two areas when the complaint in the captioned action was filed were Order A-890A, effective November 1, 1998 (Area #1), and Order A-898, effective June 1, 1998 (Area #4). Effective May 1, 1999 Order A-898 was superseded by Order A-900, which thereafter governed minimum milk prices in Area #4.
In fixing milk prices, § 801 mandates that the Board shall include: the amount necessary to yield a reasonable return to the producer, which return shall not be less than the cost of production and a reasonable profit to the producer . . . and a reasonable return on aggregate milk sales by milk dealers or handlers and stores selling milk. A reasonable return shall mean not less than a two and one-half percent
(2 = %) nor more than a three and one-half percent (3 = %) rate of return based on net sales of price-controlled products determined in accordance with generally accepted accounting principles. . . . In ascertaining such returns, the board shall utilize available information concerning producers' cost of production and a cross-section representative of producers, dealers and stores in the area and shall consider unit costs of various types of products and of various sizes of containers.

31 Pa. Cons. Stat. Ann. § 700j-801.

Plaintiffs contend that the minimum wholesale milk prices mandated by the Board's Orders A-898, A-890A, and A-900 are designedly in excess of the reasonably achievable average variable costs associated with the operations of more efficient milk dealers and distributors. (Webster ¶ 6; Pl.'s Mot. for Sum. Jud. App. C, Havemeyer Aff. ("Havemeyer") ¶¶ 8-11.) Using Area #4 as an example, Plaintiffs argue that the minimum wholesale "margin" (difference between minimum wholesale price and raw milk cost) for milk sold in gallon containers applicable to most supermarket and similar higher-volume deliveries fixed by Orders A-898 and A-900 is about 57 cents per gallon, whereas the reasonably achievable average variable costs incurred in performing those same functions is about 26 cents per gallon. (Havemeyer ¶¶ 8, 9.) Defendants, however, assert that the Board considers fully absorbed total costs rather than variable costs when determining minimum wholesale milk prices. (Defs.' Ans. to Pl.'s Stat. ¶¶ 26-27.) Plaintiff contends that utilizing total costs, which are higher than variable costs, produces excessive profits for handlers and distributors.
Plaintiffs assert that several factors account for these "margins" in Area #4, including: that five of the six dealers in the cross-section were dealers with plants within Area #4, while there was only one out-of-state dealer; failure to reflect the lower costs experienced by larger or more cost efficient fluid milk dealers capable of selling milk to stores in the area; determining unit costs for each such dealer by the "total average cost" method, i.e., by including all costs incurred by said dealers, including all overhead-type expenses; making several "adjustments" or add- ons to the total average costs derived and thereby inflating the minimum wholesale prices; and allowing a 3.3% profit, which alone exceeds the profits generally realized by fluid milk processors and distributors in the rest of the country. While Defendants do not dispute these factual allegations, they contend that the prices determined by the Board are mandated by the law. Defendants do contest Plaintiffs' other explanations for the margins, such as: that the selection of the identity of milk dealers to be included in the "cross-section" were decided before the hearing as a result of a meeting/communications between Board staff and the milk dealers' forensic account; and the manner in which the Board weighs the data of the individual milk dealers. (Pl.'s Stat. of Undis. Facts ¶ 28-29; Defs.' Ans. to Pl.'s Stat. 6 28-29.)

Several milk dealers located within Areas #1 and #4 have been offering to sell and selling milk to stores in Maryland at prices below the minimum resale prices fixed by the Board's Orders A-890A and A-900, often as much as 15 to 25 cents per gallon less than the minimum prices that would be applicable were the sales made in Pennsylvania.*fn3 (Webster ¶ 7.)

Cloverland's efforts to solicit wholesale milk customers in Pennsylvania have been uniformly unsuccessful. Plaintiffs allege this is because: (a) no stores solicited by Cloverland were purchasing milk at prices which were above the Board's minimums; (b) no wholesale customer was willing to purchase milk from Cloverland so long as it could obtain milk at the same price from its local suppliers;*fn4 and (c) Cloverland is prohibited by PMML § 807 from selling, or offering to sell, milk for less than the minimum prices. (Webster ¶¶ 8, 9; Harris 6 25.) Defendants dispute that these are the reasons that Cloverland is unable to sell milk in Pennsylvania. However, David DeSantis, Chief of Enforcement and Accounting for the Board, admitted that most of the wholesale milk sold in Areas #1 and #4 is sold at the mandated minimum price. (Pl.'s Br. in Opp. to Mot. to Strike, Ex. A, DeSantis dep. ("DeSantis") at 60.)

B. Procedural Background

Cloverland filed the complaint in this action on March 29, 1999, at which time the case was initially assigned to another judge. Motions to intervene were filed by the Pennsylvania Association of Milk Dealers ("PAMD") as a proposed defendant on April 7, 1999, and by the Milk Consumers, as proposed plaintiffs on May 13, 1999. The PAMD's motion has not yet been decided. The Milk Consumers' motion to intervene was granted on June 7, 1999, and their complaint was filed the same date. On June 11, 1999, Cloverland filed a motion for summary judgment which was fully briefed, including a brief in opposition submitted by the PAMD as amicus curiae. On August 26, 1999, the Milk Consumers filed a motion for summary judgment, and on October 15, 1999, Defendants filed a motion for summary judgment. The case was reassigned to this court on June 1, 2000. Oral argument concerning the cross-motions for summary judgment was conducted before this court on December 19, 2000, participating were Cloverland, the Milk Consumers, Defendants, and the PAMD.
The court will first discuss Defendants' motion to strike certain declarations Plaintiffs filed in support of their motions for summary judgment. The court will next consider the PAMD's motion to intervene. Finally the court will ...

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