Monday, June 4, 2018

Are Mandatory Assessments For Generic Advertising of Ag Commodities Constitutional?

Overview

Federal law regulates the handling of agricultural commodities in commerce by establishing marketing orders with the purpose of insuring that consumers receive an adequate supply of a commodity at a stable price.  Marketing orders have long been used in the fruit, nut, vegetable and milk industries and typically require that a handler (dealer) pay a fixed minimum price to the producer of a commodity.  In addition, the marketing of a commodity must follow a system of rules. 

Separate legislation has established mandatory assessments for promotion of particular agricultural products.  An assessment (or “check-off”) is typically levied on handlers or producers of commodities with the collected funds to be used to support research promotion and information concerning the product.  Such check-off programs have been challenged on First Amendment free-speech grounds. Indeed, a recent case from California involved a mandatory assessment for the generic marketing of grapes.  A group of grape producers that believed they produced high quality grapes objected to being required to pay for the advertising of grapes in general. 

Mandatory assessments for generic advertising of ag commodities – that’s the focus of today’s post.

Caselaw

In United States v. United Foods, Inc., 533 U.S. 405 (2001), the U.S. Supreme Court held that mandatory assessments for mushroom promotion under the Mushroom Promotion, Research, and Consumer Identification Act violated the First Amendment.  The assessments were directed into generic advertising, and some handlers objected to the ideas being advertised.  In an earlier decision, Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S. 457 (1997), the Court had upheld a marketing order that was part of a greater regulatory scheme with respect to California tree fruits.  In that case, producers were compelled to contribute funds for cooperative advertising and were required to market their products according to cooperative rules.  In addition, the marketing orders had received an antitrust exemption.  None of those facts was present in the United Foods case, where the producers were entirely free to make their own marketing decisions and the assessments were not tied to a marketing order. The Supreme Court did not address, however, whether the check-offs at issue were government speech and, therefore, not subject to challenge as an unconstitutional proscription of private speech.

The government speech issue was before the court in 2005.  In Johanns v. Livestock Marketing Association, 544 U.S. 550 (2005), the Supreme Court upheld the beef check-off as government speech. Under the Beef Checkoff, a $1.00/head fee is imposed at the time cattle are sold. The money generated funds promotional campaigns and research, and state beef councils can collect the funds and retain half of the collected amount with the balance going to the Cattleman’s Beef Production and Research Board (Beef Board). But, a producer can direct that all of the producer’s assessment go to the Beef Board.

The case involved (in the majority’s view) a narrow facial attack on whether the statutory language of the legislation authorizing the beef check-off created an advertising program that could be classified as government speech. That was the only issue before the Court.  At the time, the government speech doctrine was relatively new not well-developed but, prior Supreme Court opinions not involving agricultural commodity check-offs indicated that to constitute government speech, a check-off must clear three hurdles - (1) the government must exercise sufficient control over the content of the check-off to be deemed ultimately responsible for the message; (2) the source of the check-off assessments must come from a large, non-discrete group; and (3) the central purpose of the check-off must be identified as the government’s.

Based on that analysis, it was believed that the beef check-off would clear only the first and (perhaps) the third hurdle, but that the program would fail to clear the second hurdle. Indeed, the source of funding for the beef check-off comes from a discrete identifiable source (cattle producers) rather than a large, non-discrete group. The point is that if the government can compel a targeted group of individuals to fund speech with which they do not agree, greater care is required to ensure political accountability as a democratic check against the compelled speech. That is less of a concern if the funding source is the taxpaying public which has access to the ballot box as a means of neutralizing the government program at issue and/or the politicians in support of the program. While the dissent focused on this point, arguing that the Act does not establish sufficient democratic checks, Justice Scalia, writing for the majority, opined that the compelled-subsidy analysis is unaffected by whether the funds for the promotions are raised by general taxes or through a targeted assessment. That effectively eliminates the second prong of the government speech test. The Court held that the other two requirements were satisfied in as much as the legislation vested substantial control over the administration of the check-off and the content of the ads in the Secretary.

The court did not address (indeed, the issue was not before the court) whether the advertisements, most of which are credited to “America’s Beef Producers,” give the impression that the objecting cattlemen (or their organizations) endorse the message. Because the case only involved a facial challenge to the statutory language of the Act, the majority examined only the Act’s language and concluded that neither the statute nor the accompanying Order required attribution of the ads to “America’s Beef Producers” or to anyone else. Thus, neither the statute nor the Order could be facially invalid on this theory. However, the Court noted that the record did not contain evidence from which the Court could determine whether the actual application of the check-off program resulted in the message of the ads being associated with the plaintiffs. Indeed, Justice Thomas, in his concurring opinion, noted that the government may not associate individuals or organizations involuntarily with speech by attributing an unwanted message to them whether or not those individuals fund the speech and whether or not the message is under the government’s control.

After the Supreme Court’s decision in the beef-checkoff case, the U.S. Circuit Court of Appeals for the Ninth Circuit decided a case involving the California Pistachio check-off. Paramount Land Company, LP v. California Pistachio Commission, 491 F.3d 1003 (9th Cir. 2007).  The court determined that the First Amendment was not implicated because, consistent with Johanns, the Secretary of the California Department of Food and Agriculture retained sufficient authority to control both the activities and the message under the Pistachio Act.  The court reasoned that the fact that the Secretary had not actually played an active role in controlling pistachio advertising could not be equated with the Secretary abdicating his regulatory role.

In another California case, a court held that milk producer assessments used for generic advertising to stimulate milk sales were constitutional under the Johanns rationale.  Gallo Cattle Co. v. A.G. Kawamura, 159 Cal. App. 4th 948, 72 Cal. Rptr. 3d 1 (2008).

In more recent litigation, Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. Vilsack, No. CV-16-41-GF-BMM-JTL, D. Mont. Dec. 12, 2016), the plaintiff (cattle producers) claimed that the federal law requiring funding of the Montana Beef Council (MBC) via funds from the federal beef checkoff was constitutionally defective. The court, as part of the findings and recommendations of a U.S. Magistrate Judge, determined that the plaintiff had standing and had stated a claim upon which relief could be granted.  The cattle producers claimed that the use of the collected funds violated their First Amendment rights by forcing them to pay for “speech” with which they did not agree. The cattle producers objected to being forced to fund a generic message that “beef is beef” regardless of where the cattle from which the beef was derived or born.  That message, the cattle producers claimed, was contrary to their interests of capitalizing on marketing their superior beef products produced from cattle produced in the United States.

The defendant (USDA) motioned to dismiss, but the Magistrate Judge denied the motion. The court determined that the plaintiffs had standing, and that the U.S. Supreme Court had held in prior cases that forcing an individual to fund a private message that they did not agree with violated the First Amendment. Any legal effect of an existing “opt-out” provision was not evaluated. The court also rejected the defendant’s claim that the case should be delayed until federal regulations with respect to the opt-out provision were finalized because the defendant was needlessly dragging its heels on developing those rules and had no timeline for finalization. The court entered a preliminary injunction barring the MBC from spending funds received from the checkoff.  Upon further review, the federal trial court upheld the preliminary injunction.  Ranchers- Cattlemen Action Legal Fund, United Stockgrowers of America v. Perdue, No. CV 16-41-GF-BMM, 2017 U.S. Dist. LEXIS 95861 (D. Mont. Jun. 21, 2017).  

On further review, the U.S. Court of Appeals for the Ninth Circuit affirmed.  Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America v. Perdue, 718 Fed. Appx. 541 (9th Cir. 2018).  The Ninth Circuit determined that the trial court had properly evaluated the beef-checkoff under the standards set forth in Johanns and Paramount.  

Recent Case

In Delano Farms Company v. California Table Grape Commission, No. S226538, 2018 Cal. LEXIS 3634 (Cal. Sup. Ct. May 24, 2018), the plaintiffs were several California grape growers.  They claimed that the defendant violated the plaintiffs’ First Amendment free speech rights by collecting mandated fees to pay for a range of services including advertising and marketing. Specifically, the plaintiffs claimed the collection of assessments by the defendant under the California Ketchum Act subsidized promotional speech on behalf of California table grapes as a generic category that violated their rights to free speech, free association, due process, liberty and privacy under the California Constitution (Article I, Section 2).  They took this position because the claimed to have developed specialty grapes that they wanted to market in their own manner without also being forced to pay for generic grape advertising that sponsored a viewpoint that they disagreed with.

The trial court ruled that the defendant was a governmental entity, and therefore its speech was government speech that could be funded by assessments collected from the plaintiffs under a constitutional analysis that is significantly deferential and is not subject to heightened scrutiny. As such, the trial court determined that the speech did not implicate Article 1, Section 2.

On appeal, the California Supreme Court affirmed. The Court noted that the relevant circumstances established sufficient government responsibility for and control over the messaging at issue such that the advertising constituted government speech that the plaintiffs could be required to subsidize without any implication of their constitutional rights under Article 1, Section 2. Specifically, the Court noted that the California legislature developed and endorsed the central message that the defendant promulgated with respect to California fresh grapes generically. The articulation and broadcasting of that message was entrusted to market participants acting through the defendant. The Court viewed this as meaningful oversight by the public and other governmental actors and included oversight mechanisms serving to ensure that the defendant’s messaging remained within the statutory parameters. The Court also stated that there is no right not to fund government speech, and also determined that the Ketchum Act did not bar the plaintiffs from speaking. 

Conclusion

Mandatory assessments for generic advertising for ag commodities is understandably frustrating for some producers.  However, the U.S. Supreme Court has provided a measuring stick for evaluating the constitutionality of such programs.  If the administration of the particular check-off  is substantially controlled by the government, and the government controls the contents of the ads at issue, the assessments are likely to be upheld as government speech. 

http://lawprofessors.typepad.com/agriculturallaw/2018/06/are-mandatory-assessments-for-generic-advertising-of-ag-commodities-constitutional.html

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