The “Almost Top 10” of 2021 (Part 6)

Overview

I continue my journey through the big developments of 2021 that didn’t make my “Top 10” list.  In Part 6 today, I look at another development that will likely continue to be in the news with implications for farmers and ranchers in 2022 – California’s Proposition 12.

Another 2021 ag law development that wasn’t quite top big enough to make my 10 biggest developments from 2021 – it’s the topic of today’s post.

California’s Proposition 12 Upheld as Constitutional

National Pork Producers Council, et al. v. Ross, 6 F.4th 1021 (9th Cir. 2021), pet. for cert. filed No. 21-468 (Sept. 27, 2021)

Background

In a huge blow to pork producers (and consumers of pork products) nationwide, the U.S. Court of Appeals for the Ninth Circuit has upheld California’s Proposition 12.  Proposition 12 requires any pork sold in California to be raised in accordance with California’s housing requirements for hogs.  This means that any U.S. hog producer, starting January 1, 2022, had to upgrade existing facilities to satisfy California’s requirements if desiring to market pork products in California. 

Note:  Most of the provisions of Proposition 12 went into effect in December of 2018.  However, a requirement that breeding pigs be confined in a structure with at least 24 square feet of space went into effect on January 1, 2022. 

In the fall of 2018, California voters passed Proposition 12.  Proposition 12 bans the sale of whole pork meat (no matter where produced) from animals confined in a manner inconsistent with California’s regulatory standards.  Proposition 12 established minimum requirements on farmers to provide more space for egg-laying hens, breeding pigs, and calves raised for veal. Specifically, the law requires that covered animals be housed in confinement systems that comply with specific standards for freedom of movement, cage-free design and minimum floor space. The law identifies covered animals to include veal calves, breeding pigs and egg-laying hens.

Proposition 12 prohibit a farm owner or operator from knowingly causing any covered animal to be confined in a “cruel manner,” and prohibits a business owner or operator from knowingly engaging in the sale within the state of shell eggs, liquid eggs, whole pork meat or whole veal meat, as defined, from animals housed in a “cruel manner.”  That phrase, “cruel manner” is defined as confining the animal in a manner that prevents the animal from lying down, standing up, fully extending its limbs (without touching the side of the enclosure) or turning around freely (without impediment and without touching a side of the enclosure).  In addition, the law added detailed confinement space standards for farms subject to the law, such as confining a breeding pig with less than 24 square feet of usable floorspace per pig. 

Note:   The alleged reason for the law was to protect the health and safety of California consumers and decrease the risk of foodborne illness and the negative fiscal impact on California. 

The restrictions of Proposition 12 do not apply during medical research; examination, testing, individual treatment or operation for veterinary purposes; transportation; rodeo exhibitions, state or county fair exhibitions, 4-H programs and similar exhibitions; slaughter; to a breeding pig for five days before the expected farrowing date and any day the breeding pig is nursing piglets; and during temporary periods of animal husbandry. 

Note:  The California Department of Food and Agriculture and the State Department of Public Health were to develop rules and regulations to implement Proposition 12 by September 1, 2019.  That deadline was missed.  Proposed rules were released in December of 2021. 

In late 2019, several national farm organizations challenged Proposition 12 and sought a declaratory judgment that the law was unconstitutional under the dormant Commerce Clause.  The plaintiffs also sought a permanent injunction preventing Proposition 12 from taking effect.  The plaintiffs claimed that Proposition 12 impermissibly regulated out-of-state conduct by compelling non-California producers to change their operations to meet California’s standards.  The plaintiffs also alleged that Proposition 12 imposed excessive burdens on interstate commerce without advancing any legitimate local interest by significantly increasing operation costs without any connection to human health or foodborne illness.  The trial court dismissed the plaintiffs’ complaint. 

On appeal, the plaintiffs focused their argument on the allegation that Proposition 12 has an impermissible extraterritorial effect of regulating prices in other states and, as such, is per se unconstitutional.  This was a tactical mistake by the plaintiffs’ attorneys.  The appellate court noted that existing Supreme Court precedent on the extraterritorial principle applied only to state laws that are “price control or price affirmation statutes.”  Thus, the extraterritorial principle does not apply to a state law that does not dictate the price of a product and does not tie the price of its in-state products to out-of-state prices.  Because Proposition 12 was neither a price control nor a price-affirmation statute (it didn’t dictate the price of pork products or tie the price of pork products sold in California to out-of-state prices) the law didn’t have the extraterritorial effect of regulating prices in other states. 

The appellate court likewise rejected the plaintiffs’ claim that Proposition 12 has an impermissible indirect “practical effect” on how pork is produced and sold outside California.  Id.  Upstream effects (e.g., higher production costs in other states) the appellate court concluded, do not violate the dormant Commerce Clause.   The appellate court pointed out that a state law is not impermissibly extraterritorial unless it regulates conduct that is wholly out of state.  Id.  Because Proposition 12 applied to California and non-California pork production the higher cost of production was not an impermissible effect on interstate commerce.

The appellate court also concluded that inconsistent regulation from state-to-state was permissible because the plaintiffs had failed to show a compelling need for national uniformity in regulation at the state level.  Id.  In addition, the appellate court noted that the plaintiffs had not alleged that Proposition 12 had a discriminatory effect on interstate commerce. 

Simply put, the appellate court rejected the plaintiffs’ challenge to Proposition 12 because a law that increases compliance costs (projected at a 9.2 percent increase in production costs that would e passed on to consumers) is not a substantial burden on interstate commerce in violation of the dormant Commerce Clause. 

Note:  There is another case proceeding in the federal district court for the Eastern District of California.  Iowa Pork Producers Association v. Bonta, No. 1:21-cv-01663-NONE-EPG, 2021 U.S. Dist. LEXIS 246123 (E.D. Cal. Dec. 27, 2021).  The plaintiff sought to prevent enforcement of Proposition 12 as of January 1, 2022, by means of temporary injunctive relief but failed.  The plaintiff claimed that the law was unconstitutionally vague because implementing regulations had not yet been developed.  The case was filed on November 9, 2021, more than three years after Proposition 12 was approved by voters, moved to federal court on November 16 with a motion for a hearing to be set on December 17.  The court also noted that the plaintiff had filed an identical suit in Iowa state court in May of 2021 which was removed to federal court and dismissed for lack of personal jurisdiction.  Then, for unexplained reasons, the plaintiff waited 10 weeks to file this identical case in a California county court which was removed to federal court six weeks before Proposition 12 would take effect.  The court expressed its irritation with the conduct of plaintiff’s attorneys and changed the motion to one for a restraining order, noting that the “urgency” of the matter was the fault of the plaintiff’s attorneys.  The court noted that the matter had been one of “urgency” for the plaintiff for more than seven months at the time of filing of the case.  The court ruled that the motion for preliminary injunction would remain pending until a hearing on January 27, 2022. 

On to the Supreme Court?

During the summer of 2021, the U.S. Supreme Court declined to review a decision of the Ninth Circuit involving Proposition 12.  North American Meat Institute v. Bonta, 141 S. Ct. 2854 (2021).  Will the Court now take up the decision of the Ninth Circuit this time around?  It remains to be seen.  Unfortunately, the Supreme Court has been careless in applying the anti-discrimination test as part of the Dormant Commerce Clause, and in many of the cases, neither of the two requirements for finding a violation (interstate competition or harm to the national economy) is ever mentioned.  See, e.g., Hughes v. Oklahoma, 441 U.S. 322 (1979). The reason interstate competition goes unstated is obvious – in most cases the in-state and out-of-state actors compete in the same market.  But, the reason that the second requirement, harm to the national economy, goes unstated is because the Court simply assumes the issue away.

Conclusion

The dormant Commerce Clause is something to watch for in court opinions involving agriculture.  As states enact legislation designed to protect the economic interests of agricultural producers in their states, those opposed to such laws could challenge them on dormant Commerce Clause grounds.  But, such cases must be plead carefully to show an impermissible regulation of extraterritorial conduct. 

In the present case, practically doubling the cost of creating hog barns to comply with the California standards was not enough, nor was the interconnected nature of the pork industry.  California gets to call the shots concerning the manner of U.S. pork production for pork marketed in the state.  This, in spite of overarching federal food, health and safety regulations that address California’s purported rationale for Proposition 12.

The dormant commerce clause is one of those legal theories “floating” around out there that can have a real impact in the lives of farmers, ranchers and consumers, and how economic activity is conducted.   Stay tuned for more developments on this issue in 2022.