Wisconsin is one of the few states that ban the sale of ungraded butter and the only one that enforces the ban. The state allows for four categories of grade: AA, A, B, and Ungraded. To grade butter, an examiner must be licensed by the state or the federal government. The grade depends on each examiner’s subjective application of no less than 32 characteristics involving flavor, color, body and salt. These characteristics are further qualified by intensity – slight, definite or pronounced.
Minerva Dairy is an Ohio-based artisanal maker of Amish-style butter. Minerva alleges that its butter is quite popular and it has sold butter throughout the United States. In 2017, the state informed Minerva that it could not sell ungraded butter in Wisconsin. The characteristics of Minerva’s butter are quite different from those the state envisioned when it enacted the statute and regulations. Thus, it cannot qualify for the top grading of AA. Rather than damage its brand equity, Minerva has chosen not to sell butter in Wisconsin.
In 2017, Minerva sued the state to enjoin the grading scheme. The District Court granted summary judgment for the state and the Seventh Circuit affirmed. Minerva has now filed a petition for certiorari in the Supreme Court of the United States.
The principal basis for the petition is the dormant commerce clause. Courts analyze dormant commerce clause claims under a three-part test: disparate treatment, disparate impact and balancing. A disparate treatment regulation facially discriminates against out-of-state sellers and is almost always unconstitutional. If Wisconsin chose to ban the sale of all out-of-state butter, it would act illegally. A disparate impact regulation is one that is facially neutral but in fact favors in-state sellers. If Wisconsin chose to limit trailer length to 55 feet whereas the states surrounding it allowed 65 feet, the effect of the statute would be to favor in-state trailers because they could legally operate in other states; whereas out-of-state trailer companies could not legally operate 65-foot trailers in Wisconsin.
The third test, as recognized in Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), asks whether the local benefits of a challenged regulation outweigh its adverse effect on interstate commerce. In Pike, a state statute required all cantaloupes grown in Arizona to be packaged in a certain way. Bruce Church instead wanted to ship cantaloupes in bulk to California, where it already had a packing station. The Court held that the burden on Bruce Church substantially outweighed any benefit that Arizona might derive from enforcing its packaging requirement.
Minerva’s petition asserts a Pike claim. Unfortunately for Minerva, the Seventh Circuit has adopted an extremely narrow view of Pike: that court engages in the requisite balancing only if the plaintiff can establish that challenged regulation hits out-of-state sellers more harshly than in-state sellers. As Minerva’s petition points out, this holding largely eviscerates Pike, because a regulation with such a discriminatory effect likely is unconstitutional without regard to Pike’s balancing test. To a greater or lesser degree, the Second, Third and Fifth Circuits agree with the Seventh.
The other circuits do not require that threshold level of proof, although they are by no means consistent in applying Pike. The Sixth and Tenth Circuits closely adhere to Pike’s balancing test. The Eighth Circuit applies the balancing test but with substantial deference to the states. The Ninth Circuit largely ignores Pike.
Minerva had the misfortune to sue in a state in the Seventh Circuit. The Wisconsin grading scheme has precisely the same adverse effect on in-state artisanal butter manufacturers as it does on Minerva. Because Minerva could not demonstrate the discriminatory purpose or effect that the Seventh Circuit requires, its cause was doomed.
Minerva’s second point is that the grading system is so arbitrary and capricious that it violates due process. That is an extremely difficult standard to satisfy because the state does not have to rely on evidence, just hypothetical possibilities about why the statute might serve some public purpose. The Seventh Circuit found two such purposes: informing consumers and protecting the quality of butter.
Minerva’s petition argues that the grading system serves neither purpose, because it provides no objectively verifiable information, just a subjective view of the overall characteristics that the state finds pleasing. Consumers might disagree. Indeed, the petition alleges that Wisconsin consumers often cross state lines to buy Irish butter that is not sold in Wisconsin because it tastes different from the subjective standards the state has imposed.
On two occasions, the petition suggests that the state adopted its butter grading law for the purpose of shielding large, in-state manufacturers of butter from out-of-state competition. If this be true, one wonders why Minerva did not present evidence to that effect in the summary judgment proceedings. Direct evidence of discrimination against out-of-state sellers would satisfy even the Seventh Circuit’s requirements for invoking Pike.
Since 1937, federal courts have paid lip service to the proposition that the right to engage in commerce is one of the inalienable rights referenced in the Declaration of Independence and reserved to the people in the Ninth Amendment. While the Declaration referred specifically only to life, liberty and the pursuit of happiness, there is little doubt that the Founding Fathers would have included economic rights. One of the specifications of King George’s tyranny was cutting off trade with the rest of the world. In practice, however, with few exceptions, judicial review of economic regulation is so deferential as to be virtually nonexistent. I believe that the Founding Fathers would be appalled by a statute that prohibited braiding of hair without a 2,000 hour course in cosmetology.
Minerva’s petition illustrates the damage that overzealous regulation can wreak upon a business. The state of Wisconsin has no more business telling people how butter should taste than the trademark office has in policing trade names that it thinks are offensive. Yet Wisconsin’s grading statute deprives Wisconsin residents of the opportunity to purchase products that they desire, at least within the state.
Moreover, it is all but certain that the impetus behind the grading statute came from Wisconsin butter manufacturers intent on limiting competition. Most restrictions imposed in the name of consumer protection are really disguised efforts to protect the regulated entities from competition.
These days, it is fashionable to deride Lochner v. New York, 198 U.S. 45 (1905), as a foolish effort to prevent states from imposing mandatory hour restrictions for the benefit of workers. In fact, the proponents of that legislation were large, unionized bakers and its targets were the mom-and-pop bakers, usually immigrant, often Jewish, who were perfectly willing to work 16-hour days to get ahead of the competition. The large bakers did not like that competition.