California egg law - carton of eggsOn October 19, 2019, and December 4, 2019, we blogged about the North American Meat Institute’s challenge to California Proposition 12.  Proposition 12 prohibits the sale in California of pork or veal derived from animals confined in conditions that do not comply with the strict California standards.  It builds on the previous ban on the sale of eggs discussed in Association des Eleveurs de Canards et d’Oies du Quebec v. Harris, 870 F.3d 1140 (9th Cir. 2017) (the foie gras case), about which we blogged on May 29, 2018.

As we reported on December 4, 2019, the District Court denied NAMI’s motion for preliminary injunction.  On October 15, 2020, the Ninth Circuit affirmed in a short, per curiam opinion.

The Ninth Circuit panel held that NAMI had presented no evidence that the purpose of the statute was to discriminate against out-of-state businesses.  It also held that Proposition 12 does not have a discriminatory effect because “it treats in-state meat producers the same as out-of-state producers.”

The Ninth Circuit also rejected NAMI’s claim that the statute unconstitutionally attempted to regulate out-of-state activity.  The Supreme Court cases on that topic involved attempts to regulate extraterritorial prices.

Finally, the Court rejected the claim that Proposition 12 unfairly burdened interstate commerce.  It prohibits sales of meat products produced by a particular method, but imposes no burden based on geographic origin.

Interestingly enough, after denying the preliminary injunction, the District Court denied the state’s motion to dismiss two of the three counts alleged, and it allowed an amendment to attempt to salvage the third.  The complaint adequately alleged facts that the purpose of the Proposition was to discriminate against out-of-state producers.  The basis for that conclusion was legislative history behind the legislation that established the egg ban, which the complaint alleges also motivated Proposition 12.  If true, that would be a First Amendment violation.

The District Court also thought it possible that NAMI might prevail on a claim of discriminatory effect.  Depending on the regulations California adopted to implement the statute, they might give in-state producers substantially more lead time with which to comply with the new standards.  Also, in-state producers of veal from calves not raised for veal could gain a competitive advantage over out-of-state calves that were produced for veal.  In denying the preliminary injunction, the Court thought these issues were premature until the regulations issued.

The District Court dismissed NAMI’s Count II, which claimed that Proposition 12 unconstitutionally regulated out-of-state conduct.  The Court found that the Supreme Court had likely limited such claims to price-fixing statutes.  In the alternative, the Court held that, because Proposition 12 applied to the sale of products in California, it did not operate “wholly” extraterritorially even if it did have out-of-state effects.  The Court allowed NAMI to replead.

The amended complaint focuses primarily on the effect that Proposition 12 would have on transactions wholly unrelated to California.  It is not practical for a producer to segregate meat bound for California from meat bound for other states.  And not all meat from the same animal will be sold in California.  Thus, the practical effect of Proposition 12 is to regulate chains of commerce all of which occur outside the State of California.

The amended pleading may sufficiently allege that Proposition 12 illegally regulates transactions entirely outside California.  If the District Court and the Ninth Circuit are correct that extraterritorial application only occurs in the context of price fixing, the amendment will not salvage the complaint.

Count II alleged that Proposition 12 unfairly burdened interstate commerce.  The District Court held that the threshold issue on this kind of a claim is whether the statute discriminates against out-of-state commerce or attempts to regulate wholly extraterritorial conduct.  Because the Court found that the complaint adequately alleged discrimination, it satisfied this threshold.  The amended complaint also makes clear that, at least in part, the statute does regulate wholly out-of-state conduct.

The District Court also held that Count III had adequately alleged that the burden on interstate commerce substantially outweighed any benefits.  California has no legitimate interest in regulating farming practices in other states and there is no basis for any claim that the statute is necessary to prevent food borne illnesses.  If these allegations are true, NAMI has a case.

The District Court stayed proceedings pending a ruling by the Ninth Circuit.  As that circuit has now ruled, the case should progress normally.  We will keep you advised of developments.