Federal Court Dismisses Challenge to California Egg Production Law
State of Missouri, et al. v. Harris, et al., No. 2:14-cv-00341-KJM-KJN (E.D. Cal. Oct. 2, 2014)
A California Federal District Court judge has dismissed for lack of standing a challenge brought by major egg producing states to a California law that would dictate methods of production for all eggs sold in California.
The case, which was initially brought by the Missouri Attorney General against California officials, was joined by Attorneys General from Nebraska, Oklahoma, Alabama, and Kentucky. It was also joined by the Iowa Governor. The plaintiffs asked the court to declare invalid a California law prescribing how producers wishing to sell their eggs in California must house their egg-laying hens. Specifically, the lawsuit alleges that California law AB1437, and its implementing regulations, violate the Commerce Clause of the United States Constitution and are preempted by the Federal Egg Products Inspection Act. The lawsuit was filed in early 2014, just days after the Farm Bill conferees rejected the King Amendment, which had been included in the House version of the Farm Bill. The King Amendment, designed to counteract AB1437, would have restricted laws where one state imposes its own agricultural production standards upon other states.
AB1437 arose after 63 percent of California voters passed a 2008 ballot initiative, Proposition 2, prohibiting California egg producers from confining an egg-laying hen “in a manner that prevents the animal from lying down, standing up, and fully extending his or her limbs; and turning around freely.” Proposition 2, which goes into full effect January 1, 2015, was primarily sponsored by the Humane Society of the United States, which spent more than $4 million to ensure its passage. In 2010, the California Legislature passed AB1437, criminalizing the sale of eggs for human consumption in California on or after January 1, 2015, if those eggs were the product of egg-laying hens confined in a manner not in compliance with Proposition 2 no matter where they were produced. Producers who violate the law face a misdemeanor charge punishable by a $1,000 fine and/or 180 days in jail (for each violation).
The vast majority of egg producers throughout the country, including those in California, have long employed industry-standard cage systems housing four to seven hens per cage and providing about 67 square inches of space per bird. The regulations implementing AB1437 require enclosures containing nine or more egg-laying hens to provide a minimum of 116 square inches of floor space per bird. The California Legislature’s stated purpose for AB1437 is to “protect California consumers from the deleterious, health, safety, and welfare effects of the sale and consumption of eggs derived from egg-laying hens that are exposed to significant stress and may result in increased exposure to disease pathogens including salmonella.” The lawsuit, however, alleged that the legislature’s real reason to pass the bill was to “level the playing field” for California producers faced with costly infrastructure changes required by Proposition 2. The lawsuit alleged that no scientific study has found any correlation between cage size and salmonella. The lawsuit also pointed out that the California Department of Food and Agriculture, in its Enrolled Bill Report, urged the governor to pass the law on the grounds that “without a level playing field with out-of-state producers, companies in California will no longer be able to operate in this state and will either go out of business or be forced to relocate to another state.”
Details of the Case
The lawsuit was based primarily on the “dormant commerce clause.” Article I, section 8, clause 3 of the United States Constitution (the “Commerce Clause”) grants Congress the power to “regulate commerce” among the states. Although the Constitution does not specifically limit a state’s power to regulate commerce, the United States Supreme Court has long interpreted the clause as an “implicit restraint on state authority, even in the absence of a conflicting federal statute.” To determine whether a facially neutral law violates this “dormant” aspect of the Commerce Clause, courts ask whether the law imposes burdens on interstate trade that are "clearly excessive in relation to the putative local benefits.”
On its face, AB1437 treats out-of-state producers in the same manner as in-state producers. The Commerce Clause analysis thus turns on the question of whether AB1437 imposes an excessive burden on interstate commerce in relation to the assumed local benefits. The lawsuit claimed that it does, stating that the actual local benefit is protectionism and that the necessary capital improvements to comply with the new law would cost producers from the represented states “hundreds of millions of dollars.” Compliance by Missouri producers alone is estimated to cost $120 million. If producers choose instead to leave the California market, the lawsuit alleges that many producers would be forced out of business.
The state of Iowa claimed that the cost to Iowa farmers to comply with AB1437 would be “substantial,” causing “irreparable harm to Iowa’s economy.” Iowa is nation’s leading egg producer, producing 14.4 billion eggs each year, approximately 1.3 billion of which are sold in California
On October 2, 2014, Judge Kimberly Mueller dismissed the case for lack of standing. The court pointed out that the plaintiffs were claiming injury-in-fact to all of the citizens in their respective states, and reasoned that the increased cost of egg production in the non-California states challenging the law did not affect the general citizenry of those states. Instead, the court determined that the California legislation would only impact a subset of egg producers – those that have not conformed their farming procedures to comply with the California rules. Thus, according to the court, the plaintiffs did not bring the case on behalf of “a substantial segment of their populations.” While the court accepted as true the claim that the California legislation would impose a cost of $120 million on the plaintiff-states, the court stated that the only citizens that might have to spend that amount would be the subset of egg farmers that wished to continue selling eggs in California. Apparently, the court believed that none on that cost would ultimately be passed on to consumers.
The court also dismissed as without merit the plaintiffs’ argument that any resulting increase in the cost of eggs, which may injure egg consumers, was without merit as being only speculative. Instead, the court noted that the plaintiffs’ complaint pointed to a potential decrease in egg cost as a result of the legislation. The court missed the point that any decrease in cost would be temporary as a response to an over-supply of eggs that would get corrected in the long-term by a decrease in production and higher prices for consumers. The court also completely missed the primary point of the case, that it was the California legislation which was alleged to impact agricultural practices in other states. The court attempted to support its conclusion by citing a 1999 Oklahoma federal district court opinion that held that there is no constitutional injury when a manufacturer passes on to consumers higher costs in the form of price increases. Hise v. Philip Morris, Inc. 46 F. Supp. 2d 1201 (N.D. Oklahoma 1999). But, that case involved a Sherman Act price fixing allegation which has absolutely nothing to do with the matter before the court. Instead, the real issue is whether standing can be conferred when one state sets rules that other states must follow in order to transact business with that state. Because the court dismissed the case on grounds of standing, it didn’t get to the meat of that issue.
The plaintiffs’ also alleged that they were disadvantaged compared to other states that were not impacted by the California legislation. But, the court dismissed this allegation as a basis for standing because the plaintiff states would not have to completely withdraw from egg production, but would, as the complaint asserted, only incur price fluctuations. Again, the court missed the point that those fluctuations would be due to another state’s rules impacting conduct in a “foreign” state.
The court also determined that the threat of prosecution was merely speculative and was not imminent. The court noted that the plaintiffs didn’t “articulate any concrete plan by their egg farmers to violate California’s shell egg laws.” Merely, preferring to continue to market eggs to California, the court said, was not a specific harm. A criminal law, the court noted, must have some chilling effect on personal behavior (referencing a case involving a state statute prohibiting fornication – Doe v. Duling, 782 F. Supp.2d 1202 (4th Cir. 1986)). But, again, the court didn’t reference a single case involving the standing issue where one state imposed criminal penalties on conduct in other states.
The dismissal of the case on standing grounds is troubling because of the apparent lack of economic understanding the court displayed. The cases the court referenced for its holding on the standing issue were not on point in that they didn’t concern a state’s efforts to regulate conduct in other states.
Unless, the court’s decision is reversed on appeal, egg-laying hens are only the beginning. The importance of this litigation is extensive. The question of whether states can constitutionally regulate the agricultural practices of other states—thereby creating a patchwork of disparate, costly regulations—reaches beyond every sector of the agricultural industry.
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