Court: Court of Appeals for the Seventh Circuit; October 3, 2018; Federal Appellate Court
Minerva Dairy, an Ohio family-owned dairy, produces Amish-style butters and challenges Wisconsin's butter-grading law, claiming it violates the Due Process Clause, Equal Protection Clause, and the dormant Commerce Clause. The district court granted summary judgment to state defendants, determining the grading requirement serves a legitimate consumer protection interest and does not discriminate against out-of-state businesses. The law mandates that all butter sold at retail must be graded, and labels must indicate the grade. Grading can be performed by a licensed Wisconsin grader or the USDA, and applies to both in-state and out-of-state products. Wisconsin recognizes four butter grades: Grade AA, Grade A, Grade B, and Wisconsin Undergrade Butter, based on specified characteristics including flavor, aroma, body, texture, color, and salt. Graders assess butter samples according to detailed criteria, and there is an appeal process for grading disputes. To become a licensed grader, applicants must pass an exam and pay a fee, with no formal education required, although experience is common. The statute allows out-of-state applicants to seek licensure, and currently, twelve licensed graders operate in various capacities.
Plaintiffs assert that prior to their April 2017 lawsuit, the Wisconsin Department did not permit Wisconsin-licensed graders to grade butter at out-of-state facilities. To substantiate this claim, plaintiffs' counsel provided two declarations indicating that in March 2017, she contacted the Department and spoke with official Mike Pederson, who confirmed that Wisconsin-licensed graders could not grade butter outside of Wisconsin. Pederson later clarified that he misunderstood the inquiry; while the Department does not deploy its graders out of state, it does allow Wisconsin-licensed graders to live and work out of state. Peter Haase, director of the Department's Bureau of Food and Recreational Businesses, testified that there had been no out-of-state licensed butter graders before 2017 and that there was no written policy preventing out-of-state graders from obtaining Wisconsin licenses. He acknowledged a possible unwritten understanding against out-of-state licensure but noted that this was not clearly supported by statute or administrative rule. After the lawsuit, officials confirmed that the law permits both in-state and out-of-state butter makers to be licensed and grade butter anywhere, provided it is specified in their applications.
Adam Mueller, president of Minerva Dairy, which produces artisanal butter in Ohio, stated that the company has never had its butter graded by a Wisconsin grader and does not participate in the USDA's voluntary grading system. Following an anonymous complaint about Minerva's ungraded butter being sold in Wisconsin, the Department issued a warning letter in February 2017, prompting Minerva to cease sales in the state. Consequently, Minerva Dairy and Mueller filed a lawsuit against Department officials under 42 U.S.C. § 1983, claiming violations of the Due Process Clause, Equal Protection Clause, and dormant Commerce Clause. They sought an injunction against enforcing the butter-grading requirement and a declaration of unconstitutionality. The district court denied Minerva's motion and granted summary judgment in favor of the Department.
Wisconsin's butter-grading law was upheld by the court, determined not to violate the Due Process or Equal Protection Clauses, as it serves a rational relationship to the state's legitimate consumer protection interests. The statute also complied with the dormant Commerce Clause, showing no discrimination against out-of-state businesses. The court conducted a de novo review of the summary judgment, affirming its validity unless a material fact dispute exists favoring the non-moving party. Under the Fourteenth Amendment's substantive due process, economic regulations are reviewed using the rational basis test, which presumes the statute's validity unless the challenger proves otherwise. The butter-grading law was found rationally related to consumer protection, as it aims to inform consumers about the quality of butter, thereby enhancing their purchasing decisions. Courts have recognized consumer protection as a legitimate state interest, with the requirement for labeling laws serving to provide essential product information. The court noted that while not all consumers prioritize butter grading, there exists a segment, especially experienced bakers, who do, justifying the state's regulatory interest in ensuring informed purchasing.
Disclosure mandates, such as Wisconsin's butter-grading law, have long been accepted without constitutional challenges. This law promotes commerce by ensuring consistent quality standards for butter, addressing issues arising from varied local grading practices that left consumers uncertain about product quality. Historically, individual local exchanges established butter grades to facilitate fair trading, but discrepancies led to the USDA creating a universal standard in 1919 to aid distant commerce. Wisconsin's voluntary grading system was ineffective, prompting the Farm Bureau to advocate for mandatory grading in 1953, citing consumer abandonment of butter due to quality disparities. The law aims to protect the integrity of interstate products and enhance Wisconsin's reputation for quality butter.
Minerva argues that the law lacks rational connection to its objectives, claiming consumers do not comprehend butter grades, pointing to deposition testimonies from state officials who struggled to explain grading criteria. Minerva also contends that the composite grading system fails to convey specific characteristics and that subjective preferences may lead to consumer disagreement with grades. However, these arguments are dismissed since, under rational-basis review, the state is not required to provide empirical evidence to justify its rationale, which can rely on reasoned speculation.
A legislative choice, such as Wisconsin's butter-grading statute, is not subject to courtroom fact-finding and falls under rational-basis review. The statute is deemed to provide consumers with relevant product information and promote commerce, thus surviving scrutiny. Even with a requirement for evidence, the state has demonstrated that industry standards align with consumer preferences, and the grading effectively communicates these preferences. Expert testimony indicates that consumers expect butter to conform to certain characteristics, particularly AA grade, and higher-grade butter typically commands higher prices.
Research supports the efficacy of simple disclosures in influencing consumer behavior, similar to grading systems used in other contexts, like restaurant cleanliness. Therefore, the plaintiffs' substantive due process challenge is unsuccessful.
Regarding the Equal Protection Clause, states have significant flexibility in economic regulation. Plaintiffs must show that the butter-grading law treats them differently from similarly situated individuals without a rational basis linked to legitimate state interests. They argue that there is no justification for differentiating between graded and ungraded butter, and claim that the grading process is subjective and misunderstood by consumers. These arguments have been previously dismissed. Moreover, plaintiffs must provide evidence that counters any conceivable justification for the statute, which they have not done. The historical context suggests that the statute is rationally connected to the state's interests in enhancing demand and maintaining Wisconsin's reputation in the butter industry.
Plaintiffs argue that Wisconsin's law irrationally discriminates against butter by imposing mandatory grading while allowing grading for other commodities, such as cheese, honey, and maple syrup, to be voluntary. They contend that if the state's goal is consumer information and commerce promotion, the regulatory approach is inadequate. However, the Department provided evidence suggesting that butter is materially different from these commodities, citing that consumer preferences for butter are less varied than for cheese, making objective grading feasible for butter. Furthermore, plaintiffs failed to demonstrate that other commodities had a historical basis for mandatory grading similar to butter's. The Equal Protection Clause permits the state to address issues incrementally and does not require comprehensive regulation of all related commodities. Thus, the absence of mandatory grading for other commodities does not violate the Equal Protection Clause. Additionally, plaintiffs reference the Supreme Court case City of Cleburne, which invalidated a zoning ordinance requiring special permits for group homes for the mentally challenged, as it was based on unfounded majority preferences. However, the justification for the butter grading law differs since it is rooted in material differences among commodities rather than mere majority sentiment.
The permit requirement was found to be irrationally prejudiced against the mentally retarded, failing rational-basis review. The City of Cleburne case is viewed as an extraordinary rational-basis case rather than a standard reference, emphasizing that a law cannot be justified solely by irrational public sentiment. In contrast, Wisconsin's butter-grading statute is supported by legitimate state interests in consumer protection and commerce, making the plaintiffs' reliance on City of Cleburne inappropriate and their equal protection claim unsuccessful.
Regarding the Dormant Commerce Clause, it limits states' abilities to restrict interstate commerce, as inferred from the Constitution's Commerce Clause. State laws are categorized into three types for analysis: those that explicitly discriminate against interstate commerce (presumptively unconstitutional), those with neutral appearance but discriminatory effects, and those that may have mild disparate effects subject to a balancing test. The Pike balancing test evaluates the burden on interstate commerce against the state's legitimate interests. If a statute regulates fairly and its effects on commerce are incidental, it is upheld unless the burden on commerce is excessively disproportionate to local benefits. The Dormant Commerce Clause applies only to laws that discriminate against interstate commerce, whether explicitly or effectively, and normal rational-basis standards are applied to laws affecting commerce without discrimination.
Wisconsin's butter-grading statute does not discriminate against interstate commerce, as it applies equally to all butter producers, regardless of state residency. The statute mandates that all retail butter must be labeled with its grade, and it prohibits the sale of ungraded butter. Both in-state and out-of-state producers must comply with the same labeling requirements and can apply for a butter-grading license without discrimination. Challenges raised by Minerva Dairy regarding brand equity and costs associated with employing a Wisconsin-licensed butter grader are deemed irrelevant to dormant Commerce Clause analysis since they affect all artisanal butter-makers similarly, regardless of their state of residence. Minerva's assertion that out-of-state applicants for butter grader licenses face higher costs due to the need to travel for examinations has been previously dismissed in similar cases, where competitive advantages conferred by local ordinances were not considered discriminatory if they did not specifically target out-of-state firms. Overall, the statute is considered neutral and does not impose impermissible burdens on interstate commerce.
Wisconsin's butter-grading law provides a competitive advantage to applicants near testing facilities, but this does not equate to discrimination against out-of-state applicants. The district court concluded that while the law may burden long-distance commerce, it does not discriminate against out-of-state commerce, thus the dormant Commerce Clause and Pike balancing do not apply. Minerva's request for a declaration that the Department's pre-April 2017 enforcement of the law was unconstitutional was rejected by the district court, which found that Minerva waived this argument due to a lack of evidence or argument regarding the Department's prior policies. Minerva cited deposition testimony from Department official Peter Haase, who acknowledged a potential unwritten understanding restricting out-of-state graders but lacked definitive knowledge about past policies. Consequently, the court upheld that no discriminatory policy existed prior to April 2017. Additionally, Minerva argued the law is irrational as applied to its artisanal butter, claiming it harms its brand equity. However, the court noted that adverse market impacts do not render a law irrational, referencing a precedent where similar legislative changes were upheld despite negative effects on certain products' market values. The judgment of the district court was affirmed.
Butter makers in Wisconsin can meet the state's butter-grading requirement through the USDA's voluntary grading process, which Minerva argues is prohibitively expensive. Minerva acknowledges that similar costs would apply to hypothetical artisanal butter makers in Wisconsin, undermining its claim that the law disproportionately impacts out-of-state businesses as per court precedent. In its summary judgment motion, Minerva referenced declarations from its counsel regarding conversations with Mike Pederson, a food sanitarian-grader for the Department. It was claimed that Pederson indicated Wisconsin-licensed graders could not grade butter at out-of-state facilities. However, Pederson later clarified that he misunderstood the inquiry; while Wisconsin does not send its graders out of state, it permits Wisconsin-licensed graders to work out-of-state and grade butter in compliance with Wisconsin regulations. During his deposition, Pederson consistently maintained that state law barred him from visiting out-of-state butter plants. Therefore, the evidence does not support Minerva's assertion that there was an unwritten policy preventing Wisconsin-licensed graders from grading butter outside the state prior to the lawsuit.
