Hampton Feedlot v. Jeremiah W. Nixon , 249 F.3d 814 ( 2001 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 00-2506
___________
Hampton Feedlot, Inc.; GM Feedlot, *
Inc.; Bob Vandiver Cattle Co.; *
American Meat Institute; Missouri *
Cattleman’s Assoc.; Missouri *
Livestock Marketing Assoc., *
*
Appellees, *
* Appeal from the United States
v. * District Court for the
* Western District of Missouri.
Jeremiah W. Nixon, Attorney General *
of the State of Missouri; John L. *
Saunders, Director of Agriculture *
of the State of Missouri, *
*
Appellants. *
___________
Submitted: March 14, 2001
Filed: May 14, 2001
___________
Before MORRIS SHEPPARD ARNOLD and HEANEY, Circuit Judges,
and BATTEY1, District Judge.
___________
1
The Honorable Richard H. Battey, United States District Judge, for the District
of South Dakota, sitting by designation.
HEANEY, Circuit Judge.
This case involves the dormant Commerce Clause of the United States
Constitution. The appellees, Hampton Feedlot, Inc.; GM Feedlot, Inc.; Bob Vandiver
Cattle Co.; Missouri Cattleman’s Association; Missouri Livestock Marketing
Association; and the American Meat Institute, filed a declaratory judgment action
against Missouri’s Attorney General and Director of Agriculture in their official
capacities, claiming that provisions of Missouri’s Livestock Marketing Law, Mo. Ann.
Stat. § 277. 200, .203, .209, and .212 (2000), were unconstitutional. The district court
granted permanent injunctive relief to the plaintiffs before the statute took effect,
concluding that those provisions of the statute violated the dormant Commerce Clause
of the United States Constitution. The state appeals, arguing that the court should not
have substituted its judgment for that of the legislature in rejecting a statute whose
benefits exceed any perceived burden on interstate commerce. Because appellees have
failed to establish that the cited provisions of § 277 are unconstitutional, we reverse.
I. Background
Missouri farmers and feedlots prepare cattle and hogs for slaughter. Out-of-state
packers purchase the livestock in Missouri, then ship the animals out of Missouri to be
slaughtered because there are no major cattle slaughterhouses in the state. Appellees
explain in their brief that Missouri has four to six feedlots, with a capacity of 24,000
cattle; within 150 miles of the Missouri border there are thirty-six feedlots with the
capacity of over two million cattle. As a result, there is tremendous competition among
the Missouri feedlots to obtain the business of livestock producers and packers.
There are four methods of purchasing cattle and hogs in Missouri: “live on a cash
basis,” “flat in the meat,” “grade and yield,” and auction. All methods of payment are
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available to packers and producers by express terms of the statute. Auction sales are
not affected by the statute and will not be discussed here.
The first method, live on a cash basis, involves a series of negotiations between
the seller and the packer to arrive at a final price based on an estimated value of the
animal. The basis for the price is the entire weight of the live animal. Since cattle that
are sold in this manner are priced and sold when alive, the actual quality of the cattle
cannot be known with certainty when they are sold. Hampton Feedlot and Vandiver
Cattle sell the majority of their cattle on a live on a cash basis.
Flat in the meat, the second method of sale, is based on the weight of the carcass,
which is the weight of the live animal minus the head, hooves, hide, and entrails. The
price of animals sold in this manner is also estimated and negotiated between seller and
packer prior to slaughter. GM Feedlot sells the majority of its cattle on a flat in the
meat basis.
Finally, the grade and yield method of sale is based on the actual quality of the
animal, which is determined after slaughter because the tremendous genetic diversity
in cattle makes it impossible to predict the actual value of the live animal. The packer
sets a base price for the animal before slaughter. After the animal is slaughtered a
representative of the U.S. Department of Agriculture (USDA) evaluates the carcass for
its grade (quality) and its yield (the amount of desirable meat). Once the grade and
yield are determined, the packer adjusts the final price up or down.
Currently, the seller determines which pricing method will be used based on its
estimate of which method will produce the best price for the particular cattle being
sold. Hampton Feedlot and Vandiver Cattle generally sell their cattle live, rather than
on a grade and yield basis, because they receive a higher price for their cattle.
Appellees assert that the nature of the cattle industry is such that no pricing method is
universally best for all cattle, and that flexibility in method of sale is essential to their
business.
3
The Missouri legislature enacted § 277 in the summer of 1999 to eliminate price
discrimination in the purchase of Missouri livestock. The statute provides, in part:
A packer purchasing or soliciting livestock in this state for slaughter
shall not discriminate in prices paid or offered to be paid to sellers
of that livestock. The provisions of this section shall not be
construed to mean that a price or payment method must remain fixed
throughout any marketing period. The provisions of this section
shall not apply to the sale and purchase of livestock if the following
requirements are met:
1) The price differential is based on the quality of
the livestock, if the packer purchases or solicits
the livestock based upon a payment method
specifying prices paid for criteria relating to
carcass merit; actual and quantifiable costs
related to transporting and acquiring the
livestock by the packer; or an agreement for the
delivery of livestock at a specified date or time;
and
2) After making a differential payment to a seller,
the packer publishes information relating to the
differential pricing, including the payment
method for carcass merit, transportation and
acquisition pricing, and an offer to enter into an
agreement for the delivery of livestock at a
specified date or time according to the same
terms and conditions offered to other sellers.
Mo. Ann. Stat. § 277.203. Enforcement of the law is vested in the Attorney General
and in any seller of livestock who believes he has not received or been offered the
highest price paid by a packer for livestock of comparable quality. Any seller who
receives or is offered a discriminatory price is entitled to treble damages and attorneys
fees.
4
Appellees’ witnesses argued at trial that the statute, if implemented, would
jeopardize Missouri feedlots’ business and unduly burden interstate commerce.
Witnesses for the state testified that the statute is beneficial to farmers and the farming
industry as a whole, and explained that it will lead to an improvement in the quality of
Missouri livestock, potentially increasing demand and price paid for meat. The district
court held that the statute violates the dormant Commerce Clause because the law’s
burden on interstate commerce outweighs its putative local benefits. It concluded, as
a factual matter, that the packers and producers that currently buy Missouri livestock
would likely avoid doing business in Missouri if § 277 were implemented, thus harming
Missouri’s farming economy.2
II. Discussion
This court reviews the district court’s conclusions of law de novo and its
conclusions of fact under a clearly erroneous standard. Anderson v. Bessemer City,
470 U.S. 564, 573 (1985); Friends of the Boundary Waters Wilderness v. Thomas, 53
F.3d 881, 885 (8th Cir. 1995).
In order to prevent economic balkanization among the states, the dormant
Commerce Clause prohibits certain state regulation even when Congress has failed to
legislate on the subject. Oklahoma Tax Comm’n v. Jefferson Lines, Inc., 514 U.S. 175,
179-80 (1995). When a state or local regulation is alleged to violate the dormant
Commerce Clause, we use two frameworks to evaluate the claim. First, if the law in
question overtly discriminates against interstate commerce, we will strike the law
2
The court below found that “packers in Missouri will only utilize the Grade and
Yield method of purchasing” and that “some out-of-state producers will send their
livestock to feedlots in other states to sell utilizing other methods, instead of sending
the livestock to feedlots in Missouri” if the Missouri statute is implemented. Hampton
Feedlot, Inc. v. Nixon, No. 99-4206-CV-C-SOW-ECF, slip op. at 6-7 (W.D. Mo.
March 24, 2000).
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unless the state or locality can demonstrate, “under rigorous scrutiny, that it has no
other means to advance a legitimate local interest.” U & I Sanitation v. City of
Columbus, 205 F.3d 1063, 1067 (8th Cir. 2000) (quoting C & A Carbone, Inc. v. Town
of Clarkstown, 511 U.S. 383, 392 (1994). For purposes of the dormant Commerce
Clause, “discrimination” means “differential treatment of in-state and out-of-state
economic interests that benefits the former and burdens the latter.” Oregon Waste Sys.,
Inc. v. Dep’t. of Envtl. Quality, 511 U.S. 93, 99 (1994).
Second, even if a law does not overtly discriminate against interstate commerce,
the law will be stricken if the burden it imposes upon interstate commerce is “clearly
excessive in relation to the putative local benefits.” U & I Santitation, 205 F.3d at
1067 (quoting Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970)). Those
challenging the legislative action have the burden of showing that the statute’s burden
on interstate commerce exceeds its local benefit. Minnesota v. Clover Leaf Creamery
Co., 449 U.S. 456, 464 (1981).
We must first determine, therefore, whether the Missouri statute directly
regulates or discriminates against interstate commerce. The statute requires packers
to disclose any price that they offer to pay or pay to sellers of livestock for slaughter
unless the packers purchase livestock on a grade and yield basis. The statute does not
eliminate any method of sale; it simply requires price disclosure.
This price discrimination statute is similar to a measure enacted in South Dakota.
See Am. Meat Inst. v. Barnett, 64 F. Supp.2d 906 (D. S.D. 1999). In that case, the
statute was intended to apply to livestock slaughtered in South Dakota, regardless of
where the livestock was purchased, resulting in South Dakota’s regulation of cattle
sales in other states. The court found that the pricing statute did not favor in-state
business over out-of-state business, and therefore did not directly burden interstate
commerce on its face. Id. at 919. The district court ruled that the statute was
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unconstitutional, however, because the effect of certain provisions of the statute had an
“extraterritorial reach,” making the statute unconstitutional:
South Dakota [is] projecting its legislation into other states and
regulating the prices which must be paid by South Dakota packers
to producers in other states and under what conditions prices may be
paid. South Dakota packers would not be able to purchase livestock
at livestock auction markets in other states without complying with
[the South Dakota pricing statute] . . . . Livestock producers in
foreign states would be deprived of market choices when dealing
with South Dakota packers.
Id. South Dakota’s price discrimination statute violated the dormant Commerce Clause
because it necessarily required out-of-state commerce to be conducted according to
South Dakota terms.
The Missouri statute, on the other hand, only regulates the sale of livestock sold
in Missouri. If enacted, it may have the effect of increasing the price that packers pay
and producers receive for livestock fed in Missouri, but the extraterritorial reach that
the district court found in the South Dakota statute does not exist in the application of
the Missouri statute.
Furthermore, in Cotto Waxo Co. v. Williams, 46 F.3d 790 (8th Cir. 1995), this
court reviewed a Minnesota statute that proscribed the sale and distribution of a
petroleum-based sweeping compound in Minnesota. The court explained that
[t]he Act does not require Cotto Waxo to conduct its commerce
according to Minnesota’s terms. Clearly, the Act has affected Cotto
Waxo’s participation in interstate commerce. Nevertheless, the Act
itself is indifferent to sales occurring out-of-state. Cotto Waxo is
able to sell to out of state purchasers regardless of Cotto Waxo’s
relationship to Minnesota. We conclude that the Act does not suffer
from an unconstitutional extraterritorial reach.
7
Id. at 794. Similarly, in this case, packers who do not wish to conduct business under
the terms of § 277 may purchase their livestock for slaughter from other states.
Although the statute has affected the packers’ participation in commerce, the statute
itself is indifferent to sales occurring out of state. Id. The appellees concede as much:
“Since cattle travel from many states to be fed in Missouri, an out of state owner of
cattle can easily bypass Missouri and use a feedlot in a surrounding state . . . .
Similarly, a Missourian who owns cattle can easily ship that cattle to Kansas or
Nebraska, or elsewhere, to be fed to slaughter weight, bypassing the Missouri
feedlots.” (Appellees’ Br. at 4).
The appellees complain that by discouraging out-of-state packers from doing
business in Missouri, the price discrimination law has a chilling effect on interstate
commerce. There is no chilling effect on interstate commerce if packers can just as
easily purchase Nebraska or Kansas livestock for slaughter if they do not purchase
Missouri livestock. In sum, the Missouri statute does not, on its face, discriminate
between in-state and out-of-state packers or producers, nor does it attempt to regulate
out-of-state commerce as the unconstitutional South Dakota statute had. The statute
affects the flow of interstate commerce but it does not burden interstate commerce. See
Cotto Waxo, 46 F.3d at 794. For that reason we need not reach the second step of the
analysis, which balances the statute’s burden on interstate commerce against the
statute’s putative local benefits.
Even if we were to agree that § 277 does burden interstate commerce, we would
still find the statute to be constitutional. In Pike, 397 U.S. at 142, the Court explained
that
[w]here the statute regulates even-handedly to effectuate a legitimate
local public interest, and its effects on interstate commerce are only
incidental, it will be upheld unless the burden imposed on such
commerce is clearly excessive in relation to the putative local
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benefits . . . . If a legitimate local interest is found, then the question
becomes one of degree. And the extent of the burden that will be
tolerated will of course depend on the nature of the local interest
involved, and on whether it could be promoted as well with a lesser
impact on interstate activities.
The state of Missouri presents several legitimate justifications for passing the
price discrimination statute. It asserts that the statute, if enacted, would preserve the
family farm and Missouri’s rural economy by preventing packers’ discriminatory
treatment among different classes of producers.3 The state also believes that the
statute will improve the quality of Missouri livestock, to the benefit of producers.
According to a witness for the state, as packers make their purchases on the basis of
quality through the grade and yield method, producers will make better genetic
decisions, raise better quality animals, and earn a better price for their livestock,
potentially resulting in a greater demand for meat. (Hr’g Tr. Vol. II, pp. 288-91,
testimony of Kyle Vickers).
To satisfy their burden of showing that the statute’s burden on interstate
commerce outweighs the alleged local benefits, the appellees assert that § 277 will have
a devastating effect on out-of-state packers and producers. Citing testimony presented
below, they contend that the statute will discourage out-of-state livestock owners from
sending their cattle to Missouri to be fed and sold, dictate the method by which out-of-
state packers can purchase Missouri livestock, and eliminate producers’ ability to sell
their livestock at a premium. It should be noted, however, that packers and producers
potentially affected by § 277 are not parties to this lawsuit. The district court
erroneously relied on hearsay testimony regarding the packers’ and producers’
3
Under the current system, larger producers receive premiums for their livestock,
giving them an economic advantage over smaller farmers.
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economic concerns, presented by the appellees’ witnesses, in finding that § 277 is an
unconstitutional burden on interstate commerce.4
The Missouri legislature has the authority to determine the course of its farming
economy, and this measure is a constitutional means of doing so. We have no doubt
that the state considered the potential harms and benefits to all stakeholders in creating
its price discrimination law. In the event that the implemented statute adversely affects
Missouri farms or consumers, appellees are free to petition the legislature to amend or
repeal the statute. Appellees have asked us to strike Missouri’s statute because it
burdens interstate commerce, but they have failed to show how the measure has this
unconstitutional effect. Economic hardship experienced by Missouri feedlots does not
rise to the level of a dormant Commerce Clause violation.
One other issue that was discussed at trial merits brief mention here. Federal law
already prohibits price discrimination in the sale of livestock. The Packers and
Stockyards Act of 1921 provides, in part, that:
4
For example, attorney for appellees asked witness “[d]id you learn, sir, from
anyone what the packer that you sell to, IBP, would do if the price discrimination law
went into effect?” Over the state’s objection, the district court allowed the witness to
respond, “[y]es . . . the head buyer for IBP . . . told me that . . . we would be selling
cattle on a grade and yield basis only, that’s the only way they were going to buy cattle
when this [bill] went into effect.” (Hr’g Tr., Vol. I, pp. 151-52). Attorney for
appellees asked the same witness what other packers would do if the law was
implemented. Again, over the state’s objection, the district court allowed the witness
to respond, “National Beef was just going to quit buying cattle in Missouri . . . . And
Omaha wasn’t sure what they were going to do. They would certainly be grade and
yield, and they may not even buy cattle anymore.” (Hr’g Tr., Vol. I, p. 152).
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It shall be unlawful for any packer with respect to livestock, meats,
meat food products, or livestock products in unmanufactured form,
or for any live poultry dealer with respect to live poultry, to:
(a) Engage in or use any unfair, unjustly discriminatory, or deceptive
practice or device; or
(b) Make or give any undue or unreasonable preference or
advantage to any particular person or locality in any respect
whatsoever, or subject any particular person or locality to any undue
or unreasonable prejudice or disadvantage in any respect.
7 U.S.C. § 192. It is certainly within the purview of the Missouri legislature to regulate
the manner in which livestock is sold within its borders when federal law supports such
legislation.
III. Conclusion
The district court incorrectly determined that the statute violated the dormant
Commerce Clause and erred in striking the statute. For the reasons cited above, we
reverse.
A true copy.
Attest.
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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