The New York State Dairy Foods Case

            Various processors from outside the Compact region submitted petitions for exemption during late 1997.[1]  The outside processors made three principal arguments against the Commission's application of its regulations to them.  First, they claimed that Congress had not authorized the Commission to regulate them because they operated outside the Compact region.[2]  Second, they claimed that the Commission's system for allocating payments to milk producers violated the statutory prohibition on “compensatory payments.”[3]  Third, they claimed that because some Commission members were dairy farmers who stood to gain financially from price regulations on dairy products, the Commission as set up by the Compact violated their due process rights.[4]

            Pursuant to its procedural rules, the Commission assigned each petition to a hearing panel.  The panel then issued three proposed decisions dealing with the claims of the outside processors.[5]  Because the claims closely resembled one another, the decisions also closely resembled one another.[6]  The panel concluded that the Compact to which Congress had given consent, expressly authorized the Commission to regulate the outside processors;[7] that the statute by which Congress conveyed its consent expressly distinguished forbidden compensatory payments from permissible over-order price regulation of the type that the Commission had in fact put in place;[8] and that without allegations of specific bias, the presence of dairy farmers on a Commission regulating the market in fluid milk did not violate any constitutional due process guarantee.[9]  The outside processors then took their case to federal court.

            In New York State Dairy Foods v. Northeast Dairy Compact Comm’n, the District Court for the District of Massachusetts granted summary judgment for the Commission, rejecting in turn each argument made by the outside processors.[10]  Judge Saris first concluded that Congress had clearly granted the Commission the authority to regulate milk processors who operated outside the Compact region; any other result “would be nonsensical and contrary to the logic of the Compact.”[11]  The court then reasoned that because the order was an over-order price expressly authorized by the statute, it could not simultaneously be a compensatory payment expressly forbidden by the statute.[12]  Finally, the court upheld the Compact and regulations against the processors’ due process challenge, noting that the Commission represented “diverse interests” rather than merely those of New England’s dairy farmers or producers.[13]

            The Court of Appeals for the First Circuit affirmed.[14]  Judge Bownes, writing for a unanimous panel, first addressed the plaintiffs’ objections based on the dormant Commerce Clause doctrine.  The Court held, based on much the same reasoning as the Commission and the district court, that the terms of the Compact encompassed the challenged regulation and that Congress’s condition barring compensatory payments did not apply.[15]  It then held that because Congress had “read . . . and approved” the Compact in the course of granting its consent under the Interstate Compact Clause, it had immunized the Commission’s actions from challenge under the dormant Commerce Clause.[16]  Finally, the court rejected the due process challenge, observing that “[i]ndustry representation on regulatory boards is a common and accepted practice” and that the Commission had by regulation placed “stringent restrictions on the composition of hearing panels” to ensure a fair hearing for the outside processors. [17]

            In addition to settling the basic issue of the Commission’s authority to regulate all milk brought in from outside the region, the case stands for the equally important principle that this authority extends to packaged milk as well as raw bulk milk supply.   Unlike the federal order system, which tracks but does not regulate inter-market shipments of packaged or finished milk products, the compact price regulation’s assurance of uniform regulation extends to all milk shipments into the regulated area.  This assures that the price regulation is without competitive impact on all processor market participants.  In this sense, the Compact represents an advancement in the field of milk market regulation.