APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Patti B. Saris, U.S. District Judge]
Appellants, New York State Dairy Foods, Inc., Crowley Foods, Inc., Cumberland Farms, Inc., Elmhurst Dairy, Inc., Farmland Dairies, Inc., Stewart's Ice Cream, Inc., Stewart's Processing Corp., and Sunnyvale Farms, Inc., appeal from the district court's grant of summary judgment on their challenges to certain regulations promulgated by appellee, Northeast Dairy Compact Commission ("Commission"), with Kenneth M. Becker, executive director of the Commission. 1 Appellants argue that the Commission exceeded its regulatory power under the Northeast Interstate Dairy Compact, that it violated the Dormant Commerce Clause, and that it violated their due process rights. For reasons stated below, we affirm.
On this appeal from the grant of summary judgment in favor of appellees, we recite the facts in the light most favorable to the appellants. See Aponte Matos v. Toledo Davila, 135 F.3d 182, 185 (1st Cir. 1998); Acosta-Orozco v. Rodriguez-de-Rivera, 132 F.3d 97, 98 (1st Cir. 1997).
A. The Parties
Appellant New York State Dairy Foods, Inc. is a non-profit trade association representing New York milk processors and distributors of fluid milk products. It is joined by five fluid milk processors and distributors that procure raw milk from dairy farms outside of New England and distribute fluid milk in New England, and two New York processors that purchase raw milk from dairy farms outside of New England but do not distribute within New England.
Appellee, the Northeast Dairy Compact Commission, administers the Northeast Interstate Dairy Compact (the "Compact"), 2 an agreement entered into by the six New England states and approved by the Congress. See 1996 Farm Bill, 7 U.S.C. § 7256 (1996). The Commission's primary purpose is to regulate milk prices in the signatory states.
B. The Compact
Under the terms of the Compact, each state must appoint a delegation to the Compact Commission consisting of between three and five members. See Compact § 4. The delegation must include at least one dairy farmer and one consumer representative. See id. At the time this suit began, the Commission included directors of Women, Infants and Children's programs of various states, the Rhode Island Attorney General's Chief of the Consumer Protection Division, and state Agricultural Commissioners. Delegation members may not serve more than three consecutive terms, and no term may be more than four years. They may be removed from the Commission for cause. The delegation members' compensation is determined and paid by the individual states, although the Commission pays their expenses. See Compact § 4.
Historically, the dairy industry has been subject to extensive regulation by the federal government. Under the Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, as amended, 7 U.S.C. § 601 et seq. (1933), the Secretary of Agriculture may set minimum prices that milk "handlers" (processors) pay to "producers" (farmers) for raw milk. These "Federal Milk Marketing Orders" vary according to class of milk; the highest prices are charged for "Class I," fluid use milk. See generally West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 188-89 & n.1 (1994) (describing regulatory scheme). The primary purpose of the Compact is to set "over-order" prices in the Compact states, i.e., minimum prices at some level above those mandated by the federal pricing orders. See Compact §§ 2(8), 9(b).
The Commission exercises broad authority, through notice and comment rulemaking, to set minimum prices that processors pay for milk distributed within the Compact region. See Compact §§ 8-10. Each party state has a single vote, see Compact § 4, and price regulations must be approved by two-thirds of all party states. A state that Dissents from a price regulation is not bound by it. See Compact § 5.
The Commission's over-order pricing power applies to two kinds of Class I milk processors: "pool plants" and "partially regulated plants." "Pool plants" are milk plants physically located within the Compact region. 3 "Partially regulated plants" are plants that, while located outside the regulated area, distribute Class I milk within the area, or receive milk from producers in the area. The Commission's powers with respect to minimum prices for pool plants and partially regulated plants are coextensive. See Compact § 9(d) ("The commission is hereby empowered to establish the minimum price for milk to be paid by pool plants, partially regulated plants and all other handlers receiving milk from producers located in a regulated area.").
The terms of the Compact allow milk processors to object to the over-order price regulation. See Compact § 16(b). Handlers may file a written petition and request a hearing with the Commission. See id.; see also 7 C.F.R. §§ 1381.1-1381.4(f) (1997). The Chair of the Commission must appoint a hearing panel of one to three Commission members to pass on this petition. The panel must be composed of "Commission members who are not members of the state delegation in which the Handler is incorporated or has its principal place of business, who have no pecuniary interest in the outcome, and who are otherwise fair and impartial." 7 C.F.R. at § 1381.4(a). After considering the petition, the hearing panel issues a proposed decision, and, after considering handlers' objections, issues a ruling. See id. at §§ 1381.4(g)-(h). The Commission itself then reviews this ruling and issues its own decision. See id. The regulations further dictate that: Any commissioner shall (on either the Commissioner's own motion or on motion of the petitioner) disqualify himself or herself from consideration of the Commission's final ruling on the panel's decision if that commissioner's impartiality might reasonably be questioned. See id. at § 1381.4(h)(3).
The essence of the Commission's regulatory scheme is its "pooling mechanism." All handlers, whether pool plants or partially regulated ones, pay the same amount per hundredweight (cwt) into the pool, according to the volume of Class I milk purchased. 4 See 7 C.F.R. § 1306.1. Thereafter, they receive rebates from the pool. While pool plants receive a rebate based on the volume of all milk sold, whether Class I, II, or III, and whether sold in the Compact region or elsewhere, partially regulated plants receive payment based solely on Class I milk distributed in the Compact region. See 7 C.F.R. §§ 1304.5(c)(1), 1307.4(f). These rebates are not retained by the plants, but rather are returned to the dairy farmers. See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 256-57 ("This money would be collected and commingled in the producer-settlement fund, along with all payment obligations of all other regulated handlers, for distribution to producers. The Commission would disburse from the pool to dairy farmers through the handlers, acting in a conduit capacity.").
It is this rebate system that appellants claim disadvantages them. Appellants claim that New York dairy farmers receive a higher payback from, and therefore prefer to conduct business with, New England pool plants. 5 This, appellants assert, causes them to suffer competitive harm.
II. PROCEEDINGS BELOW
A. Issuance of the Regulation
On May 30, 1997, the Commission adopted an over-order price regulation effective from July 1, 1997, to December 31, 1997. See 7 C.F.R. §§ 1300-08, 1381 (1997). After the requisite notice in the Federal Register and subsequent public hearings, the six member states voted unanimously in favor of the regulation. Similarly, the regulation passed the producer referendum overwhelmingly. See Northeast Dairy Compact Commission, Results of Producer Referendum on Compact Over-Order Price Regulation, 62 Fed. Reg. 29,646, 29,647 (May 30, 1997).
The regulation established an over-order price of $16.94 per hundredweight. See Compact Over-order Class I Price and Compact Over-order Obligation, 7 C.F.R. § 1305.1 (1997). At the time of adoption, the federally mandated minimum price was $13.94, resulting in an over-order obligation of $3.00 per hundredweight. As the federal Class I price increased, the over-order obligation decreased in order to keep the net price constant at $16.94 per hundredweight. The Commission applied this over-order price regulation to all Class I fluid milk distributed within the regulated area, including milk produced and processed outside the region by partially regulated plants.
The over-order price regulation included an additional assessment of $.032 per hundredweight. The Compact explicitly grants this authority to the Commission to recover its administrative costs. See Compact § 18(a) ("[I]f regulations establishing an over-order price or a compact marketing order are adopted, they may include an assessment for the specific purpose of their administration."). The Commission applied this assessment to all fluid milk products distributed in the regulated area, whether by pool plants or partially regulated plants. See 7 C.F.R. § 1308.1 (1997).
B. The Administrative Petitions
On August 15, 1997, a subset of the instant appellants, led by Crowley Foods, Inc., filed administrative petitions (the "Crowley petitions") with the Commission that raised three variegated challenges, all of which are at issue in this appeal. First, they challenged the lawfulness of the pricing regulations. Second, they challenged the inclusion of a producer representative in each state's delegation to the Commission. Third, they challenged the participation on the Hearing Panel by any Commission member who had participated in promulgating the regulations under dispute. Finally, they challenged the imposition of the administrative assessments on out-of-region handlers.
In response to these challenges, the Chair of the Commission appointed three Commission members to serve as the hearing panel. The panel was comprised of the Chair, who was also the consumer representative from the Maine delegation, the Chief of the Consumer Protection Division of the Rhode Island Attorney General's Office, and the consumer representative from the New Hampshire delegation. See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 258. As the Commission's regulations require, none of the hearing panel members were from a state in which any petitioner was incorporated or has its principal place of business. See id.
The panel issued a Proposed Decision on September 9, 1997, recommending that the Commission deny the claims raised. Ten days later, the petitioners filed written objections. On September 23, the panel issued its Final Proposed Decision. The Commission adopted this final proposed decision by a 6-0 vote. See id. The Commission held that: (1) it has the authority to regulate (by imposing an over-order price and administrative assessment on all pool and partially regulated handlers) all milk distributed in the New England region, regardless of where it is produced; (2) application of the over-order pricing and pooling regulation to partially regulated plants does not constitute an impermissible compensatory payment scheme; and (3) the participation of New England farmers and processors in setting the over-order price does not, absent specific allegations of bias, violate the Due Process Clause. See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 258, citing In re Crowley Foods, Inc., Nos. HEP-97-001, -002, -004 & -005, at 9-20, 24-27.
Simultaneously, appellant Elmhurst Dairy, Inc., joined by Byrne Dairy, Inc., filed its own administrative petition (the "Elmhurst petition") raising claims similar to the Crowley petitions. In addition, the Elmhurst petition claimed that the pricing regulations were unlawful as applied to Elmhurst because its distribution within the regulated area was solely through an unaffiliated distributor. The Chair of the Commission appointed the same hearing panel that heard the Crowley petitions to hear the Elmhurst petition. On October 15, 1997, the panel once again issued a proposed decision recommending that the Commission reject all claims. The Elmhurst petitioners failed to file objections, and the proposed decision became final. On December 3, 1997, the Commission, again by a 6-0 vote, adopted the panel's recommendation and rejected all claims. It specifically rejected the claim that Elmhurst was not subject to the regulation because it found that the interposition of a third-party intermediary did not change the fact that Elmhurst "'operates a partially regulated plant that receives milk from producers providing the raw supply' for sales of packaged milk in the region." New York State Dairy Foods, Inc., 26 F. Supp. 2d at 258 (citing In re Elmhurst Dairy, Inc., Nos. HEP-97-007 & -008, at 8-9).
C. The District Court
Both the Elmhurst and Crowley petitioners sought review in the district court, under its equity jurisdiction, to determine whether the rulings of the Commission were "in accordance with law." New York State Dairy Foods, Inc., 26 F. Supp. 2d at 259. Section 16(c) of the Compact grants such authority. 6
The district court granted summary judgment in favor of the Commission, holding that:
(1) The Commission did not violate the Commerce Clause because Congress consented to the Commission's actions. See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 262.
(2) The Commission's actions did not violate Condition 7 of the congressional consent. See id.
(3) The administrative assessment contained in the over-order price regulation was squarely authorized by the Compact. See id. at 263.
(4) Neither the composition of the hearing panel nor the composition of the Commission violated due process. See id. at 263-64.
(5) The plaintiffs were required to exhaust their administrative remedies on all claims before bringing them to the district court. See id. at 259. 7
(6) The administrative assessment did not violate the Equal Protection Clause of the United States Constitution. See id. at 263.
(7) The Commission had authority to impose prices and assessments on Elmhurst Dairy, Inc., despite the fact that its only connection with the Compact is through an unaffiliated distributor. See id. at 265.
The several appellants challenge each of these rulings, save the last two, both of which appear to have been abandoned on appeal.
In addition, the district court entered an order approving an escrow account, in which any producer price payment from plaintiff-appellants would be deposited. See New York State Dairy Foods, Inc. v. Northeast Dairy Compact Comm'n, No. 97-11576-PBS (D. Mass. Aug. 14, 1997) (order approving escrow of funds).
III. STANDARD OF REVIEW
Our review of the district court's decision is de novo. See Siegal v. American Honda Motor Co., 921 F.2d 15, 17 (1st Cir. 1990). This is equally true of both the due process claims, see Dominique v. Weld, 73 F.3d 1156, 1158 (1st Cir. 1998), and questions of statutory interpretation. See United States v. George Hyman Constr. Co., 131 F.3d 28, 31 (1st Cir. 1997) ("We review de novo questions of statutory interpretation that present pure questions of law.").
IV. COMMERCE CLAUSE
Appellants launch a frontal assault on the over-order pricing regime (with its attendant pooling mechanism and administrative assessment) based on the Commerce Clause, or more precisely, on the so-called "Dormant Commerce Clause." See U.S. Const. art. I § 8; South-Central Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 97 (1984); United Egg Producers v. Department of Agric., 77 F.3d 567, 569-70 (1st Cir. 1996) ("The Supreme Court has interpreted this affirmative grant of authority to Congress as also establishing what has come to be called the Dormant Commerce Clause - a self-executing limitation on state authority to enact laws imposing substantial burdens on interstate commerce even in the absence of Congressional action.").
Appellants' claim is based on the indisputable truism that "[s]tate laws discriminating against interstate commerce are virtually per se invalid." Fulton Corp. v. Faulkner, 516 U.S. 325, 331 (1996) (internal quotation marks omitted). As the Supreme Court wrote in Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 527 (1935):
Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents. Restrictions so contrived are an unreasonable clog upon the mobility of commerce. They set up what is equivalent to a rampart of customs duties designed to neutralize advantages belonging to the place of origin.
Despite this seeming foundation of bedrock, appellants' Commerce Clause challenge is ultimately based on little more than shifting sand. This case, as distinct from Baldwin and the more recent West Lynn Creamery, Inc. v. Healy, 512 U.S. 186 (1994) (striking down state milk pricing scheme as a violation of Commerce Clause), involves an affirmative congressional consent.
There can be no dispute in this case that Congress expressly consented to the Compact. See Northeast Interstate Dairy Compact, 7 U.S.C. § 7256 (1996) ("Congress hereby consents to the Northeast Interstate Dairy Compact . . . .") (hereinafter "the consent"). The question at issue is the scope of this consent.
A. Congressional Consent in General
Congress undoubtedly has the power to regulate milk prices, see West Lynn Creamery, 512 U.S. at 192 ("The Commerce Clause vests Congress with ample power to enact legislation providing for the regulation of prices paid to farmers for their products"), and can grant that power to the states, see Northeast Bancorp v. Board of Governors, 472 U.S. 159, 174 (1985) ("When Congress so chooses, state actions which it plainly authorizes are invulnerable to constitutional attack under the Commerce Clause."). The relevant initial question, then, is not whether the Compact violates the Commerce Clause. Instead, the starting point of the inquiry is whether Congress consented to the actions of the Commission. We hold that Congress has provided such consent.
The standard for finding congressional consent is high. Such consent must be either "expressly stated," Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941, 960 (1982), or "made unmistakably clear," South-Central, 467 U.S. at 91. See also United Egg Producers, 77 F.3d at 570 (quoting both Sporhase and South-Central). The statute or legislative history relied on as consent must "evince a congressional intent to alter the limits of state power otherwise imposed by the Commerce Clause." New England Power Co. v. New Hampshire, 455 U.S. 331, 341 (1982) (internal quotation marks omitted). The burden of showing consent lies with the Commission. See Wyoming v. Oklahoma, 502 U.S. 437, 458 (1992) (imposing burden on discriminating state).
We are called, then, to decide whether Congress's consent grants the Commission the power to undertake the regulatory action at issue in this case. Because the consent altering the limits imposed by the Commerce Clause must be clear, our inquiry is limited to determining whether Congress spoke "directly . . . to the precise issue in question." See Chevron U.S.A., Inc. v. National Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984).
We have previously held that, in conducting this inquiry, "courts must look primarily to the plain meaning of the statute, drawing its essence from the particular statutory language at issue, as well as the language and design of the statute as a whole." Strickland v. Commissioner, Dep't of Human Servs., 48 F.3d 12, 16 (1st Cir. 1995) (internal quotation marks omitted). With this in mind, we consider appellants' specific claims seriatim.
1. Congressional Consent to Regulation of Handlers Outside the Region
Appellants first argue that the Compact and its attendant consent allows the Commission to regulate only those handlers who receive milk produced within the Compact region. We do not agree. The Compact specifically authorizes the Commission to regulate the "pricing and pooling of milk handled by partially regulated plants." Compact § 10(7). Under the terms of the Compact, a partially regulated plant is one that is not located within the regulated area but distributes Class I milk within such area, or receives milk from producers within the area. See Compact § 2(7). The Compact further provides that "[t]he Commission is hereby empowered to establish the minimum price for milk to be paid by pool plants, partially regulated plants and all other handlers receiving milk from producers located in a regulated area." Compact § 9(d).
Appellants seize on this last provision, arguing that the lack of a serial comma after "partially regulated plants" and before "and all other handlers" suggests that the latter modifies the former. In other words, appellants contend that the Commission may only establish a minimum price for milk handled by a partially regulated plant when it receives milk from producers located within the regulated area. The district court rejected this argument, noting that "[s]uch an interpretation would exempt from regulation those plants that meet the first half of the disjunctive definition of a partially regulated plant in section 2(7) of the Compact." See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 261. The district court found this construction to be contrary to the logic of the Compact, and we agree. Failure to construe the statute in this way would leave a gaping hole in the regulatory regime. See United States v. Carroll, 105 F.3d 740, 744 (1st Cir. 1997) ("Wherever possible, statutes should be construed in a commonsense manner, honoring plain meaning, and avoiding absurd or counter-intuitive results.") (internal citations omitted).
2. Condition 7
Appellants' better argument is based on Condition 7 of the congressional consent, which states: "The Compact Commission shall not use compensatory payments under section 10(6) of the Compact as a barrier to the entry of milk into the Compact region or for any other purpose." 7 U.S.C. § 7256(7) (1996). Appellants urge that the pooling mechanism utilized by the Commission in its over-order pricing regulation amounts to a compensatory payment, thus violating the congressional consent. The linchpin of this argument is that because the differential payments paid back to producers (through the handlers) depend on whether the handlers are pool plants, the pooling mechanism is in effect a subsidy and compensatory payment which is a barrier to the entry of milk into the Compact region. 8
Congress's command that "[t]he Compact Commission shall not use compensatory payments under section 10(6) of the Compact as a barrier to the entry of milk into the Compact region or for any other purpose" is not all Congress had to say on the matter. The next sentence states: "Establishment of a Compact over-order price, in itself, shall not be considered a compensatory payment or a limitation or prohibition in the marketing of milk." 7 U.S.C. § 7256(7). The Commission rightly urges that these two sentences read together mean that the Commission may do virtually anything (within the contemplation of the Compact) with respect to over-order pricing, short of compensatory payments.
Both the Commission and the district court distinguished between compensatory payments and pool payments. The former involves a system not unlike the pool method at issue in the instant case, save one crucial factor: under a compensatory payment system, the partially regulated plants would receive no disbursements whatsoever from the pool. See 7 C.F.R. §§ 1304.5(c)(1), 1307.4(f). This distinction is vital, because it eliminates the primary objection to compensatory payments. A compensatory payment system forces handlers outside the pool to pay what amounts to a tariff upon entry into the regulated area. See Lehigh Valley Coop. Farmers, Inc. v. United States, 370 U.S. 76, 83-90 (1962) (striking down a compensatory payment system and describing the above as the primary purpose and effect of a compensatory payment system); see also New York State Dairy Foods, Inc., 26 F. Supp. 2d at 262 n.10 ("This description is consistent with the use of the term 'compensatory payment' in the case law cited by the plaintiffs.")(citing Lehigh Valley Coop. Farmers, Inc., 370 U.S. at 82, and Farmland Dairies v. McGuire, 789 F. Supp. 1243, 1247-48 (S.D.N.Y. 1992)). The pool payment mechanism, on the other hand, does not bar the entry of milk from outside the Compact region. Rather, by allowing for payments back to the out-of-compact producers for Class I milk distributed inside the Compact region, the over-order price could be said to encourage the entry of such milk.
Admittedly, pool plants and partially regulated plants are not treated with absolute similitude; while pool plants receive a rebate based on the volume of all milk sold, whether Class I, II, or III, and whether sold in the Compact region or elsewhere, partially regulated plants receive payment based only on Class I milk distributed in the Compact region. See 7 C.F.R. §§ 1304.5(c)(1), 1307.4(f). 9
Even if there were to be some effect on entry of outside milk or some competitive disadvantage, the fact remains that Congress barred only the peculiar regulatory device of compensatory payments. From the language of the Compact, it appears that Congress distinguished between compensatory payments under § 10(6), which Congress barred, and "pricing and pooling of milk" under § 10(7), which Congress allowed.
We are left to conclude that Congress's language on the authority of the Commission to regulate via the pooling mechanism is clear. Admittedly, Congress could have outlined the very regime the Commission implemented and approved it explicitly. Congress's failure to do so, however, does not render its intent ambiguous. Cognizant of its inability to foresee every possible regulatory action, Congress chose to prohibit one action and allow all others.
3. Administrative Assessment
Appellants next argue that the Commission exceeded its authority (and therefore the scope of consent) by imposing an administrative assessment on all handlers distributing Class I milk in New England regardless of the point of origin of the milk. See 7 C.F.R. § 1308.1. We also reject this contention. The Compact explicitly gives the Commission the authority to include an administrative assessment as part of an over-order price regulation. See Compact § 18(a) ("[I]f regulations establishing an over-order price or a compact marketing order are adopted, they may include an assessment for the specific purpose of their administration."). Because the Commission's over-order pricing authority extends to partially-regulated plants, its assessment authority does as well.
B. Finding of Consent
Because we hold that in all respects the Commission acted pursuant to the terms of the congressional consent, we determine next whether that consent meets the high standard mandated by the Constitution. 10 See Sporhase, 458 U.S. at 960 (must be "expressly stated"); South-Central, 467 U.S. at 91 (must be "made unmistakably clear"). The failure of Congress to expressly state that the Commission may take the challenged actions is not fatal. As the Supreme Court stated in South Central:
There is no talismanic significance to the phrase "expressly stated," however; it merely states one way of meeting the requirement that for a state regulation to be removed from the reach of the dormant Commerce Clause, congressional intent must be unmistakably clear. The requirement that Congress affirmatively contemplate otherwise invalid state legislation is mandated by the policies underlying dormant Commerce Clause doctrine. South Central, 467 U.S. at 91-92.
In the instant case, there is no question that Congress affirmatively contemplated otherwise invalid state legislation. Congress explicitly consented to the Compact, marking in Condition 7 the boundaries of the Commission's power. This demonstrates conclusively that Congress read the Compact, and rejected one possible exercise of power, thereby approving the others contained therein.
This Court's decision in United Egg Producers v. Department of Agriculture, 77 F.3d 567 (1st Cir. 1996), is not inconsistent with our holding today. In that case, we considered a regulation by the Commonwealth of Puerto Rico that all eggs imported into Puerto Rico from the mainland United States bear a stamp showing the two-letter postal code of the state of origin. See id. at 569. Puerto Rico argued that Congress had consented to its action by stating: "[N]o State or local jurisdiction other than those in noncontiguous areas of the United States may require labeling to show the State or other geographical area of production or origin." 21 U.S.C. § 1052(b)(2), as quoted in United Egg Producers, 77 F.3d at 569. In considering whether this met the high standard of consent to state regulation of interstate commerce, we reasoned:
One can argue that as Congress had before it the whole subject of egg-labeling, its exemption of noncontiguous jurisdictions must be understood to signify, by implication, Congressional approval of any and all egg-labeling requirements in those places regardless whether justified or unjustified by Dormant Commerce Clause considerations. But this seems to us a more extreme reading than either the statutory language or legislative history necessitates. Absent, at least, an affirmatively stated grant of permission to noncontiguous jurisdictions of the United States to require egg-labeling, we are unable to conclude that appellants have met their burden of showing that Congress' intent to allow Puerto Rico to enact protectionist egg-labeling regulations was "unmistakably clear." United Egg Producers, 77 F.3d at 570-71 (footnotes omitted).
This case is fundamentally different. This is not a case in which an "affirmatively stated grant of permission" is lacking. Undoubtedly in part due to the peculiar nature of this case as one involving both the Dormant Commerce Clause and the Compacts Clause, 11 Congress has provided affirmative consent; Congress read the Compact and approved it. 12 See Central Midwest Interstate Low-Level Waste v. Pena, 113 F.3d 1468, 1470 (7th Cir. 1997) (assuming that ratification of an interstate compact by Congress obviated the need for Dormant Commerce Clause scrutiny). Accordingly, United Egg Producers, while instructive, is not precisely apposite. 13
V. DUE PROCESS
Appellants urge that the composition of both the Commission and the Hearing Panel violates the Due Process Clauses of both the Fifth and Fourteenth Amendments. They argue that the commissioners who are dairy farmers or handlers have a pecuniary interest in ruling and legislating against them.
A. In General
The Supreme Court has long held that a "fair trial in a fair tribunal is a basic requirement of due process." In re Murchison, 349 U.S. 133, 136 (1955). This basic requirement applies in the context of administrative agencies. See Gibson v. Berryhill, 411 U.S. 564, 579 (1973).
When an adjudicator has a direct, personal, and substantial pecuniary interest in the outcome of a case, due process is abrogated. See Tumey v. Ohio, 273 U.S. 510, 523 (1927). Not every interest, however, is substantial enough to amount to a violation of due process. In one formulation, an interest is substantial if it "would offer a possible temptation to the average . . . Judge to . . . lead him not to hold the balance nice, clear and true . . . ." Ward v. Village of Monroeville, 409 U.S. 57, 60 (1972); see also Aetna Life Ins. Co. v. Lavoie, 475 U.S. 813, 822 (1986). Participation of adjudicators who "might conceivably have had a slight pecuniary interest," however, does not offend due process. See Aetna Life Ins. Co., 475 U.S. at 825.
The Due Process Clause sets a significantly lower bar for legislative functions. Compare Londoner v. Denver, 210 U.S. 373 (1908), with Bi-Metallic Inv. Co. v. State Bd. of Equalization, 239 U.S. 441 (1915); see also Concerned Citizens of S. Ohio, Inc. v. Pine Creek Conservancy Dist., 429 U.S. 651, 657 (1977) (Rehnquist, J., Dissenting) ("As Mr. Justice Holmes recognized, the determination of legislative facts does not necessarily implicate the same considerations as does the determination of adjudicative facts.").
B. Legislative Functions
In Friedman v. Rogers, 440 U.S. 1 (1979), the Supreme Court considered a challenge to a statute establishing the Texas Optometry Board. Like the Commission, the Board was comprised of a pre-determined number of industry representatives. Four of the six members were so-called "professional opticians," and the remaining two slots were available to be filled by "commercial opticians." See id. at 6. The plaintiff, a commercial optician, challenged the regulation of his profession by a board whose membership (professional opticians) stood to gain directly by placing onerous restrictions on practice by their competitors. The Court rejected this claim, stating: "Although Rogers has no constitutional right to be regulated by a Board that is sympathetic to the commercial practice of optometry, he does have a constitutional right to a fair and impartial hearing in any disciplinary proceeding conducted against him by the Board." Id. at 18. Finding the latter right not implicated, the Court upheld the statute.
Industry representation on regulatory boards is a common and accepted practice. See id. at 18 (upholding such a scheme); Stivers v. Pierce, 71 F.3d 732, 743 (9th Cir. 1995) ("[T]he system of industry representation on governing or licensing bodies is an accepted practice throughout the nation."); Abramson v. Gonzalez, 949 F.2d 1567, 1579 (11th Cir. 1992).
Friedman involved a statutory scheme that posed a far greater danger to due process than the one we are faced with here. In that case, a "schism," Friedman, 440 U.S. at 5, had arisen between commercial and professional opticians, and the professional opticians were, under the statutory scheme at issue, given significant power over their occupational rivals, see id. at 3-6. Despite this, the Supreme Court found no violation of the Due Process Clause. Accordingly, we are unable to hold that the composition of the Commission, without more, violates due process by allowing handlers and processors from Compact states to participate in the regulatory process. Not only has the Supreme Court approved a more problematic regulatory regime in Friedman, but we are not convinced that, given the significant attenuation of the commissioners' potential financial gain, their interest rises to the level of substantiality required by Tumey and its progeny. 14 C.
The Due Process Clause inquiry is slightly more complicated with respect to the Hearing Panel. This is not, in contrast to the issuance of regulations, a mere legislative function. The Hearing Panel sits as a quasi-judicial adjudicative body, and thus must comport with a higher standard of due process.The Hearing Panel meets this standard for four reasons. First, any potential financial interest on the part of individual panel members is highly attenuated. See Aetna Life Ins. Co., 475 U.S. at 825 ("slight pecuniary interest" on the part of the adjudicator does not violate due process). In order to "lead him not to hold the balance nice, clear and true[,]" Ward, 409 U.S. at 60, a panel member would have to be swayed by his own pro rata share in the additional profits (assuming that there are any) of a relatively tiny proportion of the Compact milk receipts. Partially regulated plants actually ship precious little milk into the region. See Compact Over-Order Price Regulation, 62 Fed. Reg. 23,039 (April 28, 1997) ("At present, approximately 98 percent of the fluid milk products consumed in the region are produced by fluid processing plants located in New England."). See also Joint Appendix at 160; In re Petitions of Crowley Foods, Inc. Stewart's Processing Corp., Farmland Dairies, Inc., and Cumberland Farms, Inc., Nos. HEP-97-001, 002, 004, and 005, Final Decision of the Commission at 2, ¶ 5 ("Petitioners, in aggregate, supply approximately three percent of all packaged, Class I, fluid milk sales in the regulated area of the six New England states.").
The Ninth Circuit has commented on an arguably analogous situation. The court stated:
A lawyer in a one-lawyer town, for example, would probably have a "direct" and "substantial" pecuniary interest in the licensing of a competitor planning to hang a shingle across the street. On the other hand, it is unlikely that any attorney practicing in a city like Los Angeles would have a competitive interest sufficiently strong to require that he be disqualified from considering the licensing of an additional lawyer. Stivers, 71 F.3d at 743.
We agree with the Ninth Circuit that at some level of attenuation, as here, the adjudicator's interest becomes too remote to have a constitutionally deficient effect.
Second, the Commission's own regulations provide a due process safeguard, placing stringent restrictions on the composition of hearing panels. The regulations state:
(a) Appointment of Commission hearing panel. Upon receipt of a petition, the Chair shall appoint from one to three Commission members who shall consider the petition . . . . The Commission panel chosen by the Chair shall consist of Commission members who are not members of the state delegation in which the Handler is incorporated or has its principal place of business, who have no pecuniary interest in the outcome, and who are otherwise fair and impartial. Conduct of Proceedings, 7 C.F.R. § 1381.4(a).
Pursuant to this, the Hearing Panel which heard appellants' petitions before the Commission did not include any handlers or farmers. As noted above, the Hearing Panel in this case consisted of the Commission Chair, who was also the consumer representative from the Maine delegation, the Chief of the Consumer Protection Division of the Rhode Island Attorney General's Office, and the consumer representative from the New Hampshire delegation. See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 258. Given the composition of the Hearing Panel in this case, it will take more than bare allegations to give rise to a finding of a deprivation of due process. We recognize that the composition of the hearing panel does not fully answer appellants' complaint about the composition of the Commission as a whole. It is true that handlers and producers sit on the Commission, and as a result both issue initial regulations and pass on the Hearing Panel's proposed decisions. The issuance of regulations, as we have said, involves a lower due process bar. With respect to the final decision on the Hearing Panel's proposed decision, however, we need do little more than note that the full Commission adopted the proposed decision of this (unquestionably, we believe) disinterested panel.
Third, the Commission members vote as state delegations, not individual members. We recognize that this alone cannot cure a due process violation. See Cinderella Career & Finishing Sch., Inc. v. FTC, 425 F.2d 583, 592 (D.C. Cir. 1970) (one biased member of even a sizable tribunal violates due process). It is not, however, without relevance. The possibility that the small number of handlers (with their already attenuated interest) on the Commission will influence their peers sufficiently to alter a vote is significantly more remote that it would be in a scheme in which each commissioner voted individually.
Fourth, and perhaps most important, the appellants could have moved to disqualify all handlers and farmers from the Commission decision on their petitions. See 7 C.F.R. § 1381.4(h)(3) ("Any commissioner shall (on either the Commissioner's own motion or on motion of the petitioner) disqualify himself or herself from consideration of the Commission's final ruling on the panel's decision if that commissioner's impartiality might reasonably be questioned."). They did not do so.
Accordingly, there is no legal or factual basis for finding a due process violation.
Finding that the Commission violated neither the Commerce Clause nor the Due Process Clauses, we affirm the district court's entry of summary judgment.
1. See New York State Dairy Foods,Inc. v. Northeast Dairy Compact Comm'n, 26 F. Supp. 2d 249 (D. Mass. 1998).
2. The Compact is reprinted in S.J. Res. 28, 104th Cong. (1995). We have included the resolution as an addendum to this opinion.
3. The Commission could also establish a regulation covering only a subset of the Compact states; plants within that set would be pool plants. The Compact defines "regulated area" as "any area within the region governed by and defined in regulations establishing a compact over-order price or commission marketing order." See Compact § 2(5).
4. A hundredweight of milk is 100 pounds of milk, or approximately 8.3 gallons.
5. The district court offered an example of this effect that is worth repeating in its entirety: Plaintiffs gave the following example of the different economic impact, which the Commission does not dispute. For July 1997, the Compact over-order Class I price was $16.94, $3.00/cwt above the federal Class I price. Under Compact rules, a New York and a New England plant each having 10 million pounds (100,000 cwts) of receipts from New York Dairy Farmers, with 80% Class I use (80,000 cwts) and equal distribution of packaged milk to New England (40,000 cwts) and New York (40,000 cwts) during the month of July, would have identical over-order obligations of $120,000 to the Compact pool for packaged milk distributed in New England. . . . The Commission would disburse from the pool to dairy farmers through the handlers, acting in a conduit capacity. The Commission calculated an "over-order producer price" (i.e., the amount to be paid back to the dairy farmers) of $1.28/cwt for July 1997. Whereas the New England pool plant would receive payment from the pool of $128,000 for redistribution to producers . . . the partially regulated New York plant would receive only $51,200 for redistribution . . . on some milk receipts . . . thus placing the New York handler at a $76,800 competitive disadvantage. New York State Dairy Foods, Inc., 26 F. Supp. 2d at 256-57 (internal citations and footnotes omitted).
6. In the course of the its grant of summary judgment, the district court found that the Commission was not an "agency" subject to the provisions of the Administrative Procedure Act, 5 U.S.C. § 551(1) (1998). Appellants do not challenge this ruling.
7. Appellants challenge the district court's ruling on this point, arguing that the court erred in declining to accept extra-record evidence of competitive harm. We decline to reach the issue, as we concur with the district court that "none of the extra-record materials concerning the severity of any competitive harm appears [sic] relevant to the legal issues raised." New York State Dairy Foods, Inc., 26 F. Supp. 2d at 259.
8. See supra note 5.
9. To the extent that the appellants claim that the preference for pool plants violates the Equal Protection Clause, the district court deemed this claim inadequately raised. See New York State Dairy Foods, Inc., 26 F. Supp. 2d at 263 n.11. For that reason, we refuse to review it here. See Teamsters, Chauffeurs, Warehousemen and Helpers Union, Local No. 59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992) ("If any principle is settled in this circuit, it is that, absent the most extraordinary circumstances, legal theories not raised squarely in the lower court cannot be broached for the first time on appeal."). While we recognize that our decision in National Ass'n of Social Workers v. Harwood, 69 F.3d 622, 627-29 (1st Cir. 1995), allows this Court the discretion to hear claims not raised below, we believe that this discretion is best used sparingly. There is simply too little to recommend this case as sufficiently exceptional to justify a departure from our long-standing raise-or-waive rule. See id. at 627 (describing this Court's adherence to the rule as "near-religious fervor").
10. Appellant Farmland Dairies argues that the Commission also violated Condition 2 of the Consent by regulating milk other than Class I milk. See 7 U.S.C. § 7256(2) (1996). Appellant admits that this point was not raised in the motion for summary judgment, but urges consideration of it nonetheless. See Appellant Farmland Dairies' Brief at 42 n.10. We decline to do so. See supra note 9.
11. U.S. Const. art. I § 10, cl. 3 ("No State shall, without the Consent of Congress . . . enter into any Agreement or Compact with another State . . . .").
12. The states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont, as amici, offer a similar argument. They argue that when an interstate compact becomes federal law under the Compacts Clause, it becomes immune from a Dormant Commerce Clause challenge by its very nature. They argue that the act of Congressional consent essentially transforms the States' agreement into federal law. Because we affirm on other grounds, we need not reach the merits of the Compacts Clause argument.
13. Because we hold herein that Congress provided adequate consent to the Compact, we need not consider whether appellants were required to exhaust their administrative remedies before proceeding in the district court. The district court held that they were, and thus refused to hear evidence not in the administrative record documenting competitive harm to appellants. But as a result of our holding with respect to the Commerce Clause, no showing of harm could revive the Commerce Clause challenge.
14. See infra Part V.C.